HONG KONG Nov 22 Air China (0753.HK)(601111.SS) warned that potential losses from its fuel hedging contracts had tripled to $454 million from the third quarter as energy prices slumped on the back of the global economic slowdown.
The airline, one of China's largest carriers, said the fair value loss on the hedging contracts was around 3.1 billion yuan ($453.9 million), about 2.1 billion yuan higher than the fair value loss disclosed in its third quarter results on Oct. 28.
The disclosure by Hong Kong-listed Air China comes after Hong Kong's largest carrier, Cathay Pacific (0293.HK), warned earlier this month of potential hedging losses of about $360 million as of Oct. 31.
"Investors should note that the above fair value loss is discounted cash flow calculated as at 31 October 2008 on the possible aggregate loss that may be incurred in relation to the entire remaining period of the hedging contracts," Air China said in the statement late on Friday.
"However, such fair value loss is not actual cash loss and therefore has no cash impact on the company. The actual amount of loss depends on the future movements in oil prices and adjustments of the fuel hedging positions."
The Chinese carrier, which has a cross-shareholding with Cathay Pacific, said if oil prices remained low it might be able to gradually make up for the losses with savings from buying fuel at low prices on the spot market.
Oil prices CLc1 closed higher in New York on Friday after recovering from 3-1/2-year lows. Crude prices have plummeted nearly $100 a barrel since record highs above $147 in mid-July, with demand shrinking as the credit crisis hit large consumer nations.
Air China and China's other big airlines are seeking government aid to cope with hefty losses from high costs and weak demand, industry sources familiar with the situation said on Monday. Air China's competitors include China Eastern Airlines (600115.SS) (0670.HK) and China Southern Airlines (600029.SS) (1055.HK).
After years of double-digit growth, China's air traffic began falling in May as a series of natural disasters and a slowing economy curbed travel demand. Air China, China Eastern and China Southern all posted losses in the third quarter. ($1=6.830 Yuan) (Reporting by Jeffrey Hodgson; Editing by Ben Tan)