The government plans to sell a 76 percent stake in the carrier that operates both domestic and international routes, according to official bid documents released by the ministry of civil aviation.
The proposed sale will also include a 100 percent stake in Air India's low-cost arm - Air India Express, and a 50 percent stake in its ground-handling arm - SATS Airport Services.
Bids for the assets are expected to be submitted by May 14.
Modi's cabinet gave the go-ahead last year to sell the loss-making flagship airline after successive governments spent billions of dollars to keep it solvent.
But its debt burden of about $8 billion and a bloated cost structure have been a concern.
Previous attempts to offload the airline have been unsuccessful. If Modi can pull this off, it will buttress his credentials as a reformer brave enough to wade into some of the country's most intractable problems.
Air India has six subsidiaries – three of which are loss-making – with assets worth about $4.6 billion. It has an estimated $1.24 billion worth of real estate, including two hotels, where ownership is split among various government entities.
Companies including low-cost Indian carrier IndiGo, owned by InterGlobe Aviation, Tata Group and Turkey's Celebi Aviation Holdings, have expressed an interest in buying some of Air India's operations. Singapore Airlines has also said the company has an open mind about making an initial bid.
The successful bidder would need to retain its stake in Air India and management control of the airline for at least three years, according to the government document. The winning bidder would also need to ensure that substantial ownership and effective control of Air India and Air India Express would continue to be vested in Indian nationals.
Air India was founded in the 1930s and is known to generations of Indians for its Maharajah mascot. The government has injected $3.6 billion since 2012 to bail out the airline.
(Aditi Shah - Reuters)