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Aviation stocks grounded as rupee slides further

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(down 7.42% to Rs 16.85), (India) (down 3.52% to Rs 219.40) and (down 2.77% to Rs 22.80), edged lower.

The Sensex was down 215.89 points or 1.36% at 15,665.25.

SpiceJet had underperformed the market over the past one month until 14 December 2011, falling 20.87% compared with the Sensex's 7.23% decline. The scrip had also underperformed the market in past one quarter, sliding 27.78% as against 4.96% fall in the Sensex.

Jet Airways (India) had underperformed the market over the past one month until 14 December 2011, sliding 12.45% compared with the Sensex's 7.23% decline. The scrip had also underperformed the market in past one quarter, falling 16.04% as against 4.96% fall in the Sensex.

Kingfisher Airlines had outperformed the market over the past one month until 14 December 2011, gaining 9.84% compared with the Sensex's 7.23% decline. The scrip had, however, underperformed the market in past one quarter, falling 10.33% as against 4.96% fall in the Sensex.

The rupee sank to a record low for the fourth day in a row today (15 December 2011) as investors grew increasingly bearish about the outlook for both the domestic and global economies, raising the prospect of further capital outflows from emerging markets. The rupee hit an all-time low of 54.30 to the dollar in early trade, taking losses to nearly 20% from its July high with the pace of decline gathering steam in recent days.

A weak rupee impacts aviation sector adversely as almost a third of operational expenses of aviation firms are denominated in dollars. Among the payments made in dollars include, rentals of leased aircraft, maintenance, spare parts and salary paid out to foreign crew.

The aviation sector is currently in deep financial crisis due to soaring prices of aviation turbine fuel (ATF), and almost all airlines are incurring heavy losses.

ATF prices have been on the climb since September 2011 as falling rupee made imports costlier. On 1 December 2011, state-owned oil marketing companies hiked jet fuel price by a steep 3.7%. The price of ATF, or jet fuel, at was raised by Rs 2,312 per kilolitre (kl), or 3.7%, to Rs 64,622 per kl. The increase comes on back of a 2% (Rs 1,195 per kl) hike effected from 16 November 2011. Prior to that rates had been raised by a massive 3.8% or Rs 2,845 per kl from 1 November 2011.

The airline industry has been demanding an approval from the government to allow foreign air carriers to invest in domestic aviation firms. At present, foreign investment up to 49% is permitted in the domestic airlines, but foreign carriers are disallowed to make such strategic investments.

Chiefs of the domestic carriers had met Prime Minister Manmohan Singh on 26 November 2011, seeking review of the aviation policies and allowing foreign air carriers to invest in domestic aviation firms. They had stressed on the urgent need to rationalise sales tax on ATF and faster approvals for private airlines to fly on international routes where bilateral rights from the Indian side remain under utilised.

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