![]() China's big 3 airlines to lose on RMB depreciation against US dollar
CHINA's state-owned airlines - Air China, China Eastern and China Southern - have issued profit warnings on the back of foreign exchange losses from the renminbi's unforeseen weakening earlier this year.
With the bulk of their earnings in renminbi and fuel and aircraft costs paid in US dollars, the airlines benefited from the Chinese currency's steady appreciation against the greenback over the past decade.
China Eastern, the country's biggest carrier, last month said it would book a first-half profit of RMB50 million (US$8 million) - far lower than the RMB582 million profit made in the same period in 2013.
The Shanghai airline has also been hit by cancellations stemming from Chinese military exercises, which have caused widespread disruption to flight services across eastern and central China, reports London's Financial Times.
Up to 26,000 flights could be affected by the time the People's Liberation Army operations end in mid-August.
The reversal of the renminbi's uptrend, with the Chinese currency slipping from RMB6 to the dollar to RMB6.25 earlier this year, has inflated the value of the carriers' already high debt levels in local currency terms.
Macquarie estimates that at the end of 2013, before the renminbi began to decline against the dollar, the big three's net debt to equity ranged between 180 per cent and 267 per cent. China Eastern is the most heavily indebted, with its gearing expected to rise to almost 500 per cent next year.
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