The proposal, which is at a preliminary stage of discussions, is for providing around Rs 110 billion package to Air India, they added.
"Cleaning up the balance sheet of Air India airline will make it attractive for investors as and when the government decides to once again attempt strategic stake sale of the airline," one of the sources said.
Query sent to Civil Aviation Secretary R N Choubey remained unanswered.
When contacted, an Air India spokesperson said the matter "comes under the domain of the Ministry of Civil Aviation and we should not be commenting on it".
The airline is staying afloat on a bailout package extended by the previous UPA regime in 2012.
The national carrier's debt burden was more than Rs 480 billion at the end of March 2017.
Last month, the government sought Parliament's nod for Rs 9.8 billion as supplementary grants for equity infusion into the airline.
In a reflection of financial crunch at the airline, salaries have been delayed for the staff for five consecutive months.
In the current financial year, the airline has received an equity infusion of Rs 6.5 billion up to June. TAP and a Financial Restructuring Plan (FRP) were approved for Air India by the previous UPA regime in 2012.
All government guaranteed loans and interests thereon are being paid by the government by way of equity infusion into the airline.
Under the FRP, high cost of working capital loans have been converted into long-term debt carrying lesser rates of interest so as to reduce the financial burden on Air India.
"The TAP/ FRP includes budgetary support amounting to Rs 302.31 billion spread over 10 years ie. up to FY 2020-21 and also equity support for the payment of principal/ interest of the non-convertible debentures.
"Air India has received an equity infusion of Rs 272 billion till date," Minister of State for Civil Aviation Jayant Sinha informed the Lok Sabha last month.
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