The Cabinet will later this week give Aer Lingus the go-ahead for a limited, non-equity agreement with the One World alliance, but will reject the notion of selling a 10 per cent stake and make no decision about whether to privatise the airline, sources said last night.

The Government, however, remains likely to approve a privatisation of the company later this year and schedule a stock market flotation for spring or summer 2000, the sources added.

Aer Lingus will be formally told of the latest decision after the Cabinet meets on Wednesday, or possibly next Monday.

Executives are likely to be happy that the plan to ally the company with One World has been given "shareholder approval", but may be concerned that the delay on privatisation represents a "wait-and-see" approach by the Government rather than full commitment to a flotation plan.

The decision to reject the idea of One World taking a 10 per cent equity stake in Aer Lingus will also be studied carefully by American Airlines and British Airways, the two airlines that lead the global alliance.

They offered to buy 10 per cent of the company as a way of helping to expand the company, and getting a foothold for the future. Aer Lingus will say that its board never recommended selling the stake to One World but merely included the offer as an addendum to its main document about the importance of finding the right strategic partner.

While One World recently took a 10 per cent stake in its newest partner, Iberia, industry analysts say there is some truth to the argument that such equity is of less significance in the airline industry than the structure and logistics of the partnership agreement itself.

Aer Lingus management can also claim, with some legitimacy, that while the airline needs long-term capital investment - to buy planes and exploit fully the growing transatlantic routes - it does not need these funds urgently.

The Government delay may also be partially rooted in political sentiment about the national airline, and how a perceived takeover by British Airways would play with the electorate.

The Minister for Public Enterprise, Ms O'Rourke, has already shown herself to be sensitive to such matters, delaying Telecom Eireann's name change to Eircom until after the flotation, against the wishes of the company.

Sources within the airline stressed, however, that the main attraction of the One World alliance is American Airlines' comprehensive US network fanning out from the airports Aer Lingus currently serves.