REVISED ANNUAL CAPS
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
(a joint stock limited company incorporated in the People's Republic of China with limited liability)
(Stock Code: 00753)
REVISED ANNUAL CAPS FOR CONTINUING CONNECTED TRANSACTIONS
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CONTINUING CONNECTED TRANSACTIONS WITH CNACG
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SUMMARY
On 10 September 2009, the board of Directors of the Company approved, among others, (1) the revised annual caps for the continuing connected transactions between the Group and the Lufthansa Group for the three years ending on 31 December 2012, and (2) the renewal of the Framework Agreement in relation to various continuing connected transactions between the Group and CNACG Group.
As each of the relevant Percentage Ratios (other than the profits ratio) of (1) the Lufthansa Transactions with the revised annual caps for the three years ended 31 December 2012 and (2) the CNACG Transactions under the Framework Agreement with the annual caps for the three years ended 31 December 2013, is higher than 0.1% and less than 5%, such continuing connected transactions therefore fall under Rule 14A.34 of the Listing Rules and are accordingly subject to the reporting, annual review and announcement requirements, but are exempt from the independent shareholders' approval requirements under Chapter 14A of the Listing Rules. |
REVISED ANNUAL CAPS FOR CONTINUING CONNECTED TRANSACTIONS BETWEEN THE GROUP AND THE LUFTHANSA GROUP
Reference is made to the section headed "CONTINUING CONNECTED TRANSACTIONS EXEMPT FROM THE INDEPENDENT SHAREHOLDERS' APPROVAL - 3.7 Continuing Connected Transactions between the Company and the Lufthansa Group" in the Company's circular dated 6 November 2009 in relation to various continuing connected transactions between the Group and the Lufthansa Group. The annual caps for the aggregate amount of all expenses to be paid by the Group to Lufthansa Group for the years ending on 31 December 2010, 2011 and 2012 were estimated to be RMB780 million, RMB858 million and RMB943.8 million, respectively, and the annual caps for the aggregate amount of all expenses to be paid by Lufthansa Group to the Group for the years ending on 31 December 2010, 2011 and 2012 were estimated to be RMB770 million, RMB847 million and RMB931.7 million, respectively.
The Directors have been monitoring the amounts of the Lufthansa Transactions, having regard to internal estimates of demand and operating conditions.
For the following reasons, the existing annual caps for the aggregate amount of all expenses to be paid by the Group to Lufthansa Group for the years ending on 31 December 2010, 2011 and 2012 and the annual caps for the aggregate amount of all expenses to be paid by Lufthansa Group to the Group for the years ending on 31 December 2010, 2011 and 2012 will not be sufficient to meet the requirements of the Group's operations:
• Since the second half of 2009, the cargo business of Air China Cargo, a subsidiary of the Company, has remarkably grown and, as a result, the transactions between Air China Cargo and Lufthansa Group have substantially increased. This has resulted in the increased expenses paid by Air China Cargo to Lufthansa Group. The Company currently expects that the number of cargo flights in relation to the business cooperation between the Group and the Lufthansa Group will increase no less than 10% for each of them in 2010 from the last year. In addition, Lufthansa has increased its cargo flights to Tianjin and Shanghai this year;
• the Group's passenger business has been growing in 2010. In the first half of this year, the Group recorded 47,214 million revenue passenger kilometers, carried 26.27 million passengers with a load factor of 78.89%, representing an increase of 32.13%, 34.54% and 4.55 percentage points, respectively, from the same period last year, which contributed to the increased transaction amount between the Group and Lufthansa Group. The Company currently expects that the number of its passenger flights to Germany in 2010 will increase approximately 7% from 2009; and
• in the first half of 2010, the Company made further capital contribution to Shenzhen Airlines, becoming the controlling shareholder of Shenzhen Airlines. Accordingly, the transaction amount between Shenzhen Airlines and Lufthansa Group shall be taken into account in the aggregate transaction amount of the Lufthansa Transactions between the Group and Lufthansa Group.
Accordingly, it is proposed that the annual caps for the aggregate amount of all expenses to be paid by the Group to Lufthansa Group and the annual caps for the aggregate amount of all expenses to be paid by Lufthansa Group to the Group for the years ending on 31 December 2010, 2011 and 2012 be revised as set out the table below:
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Existing Annual Caps |
Revised Annual Caps |
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Amount to be paid by the Company to Lufthansa Group |
RMB780 million |
RMB858 million |
RMB943.8 million |
RMB1,400 million |
RMB1,400 million |
RMB1,400 million |
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Amount to be paid by the Lufthansa Group to Company |
RMB770 million |
RMB847 million |
RMB931.7 million |
RMB1,400 million |
RMB1,400 million |
RMB1,400 million |
In arriving at the above caps, the Directors have considered (i) the historical and estimated transaction amounts; (ii) the Company's business plan about increased flight routes to Germany; and (iii) the fleet of the Company (including Air China Cargo) is expected to grow by 7% to 9% annually from 2010 to 2012 and the routes to Europe, in particular, Germany is expected to continue to increase.
