REG - Air China Ld - CONTINUING CONNECTED TRANSACTIONS
31/10/2024 08:15
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RNS Number : 3909K Air China Ld 31 October 2024
Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong
Limited take no responsibility for the contents of this announcement, make no
representation as to its accuracy or completeness and expressly disclaim any
liability whatsoever for any loss howsoever arising from or in reliance upon
the whole or any part of the contents of this announcement.
中國國際航空股份有限公司
AIR CHINA LIMITED
(a joint stock limited company incorporated in the People's Republic of China
with limited liability)
(Stock Code: 00753)
CONTINUING CONNECTED TRANSACTIONS
CONTINUING CONNECTED TRANSACTIONS
(1) CNAHC TRANSACTIONS
Reference is made to the 2021 Circular in relation to, among other things, the
continuing connected transactions of the Company. The Company expects that
certain continuing connected transactions set out in the 2021 Circular will
continue to be conducted after 31 December 2024, therefore, the Company will
continue to comply with Chapter 14A of the Hong Kong Listing Rules for such
continuing connected transactions to be conducted in the next three years
(i.e. from 1 January 2025 to 31 December 2027) in accordance with the Hong
Kong Listing Rules.
(2) ACC TRANSACTIONS
Reference is made to the announcement of the Company dated 20 September 2022
and the circular of the Company dated 28 September 2022 in relation to, among
other things, the ACC Transactions. The current term of the ACC Framework
Agreement will expire on 31 December 2024. As the Company expects that the ACC
Transactions will continue to be conduced after 31 December 2024, on 30
October 2024, the Board resolved to renew the ACC Framework Agreement for a
term of three years commencing from 1 January 2025 to 31 December 2027,
subject to Independent Shareholders' approval at the EGM.
HONG KONG LISTING RULES IMPLICATIONS
(1) CNAHC TRANSACTIONS
CNAHC is the controlling Shareholder of the Company. CNAMC is a wholly-owned
subsidiary of CNAHC. Therefore, each of CNAHC and CNAMC is a connected person
of the Company as defined under the Hong Kong Listing Rules. The CNAHC
Transactions constitute continuing connected transactions of the Company.
As each of the applicable percentage ratios (other than the profits ratio) of
the continuing connected transactions (excluding the de minims continuing
connected transactions) contemplated under the Government Charter Flights
Service Framework Agreement, the New Comprehensive Services Framework
Agreement, the New Properties Leasing Framework Agreement and the Media
Services Framework Agreement, on an annual basis, is higher than 0.1% but less
than 5%, they therefore fall under Rule 14A.76(2)(a) of the Hong Kong Listing
Rules. Accordingly, these continuing connected transactions are subject to the
reporting, announcement and annual review requirements under Chapter 14A of
the Hong Kong Listing Rules, but are exempted from the Independent
Shareholders' approval requirement. Pursuant to the Shanghai Listing Rules,
the Government Charter Flight Service Framework Agreement, the New
Comprehensive Services Framework Agreement, the New Properties Leasing
Framework Agreement and the Media Services Framework Agreement shall be
approved by the Independent Shareholders at the EGM.
(2) ACC TRANSACTIONS
As a non-wholly owned subsidiary of CNAHC, the Company's controlling
Shareholder, Air China Cargo is a connected person of the Company as defined
under the Hong Kong Listing Rules, and accordingly the ACC Transactions
constitute continuing connected transactions of the Company under Chapter 14A
of the Hong Kong Listing Rules. As the highest applicable percentage ratio in
respect of the proposed annual caps of the transportation service fees of the
Passenger Aircraft Cargo Business payable by the ACC Group under the ACC
Transactions is, on an annual basis, higher than 5%, such transactions are
therefore subject to the announcement, annual review, circular (including
advice of independent financial adviser) and Independent Shareholders'
approval requirements under Chapter 14A of the Hong Kong Listing Rules.
In respect of ground support services and other services provided by the
Group, as the highest applicable percentage ratio in respect of the proposed
annual caps of amounts payable by the ACC Group is, on an annual basis, higher
than 0.1% but less than 5%, these transactions are therefore subject to the
announcement and annual review requirements under Chapter 14A of the Hong Kong
Listing Rules but are exempt from the Independent Shareholders' approval
requirement.
In respect of ground support services and other services provided by the ACC
Group, as the highest applicable percentage ratio in respect of the proposed
annual caps of amounts payable by the Group is, on an annual basis, higher
than 0.1% but less than 5%, these transactions are therefore subject to the
announcement and annual review requirements under Chapter 14A of the Hong Kong
Listing Rules but are exempt from the Independent Shareholders' approval
requirement.
In respect of properties leasing services provided by the Group, as the
highest applicable percentage ratio in respect of the proposed annual caps of
amounts payable by the ACC Group is, on an annual basis, higher than 0.1% but
less than 5%, these transactions are therefore subject to the announcement and
annual review requirements under Chapter 14A of the Hong Kong Listing Rules
but are exempt from the Independent Shareholders' approval requirement.
In respect of properties leasing services provided by the ACC Group, it is
expected that the total amounts payable by the Group for each of the years
2025, 2026 and 2027 are below the de minimis threshold as stipulated under
Rule 14A.76(1)(a) of the Hong Kong Listing Rules, and therefore the
transaction will be exempted from announcement, annual review and the
Independent Shareholders' approval requirements under Chapter 14A of the Hong
Kong Listing Rules.
Pursuant to the Shanghai Listing Rules, the ACC Transactions shall be approved
by the Independent Shareholders at the EGM.
The Company will convene the EGM for the consideration and approval of
Independent Shareholders on the CNAHC Framework Agreements, the CNAHC
Transactions and the proposed annual caps for each of the CNAHC Transaction,
and the ACC Framework Agreement, the ACC Transactions and the proposed annual
caps for the ACC Transactions. A circular containing, among others, (i)
details regarding the CNAHC Transactions and the ACC Transactions; (ii) a
letter from the Independent Financial Adviser to the Independent Board
Committee and the Independent Shareholders regarding its advice on the
Non-exempt Transactions; and (iii) the recommendation from the Independent
Board Committee regarding the Non-exempt Transactions, will be despatched to
Shareholders on or before 20 November 2024 in accordance with the Hong Kong
Listing Rules.
