New Delhi: Air India proposes to spin off two units as part of a plan to be sent to the Union cabinet that will also propose wage cuts and set out the financial state of the troubled national carrier, said two civil aviation ministry officials.

Air India wants to turn its maintenance, repair and overhaul (MRO) business and cargo operations arm into separate units, said one of the two officials. The separate balance sheets may lower losses on Air India’s books.

In the wings: Air India planes at the Mumbai airport. The carrier may turn its MRO and cargo operations into separate units. Abhijit Bhatlekar/Mint

The proposed pay cuts may help Air India, run by the National Aviation Co. of India Ltd (Nacil), meet cost reduction targets.

“There has to be a cut, it could mean a saving of Rs500-700 crore depending on the cuts made," the first official said.

The airline, weighed down by accumulated losses and debt, had in 2006 placed a Rs50,000 crore order for 111 aircraft. It owes Rs16,000 crore towards working capital loans.

Air India was granted 00 crore in equity infusion by the government but was denied an additional 1,200 crore by a group of ministers (GoM) this year because it failed to meet cost-cutting targets. The matter was then referred to the Union cabinet by the GoM.

One view in the ministry is to look at the possibility of a “consortium of public sector banks, financial institutions or industries" being brought in as strategic investors, the officials said. Whether this proposal would be contained in the draft plan to be placed before the cabinet isn’t known.

Over the next four years, Air India needs to repay the principal and interest on aircraft loans besides the working capital loan of 16,000 crore, according to an airline official who asked not to be named.