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Bloomberg
Chinese airlines ordered more than $100 billion of planes from Airbus SE and Boeing Co. in the past decade. Paying those bills is getting harder with the prospect of a trade war pushing the local currency to its lowest level in six months.
A weaker yuan means Air China Ltd., China Southern Airlines Co. and China Eastern Airlines Corp. will find it more costly to pay for new aircraft, which are priced in dollars. The airlines must also spend in foreign currency for fuel purchased overseas, which is somewhat cushioned by international ticket sales.
All told, they are bracing for higher expenses and fewer passengers as trade tensions build up between the world’s two biggest economies.
Investors have pummeled the shares of the three biggest Chinese airlines on concern the weaker yuan will result in a dip in earnings.
Flag carrier Air China Ltd. has tumbled 22 percent in Hong Kong since June 13, while China Southern Airlines Co. and China Eastern have slid
25 percent and 18 percent since June 14, losing a combined market value of about $11.5 billion.
“Trade concern is the one that’s pushing the yuan down,†said Mohshin Aziz, an aviation analyst at Maybank Investment Bank Bhd. in Kuala Lumpur. “That’s the root cause of all the branches of troubles we’re going through.â€
A weaker yuan also means higher interest payments on dollar-denominated debt.
Air China had about $21 billion of dollar-denominated debt; China Southern had $18 billion; and China Eastern $11 billion, according to data compiled by Bloomberg.
The Chinese currency has declined almost 5 percent since touching its strongest level since 2015 in late March amid trade tensions with the US.
Every 1 percent fluctuation in the dollar would translate to a loss or gain of 280 million yuan annually for Air China, 278 million yuan for China Southern and 260 million yuan for China Eastern, according to K. Ajith, a Singapore-based analyst at UOB Kay Hian Pte.
Representatives for the airlines didn’t respond to emailed requests seeking comments.
Chinese carriers have been expanding their fleets as they add new destinations to serve a market the International Air Transport Association estimates will surpass the US as the world’s biggest by as early as 2022.
They had a combined fleet of about 3,200 planes at the end of 2017, compared with a little less than 2,000 five years earlier, according to data from the Civil Aviation Administration
of China.