"The problem of CAO Singapore is an individual case, which will not impose any impact on the supply mechanism or price level of jet fuel to China's aviation industry," Li Jiaxiang, chairman of Air China, said at a video conference in Hong Kong yesterday.

CAO Singapore, which has a near monopoly on importing jet fuel into the mainland, has suffered from an estimated trading loss of US$550 million in the oil derivatives market partly due to soaring international oil prices this year.

Li revealed that China Aviation Oil Holdings, which owns 60 per cent of CAO Singapore, reached supply agreements with PetroChina and Sinopec recently in a bid to make the jet fuel supply more flexible.

Air China, the last of the big three China airline groups to be listed, has historically procured approximately 70 per cent and 30 per cent, respectively, of its jet fuel requirements from domestic and international suppliers.

Fan Cheng, the company's executive director and chief financial officer, said Air China has hedged between 22 per cent and 50 per cent of the jet fuel it used since 2001 in a bid to reduce the impact of oil-price shock.

"We will continue to use various derivative transactions including swaps to contain jet fuel costs in the future... We have noticed the international jet fuel price has decreased recently, providing a favorable opportunity to potential hedging activities," Fan said.

Fuel costs accounted for 24.3 per cent of Air China's operating costs last year and rose to 28.1 per cent in the first half of the year. Its fuel-derivatives gains stood at 76.6 million yuan (US$9.23 million) in the first half of the year, compared with 788.4 million yuan (US$94.94 million) net profit during the same period.

When asked the impact of potential revaluation of renminbi, Fan said that the appreciation of yuan would help reduce the carrier's financial cost as the US dollar-denominated debts accounted for a substantial high amount of its total debt.

As of the end of September, Air China's US dollar-denominated debts accounted for about 59 per cent of the company's total.

Air China is selling approximately 2,805 million shares at an indicated price range of HK$2.35-HK$3.1 (30-39.7 US cents) in a Hong Kong and London listing. The share offering opens for public subscription today, which accounts for 10 per cent of the US$1.1 billion. It is expected to set the share price on December 9 and start trading on December 15.

Air China's London listing is the first by a Chinese company on the main market in four years. It comes at a time when the United States has introduced tough disclosure rules which are giving companies second thoughts about floating in the States.

The company said it planned to use 4.8 billion yuan (US$578 million) from the net proceeds of the global offering to acquire 10 Airbus 319 aircraft and four Boeing 737-770 aircraft. The remaining proceeds will be used to repay debts that will mature in one year and to supplement its cash flow.

Shares of Air China's rivals Southern Airlines rose 2.4 per cent to HK$3.20 (41 US cents) while those of Eastern Airlines rose 1.2 per cent to HK$1.75 (22.4 US cents) yesterday. Both shares soared more than 17 per cent in the past month.