Major Transaction - Part 2b
Air China Ld
30 May 2006
40. DISTRIBUTABLE RESERVES
As at 31 December 2005, in accordance with the PRC Company Law, an amount of
approximately RMB8,505 million (2004: RMB7,704 million) standing to the credit
of the Company's capital reserve account, and an amount of approximately RMB305
million (2004: RMB52 million) standing to the credit of the Company's reserve
funds, as determined in accordance with PRC GAAP, were available for
distribution by way of future capitalisation issue. In addition, the Company had
retained earnings of approximately RMB1,641 million (2004: RMB208 million), as
determined in accordance with PRC GAAP and being the lesser amount of the
retained earnings determined in accordance with PRC GAAP and IFRSs, available
for distribution as dividend.
41. CONTINGENT LIABILITIES
Pursuant to the Restructuring, the following legal matters set out in items (a)
and (b) below were transferred to or assumed by the Company upon its
incorporation. As at 31 December 2005, the Group had the following contingent
liabilities:
(a) Pursuant to the Restructuring of CNAHC, in preparation for the listing of
the Company's H shares on Hong Kong Stock Exchange and the London Stock
Exchange, the Company entered into a restructuring agreement with CNAHC and
CNACG on 20 November 2004 ('Restructuring Agreement'), except for liabilities
constituting or arising out of or relating to business undertaken by the Company
after the Restructuring, no other liabilities were assumed by the Company and
the Company is not liable, whether severally, or jointly and severally, for
debts and obligations incurred prior to the Restructuring by CNAHC and CNACG.
The Company has also undertaken to indemnify CNAHC and CNACG in respect of any
damage suffered or incurred by CNAHC and CNACG as a result of any breach by the
Company of any provision of the Restructuring Agreement.
(b) On 15 April 2002, Flight CA129 crashed on approach to Gimhae International
Airport, South Korea.
There were 129 fatalities including 121 passengers and 8 crew members aboard the
crashed aircraft. An investigation was conducted by the Chinese and the Korean
civil aviation authorities, but the cause of the accident has yet to be released
at the date of these financial statements. Certain injured passengers and
families of the deceased passengers have commenced proceedings in Korean courts
seeking damages against Air China International Corporation, the predecessor of
the Company. The Group cannot predict the timing of the courts' judgements or
the possible outcome of the lawsuits nor any possible appeal actions. Up to 31
December 2005, the Company, Air China International Corporation and the
Company's insurer had paid an aggregate amount of approximately RMB197 million
in respect of passenger liability and other auxiliary costs. Included in the
RMB197 million is an amount of approximately RMB179 million borne by the
Company's insurer. As part of the Restructuring, CNAHC has agreed to indemnify
the Group for any liabilities relating to the crash of Flight CA129, excluding
the compensation already paid up to 30 September 2004 (being the date of
incorporation of the Company). The Directors of the Company believe that there
will not be any material adverse impact on the Group's financial position.
(c) The Group and the Company have issued guarantees to banks in respect of the
bank loans granted to the following parties:
Group Company
2005 2004 2005 2004
RMB'000 RMB'000 RMB'000 RMB'000
Joint ventures 91,000 - - -
Associates 149,109 214,002 128,303 198,102
240,109 214,002 128,303 198,102
42. COMMITMENTS
(a) Capital commitments
The Group and the Company have the following amounts of contractual commitments
for the acquisition and construction of plant, property and equipment:
Group Company
2005 2004 2005 2004
RMB'000 RMB'000 RMB'000 RMB'000
Contracted, but not provided
for:
Aircraft and flight 31,696,796 8,750,195 31,403,107 7,272,969
equipment
Buildings 835,902 544,855 664,614 211,607
Others 22,339 8,426 22,339 8,426
32,555,037 9,303,476 32,090,060 7,493,002
Authorised, but not
contracted for:
Aircraft and flight 3,973,095 - 3,564,126 -
equipment
Buildings 1,920,079 2,528,544 1,920,079 2,528,544
Others 65,608 - - -
Total capital commitments 38,513,819 11,832,020 37,574,265 10,021,546
(b) Investment commitments
As at 31 December 2005, the Company is committed to make capital contributions
of RMB358 million (equivalent to approximately US$45 million) (2004: RMB422
million) and RMB103 million (2004: Nil) to a joint venture and an associate,
respectively.
(c) Operating lease commitments
The Group and the Company lease certain of its office premises, aircraft and
related equipment under operating lease arrangements. Leases for these assets
are negotiated for terms ranging from 1 to 20 years.
At the balance sheet date, the Group and the Company have the following future
minimum lease payments under non-cancellable operating leases:
Group Company
2005 2004 2005 2004
RMB'000 RMB'000 RMB'000 RMB'000
Within one year 1,507,057 1,140,228 760,230 748,202
In the second to fifth
years,
inclusive 2,862,349 3,215,879 1,657,353 2,111,282
Over five years 1,066,083 1,000,319 644,741 566,585
5,435,489 5,356,426 3,062,324 3,426,069
43. FINANCIAL INSTRUMENTS
(a) Fair value
Financial assets of the Group and the Company mainly include cash and cash
equivalents, pledged deposits, trade receivables, available-for-sale
investments, deposits and other receivables. Financial liabilities of the Group
and the Company mainly include bank and other loans, obligations under finance
leases, trade payables, other payables, bills payable and air traffic
liabilities.
The carrying amounts of the Group's and the Company's financial instruments
approximated their fair value as at the balance sheet date. Fair value estimates
are made at a specific point in time and based on relevant market information
about the financial instruments. These estimates are subjective in nature and
involve uncertainties and matters of significant judgement and therefore cannot
be determined with precision. Changes in assumptions could significantly affect
the estimates.
(b) Interest rate risk
The following table sets out the carrying amount, by maturity, of the Group's
financial instruments that are exposed to interest rate risk:
For the year ended 31 December 2005
Fixed rate
In the
third
to fifth
Within one In the years, Over five
year second year inclusive years Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
Obligations under
finance
leases 1,625,907 1,949,802 6,071,492 57,377 9,704,578
Bank and other loans 4,877,843 1,502,072 2,856,723 812,434 10,049,072
4.5% corporate bonds - - - 3,000,000 3,000,000
Bills payable 327,937 - - - 327,937
Cash assets 2,522,336 - - - 2,522,336
Floating rate
In the
third
to fifth
Within one In the years, Over five
year second year inclusive years Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
Obligations under
finance
leases 328,966 - - - 328,966
Bank and other loans 5,523,327 1,245,086 1,842,931 1,563,633 10,174,977
For the year ended 31 December
2004
Fixed rate
In the
third
to fifth
Within one In the years, Over five
year second year inclusive years Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
Obligations under
finance
leases 1,629,551 1,606,254 6,722,448 1,910,163 11,868,416
Bank and other loans 3,197,913 1,195,648 3,694,366 1,596,253 9,684,180
Bills payable 362,033 - - - 362,033
Cash assets 9,851,305 - - - 9,851,305
Floating rate
In the
third
to fifth
Within one In the years, Over five
year second year inclusive years Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
Obligations under
finance
leases 75,595 337,376 - - 412,971
Bank and other loans 5,608,138 1,868,251 2,520,893 2,021,211 12,018,493
Interest on financial instruments classified as floating rate is repriced at
intervals of less than one year. Interest on financial instruments classified as
fixed rate is fixed until the maturity of the instrument. The other financial
instruments of the Group that are not included in the above tables are
non-interest-bearing and are therefore not subject to interest rate risk.
44. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The Group's principal financial instruments, other than derivatives, comprise
bank and other loans, obligations under finance leases, cash and cash
equivalents and pledged deposits. The main purpose of these financial
instruments is to raise finance for the Group's operations. The Group has
various other financial assets and liabilities such as trade receivables and
trade payables, which arise directly from its operations.
The Group also enters into derivative transactions, including principally swaps
and collars contracts. The purpose is to manage the jet fuel price risk arising
from the Group's operations.
It is, and has been throughout the year under review, the Group's policy that no
trading in financial instruments shall be undertaken.
The Group operates globally and generates revenue in various currencies. The
Group's airline operations are exposed to business risk, liquidity risk, jet
fuel price risk, foreign currency risk, interest rate risk and credit risk. The
Group's overall risk management approach is to moderate the effects of such
volatility on its financial performance.
Financial risk management policies are periodically reviewed and approved by the
Board of Directors and they are summarised below.
(a) Business risk
The operations of the air transportation industry are substantially influenced
by global political and economic development. Factors such as accidents and wars
may have a material impact on the Group's operations or the industry as a whole.
In addition, the Group primarily conducts its principal operations in Mainland
China and accordingly is subject to special consideration and significant risks
not typically associated with companies in the United States of America and
Western Europe. These include risks associated with, among other things, the
political, economic and legal environment, competition and influence of the CAAC
in the Chinese civil aviation industry.
(b) Liquidity risk
The Group's net current liabilities amounted to approximately RMB16,006 million
at 31 December 2005 (2004: RMB9,053 million). The Group recorded a net cash
inflow from operating activities of approximately RMB6,048 million for the year
ended 31 December 2005 (2004: RMB6,151 million). For the same period, the Group
had a net cash outflow from investing activities of approximately RMB12,500
million (2004: RMB4,979 million). The Group also recorded a net cash outflow
from financing activities of approximately RMB766 million and an inflow from
financing activities of approximately RMB5,620 million for the years ended 31
December 2005 and 2004, respectively. The Group has recorded a decrease in cash
and cash equivalents of approximately RMB7,165 million and an increase in cash
and cash equivalents of approximately RMB6,824 million for the years ended 31
December 2005 and 2004, respectively.
With regards to 2006 and thereafter, the liquidity of the Group is primarily
dependent on its ability to maintain adequate cash inflow from operations to
meet its debt obligations as they fall due, and on its ability to obtain
external financing to meet its committed future capital expenditure. With
regards to its future capital commitments and other financing requirements, the
Company has already obtained several banking facilities with several PRC banks
of up to an amount of RMB78,570 million as at 31 December 2005, of which an
amount of approximately RMB33,476 million was utilised.
The Directors of the Company have carried out a detailed review of the cash flow
forecast of the Group for the year ending 31 December 2006. Based on such
forecast, the Directors have determined that adequate liquidity exists to
finance the working capital and capital expenditure requirements of the Group
during 2006. In preparing the cash flow forecast, the Directors have considered
historical cash requirements of the Group as well as other key factors,
including the availability of the above-mentioned loans financing which may
impact the operations of the Group prior to the end of 2006. The Directors are
of the opinion that the assumptions and sensitivities which are included in the
cash flow forecast are reasonable. However, as with all assumptions in regard to
future events, these are subject to inherent limitations and uncertainties and
some or all of these assumptions may not be realised.
(c) Jet fuel price risk
The Group's strategy for managing the risk on jet fuel price aims to provide the
Group with protection against sudden and significant increases in prices. In
meeting these objectives, the Group allows for the judicious use of approved
derivative instruments such as swaps and collars with approved counter-parties
and within approved limits.
Moreover, counter-party credit risk is generally restricted to any gains on
changes in fair value at any time, and not the principal amount of the
instrument. Therefore, the possibility of material loss arising in the event of
non-performance by a counter-party is considered to be unlikely.
The fair values of derivative instruments of the Group and the Company at the
balance sheet date are as follows:
Group Group
2005 2005 2004 2004
Assets Liabilities Assets Liabilities
RMB'000 RMB'000 RMB'000 RMB'000
Swaps and collars expiring:
Within 6 months - - - -
Over 6 months to 21 months 127,659 (1,791) - -
127,659 (1,791) - -
Company Company
2005 2005 2004 2004
Assets Liabilities Assets Liabilities
RMB'000 RMB'000 RMB'000 RMB'000
Swaps and collars expiring:
Within 6 months - - - -
Over 6 months to 21 months 115,220 (1,791) - -
115,220 (1,791) - -
Fair values of derivative instruments, denominated in United States dollars, are
obtained from quoted market prices, dealer price quotations, discounted cash
flow models and option pricing models, which consider current market and
contractual prices for the underlying instruments, as well as time value of
money, yield curve and volatility of the underlying instruments.
(d) Foreign currency risk
The Group's finance lease obligations as well as certain bank and other loans
are denominated in United States dollars and Japanese yen, and certain expenses
of the Group are denominated in currencies other than RMB. The Group generates
foreign currency revenue from ticket sales made in overseas offices and would
normally generate sufficient foreign currencies after payment of foreign
currency expenses, to meet its foreign currency liabilities repayable within one
year. RMB against United States dollars and Hong Kong dollars have been
comparatively stable in the past. However, RMB against Japanese yen had
experienced a significant level of fluctuation during the year which is the
major reason for the significant exchange difference recognised by the Group for
the year.
(e) Interest rate risk
The Group's earnings are also affected by changes in interest rates due to the
impact of such changes on interest income and expense from short-term deposits
and other interest-bearing financial assets and liabilities. A significant
portion of the Group's interest-bearing financial liabilities with maturities
over one year have predominately fixed rates of interest and are denominated in
United States dollars and Japanese yen.
The Group's short-term deposits and other interest-bearing financial assets and
liabilities are predominately denominated in RMB, United States dollars and Hong
Kong dollars.
(f) Credit risk
The Group's cash and cash equivalents are deposited with banks in Mainland
China, overseas banks and an associate. The Group has policies in place to limit
the exposure to any one financial institution.
A significant portion of the Group's air tickets are sold by agents
participating in the Billing and Settlements Plan ('BSP'), a clearing system
between airlines and sales agents organised by the International Air
Transportation Association. The balance due from BSP agents amounted to
approximately RMB529 million as at 31 December 2005 (2004: RMB531 million).
Except for the above, the Group has no significant concentration of credit risk,
with exposure spread over a number of counter-parties.
