New DelhiIn a relief to Indian airlines grappling with elevated fuel costs amid the ongoing West Asia crisis, the Centre has approved a one-time budgetary support of up to ₹10,000 crore to establish a Price Stabilisation Fund (PSF) for Aviation Turbine Fuel (ATF).The Union Cabinet on Wednesday approved the creation of the fund for state-owned oil marketing companies (OMCs) in the form of interest-free advances to facilitate ATF price stabilisation for scheduled Indian carriers operating both domestic and international services.Under the approved mechanism, OMCs will be compensated whenever prevailing import parity ATF prices exceed a benchmark price determined under the scheme.The arrangement is intended to provide greater predictability in fuel costs and reduce airlines’ exposure to sudden spikes in global fuel prices.Notably, the support mechanism will be available to all willing scheduled Indian airlines for both domestic and international operations.Besides, participating airlines will enter into agreements with OMCs under which ATF procurement will be routed exclusively through the state-owned fuel retailers for a period of up to three years, subject to annual review.Recovery mechanismMeanwhile, the Cabinet approved a recovery and true-up mechanism under which any benefit extended to OMCs would be recovered and returned to the Consolidated Fund of India when international ATF prices moderate.According to an official communique, the arrangement will remain operational until the entire support amount is recovered and settled.Consequently, a monitoring committee comprising representatives from 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.All claims and recoveries under the scheme will be subject to audit, the communique said.The ATF price stabilisation mechanism will remain in force for a period of 36 months, subject to annual review, or until the advance amount is fully recovered, whichever is earlier.Furthermore, the communique stated that the arrangement may be extended beyond the initial period if the corpus remains unsettled.Industry under pressureThe approval comes at a time when airlines continue to face mounting fuel-related cost pressures.At present, international ATF prices have risen nearly 2.5 times from ₹60.50 per litre in March 2026 to ₹142 per litre in May 2026 following the escalation of the West Asia crisis.Currently, ATF accounts for nearly 40 per cent of airline operating costs and can rise to as much as 60 per cent during periods of extreme fuel volatility.As of now, domestic ATF prices have remained subject to government intervention. However, airlines continue to procure fuel for international operations at import parity prices, exposing them to elevated costs.The existing ATF price cap mechanism for domestic operations is a temporary arrangement and has resulted in losses for OMCs amid sustained fuel price volatility.Beyond fuel costs, Indian carriers have also been affected by the closure of Pakistan’s airspace, which has forced longer flight paths to Europe, North America and Central Asia, increasing fuel burn and operational expenditure.As per the communique, the combined impact of higher fuel costs and longer flight durations has resulted in higher long-haul airfares, weaker international demand and service rationalisation across several international routes.Expected benefitsThe stabilisation mechanism is expected to improve operational and financial planning for airlines while reducing fare volatility for passengers.In addition, the measure is expected to support continued air connectivity across domestic and international networks, including services to regional, Tier-II and Tier-III destinations.The communique stated that stable airline operations would help sustain employment across aviation-linked sectors, including airports, maintenance, repair and overhaul services, ground handling, logistics, hospitality and tourism.Published on June 3, 2026