Analysis On The Foreign Exchange Risk Management Of State-controlled Listed Airlines

In recent years,the frequent and more volatile fluctuations of the RMB exchange rate have exerted greater influence on the revenues of companies with foreign businesses.As an industry involving huge volume of international business and large amount of assets and liabilities in foreign currencies,the airlines industry has suffered significantly from the impact of foreign exchange risk.This paper constructed its theoretical framework by conducting literature research and performed analysis by studying specific cases.Currently,there are eight listed airline companies in China.By setting criteria on revenue scale,percentage of foreign businesses,and shareholder structure,this paper selected the four state-owned companies-Air China,China Eastern Airlines,China Southern Airlines and Hainan Airlines-as research samples.By analyzing these companies' foreign exchange trading risk,business risk,conversion risk,and foreign exchange gain or loss,this paper found that the most important foreign exchange risk of these companies is the fluctuation of USD/CNY exchange rate.Besides,this paper examined these companies' foreign exchange risk management preference and found that these companies exhibit a lack of awareness of proactive foreign risk management that uses hedging tools;and they tend to use a more passive operational hedging strategy by adjusting debt structure-turning foreign currency-denominated debt into RMB-denominated debt.This paper also found that these companies seldom use hedging tools to proactively manage USD/CNY exchange rate exposure because the management are not aware of the risk exposure and they do not have enough motivation to use the hedging tools,while these companies also have enough access to different sources of financing and are highly unlikely to encounter financial distress.Based on the above findings,this paper proposes four suggestions to improve case companies' foreign exchange risk management mechanism: the state-owned airline companies should adopt the idea of proactive foreign exchange risk management,incorporate an effective risk warning system,choose efficient risk management tools,and construct a risk evaluation procedure that is independent of the management.