The firming up of the rupee against the greenback is likely to lower the operating costs for airlines in India, which pay up to 60% of their expenses in dollar denominations. The airlines industry, which had been badly hit by the global meltdown, is expected to post a net loss of Rs 10,000 crore in 2009-10.
Airlines pay their expatriate staff, aircraft lease rentals and fuel bills in dollar denominations, apart from paying interest on foreign currency loans against purchase of aircraft. The rupee, at 46.53 to a dollar on Monday, has seen a surge of almost 15% from its record low of 52.20 in March.
Of the total transactions for Indian carriers in dollar terms, 40% is in the form of fuel bills and 20% is accounted for by salaries to expatriate staff, lease rentals and loan repayments. The remaining 40% is the revenue from overseas offices in various countries. Raj Halve, principal consultant Samara Capital, says, “If the trend continues, the operating costs of airlines will be lower in the medium term. Airlines will now have to pay less for their lease rentals, overseas administration offices and salaries to expatriate staff. Large and consistent dollar remittances into the country’s stock markets by foreign institutional investors and faster realisation of export receivables have been the two major positive factors underpinning the rupee.”
M Thiagarajan, managing director of south India-based Paramount Airways told FE, “Strengthening of the rupee is a gain for airlines who import fuel and the transaction is expressed in dollars. ATF constitutes nearly 40% of the operating cost of the sector. There will also be a saving on account of capital cost for loans taken by airlines. Nevertheless, the purchase of aircraft and its maintenance is in dollar denominations.”
For the country’s largest private carrier, Jet Airways, this comes as a boon since it has a huge international network, with over 50% of its revenues from overseas. Analysts say that due to the Indian currency growing in strength, Jet’s forex net worth would be attractive. M Shivkumar, vice-president finance, Jet, says, “Our net dollar outflow for the year is $400 million. For instance, if the rupee firms up by Re 1, it translates into a saving of Rs 40 crore for the carrier.” Even low cost carriers stand to gain if the former transaction is higher then income.
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