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FIA welcomes policy to allow hedging on ATF for domestic ops

The Federation of Indian Airlines (FIA), today welcomed the announcement by the RBI governor to allow hedging of ATF by the Airlines on their domestic purchases.

In his statement, Mr V Thulasidas, Chairman, FIA and Chairman & MD, Air India, said that the cost of ATF in India was far in excess of international benchmarks. "The announcement on the expansion of hedging facilities by the Central Bank, is indeed a welcome step; and is in line with the recommendations of the Federation of Indian Airlines", he said.

"Any step which can even distantly reduce the burden of high fuel costs for the Indian airline industry, is in the right direction", added Mr Thulasidas.

In its Annual Monetary & Credit policy 2007-08, the RBI has allowed authorised banks to permit airlines to hedge their exposures in the international commodity exchanges, based on airlines' domestic purchases of ATF.

For their domestic operation, the Airlines earlier had to procure ATF only through domestic refineries at International Prices. Since the carriers were not physically importing the commodity, the airline companies were not permitted to hedge the commodity risk. The Monetary Policy has now allowed actual users of ATF viz. the Airlines, to hedge economic exposure.

FIA believes that this is a small but significant step to bringing about moderation in the excessively priced ATF in India. This needs to be followed through by bringing down the base price of ATF charged by the oil companies; and also reduction in the levels of sales tax on ATF by the states, which are currently in the region of 20-35 %. ATF accounts for roughly 40% of the total operating costs of airlines; and is priced approximately 65% higher in India, than other airports globally.