Virgin Australia has agreed a A$540million ($333 million) long-term operating lease deal with International Lease Finance (ILFC) for 10 Boeing 737-700s, with the option to switch to the larger 737-800.

The deal, confirmed by new chief executive Brett Godfrey, calls for deliveries to begin next March. The aircraft will replace the carrier's "start-up" five 737-300s, the first two of which will come from Virgin Express in mid-year.

Virgin's start-up date depends on the processing of its air operator's certificate (AOC) by Australia's Civil Aviation Safety Authority, which sets a minimum of 90 days, but has been taking up to six months to process AOC applications.

An Authority source says: "Anything inside 180 days would suggest ministerial intervention." The airline, which met the Authority last week, says: "Everything is on track. If we had the AOC, we'd be flying tomorrow."

The start-up fleet will be phased in over two to three months, with the airline beginning operations on the Sydney-Melbourne-Brisbane triangle, which accounts for almost 40% of Australia's 26 million domestic passengers annually.

The airline is seen as a threat to established carriers. Qantas is looking at ways to respond, with a low-cost division one option.

Source: Flight International