The committee was constituted in 2010 and comprised representatives from government ministries involved in transportation and the private sector.
In its three-volume report, which was released by Prime Minister Manmohan Singh on Saturday, the committee has said it does not see any reason for the government to continue with its exclusive ownership in the national carrier.
A plan for progressive disinvestment of the governments stake in Air India over a period of three to five years, based on a phased scheme with defined milestone, should be achieved, the report said.
The committee has observed that Air India would need to be recapitalised, restructured organisationally, its working capital debt burden written off and some divisions made independent and corporatised with government retaining perhaps a 26 per cent stake.
Air Indias future prospects remain precarious, the report said, as the airline is overmanned and unproductive with sub-par operations and has failed to invest in technology need to retain its competitiveness.
Air India must therefore be provided the opportunity to reinvent itself with new professional management, managerial and operational autonomy, while taking over all existing productive assets.
The government, in April 2012 approved financial support of over Rs 30,000 crore to the airline to be spread over a period of nine years till 2020-21. The national carrier has already received Rs 12,000 crore in the first two years and the government, in its interim budget, has another Rs 5,000 crore for FY15.
Air India has shown revenue increase and reduction in losses but continues to lose around Rs 10 crore a day. The airline is also trying to monetise its assets.
The recommendations assume significance since a section of the government is also talking about privatising Air India. The civil aviation minister has also said it the government should not be in the services industry and privatise Air India, which was opposed by several parliamentarians.
In other recommendations, the committee also wants the government to rationalise tax on jet fuel, a long-pending demand of the aviation industry. Tax on jet fuel in India is as high as 33 per cent and the airlines have been petitioning the government for bringing it down to 4 per cent.
Analysts welcome the recommendation but say that the divestment should happen as early as possible and three to five years is a long time.
The government should constitute a special administration like Satyam to oversee the airlines privatisation and should happen as quickly as 12 months in spite of recent significant improvement in financial performance, the real turnaround of the airline is unlikely, said Kapil Kaul, CEO of CAPA in India.