Rising Re to help airlines prune operational costs

Mumbai: 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. ....”
M Thiagarajan, managing director of south India-based Paramount Airways told FE, “..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.
01/12/09 Shaheen Mansuri/Financial Express

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Categories: Indian Aviation- In General Dec 2009