Stupid Before the Event

For sure if the price of oil had hit USD200 a barrel and stayed there for most of the duration of the derivative contract MK got itself into it would have made tons of money. If we assume the instrument involved has a symmetrical payoff -- we'll know for sure when a fact-finding committee is set up -- it is not difficult to estimate that amount given that Air Mauritius now stands to lose about Rs5.5 billion if oil prices stay about USD65 lower than their USD105 contract price till June 2010. I am getting something like Rs4 billion per year for 2009 and 2010. Does that sound about right to you?

And depending on how the CEO is compensated, he could have taken home a bonus that would have made his outrageous close-to-a-million-a-month earnings pale in comparison. This in turn could explain why it seems that he and the board acted in a way that a prudent person wouldn't by forgetting to ask a very basic question that would have avoided if not mitigated this mess: How much do we stand to lose?