Question
Jet Airways, which commenced operations on May 5, 1993, has established its position as a market leader in India. The airline has been repeatedly adjudged
Jet Airways, which commenced operations on May 5, 1993, has established its position as a
market leader in India. The airline has been repeatedly adjudged India's best domestic airline by
Abacus-TAFI and has won several national and international awards.
Jet Airways operates a fleet of 85 aircraft, which includes 10 Boeing 777-300 ER aircraft, 10
Airbus A330-200 aircraft, 54 classic and next-generation Boeing 737-400/700/800/900 aircraft,
and 11 modern ATR 72-500 turboprop aircraft. With an average fleet age of 4.45 years, the
airline has one of the youngest aircraft fleets in the world.
Jet Airways operates to 63 destinations, both within and outside India. International routes
include New York, San Francisco, Toronto, Brussels, London (Heathrow), Hong Kong,
Singapore, Shanghai, Kuala Lumpur, Colombo, Bangkok, Kathmandu, Dhaka, Kuwait, Bahrain,
Muscat, Doha, Abu Dhabi, and Dubai.
Its major cost is the cost of aviation fuel. In addition to fuel costs, the other costs include landing
costs at various airports and baggage handling costs. The remuneration of pilots and airline
personnel will have to be competitive since there is a huge demand for these personnel
because of the presence of a number of new airlines that operate throughout the world.
The revenue for airlines comes mainly from passenger fares and cargo fares. The passengers
of Jet Airways come from various countries and pay their fares in the currency of their own
country.
Jet Airways finances the purchase of its airplanes by borrowing money either in India or in other
countries through bond issue. The interest payments will have to be paid in the currency in
which the bond is issued. Future plans for Jet Airways include purchase of additional planes,
which will also be financed through borrowing.
Questions
1.
What are the various risks that Jet Airways is facing?
2.
How can these risks be reduced using derivative securities?
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