New Delhi: The Central government will divest 100 per cent stake in Air India's ground handling subsidiary to partially retire the national passenger carrier's accumulated debt.

Accordingly, an inter-ministerial panel, Air India Specific Alternate Mechanism, decided on Tuesday to divest the government's stake in Air India Air Transport Services Ltd (AIATSL).

The decision was taken after the panel which is headed by Finance Minister Arun Jaitley met here. It assumes significance as the amount raised from the divestment of AIATSL will be used to retire some of the accumulated debt of Air India.

A senior government official said the strategic disinvestment of ground handling subsidiary AIATSL will be done after the ground handling unit is transferred to a SPV (special purpose vehicle).

The official told reporters that the EoI (Expression of Interest) document for the subsidiary will be issued after its transfer to the SPV.

AIATSL provides ground handling service at most of the airports in India. It was operationalised in February 2013 and in 2016-17 the subsidiary earned a profit before tax of Rs 61.66 crore.

Earlier, the inter-ministerial panel had decided to revive the national passenger carrier through sale of land and other assets and to offload its debt to an SPV which has already been incorporated.

Prior to the current move, the government had offered to sell 76 per cent stake in Air India. However, the state-owned carrier, which has accumulated losses of over Rs 48,000 crore, failed to attract any bidder.

On May 31, the Ministry of Civil Aviation said that "no response" was received even during the extended submission deadline for the EOI bids under Air India's divestment process and the "further course of action will be decided appropriately".

The government on May 1 had released a detailed document on clarifications sought by interested bidders regarding the divestment process. This had outlined that net current liabilities were Rs 88.16 billion (Rs 8,816 crore) and "these will remain with AI and AIXL (Air India Express) as these have been incurred in the course of business".

On March 28, a Preliminary Information Memorandum (PIM) inviting EOIs for the strategic divestment of AI was issued, along with the airline's shares in AIXL (Air India Express) and AISATS (Air India SATS Airport Services) from private entities including the airline's employees.

The Central government owns 100 per cent equity of Air India.