As each of the relevant Percentage Ratios (other than the profits ratio) of the Lufthansa Transactions with the revised annual caps set out above, is higher than 0.1% and less than 5%, the Lufthansa Transactions therefore fall under Rule 14A.34 of the Listing Rules and are accordingly subject to the reporting, annual review and announcement requirements, but are exempt from the independent shareholders' approval requirements under Chapter 14A of the Listing Rules.
CONTINUING CONNECTED TRANSACTIONS WITH CNACG
Reference is made to the Company's announcement dated 26 August 2008 in respect of the Framework Agreement between the Group and CNACG Group. The Framework Agreement applies to the CNACG Transactions under the Relevant Agreements in the three years ending on 31 December 2010. Pursuant to the Framework Agreement, the Framework Agreement shall be renewed for successive periods of three years thereafter unless either party to it gives to the other a notice of termination of not less than three months expiring on any 31 December. The Company has agreed to the renewal of the Framework Agreement for the three years ending on 31 December 2013.
Description of transactions
The Framework Agreement provides a framework for the Relevant Agreements between members of the Group on the one hand and members of CNACG Group on the other hand.
The CNACG Transactions are transactions between members of the Group on the one hand and members of CNACG Group on the other hand, comprising ground handling and engineering services, management services and other services and transactions as may be agreed by parties to be undertaken under the Framework Agreement excluding those which have been contemplated by the related CNAHC Framework Agreements.
The annual caps
The annual caps for the CNACG Transactions have been determined by reference to the forecast payments in respect of the CNACG Transactions to be made by the Group to CNACG Group in the three years ending on 31 December 2013 and the Group's projections for its fleet sizes, annual aircraft utilisation and other operating parameters, and have taken into account the growth of the Company's fleet (with 32 passenger aircraft scheduled for delivery in 2011) and passenger numbers (which is expected to increase by 8%-9% in 2010 from the last year).
The Directors estimate that the amounts payable by the Group to CNACG Group, in respect of the CNACG Transactions in the years ended 31 December 2011, 2012 and 2013 will not exceed the annual caps set out below.
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Historical Caps |
Historical Figures |
Future Caps |
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Annual cap for the year ended 31 December 2008 |
Annual cap for the year ended 31 December 2009 |
Annual cap for the year ended 31 December 2010 |
Actual annual amount for the year ended 31 December 2008 |
Actual annual amount for the year ended 31 December 2009 |
Unaudited historical amount for the period from 1 January to 30 June 2010 |
Annual cap for the year ending 31 December 2011 |
Annual cap for the year ending 31 December 2012 |
Annual cap for the year ending 31 December 2013 |
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Amount to be paid by the Group to CNACG |
RMB300 million |
RMB300 million |
RMB300 million |
RMB90 million |
RMB126 million |
RMB110 million |
RMB350 million |
RMB350 million |
RMB350 million |
Reasons for, and benefits of, the CNACG Transactions
The Group has entered into a series of continuing connected transactions with CNACG Group in its ordinary and usual course of business. CNACG possesses ample management expertise and financial resources on flight catering, airport ground handling and logistics and is able to provide quality services to the Group.
Connection between the parties
CNACG, by virtue of its 11.42% shareholding in the Company, is a substantial shareholder and therefore a connected person of the Company under the Listing Rules.
Compliance with Listing Rules
As each of the relevant Percentage Ratios (other than the profits ratio) of the CNACG Transactions under the Framework Agreement with the annual caps set out above, is higher than 0.1% and less than 5%, the CNACG Transactions therefore fall under Rule 14A.34 of the Listing Rules and are accordingly subject to the reporting, annual review and announcement requirements, but are exempt from the independent shareholders' approval requirements under Chapter 14A of the Listing Rules.
The maximum aggregated annual amount to be paid by CNACG to the Group under the Framework Agreement for each of the three years ended 31 December 2011, 2012 and 2013 is expected to fall below the de minimus threshold as stipulated under Rule 14A.33(3) of the Listing Rules will accordingly be exempt from the reporting, annual review, announcement and independent shareholders' approval requirements under Chapter 14A of the Listing Rules.
The Company will comply with the continuing obligations under Rules 14A.37 to 14A.41 of the Listing Rules and will re-comply with the relevant Listing Rules if the annual caps are exceeded, when the Framework Agreement is renewed or when there is a material change to its terms.
