The proposal for the sale of these wide-body planes, part of the national carrier's turnaround plan, was cleared at a meeting of the Cabinet Committee on Economic Affairs chaired by Prime Minister Manmohan Singh, official sources said.
Air India had earlier this month finalised the deal with the Abu Dhabi-based carrier, which has also picked up 24 per cent stake in Jet Airways worth over Rs 2,000 crore.
Though both Air India and Etihad have remained tight- lipped about the deal size, it is estimated that Air India could get $300-350 million through the sale of five of its Boeing 777-200 LR (Long Range) planes which have an average age of six years.
The money would be utilised by Air India to partly pay off its huge debt and liabilities of over Rs 20,000 crore.
The two airlines had signed a Letter of Intent in October for an undisclosed amount, which was later approved by the national carrier's board.
The deliveries of these aircraft to Etihad are likely to start around March-April next year, the sources said. Etihad has already announced plans to deploy them on long-haul routes like Abu Dhabi-Los Angeles from June next year.
Each of these planes would be re-fitted in a three-class configuration consistent with Etihad's fleet. The purchase comes as Etihad finalises a new fleet order to meet its organic growth and expansion requirements till 2025.
The Boeing 777-200 LRs have a design range of 17,370 km, that could allow Etihad to connect almost any city in the world from its Abu Dhabi hub.
Air India, saddled under huge debt, had put eight of these aircraft for sale, but as there were no takers earlier, it had to issue the tender twice.