In a written assurance, the management said that it would soon begin the clearance of five months salary and allowance due from the following week.
Atleast 60 pilots of the airlines refused to fly following which more than 70 flights were cancelled.
"The issue has been amicably resolved and all pilots are returning to work. Next week, we will get contingency funds from the government and give Rs 150 crore as two months' performance-linked incentive (PLI accounts for almost 85% of a pilot's total pay) to all employees," said AI CMD Rohit Nandan.
"We will also try to pay one month's salary this month. In February, we will give one month's salary and PLI. After that when the airline's financial restructuring plan is cleared, all dues will be cleared," he said.
"Pilots came to the airport as per rostering but they refused to fly without being paid. So passengers could not be informed in advance about flight cancellations.
Some flyers were turned away from the boarding gate, some had to wait for hours to get accommodated in other airlines," said a source.
According to Ajit Singh, Aviation Minister, Air India was facing a severe cash crunch and said that he would soon meet Pranab Mukherjee, finance minister to talk over the issue for a speedy solution.
"Employees have a problem... they have not been paid for one-two months. Allowances have not been paid for quite a few months now. AI finances are in a bad condition. Their accounts were frozen yesterday (Friday) and they have not paid oil companies, airport operators, service tax, TDS and salaries," said the minister adding that some dues would be cleared off next week.
"We understand people suffer from such action but the government has driven AI employees to this point," said a long-time AI employee.