I. CNAHC TRANSACTIONS
Reference is made to the 2021 Circular in relation to, among other things, the
continuing connected transactions of the Company. The Company expects that
certain continuing connected transactions set out in the 2021 Circular will
continue to be conducted after 31 December 2024, therefore, the Company will
continue to comply with Chapter 14A of the Hong Kong Listing Rules for such
continuing connected transactions to be conducted in the next three years
(i.e. from 1 January 2025 to 31 December 2027) in accordance with the Hong
Kong Listing Rules.
1. Parties and the relationship between the parties
The Company is principally engaged in providing air passenger, air cargo and
related services, conducts continuing connected transactions with the
following parties:
• CNAHC
CNAHC directly holds 39.57% of the Company's shares and holds 11.75% of the
Company's shares through its wholly-owned subsidiary CNACG, and is the
controlling Shareholder of the Company as at the date of this announcement. As
at the date of this announcement, the State-owned Assets Supervision and
Administration Commission of the State Council is a controlling shareholder
and de facto controller of CNAHC. CNAHC primarily operates all the state-owned
assets and state-owned equity interests invested by the State in CNAHC and its
invested entities, aircraft leasing and aviation equipment and facilities
maintenance businesses.
• CNAMC
CNAMC is a wholly-owned subsidiary of CNAHC and is therefore a connected
person of the Company as defined under the Hong Kong Listing Rules. CNAMC is
primarily engaged in media and advertising business.
2. Continuing Connected Transactions with the CNAHC Group
2.1 Government Charter Flight Services
The Company (as the carrier) and CNAHC (as the charterer) entered into the
Government Charter Flight Service Framework Agreement on 29 October 2021. At
the 2021 EGM, the Independent Shareholders approved, among other things, the
continuing connected transactions contemplated under the Government Charter
Flight Service Framework Agreement and the relevant annual caps for the three
years ended/ending 31 December 2022, 2023 and 2024, which are required to be
approved by the Independent Shareholders under the Shanghai Listing Rules.
The current term of the Government Charter Flight Service Framework Agreement
will expire on 31 December 2024. As the Company expects that the transactions
contemplated under the Government Charter Flight Service Framework Agreement
will continue to be conducted after 31 December 2024, on 30 October 2024, the
Board resolved to renew the Government Charter Flight Service Framework
Agreement for a term of three years commencing from 1 January 2025 to 31
December 2027, subject to the Independent Shareholders' approval at the EGM.
Description of the transaction:
Pursuant to the Government Charter Flight Service Framework Agreement, CNAHC
shall use the charter flight services of the Company (the "Government Charter
Flight Services") for fulfilling its government charter flight assignments.
The parties agreed that the parties will determine the price for the
Government Charter Flight Services through arm's length negotiations between
the parties based on the cost incurred by the carrier in providing the
Government Charter Flight Services adding a reasonable profit (by referring to
the historical data, the reasonable profit margin generally ranges from 5% to
10%). The costs include direct costs and indirect costs. The Company considers
the profit margin to be fair and reasonable as it aligns with historical data.
The renewal of the Government Charter Flight Service Framework Agreement is
subject to the approval by the Independent Shareholders at the EGM. If
approved by the Independent Shareholders, the term of the Government Charter
Flight Service Framework Agreement shall be renewed for three years commencing
from 1 January 2025 and ending on 31 December 2027, and may be renewed
automatically for successive terms of three years each, subject to the
compliance with the requirements of the Hong Kong Listing Rules/the Shanghai
Listing Rules and the approval procedures required under the Hong Kong Listing
Rules/the Shanghai Listing Rules. During the term of the Government Charter
Flight Service Framework Agreement, either party may terminate the Government
Charter Flight Service Framework Agreement on any 31 December by giving the
other party at least three months' prior written notice.
Reasons for the transaction:
As the national flag carrier in China, the Company has historically provided
government related charter flight services to government delegates, national
sports teams and cultural envoys. As the designated government charter flight
carrier, the Company has gained significant brand recognition. Pursuant to the
Government Charter Flight Service Framework Agreement, the Company may
generate revenue from such transactions based upon the cost-plus charging
method.
Historical amounts and proposed caps:
Set forth below is a summary of the historical annual caps, the actual amounts
and the proposed annual caps for the amounts payable by CNAHC for the
Company's provision of the Government Charter Flights Services:
Unit: RMB Million
Historical Annual Cap Historical Actual Amounts Proposed Annual Caps
Unaudited historical amount for the period
from 1 January
Actual annual amount for the year ended Actual annual amount for the year ended 2024 to Estimated annual amount for the year ending
31 December 31 December 30 June 31 December
Annual cap for the year Annual cap for the year Annual cap for the year 2022 2023 2024 2024 Annual cap for the year Annual cap for the year Annual cap for the year
ended 31 December ended 31 December ending 31 December ending 31 December ending 31 December ending 31 December
2022 2023 2024 2025 2026 2027
Amount payable by CNAHC for the Company's provision of the Government Charter
Flight
Services
900 900 900 252 383 37 560 900 900 900
Due to the irregular and unpredictable demand for government charter flights,
the international charter flight services has decreased in 2022 and 2023,
resulting in lower-than-expected revenue from the Company's charter flight in
2022 and 2023. The estimated annual amount for the Government Charter Flight
Services for the year ending 31 December 2024 is derived from the highest
historical payment made by CNAHC for the Company's provision of the Government
Charter Flight Services. Furthermore, with the gradual resumption of
government delegations' travel activities, this will result in an increase in
the estimated amount for the year ending 31 December 2024.
Basis for the annual caps for the next three years:
In arriving at the above annual caps, the Directors have considered the
historical and expected transaction amount for the same type of transactions
as set out in the table above. Although international charter flight business
has decreased in 2022 and 2023, it is expected that government delegations'
travel activities will gradually resume and continuously increase. Therefore,
it is proposed to maintain the annual caps for the Government Charter Flight
Services at RMB900 million from 2025 to 2027, which is consistent with the
historical annual caps for the Government Charter Flight Services for the
three years ending 2024.
2.2 Property Leasing
The Company and CNAHC entered into the Properties Leasing Framework Agreement
on 29 October 2021. At the 2021 EGM, the Independent Shareholders approved,
among other things, the continuing connected transactions contemplated under
the Properties Leasing Framework Agreement and the relevant annual caps for
the three years ended/ending 31 December 2022, 2023 and 2024 which are
required to be approved by the Independent Shareholders under the Shanghai
Listing Rules.
