BT Explainer: How India’s Rs 10,000 cr ATF Fund will operate amid aviation fuel shock

The Union Cabinet has approved a one-time Rs 10,000-crore support mechanism to stabilise Aviation Turbine Fuel (ATF) prices for Indian airlines, as carriers grapple with soaring fuel costs driven by the ongoing West Asia crisis.

The mechanism is designed less as a direct airline bailout and more as a buffer for volatile fuel markets.

Under the approved framework, the government will provide interest-free advances to Oil Marketing Companies (OMCs) through the Demands for Grants of the Ministry of Petroleum and Natural Gas. The objective is to enable OMCs to offer more predictable ATF pricing to scheduled Indian airlines operating both domestic and international routes.

The support kicks in when international ATF prices, measured through Import Parity Prices (IPP), rise above a benchmark price determined under the approved formula. In such instances, OMCs,  which would otherwise absorb losses from elevated fuel costs will be compensated from the Rs 10,000-crore corpus.

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For airlines, the arrangement aims to create a fixed-price framework, reducing exposure to sudden spikes in fuel costs that can severely disrupt operational planning and profitability.

The scheme will be open to all scheduled Indian carriers. Participating airlines will sign an agreement with OMCs, alongside the Ministries of Civil Aviation and Petroleum & Natural Gas. Under this arrangement, airlines will procure ATF exclusively from OMCs for up to three years, subject to annual review or until the support amount is fully settled.

Importantly, the mechanism is structured as a recovery and true-up model rather than a permanent subsidy. Once international ATF prices moderate, the differential support extended to OMCs will be recovered and returned to the Consolidated Fund of India. The arrangement will remain operational for 36 months or until the entire advance is fully recovered, whichever comes earlier.

A monitoring committee comprising representatives from the Civil Aviation Ministry, Petroleum Ministry and Department of Expenditure will oversee implementation, claim verification, audits and settlement.

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The intervention comes amid an unprecedented rise in aviation fuel costs. International ATF prices have jumped nearly 2.5 times, from around Rs 60.5 per litre in March 2026 to Rs142 per litre in May. ATF accounts for roughly 40% of airline operating costs, and can climb to nearly 60% during periods of extreme volatility.

The pressure has intensified for Indian airlines following the closure of Pakistani airspace, which has lengthened routes to Europe, North America and Central Asia, increasing fuel burn and operating expenses. The government expects the stabilisation mechanism to help moderate fare volatility, sustain air connectivity, particularly to regional cities and protect airline operations during a prolonged period of geopolitical disruption.

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