Purchase and Leasing
It all starts with the purchase or lease of the aircraft. Invariably, this means striking agreements and engaging with foreign manufacturers, lessors and maintenance providers. The cost of these agreements can vary considerably because of exchange rate fluctuations – potentially costing owners and operators way more than envisaged.
Financing activities can also leave aviation businesses at the mercy of the currency markets. As an example, owners requiring funding in a foreign currency, in order to finance the purchase or lease of an aircraft, may see unexpected changes in interest repayments as a result of currency market volatility.
Maintenance, Crew and Insurance Costs
Exchange rate movements can also affect maintenance, repair and insurance costs. This is especially relevant where aviation companies have wet lease agreements in place. This is often the case for Isle of Man based operators, where aircraft lease agreements may well include the cost of staff salaries for flight and cabin crew, as well as aircraft maintenance and insurance.
In situations where the local currency of a company weakens in comparison to the currency of the costs associated with these overheads, this can be a real drain on profitability.
Fuel
Always a major area of outlay for the aviation sector - is typically priced in U.S. dollars. This can be of huge relevance. If you are operating outside the United States, as will often be the case, and your domestic currency is under pressure from the dollar, you could face consistently high fuel costs – without a prudent FX strategy.
Income
For operators looking to generate income from seat bookings, if these are channelled through foreign currencies or through subsidiary companies overseas, revenue can also be reduced by fluctuations in exchange rates.
How MFX can help to Mitigate Risks
MFX has considerable experience in assisting aircraft owners and operators to develop and implement effective currency risk management strategies. Day-to-day currency volatility, which aviation companies encounter, can be mitigated with effective hedging, involving forward contracts and options. This can help to safeguard costs, providing a rolling buffer in the event of adverse currency movements.
MFX is partnered with moneycorp, globally renowned exponents in the field of international payments, who regularly work with over 100 currencies worldwide. This is especially pertinent for the aviation sector, as it provides businesses with a ‘safe hands’ approach at all times.
In terms of FX provision, it certainly pays to shop around. Relying on one operator, such as a bank or agent, to handle all payments may not necessarily be the right approach. Having another card up your sleeve could actually be a wise decision, especially where you are making regular large-scale international payments.
For a non-obligatory discussion about your current aircraft-related foreign exchange requirements, call MFX on 01624 694731 or email us at enquiries@mfx.im and we will get straight back in touch with you.
MFX Ltd is a wholly owned subsidiary of the AIM-listed Manx Financial Group. Bank and a sister company of Conister Bank.