The State-run Indian airline signed an agreement today for the purchase of 43 Airbus planes worth $2.5 billion.
The deal, marking the domestic carrier's first expansion in 15 years, was signed at a ceremony overseen by Indian Prime Minister Manmohan Singh and visiting French President Jacques Chirac.
The formal signature of the deal after the government cleared the purchase last September caps years of tortuous talks between the Indian government and the European plane manufacturer.
The government said last September it agreed to the deal after last minute Airbus negotiations to lower the price by around $75 million.
The deal with Airbus will allow Indian to retire some of its ageing fleet, including Boeing 737s as old as 25 years.
Indian, which recently changed its name from Indian Airlines, is buying the planes to face up to intense new private sector competition and to meet rising demand for flights from the country's burgeoning middle class.
The deal comes after India's low-cost private carrier Air Deccan announced in December it would buy 30 A320 aircraft from Airbus for $1.5 billion for delivery starting in 2008.