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China Eastern reports steep full-year net loss
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13:15, April 17, 2009

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City-based carrier China Eastern Thursday reported a net loss of 13.93 billion yuan for 2008, a steep drop over 2007, when it had made a net profit of 604 million.

The company has attributed the huge loss to several factors, including falling passenger demand due to the financial crisis, wrong bets on fuel hedging contracts, soaring operating costs associated with dropping seat kilometer utilization, and provisioning for the declining value of corporate assets.

"The airliner will soon be capped with an 'ST' (special treatment) tag on the bourse because of its losses in 2008, and its daily trading limit will narrow to 5 percent," said Zhang Xun, an analyst with TX Investment Consulting.

According to its annual report, China Eastern's total debt reached 84.249 billion yuan, while its assets position was unchanged at 73.184 billion yuan as of Dec 31, 2008. This means there is a deficit of 11.065 billion yuan. Theoretically speaking, the airliner faces bankruptcy risk.

In order to help the nation's third-largest carrier survive the financial downturn, Liu Shaoyong, who took charge as China Eastern's chairman last December, has secured a combined credit line of 46 billion yuan from a variety of banks.

In addition, China Eastern has received emergency funding worth 7 billion yuan from the central government, and will benefit more from a 30 billion yuan credit line agreement signed on Tuesday between China Eastern Holding Co, its parent company, and China Development Bank.

Liu told reporters that the company would use the money to secure its future operational costs and repay debts that are due. But analysts worry that the "credit transfusion" can only help it survive, not thrive, unless other solutions to its woes are found.

"The reported 256-item cost-cutting package, including salary cuts among senior and middle management staff, encouraging employees to take a vacation without payment, and reducing investment projects, will be helpful. But it needs time to take effect," said Zhang Qi, an analyst with Orient Securities.

"Currently, the whole aviation industry is under the weather. Although China Eastern has optimized its flight capacity, the overall low demand will hit the airliner's performance," Zhang said.

China's three major airliners are expected to post a total net loss of more than 25 billion yuan in 2008. On Wednesday, China Southern announced a huge loss of 4.829 billion yuan, its largest since it was listed in 2003, while Air China is due to announce its annual report today.

Source: China Daily

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