Civil aviation minister Ananth Kumar told The Financial Express, ``A Cabinet note is being prepared by my ministry on the AI disinvestment. In the next one or two weeks, we hope to bring the proposal before the Cabinet.''

Kumar added that he was not aware of any displeasure conveyed by President KR Narayanan to Prime Minister AB Vajpayee over the Government's intention to disinvest in the two state-owned airlines.

``The decision to disinvest in Indian Airlines and Air India was taken a year ago. We are only following-up on that decision,'' Kumar defended. Disinvestment in Air India and Indian Airlines is one of the minister's pet projects. He had set a year's target for disinvestment in the airlines on assuming office.

It has been reported that the President had asked the Cabinet to put onhold any decision to disinvest in AI or Indian Airlines till a new government is in power.

The Cabinet Committee on Economic Affairs (CCEA) has already approved a disinvestment programme for the domestic carrier, Indian Airlines. As per the CCEA decision, IA will recieve a Rs 325 crore financial assistance from the Government. The CCEA has also approved a financial recast plan for IA in accordance with the Kelkar report which will bring down Government ownership in the airline from 100 per cent to 49 per cent.

The cabinet note on Air India disinvestment is expected to be along the lines of the recommendations made by the Disinvestment Commission. The commission has recommended that the Government induct equity worth Rs 1,000 crore in the Maharajah along with a Rs 770 crore equity infusion from a strategic partner.

This, along with a 10 per cent sale of stake in favour of financial institutions and employees each, will decrease the Government holding in AI to 40 per cent. The strategic partners will havea similar 40 per cent holding.

The Government is setting great store by the disinvestment programmes of the two airlines as they are facing intense competition from rivals. Both the carriers have huge accumulated losses besides being strapped for funds.

While AI's accumulated losses stand at Rs 1,200 crore, IA has accumulated losses of over Rs 600 crore. Though IA is back in the black with net profits for the past two years, the international carrier Air India recorded over Rs 200 crore net loss.

Due to the lack of liquidity, the airlines have been unable to invest in new aircraft and are saddled with mounting mantainence bills and ageing fleets. Past managements have cited lack of managerial freedom and government control as major reasons for the airlines' inability to cope with liberalised market conditions.