Cabinet clears ₹10,000-cr fund to shield airlines, offset jet fuel price swings

THe unification storage locker has sanctioned a ₹10,000 crore monetary fund to screen airlines from volatility in the price of jet fuel even as it offsets losses that fuel sellers incur.The one-time budgetary support of ₹10,000 crore will allow Oil Marketing Companies (OMCs) to provide Aviation Turbine Fuel (ATF) at stable prices to Indian airlines for both 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.An IndiGo spokesperson said, “We are grateful to the Government of India, Ministry of Civil Aviation, Ministry of Petroleum and Natural Gas and the concerned authorities for announcing Aviation Turbine Fuel (ATF) price stabilisation support to Scheduled Indian Airlines.”Also Read| Oil prices rise again amid fresh Gulf tensions, Iran-US peace deal impasse“This timely intervention is a welcome relief that reflects the government’s understanding of the critical role aviation plays in connecting people and enabling economic growth, while also fostering an environment that empowers airlines to serve passengers better and contribute towards India’s journey as a global aviation hub,” the spokesperson said.Welcoming the decision and thanking the government, an Air India spokesperson said, “This progressive measure provides a much-needed support to the Indian aviation ecosystem and reinforces the Government’s commitment to strengthening connectivity for the people of India, while enabling airlines to serve passengers more effectively.”Also Read| ₹10,000-crore aviation fuel price relief package">'Much-needed support’: Air India on Centre’s ₹10,000-crore aviation fuel price relief packageThe announcement comes at a time when the aviation sector has been impacted by unprecedented volatility in global ATF prices following the West Asia crisis. International ATF prices have surged nearly 2.5 times from Rs.60.50/litre in March to Rs.142/litre in May. ATF accounts for nearly 40% of an airline’s operating cost.While ATF price has been capped for domestic operations, Indian carriers continue to purchase ATF for international operations at Import Parity Prices (IPP), which depend on the price of crude oil.The government said that 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.The government also said that when international ATF prices moderate, the differential 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 said that the arrangement will be implemented through an MoU between participating airlines and OMCs, with the civil aviation ministry and MoPNG 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 added.Kapil Kaul, CEO and Director of CAPA India said, “Airlines will have a stable ATF pricing providing them with cost certainty to a significant extent especially during uncertain energy pricing situation due to a continuing Middle East war.”Sahil Mahajan, Partner, Aviation Airports and Hospitality, PwC India, said, “The Cabinet’s move to stabilise ATF prices is a timely intervention for an industry where fuel accounts for nearly half of operating costs. By cushioning airlines from extreme volatility, it protects margins and enables more predictable pricing for consumers. It also gives the sector critical breathing room to rebuild resilience amid ongoing geopolitical uncertainty.”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.“The measure will have positive spill-over effects on tourism, hospitality, trade, exports, regional development and investment,” it added.