Uncoupling yuan from dollar would lighten Chinese airline debt

CHINA's decision to end the yuan's peg against the dollar stands to cut its aviation debt load, according to analysts at Hong Kong's CLSA Asia-Pacific Markets, reports the Wall Street Journal online.

CLSA analysts said China's big three airlines carry most of their debt in dollars. "At China Southern Airlines, 69 per cent of the debt is in US dollars. At China Eastern it's 74 per cent. And at Air China, it's 81 per cent." said the report.

Analysts estimate one airline would earn 0.7 per cent more profit for every one per cent increase the yuan made against the dollar. The value of that debt, and the cost of servicing it, would also drop as the yuan rises, say analysts, lowering the companies' costs and strengthening their balance sheets.

Airlines also must pay a much of their costs in dollars, from jet fuel to landing rights to aircraft leasing and offshore maintenance and repairs, said the report.

In Asia - and especially in China - the most airline revenue comes in local currencies, which means a rising yuan would lower costs for Chinese airlines, said the analysts.

Overall, CLSA estimates that 15 per cent of Air China's operating costs are incurred in dollars, while no more than six per cent of its revenue is in dollars - the rest being in yuan.

Chinese airlines will also benefit if a stronger yuan encourages more Chinese to travel overseas to flex their growing buying power, it said.
(Source:www.schednet.com)