"It has been decided at the last over-sight meeting that we will not pursue the VRS scheme," Air India sources told PTI.
Air India had in July 2012 approved the VRS package for all its permanent employees who have served for 15 years or are at least 40 years of age.
The now-derailed scheme had expected some 5,000 employees to avail of the package, which was aimed at reducing the huge salary bill - pegged at Rs 3,100 crore this fiscal.
Over the past couple of years, its salary bill has been coming down. In FY12 it was Rs 3,500 crore, which came down to Rs 3,300 crore last fiscal.
"We were very keen to implement the scheme at that stage as we wanted to trim the workforce. However, the situation in the last over two-and-a half years has changed as we have seen very high super-annuation rate, which led us to shell it altogether," they said.
According to sources, the carrier has seen over 3,000 retirements in the last two years across categories, in addition to around 200 employees leaving for reasons other than retirement.
As per the company policy, an employee completing 20 years can submit his papers and leave the carrier.
Air India had sought Rs 1,200 crore from the government to implement the VRS package, sources said, adding, "the Finance Ministry, however, turned down the request."
The ministry, while red-flagging the scheme, had pointed out that around 7,000 employees will retire from service over the next three years and another 12,000 will be transferred to ground handling and engineering subsidiaries, they said.
"The current workforce in the carrier stands at below 24,000 (permanent ones). Another 1,500 employees will be retiring by this March," the sources said.
After hiving-off its engineering and ground handling services into two separate subsidiaries, the carrier has moved around 8,000 employees to these units.