PURCHASE OF 15 BOEING 737
Air China Ld
20 April 2006
The Stock Exchange of Hong Kong Limited takes no responsibility for
the contents of this announcement, makes no representation as to its
accuracy or completeness and expressly disclaims any liability
whatsoever for any loss whatsoever arising from or in reliance upon
the whole or any part of the contents of this announcement.
Air China Limited
(a joint stock limited company incorporated in the People's Republic
of China with limited liability)
(Stock Code: 753)
MAJOR TRANSACTION: PURCHASE OF 15 BOEING 737 AIRCRAFT
The Company hereby announces that on 19 April 2006, the Company and
AIE entered into the Boeing Aircraft Purchase Agreement with Boeing
Company, pursuant to which the Company has agreed to purchase 15
Boeing 737 aircraft from Boeing Company.
CNAHC, which currently directly owns approximately 51.16% of the total
issued share capital of the Company, has approved the Transaction.
CNAHC does not have any interest in the Transaction other than as a
shareholder of the Company.
The Transaction constitutes a major transaction of the Company under
the Listing Rules. The Company shall, pursuant to the Listing Rules,
dispatch a circular containing the information required under the
Listing Rules in relation to the Transaction within 21 days after the
publication of this announcement.
BOEING AIRCRAFT PURCHASE AGREEMENT
On 19 April 2006 the Company and AIE entered into the Boeing Aircraft
Purchase Agreement with Boeing Company, pursuant to which the Company
has agreed to purchase 15 Boeing 737 aircraft from Boeing Company. The
Boeing Aircraft Purchase Agreement was entered into pursuant to a
framework agreement entered into between Boeing Company and the China
Aviation Supplies Import and Export Group Corporation on 11 April 2006
(the 2006 Framework Agreement).
The details of the Transaction are summarized as follows:
Date of the Transaction:
19 April 2006
Parties to the Transaction:
(i) the Company, as the purchaser, the principal business
activity of which is air passenger, air cargo and airline-related
services;
(ii) AIE, as the import agent for the Company; and
(iii) Boeing Company, as the vendor, one of whose principal
business activity is aircraft manufacturing.
The Company confirms that, to the best of the Directors' knowledge,
information and belief having made all reasonable enquiry, Boeing
Company and each of the ultimate beneficial owner of Boeing Company
are independent third parties and not connected persons (as defined in
the Listing Rules) of the Company.
Aircraft to be acquired:
Boeing Aircraft, i.e. 15 Boeing 737 aircraft
Consideration:
The aircraft basic price comprises the airframe price, optional
features prices and engine price. The aircraft basic price of the
Boeing Aircraft in aggregate is US$982.8 million (HK$7,626.5 million).
The aircraft price is subject to price escalation by applying a
formula. Boeing has granted to the Company significant price
concessions with regard to the Boeing Aircraft. These will take the
form of credit memoranda which may be used by the Company towards the
purchase of the Boeing Aircraft or spare parts, goods and services or
may be used towards the final delivery invoice payment of the Boeing
Aircraft. Such credit memoranda were determined after arm's length
negotiations between the parties and as a result, the actual
consideration for the Boeing Aircraft is lower than the aircraft basic
price mentioned above. The Transaction was negotiated and entered into
in accordance with customary business practice. Taking into account
all the factors relating to the purchase of aircraft by the Company,
including the market condition, the type, number and delivery schedule
of aircraft being purchased, and the terms of the 2006 Framework
Agreement, the extent of the price concessions granted to the Company
in the Transaction is comparable with the price concessions that the
Company had obtained in the previous aircraft purchase entered into
between the Company and Boeing Company on 8 August 2005 (the 2005
Aircraft Purchase). The Company believes that there is no material
difference between the effect of the price concessions obtained in the
Transaction and the 2005 Aircraft Purchase on the Company's operating
costs taken as a whole. The Company has applied to the Stock Exchange
for a waiver from strict compliance of Rule 14.58(4) of the Listing
Rules in respect of disclosure of the actual consideration of the
Boeing Aircraft.
