India's two main state-owned airlines are to merge in an effort to compete more effectively with private carriers.
The merger is the latest shake-up in the Indian aviation sector
Air India and Indian Airlines will join forces by the start of April, ministers said - adding that the merger would not result in any job losses.
Officials said the deal would make the new entity more competitive, yielding annual savings of 5bn rupees ($113m).
Privately-owned rivals such as Jet Airways and Kingfisher Airlines have taken market share from the duo.
The Indian government hopes that the combined firm will become one of the world's top 20 airlines.
"Everybody feels the process of merger is appropriate," said Praful Patel, India's civil aviation minister.
Set up in 1932, Air India is the country's flagship airline, serving more than 40 destinations worldwide.
Indian Airlines is focused on the domestic market.
Air travel has been growing rapidly in India as income levels rise and long-established players such as Air India and Indian Airlines have been challenged by more recent entrants.
There are now four budget airlines operating in India.