Aer Lingus has opted for Airbus over rival Boeing in a €300 million-plus deal to modernise its short-haul fleet. The airline is now expected to turn its attention to updating its long haul fleet.

The two giant aircraft manufacturers will resume their fight to win the long haul contract. Currently, Aer Lingus uses the Airbus 330 family for long-haul but Boeing would like to get some of this business. If Aer Lingus goes with Airbus again, Boeing could end up with no aircraft within the Aer Lingus fleet.

Under the terms of the deal announced yesterday, which could be worth up to €350 million, Aer Lingus plans to sell seven of its 11 Boeings 737s to International Leasing Finance Corporation (ILFC) in a cash deal which becomes effective in January. It is still searching for a buyer for the remaining four.

The airline will acquire 17 A320 aircraft in total with seven being purchased outright and the rest leased from ILFC. The deal includes the option to acquire another 10 A320 aircraft.

Under the leasing arrangement Aer Lingus has taken each aircraft on a seven-year lease at a fixed interest charge.

In line with tradition in the aviation industry, the airline declined to disclose the purchase price for the Airbus planes. However, it is financing the deal without any recourse to outside lenders and it has free cash of more than €350 million on its balance sheet.

The company's chief executive Mr Willie Walsh said it was "an excellent financial deal achieved at precisely the right time in the industry cycle".

The airline also said it would be adding 15 routes by the summer of 2005. Cities like Berlin, Athens, Kraków and Warsaw are among the locations being considered. "Negotiations with various airport authorities are taking place," said a spokesman.

Meanwhile, the Minister for Transport, Mr Brennan has published the Aer Lingus Bill 2003. It gives effect to the employee share ownership plan (ESOP) at the company and provides a legal framework to allow outside investment in the company.

When the legislation is enacted staff at the airline will own 14.9 per cent of the equity. This was agreed as part of the 2001 survival plan.

Air France and KLM dashed hopes of an imminent co-operation deal yesterday, saying key issues still had to be resolved before the Dutch carrier could be brought into the SkyTeam alliance.

Air France, which is already linked with US carrier Delta Air Lines and Italy's Alitalia in the SkyTeam grouping, has been trying for months to recruit KLM, which has its own alliance with Northwest Airlines.