Praveena Sharma
 
Forward Markets Commission gives green signal to MCX to launch jet fuel derivative contracts

Bangalore: It could be balm for airlines which have burnt themselves in the raging fire of spiralling aviation turbine fuel (ATF) prices.

The commodity futures market regulator Forward Markets Commission on Wednesday allowed Multi-Commodity Exchange of India (MCX) to launch jet fuel futures.

This, airlines say, will enable them to hedge their fuel price risk on a domestic commodity exchange instead of going through the overseas commodity exchanges. It would also set a benchmark for ATF prices, which is today arrived at through negotiations between airlines and oil marketing companies.

Currently, ATF prices in India, which are 50-65% higher than international prices, are the highest in the world. And with fuel constituting the highest component (35-40%) of an airline’s operational cost, airlines have been severely hit by soaring ATF prices.

However, FMC’s move will provide an instrument of protection to the airlines.

Budget airline SpiceJet Ltd chief financial officer Parthasarthy Basu said ATF futures will simplify the whole procedure of hedging fuel risk a great deal.

“Our board has approved hedging of ATF prices. We are waiting for the opportune moment. Once MCX launched the fuel futures, we will increase the portion of ATF we are currently hedging,” said Basu.

At present, SpiceJet, which is hedging its jet fuel prices on the Sing Kero (in Singapore), hedges 10% of the ATF it consumes.  Last quarter saw the budget airline’s fuel cost shoot up by 20 paise per available seat kilometre (ASKM) due rise in ATF prices.

Kingfisher Airlines Ltd executive vice president Hitesh Patel is not as ecstatic as Basu. “Hedging is like gambling. In the past also, there has been a lot of talk by MCX on the ATF futures, we want to see action. We are a little late in the game - prices have moved up quite a bit over the past one year - but we are absolutely evaluating,” said Patel.

As of now, Kingfisher is not hedging its ATF prices.

Over the last six months, ATF prices have moved from $ 76 per barrel to $ 120 per barrel.  MCX said that it will soon be launching its fuel futures after studying and designing ATF contract.

Source : DNAIndia