The Indian government will spin off four of Air India Ltd.'s subsidiaries into separate companies ahead of the sale of a 51% stake in each of them.

Junior Aviation Minister Jayant Sinha told Bloomberg last week that as per previous reports, Air India and Air India Express will be combined into one company while domestic carrier Alliance Air (India) will occupy another entity. Groundhandling firm Air India Air Transport Service Ltd (AIATSL) and MRO unit, Air India Engineering Services Ltd (AIESL), will occupy the other two companies.

Narendra Modi's government has already given its consent to revise a standing law which forbids foreign investment in Air India. Under revised regulations, foreign firms will be able to control a maximum of 49% of Air India's paid up share capital. However, substantial ownership and effective control of the airline will have to remain in the hands of an Indian national.

Sinha said a call for investors’ expressions of interest will be issued by the end of this month along with details on Air India’s core and non-core debt and assets.

In an effort to sweeten the loss-making carrier's appeal to prospective investors, Sinha told Bloomberg that government will take on most of Air India's non-core debt, owed by the carrier to its own balance sheet, while borrowings linked to core operations will be retained by the unit on offer. A special purpose vehicle will be established to house the carrier's unsustainable debt thus allowing the new venture a fresh start.

Government is also looking at ways to protecting Air India personnel that are likely to be laid off as a consequence of the privatization process, which is now expected to be completed by year-end. Sources familiar with developments told NTV news last week that among the options being considered is placing affected personnel in other Indian public sector companies.