OPINION OF THE DIRECTORS
The Board (including the independent non-executive Directors of the Company) considers that the Lufthansa Transactions and CNACG Transactions have been conducted on normal commercial terms or on terms no less favourable than those available to independent third parties and were entered into in the ordinary and usual course of business of the Group, are fair and reasonable and in the interests of the Company and the Shareholders as a whole, and the revised annual cap for the Lufthansa Transactions for each of the three years ending on 31 December 2010, 2011 and 2012 and the annual cap for the CNACG Transactions for each of the three years ending on 31 December 2011, 2012 and 2013 are fair and reasonable.
Kong Dong and Fan Cheng, being deputy chairman of the board of directors and director of CNACG, respectively, are materially interested in the CNACG Transactions and have abstained from voting on the relevant board resolutions of the Company in respect of the CNACG Transactions.
Definitions
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"Air China Cargo" |
Air China Cargo Co., Ltd., a company with limited liability incorporated in the PRC and a subsidiary of the Company. The principal activity of Air China Cargo is the operation of cargo airline services |
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"Company" |
Air China Limited, a company incorporated in the People's Republic of China, whose H shares are listed on the Stock Exchange as its primary listing venue and on the Official List of the UK Listing Authority as its secondary listing venue, and whose A shares are listed on the Shanghai Stock Exchange. The principal activity of the Company is the operation of scheduled airline services |
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"Group" |
the Company and its subsidiaries |
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"CNACG" |
China National Aviation Corporation (Group) Limited, a company incorporated under the laws of Hong Kong and a wholly-owned subsidiary of CNAHC as at the date of this announcement. CNACG is primarily engaged in managing the holding company of CNACG Group and the state-owned assets and equity in various companies |
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"CNACG Group" |
CNACG and its associates |
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"CNACG Transactions" |
transactions between members of the Group on the one hand and members of CNACG Group on the other hand comprising the provision of management services, engineering and ground handling services by CNACG Group to the Group and other services as may be agreed by parties to be undertaken under the Framework Agreement excluding those which have been contemplated by the related CNAHC Framework Agreements |
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"CNAHC" |
China National Aviation Holding Company, a company incorporated under the PRC law. CNAHC is primarily engaged in managing the holding company of CNAHC Group and the state-owned assets and equity it holds in various companies |
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"CNAHC Framework Agreements" |
Framework agreements entered into by the Company and CNAHC on 27 October 2009, respectively, relating to various continuing connected transactions between the Group and CNAHC Group |
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"CNAHC Group" |
CNAHC and its associates |
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"Directors" |
the directors of the Company |
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"Group" |
the Company and its subsidiaries |
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"Framework Agreement" |
the framework agreement dated 26 August 2008 between the Company and CNACG under which a framework is provided for entry into the Relevant Agreements |
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"HK$" |
Hong Kong dollars, the lawful currency of Hong Kong |
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"Hong Kong" |
the Hong Kong Special Administrative Region of the PRC |
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"Listing Rules" |
The Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited |
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"Lufthansa" |
Deutsche Lufthansa AG. Lufthansa is primarily engaged in passenger traffic, logistics, MRO Services, catering, leisure travel, etc. |
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"Lufthansa Group" |
Lufthansa and its associates |
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"Lufthansa Transactions" |
various continuing connected transactions between the Group and the Lufthansa Group |
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"Percentage Ratios" |
the percentage ratios set out in Rule 14.07 of the Hong Kong Listing Rules, i.e. "assets ratio", "profits ratio", "revenue ratio", "consideration ratio" and "equity capital ratio" |
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"PRC" |
the People's Republic of China, excluding, for the purpose of this announcement only, Hong Kong, the Macau Special Administrative Region and Taiwan |
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"Relevant Agreements" |
the agreements between members of the Group on the one hand and members of the CNACG on the other hand in respect of the CNACG Transactions |
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"Shenzhen Airlines" |
Shenzhen Airlines Limited, a company incorporated under the laws of the People's Republic of China with limited liability, and its primary business activities is air passenger, air cargo and airline-related services |
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"Stock Exchange" |
The Stock Exchange of Hong Kong Limited |
By order of the Board
Air China Limited
Huang Bin Tam Shuit Mui
Joint Company Secretaries
Beijing, 10 September 2010
As at the date of this announcement, the directors of the Company are Mr. Kong Dong, Ms. Wang Yinxiang, Mr. Wang Shixiang, Mr. Cao Jianxiong, Mr. Christopher Dale Pratt, Mr. Cai Jianjiang, Mr. Fan Cheng, Mr. Hu Hung Lick, Henry*, Mr. Zhang Ke*, Mr. Jia Kang* and Mr. Fu Yang*.
* Independent non-executive director of the Company
This information is provided by RNS
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