Airline


 Background: 

Our client, a medium-sized UK airline, had hedged a large USD exposure (related to jet fuel requirements), using a complex structured product promoted by one of its main FX banks. As the new treasurer was not comfortable that this structured product was suitable for the airline’s risk profile, and seeking a more transparent risk management strategy to improve communication of FX hedging strategy to external investors, the airline engaged Validus to help manage FX risk on an ongoing basis, and to develop and implement FX risk reporting processes.

 

 

 

Our Approach: 

Our first step was to review the existing hedging portfolio of the client, to ensure it was consistent with the company’s stated risk management objectives. The initial review determined that the structured products promoted by the bank were not suitable for the airline’s conservative risk profile, and indeed contained certain “land-mine risks”, which would knock out the hedges in the event of an exceptionally strong USD, leaving the airline fully exposed to the underlying market risk at the worst possible time. Removing these land-mine risks required negotiating with the client’s banking provider to ensure that the restructuring was priced fairly. 

 

Following this strategy re-calibration, we implemented a process of periodic risk reporting via our RISKVIEW™ client portal, where by the airline provided us with data regarding current hedging and exposure forecasts, which we converted into a weekly dashboard report, detailing current exposures, the status of the current hedging program (whether the client was currently under-hedged or over-hedged) and sensitivity analysis to facilitate external reporting requirements. We would also regularly recommend specific hedging actions to the client, based on the status of the hedging program, and current market condition.

 

 

The result: 

As a result of the increased pricing transparency provided during the restructuring of the original hedging programme, the client received an immediate cost saving of over GBP 250,000.   We also ensured that a robust hedging strategy was executed and managed according to the company’s stated risk management objectives. The risk reporting process, which was managed via RISKVIEW™, ensured that stakeholders were kept informed of the status of the company’s hedging program through regular benchmarking against pre-determined risk key performance indicators (KPIs).







 

White Papers


 

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Testimonial

FX Risk

 

“Validus designed an innovative and practical hedging strategy to address our underlying FX risk in the context of very distinct and diverse sources of competition. We are delighted with the outcome and impressed with their on-going response to the changing business and market dynamics”.

 

Paul Stobbs, Managing Director, Attraction World

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Private Equity

 

 “The Validus team understand how private equity thinks about financial risk management issues and they are rigorous in the way they help our portfolio companies to understand and mitigate their risks.”

 

James Markham, Partner – Portfolio Management, Graphite Capital LLP

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FX and Commodity Risk

 

“Validus provides us with independent strategic advice relating to our long-term currency and commodity risk management program.  The people are extremely capable and collaborate very well with our finance and operations teams here at JD Irving.”

 

Mark Bettle, Director, J.D. Irving Ltd.

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FX  Risk

 

 “Validus developed a tailored hedging solution to mitigate the risks from our unique combination of existing supplier agreements. The implementation and management of this rolling hedging programme with our FX service providers has been expertly and efficiently handled”.  

 

Mark Goldby, Finance Director, SMS Electronics Ltd.

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Commodity Risk

 

“Validus worked with us to develop a comprehensive commodity risk management programme – their analysis was both insightful and actionable.   We particularly value their independence, and they continue to work alongside our internal team to ensure our commodity price risks are managed effectively”


Gerry Gray, Finance Director, Strix Ltd.


Testimonial

FX, Commodity & Interest Rate Risk

 

“Validus comes up with risk management solutions that are innovative and comprehensive but practical to implement, that is their strength compared to other consulting companies we have worked with in the past.  Validus provided valuable insights into how FX, interest rate and commodity risks impact our organisation, and provide actionable recommendations and solutions.”

 

Andrew Ayres, Finance Director, U-POL Ltd.

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