Air India will buy 250 Airbus planes in a deal aimed at transforming the former national carrier, it said on Tuesday, after decades of being a strain on the public purse.

The airline's first new aircraft purchase since 2006 is part of an ambitious plan to return to profitability in the world's third-biggest air transport market.

It has signed a letter of intent to buy 210 narrow-body A320neo jets and 40 long-haul A350 aircraft – with an unspecified number of options for more – as it plots to capture domestic market share and turn Indian airports into global travel hubs.

Media reports said Air India is planning to unveil a similar purchase agreement with Boeing in the near future.

Combined, the two deals could represent the single biggest fleet purchase in aviation history.

"We are going through a massive transformation," said Air India chairman N. Chandrasekaran, announcing the Airbus agreement with French President Emmanuel Macron and Indian Prime Minister Narendra Modi in virtual attendance.

"One of the most important things is a modern fleet which can perform for all routes."

Air India was founded by tea-to-steel conglomerate Tata Group in 1932 and the Indian government bought a majority stake after independence.

But by the end of the century, the venture was struggling to compete with Gulf carriers and no-frills airlines, starved of investment and racking up billions of dollars in losses that dragged on the public purse.

Tata – also chaired by Chandrasekaran – finally bought it back in a US$2.4 billion deal a year ago.

According to Airbus forecasts, India's air traffic is expected to grow 6.6 per cent a year over the next two decades, almost twice the global average.

"Today is a historic moment for India, for Air India and for Airbus," said Airbus chief executive Guillaume Faury, saying the size of the order "demonstrates the appetite for growth in the Indian aviation industry".

Macron said the deal highlighted the bond between Paris and New Delhi.

"I want to tell everybody that for me, this very important contract and this achievement today is one of the milestones of the in-depth strategic and friendly partnership we have between India and France," he said. (AFP)