The Union Cabinet has approved a one-time budgetary support of up to Rs 10,000 crore to help stabilise aviation turbine fuel (ATF) prices for scheduled Indian airlines amid sharp fuel price volatility triggered by the West Asia crisis. The support will be extended as interest-free advances to oil marketing companies (OMCs) through the Ministry of Petroleum and Natural Gas.
Under the approved Price Stabilization Fund, the corpus will compensate OMCs for losses when international ATF prices remain elevated and the prevailing import parity price exceeds a benchmark determined under the mechanism. When global ATF prices moderate, the differential will be recovered from OMCs and returned to the Consolidated Fund of India until the entire support amount is settled.
The scheme will be available to all willing scheduled Indian carriers for both domestic and international operations. It introduces a fixed-price arrangement for ATF, aimed at giving airlines greater predictability in fuel costs and reducing their exposure to sudden price spikes. Participating airlines will procure ATF exclusively from OMCs for up to three years, subject to annual review or until the advance amount is fully recovered, under a memorandum of understanding signed by airlines, OMCs, the Ministry of Civil Aviation and the Ministry of Petroleum and Natural Gas.
A monitoring committee with representatives from the civil aviation, petroleum and natural gas ministries and the Department of Expenditure will oversee implementation, claim verification, reconciliation and settlement, with all claims and recoveries subject to audit. The ATF price stabilisation support will remain in force for 36 months, with provision for annual review, and may be extended with the approval of the competent authority if the corpus is not fully trued up within this period.
The government expects the mechanism to provide stability and predictability in ATF pricing, enabling better operational and financial planning for airlines and limiting the pass-through of fuel price shocks to passengers. It also aims to shield OMCs from losses during the current phase of volatile and elevated ATF prices, while supporting continuity of domestic and international air connectivity, including to remote, regional, Tier-II and Tier-III locations. According to the release, continued connectivity is expected to sustain employment across aviation-linked sectors, support movement of passengers and high-value cargo, and generate positive spillover effects for tourism, hospitality, trade, exports and regional development.
The backdrop to the decision is a sharp surge in international ATF prices, which have risen nearly 2.5 times from Rs 60.50 per litre in March 2026 to Rs 142 per litre in May 2026. ATF accounts for nearly 40 per cent of airline operating costs and can rise to as much as 60 per cent during periods of extreme volatility, putting significant pressure on airline financials. While ATF prices for domestic operations have been capped as a temporary measure, Indian carriers continue to buy ATF for international services at import parity prices, and OMCs have been incurring losses under the domestic cap.
The government also cited the closure of Pakistani airspace for Indian carriers, which has led to longer routings to Europe, North America and Central Asia, higher fuel burn and increased operational costs. The release notes that long-haul passenger fares have risen substantially, international demand has weakened, and airlines have reduced or suspended services on several international routes.
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