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Boeing, the world’s biggest aerospace and defence group, last year received its biggest single order for aircraft. The order for 68 new passenger jets, valued at $11bn based on list prices, came from an infrequent customer: Air India, the lumbering government-run carrier that has over the years fallen into disrepair.

The 75-year-old airline that once dominated India’s skies is under threat from international competitors such as Emirates and Singapore and new Indian carriers crowding the skies.

Air India’s market share has eroded to 20 per cent from 30 per cent in the 1990s although the total number of air passengers in India has risen dramatically on the back of rising incomes and government liberalisation of the aviation sector.

Competition has spurred Air India’s elaborate efforts to make itself over from a dowdy state-run carrier to a sleek, contemporary airline that can match newer rivals.

“There is a realisation that if we don’t change, the airline will not survive,” said V. Thulasidas, chairman.

Air India now must fight for its slice of the burgeoning Indian market which, according to Boeing, will demand $72bn worth of new commercial planes over the next 20 years, or almost 900 aircraft. The carrier already flies 28 Boeing aircraft, which represent 60 per cent of its fleet.

The company’s first batch of Boeing 777s arrived in India this spring, complete with new livery as part of Air India’s image makeover. The order represented not only Boeing’s biggest single aircraft contract but also the largest ever for India.

Air India is also in talks with Boeing about setting up a $100m maintenance and repair centre in Maharashtra state as well as an $80m flight training centre in Bangalore to help satisfy India’s voracious demand for pilots. The joint ventures are still under discussion.

Air India, whose main business has been international flights, is carving out strategic business units in cargo, maintenance and handling services. It has teamed up with Singapore Airport Terminal Services to develop cargo warehouses in Bangalore.

But the centrepiece of Air India’s overhaul is a planned merger with domestic state-run carrier Indian Airlines, which received government approval in March.

“We realise the merger is essential to the survival of these airlines. Otherwise we may be elbowed out of the competition by others,” Mr Thulasidas said.

A merger would create one of the five largest airlines in Asia in terms of fleet size and link the international and domestic routes of India’s government carriers.

The combined group would have about 120 aircraft including new long-haul jets for use in augmenting international routes. Indian Airlines made a $2.2bn order for 43 Airbus jets in 2005; the carrier relies primarily on Airbus and only 11 of its existing 70 aircraft are Boeings. However, a spokesman said Indian Airlines’ reliance on Airbus jets should not conflict with Air India’s preference for Boeing since most of the Indian jets are short-haul and Air India’s are larger, long-distance aircraft.

In the past three years, Air India has increased flights to London from 10 to 27 a week and begun a similar expansion of US flights.

Like Air India, many of India’s once-monopolistic state-run companies are being forced into overhauls to compete with aggressive private players.

Mr Thulasidas bluntly acknowledges that Air India must shed its former complacency and respond to the winds of change blowing over India.

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