India aviation fuel fund worth INR 100 billion was approved by the Union Cabinet on Wednesday, June 3, 2026, in New Delhi to support scheduled Indian airlines facing sharp aviation turbine fuel costs, with assistance routed through oil marketing companies as interest-free advances.
India aviation fuel fund targets ATF price volatility
The Union Cabinet, chaired by Prime Minister Narendra Modi, approved one-time budgetary support not exceeding INR 100 billion for oil marketing companies to provide aviation turbine fuel, or ATF, price stabilisation support to scheduled Indian airlines.
The support will apply to domestic and international operations of willing scheduled Indian carriers. According to the government, the assistance will be provided through the Demands for Grants of the Ministry of Petroleum and Natural Gas.
The measure is aimed at creating more predictable fuel costs for airlines during what the government described as an exceptional period of fuel price volatility linked to the West Asia crisis.
Under the approved mechanism, oil marketing companies will receive interest-free advances to offset losses that arise when the prevailing import parity price of ATF exceeds a benchmark price determined under the scheme. The precise benchmark formula was not detailed in the public release.
The government said the arrangement is expected to help airlines plan operations more reliably, protect oil marketing companies from losses caused by elevated fuel prices, and reduce the direct pass-through of fuel price shocks to passengers.
How the ATF stabilisation support will work
The scheme will operate through memoranda of understanding between participating Indian airlines and oil marketing companies. The Ministry of Civil Aviation and the Ministry of Petroleum and Natural Gas will also be signatories.
Participating airlines will procure ATF only from oil marketing companies under the arrangement for up to three years, subject to annual review, or until the support amount is fully recovered, whichever happens earlier.
The government said the mechanism will use a fixed-price arrangement for domestic and international operations to reduce airlines’ exposure to sudden fuel spikes.
A recovery and true-up system has also been built into the scheme. When international ATF prices moderate, the differential amount will be recovered from oil marketing companies and returned to the Consolidated Fund of India. The arrangement will continue until the support amount has been fully recovered and settled.
A monitoring committee comprising representatives of the Ministry of Civil Aviation, the Ministry of Petroleum and Natural Gas, and the Department of Expenditure will oversee implementation, claim verification, reconciliation and settlement. Claims and recoveries will be subject to audit.
Aviation fuel costs weigh on Indian airlines
The government said international ATF prices had risen nearly 2.5 times, from INR 60.50 per litre in March 2026 to INR 142 per litre in May 2026, following the West Asia crisis.
ATF usually accounts for nearly 40 percent of an airline’s operating cost, according to the government. During periods of extreme volatility, it can rise to as much as 60 percent of total operating expenditure.
IndianOil’s listed ATF prices for domestic airlines, last updated on Wednesday, April 1, 2026, showed domestic ATF at INR 104,927 per kilolitre in Delhi, INR 109,450 in Kolkata, INR 98,247 in Mumbai and INR 109,873 in Chennai.
The pressure has been stronger on international operations because Indian carriers continue to buy ATF for international flights at import parity prices. The government said domestic ATF prices had already been capped as a temporary measure, but added that the cap was not sustainable for oil marketing companies over the long run.
The Ministry of Civil Aviation had earlier said it was passing on only a moderated ATF price increase capped at 25 percent for domestic operations. It also announced a 25 percent reduction in landing and parking charges for domestic flights at major and non-major airports for three months.
Impact on air connectivity and fares
The Cabinet said the aviation fuel fund is intended to protect domestic and international air connectivity, including routes serving remote, regional, Tier-II and Tier-III cities.
The government said the fund should help moderate fare volatility by reducing the immediate impact of fuel price shocks on airlines and passengers.
The aviation sector’s cost pressures have also been affected by longer flight paths. The government said the closure of Pakistan airspace for Indian carriers had increased fuel burn and operational costs on routes to Europe, North America and Central Asia.
It also said long-haul fares had risen substantially, international demand had declined, and airlines had reduced or suspended services on several international routes.
Background
India’s aviation sector has faced a series of cost pressures in 2026 as global fuel prices rose sharply during the West Asia crisis. The latest aviation fuel fund follows earlier government steps, including a cap on domestic ATF price increases and temporary reductions in landing and parking charges.
The new scheme marks a broader intervention because it covers both domestic and international operations for willing scheduled Indian carriers and creates a structured recovery mechanism for oil marketing companies.
What’s next
The India aviation fuel fund will now depend on implementation agreements between airlines, oil marketing companies and the relevant ministries, with annual reviews set to determine how long the support remains necessary.
Published in SouthAsianDesk, June 4, 2026
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