The Indian government will transfer more than half of Air India's working capital debt to a newly created Special Purpose Vehicle (SPV) as part of a new restructuring plan, the Economic Times has reported.

The new SPV, Air India Assets Holding (AIAHL), will assume INR290 billion rupees (USD4 billion) in debt from the flag carrier. It will be headed by Air India's chairman and will raise cash to repay the liabilities through property, subsidiary, and asset sales.

The other five members of the AIAHL board will also come from Air India.

Following the offloading of part of the debt, Air India will remain indebted to the tune of INR260 billion rupees (USD3.6 billion), of which INR200 billion rupees (USD2.8 billion) is related to the loans the carrier took to buy aircraft.

The move will also lower the annual interest paid by Air India by INR27 billion rupees (USD373 million).

The banks which are Air India's creditors still have to agree to the transfer of the debt.

The Indian government is separately still evaluating a possible capital injection into the ailing flag carrier.

As a short-term solution, the government has recently injected nearly INR10 billion rupees (USD140 million) into Air India and also guaranteed a INR20 billion rupee (USD275 million) loan.

The Indian flag carrier was last granted a bailout package in 2013. The then government granted the carrier INR300 billion rupees (USD4.15 billion) which were due to suffice until 2021. Ouf of this package, the carrier has already received INR280 billion rupees (USD3.7 billion) in instalments.