Air China warns H1 net could fall up to 65 pct on weak yuan

BEIJING, July 14 Mon Jul 14, 2014 7:21am EDT

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BEIJING, July 14 (Reuters) - China's flag carrier Air China Ltd warned on Monday that first-half earnings would fall as much as 65 percent year on year, saying a depreciating Chinese currency had driven up its financial costs.

Air China did not specify its financial cost for the January-June period but said its net income would be 55-65 percent less than the 1.12 billion yuan ($180.5 million) it booked for the same period a year ago.

Rival China Southern Airlines Co Ltd warned on Friday it could post a loss of up to 1.1 billion yuan for the first half, which it attributed to a weaker yuan and a slowing economy. That compared with a year-ago net profit of 302 million yuan.

The currency issue also is expected to hurt China Eastern Airlines Corp Ltd, which has yet to provide earnings guidance, industry observers say.

Chinese airlines used to end up with huge currency gains thanks to a strong yuan, partly because the aircraft they order from Boeing Co and Airbus Group NV are settled in dollars.

In recent months, however, Beijing allowed the yuan to slide to punish speculators, increasing volatility in the market. From January to June, the yuan depreciated 2.4 percent against the dollar.

With the end of the yuan's consistent appreciation against the dollar, carriers have been challenged on two fronts - operating costs and foreign currency-denominated debts.

Air China's Shanghai-traded stocks closed up 0.6 percent on Monday, slightly lagging a 0.96 percent gain by the benchmark index.

($1 = 6.2059 Chinese Yuan) (Reporting by Fang Yan and Matthew Miller in BEIJING; editing by Jane Baird)

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