LOT loses big on oil hedges

The Polish national carrier may lose as much as zł.280 million due to low oil prices.

It has come to light that in July 2008, the management of LOT Polish Airlines signed a two-year fuel-delivery hedge contract dictating that the airline pay over $140 (zł.413) per barrel of oil. Oil is currently trading at around $40 (zł.118) per barrel.

LOT is now required to fulfill the terms of the contract, meaning that it will overpay an estimated zł.280 million. The decision by the financial directors at LOT to sign the contract was based on an economic analysis that predicted oil prices would rise above $200 (zł.590) per barrel at the beginning of the year.

"LOT, like most airlines, is conducting a policy of fuel hedging, which is supposed to secure the effects of variable fuel prices for the company," explained Wojciech Kądziołka, a spokesman for the airline.

According to _ Dziennik _, the fuel hedging policy has been in place at LOT for seven years and before July 2008 brought around zł.50 million in revenue savings.

However, members of workers' unions at LOT, where employees own almost seven percent of the company's shares, have announced they will go to the state prosecutor with the accusation that the management undertook actions to deliberately harm the company. They are also calling for resignations of the airline's chairman of the board, Dariusz Nowak, and Konrad Tyrajski, the member of the board responsible for finance. Nowak was responsible for overseeing the unfavorable fuel contracts. LOT's supervisory board was expected to meet on Monday, January 12.

Financially troubled LOT announced an internal rescue plan last year which is expected to bring in zł.560 million in savings before the end of 2010. However, there have been no personnel reductions announced. During the first 10 months of 2008, LOT recorded a net loss of zł.459 million.

Since October, the Supreme Chamber of Control has been carrying out an audit of LOT, but this had been scheduled long before the oil hedging contracts had come to light.

Marcin Poznań