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India Wednesday cleared the purchase of 43 aircraft from European consortium Airbus at a cost of Rs.97 billion ($2.2 billion) in what Indian leaders described as a "well-negotiated" deal.
Addressing a joint news conference with British Prime Minister Tony Blair on the occasion of the India-EU summit, Prime Minister Manmohan Singh said: "I am happy to announce that our government has cleared the purchase of 43 aircraft from Airbus."
Blair, the current president of EU, said the purchase was a very welcome sign.
Indian Airlines will formally ink the deal with Airbus, finalised after the European firm agreed to a discount of Rs.3.47 billion, within 15 days.
The first of the new planes will arrive in August 2006, and thereafter a plane will be delivered each month.
An "empowered group of ministers" chaired by Finance Minister P. Chidambaram cleared the purchase of Airbus A-320 planes by Indian Airlines after Manmohan Singh's nod.
Civil Aviation Minister Praful Patel said the original negotiated price was well over Rs.102.37 billion, and had come down to Rs.98.9 billion - 3.4 percent less. This worked out to a discount of Rs.3.47 billion ($75.8 million).
"At the end of the day the Indian Airlines acquisition has been a very well-negotiated transaction and we have been able to secure a very good deal," Patel told reporters Wednesday.
Airbus has also thrown in an "ultra modern" training centre for pilots and spare parts warehouses in the deal.
Patel said the price was competitive, contained an integrity clause and a most favoured clause. Also, the deal would bring in investments close to $75 million.
Prolonged negotiations running through two successive Indian governments had stalled Indian Airlines' plan to replace its ageing fleet. The airline last purchased a plane a decade ago.
The Congress-led United Progressive Alliance (UPA), which took power last year, put on hold the purchase as it continued to check details of the big sale and negotiate with Airbus.
Matters were given a push forward when the cabinet panel on economic affairs decided to set up an empowered committee Aug 25 to negotiate with Airbus following a plea from some MPs that the manufacturer had offered lower prices for a similar deal to Southeast Asian airline Air Asia.
Most of the new aircraft will replace Indian Airlines planes that have long outlived their optimum performance. The planes to be replaced include 11 Boeing 737s, 15 Airbus A-320s and three Airbus A-300s.