45. CONSOLIDATED CASH FLOW STATEMENT
(a) Establishment of a joint venture
For the year ended 31 December 2004, the establishment of a joint venture has
been shown in the consolidated cash flow statement as a single item. The cash
flow effect can be analysed as follows:
2004
RMB'000
Cash and bank balances 561,509
Trade receivables 16,844
Other receivables 2,778
Property, plant and equipment (note 15) 565,840
Inventories 352
Trade payables (40,018)
Other payables and accruals (357,517)
Air traffic liabilities (2,010)
Net assets attributable to the joint venture 747,778
partners
Dilution gain on an investment (note 9) 330,222
Cash contribution from the joint venture partners 1,078,000
Less: Cash attributable to the joint venture (561,509)
partners
Cash flow on establishment of a joint venture,
net of cash attributable to the joint venture 516,491
partners
(b) Major non-cash transactions
Major non-cash transactions in 2004 were as follows:
(i) In 2004, the Group received an aircraft injected by the PRC government
amounting to RMB304,787,000 (note 36). This amount has been recorded in
property, plant and equipment.
(ii) Upon incorporation of the Company on 30 September 2004, CNAHC effected the
transfer of certain land use rights in an aggregate amount of approximately
RMB885,626,000 to the Company.
46. RELATED PARTY TRANSACTIONS
The Group is part of a larger group of companies under CNAHC and has extensive
transactions and relationships with members of CNAHC. As such, it is possible
that the terms of these transactions are not the same as those that would result
from transactions among wholly-unrelated parties. Related parties refer to
corporations in which CNAHC is a shareholder and is able to exercise control or
joint control. The transactions were made at prices and terms mutually agreed
between the parties. The Directors of the Company are of the opinion that the
transactions with related parties (see below) were conducted in the usual course
of business.
The Group had the following significant transactions between the Group and (i)
CNAHC, its subsidiaries (other than the Group) and joint ventures (collectively
known as the 'CNAHC Group'); (ii) its joint ventures; and (iii) its associates:
Group
2005 2004
RMB'000 RMB'000
A. Included in air traffic revenue
Sale of air tickets
CNAHC Group 9,836 17,227
Associates 1,463 2,154
11,299 19,381
Sale of cargo space
CNAHC Group 200,273 213,836
Government charted flights
CNAHC 407,048 -
B. Included in other operating revenue
Aircraft and related equipment lease
income
CNAHC Group - 1,912
Aircraft engineering income
Associates 11,563 9,876
Ground services income
CNAHC Group 1,061 -
Joint ventures 23,417 942
Associates 34,401 19,849
58,879 20,791
Bellyhold income
Joint venture 1,496,302 1,384,457
Others
CNAHC Group 22,432 5,734
Joint ventures 33,406 14,424
Associates 35,568 11,484
91,406 31,642
Group
2005 2004
RMB'000 RMB'000
C. Included in finance revenue and
finance costs
Interest income
Associate 2,363 3,409
Interest expense
Associate 14,532 21,843
D. Included in operating expenses
Airport ground services, take-off,
landing and depot expenses
CNAHC Group 92,836 97,183
Associates 248,128 210,103
340,964 307,286
Air catering charges
CNAHC Group 49,695 43,241
Joint ventures 115,116 85,874
Associates 7,496 5,123
172,307 134,238
Repair and maintenance costs
Joint ventures 363,181 472,378
Associates 125,717 107,508
488,898 579,886
Sale commission expenses
CNAHC Group 7,571 25,913
Associates 6,119 -
13,690 25,913
Management fees
CNAHC Group 10,096 44,080
Aircraft leasing fees
Associate 201,388 -
Others
CNAHC Group 79,197 71,729
Associates 7,517 9,050
86,714 80,779
Group Company
2005 2004 2005 2004
RMB'000 RMB'000 RMB'000 RMB'000
E. Deposits, loans and bills
payable
Deposits placed with an 470,863 566,985 415,366 519,655
associate
Loans from an associate 203,016 481,132 190,910 364,400
Bills payable to an 103,426 - 103,426 -
associate
F. Outstanding balance with
related
parties
Due from CNAHC (long 531,813 631,813 531,813 631,813
term)
Due from other CNAHC
group
companies 38,039 44,916 12,993 8,801
Due from associates 62,948 90,842 15,419 17,305
Due to associates (95,905) (81,591) (129,410) (82,109)
Due from a joint venture 451,965 412,539 922,378 841,916
Due to CNAHC and CNACG (133,680) (2,256,117) (118,680) (2,240,213)
Due to other CNAHC group
companies (40,471) (49,617) (22,413) (12,163)
Due to a joint venture (115,435) (179,934) (288,588) (449,835)
Due from CNAHC 474,216 - 474,216 -
Due from subsidiaries - - 11,519 22,513
Due to subsidiaries - - (588,623) (559,703)
The long term amount due from CNAHC is unsecured, interest-free and is not
repayable within one year from the balance sheet date. Except for the long term
amount due from CNAHC, the outstanding balances with related parties are
unsecured, interest-free and repayable within one year.
Group
2005 2004
RMB'000 RMB'000
G. Compensation of
key management
personnel of
the Group
Short term 5,501 5,002
employee
benefits
Post-employment 142 93
benefits
Total 5,643 5,095
compensation
paid to key
management
personnel
Further details of
directors' emoluments are
included in note 10 to the
financial statements.
Group
2005 2004
RMB'000 RMB'000
H. Disposal of a 20,737 -
long term
investment to
CNAHC Group
On 30 September 2005, Beijing Catering Co. Ltd., a 60% joint venture of the
Group, sold its shares in CNAF to CNAHC for a total consideration of
approximately RMB34 million.
(a) In addition to the above, on 18 October 1997, CNAC entered into a licence
agreement with China National Aviation Corporation ('CNAC (PRC)') pursuant to
which CNAC (PRC) had agreed to grant a licence to CNAC, free of royalty, for the
right to use certain trademarks in Hong Kong, the Taiwan region and Macau so
long as CNAC is a subsidiary of CNACG.
On 25 August 2004, CNAC (PRC) entered into two assignment agreements with CNACG
pursuant to which CNAC (PRC) has agreed to assign, free of royalty, the
above-mentioned trademarks to CNACG for use in Hong Kong and Macau,
respectively. On 25 August 2004, CNACG entered into two licence agreements with
CNAC pursuant to which CNACG has agreed to grant licences to CNAC, free of
royalty, for the rights to use those trademarks in Hong Kong and Macau,
respectively, so long as CNAC is a direct or indirect subsidiary of CNAHC. These
licence agreements supersede the licence agreement entered into between CNAC
(PRC) and CNAC on 18 October 1997.
No royalty charge was levied in respect for the use of these trademarks during
each of the two years ended 31 December 2005.
