The inter-ministerial panel has decided to divest government's stake in Air India Air Transport Services.

NEW DELHI: The Central government has decided to transfer Air India's debt worth Rs 29,000 crore to a special purpose vehicle (SPV) -- Air India Assets Holding Ltd, a senior government official said on Thursday. According to the official, the decision to transfer the Rs 29,000-crore debt to the SPV was taken by an inter-ministerial panel -- Air India Specific Alternate Mechanism -- which has been formed to look after the divestment of the national carrier. The move assumes significance as it will lessen the interest payment obligation of the airline on its total outstanding debt of over Rs 50,000 crore.

The official told reporters here that two possible ways of transferring the debt are under consideration, with the first involving the banks' nod to shift the owed amount to the SPV, while the other mandating the SPV to pay off the Rs 29,000 crore debt by raising funds.

In addition, the inter-ministerial panel has decided to divest the government's stake in Air India Air Transport Services Ltd (AIATSL).

The decision by the panel headed by Finance Minister Arun Jaitley envisaged that the amount raised from the divestment of AIATSL will be used to retire some of the accumulated debts of Air India.

On Wednesday, Civil Aviation Secretary R.N. Choubey had said that the national carrier has commenced a "cost-cutting and revenue augmentation" plan to garner "financial benefits" of Rs 2,000 crore per annum.

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The cost cutting and revenue augmentation plan was recently implemented by the airline.

He pointed out that the airline will work on 10-12 items under the plan, which if implemented in entirety, is expected to result in financial benefits of Rs 2,000 crore per annum.

However, these benefits will be over and above the financial relief that the airline will get by lowered interest payments on its legacy debt.

Besides, any future financial support to the airline will be contingent on the results that it achieves by implementing the plan.

Accordingly, as and when the airline would require financial assistance, its management will be required to show the results obtained from the cost cutting and revenue augmentation plan and improvements in efficiency.

He added that airline will not be allowed to default on its payment obligations.