Deutsche Bank structures oil deal for China Southern Airlines

In an effort to hedge its exposure to volatile crude oil prices more effectively, Guangzhou-based China Southern Airlines (CSA) sought a bespoke solution when it approached Deutsche Bank in the summer of 2007. High oil prices drove CSA's fuel costs from 15% of its cost basis in 2002 to 30% in 2007.

A typical hedging strategy for an airline such as CSA might involve buying a call and selling a put, enabling the hedger to receive an amount of money as the market goes higher while retaining