Air India has a combined workforce of 27,000 and labor unions with a history of strikes and grounded flights.(PTI)

India plans to exclude more than half of the $7.6 billion debt owed by the struggling national airline to help burnish its appeal as Prime Minister Narendra Modi presses ahead with a sale, people with knowledge of the matter said.The government proposes to transfer all of Air India Ltd.’s non-aviation assets and short-term loans of as much as 300 billion rupees ($4.7 billion) to a separate company, readying the airline for prospective buyers, the people said, asking not to be identified discussing confidential information. Authorities aim to kick off the bidding process before March 31, they said. Such a move would mean the government absorbing the money-losing firm’s working capital loans, real estate from Tokyo to London and two hotels. The buyer will be left with aviation-related assets and about 200 billion rupees of loans borrowed to acquire aircraft, the people said.

A successful sale of Air India is crucial for Modi, who wants to showcase his commitment to reducing the state’s role in business after many of his predecessors failed to dispose of the carrier in the face of stiff political opposition. A deal would help cement Modi’s image as a business-friendly leader after Moody’s Investor Service upgraded the country’s credit rating on Nov. 17.

State Support

Air India has a combined workforce of 27,000 and labor unions with a history of strikes and grounded flights. It has been unprofitable since its 2007 merger with state-owned domestic operator Indian Airlines Ltd. The company made an operating profit of about 1 billion rupees in the year through March 2016, primarily aided by a slump in oil prices. It still posted a net loss of 38.4 billion rupees, according to the government. In 2012, the government bailed out the ailing carrier with 300 billion rupees in funds, guaranteeing the carrier’s loans and promising interest payment on some debt. But Air India’s need for working capital exceeded that.

Foreign airlines will be allowed to bid, though their holding will be capped at 49 percent, the people said. IndiGo, India’s biggest commercial airline that is operated by InterGlobe Aviation Ltd., said in June it was willing to buy Air India’s international operations, or even the entire airline business, while travel and aviation firm Bird Group has shown interest in bidding for the carrier’s ground handling business.