Air-India has decided to hive off its engineering division into a separate company, Air-India Engineering Services Ltd, and dilute a 49 per cent stake in it to a strategic partner. It will soon invite bids from private players to this end.

Air-India Engineering Services will be the third division that the airline hiving off into a separate company. The airline's ground services division has already been incorporated as a separate company, Air-India Air Transport Services Ltd. Here, too, Air -India will dilute a 49 per cent stake in favour of a strategic partner.

Besides, the airline is setting up a new company, Air-India Express, for its low-cost operations.

Out of the black box Air-India Engineering Services will be the second division after ground-handling the airline is hiving off into a separate company The hive-offs along with a no-frills airline could be Air-India's way to circumvent stalled privatisation

The development assumes significance as this is essentially a pointer to the partial privatisation of Air-India's non-core operations at a time when the privatisation of the national carrier has been put on the backburner. Senior Air-India executives view this as a method to cut costs as well as a well-defined strategy towards focusing on its core line of business: operating flight services.

Air-India Air Transport Services undertakes ground handling services for domestic and international carriers. With this, it will account for more than 80 per cent of ground services in the country.

An Air-India executive told Business Standard: "Air-India's engineering division will be spun off into a separate company. The idea is to transform it into a separate profit centre. While Air-India will hold a 51 per cent stake, the balance will be held by a private/strategic partner, which will bring in technical expertise, besides capital."

"The engineering company will undertake third-party work for various airlines. This will help the airline generate incremental revenue. At the same time, we are in the process of appointing a consultant for Air-India Air Transport Services to design modalities for roping in a joint venture partner that will be offered 49 per cent equity in the company," source said.

Air-India is one of the world's few airlines with a full-fledged engineering and aircraft maintenance support service.