The current term of the Properties Leasing Framework Agreement will expire on
31 December 2024. As the Company expects that the transactions contemplated
under the Properties Leasing Framework Agreement will continue to be conducted
after 31 December 2024, on 30 October 2024, the Company and CNAHC entered into
the New Properties Leasing Framework Agreement. ACC Group was excluded from
the definition of CNAHC Group under the New Properties Leasing Framework
Agreement.
Description of the transaction:
Pursuant to the New Properties Leasing Framework Agreement, the Group and the
CNAHC Group agreed to continue to lease from each other certain properties
(including ancillary facilities) and land use rights owned by each other for
their respective production and operation, office and storage use. The
properties (including ancillary facilities) and land use rights leased between
the Group and the CNAHC Group are differentiated by their locations. Both the
Group and the CNAHC Group select specific properties and land use rights to
lease from each other based on their respective needs at different locations.
• The Group (as lessor) may rent out its own properties
(including properties constructed by the Group or customized upon the request
of the CNAHC Group) or land with legal use rights to the CNAHC Group for its
production and operation, office and storage use. The pricing principles and
conducting of the transaction shall be as follows:
First, the Group shall provide quotation for the leased properties or land to
the CNAHC Group after taking into account the factors including the relevant
costs, tax and reasonable profit margin relating to the properties or land.
The related costs include, among others, construction costs, depreciation
costs, funding costs and maintenance costs. The reasonable profit margin is
usually around 10%, mainly with reference to the historical average price for
similar services (where possible) in the property leasing industry and/or the
profit margin of comparable services disclosed by other listed companies.
Then, the rent payable for the leased properties or land shall be determined
through arm's length negotiations between the Group and the CNAHC Group after
the CNAHC Group takes into account the factors such as the location of the
leased properties or land and the service quality. Such rent shall not be
lower than the rent offered by the Group to an independent third party (if
any) in comparable circumstances.
• The Group (as lessee) may lease properties owned by the
CNAHC Group and land with legal use right from the CNAHC Group based on its
production and operation, office and storage needs. The pricing principles and
conducting of the transaction shall be as follows:
First, the Group shall conduct market research and collect, consolidate and
analyze information in respect of provision of leasing services by independent
third parties for the same type of properties or land (if any) in close
proximity to the required leasehold properties or land. Generally, the Group
shall assign a department or an officer to verify the price and terms
available from at least two independent third parties (if any) by email, fax
or telephone.
Then, (i) if a comparable market for the same type of transaction is
identified through market research, the parties shall determine the rental
prices for the leased properties or land through arm's length negotiations
with reference to the market price for the same type of services available
from at least two independent third parties and take into account certain
factors. The relevant factors include, among others, the location, function
and layout, furnishing, ancillary facilities and property management of the
property or land as well as the specific needs of the lessee; (ii) if there is
no comparable market for the same type of transaction is identified in the
neighboring areas through market research, the price shall be determined by
adopting the cost-plus approach: the rental price of the leased properties or
land shall be determined through arm's length negotiations between the parties
based on the relevant costs, tax and reasonable profit margin of the
properties or land offered by the CNAHC Group. The relevant costs include,
among others, construction costs, depreciation costs, funding costs and
maintenance costs. The reasonable profit margin shall be determined mainly
with reference to the historical average price of similar services (where
possible) in the property leasing industry and/or the profit margin of
comparable services disclosed by other listed companies, and the reasonable
profit margin of the CNAHC Group shall not exceed 10%. The abovementioned
rental prices shall not be higher than those offered by the CNAHC Group to the
independent third parties (if any) in comparable circumstances.
When leasing each other's properties or land, the parties may determine the
price for leasing their respective properties or land based on the above
pricing principles, and then exchange the lease of properties or land use
right in accordance with the principle of equivalent exchange.
Pursuant to the New Properties Leasing Framework Agreement, in general, the
leasing term of properties or land for both parties shall not exceed three
years. However, (i) if there are specific government and/or industry
requirements, the leasing term of properties or land shall comply with such
requirements; or (ii) if the property(ies) is/are custom built by the Group
according to the requirements of the CNAHC Group, the leasing term of the
property(ies), in principle, shall not exceed the useful life of the leased
property(ies).
Pursuant to the New Properties Leasing Framework Agreement, the New Properties
Leasing Framework Agreement shall take effect upon the approval by the
Shareholders at the general meeting of the Company, and shall be valid from 1
January 2025 to 31 December 2027 (the "Initial Term"). Upon expiration of the
Initial Term, the New Properties Leasing Framework Agreement may be
automatically renewed for successive terms of three years each, subject to the
compliance with requirements under the Hong Kong Listing Rules/Shanghai
Listing Rules and the approval procedures required under the Hong Kong Listing
Rules/ Shanghai Listing Rules. During the term of the New Properties Leasing
Framework Agreement, either party may terminate the New Properties Leasing
Framework Agreement on any 31 December by giving the other party at least
three months'prior written notice.
Reasons for the transaction:
In the ordinary course of business, the Group has entered into similar
property leasing transactions with various parties including both connected
persons and independent third parties.
Historical amounts and proposed caps:
Set forth below is a summary of the historical annual caps for and actual rent
paid and received by the Group to and from CNAHC Group under the Properties
Leasing Framework Agreement, and the proposed annual caps for the rent payable
and receivable by the Group to and from CNAHC Group under the New Properties
Leasing Framework Agreement:
Unit: RMB Million
Historical Annual Cap Historical Actual Amounts Proposed Annual Caps
Unaudited historical amount for the period
from 1 January Estimated annual amount for the year ending
Actual annual amount for the year ended Actual annual amount for the year ended 2024 to 30 31 December
Annual cap for the year Annual cap for the year Annual cap for the year 31 December 31 December June 2024 2024 Annual cap for the year Annual cap for the year Annual cap for the year
ended 31 December ended 31 December ending 31 December 2022 2023 ending 31 December ending 31 December ending 31 December
2022 2023 2024 2025 2026 2027
Total value of right-of-use assets relating to the leases entered into by the
Group as the lessee
Note
350 370 390 111 63 14 200 250 260 270
Total annual rent receivable by the Group as the lessor (excluding the below
mentioned
Single Rent)
150 166 176 4 51 12 27 120 130 140
Single Rent recorded by the Group in relation to the leasing of
Customized Properties
0 230 330 N/A N/A N/A N/A 0 260 270
Note: As International Financial Reporting Standard 16 "Lease" took effect
from 1 January 2019 and became applicable to financial years starting on or
after 1 January 2019, pursuant to the requirements of the Hong Kong Stock
Exchange, the annual caps for the continuing connected transactions of
property leasing with the Group as the lessee for 2025, 2026 and 2027 are set
based on the total value of right-of-use assets relating to the leases entered
into by the Group.
