@Tot,,
Thats ryt.

The difference between men and boys is the price of their toys.

now demand at 110,300 against supply of 55,500.


'men will have to give account on the day of judgment for every careless word they have spoken' (Mat 12:36).
'set a guard over my mouth and keep watch over the door of my lips' (Ps 141:3).

Hi-Lo: Nuttal would have been in charge of scheduling & customer service (among other duties) NOT hedging. Hedging policy was approved by a Board of Directors who probably have NO idea what it entails. The details would be handled by the finance department.

Greedy when others are fearful,Very fearful when others are greedy - to paraphrase WB

@ Kizee,

IAS 39 states as follows:

'For the purpose of measuring a financial asset after initial recognition,this Standard classifies financial assets into the following four categories defined in paragraph 9:
(a) financial assets at fair value through profit or loss;
(b) held-to-maturity investments;
(c) loans and receivables; and
(d) available-for-sale financial assets.
An amendment to the Standard,issued in June 2005,permits an entity to designate a financial asset or financial liability (or a group of financial assets,financial liabilities or both) on initial recognition as one(s) to be measured at fair value,with changes in fair value recognised in profit or loss. To impose discipline on this categorisation,an entity is precluded from reclassifying financial instruments into or out of this category'

My understandiing is that the hedge is most likely a type (a) category financial asset,having said that that we need to understand the reason for the hedge.

Firstly we must understand that KQ is not a trader of fuel,The purpose for hedging is to lock in a price on a certain volume of consumption of fuel. If the hedge instrument looses value theoretically the income from the spot purchase cost of that commodity should compensate for the loss this should also be valued in the P&L. For reasons un known to me the KQ financial statements completely ignore this element of maket to market accounting as required by IAS 39.

Having said that,there is no perfect hedge and sometimes you may loose more than you gain,most large corporates manily airlines,oil companies vary or adjust their hedged instruments from time to time sometimes resulting in complete loss. This may be the reason at KQ but is not coming out clearly from their financial reporting. Only time will tell. I am hoping its weak accounting rather than a one off adjustment.

classifies financial assets into the following four categories defined in paragraph 9:
(a) financial assets at fair value through profit or loss;
(b) held-to-maturity investments;
(c) loans and receivables; and
(d) available-for-sale financial assets.
An amendment to the Standard,issued in June 2005,permits an entity to designate a
financial asset or financial liability (or a group of financial assets,financial liabilities

Raheel

KQ has accounted for the loss (NPV ) based not on the spot price but the future CURVE as they see it... (hmmm.....)

Greedy when others are fearful,Very fearful when others are greedy - to paraphrase WB

KQ's hedging disclosures were INADEQUATE at best. My efforts were always rebuffed by answers such as 'confidential'. Well... that we know is BS. KQ did apply IAS 39 (well,the MTM) but ran it through the Balance Sheet (under Shareholders Equity as Hedge Reserve) & yes,it was qualified by the auditors (& disclosed by KQ). In the past,KQ made money from the hedges which would have 'over-stated' profits if shown in the P&L.

**** IMHO,running MTM through the balance sheet creates huge swings in reported EPS that do not reflect the true position of the firm's earnings. The MTM should be run through the balance sheet & DISCLOSURES made. The loss is real (well,in the sense that should oil prices remain below $110,then KQ's 'provision' will be paid out in real cash!) but since oil prices have jumped to $71,there are gains in the hedges (post-provision).

Greedy when others are fearful,Very fearful when others are greedy - to paraphrase WB

so...the hedge was aquired to hedge and not trade...so what sub category should it fall under...reavluing under a future curve? mama mia...what rocket scientists...hey VVS....even with bonds the sub categorization is made.....AFS,HTM and trading...again i beleive KQ would be bound to revalue the position if and only if they aquired it for purposes of trading...

It was always 'hedging' for KQ. Basically to lock in prices rather than speculative gains. There are a number of derivatives they have used. I hope they provide more info in the Annual Report. They have got forward contracts,puts & calls (to form a collar).
**** Revaluation 'gains' depend on the future values expected which is dependent on oil prices.
**** Also what did they hedge? Jet Fuel or Oil... and these are NOT always in sync. Add different 'markets' i.e. Brent,WTI,etc...


Greedy when others are fearful,Very fearful when others are greedy - to paraphrase WB

@ Kizee,

I think VVS has already answered your question,it is the nature of the hedging instrument that makes it a trading or available for sale asset. The instrument is a derivative contract (future or option) that is tradeable on an exchange.

@ VVS,

I completely agree,there is total lack of disclosure on the hedge and treatment of MTM,unless we know what exactly is the nature of the hedge some serious questions remain,like you have pointed out,I reiterate:

1) How much of prevoius profit was windfall from hedge now that they have provided for the loss in the current P&L.

2) How much income have they already gained or loss reduced for current period from run up of crude price from 40 $ bbl to 72 $ today?

3) What is the correct operating margin for the airline even if fuel cost is budgeted at 110$ bbl?

Creates a lot of uncertainity on the way forward


Raheel