(b) Pursuant to certain of the Company's aircraft leasing arrangements and bank
loans arrangements, the overseas lessors and lenders require guarantees to be
given by some major PRC state-owned banks. In giving such guarantees, the PRC
state-owned banks in turn require CNAHC and CNAF to provide counter-guarantees
in favour of the banks. As at the balance sheet date, the amounts of such
counter-guarantees provided by CNAHC and CNAF are as follows:
Group
2005 2004
RMB'000 RMB'000
CNAHC:
Finance leases (note 32) - 921,000
Bank loans (note 33) - 1,455,000
- 2,376,000
CNAF:
Finance leases (note 32) - 3,976,000
Bank loans (note 33) - 761,000
- 4,737,000
- 7,113,000
(c) The Company entered into several agreements with CNAHC which govern the use
of trademarks granted by the Company to CNAHC; the provision of financial
services by CNAF; the provision of construction project management services by
China National Aviation Construction and Development Company; the subcontracting
of charter-flight services to CNAHC; the leasing of properties from and to
CNAHC; the provision of air ticketing and cargo services; media and advertising
services arrangement to China National Aviation Media and Advertising Co., Ltd.;
the tourism services co-operation agreement with CNAHC; the comprehensive
services agreement with CNAHC; and the provision of maintenance and other ground
services by China Aircraft Services Limited.
(d) There were no pension payments relating to the Supplementary Pension
Benefits of the Group for the year ended 31 December 2005. All pension payments
relating to the Supplementary Pension Benefits of RMB39 million for the year
ended 31 December 2004 were borne by CNAHC (note 11).
(e) On 19 August 2004, Fly Top Limited, a wholly-owned subsidiary of CNAC,
entered into the following acquisition agreements:
(a) a sale and purchase agreement with CNACG in relation to the acquisition of
approximately 16% of the issued share capital of LSGHK, a company incorporated
in Hong Kong with limited liability (the 'CNACG Agreement'); and
(b) a sale and purchase agreement with Hong Kong International Air Catering
Limited ('HKIAC'), a company incorporated in Hong Kong with limited liability
and in which Air China International Corporation has a 25% equity interest, in
relation to the acquisition of approximately 4.2% of the issued share capital of
LSGHK (the 'HKIAC Agreement').
The total consideration of the above acquisitions is approximately RMB122
million. Immediately after the completion of the CNACG Agreement and the HKIAC
Agreement, the Group's effective shareholding interests in LSGHK is
approximately 14%.
The Group operates in an economic environment predominated by enterprises
directly or indirectly owned or controlled by the PRC government through its
numerous authorities, affiliates or other organisations (collectively
'State-owned Enterprises'). During the year, the Group had transactions with
State-owned Enterprises including, but not limited to, the provision of air
passenger and air cargo services and purchases of services. The Directors
consider that transactions with other State-owned Enterprises are activities in
the ordinary course of the Group's business and that the dealings of the Group
have not been significantly or unduly affected by the fact that the Group and
the other State-owned Enterprises are ultimately controlled or owned by the PRC
government. The Group has also established pricing policies for products and
services, and such pricing policies do not depend on whether or not the
customers are State-owned Enterprises. Having due regard to the substance of the
relationships, the Directors are of the opinion that none of these transactions
are material related party transactions that require separate disclosure.
47. NET PROFIT ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT
The net profit attributable to equity holders of the parent for the year ended
31 December 2005 and for the period from 1 October 2004 to 31 December 2004
dealt with in the financial statements of the Company was approximately RMB2,113
million and RMB1,230 million (note 38), respectively.
48. COMPARATIVE FIGURES
The following comparative figures have been reclassified to conform to the
current year's presentation:
(a) Reclassification of profit and loss items:
2004 2005 Group
Nature of item Classification Classification RMB'000
Share of tax attributable Tax Share of profits 96,974
to associates less losses from
associates
Finance revenue (which Finance costs Finance revenue 79,361
includes
interest income, net gains
on fuel
derivatives, net and
dividend
income from
available-for-sale
investments)
(b) Reclassification of balance sheet items:
2004 2005 Group Company
Nature of item Classification Classification RMB'000 RMB'000
Non-pledged deposits Cash and cash Non-pledged 320,850 313,768
with equivalents deposits with
maturity of more than maturity of
three more
months when acquired than three
months when
acquired
Advance payments for Prepayments, Advance 2,193,458 1,958,515
aircraft payments
and related equipment deposits and for aircraft
and
other related
receivables
equipment
The Directors are of the view that the above changes would result in a more
appropriate presentation of the Group's financial statements and better reflect
the Group's financial performance and financial position.
49. EVENTS AFTER THE BALANCE SHEET DATE
(a) On 17 January 2006, the Company and AIE, a wholly-owned subsidiary of the
Company, entered into an aircraft purchase agreement with Boeing Company
('Boeing') pursuant to which the Company has agreed to purchase 10 Boeing
737-800 aircraft (the 'Boeing Aircraft') from Boeing for an aggregate
consideration of US$655.2 million (equivalent to approximately RMB5,288
million). The aggregate consideration for the acquisition of the Boeing Aircraft
is payable in cash by installments and the Boeing Aircraft are scheduled to be
delivered in stages from 2007 to 2008.
(b) On 24 January 2006, the Group, through a subsidiary and an associate of
CNAC, entered into several agreements with Shun Tak Air Transport Limited and
its subsidiaries (the 'Macau Asia Express Agreements') to establish Macau Asia
Express Limited ('Macau Asia Express') to engage in the business of operating
low cost model air transport services based in Macau. Pursuant to the Macau Asia
Express Agreements, the Group will hold an indirect effective interest of 30% in
Macau Asia Express.
The aggregate initial investment to Macau Asia Express is up to approximately
HK$234 million (equivalent to approximately RMB243 million) and in which the
share of investment cost attributable to the Group, in an aggregate amount of
approximately HK$161 million (equivalent to approximately RMB167 million), will
be funded by internal resources. The completion of the establishment of Macau
Asia Express is subject to certain conditions to be fulfilled.
Macau Asia Express is a subsidiary of CNAC, as defined by the laws of Macau, but
CNAC does not have unilateral control over the entity. Accordingly, it will be
accounted for as a jointly controlled entity in the Group's financial statements
accordance with IAS 31 Interests in Joint Ventures.
50. APPROVAL OF THE FINANCIAL STATEMENTS
The financial statements were approved and authorised for issue by the Board of
Directors on 18 April 2006.
III. INDEBTEDNESS
Borrowings
The table below sets forth our total outstanding indebtedness as at 31 March
2006.
As at 31 March 2006
Repayable Repayable
Within After
One Year One Year Total
RMB RMB RMB
Notes (in (in (in
millions) millions) millions)
Bank loans, other loans and
corporate bonds (1) 12,411 12,739 25,150
Finance lease obligations (2) 2,017 6,979 8,996
Bills payable 756 - 756
Total 15,184 19,718 34,902
As at 31
March 2006
Total
Indebtedness
RMB
(in
millions)
Indebtedness denominated in U.S. dollars (US$2,410 million) 19,321
Indebtedness denominated in Japanese (Japanese yen46,383
yen million) 3,166
Indebtedness denominated in HK dollars (HK$15 15
million)
Indebtedness denominated in Renminbi 12,400
Total 34,902
Notes:
(1) The Group's bank loans, other loans and corporate bonds of approximately
RMB14,473 million were secured by mortgages over certain of the Group's assets
(consisting of aircraft and bank deposits) in the amount of approximately
RMB16,603 million as at 31 March 2006. Certain commercial banks have provided
guarantees in the amount of approximately RMB9,461 million to which certain
major PRC state-owned banks have provided counter-guarantees in the amount of
approximately RMB4,707 million.
