India's finance ministry has agreed to guarantee Air India's Rs74 billion ($1.4 billion) bond issue.
This will allow the airline to get a credit rating for its planned issue of non-convertible debentures, which has been delayed for several months because of a lack of interest from financial institutions, says Air India.
The bond will mature in 19 years and is priced at a spread, capped at 70 basis points, over the applicable government security.
The flag carrier says that it expects to tap on pension and provident funds as well as other financial institutions to raise the money.
The proceeds will be used to repay the short-term working loans that Air India has used from 19 banks, enabling it to save on interest costs, says the airline.
Air India, which had to turn to the government for a bail-out after accumulating billions of dollars in debts, says that its restructuring programme "is on track with the airline achieving the milestones set under the turnaround plan".
The carrier's on-time performance in September was nearly 86% and its passenger load factor has risen to around 71.8%, it adds.