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China Southern Airlines Sees First-Quarter Loss as Yuan Weakens

China Southern Airlines Co. (1055), the nation’s third-largest carrier, estimated a loss in the first quarter, compared with a profit in the same period last year, as a weaker yuan caused foreign-exchange losses.

The airline expects to report a loss of 300 million yuan to 350 million yuan ($48 million-$56 million) for the three months ended March 31, compared with a 57 million yuan profit during the same period in 2013, according to a statement to the Hong Kong stock exchange yesterday.

A slowing Chinese economy threatens to curb earnings for airlines, while a weaker yuan against the dollar increases the cost of servicing their foreign-currency debt. The nation’s gross domestic product probably grew 1.5 percent in the first quarter from the previous three months, according to the median estimate in a Bloomberg News survey ahead of data released today, down from 1.8 percent in the fourth quarter.

The yuan fell 2.6 percent against the dollar in the first quarter, the worst-performing currency in Asia, data compiled by Bloomberg show.

China Southern, based in Guangdong province, reported a 2013 net profit of 1.99 billion yuan last month, trailing the average estimate of 2.38 billion yuan. Air China Ltd., the largest carrier by market capitalization, and China Eastern Airlines Corp., the second biggest, both reported 2013 profits that missed analysts’ forecasts in March. The three airlines are scheduled to post first-quarter results later this month.

“The financial expenses of the company substantially increased as compared with the corresponding period of 2013 due to the exchange losses,” China Southern said in yesterday’s statement.

Most of the company’s finance leases, borrowings and operating leases are denominated in foreign currencies such as dollars and yen, the Chinese carrier said in March.

China Southern fell 1.6 percent to close at HK$2.47 in Hong Kong before yesterday’s announcement. The shares have slid 18 percent this year, compared with a 2.7 percent loss for Hong Kong’s Hang Seng Index. The Shanghai-listed stock has dropped 7.3 percent in 2014.

To contact the reporters on this story: Jasmine Wang in Hong Kong at jwang513@bloomberg.net; Rachel Evans in Hong Kong at revans43@bloomberg.net

To contact the editors responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net Allen Wan, Daryl Loo

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