As the construction of the relevant project has not yet started, there were no
historical actual amount recorded in relation to the leasing of Customized
Properties under the Properties Leasing Framework Agreement.
Basis for the annual caps for the next three years:
In arriving at the above annual caps for the total value of right-of-use
assets relating to the leases that the Group will enter into as a lessee under
the New Properties Leasing Framework Agreement, the Directors have considered
(i) the historical transaction amounts, which were RMB111 million and RMB63
million for the years ended 31 December 2022 and 2023, respectively, and RMB14
million for the six months ended 30 June 2024; and (ii) the future growth of
rent payable by the Group to the CNAHC Group (estimated at approximately 5%
per year. The estimated annual growth rate of 5% is referencing forecasts of
China's GDP growth made by relevant institutions) and the increasing demand
for leasing driven by the Group's business development. Therefore, it is
expected that the total future annual rent to be paid by the Group to the
CNAHC Group from 2025 to 2027 will not exceed RMB120 million, RMB130 million
and RMB140 million, respectively. On such basis, the value of right-of-use
assets, calculated by discounting the total estimated future rent with a
discount rate ranging 3% to 5% applicable to the Company's leasing business
(which is determined by reference to the market borrowing interest rate
level), is expected to be no more than RMB250 million, RMB260 million and
RMB270 million for the years 2025 to 2027.
In arriving at the above annual caps for the annual total rent payable by the
CNAHC Group to the Group under the New Properties Leasing Framework Agreement,
the Directors have considered (i) the historical transaction amounts, which
were RMB4 million and RMB51 million for the years ended 31 December 2022 and
2023, respectively, and RMB12 million for the six months ended 30 June 2024;
and (ii) the anticipated future growth in rent payable by the CNAHC Group to
the Group (estimated to be approximately 5% per year. The estimated annual
growth rate of 5% is referencing forecasts of China's GDP growth made by
relevant institutions) and the increasing demand for leasing driven by CNAHC
Group's business development. Currently, the CNAHC Group mainly leases from
the Company. Considering that the Company's subsidiaries may also lease to the
CNAHC Group under the New Properties Leasing Framework Agreement in the
future, this could lead to an increase in the rent payable by the CNAHC Group
to the Group under the New Properties Leasing Framework Agreement. Therefore,
it is expected that the total future annual rent to be paid by the CNAHC Group
to the Group from 2025 to 2027 will not exceed RMB120 million, RMB130 million
and RMB140 million, respectively.
In addition, the Group expects to enter into customized leasing transactions
with CNAHC Group in accordance with the New Properties Leasing Framework
Agreement in the next three years. That is, the Group will build property(ies)
("Customized Property(ies)") upon CNAHC Group's request on the land to which
the Group has the right of use, and lease out the Customized Property(ies) to
CNAHC Group and commence the leasing terms thereof following the completion of
the construction. The rent of such leasing transactions comprises of the
single rent to be charged prior to the commencement of the leasing term and
accounted for as a finance lease from the inception of the leasing term (which
generally equals to the construction costs of the property(ies)) (the "Single
Rent") and the annual rent to be paid upon the commencement of the leasing
term (the "Annual Rent"). The Annual Rent has been included in the annual caps
for the total rent payable by CNAHC Group to the Group under the New
Properties Leasing Framework Agreement. In respect of the Single Rent, since
the Single Rent will be accounted for as a finance lease at the inception of
the leasing term, the Company will therefore set the annual transaction cap
for the Single Rent with reference to the mechanism of setting a cap for
finance lease transactions. Based on the current estimation, the potential
Customized Property(ies) transactions to be entered into between the Group and
CNAHC Group in the next three years include the Zhejiang Zhongyu catering
building. Considering that the construction of Zhejiang Zhongyu catering
building is expected to commence in 2025 and be completed and put into
operation by the end of 2026, or possibly extended to 2027, along with an
estimated project investment in the amount of RMB220 million, as well as the
potential increase in costs due to construction delays, such as increased
labor costs, it is expected that the Single Rent to be recorded by the Group
for leasing the Customized Property(ies) under the New Properties Leasing
Framework Agreement for 2026 and 2027 will not exceed RMB260 million and
RMB270 million, respectively.
Independent Financial Adviser's opinion on the leasing term of properties
under the New Properties Leasing Framework Agreement
As mentioned above, under the New Properties Leasing Framework Agreement, the
leasing term of the properties or land should not exceed three years with the
exception that (i) there are special government and/or industry requirements
on the duration of the tenure of the leased property(ies) or land; and (ii)
custom built by the Group according to the requirements of the CNAHC Group,
where the duration of the tenure shall not exceed to useful life of the leased
property(ies) (collectively the "Property(ies)").
According to Rule 14A.52 of the Hong Kong Listing Rules, the period for the
agreement for a continuing connected transaction must not exceed three years
except in special circumstances where the nature of the transaction requires a
longer period. In this case, the listed issuer must appoint an independent
financial adviser to explain why the agreement requires a longer period and to
confirm that it is normal business practice for agreements of this type to be
of such duration. Accordingly, the Company has engaged BaoQiao Partners as the
Independent Financial Adviser. BaoQiao Partners has formulated its opinion
based on its researches and analysis and its discussion with the management of
the Company in respect of the lease terms of the Property(ies) as follows:
As both the Group and the CNAHC Group are operated in related business
sectors, both groups have similar demands on certain type of properties and/or
properties in specific areas (for example, properties within or adjacent to
airports) owned by each other for their general and /or business operation
purposes.
