Why Modi government's ₹10,000cr ATF fund found no takers
What's the story
In April 2026, a spike in jet fuel prices due to West Asia unrest nearly doubled the single-largest cost component for Indian airlines. The sudden increase forced carriers to cut flights. To mitigate this impact, the Indian government introduced a scheme in June. However, the recent volatility in oil prices has led to a disagreement between airlines and oil marketing companies (OMCs) over this scheme.
Fund details
What is the ATF Price Stabilisation Fund?
The government's ₹10,000 crore ATF Price Stabilisation Fund was created to shield airlines from extreme fuel price fluctuations and compensate OMCs for their under-recoveries.
However, the scheme has yet to attract any participants.
The fund was intended as a middle ground between protecting airlines from sudden spikes in their operating costs while allowing OMCs to recover losses incurred during previous price surges.
Price disparity
How does ATF pricing work?
In March, international ATF prices were around ₹61 per liter while domestic prices stood at ₹84 per liter. By April, the international price had more than doubled to ₹134 per liter.
Indian oil marketing companies use the global benchmark Mean of Platts Arab Gulf (MOPAG) for determining ATF prices.
However, ATF supplied for domestic operations attracts central excise duty and state-level value-added tax, making domestic prices higher than their international counterparts under normal market conditions.
Price cap
Government intervened to shield airlines from rising fuel costs
To prevent a sharp cost escalation for airlines, the government intervened and asked oil companies not to pass on the full impact of international fuel price hikes.
In April, when international ATF was ₹134/liter, domestic prices were capped at ₹105/liter.
Even when international prices rose further in May, domestic ATF prices remained unchanged at ₹105/liter.
This led OMCs to accumulate around ₹6,000 crore in under-recoveries during April, May and the first eight days of June due to lower domestic pricing amid rising international rates.
Mechanism impact
When did the disagreement start?
The stabilization mechanism was implemented on June 9, raising domestic ATF price from ₹105/liter to ₹115/liter.
However, by then, international ATF prices had already fallen from May's ₹142/liter to around ₹106/liter.
The stabilized price of ₹115/liter was now higher than the prevailing international price.
By July, international ATF prices fell further to around ₹85/liter, making it less appealing for airlines to opt for a three-year pricing arrangement at a time when global fuel costs were declining sharply.
Airline response
Why are airlines and OMCs at loggerheads?
The fall in international fuel prices changed the calculation for airlines but did not address OMCs' under-recoveries.
In July, with an international ATF price of around ₹85/liter, the domestic price should have been around ₹102/liter after adding taxes and other components.
However, OMCs priced domestic ATF at ₹110/liter to recover under-recoveries from April-May's price surge.
This difference has led to a disagreement as airlines are unwilling to pay the additional amount and are paying according to MOPAG price including taxes.