Cabinet approves Rs 10,000 crore jet fuel stabilisation fund

• The Union Cabinet, chaired by Prime Minister Narendra Modi, approved one-time budgetary support not exceeding Rs 10,000 crore for Oil Marketing Companies (OMCs) to provide aviation turbine fuel (ATF) price stabilisation support to scheduled Indian airlines for their domestic and international operations. 

• The budgetary support shall be in the form of interest-free advances to OMCs through the Demands for Grants of the Ministry of Petroleum and Natural Gas. 

Why was this decision taken?

• ATF accounts for nearly 40 per cent of an airline’s operating cost. 

• The aviation sector has been impacted by unprecedented volatility in global ATF prices due to the ongoing  West Asia crisis.

• International ATF prices have surged nearly 2.5 times from Rs 60.50 per litre in March 2026 to Rs 142 per litre in May 2026. 

• 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), exposing them to elevated fuel costs.

• Closure of Pakistan airspace for Indian carriers has resulted in longer flight paths to Europe, North America and Central Asia, increasing fuel burn and operational costs.

• Long-haul passenger fares have increased substantially, international demand has declined and airlines have reduced or suspended services on several international routes.

How will it be implemented?

• The corpus shall compensate OMCs for losses arising from elevated international ATF prices whenever the prevailing Import Parity Price exceeds the benchmark price determined under the approved mechanism.

• The arrangement will be implemented through an MoU between participating Indian airlines and OMCs. 

• 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 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.

• When international ATF prices moderate, the differential amount shall be recovered from OMCs and returned to the Consolidated Fund of India. The arrangement shall continue until the entire support amount is fully recovered and settled.

• A Monitoring Committee comprising representatives of the Ministry of Civil Aviation, Ministry of Petroleum & Natural Gas and Department of Expenditure shall oversee implementation, claim verification, reconciliation and settlement. All claims and recoveries shall be subject to audit.

Expected outcomes:

i) The proposed mechanism will provide enhanced stability and predictability in ATF pricing for Indian airlines, enabling better operational and financial planning.

ii) It will shield OMCs from losses arising from volatile and elevated ATF prices during the ongoing West Asia crisis.

iii) The measure will help protect and sustain domestic and international air connectivity, ensuring continuity of air services.

iv) It will reduce the pass-through of fuel price shocks to passengers, thereby helping to moderate fare volatility.