"The turnaround plan of Air India has been approved," Civil Aviation Minister Ajit Singh told reporters after a meeting of the Cabinet Committee on Economic Affairs (CCEA).
The CCEA approved the TAP and the airline's financial restructuring plan (FRP), which includes additional equity infusion by the government.
Besides, the issue of induction of the much-awaited Boeing Dreamliner-787, part of the TAP, was also given the green signal by the CCEA, official sources said.
They said the issue of allowing foreign airlines to invest in Indian carriers could be taken up by the Cabinet next week.
As part of the airline's restructuring plans, the government had announced infusion of Rs 4,000 crore during the current fiscal in the 2012-13 Union Budget.
This would raise the airlines' equity base to Rs 7,345 crore. US aircraft manufacturer Boeing is expected to deliver the first of the 27 Dreamliners, ordered in 2005, to the national carrier next month.
The delivery of these aircraft was initailly to commence from 2009 but the US aircraft-maker deferred it for various reasons, including labour unrest.
The SBI-led consortium of 19 banks had last month approved the FRP which includes debt restructuring of Rs 18,000 crore by the banks and a committed equity infusion by the government.
The financial restructuring exercise began in May 2010 with SBI-Caps being appointed Financial Advisors to the transaction.
The FRP is based on Air India's overall turnaround plan aimed at providing immediate relief to the airline through provisions such as funded interest term plan, repayment moratorium of long-term loans and upfront equity infusion by the government.
The plan, formulated on the basis of projected cash flows of the company, provides a roadmap to improve the airline's operational efficiency and put it on the road to profitability, the sources said.
The high-cost working capital debt of the national carrier stands at Rs 22,000 crore, of which the banks will restructure about Rs 18,000 crore.
Of nearly Rs 18,000 crore borrowings, Rs 10,500 crore will be converted into long-term debt with a repayment period of 10-15 years. The remaining Rs 7,400 crore will be repaid to banks through a government-guaranteed bond issue.