The Union Cabinet has approved a one-time Price Stabilisation Fund of up to ₹10,000 crore to support Scheduled Indian Airlines facing rising aviation fuel costs amid the ongoing West Asia crisis. The financial support will be provided through Oil Marketing Companies (OMCs) to help stabilise Aviation Turbine Fuel (ATF) prices for both domestic and international operations.
The decision comes at a time when global ATF prices have witnessed sharp volatility, putting significant pressure on airline finances. According to the government, the measure aims to provide greater certainty in fuel costs, reduce fare volatility, and ensure continued air connectivity across the country.
Key Highlights
- Cabinet approves a one-time ATF Price Stabilisation Fund of up to ₹10,000 crore.
- Interest-free advances will be provided to Oil Marketing Companies (OMCs).
- The scheme will cover both domestic and international operations of the Scheduled Indian Airlines.
- Airlines opting into the scheme will receive fuel under a fixed-price arrangement.
- The support mechanism will remain in force for up to 36 months, subject to annual review.
- Any support provided to OMCs will be recovered once international ATF prices moderate.
Government Introduces ATF Price Stabilisation Mechanism
Under the approved framework, the government will provide interest-free advances to OMCs through the Ministry of Petroleum and Natural Gas. The fund will compensate OMCs whenever international ATF prices exceed a benchmark level determined under the scheme.
The objective is to protect airlines from sudden spikes in fuel costs while ensuring that OMCs do not bear sustained financial losses due to fuel price controls.
A fixed-price arrangement will be adopted for participating airlines, allowing them to procure aviation fuel at more predictable rates. This is expected to improve financial planning and operational stability for carriers operating in an uncertain global fuel market.
Recovery Mechanism to Protect Government Finances
The government has clarified that the support is not a permanent subsidy. When international ATF prices decline, the differential amount will be recovered from OMCs and returned to the Consolidated Fund of India. This recovery and settlement process will continue until the entire support amount has been fully recovered.
To ensure transparency, all claims and recoveries will be subject to audit and oversight by a Monitoring Committee comprising representatives from the Ministry of Civil Aviation, the Ministry of Petroleum and Natural Gas, and the Department of Expenditure.
Coverage and Conditions for Airlines
The scheme will be available to all willing Scheduled Indian carriers operating domestic and international services. Participating airlines will enter into a Memorandum of Understanding (MoU) with OMCs, with the Ministries of Civil Aviation and Petroleum & Natural Gas acting as signatories.
As part of the arrangement, participating airlines will procure ATF exclusively from OMCs for a period of up to three years or until the government support amount is fully recovered, whichever is earlier. The arrangement will also undergo an annual review.
Why the Measure Was Needed
The aviation sector has been significantly affected by the ongoing West Asia crisis, which has triggered sharp increases in global fuel prices. According to the government, international ATF prices rose from around ₹60.50 per litre in March 2026 to approximately ₹142 per litre in May 2026, an increase of nearly 2.5 times within two months.
ATF typically accounts for about 40% of airline operating costs. During periods of extreme volatility, fuel expenses can rise to as much as 60% of total operating expenditure.
Indian airlines have also faced additional challenges following the closure of Pakistani airspace for Indian carriers. Longer flight routes to Europe, North America, and Central Asia have increased fuel consumption and operating costs, further straining airline finances. The government noted that these developments have contributed to higher international airfares, weaker passenger demand on some routes, and reductions in airline services.
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Expected Impact on Airlines and the Economy
The government expects the price stabilisation mechanism to provide greater predictability in airline fuel costs and help maintain domestic and international air connectivity. By reducing the impact of fuel price shocks, the scheme may help moderate airfare volatility for passengers and support services to regional, remote, Tier-II, and Tier-III cities.
The initiative is also expected to benefit sectors linked to aviation, including tourism, hospitality, logistics, maintenance and repair services, airports, travel agencies, and cargo transportation.
Officials believe that maintaining air connectivity will support economic activity, improve utilisation of airport infrastructure developed under the UDAN scheme, and strengthen India’s integration with global markets.
For researchers and policy analysts, the decision represents a targeted intervention aimed at managing the economic impact of external geopolitical shocks while balancing the financial interests of both airlines and fuel suppliers.
Source: Ministry of Civil Aviation
