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

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

The Government supported the airline and had accepted a free 10 per cent stake in it, he said.

From February 2, Timor Air will operate daily flights from Dili to Darwin and Dili to Denpasar, in competition with Air North and Indonesia's Merpati.

Air North will lose its monopoly on the Darwin to Dili route. Passengers have complained for years about the airline's high fares, no-frills service and frequent off-loading of luggage.

East Timor Government tourism officials told the Herald that Air North's operation of the route had hindered efforts to boost the country's tourism.

Mr Desousa said he had not established Timor Air to undercut the fares of competitors.

A Brisbane company, SkyAirWorld, has signed on as operator of Timor Air's aircraft for the first year, providing pilots and crew.

SkyAirWorld in January formed a joint venture with the Indonesian low-cost carrier Lion Air to establish a domestic airline in Australia. But amid signs of a slowdown in the domestic aviation market, it appears the plans have been shelved.

Timor Air is seeking code-share arrangements with Qantas.