New Delhi: The government is considering easing terms for the sale of Air India after its attempt to sell the national carrier failed to attract buyers, and is in initial talks with interested parties to reset the terms.

The preliminary discussions are being held with bankers, potential bidders and industry experts, among others, to draw up a draft framework to make the state-run airline more attractive to buyers, two people familiar with the matter said on condition of anonymity.

The government is also exploring the possibility of a government-to-government transaction, involving another state-owned airline, the people said. Government-to-government transactions are common in energy and defence sectors where strategic interests play an important role. The government is considering revising the terms for the proposed sale, including its plan to retain a 24% stake in the airline, the people said.

“A meeting is expected to be held next week which will be attended by officials of finance and civil aviation ministries," one of the two people cited above said.

“The objective is to prepare a draft framework to make Air India attractive to suitors by addressing contentious issues," the first person added.

In March, the government released an information memorandum outlining conditions for bids which included the government retaining a 24% stake in Air India and remaining active as a minority investor. Some of the other factors that kept bidders away include the structure of the tender process which meant that several key conditions would only be known at the RFP (request for proposal) stage. Investors were also not comfortable with having to absorb billions of dollars of Air India’s losses and wanted more clarity on the fate of Air India’s workforce after the sale. On 31 May, the government said that it hasn’t received any bids for the airline. “There is an emerging consensus that Air India should have been pitched differently instead of projecting it as a distress sale," said the second person.

“The upcoming national election is not a major factor in the divestment process," the second person said, adding that the government will be better off using public funds on other sectors rather than on an ailing airline.

News agency Bloomberg on Tuesday reported that the government is ready to re-examine the Air India privatization process, including a clause requiring a minority state stake in Air India Ltd, quoting economic affairs secretary Subhash Chandra Garg. The government is considering various options and doesn’t intend to insist on keeping 24% of the company, Garg told Bloomberg.

A third person in the civil aviation ministry confirmed that the various government departments involved in the Air India stake sale are expected to meet soon to decide on a course of action. The official declined to be named.

An Air India spokesperson said that the airline cannot comment on the government’s divestment process.

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