The deal was inked by Air Sahara Vice President Alok Sharma and Jet Executive Director Saroj Datta in Lucknow, headquarter of Air Sahara, on Wednesday night after a meeting between promoters of the two private companies Subroto Roy of Sahara and Naresh Goyal of Jet Airways.

The deal, which had been in the air for the last few weeks, marked the first consolidation in the increasingly competitive Indian civil aviation market as an array of low-cost air carriers have been giving a tough time to full-cost airlines like Jet, Air Sahara and Indian (formerly Indian Airlines).

Industry sources said the $500 million buyout of Air Sahara is considerably lower than the market valuation of nearly $750 million estimated by Ernst and Young, which had been assigned by Sahara to work out the price.

It was not immediately clear if the buyout deal includes Air Sahara's liability, which is estimated to be around 6 to 7 million dollars.

The takeover of Air Sahara would make Jet Airways the country's biggest airline and give it over 50 percent of India's civil aviation market share and bring about additional facilities in terms of parking bay, landing rights in different destinations at home and abroad, pilots, ground handling staff and maintenance engineers.

The buyout was a matter of time after liquor baron Vijay Mallya-promoted Kingfisher Airlines had pulled out of the race for Air Sahara, leaving only Jet Airways in the bid.

Only last week, the two air carriers had officially said they had been in negotiations and no deal was reached.