Air China Sees First-Half Profit Decline as Much as 65% on Yuan

Jul 14, 2014 6:41 am ET

July 14 (Bloomberg) -- Air China Ltd., the country’s biggest airline by market value, forecast a drop in first-half profit as the yuan weakened.

The carrier, based in Beijing, expects to post profit decline of 55 percent to 65 percent in the six months ended June from the 1.14 billion yuan ($184 million) reported in the year- earlier period, according to a statement to the Shanghai stock exchange today.

Air China follows China Southern Airlines Co. in warning the weakening of the yuan will hurt earnings. More than 70 percent of debt of China’s carriers is denominated in dollars, Andrew Lee, an analyst at Macquarie Securities Ltd. wrote in a report dated July 11. The yuan’s depreciation increases the cost of servicing the foreign-currency debt.

The yuan fell 2.4 percent against the dollar in the first half, the worst-performing currency in Asia, data compiled by Bloomberg show.

China Southern Airlines, the nation’s third-largest carrier by market value, said July 11 that it expected to post a loss of 900 million yuan to 1.1 billion yuan, compared with a 302 million yuan profit in the year-earlier period.

Air China’s Hong Kong-traded shares have declined 18 percent this year, compared with 0.2 percent gain in the city’s benchmark Hang Seng Index.