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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.
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 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.
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.
Under the arrangement, OMCs will be compensated whenever international import parity prices exceed a benchmark level set 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.
The prices of aviation turbine fuel, which accounts for around 40% of an airline's operational costs, have surged in recent weeks in the wake of the West Asia crisis, which started in late February.
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% of operating costs and, in some cases, as much as 60% during periods of extreme volatility.
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.
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.
PTI