Govt allocates ₹10,000-crore fund to stabilise aviation fuel prices amid Iran war

THe unification storage locker, chaired by ground government minister Narendra Modi, on midweek approved a one-time budgetary support of Rs10,000 crore for Oil Marketing Companies (OMCs) to provide Aviation Turbine Fuel (ATF) price stabilisation support to Indian airlines for both their domestic and international operations.“The budgetary support will be in the form of interest-free advances to OMCs through the demands for grants of the Ministry of Petroleum and Natural Gas (MoPNG). The support will be provided to OMCs to facilitate stable ATF pricing for airlines during the ongoing period of exceptional fuel price volatility arising from the West Asia crisis,” the government said.This comes at a time when the aviation sector has been impacted by unprecedented volatility in global ATF prices following the West Asia crisis. Due to the ongoing West Asia crisis, international ATF prices have surged nearly 2.5 times from ₹60.50/litre in March 2026 to Rs142/litre in May 2026. ATF accounts for nearly 40% of an airline's operating cost. Therefore, this volatility in ATF prices has resulted in high cost pressure on airline financials.While ATF price has been capped for domestic operations, Indian carriers continue to purchase ATF for international operations at Import Parity Prices (IPP).The government said that a one-time budgetary support of up to Rs10,000 crore will be provided as an interest-free advance to OMCs to support ATF price stabilisation for Indian airlines. The corpus will compensate OMCs for losses arising from elevated international ATF prices whenever the prevailing IPP exceeds the benchmark price determined under the approved mechanism.What happens when int'l ATF prices moderate?The government also said that when international ATF prices moderate, the differential amount will be recovered from OMCs and returned to the Consolidated Fund of India and that the arrangement will continue until the entire support amount is fully recovered and settled.“The mechanism provides greater predictability in fuel costs by adopting a fixed-price arrangement for domestic and international operations, thereby reducing airline’s exposure to sudden fuel price spikes,” a statement from the government read.It also said that the arrangement will be implemented through an MoU between participating airlines and OMCs, with the civil aviation ministry and MMoPNG as signatories.“Under this one-time arrangement, participating airlines will procure ATF only from OMCs for up to three years, subject to annual review or until the advance amount is fully recovered, whichever is earlier,” the government clarified.A monitoring committee comprising representatives of the civil aviation ministry and MoPNG, and Department of Expenditure will oversee implementation, claim verification, reconciliation and settlement. All claims and recoveries shall be subject to audit, the government said.“ATF price stabilisation support will be in force for a period of thirty-six months with provision for annual review or until the advance amount is fully recovered/settled, whichever is earlier. The proposal may be extended beyond thirty-six months with the approval of the Competent Authority in case the corpus is not fully trued up within this period,” the government said.The government said that the proposed mechanism will provide enhanced stability and predictability in ATF pricing for Indian airlines, enabling better operational and financial planning. It also said that the mechanism will also shield OMCs from losses arising from volatile and elevated ATF prices during the ongoing West Asia crisis.“The measure will help protect and sustain domestic and international air connectivity, ensuring continuity of air services. It will reduce the pass-through of fuel price shocks to passengers, thereby helping to moderate fare volatility. The arrangement will support continued air connectivity to remote, regional, Tier-II and Tier-III cities, promoting balanced regional development and inclusive growth,” the government said.With this mechanism, the benefits will include stable airline operations and help sustain employment across airlines, airports, ground handling agencies, MROs, travel agencies, hospitality and logistics sectors.The government said that the mechanism will also benefit continued air connectivity and facilitate the movement of passengers, high-value cargo, business travellers and tourists, thereby supporting economic activity across sectors.“The measure will have positive spill-over effects on tourism, hospitality, trade, exports, regional development and investment. It will help ensure optimum utilisation of airport infrastructure developed across the country, including airports operationalised under the UDAN scheme. By preserving domestic and international connectivity, the initiative will strengthen India's integration with global markets and support long-term economic growth,” the government also said.