Aniyan Kutty, managing director of Dubai-based Clarion Shipping Services, said initially the airline will connect smaller cities, to be followed by operations all over India. Dubai-based Clarion Shipping Services has interests in IT, construction and advertising, among others.

The group has investments in the IT sector in several Indian cities including Mumbai, Bangalore and Thiruvananthapuram. He said that a private company had already been registered in Kerala for running the airline.

To be called City Air, the new airline will be a budget carrier and will have its operational headquarter in Chennai.

Kutty said he was working out the leasing option. "We already had negotiations in the US for leasing aircraft. In the beginning, we will have two Boeing 737-200 aircraft," Kutty said adding the company intended to complete all formalities and have the launch of the airline before the end of this year.