Cabinet approves ₹10,000 crore ATF Price Stabilisation Fund 

Why in News?

The Union Cabinet approved a one-time Price Stabilisation Fund of up to ₹10,000 crore to shield scheduled Indian airlines from sharp fluctuations in aviation turbine fuel (ATF) prices amid the ongoing West Asia crisis. 

What is Aviation Turbine Fuel (ATF)?

• ATF, also called jet fuel, is a specialised kerosene-based fuel used to power aircraft turbine engines.
• Key Features: 
  • Derived from crude oil through refining.
  • High energy density and low freezing point.
  • Prices are linked to international crude oil markets.
• ATF prices in India are revised on the 1st of every month by state-owned Oil Marketing Companies, based on the average of international benchmark rates and foreign exchange rates.
• ATF is not included under GST and instead attracts VAT levied by individual states (ranging from 1% to 30%), making it one of the most heavily taxed fuels in India.
• ATF accounts for nearly 40% of an airline’s operating costs and can rise to 60% during periods of extreme fuel price volatility.

Major Triggers: 

• West Asia Geopolitical Crisis: Escalating tensions in West Asia disrupted global energy markets, causing a spike in crude oil and jet fuel prices.
• Sharp Rise in ATF Prices: ATF prices increased nearly 2.5 times within two months:
  • March 2026: ₹60.50/litre
  • May 2026: ₹142/litre
• Closure of Pakistan’s Airspace: Indian carriers flying to Europe and North America have been forced to take longer routes, resulting in:
  • Higher fuel consumption
  • Increased flight times
  • Higher operating costs
  • Reduced profitability on long-haul routes.
• Rising Cost Burden: Normally, ATF accounts for around 40% of airline operating expenses. During extreme fuel volatility, the share can rise to 60%, threatening airline viability.

What is the ATF Price Stabilisation Fund?

• The ATF Price Stabilisation Fund is a temporary financial mechanism that cushions airlines against extraordinary fuel price spikes.
• Corpus: ₹10,000 crore
• Nature of Support: Interest-free advances from the Central Government to OMCs.
• Beneficiaries: Scheduled Indian airlines operating Domestic services & International services.
• Duration: 36 months. Subject to annual review.

How will the Mechanism Work?

• Benchmark Price: A benchmark ATF price will be fixed under the scheme.
• Compensation to OMCs: When international import-parity ATF prices exceed the benchmark:
  • OMCs will absorb part of the cost.
  • Government support will compensate OMCs through the fund.
• Fixed-Price Fuel Supply: Participating airlines will:
  • Enter agreements with OMCs.
  • Purchase fuel exclusively from state-owned OMCs.
  • Receive greater price certainty for up to three years.
• Recovery Mechanism: When global ATF prices decline:
  • OMCs will recover the benefit extended.
  • The recovered amount will be returned to the Consolidated Fund of India.

Thus, the scheme functions as a revolving stabilisation fund rather than a permanent subsidy.

Governance and Oversight: 

• A Monitoring Committee will supervise implementation.
  • Composition: Representatives from:
  • Ministry of Civil Aviation
  • Ministry of Petroleum and Natural Gas
  • Department of Expenditure
• Responsibilities: Claim verification, Auditing, Reconciliation and settlement, and annual review of the scheme.

Expected Benefits: 

• Airlines: Predictable fuel costs, improved financial planning, and reduced risk of route cancellations.
• Passengers: Reduced fare volatility and protection from sudden ticket price hikes.
• Regional Connectivity: The mechanism is expected to limit the impact of fuel price shocks on passengers and support connectivity to remote, regional, Tier-II and Tier-III cities. This is particularly important for routes under the UDAN (Ude Desh ka Aam Naagrik) regional connectivity scheme. 
• Employment: The policy is aimed at protecting approximately 77 lakh jobs across airlines, airports, travel agencies, ground handling, and the hospitality sector.
• OMCs: Compensation for losses incurred from selling below import parity prices.

Concerns and Challenges: 

• Risk of Market Distortion: Government intervention in fuel pricing may dilute market signals and reduce incentives for operational efficiency.
• Fiscal Burden: Although recoverable, the fund temporarily locks up public resources amounting to ₹10,000 crore.
• Moral Hazard: Repeated support measures could encourage expectations of future bailouts during crises.
• Limited Structural Reform: The scheme addresses short-term volatility but not long-standing issues such as high taxation on ATF, Airport charges, Infrastructure bottlenecks, and dependence on imported crude oil.
• Exclusive Procurement Requirement: Mandatory procurement from state-owned OMCs may reduce competitive fuel sourcing options available to airlines.

Way Forward:

• Rationalise ATF Taxation: Bringing ATF under the GST framework could reduce cascading taxes and lower operating costs.
• Promote Sustainable Aviation Fuel (SAF): Increasing domestic production of SAF can reduce dependence on imported petroleum products.
• Strengthen Fuel Hedging: Indian airlines should develop sophisticated fuel-risk management and hedging strategies.
• Enhance Energy Security: Diversification of crude oil import sources and expansion of strategic petroleum reserves can reduce vulnerability to external shocks.
• Improve Operational Efficiency: Investments in Fuel-efficient aircraft and air traffic management. & Green airport infrastructure can lower fuel consumption over the long term.