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Sterling strength has been a thorn in the side of UK companies selling abroad, and UK aviation businesses are no exception. Businesses that receive payment in US dollars – as is widespread in the aviation industry – have suffered from unfavourable exchange rates of late as a result of a relatively strong sterling. Even businesses like BAE systems and Rolls-Royce – both household names – have not been immune to unfavourable currency fluctuations.
“Unfavourable exchange rates don’t just diminish profits – they also present opportunity costs that can have knock-on effects on other aspects of a business,” says Alex Bennett, Aviation Business Expert at international payments specialist Smart Currency Business. “These can stunt growth and, in worst case scenarios, lead to significant financial losses for a business.”
“However, currency costs can be managed to some degree in order to minimise losses and mitigate risk on currency exchange. Aviation businesses need to understand the consequences of currency fluctuations, know their budget rate, split risk up into transaction and economic risks, and identify practical solutions for minimising currency costs that eat into profits.
“A practical solution for cutting down on currency costs is by hedging. There are different kinds of currency hedging strategies, but a popular method allows a business to set a current rate for future use. This allows the business more control when it comes to budgeting and converting currency.”
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