Air India, the state-run carrier, is seeking a £270 million rescue finance package from the Indian Government to shore up the company against widening losses.

It is understood that officials from the National Aviation Company of India (Nacil), which runs Air India, told India's aviation minister last week that the group has racked up losses of as much as £230 million over the past financial year, a figure it reckons is on course to double this year.

The forecast underscores the dramatic turnaround in sentiment surrounding the airline sector in South Asia.

Just a few months ago in India, where passenger volumes surged 30 per cent last year, the talk was of airlines that could not recruit enough pilots to meet demand.

By contrast, Air India's current bleak assessment will worry those who regard the performance of the aviation sector as a good leading indicator of consumers' discretionary spending and the overall health of an economy.

Air India's load factors are thought to have fallen to beneath 60 per cent in June. It is understood that on some domestic routes – even between large cities such as Delhi and Bangalore – only one in six seats is being sold and that half of the airline's flights are not recouping costs.

Air India, which has poor reputation on issues such as customer service and punctuality, has suffered in recent years at the hands of a new breed of private rivals.

However, India's most successful private carriers are also struggling under the burden of record high oil prices, soaring wages and sinking demand amid fierce competition.

Jet, the country's largest private airline, lost about £80 million last year. Its rival Deccan Aviation lost about the same sum in the first nine months of its financial year.

Ashok Chawla, the Secretary of Civil Aviation, recently said that the domestic aviation industry in India is likely to post a £1 billion loss next year.

Nacil, which was formed after the merger of Air India and Indian last year, wants £150 million to meet working capital requirements and another £80 million in the form of soft loans.

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