The proposed aid would include an equity infusion of Rs 199 billion into the loss-making carrier and Rs 112 billion for aircraft projects, including purchases and maintenance, the report shows.

The report says the total debts of India's airlines are expected to rise to $20 billion in 2011/12 ending March as they struggle with rising oil prices, high sales taxes on jet fuel and below-cost pricing driven by fierce competition.

State-owned Air India, which is burdened with a debt of $4 billion, said on Thursday its board had approved issuing Rs 75 billion worth of shares to its lenders as part of its financial restructuring. It gave no details on the exact stakes lenders may own.

A consortium of Air India's lenders last month gave broad approval to its financial restructuring, a source previously told Reuters.

Air India is expected to account for more than half of the projected total losses of $3 billion for Indian airlines in 2011/12, the Centre for Asia Pacific Aviation has said.

Domestic air passenger traffic is expected to grow by 12 percent a year until 2017, the working group report shows.