Based on BaoQiao Partners' discussion with the management of the Company, the
Properties include (i) properties that may be subject to the oversight and
administration of specific government or industrial authorities and the
requirements of the corresponding government or industrial authorities with
specific regulations/requirements on the duration of the tenure, which may
exceed three years when leased from time to time and it is normal business
practice for the Group with regards to the compliance with applicable
government/industrial regulations or requirements for leasing of Properties;
(ii) properties that, if upon request of CNAHC Group, will be custom-built by
the Group on the land to which the Group has the rights of use, and then lease
out such Properties to CNAHC Group and commence the lease terms thereof
following the completion of the construction of such Properties. As the design
and construction costs of the such Properties will be borne by CNAHC Group,
CNAHC Group (as the lessee) will be incurring substantial capital expenditure
for building and construction of the Properties, it would be commercially
justifiable for CNAHC Group to request for longer lease terms (which would be
reference to the useful life of such Properties) to ensure stable and smooth
operations and justifiable costs for building the Properties.
As advised by the management of the Company, although there is currently no
leasing arrangement between the Group and CNAHC Group that is subject to
special government and/or industry requirements, BaoQiao Partners has obtained
and reviewed the relevant contracts on the existing leasing transactions of
the Properties governed by the General Administration of Customs of the PRC
("GAC") and entered into between the Group and the ACC Group in January 2017
with an initial term of 6 years and renewed in 2023 for an additional 3 years
("Existing Regulated Property Transactions"). BaoQiao Partners understands
that the initial lease term of 6 years was agreed between parties in
compliance with the Rules of the General Administration of Customs of the
People's Republic of China on Administration of Customs Control Premises
《( 中華人民共和國海關監管場所管理辦法》, the "GAC Rules")
issued by the GAC on 30 January 2008, which required, among others, the lease
term of property for the use of loading, unloading, storage, delivery and
shipping of import and export goods in the areas that are subject to the
oversight and supervision of GAC to be at least five years.
Despite the GAC Rules were superseded by the new rules issued by GAC on 1
November 2017 and there is no specific lease term requirement under the new
rules, as advised by the management of the Company, the Company cannot rule
out the possibility that the government or industrial authorities (including
GAC) will require the lease term of such Properties to be more than 3 years
during the term of the New Properties Leasing Framework Agreement. From the
perspective of the Company, the entering into the New Properties Leasing
Framework Agreement with flexibility on the leasing period to satisfy the
regulatory compliance and industry requirements for the leasing of the
Properties will not only allow the Group (as the lessee) to obtain the right
of use of the Properties owned by CNAHC Group for the Group's operation, while
also providing the flexibility for the Group (as the lessor) to lease out its
vacant Properties for rental income, which aligns with the Group's long-term
strategies and signifies the lasting cooperation commitment between the Group
and the CNAHC Group.
In respect of the custom-built Properties by the Group under the New
Properties Leasing Framework Agreement, BaoQiao Partners notes from the
information provided by the Company that the Company intends to cooperate with
an indirect wholly-owned subsidiary of CNAHC in relation to the construction
of the Zhejiang Zhongyu catering building, a Property for the provision of
catering service. The construction of the Zhejiang Zhongyu catering building
will commence in 2025, and the lease term of which is expected to be 10 to 20
years. From the perspective of the Company as the lessor, such leasing
arrangement will allow the Company to obtain the property rights of the
Properties and thus, enhance the value of the idle land(s) and the asset base
of the Company. In addition, it would be commercially reasonable to have the
longer lease tenure (which would be reference to the useful life of such
Properties) for such properties taking into account (i) the time of
construction of the Properties (i.e. 1-2 years as advised by the management of
the Company); and (ii) it would be difficult to lease the idle lands or such
custom-built buildings to other external parties given the business nature of
the Company and CNAHC Group.
Review of comparable transactions
In considering whether it is a normal business practice for the lease of the
Properties under the New Properties Leasing Framework Agreement to have a
duration longer than three years, BaoQiao Partners has identified and selected
18 comparable transactions (the "Comparable Transactions") based on the
following selection criteria, (a) continuing connected transactions
announcements related to leasing arrangements of land and properties for
general and/or business operation purposes published by companies listed on
the Hong Kong Stock Exchange since 2021; (b) the transactions with lease term
longer than three years.
Based on BaoQiao Partners' review of the Comparable Transactions, it is not
uncommon to enter into long-term leases for properties leasing in the PRC and
17 out of 18 of the Comparable Transactions were related to leasing
arrangements for PRC land/properties. BaoQiao Partners also notes that the
lease terms of these Comparable Transactions ranged from 5 years to 50 years,
with an average of approximately 13 years. In addition, 3 out of 18 Comparable
Transactions were similar with that of custom-built arrangements. Two of them
involved properties for airline operations entered into by China Eastern
Airlines Corporation Limited ("CEA"), a peer company within the Chinese
aviation industry with lease term of 6 years in 2021 and 2022 and the other
was leasing of land for construction of factory buildings/facilities with
lease term of 20 years. The use of properties under these 18 Comparable
Transactions included industrial production, commercial operation, hospital
operation and offices for general and/or business operations purposes.
Although there was no Comparable Transaction that involved leasing of
regulated properties as the Company, BaoQiao Partners considers the Comparable
Transactions can represent the general market practices of the property
leasing arrangements for general and/or business operation purposes in the
PRC, regardless the types of properties involved.
As such, based on BaoQiao Partners' review of the Comparable Transactions with
lease terms ranged from 5 years to 50 years and the Existing Regulated
Property Transactions with initial tenure of 6 years, BaoQiao Partners
considers that the lease term of the Properties under the New Properties
Leasing Framework Agreement, which requires lease term of more than 3 years,
(i) if subject to special government and/or industry regulations/requirements,
and (ii) will up to 10 to 20 years for purpose-built Properties, fall within
the range of the Comparable Transactions and/or the Existing Regulated
Property Transactions.
Having considered the principal factors discussed above, BaoQiao Partners is
of the view that it is normal business practice for the Group and CNAHC Group
to enter into leases for the Properties under the New Properties Leasing
Framework Agreement with terms of more than three years and to be of such
duration for agreements of this type.
2.3 Media Services
The Company and CNAMC entered into the Media Services Framework Agreement on
29 October 2021. At the 2021 EGM, the Independent Shareholders approved, among
other things, the continuing connected transactions contemplated under the
Media Services Framework Agreement and the relevant annual caps for the three
years ended/ending 31 December 2022, 2023 and 2024 which are required to be
approved by the Independent Shareholders under the Shanghai Listing Rules.
