Air India plans hedging fuel costs up to 25%

New Delhi: As it looks to turnaround, Air India plans to hike the limit for hedging fuel costs to 25 per cent amid oil prices hovering at low levels.

The national carrier's proposal also comes at a time when the government has decided to hike the excise duty on Aviation Turbine Fuel (ATF) to 14 per cent from 8 per cent.

ATF prices make up for a substantial portion of operating costs and steep fall in global oil prices in recent months has boosted the overall financial performance of airlines.

A senior official said Air India is looking to increase the hedging limit with respect to fuel costs as it can benefit from current fall in crude oil prices.

"We plan to hike the hedging limit to 25 per cent from current level of 17 per cent. This is to be utilised in the next two financial years," the official noted.

Currently, Air India is not fully utilising the legroom available for hedging with respect to fuel costs. Hedging provides a cover from risks in steep price fluctuations.

Interestingly, the national carrier is anticipating a significant reduction in fuel costs in the current financial year ending in March.

According to the official, the fuel bill this fiscal is projected to be around Rs 5,700 crore, which would be sharply lower than Rs 8,200 crore seen in 2014-15.

The airline is expected to shave off its losses by around 40 per cent to Rs 3,529.80 crore this fiscal even as its borrowings stood at over Rs 51,000 crore in the previous financial year.

Air India, which is in the process of turning around its fortunes, had posted a net loss of Rs 5,859.91 crore in the last financial year.

In February, Minister of State for Civil Aviation Mahesh Sharma said the carrier is expected to report an operating profit of Rs 6.20 crore this fiscal.

Under the bailout plan in place since 2012, the government has pumped in Rs 22,280 crore into the airline. The national carrier was provided a Rs 30,231 crore lifeline by the government in 2012 under a turnaround plan stretching over period of nine years to keep it afloat.

Air India has a total debt burden of Rs 51,367.07 crore as on March 31, 2015. This amount includes Rs 22,574.09 crore outstanding on account of aircraft loans.