Cathay Pacific

Air China suspended over cash injection

PUBLISHED : Saturday, 21 April, 2012, 12:00am
UPDATED : Saturday, 21 April, 2012, 12:00am

Air China was suspended from trading in Hong Kong and Shanghai yesterday because of a possible 1 billion yuan (HK$1.23 billion) worth of asset injections from its parent, China National Aviation Holding Company.

The carrier said on Thursday night that China National Aviation was considering channelling 1 billion yuan in government funding granted last September, along with a 50 million yuan energy-saving subsidy from the government, to Air China.

The capital injection would be made through a private placement, with Air China issuing 1 billion yuan in shares to its parent in exchange for the funds, the airline said.

It said shares in Air China would resume trading within five working days after consultation to see whether the planned transaction was in violation of government policy.

Shares in Air China closed at HK$5.12 on Thursday before its suspension.

Air China's net profit last year dropped 41 per cent year on year to 70.6 billion yuan, because of surging fuel costs and weaker fuel-hedging gains in the year. The profit was also hit by a 1.69 billion yuan impairment loss on 39 aircraft that the company planned to sell last year.

The operating environment for carriers remains tough, with high fuel prices and weak demand.

Air China's rivals, China Southern Airlines and China Eastern Airlines, have both filed profit warnings and have predicted that earnings will fall more than 50 per cent in the first quarter. Air China, which is due to report first-quarter earnings next Thursday, has not filed a warning.

In March, mainland carriers flew 25 million passengers, up 8.5 per cent year on year, but slower than the 11 per cent year-on-year growth for January and February.

Cargo volume nationwide also continued to shrink in last month, dropping 6.1 per cent year on year to 468,000 tonnes in March. In the first three months, passenger volume grew 10.2 per cent and cargo volume dropped 7.4 per cent year on year.

A global airline trade body has sounded the alarm on surging oil prices, warning that airlines would lose US$5 billion this year in a worst-case scenario where oil prices would average US$135 a barrel.

The International Air Transport Association (Iata), which represents more than 230 airlines, cited soaring fuel costs as it cut its industry profit forecast to US$3 billion from US$3.5 billion in December.

It said profits at Asia-Pacific carriers would be the highest, predicting US$2.3 billion because of strong traffic demand in China.

Cathay Pacific last month said full-year net profit fell 61 per cent, while Singapore Airlines said fourth-quarter profit was down 53 per cent. The picture was even bleaker in Europe. Air France-KLM, Europe's biggest airline, reported a net loss of Euro809 million (HK$8.28 billion) last year, with No2 Deutsche Lufthansa also reporting a Euro13 million loss.

7.08b yuan

Air China's net income last year, a 41pc decline from 2010. But it is still the world's biggest airline by market value