India's government, which is planning to sell a stake in its state-run flag carrier, is considering options such as keeping out at least a part of its US$8 billion of debt to help lure investors, the nation's civil aviation minister said.

Air India Ltd.'s assets such as real estate could also be spun off into a separate company, Ashok Gajapathi Raju said in an interview in New Delhi Friday. A call will be taken by a group of ministers headed by Finance Minister Arun Jaitley, and the government is open to all options, including allowing foreign investment in the carrier, he said.

"Its books are bad, you can't leave it like that," Raju said in his office. "Suppose a portion of its debt is removed, non-aviation-related assets are removed and put into a shell company owned by the government, I think things will work."

A successful sale of Air India is key for Indian Prime Minister Narendra Modi, who has promised reforms and vowed to improve government finances. But Air India's balance sheet that includes real estate from Tokyo to London, two hotels, five subsidiary companies and a joint venture, makes a possible sale complicated.

Political Resistance

While a sale makes economic sense for the government, it may still face resistance from political parties. At least one attempt almost two decades ago to sell the airline failed.

Other options include handing over management of Air India-owned hotels to provincial governments or to the tourism board, Raju said.

A decision on Air India's future is needed soon, because to remain a "vibrant" and competitive airline, it needs to take some calls on its business plan, which is limited by its weak finances, Raju said. Potential buyers also need to know what's on the table before giving it "serious consideration," he said.

IndiGo, India's biggest commercial airline, said in June it was willing to buy Air India's international operations, or even the entire airline business, while travel and aviation firm Bird Group has shown interest in bidding for the carrier's ground handling business.

"If Air India ceases activities, no one gains," Raju said, "If debt has to go with it, no one will be interested."