The Hindu Business Line : AI plans to hedge on aviation turbine fuel

TO beat the volatility in the global prices of fuel and improve its bottomline, Air India (AI) has decided to partially hedge its exposure on the Aviation Turbine Fuel (ATF) that it buys from the international market.

"In view of the rising fuel prices, it has now been decided that it would be appropriate to hedge on at least a portion of fuel uplifted abroad. Which instrument of hedging the airline decides on will depend on the risk appetite determined by the airline," a senior official told Business Line.

A proposal will be moved for formal approval of the board soon and the airline hopes to be able to start hedging from the last quarter of this year.

Sources indicated that AI is likely to hedge, which is basically forward selling and buying of aviation fuel, at least 10-15 per cent of the fuel that it uplifts.

The airline has already short-listed five entities as `counter parties' with whom it plans to enter into International Swap Dealers Association (ISDA) so that the hedging process can be started.

The recent northward movement in the global prices of oil has caused serious concern in the aviation industry. Acknowledging the impact spiralling oil prices is having on the sector, the global airline body International Air Transport Association (IATA) had pointed out that the annual fuel bill for member airlines is now expected to reach $83 billion, significantly higher than the $76 billion projected earlier.

In the past few weeks, the global prices of oil have crossed the $60-per-barrel level forcing several airlines to levy a fuel surcharge on tickets.

During 2004-05, AI had a fuel bill of about Rs 2,000 crore, up from Rs 1,200 crore during the previous year.

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AI plans to hedge on aviation turbine fuel