New Delhi: The Union Cabinet has approved a ₹10,000 crore support package for the Indian aviation sector as it looks to protect it from Aviation Turbine Fuel (ATF) price volatility. This comes at a time when international crude prices continue to soar, with the conflict in the Middle East showing no signs of slowing.
Interest-Free Advances to OMCs
The government aims to offer this relief to state-run Oil Marketing Companies (OMCs) against direct handouts to airlines as it looks to provide interest-free financial advances directly to the OMCs. This would help them purchase raw crude and process it into ATF without passing on high financing and procurement costs to commercial airliners. When OMCs absorb such sudden and wild swings in international jet fuel prices, this would keep domestic ATF supply rates steady even when global oil indexes experience sharp price hikes.
“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 goverment said in a press release.
Aviation sector’s ATF pains
ATF currently accounts for about 40% of an Indian airlines’ total operational costs, where unmitigated price hikes could force massive, painful airfare increases for passengers. This could result in mass flight cancellations or carrier defaults.
With the world depending on the Middle East for oil, supply disruptions have already led to cancellations in Europe, which relies on the region for almost 41% of its ATF requirements.
Following the news, industry players have come out strongly in favor of the package, calling it a much-needed intervention. It will help the industry tide over a fresh challenge after having dealt with a series of challenges including the closure of Pakistani airspace, the Ahmedabad Boeing Air India crash and the constant struggle with slim margins and unpredictable price hikes.