The Boeing Aircraft Purchase Agreement was signed pursuant to the 2006
Framework Agreement. The 2005 Aircraft Purchase was entered into
pursuant to an umbrella agreement entered into between Boeing Company
and airline companies including the Company in January 2005. The
aircraft purchase agreement entered into between the Company, AIE and
Boeing Company on 17 January 2006 (the 2006 Aircraft Purchase) was
entered into pursuant to an umbrella agreement entered into between
Boeing Company and the China Aviation Supplies Import and Export Group
Corporation in November 2005. The purchase of the Boeing Aircraft was
not in contemplation at the time of the 2005 Aircraft Purchase and
2006 Aircraft Purchase. Accordingly, the Transaction, the 2005
Aircraft Purchase and the 2006 Aircraft Purchase are not part of the
same series of transactions and are not treated as if they were one
transaction and these transactions are not required to be aggregated
for the relevant classification of the Transaction pursuant to Rule
14.22. As the relevant percentage ratio under Rule 14.07 of the
Listing Rules for the Transaction is above 25% but less than 100%, the
Transaction constitutes a major transaction and is therefore subject
to approval by the Company's shareholders under the Listing Rules.
Payment and delivery terms:
The aggregate consideration for the acquisition of Boeing Aircraft is
payable by cash in instalments. The Company is expecting to take
delivery of the Boeing Aircraft in stages from early 2009 to 2010.
Source of funding:
The Transaction will be funded through cash generated from the
Company's business operations, commercial bank loans and other debt
instruments of the Company.
REASONS FOR AND BENEFITS OF THE TRANSACTION
The Boeing Aircraft will expand the fleet capacity of the Company and
will principally reinforce Beijing's position as a transportation hub
and increase frequency of flights, departing originally from Beijing,
of a number of key domestic flight courses. The Company expects the
Boeing Aircraft will deliver more cost-efficient performance and
provide more comfortable services to passengers.
Although the Boeing Aircraft was purchased with other aircrafts under
a package acquisition plan, which is coordinated by the NDRC, the
decision to purchase the Boeing Aircraft was made independently by the
Company. The negotiations under the acquisition plan were done as a
package to increase bargaining power.
The Directors believe that the terms of the Transaction are fair and
reasonable and in the interests of the shareholders of the Company as
a whole.
FURTHER INFORMATION
CNAHC currently directly owns approximately 51.16% of the total issued
share capital of the Company. Each of CNAHC and its associates (as
defined in the Listing Rules) does not have any interest in the
Transaction other than as a shareholder of the Company (where
applicable). No shareholder of the Company is required to abstain from
voting if the Company was to convene a general meeting for the
approval of the Transaction. CNAHC has approved the Transaction by way
of a written approval pursuant to Rule 14.44 of the Listing Rules. The
Company shall, pursuant to the Listing Rules, dispatch a circular
containing the information required under the Listing Rules in
relation to the Transaction within 21 days after the publication of
this announcement.
DEFINITION
In this announcement, unless the context otherwise requires, the
following terms shall have the following meanings:
'AIE' Air China Group Import and Export Trading Co.,
a company incorporated in the People's
Republic of China and a wholly-owned
subsidiary of the Company
'Boeing Aircraft' 15 Boeing 737 aircraft to be purchased by the
Company pursuant to the Boeing Aircraft
Purchase Agreement
'Boeing Aircraft the aircraft purchase agreement dated 19 April
Purchase Agreement' 2006 pursuant to which the Company has agreed
to purchase and Boeing Company has agreed to
sell the Boeing Aircraft
'Boeing Company' Boeing Company, a company incorporated in
Delaware of the United States
'Company' Air China Limited, a company incorporated in
the People's Republic of China with primary
listing on The Stock Exchange of Hong Kong
Limited and secondary listing on the Official
List of the UK Listing Authority
'CNAHC' China National Aviation Holding Company, a
company incorporated in the People's Republic
of China
'Director(s)' the director(s) of the Company
'Hong Kong Stock The Stock Exchange of Hong Kong Limited
Exchange'
'Listing Rules' The Rules Governing the Listing of Securities
on The Stock Exchange of Hong Kong Limited
'NDRC' the National Development and Reform Commission
of the People's Republic of China
'Transaction' the acquisition by the Company of the Boeing
Aircraft pursuant to the Boeing Aircraft
Purchase Agreement
By order of the Board
Air China Limited
Zheng Baoan Li Man Kit
Joint Company Secretaries
Beijing, 19 April 2006
As at the date of this announcement, the Directors of the Company are
Messrs Li Jiaxiang, Kong Dong, Wang Shixiang, Yao Weiting, Ma Xulun,
Cai Jianjiang, Fan Cheng, Hu Hung Lick, Henry*, Wu Zhipan* and Zhang
Ke*.
* Independent non-executive Director of the Company
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