The government is working on restructuring national Air India's finances to ensure that the airline has "sustainable debt", Economic Affairs Secretary Subhash Chandra Garg said.
The debt burden of the national carrier, which is grappling with tough business conditions, is estimated to be more than Rs 500 billion.
Earlier this year, the government's efforts for strategic disinvestment of debt-laden Air India failed to take off.
"What government is doing in Air India is to restructure the finance of Air India in a way that Air India is there with a sustainable level of debt. Whatever is the excess unsustainable debt (it) will be taken out... Air India with sustainable debt will work as a viable entity," Garg told PTI in an interview.
Further, he said that the airline's unsustainable debt would have to be placed in some special purpose vehicle.
After the proposed strategic disinvestment of Air India did not find any takers in May, the government has been looking at ways, including the sale of non-core assets, to bolster the carrier's fortunes.
Air India is staying afloat on a bailout package extended by the previous UPA regime in 2012.
In the current financial year, the airline has received an equity infusion of Rs 6.5 billion up to June. A Turnaround Plan (TAP), as well as a Financial Restructuring Plan (FRP), were approved for Air India by the previous UPA regime in 2012.
Under these plans, the airline is to get budgetary support amounting to Rs 302.31 billion over a ten-year period and also equity support for the payment of principal/ interest of the non-convertible debentures.
So far, the airline has received more than Rs 270 billion worth equity infusion.