The current term of the Media Services Framework Agreement will expire on 31
December 2024. As the Company expects that the transactions contemplated under
the Media Service Framework Agreement will continue to be conducted after 31
December 2024, on 30 October 2024, the Board resolved to renew the Media
Services Framework Agreement for a term of three years commencing from 1
January 2025 to 31 December 2027, subject to the Independent Shareholders'
approval at the EGM.
Description of the transaction:
Pursuant to the Media Services Framework Agreement,
• CNAMC has agreed to provide Media Services to the Group. Of
which, the Company grants CNAMC an exclusive right to distribute in-flight
reading materials, movies, TV series, music, sound track and other cultural
contents.
• the Company has commissioned CNAMC as the general service
provider with respect to the Media Services of the Company which CNAMC shall
provide the Company with the following Media Services (the "Entrusted
Services"):
(1) in-flight entertainment system business and in-flight network
platform business;
(2) brand communication and product marketing business: including but
not limited to brand research, consultation and planning, design and
copywriting planning, print film and television production, public relation
activities, media advertising, promotion materials and IP image production and
management, social media operation and maintenance and intelligent property
management;
(3) news and publicity business, including but not limited to external
media operation and maintenance and internal newspaper production;
(4) advertisement management business and media cooperation and
management business;
(5) other Media Services entrusted by the Company.
For abovementioned businesses, the Group will make reference to the service
items and specific requirements, and (1) the parties shall determine the final
transaction price through arm's length negotiations based on the quotations
provided by CNAMC with reference to the market price (if any) for the same
type of services available from at least two independent third parties after
taking into account factors including the service standard, service scope,
business volume and specific needs of the parties; and/or (2) the service fees
shall be determined after arm's length negotiations between the parties based
on the costs of CNAMC adding a reasonable service fee, and offering rewards or
imposing penalty depending on the management of CNAMC, the final settlement of
which shall be made on the basis of the actual transaction amount. CNAMC shall
provide information including but not limited to costs, external procurement
conditions and actual settlement conditions, and the service fee received by
CNAMC shall not exceed 10% of the costs and shall be determined mainly with
reference to the historical average prices in the relevant industries for
similar products or services (where possible) and/ or profit margin of the
comparable products and services.
• In respect of the media products or services other than the
Entrusted Services that are purchased by the Company from CNAMC, the Group
shall determine and pay the relevant services fees in accordance with the
following principles and the arm's length negotiations with CNAMC:
(1) if government-set or guided price is available, government-set or
guided price shall be adopted;
(2) in the absence of government-set or guided price, the final
transaction price shall be determined after arm's length negotiations between
the parties based on the quotation provided by CNAMC with reference to the
market price (if any) for the same type of services available from at least
two independent third parties in the market after taking into account certain
factors including the service standard, service scope, business volume and
specific needs of the parties;
(3) if open market price is not available or there are no identical or
similar business activities in the market, the parties shall settle the actual
transaction amount based on the costs of CNAMC adding a reasonable service
fee, and offering rewards or imposing penalties depending on the management of
CNAMC. CNAMC shall provide information including but not limited to costs,
external procurement and actual settlement conditions, and the service fee
received by CNAMC shall not exceed 10% of the costs and shall be determined
mainly with reference to the historical average prices in the relevant
industry for similar products or services (where possible) and/or profit
margin of the comparable products and services.
• In respect of the Company's media used by CNAMC in operating
the Media Services, CNAMC shall pay the Company an annual media resource fee
of RMB13.8915 million for each of the three years of 2025, 2026 and 2027.
The Company will enter into relevant business agreements with CNAMC in
accordance with its business requirements. The Company is responsible for
business implementation standards, business requirements, budgeting and
evaluation, and CNAMC is responsible for the overall business implementation.
If CNAMC provides the Media Services to subsidiaries of the Company, the
parties shall enter into relevant business implementation agreements in
accordance with the principles contemplated under the Media Services Framework
Agreement.
The renewal of the Media Services Framework Agreement is subject to the
approval by the Independent Shareholders at the EGM. If approved by the
Independent Shareholders, the term of the Media Services Framework Agreement
shall be renewed for three years commencing from 1 January 2025 and ending on
31 December 2027, and may be renewed automatically for successive terms of
three years each, subject to the compliance with the requirements of the Hong
Kong Listing Rules/the Shanghai Listing Rules and the approval procedures
required under the Hong Kong Listing Rules/the Shanghai Listing Rules. During
the term of the Media Services Framework Agreement, either party may terminate
the Media Services Framework Agreement on any 31 December by giving the other
party at least three months' prior written notice.
Reasons for the transaction:
CNAMC has extensive experience in in-flight advertising operations and has a
wide range of advertising sponsorship channels. As a longstanding company
having engaged in the aviation media business, CNAMC possesses professional
qualifications and teams and has a profound understanding of the corporate
culture and brand of the Company as well as extensive experience in aviation
media business sectors such as entertainment programmes production and
advertising agency, and has proven channels of advertising sponsors to draw
upon, which has certain advantage.
Historical amounts and proposed caps:
Set forth below is a summary of the historical annual caps for and the actual
amounts paid by the Group to CNAMC under the Media Services Framework
Agreement, and the proposed annual caps for the amount payable by the Group to
CNAMC under the Media Services Framework Agreement:
Unit: RMB million
Historical Annual Cap Historical Actual Amounts Proposed Annual Caps
Unaudited historical amount for the period
Actual annual amount for the year ended Actual annual amount for the year ended from 1 January Estimated annual amount for the year ending
31 December 31 December 2024 to 30 31 December
Annual cap for the year Annual cap for the year Annual cap for the year 2022 2023 June 2024 2024 Annual cap for the year Annual cap for the year Annual cap for the year
ended 31 December ended 31 December ending 31 December ending 31 December ending 31 December ending 31 December
2022 2023 2024 2025 2026 2027
Amount payable by the Group
400 500 600 115 109 64 195 400 500 600
The actual amount paid by the Group to CNAMC in the years from 2022 to 2024 in
respect of receiving the Media Services was lower as compared to the annual
caps of the respective years which was mainly attributable to the combined
effect of the following factors: (i) the significant decrease in the
procurement of aviation media business such as in-flight video and audio
programmes and advertising agency by the Group as the scale of the
international transport capacity has not yet recovered to pre-pandemic level
(as of the end of 2023, the number of international and regional weekly
flights was recovered to 74% of that in the same period of 2019); and (ii) the
refined management strengthened by the Company in respect of costs and fees
against the impact of the pandemic.
