Air China’s share price suffered its heaviest fall for a month on news that it had clocked up potentially half a billion dollars in hedging losses. But reports claiming the airline will lose $454 million from punts taken to cover hedging options are misleading, said an investment banker in Hong Kong.
The losses are potential losses that exist on paper and the airline would only have to pay up if the contracts were closed now.
Any future cash losses would depend on movements in oil prices and adjustments in hedging positions. Furthermore, these would only be losses relative to the market price of oil – not absolute cash losses.
“These losses just relate to the estimated value today if the contracts were closed,” said a banker. “As long as Air China keep chugging along and flying aircraft for...