Earlier this month, a panel on disinvestment approved the Kelkar Committee report, which proposed the Government's holding in Indian Airlines be reduced to 49 per cent.

The report had recommended 10.6 per cent of the airline's equity be sold to employees and 40.4 per cent to private investors through a public offer. The disinvestment panel wanted the Government to keep open the option of directly selling 26 per cent of the 40.4 per cent to a private partner. Under current policy, foreign investors can hold up to 40 per cent in an Indian airline, but no foreign airline is allowed to hold any equity.

Jaikrishnan said thestrategic sale would depend on the Cabinet approving the disinvestment panel's recommendations. Indian Airlines has been facing intense competition from private firms after the Government opened up the skies under a liberalisation programme which started in 1991.

An IA official said that during July, which is considered to be a lean season, the airline has offered a special fare of Rs 3,800, against the Rs 4,111 fare offered by Sahara Airlines and Jet Airways.

Sahara kicked it off when the airline offered last month a fixed fare of Rs 4,111 on this sector. Jet followed it up by announcing a similar fare from July 1 till september 30.

"Let us see now how the two private airlines will match our offer," an IA official said.

According to the official, the normal commissions to the travel agents would continue along with "seven plus scheme and ten plus scheme." Under the scheme, a passenger who completes travel on seven or ten sectors on ia or alliance air flights between Delhi, Mumbai, Calcutta, Chennai,Bangalore and Hyderabad would get one return ticket on any of the 16 international destinations under the seven-plus scheme or two tickets under the ten-plus scheme. The official said the free return ticket offer for accompanying spouse stands withdrawn in July.

It needs to replace its ageing fleet in order to maintainits share of over 60 per cent of the domestic market, officials say. Jaikrishnan said the Government had already decided to give Rs 3.26 billion ($75.4 million) to Indian Airlines to help it renew its fleet.

"The Government has laid a condition...that this money willonly be used for purchase of aircraft," he said.

Of the airline's fleet of 52 aircraft, 10 Airbus-300s and 12 Boeing-737s are nearly 20 years old and would need to be retired in two to three years.

Jaikrishnan said the airline could use the money to buy 50-seater aircraft made by French ATR for regional operations, as well as wide-bodied aircraft for flying on long-distance routes.

The airline could use the 3.25 billionRupees as margin money, leveraging it for raising up to 20 billion Rupees in commercial borrowings for its aircraft purchase plan.

"Plus, Indian Airlines, will be able to sell off the old aircraft for raising more funds," Jaikrishnan said.