Australia’s Post’s letter deliveries are “no longer financially sustainable” and will be scrutinised as part of a sweeping review of the government-owned corporation.

The federal government will launch a discussion paper on Thursday aimed at modernising the centuries-old postal service and making it more profitable.

Australia Post is headed for its first annual loss since 2015 after reporting a first-half loss of $189 million earlier this year.

Those losses are expected to grow in the future.

The review will consider the future of letter deliveries which are in rapid decline as the economy digitises and parcel deliveries take over.

Australia Post delivered more than 500 million parcels in the past financial year.

But Australian homes now receive just 2.4 letters per week (from a peak of 8.5 per week in 2007/08) and that number is expected to halve again in the next five years.

Figures show bills and bank statements make up nearly 98 per cent of letters delivered.

Despite the talk of modernisation, the discussion paper said Australia Post would remain in public hands, regardless of the changes made.

Earlier this month Australia Post CEO Paul Graham warned the centuries-old service faced an “uncertain future”.

“Australia Post’s letters business has been in an unstoppable decline since 2008,” said Mr Graham.

“The 214-year-old postal service faces an uncertain future as fewer people send letters and consumers increasingly embrace digital services.”

Finance Minister Katy Gallagher said the review would see how Australia Post locations across the country would be able to operate successfully into the future.

“The government is committed to ensuring that Australia Post continues to modernise to ensure that it is financially sustainable and continues to provide employment opportunities and deliver essential services to all Australians,” she said.

“Australia Post has been a constant driver of economic activity for businesses and consumers across Australia.”

Communications Minister Michelle Rowland said the review would help Australia Post adapt to changes.

“The consultation … will ensure Australia Post maintains the long-term financial stability it needs to continue supporting small businesses and providing essential community services – particularly in our rural, regional and remote communities,” she said.

“Australia Post is a cherished national publicly owned institution that provides invaluable services to Australian consumers and businesses.”

The chief executive of Australia Post told a Senate estimates hearing last month that rules requiring the postal service to deliver letters five days a week should be reviewed in light of falling letter numbers.

Public consultation on the discussion paper will be open until April 27.