The Union Cabinet has approved a one-time budgetary support package of up to ₹10,000 crore for oil marketing companies (OMCs) to help stabilise aviation turbine fuel (ATF) prices for scheduled Indian airlines facing unprecedented fuel price volatility triggered by the ongoing West Asia crisis.
The decision, taken by the Cabinet chaired by prime minister (PM) Narendra Modi, aims to provide greater certainty in fuel costs for airlines while protecting OMCs from losses arising from elevated international ATF prices (
https://www.pib.gov.in/PressReleasePage.aspx?PRID=2268337®=3&lang=1). The support will be extended as an interest-free advance through the Union ministry of petroleum and natural gas (MoPNG).
According to the government, international ATF prices have surged nearly 2.5 times in recent months, rising from ₹60.50/litre in March 2026 to ₹142/litre in May 2026 amid escalating geopolitical tensions in West Asia. The sharp increase has placed significant pressure on airline finances, with fuel accounting for nearly 40% of operating costs and as much as 60% during periods of extreme price volatility.
Under the approved mechanism, the government will compensate OMCs whenever the prevailing import parity price of ATF exceeds a benchmark price determined under the scheme. The support corpus will be used to offset losses incurred by OMCs, while enabling airlines to procure fuel at more predictable prices.
The Cabinet said the scheme incorporates a recovery and true-up mechanism. Once international ATF prices moderate, the differential amount will be recovered from OMCs and returned to the Consolidated Fund of India. The process will continue until the entire support amount has been recovered and settled.
The scheme will be available to all willing scheduled Indian airlines for both domestic and international operations. According to the government, the mechanism will reduce airlines' exposure to sudden fuel price spikes by introducing a fixed-price fuel procurement arrangement.
Implementation will be carried out through a memorandum of understanding (MoU) between participating airlines and OMCs, with the ministry of civil aviation and MoPNG acting as signatories. Airlines opting for the scheme will procure ATF exclusively from participating OMCs for a period of up to three years, subject to annual review or until the support amount is fully recovered, whichever is earlier.
A monitoring committee comprising representatives from the ministry of civil aviation, MoPNG and the department of expenditure will oversee implementation, claim verification, reconciliation and settlement. All claims and recoveries under the scheme will be subject to audit.
The ATF price stabilisation mechanism will remain in force for 36 months, with annual reviews. The government has also provided for an extension beyond this period if the support corpus remains unadjusted at the end of the stipulated timeframe.
The government said the measure is expected to provide greater stability and predictability in fuel pricing, enabling airlines to plan operations and finances more effectively. It is also expected to prevent sharp increases in fuel costs from being passed on to passengers, thereby moderating air fare volatility.
The decision comes at a time when Indian carriers are facing multiple cost pressures. Apart from rising jet fuel prices, airlines have been forced to operate longer flight paths following the closure of Pakistani airspace to Indian carriers. These detours have increased fuel consumption and operating costs, particularly on routes to Europe, North America and Central Asia.
According to the government, rising fuel costs and longer flight routes have already contributed to higher long-haul fares, weaker international travel demand and the reduction or suspension of services on several overseas routes.
The Cabinet said the stabilisation mechanism would help preserve domestic and international air connectivity, including services to remote, regional, Tier-2 and Tier-3 cities. It noted that sustained airline operations are critical to employment across the aviation ecosystem, including airports, maintenance, repair and overhaul (MRO) services, ground handling, travel agencies, hospitality and logistics.
The government also expects the initiative to generate positive spillover effects for tourism, trade, exports, regional development and investment, while ensuring optimal utilisation of airport infrastructure developed across the country, including airports operationalised under the regional connectivity scheme, UDAN.
Officials said the measure would strengthen India's connectivity with global markets and support long-term economic growth while helping the aviation sector navigate an exceptionally challenging period marked by geopolitical uncertainty and elevated fuel costs.
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