Low-cost carrier AirAsia may finance the purchase of 27 Airbus aircraft in the local market, in a billion-dollar deal that would be a major boost for the Malaysian finance sector, officials and analysts said.

"We will go to the market by year-end to finance some of the aircraft which will be delivered to us post-2007," AirAsia's group deputy chief executive, Kamarudin Meranum told AFP .

"I do not discount the possibility we may do a ringgit-denominated financing for some of the aircraft which are yet to be financed in view of the strength of the ringgit and vis a vis the appreciation of the US interest rate," he said.

Officials familiar with the ringgit financing option say the cost of the 27 A320 aircraft could be about 1 billion dollars and that the central bank was pushing for a ringgit financing as the market was "flush with liquidity".

Kamarudin said AirAsia had received "favourable indication from local bankers" to participate in the funding exercise.

Analysts said that AirAsia's financing options include Islamic financing, bonds, straight loans or a combination of those options.

Hardeep Singh, senior assistant vice-president with Bank of Tokyo-Mitsubishi UFJ (Malaysia) said there was plenty of liquidity in the domestic market to fund the aircraft purchase.

"The Malaysian banking sector will get a big boost if AirAsia decides to raise funds locally," he told AFP , adding that "we are keen to participate in the financing."

Last year AirAsia secured a loan estimated at about 1.5 billion dollars at attractive rates from foreign lenders to finance 33 of the 100 planes it has ordered.

Malaysia's AirAsia is the single largest buyer of the A320-200 in the Asia Pacific region, with plans for the 100 aircraft to completely replace its current fleet of 28 single-aisle, 148-seat Boeing 737-300s.

The ringgit has appreciated by nearly 4.2 percent against the US dollar since it was depegged in July last year. It closed on Friday at RM3.6675-6700 to the US dollar.

'We will push the limits'

Kamarudin declined to reveal if Malaysian government's investment arm Khazanah Nasional, who is making an aggressive push into larger regional deals, was in talks with AirAsia on possible investment in the carrier.

"We always welcome any investor, including Khazanah to join us. I can't disclose if we are in talks with Khazanah," he said.

Kamarudin said that both its business partners in Thailand and Indonesia would also replace their 737-300 Boeing aircraft with the A320 from Europe's Airbus.

"Everybody will go on the Airbus in stages," he said.

AirAsia's chief executive officer, Tony Fernandes, said AirAsia's long-term plan was to acquire up to 500 aircraft and fly up to 60 million people around Asia.

"We will push the limits. We are determined to be Asia's top low-cost carrier," he said.

Since last December, AirAsia has taken delivery of six of the 100 A320 aircraft it has ordered. It plans to have 15 of the craft in service by the end of 2006, and slowly phase out its Boeing 737-300s.

AirAsia was launched as a budget carrier in December 2001 with just two aircraft. It offers more than 100 domestic and international flights to Malaysia, Thailand, Indonesia, Singapore, Cambodia, Vietnam and the Philippines.