India Approves Rs 10,000 Crore ATF Fund to Protect Airlines As West Asia War Causes Fuel Price Spike

New Delhi: Indian government approved a one-time budgetary support of up to Rs 10,000 crore for Oil Marketing Companies (OMCs) to stabilise Aviation Turbine Fuel (ATF) prices for scheduled Indian airlines for their domestic and international operations. The decision comes in response to the sharp rise in global jet fuel prices triggered by the ongoing West Asia crisis.

ATF, commonly known as jet fuel, accounts for nearly 40 per cent of an airline’s operating costs under normal conditions. During periods of extreme price volatility, this can rise to as much as 60 per cent of total operating expenditure, according to the Ministry of Civil Aviation.

Fuel Prices Nearly 2.5 Times Higher

The West Asia crisis has severely disrupted global energy markets. According to the Ministry of Civil Aviation, international ATF prices surged from Rs 60.50 per litre in March 2026 to Rs 142 per litre in May 2026, an increase of nearly 2.5 times in just two months. The spike has pushed up airfares, forced airlines to cut routes and put significant financial pressure on carriers.

The closure of Pakistan’s airspace for Indian carriers has added to the problem, as airlines now have to take longer flight paths to Europe, North America and Central Asia, burning more fuel and raising costs further.

The Rs 10,000 crore support will be provided as interest-free advances to OMCs through the Demands for Grants of the Ministry of Petroleum and Natural Gas. OMCs will be compensated whenever the prevailing Import Parity Price of ATF exceeds the benchmark price set under the approved mechanism.

Under this arrangement, participating airlines will procure ATF exclusively from OMCs at a fixed-price arrangement, giving them greater predictability in fuel costs and reducing their exposure to sudden price spikes. The scheme will be available to all willing scheduled Indian carriers for both domestic and international operations, according to the Ministry of Civil Aviation press release issued on June 3.

When global ATF prices come down, the differential amount will be recovered from OMCs and returned to the Consolidated Fund of India. The arrangement will continue until the entire advance amount is fully recovered and settled.

The Modi Cabinet cleared this decision on Tuesday, Minister of Civil Aviation Ram Mohan Naidu welcomed it, saying “the government has consistently taken timely measures to protect passengers, airlines and the broader aviation ecosystem. The intervention will bring significant relief to airlines by reducing uncertainty in fuel costs and will ultimately benefit passengers through lower airfares”.

“This decision builds on a series of earlier measures taken since the onset of the crisis. For domestic operations, the increase in ATF base prices was capped at 25 per cent despite a far steeper rise in global markets. Landing and parking charges for domestic carriers were also reduced by 25 per cent,” Naidu said, acknowledging the Chief Ministers of Delhi and Maharashtra for reducing VAT on ATF to 7 per cent, from where nearly 75 to 80 per cent of the country’s ATF is purchased by airlines.

Earlier, under the Emergency Credit Line Guarantee Scheme, nearly Rs 5,000 crore had been earmarked for airlines to provide critical liquidity support.

The Ministry of Civil Aviation said “that a Monitoring Committee comprising representatives of the Ministry of Civil Aviation, Ministry of Petroleum and Natural Gas and Department of Expenditure will oversee the implementation of the scheme. The committee will handle claim verification, reconciliation and settlement. All claims and recoveries under the mechanism will be subject to audit.

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

The ATF price stabilisation support will remain in force for a period of three years, with a provision for annual review. It will cease earlier if the advance amount is fully recovered and settled before the three-year period ends. The proposal may be extended beyond thirty-six months with the approval of the Competent Authority if the corpus is not fully settled within this period.

Wider Impact

“The decision will help sustain employment across airlines, airports, ground handling agencies, travel agencies and the hospitality and logistics sectors. It will also support air connectivity to remote, regional, Tier-II and Tier-III cities and strengthen India’s integration with global markets,” The Ministry of Civil Aviation said.

It has been widely appreciated by the aviation industry for its significant cascading effect on sectors such as tourism, hospitality, trade and exports, Minister Naidu said.