The government is looking at setting up an inter-ministerial group headed by Cabinet Secretary KM Chandrashekhar to address the issue of rising prices of jet fuel, which currently forms 50 per cent of an airline's total costs.

A senior civil aviation ministry official said this was one of the key issues discussed during Civil Aviation Minister Praful Patel's meeting with Prime Minister Manmohan Singh today to ask for a relief on ATF. Top airline executives like Jet Airways Chairman Naresh Goyal and Kingfisher Airlines Chairman Vijay Mallya also met the PM to highlight the issue.

The ministry is going to make a presentation on ATF to the empowered group of state finance ministers, which meets on June 16. Patel said assigning "declared goods" status to ATF would figure among other key points in the meeting.

"The Centre has its own considerations. The states have to be consulted keeping in mind the federal structure of the government. Fortunately, this matter (declared goods status) has been taken up by the state empowered committee," he said.

Once given the declared goods status, a central sales tax of 3 per cent will be levied on ATF instead of the sales tax currently levied by states. This could be as high as 30 per cent.

Patel will meet Finance Minister P Chidambaram on the ATF issue after the June 16 meeting.

In today's meeting with the PM, Patel also raised the issue of Customs and excise duties currently levied on ATF. According to the ministry's estimates, a relief from all the levies would mean savings of Rs 5,000 crore for the aviation industry, while the declared goods status will attract a relief of Rs 3,500 crore. The industry is estimated to incur a loss of Rs 8,000 crore for 2008-09 owing to high ATF prices.