(2) The Group's finance lease obligations of approximately RMB8,996 million were
secured by certain of the Group's aircraft in the amount of approximately
RMB9,205 million as at 31 March 2006. Certain commercial banks have provided
guarantees in the amount of approximately RMB10,660 million to which certain
major PRC state-owned banks have provided counter-guarantees of approximately
RMB2,265 million.
In addition to the above, as at 31 March 2006, certain of the Group's bank
deposits in the amount of approximately RMB102 million were pledged against the
Group's aircraft operating leases and financial derivatives.
Contingent liabilities
Pursuant to the restructuring of China National Aviation Holding Company
('CNAHC') for the listing of the Company's H shares on the Hong Kong Stock
Exchange and the London Stock Exchange (the 'Restructuring'), the legal matters
and litigation set out in items (i) and (ii) below were transferred to or
assumed by the Company upon its incorporation. As at 31 March 2006, the Group
had the following contingent liabilities:
(i) Pursuant to the agreement for the Restructuring (the 'Restructuring
Agreement') entered into by the Company with CNAHC and China National Aviation
Corporation (Group) Limited ('CNACG'), except for liabilities constituting or
arising out of or relating to businesses undertaken by the Company after the
Restructuring, no other liabilities were assumed by the Company and the Company
is not liable, whether severally, or jointly and severally, for debts and
obligations incurred prior to the Restructuring by CNAHC and CNACG. The Company
has also undertaken to indemnify CNAHC and CNACG in respect of any damage
suffered or incurred by CNAHC and CNACG as a result of any breach by the Company
of any provision of the Restructuring Agreement.
(ii) On April 15, 2002, Flight CA129 crashed on approach to Gimhae International
Airport, South Korea. There were 129 fatalities including 121 passengers and 8
crew members aboard the crashed aircraft. An investigation was conducted by the
Chinese and the Korean civil aviation authorities, but the cause of the accident
has yet to be officially released at the date of this letter. Certain injured
passengers and families of the deceased passengers have commenced proceedings in
Korean courts seeking damages against Air China International Corporation (the
predecessor of the Company). The Group can neither predict the timing of the
courts' judgements nor the possible outcome of the lawsuits nor any possible
appeal actions. Up to 31 March 2006, the Company, Air China International
Corporation and the Company's insurer had paid an aggregate amount of
approximately RMB200 million in respect of passenger liability and other
auxiliary costs. Included in the RMB200 million is an amount of approximately
RMB182 million borne by the Company's insurer. As part of the Restructuring,
CNAHC has agreed to indemnify the Group for any liabilities relating to the
crashed aircraft, excluding the compensation already paid up to 30 September
2004 (being the date of incorporation of the Company). The directors of the
Company believe that there will not be any material adverse impact on the
Group's financial position.
(iii) The Group has issued guarantees to banks in respect of the bank loan
facilities granted to the following parties:
As at 31
March 2006
RMB
(in millions)
Joint venture 11
Associates 149
Total 160
Except as disclosed above, as at 31 March 2006, the Group did not have any
outstanding mortgages, charges, pledges, debentures, loan capital, bank loans
and overdrafts, debt securities or other similar indebtedness, finance leases or
hire purchase commitments, acceptance liabilities or acceptance credits, any
guarantees or other material contingent liabilities.
Save as disclosed above, the directors have confirmed that there has been no
material change in the indebtedness of the Group since 31 March 2006.
APPENDIX II GENERAL INFORMATION
1. RESPONSIBILITY STATEMENT
This circular includes particulars given in compliance with the Listing Rules
for the purpose of giving information with regard to the Group. The Directors
collectively and individually accept full responsibility for the accuracy of the
information contained in this circular and confirm, having made all reasonable
enquiries, that to the best of their knowledge and belief there are no other
facts the omission of which would make any statement herein misleading.
2. DISCLOSURE OF INTERESTS OF DIRECTORS AND SUPERVISORS
As at the Latest Practicable Date, Mr. Zhang Xianlin, a Supervisor of the
Company, had interests in 33,126,000 shares, which represents approximately 1%
of the share capital of CNAC.
Save as disclosed above, as at the Latest Practicable Date, none of the
Directors, Supervisors or chief executive of the Company has interests or short
positions in the shares, underlying shares and/or debentures (as the case may
be) of the Company or its associated corporations (within the meaning of Part XV
of the SFO) which were notified to the Company and the Stock Exchange pursuant
to SFO (including interests or short positions which he is taken or deemed to
have under such provisions of the SFO), or recorded in the register maintained
by the Company pursuant to Section 352 of the SFO, or which were notified to the
Company and the Stock Exchange pursuant to the Model Code for Securities
Transactions by Directors of the Listed Companies.
None of the Directors or Supervisors of the Company has any direct or indirect
interest in any assets which have been, since 31 December 2005 (the date to
which the latest published audited financial statements of the Group were made
up), acquired or disposed of by or leased to any member of the Group or are
proposed to be acquired or disposed of by or leased to, to any member of the
Group.
None of the Directors or Supervisors of the Company is materially interested in
any contract or arrangement subsisting at the date of this circular and which is
significant in relation to the business of the Group.
None of the Directors or Supervisors of the Company and their respective
associates (as defined in the Listing Rules) has any competing interests which
would be required to be disclosed under Rule 8.10 of the Listing Rules if each
of them were a controlling shareholder of the Company.
3. SUBSTANTIAL SHAREHOLDERS
As at the Latest Practicable Date, to the knowledge of the Directors,
Supervisors and chief executive of the Company, the interests and short
positions of the following persons (other than a Director, Supervisor or chief
executive of the Company) who have an interest or short position in the shares
and underlying shares of the Company which would fall to be disclosed to the
Company pursuant to the SFO, or who are, directly or indirectly, interested in
10% or more of the nominal value of any class of share capital carrying rights
to vote in all circumstances at general meetings of any members of the Group are
as follows:
(a) Substantial interests in the Company
Percentage
Percentage of the
Percentage of the total Percentage
Type and of the total issued of the
number total issued non-H total
of shares issued domestic foreign issued H
of the shares shares shares shares
Type of Company of the of the of the of the Short
Name interests concerned Company Company Company Company position
CNAHC Beneficial 4,826,195,989 51.16% 100% - - -
owner domestic
shares
CNAHC(1) Attributable 1,380,482,920 14.64% - 100% - -
interests non-H foreign
shares
China National Beneficial 1,380,482,920 14.64% - 100% - -
Aviation
Corporation owner non-H foreign
(Group)
Limited shares
Cathay Pacific Beneficial 943,321,091 10.00% - - 29.24% -
owner H shares
Swire Pacific Attributable 943,321,091 10.00% - - 29.24% -
Limited(2)
interests H shares
John Swire & Sons Attributable 943,321,091 10.00% - - 29.24% -
Limited(2) interests H shares
John Swire & Sons Attributable 943,321,091 10.00% - - 29.24% -
(H.K.) Limited(2) interests H shares
Temasek Holdings Attributable 400,450,000 4.25% - - 12.41% -
(Private) Limited interests H shares
(3)
HSBC Halbis Investment 163,840,000 1.74% - - 5.08% -
Partners
(Hong Kong) manager H shares
Limtied
Wellington Investment 201,314,500 2.13% - - 6.24% -
Management
Company, LLP manager H shares
JPMorgan Chase & Investment 388,759,500 4.12% - - 12.05% -
Co.(4) manager H shares
67,246,000 0.71% - - 2.08% -
H shares
(lending pool)
Morgan Stanley(5) Investment 218,219,073 2.31% - - 6.76% -
Manager 38,921,371 0.41% - - 1.21% -
(short
position)
Note:
Based on the information available to the Directors, chief executive and
Supervisors of the Company (including such information as was available on the
website of the Stock Exchange) and so far as the Directors, chief executive and
Supervisors are aware, as at the Latest Practicable Date:
1. By virtue of CNAHC's 100% interest in China National Aviation Corporation
(Group) Limited, CNAHC is deemed to be interested in the 1,380,482,920 non-H
foreign shares of the Company directly held by China National Aviation
Corporation (Group) Limited.
