Indian is planning to start hedging its international fuel purchase in the wake of spiralling aviation turbine fuel cost that is eating into its profits. Currently, the annual fuel bill of the airline is around Rs 1,500 crore (Rs 15 billion).
Sources close to the development said Citigroup has made a detailed presentation before Indian, as a preliminary step towards hedging.
"International Air Transport Association has also made a similar presentation as a prelude to the fuel hedging for this PSU airlines," they said.
Indian chairman and managing director Vishwapati Trivedi confirmed the development adding, "We are exploring the options of hedging our international fuel uplifts, but nothing has been finalised."
Senior airline executives said the airline is also in the process of securing approval of the Reserve Bank of India for hedging.
Fuel cost constitutes 35 per cent of an airline's operating cost. Currently, fuel hedging is allowed only for international fuel uplifts. Air India, Indian, Air Sahara and Jet Airways are the domestic carriers operating on international routes.
Air India, which had started fuel hedging, has recently extended its hedging limits from 10 per cent of its international uplifts to 25 per cent. This would, therefore, give flexibility to the airline to hedge up to 75,000 barrels per day, up from the current limit of 30,000 barrels.
Air India's fuel bill in 2005-06 was to the order of Rs 3,134 crore (Rs 31.34 billion), which constituted nearly one-third of its total cost. Following the Reserve Bank of India's approval, Jet Airways has also launched hedging for international fuel uplifts.
Budget carrier Air Deccan managing director G R Gopinath said the government is working out a hedging instrument, which will make domestic carriers to hedge themselves from the increase in jet fuel prices.
"Hedging is not by airlines or oil companies. The actual hedging is done by banks. India should have banks, which are capable of undertaking hedging for domestic airlines," industry analysts said.
