🔁 6E's forex woes highlighted in this post from Feb

REPOST 🔁 6E's forex woes highlighted in this post from Feb. Relevant in light of Q2FY26 results

💵 Forex Woes in Indian Aviation – Is Enough Being Done to Hedge Risks?

The Indian airline industry faces a silent profitability killer - foreign exchange losses. Even IndiGo, a well-run, operationally resilient airline with market leadership and a strategic focus, is taking a massive hit due to the rupee’s depreciation.

In Q3, IndiGo’s mark-to-market forex losses stood at ₹14 billion (₹1,400 crore), driven by rupee depreciation against the USD.

With every ₹1 depreciation, IndiGo’s liabilities swell by ₹7.9 billion (₹790 crore) due to its USD-denominated obligations (primarily leasing & maintenance expenses)

If the rupee weakens to ₹90/USD – a scenario forecasted by Barclays and others – profitability could be wiped out for airlines that fail to hedge effectively.

If this is happening to IndiGo, imagine the financial strain on the other carriers battling severe cost pressures and profitability challenges.

>IndiGo has acknowledged the need for stronger hedging measures, but will their new plan be enough?

🔹 Natural Hedge: ~10%
•About 10% of revenues come from international point-of-sale transactions in foreign currencies.
•Increasing dollarized revenues in the short term is challenging, but as 6E's international expansion gains momentum, this should improve.

🔹 USD-based incentives on aircraft deliveries
•Size unknown

🔹 Financial Hedging: Up to 20%
•IndiGo now plans to hedge up to 20% of the remaining exposure through financial instruments.

🔹 Total Hedging Plan: 60-70% Over 12 Months
•IndiGo says that in aggregate, 60-70% of its forex exposure will now be hedged for the next 12 months. Does that mean incentives make up 30-40% of hedges? The composition is unclear to me.

>How Some Other Airlines/ Airline Groups Manage Forex Risks (Not apple-to-apple comparisons)

✈ Air Canada
•Proactively hedges 60-70% of exposure, on a rolling 18-month basis.
•Holds USD cash reserves and investments.

✈ Lufthansa
•Uses a 24-month rolling hedging model, covering up to 85% of exposure.
Implements a layered strategy.
•Consolidates forex positions across 17 currencies to reduce exposure risk.

>What Happens if INR Hits ₹90/USD?

⚠ Projected Forex Losses Could Double
•The ₹7.9 billion (₹790 crore) forex impact per ₹1 depreciation is based on an exchange rate of ₹85.62/USD (the avg rate for Q3 FY25)
•However, the rupee has already tested levels close to ₹88/USD, signalling the gravity of the situation and the likelihood of further depreciation.
•If INR weakens to ₹90/USD, the total forex impact could exceed ₹28 billion (₹2,800 crore) in future quarters (ceteris paribus).

IndiGo has made progress, but the industry on the whole needs a more comprehensive, long-term forex strategy to prevent profitability from eroding further.

>This is not a critical analysis of 6E but merely a call to the industry to better manage the forex storm.