2. By virtue of John Swire & Sons Limited's 100% interest in John Swire & Sons
(H.K.) Limited and their approximately 30% equity interest and 53% voting rights
in Swire Pacific Limited, and Swire Pacific Limited's approximately 46% interest
in Cathay Pacific, John Swire & Sons Limited, John Swire & Sons (H.K.) Limited
and Swire Pacific Limited are deemed to be interested in the 943,321,091 H
shares of the Company directly held by Cathay Pacific.
3. Temasek Holdings (Private) Limited, through its controlled entities, had an
attributable interest in 400,450,000 H shares of the Company, out of which the
interest in 292,500,000 H shares (representing approximately 9.07% of the total
issued H shares) was held directly by Aranda Investment (Mauritius) Pte Ltd. and
the interest in the remaining 107,950,000 H shares was held directly by Dahlia
Investments Ptd Ltd, FPL Alpha Investment Pte Ltd and Fullerton (Private)
Limited.
4. JPMorgan Chase & Co, through its controlled entities, had an attributable
interest in 388,759,500 H shares of the Company and 67,246,000 H shares of the
Company as lending pool, out of which the interest in 67,246,000 H shares was
held directly by JPMorgan Chase Bank, N.A., 278,248,000 H shares was held
directly by JF Asset Management Limited, 9,644,000 H shares was held directly by
JF International Management Inc., 347,500 H shares was held directly by J.P.
Morgan Whitefriars Inc., 6,000,000 H shares was held directly by J.P. Morgan
Securities Ltd., 26,266,000 H shares was held directly by JPMorgan Asset
Management (Japan) Limted and 1,008,000 H shares was held directly by JF Asset
Management (Singapore) Limited.
5. Morgan Stanley, through its controlled entities, had an attributable interest
in 218,219,073 H shares of the Company and maintained a short position of
38,921,371 H shares of the Company, out of which Morgan Stanley Investment
Management Company directly held 173,642,000 H shares, Morgan Stanley & Co
International Limited directly held 5,132,831 H shares and maintained a short
position of 3,074,833 H shares, Morgan Stanley Dean Witter Hong Kong Securities
Limited directly held 16,092 H shares and maintained a short position of 78,000
H shares, Morgan Stanley Asset & Investment Trust Management Co., Limited
directly held 3,352,000 H shares, Morgan Stanley Capital (Cayman Islands)
Limited maintained a short position of 1,890,000 H shares, Morgan Stanley
Capital Services Inc. directly held 119,155 H shares, Morgan Stanley Capital
(Luxembourg) S.A. directly held 2,058,000 H shares, Morgan Stanley Hedging Co.
Ltd. directly held 34,200 H shares and Morgan Stanley & Co. Inc. directly held
33,864,795 H shares and maintained a short position of 33,878,538 H shares.
(b) Substantial interests in CNAC
Percentage
of the
No. of issued share
Capacity shares capital
CNAHC(1) Attributable 2,264,628,000 68.36
interest
The Company(2) Beneficial owner 2,264,628,000 68.36
Best Strikes Limited Beneficial owner 187,656,000 5.66
On Ling Investments Attributable 322,856,000 9.75
interest
Limited(3)
Novel Investments Attributable 322,856,000 9.75
interest
Holdings Limited(3)
Novel Enterprises Attributable 322,856,000 9.75
interest
Limited(3)
Novel Enterprises (BVI) Attributable 322,856,000 9.75
interest
Limited(3)
Novel Credit Limited(3) Attributable 322,856,000 9.75
interest
Novel Holdings (BVI) Attributable 322,856,000 9.75
interest
Limited(3)
Westleigh Limited(3) Attributable 322,856,000 9.75
interest
Notes:
1. CNAHC owns approximately 51.16 per cent of the total issued share capital of
the Company and the entire issued share capital of CNACG, a company incorporated
in Hong Kong, which in turn owns approximately 14.64 per cent of the total
issued share capital of the Company. Accordingly its interests in CNAC duplicate
with those interest of the Company.
2. CNACG, the CNAC's former immediate controlling shareholder, transferred its
approximately 69 per cent shareholding interest in CNAC to the Company in
September 2004 by way of a capital contribution in return for the Company's
non-H foreign shares, as such the Company becomes the immediate controlling
shareholder of CNAC. Its interest in CNAC duplicates with those interests of
CNAHC.
3. 5.6% of the interest held by each of these companies in CNAC duplicates with
Best Strikes Limited's interest in CNAC. The interests of these companies in
CNAC also duplicate each other.
(c) Substantial interests in other members of the Group
Approximate
Member of % of share
the Group Name capital
Air Macau CNAC 51%
Air Macau Sociedale de Turismo e Diversaes de 14%
Macau
Air Macau Servico, Administracao e 20%
Participacoes, Lda.
Ameco Deutsche Lufthansa AG 40%
Air China Cargo Capital Airport Holding Company 24%
Air China Cargo CITIC Pacific Limited 25%
Save as disclosed above, as at the Latest Practicable Date, to the knowledge of
the Directors, chief executive and Supervisors of the Company, no other person
(other than a Director, Supervisor or chief executive of the Company) had an
interest or short position in the shares and underlying shares of the Company
which would fall to be disclosed to the Company pursuant to the SFO, or
otherwise was, directly or indirectly, interested in 10% or more of the nominal
value of any class of share capital carrying rights to vote in all circumstances
at general meetings of any members of the Group.
