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Air China will hold its hedging losses

AIR China Ltd, sitting on about US$1 billion of fair-value fuel-hedging losses, said yesterday it will keep unprofitable contracts until prices increase.

"Cutting hedging positions means turning paper losses into real losses," Board Secretary Huang Bin told Bloomberg News. "We will only make that move at an appropriate time."

China Eastern Airlines Corp, the nation's third-largest carrier, plans to close contracts this year, an executive said on Wednesday, as it strives to trim losses this year. Air China is able to avoid taking similar steps because it has a stronger balance sheet following at least seven straight annual profits up to 2007.

The Beijing-based airline's fair-value losses from fuel- hedging were little changed at the end of January from a month earlier, Huang said. The carrier had a 6.8-billion-yuan (US$995 million) paper loss as of December 31, it said last month.

Air China, the nation's biggest international carrier, China Eastern and Cathay Pacific Airways Ltd made paper losses from fuel-hedging after buying contracts last year in anticipation of prices rising. Instead, prices tumbled 70 percent in less than six months due to the recession and sliding oil prices.

Separately, Air China issued 3 billion yuan worth of three-year bonds yesterday, part of a plan to sell as much as 6 billion yuan of medium-term debt to boost working capital. The plan was announced in November.


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