The Union Cabinet has agreed to provide one-time budgetary assistance of Rs.10,000 crore to support Indian airlines to stabilize prices of Aviation Turbine Fuel (ATF) amid high volatility in global fuel markets. The support will be given to the Oil Marketing Companies (OMCs) in the form of interest-free advances under the demands for grants of the Ministry of Petroleum and Natural Gas (MoPNG).
“The budgetary support will be in the form of interest-free advances to OMCs through the demands for grants of the Ministry of Petroleum and Natural Gas (MoPNG). The support will be provided to OMCs to facilitate stable ATF pricing for airlines during the ongoing period of exceptional fuel price volatility arising from the West Asia crisis,” the government said.
The move comes as international ATF prices have increased by around 2.5 times, from Rs. 60.50 per liter in March to Rs. 142 per liter in May. Aviation fuel accounts for nearly 40% of the operating cost and any sudden hike in the price becomes a major pressure point for carriers.
Domestic ATF prices are capped, but domestic airlines are still buying fuel for their international flights at IPPs, which are based on crude oil prices. The new corpus will be used to provide compensation to OMCs if the international ATF price goes beyond the benchmark price as approved under the mechanism, the government said.
OMCs will recover this differential if ATF prices moderate globally and the amount will be returned to the Consolidated Fund of India.
A spokesperson from IndiGo said, “We are grateful to the Government of India, Ministry of Civil Aviation, Ministry of Petroleum and Natural Gas, and the concerned authorities for announcing Aviation Turbine Fuel (ATF) price stabilisation support to Scheduled Indian Airlines.”
The spokesperson further noted that this intervention comes at an opportune time and has been welcomed as "a welcome relief" to the government, which recognizes the vital role played by aviation in helping to connect people and facilitate economic growth.
Air India also welcomes the move, and a spokesperson from the company said, “This progressive measure provides much-needed support to the Indian aviation ecosystem and reinforces the Government’s commitment to strengthening connectivity for the people of India while enabling airlines to serve passengers more effectively.”
The ATF support mechanism will be in effect for 36 months, subject to annual review, or until the advance amount is recovered and settled. It will be done using an MoU signed between the participating airlines and the OMCs, signed by the civil aviation ministry and MoPNG.
The agreement would provide that the participating airlines purchase ATF from OMCs for up to three years (on a review basis).
A monitoring committee will be formed by representatives of the civil aviation ministry, MoPNG and the Department of Expenditure to monitor implementation, claim verification, reconciliation and settlement.
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In a media briefing in New Delhi, Information and Broadcasting Minister Ashwini Vaishnaw said this is a self-sustaining revolving fund, which will help to stabilise ATF prices for scheduled Indian carriers. He said the decision will protect 77 lakh jobs dependent on the aviation ecosystem.
“Airlines will have stable ATF pricing, providing them with cost certainty to a significant extent, especially during an uncertain energy pricing situation due to a continuing Middle East war,” said Kapil Kaul, CEO and Director of CAPA India.
The decision will serve to safeguard air connectivity, ease shock in prices of fuel for air customers and boost regional air transport including Tier-II and Tier-III cities, the government said. It also anticipates beneficial spill-over effects in the tourism and hospitality sector.