Bloomberg News

Air India Hedged Against Rupee Plunge With Overseas Revenues

August 29, 2013

Air India Hedged Against Rupee’s Plunge With Overseas Revenues

An Air India Ltd. Boeing Co. 787 Dreamliner is displayed at the India Aviation 2012 conference at Begumpet Airport in Hyderabad, India. Photographer: Dhiraj Singh/Bloomberg

Air India Ltd., the national carrier, said income earned in dollars from its overseas operations is acting as a hedge against the plunge in the rupee, Asia’s worst performing currency this year.

About 50 percent to 60 percent of the carrier’s business brings income in dollars, hedging against bills that aren’t rupee-denominated, Chairman Rohit Nandan said in a Bloomberg TV interview from Sydney today. The airline is getting new aircraft through a sale-and-lease back model, and therefore the carrier “won’t be very badly affected,” he said.

India’s rupee plummeted to record low this week and threatens to push the economy toward its biggest crisis since 1991. The currency’s plunge makes it costlier for local carriers to pay for aircraft they have ordered from Boeing Co. and Airbus SAS, which are in dollars.

“As far as the escalation of the dollar is concerned, it’s going to impact all of us, but since some parts of our own business is in dollars, therefore we are very well hedged,” Nandan said. “Increase in the value of the dollar doesn’t affect Air India as much as it might affect other airlines.”

Air India flies to 32 international destinations and also operates codeshare flights with carriers including Deutsche Lufthansa AG (LHA) and Singapore Airlines Ltd. (SIA) This month, the state-owned operator added new overseas flights including Boeing 787 service to Birmingham, Melbourne and Sydney.

A320 Lease

The airline will add Airbus A320 planes for the first time in three years as it seeks to cut costs. The company has invited offers from lessors for as many as 19 A320s with sharklets on lease for six years. The carrier last purchased A320s between 2006 and 2010.

Air India, which has taken delivery of 7 Boeing 787s, is in the process of receiving the remaining 20 on-order Dreamliners. The carrier will get three more Boeing 777s ordered in 2005.

Air India also plans to hedge jet fuel for the first time in five years to offset any increase in costs from the rupee’s fall, two company officials said in July. The airline’s domestic fuel bills are also dollar-based.

The former monopoly operator narrowed losses to 52 billion rupees ($774 million) in the year ended March from a record 75.6 billion rupees a year earlier. It aims to further reduce losses to 39.9 billion rupees this year, Nandan said May 14.

The Indian rupee fell the most in 20 years to an unprecedented 68.8450 per dollar on Aug. 28. The currency has dropped about 18 percent this year against the dollar.

Carriers in India will need 1,450 new planes worth $175 billion over the next 20 years, Boeing forecast in February. The International Air Transport Association has said India may become the world’s fastest-growing aviation market after Kazakhstan by 2016.

To contact the reporter on this story: Susan Li in Hong Kong at sli31@bloomberg.net

To contact the editor responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net


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