New Delhi, Jun 3: The Union cabinet on Wednesday approved a Rs 10,000 crore aviation turbine fuel (ATF) price stabilisation programme to cushion airlines from soaring fuel costs triggered by the ongoing West Asia crisis, a move aimed at protecting air connectivity and limiting fare volatility.
The scheme will provide interest-free advances of up to Rs 10,000 crore to state-owned oil marketing companies (OMCs), enabling them to supply ATF to scheduled Indian airlines at a stabilised price for domestic and international operations, according to a government statement.
The support mechanism comes as international ATF prices have surged to about Rs 142 per litre in May from Rs 60.50 per litre in March, increasing financial pressure on airlines at a time when fuel accounts for nearly 40 per cent of operating costs and, in some cases, as much as 60 per cent during periods of extreme volatility.
Under the arrangement, OMCs will be compensated whenever international import parity prices exceed a benchmark level set under the approved mechanism. Any support extended to OMCs will be recovered once global fuel prices moderate, with proceeds returned to the Consolidated Fund of India through a defined true-up process.
Announcing the decision, I&B Minister Ashwini Vaishnaw said the budgetary support will help airlines in the backdrop of a rise in ATF prices due to the conflict and closure of airspace by Pakistan for Indian carriers.
The prices of aviation turbine fuel, which accounts for around 40 per cent of an airline’s operational costs, have surged in recent weeks in the wake of the West Asia crisis, which started in late February.
Vaishnaw said the fund would help stabilise ATF prices for scheduled Indian carriers and prevent disruption of airline operations.
With the fund, airlines would get a stable ATF price as long as the turmoil is there, and once the crisis is over, then the participating airlines would have to reimburse the amount, he said.
According to the minister, the fund would shield air passengers from fare spikes, driven by the global oil price surge, and also protect 77 lakh jobs dependent on the aviation ecosystem.
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, an official release said.
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 corpus will compensate OMCs for losses arising from elevated international ATF prices whenever the prevailing Import Parity Price exceeds the benchmark price, determined under the approved mechanism.
“When international ATF prices moderate, the differential amount shall be recovered from OMCs and returned to the Consolidated Fund of India. The arrangement shall continue until the entire support amount is fully recovered and settled,” it added.
ATF price stabilisation support will be in force for a period of 36 months with provision for annual review or until the advance amount is fully recovered/settled, whichever is earlier.
Vaishnaw further said the fund would help safeguard public investment in airport infrastructure by keeping airline operations viable and maintaining air connectivity to Europe, North America and Central Asia amid the Pakistan airspace closure.
Indian airlines are now taking longer routes for international flights, which also means increased fuel burn due to the Pakistan airspace closure that has been in place since early last year.
While ATF price has been capped for domestic operations, Indian carriers continue to purchase the fuel for international operations at Import Parity Prices (IPP), exposing them to elevated fuel costs.
However, the capping of ATF prices is a temporary measure and not sustainable in the long run for OMCs. Due to the capping of ATF prices, OMCs are also incurring losses, particularly with volatile and surging ATF prices during the West Asia crisis, the statement added.
