Amid elevated prices of aviation turbine fuel (ATF), or jet fuel, in the international market, the Union Cabinet on Wednesday approved a one-time budgetary support of Rs 10,000 crore to public sector oil marketing companies (OMCs) for them to provide stable fuel pricing for scheduled Indian airlines for their domestic as well as international flight operations. The government expects this arrangement, which will be in place for three years, to ease the pain for the OMCs as well as Indian airlines in the prevailing environment of extreme fuel price volatility. It also expects the move to rein in runaway airfares due to fuel price pressure.According to the government, this price stabilisation fund mechanism will provide greater predictability in fuel costs by adopting a fixed-price arrangement, thereby reducing the airlines’ exposure to sudden fuel price spikes. The facility will only be available to Indian airlines, and not to foreign carriers. It will be implemented through an agreement between the airlines and the OMCs, under which the carriers will have to procure ATF exclusively from the OMCs for up to three years, “subject to annual review or until the advance amount is fully recovered, whichever is earlier”.Also Read | Cabinet okays Rs 25,530 crore outlay to extend, modernise SARTHAK-PDS scheme till 2031Jet fuel prices have gone up significantly in the international market due to the West Asia war and the consequent closure of the Strait of Hormuz. The OMCs have been selling ATF at a loss for domestic flights, which is adversely impacting their financial health. They are also bearing losses on other fuels like petrol, diesel, and cooking gas sold to households. On the other hand, Indian airlines have also been struggling, particularly in international flight operations, as they are required to pay the full market-linked price for overseas operations.The strain forced Air India to substantially curtail its international flight operations for the June-August period. The airline has also reduced domestic flights due to the impact of high international fuel prices on its overall operations. Indian airlines had made repeated pleas to the government to stabilize jet fuel prices, while also seeking parity between fuel prices for domestic and international flights.Usually, ATF accounts for about 40% of Indian airlines’ operational costs; the price surge had led to a further increase to 55-60%, according to an Indian airline association. The hike in jet fuel prices resulted in most major airlines increasing fuel surcharges, particularly for international flights, even as they claimed that the surcharges would set off only a part of the cost escalation. The government said that the West Asia crisis pushed up international jet fuel prices to Rs 142 per litre in May from Rs 60.50 per litre in March, an increase of 135%.“The budgetary support shall be in the form of interest-free advances to OMCs through the Demands for Grants of the Ministry of Petroleum and Natural Gas. The support shall 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 government said in a release.“The corpus shall 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.Story continues below this adThe implementation will be overseen by a monitoring committee of the Ministry of Civil Aviation (MoCA), Ministry of Petroleum & Natural Gas (MoPNG), and the Department of Expenditure. This committee will also oversee claim verification, reconciliation, and settlement, and all claims and recoveries shall be subject to audit.On Monday, in their monthly revision of ATF prices, the OMCs kept the price unchanged for scheduled domestic flights for the second month in a row. Additionally, relief also came for Indian carriers in the form of a 27% cut in jet fuel price for international flights. With this cut, the price of jet fuel for international flights came down to levels similar for domestic flights.MoPNG Joint Secretary Sujata Sharma had said Monday that the OMCs were incurring under-recoveries of close to Rs 30 per litre, or Rs 30,000 per kl, on sale of jet fuel for domestic flights. The price stabilisation mechanism, however, will be prospective in nature and won’t cover the under-recoveries incurred by the OMCs so far on jet fuel sales, Information and Broadcasting Minister Ashwini Vaishnaw told reporters at a news briefing.“The proposed mechanism will provide enhanced stability and predictability in ATF pricing for Indian airlines, enabling better operational and financial planning. It will shield Oil Marketing Companies (OMCs) from losses arising from volatile and elevated ATF prices during the ongoing West Asia crisis. The measure will help protect and sustain domestic and international air connectivity, ensuring continuity of air services. It will reduce the pass-through of fuel price shocks to passengers, thereby helping to moderate fare volatility,” the government said.Story continues below this adThe surge in jet fuel prices for international flights led to additional strain on Indian airlines’ international flight operations, which were already under stress due to the continued closure of Pakistan’s airspace since late April of last year. The airspace restrictions amid the West Asia war further hit them.While all major Indian carriers have been impacted due to the crisis, Air India has been hit the worst, as it is the only Indian airline with significant operations to and from Europe and North America. According to information provided by the airline and flight schedules filed by it, Air India will be operating about 27% fewer international flights in June-August than it did in the corresponding period of last year. For June-July, the airline’s domestic flights have been cut by about 27% from April-May levels.The West Asia war, which began on February 28, has led to major airspace disruptions in the Gulf region, which accounts for a significant chunk of international air traffic to and from India. The region also serves as a critical corridor for Air India’s flights to Europe and North America, which means that apart from disrupting operations to destinations in West Asia, the war has forced the airline to take longer, circuitous routes to Europe and beyond. This is leading to higher operating costs, particularly due to additional fuel burn at a time when jet fuel prices are surging due to war-related supply disruptions.