The national Algerian flag air carrier operates a web of 63 routes mostly to Europe and the Middle East. Its fleet is financed in euros to the tune of €2.5 billion, and ticket sales are overwhelmingly to Algerian nationals

(80 percent). The Algerian currency—the dinar (DZD)—is currently pegged to the euro at DZD 100 = €1.

a. How would a 25 percent devaluation of the dinar impact Air Algérie’s cash flows?

b. In 2012 Air Algérie sold 10 aging airplanes and used the proceeds to pay down partially its € debt. It decided to lease rather than purchase its new fleet of seven jumbo jets. Would Air Algérie’s new exposure to currency risk be materially altered as a result?

c. Would you advise Air Algérie to negotiate lease payments inversely tied to the price of jet fuel?