Air China faces losses due to fuel hedging

Published 2:14 pm Saturday, January 17, 2009

BEIJING — Air China Ltd., one of China’s three major state-owned carriers, warned today it faces a “significant loss” for 2008 because of wrong-way bets on fuel prices that will cost nearly $1 billion.

The airline joined a parade of Asian airlines battered by turmoil in oil markets.

Air China’s cash loss in December from fuel contracts was U.S. $52.8 million, the Beijing-based airline said in a statement through the Hong Kong Stock Exchange. It said total losses on fuel contracts as of Dec. 31 are estimated at $997 million.

Air China managers “made a preliminary estimate that the company will incur significant loss for the year ended 31 December 2008,” the statement said. It said detailed figures would be released later.

Airlines tried to insulate themselves against soaring fuel costs by signing contracts locking in future prices. But many lost money when global oil prices plunged from about $147 a barrel in July to about $45 a barrel at the end of the year.

Another state-owned carrier, China Eastern Airlines Ltd., has warned it faces a loss for 2008 because of fuel hedging losses estimated at $906 million. Hong Kong-based Cathay Pacific Airways said earlier it could lose nearly $1 billion from fuel hedging.

On the Net:

Air China Ltd.: www.airchina.com.cn