The Union Cabinet, chaired by Prime Minister Narendra Modi, has approved a one-time budgetary support package of up to Rs 10,000 crore to help stabilise Aviation Turbine Fuel (ATF) prices for scheduled Indian airlines amid sharp volatility in global fuel markets triggered by the ongoing West Asia crisis.
The financial support will be extended to Oil Marketing Companies (OMCs) in the form of interest-free advances through the Ministry of Petroleum and Natural Gas. The mechanism is aimed at cushioning airlines from sudden spikes in fuel costs while ensuring that OMCs are compensated for losses arising from elevated international ATF prices.
Under the approved framework, OMCs will receive compensation whenever the prevailing Import Parity Price (IPP) of ATF exceeds a benchmark price determined under the government-approved formula. The support will cover both domestic and international airline operations.
Fuel cost certainty for airlines
The government said the arrangement seeks to bring greater predictability to airline fuel expenses through a fixed-price ATF mechanism, reducing the sector’s exposure to abrupt price fluctuations.
The scheme will be available to all Indian carriers. Participating airlines will enter into a tripartite arrangement with OMCs, the Ministry of Civil Aviation and the Ministry of Petroleum and Natural Gas. As part of the agreement, airlines opting into the scheme will source ATF exclusively from OMCs for a period of up to three years, subject to annual review or until the entire advance amount is recovered, whichever is earlier.
The support package also includes a recovery mechanism. Once international ATF prices ease, the differential amount paid to OMCs will be recovered and transferred back to the Consolidated Fund of India. The process will continue until the entire support corpus is reconciled and settled.
A Monitoring Committee comprising representatives from the Ministry of Civil Aviation, Ministry of Petroleum and Natural Gas and the Department of Expenditure will supervise implementation, verify claims, oversee reconciliation and ensure audit compliance.
Response to West Asia-driven fuel surge
The decision comes against the backdrop of unprecedented turbulence in global aviation fuel markets. International ATF prices have risen nearly 2.5 times, from Rs 60.50 per litre in March 2026 to around Rs 142 per litre in May 2026, significantly increasing cost pressures on airlines.
ATF typically accounts for about 40 per cent of an airline’s operating expenditure and can rise to as much as 60 per cent during periods of extreme volatility. While domestic ATF prices have been capped, Indian carriers operating international routes continue to purchase fuel at import parity prices, leaving them exposed to higher costs.
The government noted that prolonged capping of ATF prices is not sustainable for OMCs, which have also been absorbing losses amid the sharp rise in fuel costs.
The situation has been further aggravated by the closure of Pakistan’s airspace for Indian airlines, forcing carriers to take longer routes to destinations in Europe, North America and Central Asia. The detours have increased fuel consumption and operational expenses, contributing to higher airfares and a reduction in services on some international routes.
According to the government, the stabilisation mechanism is expected to support operational and financial planning for airlines, protect air connectivity and reduce the extent to which fuel price shocks are passed on to passengers through ticket prices.
The measure is also expected to sustain connectivity to regional, Tier-II and Tier-III destinations, support employment across aviation-linked sectors such as airports, ground handling, maintenance and tourism, and strengthen the utilisation of airport infrastructure developed under the UDAN regional connectivity scheme.
Officials said the initiative would help preserve domestic and international air links, support trade and tourism activity, and reinforce India’s integration with global markets during a period of heightened geopolitical and energy-market uncertainty.