4. MATERIAL CONTRACTS
The Group has entered into the following material contracts within the two years
immediately preceding the date of this circular (Capitalised terms used in this
section has the same meaning as those defined in the Company's prospectus dated
3 December 2004):
(a) the Restructuring Agreement dated 20 November 2004 entered into between the
Company, CNAHC and CNACG regarding the Restructuring referred to in the section
headed 'Business - Connected Transactions' of the Company's prospectus dated 3
December 2004;
(b) the Non-competition Agreement dated 20 November 2004 entered into between
the Company and CNAHC regarding the arrangement of non-competition as referred
to in the section headed 'Business - Connected Transactions' of the Company's
prospectus dated 3 December 2004;
(c) the Trademark Licence Agreement dated 1 November 2004 entered into between
the Company and CNAHC regarding the licensing of the trademark bearing 'Air
China' logo and other trademarks referred to in the section headed 'Business -
Connected Transactions' of the Company's prospectus dated 3 December 2004;
(d) the Comprehensive Services Agreement dated 1 November 2004 entered into
between the Company and CNAHC regarding the general principle for the mutual
provision of certain ancillary services to each other referred to in the section
headed 'Business - Connected Transactions' of the Company's prospectus dated 3
December 2004;
(e) the Financial Services Agreement dated 1 November 2004 entered into between
the Company and CNAF regarding the general principle for the provision of a
range of financial services to the Company by CNAF referred to in the section
headed 'Business - Connected Transactions' of the Company's prospectus dated 3
December 2004. As at 30 September 2004, there were 3 loans denominated in RMB in
the total outstanding principal amount of RMB210,000,000 and 2 loans denominated
in USD in the total outstanding principal amount of USD19,550,000 which have
been granted by CNAF to the Company and which are outstanding, details of which
are set out below:
Outstanding
principal amount Annual interest rate Term
RMB100,000,000 4.536% 30 August 2004 to
28 February 2005
RMB60,000,000 4.536% 30 August 2004 to
28 February 2005
RMB50,000,000 4.536% 17 August 2004 to
16 February 2005
US$10,600,000 LIBOR+0.75% 12 July 2004 to
7 January 2005
US$8,950,000 6 month LIBOR+0.4% 15 May 2002 to
14 May 2009
Outstanding
principal amount Annual interest rate Term
RMB100,000,000 4.536% 30 August 2004 to
28 February 2005
RMB60,000,000 4.536% 30 August 2004 to
28 February 2005
RMB50,000,000 4.536% 17 August 2004 to
16 February 2005
US$10,600,000 LIBOR+0.75% 12 July 2004 to
7 January 2005
US$8,950,000 6 month LIBOR+0.4% 15 May 2002 to
14 May 2009
(g) the Sale and Purchase Agreement dated 19 August 2004 between Fly Top Limited
and Hong Kong International Air Catering Limited, a company incorporated in Hong
Kong, regarding CNAC's acquisition through Fly Top Limited of approximately 4.2%
of the issued share capital of LSGLS; the consideration for the acquisition is
HK$24.5 million. Fly Top Limited shall not be obliged to complete this agreement
unless the sale and purchase of the equity interest in each of (i) Beijing Air
Catering Co., Ltd., (ii) SWACL and (iii) LSGLS as referred to in paragraph (f)
above have completed or are completed simultaneously. Upon completion of the
agreement, Fly Top Limited would execute the Deed of Adherence and Supplement
referred to in paragraph (f) above. The agreement is governed by Hong Kong law;
(h) the 2004 Amendment to the Joint Venture Contract for Ameco between the
Company and Lufthansa dated 19 July 2004, which provides, among other things,
that (1) the term of Ameco shall be extended for further 25 years since the date
of the issuance of the new business license; (2) the registered capital shall be
increased by US$100 million (the instalment subscription schedule is set out in
paragraph 2B of this Appendix; (3) the Company undertakes, upon Ameco's actual
need of financing, to arrange total loan facility of approximately RMB282.7
million and Lufthansa undertakes, upon Ameco's actual need of financing, to
arrange total loan facility of approximately US$69.3 million and; (4)
restrictions shall apply on transfer of registered capital and profit allocation
(set out in paragraph 2A of 'Appendix IX -Statutory and General Information' of
the Company's prospectus);
(i) the Assignment Agreement between us and CNAHC on 8 October 2004 regarding
the equity interests in Shandong Aviation Group and Shandong Airlines referred
to in the section headed 'Business - Connected Transactions' of the Company's
prospectus dated 3 December 2004. Pursuant to this agreement:
(i) CNAHC agreed to transfer all of its rights and obligations under two
transfer agreements according to which CNAHC agreed to acquire a 48.0% equity
interest in Shandong Aviation Group and a 22.8% equity interest in Shandong
Airlines;
(ii) Since CNAHC has already paid part of the equity transfer amount and
relevant fees under the two transfer agreements, we have agreed to pay the same
amount to CNAHC. The Company also agreed to pay the outstanding amount under the
two transfer agreements to Shandong Aviation Group and Shandong Airlines;
(iii) the Company agreed to reimburse CNAHC for all the amounts and expenses
that have been incurred and paid by CNAHC under the above two transfer
agreements within seven (7) days of the effectiveness of the Assignment
Agreement;
(iv) CNAHC has given certain representations and warranties including that it
has all the rights, power and authorisation to make such transfer and that such
transfer will not result in the breach of any other agreements or documents that
have been entered into by CNAHC;
(v) CNAHC and the Company agreed to indemnify each other against all the damage
and expenses arising from any breach of representations and warranties given by
CNAHC or the Company, as the case may be; and
(vi) the Assignment Agreement shall be effective after it is signed by both
parties and approved by the relevant government authorities;
(j) the Hong Kong Underwriting Agreement dated 2 December 2004 entered into
among the Company, CNAHC, the Joint Global Coordinators, the Joint Sponsors, the
Hong Kong Underwriters and HSBC Nominees (Hong Kong) Limited pursuant to which
it is agreed, inter alia:
(i) the Company agreed, subject to certain conditions, to issue and allot, at
the Offer Price, the Offer Shares to be issued in connection with the Hong Kong
Public Offering;
(ii) the Hong Kong Underwriters agreed, subject to certain conditions, to
procure subscribers (or subscribe themselves) for the Offer Shares;
(iii) the Hong Kong Underwriters will be paid on admission to listing on the
Hong Kong Stock Exchange a commission of 2.5% of the Offer Price multiplied by
the number of Offer Shares allotted pursuant to the Hong Kong Public Offering;
(iv) the obligations of the Hong Kong Underwriters to procure subscribers for,
or failing which, themselves to subscribe for, Offer Shares are subject to
certain conditions. These conditions include, amongst others, delivery of
certain condition precedent documents and registering various documents with
Registrar of Companies. In addition, the Hong Kong Underwriters have the right
to terminate the Hong Kong Underwriting Agreement in certain circumstances prior
to admission;
(v) the Company agreed to pay certain costs, charges, fees and expenses of the
Hong Kong Public Offering;
(vi) each of the Company and CNAHC gave certain representations, warranties and
other undertakings, subject to certain limits, to each of the Joint Global
Coordinators, the Joint Sponsors and the Hong Kong Underwriters;
(vii) the Company gave certain indemnities, subject to certain limits, to each
of the Joint Global Coordinators, the Joint Sponsors and the Hong Kong
Underwriters;
(k) a Sponsor's Agreement dated 3 December 2004 between the Company and the
London Sponsor pursuant to which the Company appoints the London Sponsor as the
sponsor in connection with the London Listing in consideration for the Company