Basis for the annual caps for the next three years:
In arriving at the annual caps of the amounts to be paid by the Group to CNAMC
under the Media Services Framework Agreement, the Directors have considered
the historical transaction amounts, which were RMB115 million and RMB109
million for the years ended 31 December 2022 and 2023, respectively, and RMB64
million for the six months ended 30 June 2024, for the same type of
transactions as set out in the table above, along with the following factors:
(i) considering the transaction amounts for the first half of 2024 and the
possibility of upgrading the in-flight entertainment system in the second half
of 2024, as well as the addition of media services due to the introduction of
new aircraft, the Group anticipates that the transaction amount payable to
CNAMC in 2024 will be around RMB195 million; (ii) it is expected that the
transport capacity of the Group will gradually return to the pre-pandemic
level over the next three years, leading to an increased demand for aviation
media services such as in-flight video and audio programs, as well as
advertising agency services; and (iii) the Company's service development
strategy emphasizes the continuous improvement of service quality,
necessitating increased investment in the purchase, production, promotion and
dissemination of aviation media material, which will result in a greater
engagement of CNAMC for more Media Services. As a result of the above factors,
it is expected that the transaction amounts from 2025 to 2027 will increase as
compared to the historical actual transaction amounts. Based on the estimated
transaction amount to be paid by the Group to CNAMC for 2024 and the expected
business growth described above, it is expected that the transaction amount
will not exceed RMB400 million, RMB500 million and RMB600 million for 2025 to
2027, respectively.
For each of the three years ending 31 December 2025, 2026 and 2027, the
aggregate annual amount payable by CNAMC to the Group under the Media Services
Framework Agreement is expected to fall below the de minimis threshold as
stipulated under Rule 14A.76(1)(a) of the Hong Kong Listing Rules. Therefore,
the above transaction will be exempt from the reporting, annual review,
announcement and independent shareholders' approval requirements under Chapter
14A of the Hong Kong Listing Rules for continuing connected transactions.
2.4 Comprehensive Services
The Company and CNAHC entered into the Comprehensive Services Framework
Agreement on 29 October 2021. At the 2021 EGM, the Independent Shareholders
approved, among other things, the continuing connected transactions
contemplated under the Comprehensive Services Framework Agreement and the
relevant caps for the three years ended/ending 31 December 2022, 2023 and 2024
which are required to be approved by the Independent Shareholders under the
Shanghai Listing Rules.
The current term of the Comprehensive Services Framework Agreement will expire
on 31 December 2024. As the Company expects that the transactions contemplated
under the Comprehensive Services Framework Agreement will continue to be
conducted after 31 December 2024, on 30 October 2024, the Company and CNAHC
entered into the New Comprehensive Services Framework Agreement. ACC Group was
excluded from the definition of CNAHC Group under the New Comprehensive
Services Framework Agreement, and the service scope under the New
Comprehensive Services Framework Agreement was expanded. The types of services
differ, as the expertise of each of the Group and the CNAHC Group aligns with
the needs of the other party.
Description of the transaction:
Pursuant to the New Comprehensive Services Framework Agreement,
• The Group accepts CNAHC Group's appointment to provide CNAHC
Group with products or services including but not limited to retiree
management services, human resources services (which refer to the provision of
archival information management, social insurance management services etc.
provided
by the Group to the CNAHC Group), information technology services (mainly
include information technology system maintenance), procurement services,
training services, air passenger transportation and sales services, the
comprehensive support services (mainly include support services for staff
refectories and ground transportation services provided by the Group to CNAHC
Group), entrusted operational management and provision of in-flight supplies.
For the relevant products or services provided by the Group to CNAHC Group,
except as otherwise agreed in the agreement, the price to be charged by the
Group will be determined after arm's length negotiations between the parties
on the basis of the costs of the Group adding a reasonable service fee
(generally ranging from 3% to 10% of the costs) and/or with reference to the
price for the same type of products or services provided by the Group to other
parties under non-related (non-connected) transactions, or as a percentage of
the revenue/income of CNAHC Group for the relevant products or services. For
the relevant products or services sold or provided through the Group's
platform, the price to be charged by the Group will be determined as a
percentage of the revenue/income of CNAHC Group for such products or services.
The Group can obtain the revenue/income of CNAHC Group for the relevant
products or services because these products or services are sold or provided
through the Group's platform, granting the Group access to the necessary data.
• CNAHC Group was appointed by the Group as the provider of
ancillary production services or the administrator of supply services of the
Group for which CNAHC Group shall provide the following products or services
to the Group including but not limited to (provided that the provider has
obtained the relevant qualifications):
(1) on-board catering and food supply management services on global
flights;
(2) catering and meal support and cleaning services (including but not
limited to catering and meal support services for passengers and employees
both board and on the ground and cleaning services for areas such as Air China
lounges);
(3) services for the delivery, placement and laundering of various
in-flight supplies;
(4) operation and management services of aircrew hotel;
(5) property management services in office buildings and the regions at
which the office buildings are located including but not limited to Beijing,
Chengdu, Chongqing, Shanghai, Hangzhou, Guangzhou, Wuhan and Hohhot; and the
services of which include but not limited to cleaning services, plantation
services, laundry services, parking management services, procurement and
repair services, energy management services;
(6) support services for resident group, support services for delayed
flights passengers and venue usage services;
(7) information technology services (mainly include information technology
system development);
(8) in-flight supplies and scenario mileage payment products; and
(9) labor services (which refer to temporary worker services provided
by CNAHC Group according to the Group's needs), entrusted operational
management and other commissioned services.
For the above mentioned products or services to be provided by CNAHC Group to
the Group, the parties shall, except as otherwise agreed in the agreement,
according to the service items and specific needs, determine the relevant
service fees through arm's length negotiations in accordance with the
following principles: (i) the final transaction price shall be determined
after arm's length negotiations between the parties based on the quotations
provided by CNAHC Group, with reference to the market price (if any) for the
same type of services available from at least two independent third parties in
the market and take into account factors including the service standard,
service scope, business volume and specific needs of the parties; and/or (ii)
the service fee shall be determined after arm's length negotiations between
the parties based on the costs of CNAHC Group adding a reasonable service fee,
and offering rewards or imposing penalties depending on the management of
CNAHC Group, the final settlement of which shall be made on the basis of the
actual transaction amount. In the case of item (ii), CNAHC Group shall provide
information including but not limited to its own costs, external procurement
and actual settlement conditions. The service fee received by CNAHC Group
shall not exceed 10% of the costs, and shall be determined mainly by reference
to the historical average prices in the relevant industry for similar products
or services (where possible), and/or the profit margin of the comparable
products or services disclosed by other listed companies.
