Big Relief for OMCs! Cabinet approves Rs 10,000 crore ATF price stabilisation fund

The Union Cabinet on Wednesday approved a one-time budgetary support of up to Rs 10,000 crore for Oil Marketing Companies (OMCs) to provide Aviation Turbine Fuel (ATF) price stabilisation support to scheduled Indian airlines for both domestic and international operations.

The decision, taken by the Cabinet chaired by Prime Minister Narendra Modi, aims to provide greater stability in fuel costs for airlines amid sharp volatility in global fuel prices triggered by the ongoing West Asia crisis.

The support will be provided as an interest-free advance to OMCs through the Demands for Grants of the Ministry of Petroleum and Natural Gas.

Interest-free support to OMCs

Under the approved mechanism, the government will provide a one-time budgetary support of up to Rs 10,000 crore as an interest-free advance to OMCs.

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

The government said the measure is intended to facilitate stable ATF pricing for airlines during the ongoing period of exceptional fuel price volatility.

A Monitoring Committee comprising representatives from the Ministry of Civil Aviation, the Ministry of Petroleum and Natural Gas, and the Department of Expenditure will oversee implementation of the scheme. The committee will monitor claim verification, reconciliation and settlement processes. All claims and recoveries will be subject to audit.

Recovery mechanism and fixed-price arrangement

The Cabinet has also approved a recovery and true-up mechanism under which the support amount will be recovered when international ATF prices moderate.

The differential amount will be collected from OMCs and returned to the Consolidated Fund of India. The arrangement will continue until the entire support amount is fully recovered and settled.

To provide greater predictability in fuel costs, the mechanism introduces a fixed-price arrangement for ATF used in both domestic and international operations. The government said this will reduce airlines' exposure to sudden spikes in fuel prices and improve financial planning.

The scheme will be available to all willing scheduled Indian carriers operating domestic and international services.

Airlines to procure ATF exclusively from OMCs

The arrangement will be implemented through a Memorandum of Understanding (MoU) between participating airlines and OMCs, with the Ministry of Civil Aviation and the Ministry of Petroleum and Natural Gas acting as signatories.

Under the one-time arrangement, participating airlines will procure ATF only from OMCs for a period of up to three years. The arrangement will be subject to annual review or continue until the advance amount is fully recovered, whichever is earlier.

The government said the framework is designed to balance the interests of airlines and OMCs while ensuring fuel supply stability during a period of elevated global energy prices.

ATF price stabilisation support will remain in force for 36 months, with provisions for annual review. The proposal may be extended beyond this period with the approval of the competent authority if the corpus is not fully settled within the prescribed timeframe.

Government expects support for connectivity and fare stability

According to the government, the approved mechanism is expected to provide enhanced stability and predictability in ATF pricing, enabling airlines to undertake better operational and financial planning.

The measure is also expected to shield OMCs from losses caused by volatile international fuel prices during the ongoing West Asia crisis.

The government said the initiative will help sustain domestic and international air connectivity and reduce the impact of fuel price shocks on passengers by moderating airfare volatility.

It is also expected to support connectivity to remote, regional, Tier-II and Tier-III cities and ensure continued utilisation of airport infrastructure developed across the country, including airports operationalised under the UDAN scheme.

The Cabinet noted that continued air connectivity facilitates the movement of passengers, business travellers, tourists and high-value cargo, thereby supporting economic activity across sectors.

West Asia crisis pushes ATF prices sharply higher

The government said the aviation sector has been facing unprecedented volatility in global ATF prices following the West Asia crisis. International ATF prices have surged nearly 2.5 times, rising from Rs 60.50 per litre in March 2026 to Rs 142 per litre in May 2026.

ATF accounts for nearly 40 per cent of airline operating costs and, during periods of extreme volatility, can rise to as much as 60 per cent of total operating expenditure.

While ATF prices have been capped for domestic operations, airlines continue to purchase fuel for international operations at Import Parity Prices, exposing them to higher fuel costs.

The government said the capping mechanism is temporary and not sustainable in the long term, as OMCs also incur losses when global fuel prices remain elevated.

The situation has been further aggravated by the closure of Pakistan's airspace for Indian carriers, resulting in longer flight routes to Europe, North America and Central Asia. This has increased fuel consumption and operational costs for airlines.

According to the government, higher fuel costs have led to a substantial rise in long-haul passenger fares, weaker international demand and the reduction or suspension of services on several international routes.