The ₹2,500 crore loss is misleading. Strip out the rupee-driven accounting hit and IndiGo made ₹1,920 crore. The real story is $10 billion of dollar exposure with no hedge — the same asset-light model that built the airline is now its biggest liability. And the fuel pain from the Iran war hasn’t even fully landed ye
They actually did hedge but just a sliver of it, and full hedging isn't really available for the kind of exposure that caused this loss. A few reasons sit behind that.
The big one is that most of the ₹4,800-crore hit isn't a cash loss at all. It's a mark-to-market revaluation of IndiGo's lease and maintenance obligations, which are dollar-denominated and payable over the next eight to ten years. When the rupee falls, accounting rules make the company restate the rupee value of those future bills today, even though it pays them out slowly. You don't normally hedge a ten-year balance-sheet liability with currency forwards — standard airline practice is to hedge near-term dollar cash flows (the next year or two of payments), not the whole long-dated liability book. So a large part of what showed up as a "loss" was never something a hedge would have sensibly covered.
On the part you can hedge, they're doing it and scaling up. On the call they put net dollar exposure at about $10 billion, of which roughly $1.3 billion is hedged, and said they're stretching the policy toward $3 billion — about $1 billion for the next twelve months and $2 billion spread over two to five years. So it's partial and growing, not absent.
And hedging the rupee specifically is expensive, for a structural reason. Indian interest rates run well above US rates, so INR/USD forward rates already price in the rupee's expected decline — a forward locks you into a weaker rate than today's spot, plus a carrying cost. Over long horizons you end up pre-paying for much of the very depreciation you're trying to insure against, so hedging $10 billion for years could cost more than the volatility it removes. IndiGo also has little natural offset: it earns mostly in rupees, so unlike an exporter it has no big dollar income to set against its dollar bills.
The hedge they're actually leaning on is structural rather than financial — owning aircraft instead of leasing them in dollars, which shrinks the liability at its source (owned planes went from 8 to 36 in a year). For an exposure that stretches a decade out, owning the metal is arguably a more durable fix than paying years of forward premiums. The short version: hedging swaps an uncertain future loss for a certain present cost, and that trade is worth it for near-term cash flows but usually not for a long-dated, non-cash accounting liability — so they cover the front end and attack the rest by owning more of the fleet.
The ₹2,500 crore loss is misleading. Strip out the rupee-driven accounting hit and IndiGo made ₹1,920 crore. The real story is $10 billion of dollar exposure with no hedge — the same asset-light model that built the airline is now its biggest liability. And the fuel pain from the Iran war hasn’t even fully landed ye
We hope this adds more context :)
Also, the whole $10 bn wasn't left un-hedged.
https://thedailybrief.zerodha.com/p/how-the-rupee-grounded-indigos-profits/comment/276522921
Ruppe depreciation+ Fuel price hike + December crisis= Deadly Poison for Indigo airline.
Now a days water crisis is touching it's peak regions like rajsthan and near by state haryana.
Could the Finance Department @ Indigo not hedged this foreign currency exposure through Forward / Futures contracts? Just thinking out loud.
Hey Sid,
They actually did hedge but just a sliver of it, and full hedging isn't really available for the kind of exposure that caused this loss. A few reasons sit behind that.
The big one is that most of the ₹4,800-crore hit isn't a cash loss at all. It's a mark-to-market revaluation of IndiGo's lease and maintenance obligations, which are dollar-denominated and payable over the next eight to ten years. When the rupee falls, accounting rules make the company restate the rupee value of those future bills today, even though it pays them out slowly. You don't normally hedge a ten-year balance-sheet liability with currency forwards — standard airline practice is to hedge near-term dollar cash flows (the next year or two of payments), not the whole long-dated liability book. So a large part of what showed up as a "loss" was never something a hedge would have sensibly covered.
On the part you can hedge, they're doing it and scaling up. On the call they put net dollar exposure at about $10 billion, of which roughly $1.3 billion is hedged, and said they're stretching the policy toward $3 billion — about $1 billion for the next twelve months and $2 billion spread over two to five years. So it's partial and growing, not absent.
And hedging the rupee specifically is expensive, for a structural reason. Indian interest rates run well above US rates, so INR/USD forward rates already price in the rupee's expected decline — a forward locks you into a weaker rate than today's spot, plus a carrying cost. Over long horizons you end up pre-paying for much of the very depreciation you're trying to insure against, so hedging $10 billion for years could cost more than the volatility it removes. IndiGo also has little natural offset: it earns mostly in rupees, so unlike an exporter it has no big dollar income to set against its dollar bills.
The hedge they're actually leaning on is structural rather than financial — owning aircraft instead of leasing them in dollars, which shrinks the liability at its source (owned planes went from 8 to 36 in a year). For an exposure that stretches a decade out, owning the metal is arguably a more durable fix than paying years of forward premiums. The short version: hedging swaps an uncertain future loss for a certain present cost, and that trade is worth it for near-term cash flows but usually not for a long-dated, non-cash accounting liability — so they cover the front end and attack the rest by owning more of the fleet.
Same question here.