皇冠体育app

Economy

Stronger yuan to pep up domestic air carriers

By Wang Ying (皇冠体育app Daily)
Updated: 2010-06-22 08:19

SHANGHAI - Airline shares surged on the Shanghai Stock Exchange on Monday, on anticipation that their US-dollar-denominated overseas debts would shrink considerably after the central bank signaled an end to the currency's peg to the dollar.

A 皇冠体育app Southern plane taxis on a runway after landing while an Air 皇冠体育app flight departs at Beijing Capital International Airport. Doug Kanter / Bloomberg

The People's Bank of 皇冠体育app indicated during the weekend it was going to slacken a 23-month peg against the dollar, and let the yuan be more flexible.

Domestic carriers are tipped to be the biggest gainers from a stronger yuan, as all of them have run up huge international debts from buying Airbus SAS and Boeing Co planes.

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Guangzhou-based 皇冠体育app Southern Airlines Co Ltd currently has an overseas debt of 52.4 billion yuan ($7.71 billion), while the Beijing-based Air 皇冠体育app Ltd owes 45 billion yuan and the Shanghai-based 皇冠体育app Eastern Airlines has debt of 30 billion yuan, according to Li Lei, an analyst with Citic 皇冠体育app Securities.

"The market expects the Chinese currency to rise between 2 and 3 percent in value. This will trim at least 1 billion yuan from each of the three carriers' US dollar debts," Li said.

Shares of 皇冠体育app Southern Airlines Co Ltd, the nation's largest carrier by fleet size, rose 8.18 percent to close at 7.27 yuan on Monday, while Air 皇冠体育app and 皇冠体育app Eastern rose 6.44 percent and 5.59 percent respectively.

Although Air 皇冠体育app operates the nation's largest amount of outbound flights, analysts considered 皇冠体育app Southern as the biggest beneficiary due to its huge overseas debt.

The Guangzhou-based carrier just welcomed its 400th plane on Sunday, making it the world's sixth-largest carrier by fleet size. It is quickly expanding its aircraft numbers, and plans to add 12 new aircrafts this year.

Yao Jun, an industrial analyst with 皇冠体育app Merchants Securities, said that each percentage point that the yuan rises would boost 皇冠体育app Southern shares by 0.044 yuan, Air 皇冠体育app by 0.025 yuan, and 皇冠体育app Eastern by 0.021 yuan.

Yao said 皇冠体育app Southern, Air 皇冠体育app and 皇冠体育app Eastern will write off their overseas debts by around 352 million yuan, 306 million yuan and 237 million yuan respectively, for every percentage point that the Chinese currency strengthens against the US dollar.

"A more expensive yuan is good news for international flights' fuel costs, as well as take-off and landing fees, and the biggest gains would be our overseas debts," said Rao Xinyu, board secretary of Air 皇冠体育app.

According to Rao, the appreciation of the yuan will help reduce the Beijing-based carrier's capital expenditure, which is expected to reach 15 billion yuan this year. Nearly 70 percent of the capital expenditure is used to purchase aircraft and equipment.

The three leading carriers registered an encouraging first-quarter report earlier. 皇冠体育app Southern posted a net profit of 1.419 billion yuan, five times higher than that of last year.

Air 皇冠体育app posted a net profit of 2.17 billion yuan, up 121.33 percent over the same period last year, while 皇冠体育app Eastern moved into the black after reporting a net profit of 770 million yuan.