NEW DELHI: The cabinet cleared the decks for the divestment of loss-making Air India and approved the establishment of a committee headed by FM Arun Jaitley to decide on the extent to which it would exit from the state-run national carrier and how this would be achieved."The cabinet today gave an in-principle approval to a proposal by the aviation ministry, which was to divest stake in Air India. The aviation ministry's recommendation that a group be formed under the chairmanship of the finance minister has also been approved," Jaitley said on Wednesday evening after the cabinet meeting. "The group will discuss and decide on the modalities on debt, assets like hotel companies and all other assets of Air India."The Jaitley committee will decide on the treatment of unsustainable debt, hiving off of assets to a shell company, demerger and strategic disinvestment of three profit-making arms, the quantum of divestment and the universe of bidders, the government said in a release.Air India's three profit-making subsidiaries are Air India Express (low-fare international carrier), AI Transport Services (ground handling unit) and AI-SATS (a 50:50 ground-handling JV with Singapore Airport Terminal Services).The cabinet considered proposals by Niti Aayog and the aviation ministry contained in a 30-page note prepared by the Department of Investment and Public Asset Management (DIPAM) after discussions in a committee of secretaries headed by the cabinet secretary.Niti Aayog has recommended divestment of up to 100%, suggesting three possible stake-sale options — 24%, 49% and 74%. This is based on studies of revival plans at carriers in which governments exited fully, including British Airways, Japan Airlines and Austrian Airlines. The proposal entails the government taking a hit by waiving Rs 22,000 crore in debt.The aviation ministry's revival plan involves debt reduction of `30,000 crore through the sale of subsidiaries and assets.About Rs 33,000 crore of Air India's debt is on account of working capital loans. Its annual interest outgo of Rs 4,500 crore is about 21% of the total turnover.The cabinet approval comes about two months after Prime Minister Narendra Modi gave the go-ahead for disinvestment in the airline, which has accumulated losses of more than Rs 50,000 crore and debt of about Rs 55,000 crore. The carrier is afloat thanks to a Rs 30,231 crore, nine-year bailout programme approved by the previous government in 2012.Analysts said the best bet for Air India is full privatisation so that it does not remain under government control. "Air India would perform better if it is removed from the clutches of the government completely," said Jitendra Bhargava, former executive director at the carrier.