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Rising yuan to help fetch 2.2b yuan in exchange gains
China Eastern Airlines Corp, the third-largest mainland carrier, turned earnings around in the third quarter after losing money for most of the past 2 1/2  years.
The Shanghai-based airline reported 976.5 million yuan in net profit for the three months  to September,  compared with 491.5 million yuan for the same period last year, according to documents filed with the Shanghai Stock Exchange yesterday.
The  results were prepared in accordance with mainland accounting standards.
China Eastern's biggest rival, China Southern Airlines, last week posted a 49 per cent increase in third-quarter net profit  to 1.88 billion yuan. Air China is due to report its third-quarter results  today.
For the first nine months of this year,  China Eastern posted net profit of 1.03 billion yuan compared with an 843.7 million yuan loss a year earlier.
Sales in the third quarter climbed to 12.5 billion yuan. In the first nine months, sales increased 15.3 per cent to 32.1 billion yuan.
The company did not provide passenger figures for  last month but in the first eight months, passenger volume increased by 10.9 per cent to 25.8 million.
In light of an 8 per cent appreciation of the yuan against US dollar this year, analysts predicted the carrier could book 2.2 billion yuan in exchange gains compared with 888 million yuan in gains last year.
Because of the high level of debt incurred   from a consolidation with two other mainland carriers in 2005, China Eastern reported a 305.6 million loss in the first half, a 3.3 billion yuan loss last year and a 467 million loss in 2005.
The airline entered into a preliminary agreement  to sell Singapore Airlines and Temasek  a combined 24 per cent stake in China Eastern. The formal agreement is expected to be signed next month before  a shareholder meeting  in December. Analysts  said the injection of fresh money as well as management expertise from the new investors could help boost the airline's profit in the next three years.
Together with a capital injection from China Eastern Air, the parent company of China Eastern, a total of US$1.46 billion will be pumped into the airline. This will effectively reduce the airline's net debt ratio to 2.1 times equity from 15 times and save about 500 million yuan in financing costs each year, according to a report by Morgan Stanley released last month.
'We see significant potential for operating revenue improvement for China Eastern, particularly for the long-haul routes which currently are losing money,' said the report by the securities firm. The brokerage house predicted the carrier would report 746 million yuan in net profit this year.
As of June,  the group operated a total of 398 routes, of which 292 were domestic, 17 were to Hong Kong and 89 were international  services. The company owns or operates 209 aircraft including 197 passenger jets and 12  freighters. The fleet size will  increase to 225 by the end of this year and to 250  next year. Another 26 aircraft will be delivered in 2009.



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