Falling Re to drag down airlines

Written by Shaheen Mansuri | Mumbai, May 14 | Updated: May 16 2008, 04:59am hrs
The falling rupee has added to the woes of airline companies reeling under high aviation turbine fuel (ATF) prices. Operating expenses of Indian carriers have shot up 2-3% last month, owing to a weak rupee, and are expected to still go up with the possibility of the rupee falling further in the coming weeks. This, added to the 32% rise in fuel prices over the last one year, will dent these airlines profits further if the slide continues in the first quarter of this fiscal, say industry experts. Airlines have reported a cumulative loss of Rs 2,000 crore in fiscal 2006-07.

The rupee hit an intra-day low of 42.67 against the dollar Wednesday.

Airlines pay their expatriate staff, aircraft lease rentals and fuel bills in dollar denominations. They also need to pay interest on their foreign currency loans against purchase of aircraft. S Venkat, company secretary of the National Aviation Corporation of India Ltd, explains, The amount towards interest payment on foreign currency loans for the month has increased in our balance sheet due to currency fluctuations. Venkat estimates nearly 10-15% increase in the airline's operating expenses currently from the falling rupee.

Of the 100% transactions in dollar terms for the Indian carriers, 20% is payment in the form of salaries to expat staff, lease rentals and loan repayment, 40% is the revenue from their overseas offices in various countries and the remaining 40% in the form of fuel bills.

However, KG Vishwanath, senior manager-MIS and investor relations, Jet Airways, foresees the slide in the rupee as a short-term trend. There is hardly a 2% increase in our operating expenses. We have a natural hedge to counter the currency fluctuations. He does not see the balance sheet being impacted in a big way in the first quarter of 2008-09 since it could be a temporary situation.

Kingfisher Airlines too pays nearly Rs 5 crore towards salary to expat pilots, which is nearly 2% of the expenditure and have also felt the pinch due to the downward pressure on the rupee.

Meanwhile, expressing concern over the slide in the rupee, GP Gupta, chief financial officer at low cost carrier, GoAir said, As international oil prices remain high, oil companies are continuing to buy excess dollars. Though the situation has dented the sentiments of airline officials at present, the future appears unpredictable.