Air India expects to receive a compensation package worth $1 billion from Boeing for delayed delivery of 787 long-range aircraft on order, a Civil Aviation Ministry official says. The compensation could be in the form of a deduction from the total cost of the 27 787s ordered by the national carrier and in discounts on future orders, he adds.

While the actual compensation figure has not been disclosed, Aviation Minister Ajit Singh says a package has been worked out with the U.S. manufacturer and accepted by the Air India board. India now is seeking legal opinion on how to move it forward. “We have agreed on a compensation package for the aircraft order,” Singh says. The package is now awaiting approval from the Cabinet Committee on Economic Affairs (CCEA), a panel of ministers, he adds. “We’re expecting the CCEA to decide on the matter soon.”

Boeing officials were unavailable for comment.

The ministry officials say the panel will look into the amount the U.S. company will need to pay to Air India and discuss options, such as arbitration and where to take this arbitration in case Boeing refuses to pay.

Air India expects to receive the first 787 this month. The first international flight will be in August between Mumbai and London, and flights to Australia will follow in September, Singh says. But “for the initial six to eight weeks, the first aircraft will be used on domestic routes to enable [pilot] trainees to practice landings and takeoffs.”

Delivery of the long-awaited 787 almost came to a halt last month when the Indian government threatened to reject it unless the U.S. airframer provided compensation for a four-year delay in deliveries. Air India initially expected to receive the first aircraft in 2008.