The airline is trying to slash costs ahead of its proposed privatisation in 2018, a move that the trade unions do not support.
Air India is drawing up a proposal to offer voluntary buyouts to just over a third of its 40,000 employees, a senior company official said, one of the largest such offers in India's state sector, as the carrier slashes costs ahead of a 2018 sale.
The official, who could not be named as the plans are not public, said the state-owned airline had also put fleet expansion on hold, scrapping a proposal to lease eight Boeing 787 wide-body aircraft. Air India's board approved the proposal in April but nothing further had been done.
India's flag carrier is on the block after Prime Minister Narendra Modi's cabinet last month approved plans to privatise the loss-making airline – selling part or all of the company and ending decades of state support.
Founded in the 1930s and known to generations of Indians for its Maharajah mascot, Air India has a complex fleet, too many staff relative to its peers and is $8.5 billion in debt. Since 2012, New Delhi has injected $3.6 billion to keep it afloat.
An official in Modi's office said the leader, under pressure to cut spending and boost basic infrastructure like ports and roads, is in "no mood" to provide fresh monetary assistance to any loss-making public sector company.
The official said that top bureaucrats in the civil aviation ministry and at Air India had been asked to present a report on how a Voluntary Retirement Scheme (VRS) could be offered to about 15,000 of Air India's 40,000 staffers, including contractors.
"Nothing has been finalised but our aim is to make the strategic sale as simple as we can," said a second, top official in New Delhi, involved in the airline's daily operations, adding that any fresh investments would be put on hold.
Previous attempts to offload the airline have failed mainly because of the scale and complexity of problems at Air India, as well as its influential unions.
If Modi can pull the privatisation off, it will buttress his credentials as a reformer brave enough to wade into some of the country's most intractable problems.
In its heyday, Air India boasted of a talent pool that newly founded airlines dipped into.
Labour needs convincing
The government will, however, need to convince seven trade unions to accept the plan to make the company attractive to potential buyers, including buyouts and other efforts to slash costs. Their initial response was not positive.
"The government will propose a VRS scheme and we will throw their proposal in the dustbin," said JB Kadian, leader of a union that represents 8,000 non-technical staff of Air India.
Kadian said a joint-forum of unions representing Air India employees will launch "an agitation" in August if the government pursues its plans to privatise the national carrier.
A committee of five senior federal ministers, led by Finance Minister Arun Jaitley, is expected to meet this month and begin ironing out the finer details of the privatisation plan.
In the meantime, Civil Aviation Minister Ashok Gajapathi Raju said he wants Air India to begin cutting at all levels.
No non-vegetarian meals
Earlier this month, the airline decided to stop serving non-vegetarian meals in the economy class on domestic flights, in a bid to save up to 100 million rupees ($1.6 million) over 10 months.
The action provoked uproar on social media and was belittled by aviation experts, who argue Air India management needs a massive structural overhaul, tackling thornier issues such as fleet and staff, not meals.
The airline is also working to reduce the time its planes are not flying and launching direct flights to new international destinations. In July, Air India started a direct flight to Washington. It will start flying to Stockholm, Copenhagen and Los Angeles later this year.
"Keeping planes in the hangar makes no sense when Air India is trying find new sources of income. We should optimise the use of all possible resources," Raju said.
"The idea is to present a robust company to potential buyers," the minister said.