AI enhances fuel hedging limits

New Delhi, Sep 21 (UNI) Air India (AI) has enhanced fuel hedging limits from this week after the success in hedging its fuel exposure, a senior official said today.

The AI management extended its hedging limits from 10 per cent of its international uplifts to 25 per cent following the approval of the board. This will give flexibility to the company to hedge up to 75,000 barrels per day up from the current limit of 30,000 barrels.

However, the total number of barrels to be hedged will be limited to 750,000 barrels a quarter, the official said. AI has put in place a hedging cell managed by the finance department under which real time positions are available in respect of swaps and options available for hedging.

AI started its hedging early this year and so far has been successful. The national carrier is examining to extend the range of derivative instruments by exploring futures and options as well as new counter parties and developing a broad-based IT system. Ernst&Young has been advising AI till date on fuel hedging. The instruments used for risk management was plain swaps, zero cost collar with ratio spread and knock out options.

The airline's fuel bill during 2005-06 was of the order of Rs 3,134 crore which constituted nearly one-third of its total cost.

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