Sources in the airline said that IA managing director Anil Baijal has taken the reigns of negotiations with the finance ministry in his hands to ensure that the airline gets the promised funds.

"We will not take the decision lying down. The proposed equity induction of Rs 125 crore should come through. Otherwise IA's disinvestment plans will go awry," said top level sources in IA.

The IA top brass is hopeful that the Centre will change the decision in favour of the airline. The Rs 125 crore equity was to be used as margin money to acquire new aircraft.

The finance ministry has slashed the equity amount for the ostensible reason that IA does not have its aircraft acquisition plans ready. It has argued that the airline has opposed the 50-seater aircraft deal, which is the onlyaircraft deal which has been finalised.

The plan to acquire 100-seater, favoured by IA, is still in the preliminary stages. The funds will, therefore, lie idle with the airline. The IA top brass has argued in return that the aircraft can be acquired only once the funds come through. "This is the classic chicken and egg situation. What should come first, the funds or the aircraft?" said an IA source. Besides, IA had nearly completed examining the 100-seater proposal once earlier. The process was derailed ultimately due to lack of funds with the carrier.

The 100-seaters are required by the airline to replace its rapidly ageing 747s. IA has invited aircraft manufacturers Boeing and Airbus to submit details of their aircraft models in this category for scrutiny by IA officials. The airline officials also argue that the finance ministry decision will end up derailing IA's disinvestment process.

IA was counting on this equity package to spruce up its balance sheet. The national carrier's current equity baseis Rs 105 crore. The additional equity would have reduced its debt-equity ratio of 1:30 and improved its net worth.

IA had also hoped that a remaining Rs 350 crore financial package (consisting of subordinated loan and equity) would come through in the next financial year. This, combined with an employee stock option and profits, would consolidate the balance sheet by an extent to make a public offer of equity possible. IA has assets worth Rs 3,200 crore and accumulated losses of Rs 600 crore. The airline recorded a Rs 45 crore profit in 1997-98, and is projecting a profit this year as well.

The government, which is the 100 per cent owner of IA, plans to disinvest in the carrier and bring down its equity holding to 49 per cent over the next three years.