Government Launches ₹10,000 Crore Fund to Stabilize Aviation Fuel Prices Amid Crisis

New Initiative to Support Airlines

New Delhi, Jun 3: The Union Cabinet has approved a significant ₹10,000 crore program aimed at stabilizing aviation turbine fuel (ATF) prices, a response to the escalating fuel costs resulting from the ongoing crisis in West Asia. This initiative is designed to safeguard air connectivity and mitigate fare fluctuations.

During the announcement, Information and Broadcasting Minister Ashwini Vaishnaw highlighted that this financial support is crucial for airlines facing rising ATF prices due to the conflict and the closure of airspace by Pakistan for Indian flights.

The program will offer interest-free advances of up to ₹10,000 crore to state-owned oil marketing companies (OMCs), allowing them to supply ATF to scheduled Indian airlines at a stabilized price for both domestic and international flights, as per a government statement.

Vaishnaw emphasized that this fund aims to stabilize ATF prices for scheduled Indian carriers, ensuring uninterrupted airline operations.

With this financial backing, airlines will benefit from a consistent ATF price during the ongoing turmoil, and once the crisis subsides, the participating airlines will be required to repay the amount, he explained.

The Minister noted that this fund would protect air travelers from fare increases caused by the surge in global oil prices and safeguard approximately 7.7 million jobs reliant on the aviation sector.

Under this arrangement, OMCs will receive compensation whenever international import parity prices surpass a predetermined benchmark established by the approved mechanism.

"When international ATF prices decrease, the excess amount will be reclaimed from OMCs and returned to the Consolidated Fund of India. This arrangement will remain in effect until the entire support amount is fully recovered and settled," the statement added.

Recently, ATF prices, which constitute about 40% of an airline's operational expenses, have surged significantly due to the West Asia crisis that began in late February.

The support mechanism is introduced as international ATF prices rose to approximately ₹142 per litre in May, up from ₹60.50 per litre in March, intensifying financial strain on airlines, especially when fuel costs account for nearly 40% of operational expenses and can reach as high as 60% during extreme volatility.

The ATF price stabilization support will be active for a duration of 36 months, with provisions for annual reviews or until the advance amount is fully recovered, whichever comes first.

While ATF prices have been capped for domestic flights, Indian airlines still purchase fuel for international operations at Import Parity Prices (IPP), leaving them vulnerable to high fuel costs.