US Exim Bank has agreed to extend guarantee for up to 85 per cent of the $7.2 billion (Rs 33,500 crore) loan that Air India requires for replenishing its fleet with 68 new aircraft from Boeing Co.

While this guarantee represents one of the largest transactions in the aviation industry supported by the Exim Bank, Air India would meet the remaining 15 per cent of the cost of acquisition through commercial loans from State Bank of India [Get Quote] and ICICI Bank [Get Quote].

Of the 68 aircraft to be acquired from Boeing, 18 would be 737-800 for its budget airlines Air India Express, now operating mainly to Gulf, fifteen 777 300 ER (extended range), eight 777 LR (long range) and twenty seven 777 for medium range, an Air India release said on Monday.

While the US Exim Bank guaranteed loan would be at sub-libor rates, the commercial borrowings would be at above-libor rates.

"This clearance provides for a final commitment in respect of 17 aircraft and engines to be delivered from November this year to December 2007," the release said.

With the acquisition of the new aircraft, Air-India proposes to start flights to new destinations including Washington, Houston, Beijing, San Francisco, Taipei, Melbourne and Sydney.

Seven of the Boeing 777 aircraft -- three 777 LR and four 777 ER would be delivered Feb-June 2007 enabling Air India to start non-stop flights to United States and Australia.

The remaining 51 aircraft are to be delivered between January 2008 and February 2012, the release said.

The Indian government would provide sovereign guarantee for 85 per cent of the loan guaranteed by the US Exim Bank. The structuring of the deal is presently being done by Air India in consultation with Exim Bank and the lenders, the release said.

Air-India had invited applications to finance the delivery payments and the final commitments in respect of 17 aircraft. ABN Amro has been mandated to provide lead finance for funding supported by US Exim.

With the acquisition of the 68 aircraft, Air India would have one of the youngest fleet. Presently, Singapore airlines has the youngest fleet with the average age of five years.

Air India would phase out its seven leased aircraft on completion of the five-year lease term with the acquisition of the new fleet.

The six Boeing 747-400 aircraft, now with Air-India, would be in operation till 2012. With their exit, the flag carrier would cease to have four-engine aircraft.

The new two-engine long range 777 Boeing aircraft are considered to be among the most fuel efficient. All the 68 aircraft would have state-of-art technology.