New Delhi, Oct. 16: Air India has hedged 10,000 barrels of jet fuel this month to cut costs.
In September, the board of the national carrier had cleared the proposal to hedge aviation turbine fuel (ATF), or jet fuel, for this fiscal.
“We have started fuel hedging and have hedged 10,000 barrels for delivery this month. We are closely following the Brent trading and plan to hedge at $110 a barrel,” Air India officials said today.
Brent crude was ruling at $109.65 in early trading on Wednesday.
Fuel hedging is a contractual tool used by large fuel-consuming companies, such as airlines, to reduce their exposure to volatile and rising fuel costs. A fuel hedge contract allows a company to buy the input at a fixed rate.
This is the first time hedging has been undertaken by the national carrier in several years. In view of the Rs 100 crore being added to monthly expenses on account of volatile fuel prices, the carrier decided to hedge the ATF its planes lift overseas.
The board has decided that a maximum of 5,00,000 barrels of jet fuel, lifted abroad, will be hedged each quarter at a price of up to $110 per barrel.
“A small committee was set up to take the process forward, with the airline identifying organisations such as JP Morgan, Citibank and GDF Suez to carry out hedging,” the officials said.
On Air India’s reluctance to directly import ATF, sources said it was not economical since the smallest package of jet fuel would be a tanker of 10,000 kilolitres, which would be much more than what was required each month.
They added that the storage and transportation of the imported fuel was a problem. Besides, ATF gets converted into kerosene if stored for a long period. All such problems will not exist in case of hedging for fuel lifted abroad, the airline sources said.
Airline officials have been upbeat over the induction of the Boeing 787 Dreamliners, which were at least 15 per cent more fuel-efficient than competing planes of similar size and range.
The International Air Transport Association (IATA) had also helped the carrier to implement a fuel efficiency gap analysis (FEGA) system, which helped the state-run carrier to save Rs 850 crore since it was introduced in September 2008, the officials said.
FEGA deals with economising on all aspects of an aircraft’s operations, including its weight, power use, washing of engines, the speed and cruising height.
Meanwhile, Air India has tied up financing for 12 of the 27 Dreamliners it has ordered from Boeing and decided to have a long-term agreement with its American engine manufacturer GE for overhaul and repair of GEnX engines powering these aircraft.