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The airline's founder and major shareholder, Jeremias (Jerry) Desousa, a Timorese-born Australian businessman, said he planned to build the airline from one leased 94-seat Ambraer to owning four or five planes in five years.

"I intend to grow the airline cautiously," Mr Desousa said yesterday from Dili, where East Timor's president Jose Ramos Horta will launch the airline at a ceremony this afternoon.

Mr Desousa told The Age he had not established Timor Air to under-cut competitors' fares.

"We will be providing a fair and reasonable fare structure," he said.

The plane has 10 business class seats and 84 economy.

The Dili Government had accepted a free 10 per cent stake in the airline and was supporting its launch, Mr Desousa said.

Timor Air plans from February 2 to operate daily flights from Darwin to Dili to Denpasar, then back to Dili and Darwin in competition to Air North and Indonesia's Merpati. Air North will lose its monopoly on the Darwin-Dili route.

For years, passengers travelling the route have complained about Air North's high fares, no-frills service and frequent off-loading of luggage.

Several East Timor Government tourism officials have told The Age that the way Air North operated the route had hindered tourism.

Brisbane company SkyAirWorld will operate Timor Air's leased plane for the first 12 months, providing the pilots and crews.

Mr Desousa said that Timor Air would then purchase its own Ambraer, which SkyAirWorld would also operate.

He said that as the leased plane was registered in Australia to an Australian company, he did not expect regulatory difficulties flying to Australia. He was confident Indonesian approval to fly to Bali would be gained by February.

Timor Air will employ about 40 Timorese, including cabin crews trained in Brisbane.

The company wants code-share arrangements with airlines, including Qantas and Merpati.