Branson bolsters the Blues by £1bn

Virgin Blue, Sir Richard Branson's Australian domestic airline, is to splash out £1bn on new aircraft to expand its fleet by almost three times.

US aircraft manufacturer Boeing is battling it out with Airbus, its European arch-rival, to provide the airline with up to 40 aircraft.

The order is one of the largest being negotiated this year by an airline.

Virgin Blue's choice will be between the Airbus 320 family and the Boeing 737 family of jets. Competition bet- ween the two manufacturers has been particularly vicious as the aerospace industry has been in a significant downturn over the past 12 months.

Will Whitehorn, Sir Richard's spokesman, said the exact size of the order is still under negotiation. However, he added that including options, the number of planes could be up to 40.

Mr Whitehorn said the first tranche of planes would be delivered in late 2003 or early 2004. The decision on which manufacturer to choose is expected in the coming months.

Virgin Blue has 16 aircraft but they are all on lease, and would be replaced in the new deal over a five-year period.

The options will be based on whether Virgin Blue expands its operations to take flights outside Australia to Hong Kong and New Zealand.

However, it is also planning to expand within Australia, where according to its own figures it now has 18 per cent of the market. But Mr Whitehorn said that the company wants to expand to gain a market share of up to 30 per cent.

Qantas, its main competitor in Australia, is one of the few airline companies to have experienced good financial fortunes over the past year. Last month it unveiled profits of A$631m (£221m).

Although Virgin Blue has proved a successful investment for Sir Richard, Virgin Atlantic has not been as successful. Last month it reported a £92m loss for the year, partly as a result of the 11 September terrorist attacks, which prompted a downturn in transatlantic travel.

Virgin Express, his European low-cost airline, is forecast to be in profit this year.

Low-cost carriers such as easyJet and Ryanair have outperformed the traditional long-haul airlines, which are now lowering their prices in response.

Many domestic carriers have fared worse, with US Airways and Swissair going into bankruptcy proceedings.

Virgin Blue is believed to be considering a flotation on the Australian Stock Exchange, possibly as early as the first quarter of next year.

Sir Richard now owns half of the airline, after selling off a 50 per cent stake to Patrick Corporation, an Australian transport business, earlier this year.