Air India will now be able to hedge on jet fuel it buys overseas. The Air India board has cleared a proposal wherein the airline has been permitted to hedge on the price of aviation turbine fuel for the fiscal year ending March 31 next year .
Variable costs
Analysts point out that forSeveral international airlines use the mechanism to minimise or eliminate foreign exchange risks. The move is expected to help Air India protect itself against the ATF price volatility which is currently at $130 a barrel, up from around $80 a barrel about two years ago.
When Air India buys the fuel abroad, the actual cost varies on two counts — changes in international fuel prices and exchange rate changes, analysts said.
The Board allowed the airline to hedge on the price of 500,000 barrels of fuel every quarter. Each barrel contains around 42 gallons of ATF. Air India buys almost 40 per cent of its fuel consumed from abroad.
The annual fuel bill of the airline in India and abroad together is over Rs 9,000 crore and is its largest expenditure item .
Air India has identified three firms — Citibank, J.P. Morgan and GDF Suez — to help implement the Board decision.
This will help protect the airline against volatility in price of ATF.