The deal will allow Pakistan International Airlines (PIA) to start replacing old aircraft and implement a restructuring plan spanning the next eight years.

With the introduction of this new fleet we will be increasing our revenues

Ahmad Saeed, PIA

The airline will also receive $850m from the US Export-Import Bank (Eximbank) to help it buy new aircraft.

PIA managing director Ahmad Saeed told the BBC's World Business Report the airline would purchase aeroplanes to the value of $1bn in total, as Eximbank would provide 85% of the funding.

The increase in profits following the introduction of the new fleet will allow PIA to service the Eximbank loan itself without the need for further government money, he added.

New aircraft

PIA has been in negotiations with Airbus and Boeing over the purchase of new aircraft and Mr Saeed said a final decision has been reached and will be announced within the next two weeks.

PIA - the biggest airline in Pakistan - owns 40 planes and employs 22,000 staff.

It has been running at a loss for many years but Mr Saeed said it is now operating at a profit.

"PIA actually made a profit of 400 million rupees ($8.2m) from June to December in 2001," he said.

"This year they have made 1 billion rupees profit from January to August."

Following the terrorist attacks in the US last September, many international airlines suspended flights to the country forcing more passengers to travel on PIA flights.