agreeing to pay to Merrill Lynch Far East Limited as a Hong Kong Underwriter a
commission under the Hong Kong Underwriting Agreement (See Paragraph (j) above)
and all costs and expenses incurred in connection with the London Listing,
provided that the London Sponsor will not commit or purport to commit the
Company to pay any such amounts, save as agreed beforehand between the Company
and the London Sponsor. The Company undertakes, among other things, to (i)
procure that certain documents in connection with the London Listing are
published, (ii) deliver the Prospectus to the UK Registrar of Companies and
(iii) not make announcements regarding the London Listing without notifying the
London Sponsor. The Sponsor's Agreement provides that the London Sponsor may
terminate the Sponsor's Agreement if, among other things, (i) it comes to the
attention of the London Sponsor that any statement in the Prospectus is untrue
and (ii) the Company has not complied with the Sponsor's Agreement in any
respect which is material in the context of the London Listing;
(l) a Paying Agency Appointment Letter dated 3 December 2004 between the Company
and Computershare Investor Services Plc ('Computershare') pursuant to which the
Company appoints Computershare as paying agent in connection with the London
Listing and in consideration for the Company agreeing to pay an initial fee of
4,000 and a minimum annual fee of 5,000, Computershare shall, among other
things, (i) calculate the amount of any dividend payable to each UK shareholder
and (ii) dispatch all payments, as instructed by the Company. The Paying Agency
Agreement also provides that the Company shall, in certain circumstances,
indemnify Computershare against, among other things, all actions, proceedings,
liability and claims in to acting in accordance with the Company's instructions;
(m) the strategic placing agreement dated 20 November 2004 between the Strategic
Investor, the Joint Global Coordinators and our Company, pursuant to which the
Strategic Investor has agreed to, among other things, subscribe at the Offer
Price for such number of Offer Shares that would constitute, in aggregate, 10.0%
of our total issued share capital immediately following the completion of the
Global Offering referred to in the section headed 'Strategic Investor' of the
Company's prospectus dated 3 December 2004;
(n) the Short-term Commercial Paper Underwriting Agreement dated 26 April 2005
entered between the Company and Bank of China Limited, pursuant to which Bank of
China Limited has agreed to be to form an underwriting syndicate and be the lead
underwriter for the RMB2 billion short term commercial paper issued by the
Company for a lump sum consulting fee of RMB3 million and a lead underwriting
fee of 0.12% of the value of the commercial paper issued by the Company;
(o) the A330-200 Purchase Agreement dated 26 January 2005 entered into between
the Company. AIE and Airbus S.A.S. in relation to the purchase of 20 A330-200
aircraft, the details of the agreement are set out in Company's circular dated 4
March 2005;
(p) the Boeing Aircraft Purchase Agreement dated 8 August 2005 entered into
between the Company, AIE and Boeing Company in relation to the purchase of 15
Boeing 787 aircraft, the details of the agreement are set out in the Company's
circular dated 30 August 2005;
(q) the Boeing Aircraft Purchase Agreement dated 17 January 2006 entered into
between the Company and AIE and Boeing Company in relation to the purchase of
10 Boeing 737 aircraft, the details of the agreement are set out in the
Company's circular dated 29 March 2006; and
(r) the Boeing Aircraft Purchase Agreement dated 19 April 2006 entered into
between the Company and AIE and Boeing Company in relation to the purchase of 15
Boeing 737 aircraft, the details of the agreement are set out in the section
headed 'Letter from the Board - The Boeing Aircraft Purchase Agreement' of this
circular.
Except as disclosed above, no other material contract has been entered into by
the Group within the two years immediately preceding the date of this circular.
5. LITIGATION
The litigation or claims of material importance pending or threatened against a
member of the Group are as disclosed in the section headed 'Contingent
liabilities' in 'Appendix I -Financial Information of the Group - III.
Indebtedness Statement' to this circular.
Except as disclosed above, as at the Latest Practical Date, there was no
litigation or claims of material importance pending or threatened against any
member of the Group.
6. SERVICE CONTRACTS
Each of the Directors has entered into a service contract with the Company for a
term of three years from 30 September 2004 other than Mr. Fan Cheng, whose
service contract has a term of three years from 18 October 2005 and the service
contract is thereafter subject to termination by either party giving written
notice to the other party.
None of the Directors has any existing or proposed service contract with any
member of the Group which is not expiring or terminable by the Group within one
year without payment of compensation (other than statutory compensation).
7. NO MATERIAL ADVERSE CHANGE
The Directors confirm that there has been no material adverse change in the
Group's financial or trading position since 31 December 2005, being the date to
which the latest published audited accounts of the Group have been made up.
8. PROCEDURE FOR DEMANDING A POLL BY SHAREHOLDERS
Pursuant to Article 72 of the Articles of Association of the Company, at any
general meeting of shareholders of the Company a resolution shall be decided on
a show of hands unless a poll is (before or after any vote by show of hands)
demanded:
• by the chairman of the meeting;
• by at least two shareholders entitled to vote present in person or by proxy;
or
• by one or more shareholders present in person or by proxy and representing 10%
or more of all shares carrying the right to vote at the meeting.
The demand for a poll may be withdrawn by the person who makes such demand.
Further details of the procedure for demanding a poll were set out in Appendix
VIII 'Summary of Articles of Association' to the Company's prospectus dated 3
December 2004.
9. MISCELLANEOUS
(a) The joint company secretaries of the Company are Zheng Baoan and Li Man Kit.
Mr. Li is an associate member of the Institute of Chartered Secretaries and
Administrators, UK and the Hong Kong Institute of Company Secretaries.
(b) The qualified accountant of the Company is David Tze-kin Ng. Mr. Ng is a
member of the Hong Kong Institute of Certified Public Accountants.
(c) The registered address of the Company is at 9th Floor, Blue Sky Mansion, 28
Tianzhu Road, Zone A, Tianzhu Airport Industrial Zone, Shunyi District, Beijing,
China. The head office of the Company is at South Terminal, Beijing Capital
International Airport, Chaoyang District, Beijing, China.
(d) The Hong Kong branch share registrar and transfer office of the Company is
Computershare Hong Kong Investor Services Limited, Rooms 1712-1716, 17th Floor,
Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong.
10. DOCUMENTS AVAILABLE FOR INSPECTION
Copies of the following documents are available for inspection during normal
business hours at the principal place of business of the Company in Hong Kong at
5th Floor, CNAC House 12 Tung Fai Road, Hong Kong International Airport, Hong
Kong up to and including
13 June 2006:
(a) the articles of association of the Company;
(b) the 2005 audited financial statements of the Group, the text of which is set
out in Appendix I to this circular;
(c) major transaction circular dated 4 March 2005 issued by the Company in
respect of the purchase of 20 A330-200 aircraft;
(d) major transaction circular dated 30 August 2005 issued by the Company in
respect of the purchase of 15 Boeing 787 aircraft;
(e) discloseable transaction circular dated 29 March 2006 issued by the Company
in respect of the purchase of 10 Boeing 737 aircraft; and
(f) material contracts referred in the section headed 'Material Contracts' of
this circular.
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The company news service from the London Stock Exchange
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