A depreciating rupee may worsen the health of domestic airlines. It may not only make external commercial borrowings (ECBs) costlier, but also increase the cost of dollar-linked operational expenses such as fuel, lease rentals, maintenance and expat salaries, according to a report by The Financial Express.
According to industry experts, low-cost airlines such as IndiGo,
SpiceJet and GoAir, which have one-third of their quarterly cash outgo in foreign currency with limited FOREX earnings, will have to shell out more for the same expenses. For full-service carriers such as Jet Airways and Air India, who have significant earnings in foreign exchange, the exposure to rupee fluctuations is less. However, that may not help these airlines de-risk themselves completely from the falling rupee. “The weakening rupee is responsible for shrinking Jet Airways’ margins by three to four per cent as it has earnings of more than 40 per cent from international routes,” explains Rashesh Shah, Research Analyst, ICICI Securities. Jet Airways more than doubled its losses at Rs 298 crore in the fourth quarter of the fiscal compared to the corresponding period a year ago. Despite 24 per cent growth in revenues, rising fuel costs and a weak rupee have pushed the company deeper into the red. Nikos Kardassis, CEO, Jet Airways, said even though the crude price is stabilising, the rupee’s depreciation continues to be a cause of concern. SpiceJet's net loss for the January-March quarter, too, widened more than four-fold, but it expects lower costs once it imports jet fuel directly. SpiceJet reported a loss of Rs 249 crore for the quarter ended March, 2012. Kingfisher Airlines posted its biggest-ever quarterly loss at Rs 1,151 crore as huge cuts in the number of flights and high fuel prices eroded earnings. The weakening rupee has impacted margins of these airlines, reflected in bigger quarterly losses. The rupee factor may also spoil the government's plans to provide relief to ailing airlines through external commercial borrowings (ECBs). Carriers such as Air India and Jet Airways, which were looking at the ECB option, may have to rethink the idea. The government had allowed airlines to raise up to USD 1 billion through ECBs for their working capital loan requirements. According to the Reserve Bank of India's guidelines, an individual airline can raise up to USD 300 million within 12 months, and the minimum maturity period would be three years. Most domestic carriers were looking at raising money through ECBs to repay their high-cost rupee debt. Industry officials said the falling rupee would make all the airlines rethink their ECB plans. Air India has already floated its 'invitation for offers' plan to raise funds through ECBs to repay a part of its over-Rs 22,000-crore working capital debt. An AI official said the impact of rupee depreciation would not be too heavy as about 50 per cent of the airline's earnings are in foreign currency, which will take care of nearly half of its dollar-linked expenses. “Airlines which get significant revenues from international operations will not be impacted much as they earn in dollars,” said Amber Dubey, Partner And Head (Aviation), KPMG.
Click here to see the original article>SpiceJet and GoAir, which have one-third of their quarterly cash outgo in foreign currency with limited FOREX earnings, will have to shell out more for the same expenses. For full-service carriers such as Jet Airways and Air India, who have significant earnings in foreign exchange, the exposure to rupee fluctuations is less. However, that may not help these airlines de-risk themselves completely from the falling rupee. “The weakening rupee is responsible for shrinking Jet Airways’ margins by three to four per cent as it has earnings of more than 40 per cent from international routes,” explains Rashesh Shah, Research Analyst, ICICI Securities. Jet Airways more than doubled its losses at Rs 298 crore in the fourth quarter of the fiscal compared to the corresponding period a year ago. Despite 24 per cent growth in revenues, rising fuel costs and a weak rupee have pushed the company deeper into the red. Nikos Kardassis, CEO, Jet Airways, said even though the crude price is stabilising, the rupee’s depreciation continues to be a cause of concern. SpiceJet's net loss for the January-March quarter, too, widened more than four-fold, but it expects lower costs once it imports jet fuel directly. SpiceJet reported a loss of Rs 249 crore for the quarter ended March, 2012. Kingfisher Airlines posted its biggest-ever quarterly loss at Rs 1,151 crore as huge cuts in the number of flights and high fuel prices eroded earnings. The weakening rupee has impacted margins of these airlines, reflected in bigger quarterly losses. The rupee factor may also spoil the government's plans to provide relief to ailing airlines through external commercial borrowings (ECBs). Carriers such as Air India and Jet Airways, which were looking at the ECB option, may have to rethink the idea. The government had allowed airlines to raise up to USD 1 billion through ECBs for their working capital loan requirements. According to the Reserve Bank of India's guidelines, an individual airline can raise up to USD 300 million within 12 months, and the minimum maturity period would be three years. Most domestic carriers were looking at raising money through ECBs to repay their high-cost rupee debt. Industry officials said the falling rupee would make all the airlines rethink their ECB plans. Air India has already floated its 'invitation for offers' plan to raise funds through ECBs to repay a part of its over-Rs 22,000-crore working capital debt. An AI official said the impact of rupee depreciation would not be too heavy as about 50 per cent of the airline's earnings are in foreign currency, which will take care of nearly half of its dollar-linked expenses. “Airlines which get significant revenues from international operations will not be impacted much as they earn in dollars,” said Amber Dubey, Partner And Head (Aviation), KPMG.