New Delhi: The government may consider a proposal to write off part of Air India's huge loan overhang before issuing an IPO in a bid to make the ailing airline attractive.

After its attempts to privatise Air India flopped last month, the BJP-led government is seriously considering the suggestions of RSS affiliate Swadeshi Jagran Manch to revive the state-run carrier by raising capital through an IPO. In the interim, the government will inject the necessary capital and consider giving the loan write-off it was earlier offering as a sweetener to the potential bidders for the airline.

Ashwini Mahajan, the national co-convenor of the Swadeshi Jagran Manch, said, "We are asking for a loan write-off prior to an IPO. Our research on the airline is nearly complete and will be shared with the civil aviation ministry shortly."

"If the government was willing to give a loan write-off to large corporations to make the sale offer attractive, we see no reasons for it not to offer a similar hair-cut to investors who subscribe to Air India shares through an IPO. Our reading is that we can raise far more through a combination of IPO and sale of unused assets than the amount involved in a loan write-off," the think-tank head said.

In its bid document, the government had said it would write-off one-third of Air India's debt, reducing the liabilities to a more manageable Rs 33,392 crore. Officials said this was a proposal being considered by the government along with an infusion of around Rs 3,000 crore.

The Sangh Parivar, a loose confederation of right wing bodies affiliated to the RSS, has been opposing the privatisation of the airline ahead of the 2019 general elections. It is one of the reasons why the Centre decided against offering more sops to private airlines wanting bigger write-offs. It also didn't drop clauses such as continued government shareholding and presence on the board.

Air India's woes stem from a huge debt overhang following the purchase of 111 new aircraft and giving away of slots and flying rights. Its finances worsened after the downturn of 2008 on the back of a spike in oil prices, besides a badly managed merger of loss-laden Air India with profitable Indian Airlines.

The airline is, however, considered an attractive asset. It has aircraft and engineering assets along with buildings worth about Rs 30,000 crore. Routes and landing slots could fetch more money.

"While studying the airline we found that the previous managements have forced Air India to buy too many aircraft, the wrong kind of aircraft, given away many bilateral rights to rival foreign carriers and stopped it from using lucrative slots," said Mahajan.

"We feel that injection of money and efficiency could turn around Air India and earn us handsome profits ... the economy and the aviation market is looking up, we should let Air India ride that cloud," he added.

IATA's data also showed that domestic air traffic inIndiaincreased by 22.9% in the month of February 2018, marking 42nd successive month of double digit hike in the number of people choosing to fly. The number of fliers in the country is likely to touch 310 million this financial year.