• CNAHC Group was engaged by the Group as one of the providers
of ancillary production or supply services of the Group, which CNAHC Group
shall provide the Group with the following products or services including but
not limited to (provided that the provider has obtained the relevant
qualifications):
(1) Hotel accommodation and staff recuperation services; and
(2) Air ticket printing services and other printed materials.
For the above mentioned products or services to be provided by CNAHC Group to
the Group, the Group will determine the relevant service fees through arm's
length negotiations with CNAHC Group in accordance with the following
principles:
(1) if government-set or guided price is available, government-set or
guided price shall be adopted;
(2) in the absence of government-set or guided price, the final
transaction price shall be determined after arm's length negotiations between
the parties with reference to the market price (if any) for the same type of
products or services available from at least two independent third parties in
the market, by taking into account certain factors including the service
standard, service scope, business volume and specific needs of the parties. If
the service demand of the service recipient changes, the transaction price
shall be adjusted appropriately through negotiations between the parties based
on the extent of changes in relevant costs, service quality or other factors;
(3) if open market price is not available or there are no identical or
similar business activities in the market, the parties shall settle the actual
transaction amount based on the costs of CNAHC Group adding a reasonable
service fee, and offering rewards or imposing penalties depending on the
management of CNAHC Group. CNAHC Group shall provide information including but
not limited to its own cost, external procurement and actual settlement
conditions. The service fee received by CNAHC Group shall not exceed 10% of
the costs, and shall be determined mainly by reference to the historical
average prices in the relevant industry for similar products or services
(where possible) and/or the profit margin of the comparable products or
services disclosed by other listed companies.
• The Group and CNAHC Group commission each other for the
human resources sharing business within the two groups. In principle, the
transaction price shall be determined through arm's length negotiations
between the parties based on the labor costs incurred, and the transaction
price shall be fully borne by the worksite employer.
• CNACD Group is regarded by the Group as the primary service
provider for its property management projects. In principle, the Company shall
entrust the CNACD Group with project management work for all of its new
construction and expansion projects (except for projects with a total
investment of RMB5 million (inclusive) or less in certain regions), the
construction and renovation of properties such as Air China lounges, and
repair projects with a total cost of more than RMB5 million (inclusive)
(excluding deductible value-added tax). The subsidiaries of the Company may
choose to entrust the CNACD Group with project management work.
For the above mentioned services to be provided by CNACD Group, the service
fees charged by CNACD Group will be determined based on the engineering and
financial audit amounts of the specific entrusted projects in accordance with
the entrusted management contracts. The fees will be calculated as follows:
(i) 3% of the financial audit amount of the investment relating to the
management entrusted by the Company (the 3% rate was determined based on
historical data. On the basis upon the historical data, the 3% rate is
considered fair and reasonable, as it aligns with established expectations of
the Company), with penalties or bonuses applied based on project management
progress and remaining funds as agreed by both parties in the specific project
management contract; or/and (ii) based on the scale or investment of the
project, the fees will be determined according to the labor input of CNACD
Group verified by the Company, including the actual full labor cost and any
associated penalties or bonuses (such as rewards for labor cost savings,
rewards and penalties relating to project timeline management and rewards and
penalties relating to investment control balance), with specific terms
outlined in the relevant agreements. Subsidiaries of the Company may refer to
these pricing principles and determine the service fees for entrusted
management services with CNACD Group after arm's length negotiations.
• For the entrusted operational management services provided
by the Group or CNAHC Group to the other party, both parties will (1)
determine the service fees after arm's length negotiation and based on the
service projects and specific requirements, considering the service provider's
costs and reasonable service fee rates, with rewards given based on the
entrusted management performance. The service fee rates mentioned above are
primarily determined with reference to the historical average prices published
for similar products or services in the relevant industry (where possible)
and/or the profit margins for comparable products or services disclosed by
other listed companies, with the service fee rate adopted by CNAHC Group not
exceeding 10%; or (2) determine the relevant financial/business indicators
(including but not limited to sales revenue, net profit, return on equity,
etc.) based on the service projects and specific requirements, and determine
the service fees using a fixed management fee plus a variable management fee
approach through arm's length negotiation. The fixed management fee is
calculated considering the overall scope of services and the resources
allocated. The variable management fee, on the other hand, is determined based
on variables which would be resulted from the entrusted operational management
services provided. The circumstances under which the respective indicators
will be used to adjust pricing will be agreed upon through arm's length
negotiations between the parties. The Company has referenced several listed
companies with comparable businesses, and the selection of indicators is
tailored to the specific projects and requirements. For example, in entrusted
sales operations, indicators may be based on sales revenue, whereas for
entrusted enterprise management, indicators could be defined according to
profit or equity metrics.
The New Comprehensive Services Framework Agreement shall take effect upon the
approval by the Shareholders at the general meeting of the Company, and its
initial term is from 1 January 2025 to 31 December 2027. Upon expiration of
the initial term, the New Comprehensive Services Framework Agreement may be
renewed automatically for successive terms of three years each, subject to the
compliance with the requirements of the Hong Kong Listing Rules/the Shanghai
Listing Rules and the approval procedures required under the Hong Kong Listing
Rules/the Shanghai Listing Rules. During the term of the New Comprehensive
Services Framework Agreement, either party may terminate the New Comprehensive
Services Framework Agreement on any 31 December by giving the other party at
least three months' prior written notice.
Reasons for the transaction:
As the Group possesses service qualification and excellent professional
capabilities in professional fields such as retiree management and human
resources services, CNAHC Group is willing to continue to cooperate with the
Company in relevant businesses.
For the services to be provided by CNAHC Group, the Directors believe that
CNAHC Group has strengths that independent third parties in the market do not
possess, including (1) qualifications and specialized knowledge in the
aviation industry, particularly in the areas of catering management and
provisioning, in-flight supplies management and property management; and (2) a
proven track record of quality and timely service provided in the past. In
light of the aforementioned factors, the Directors believe that it is in the
best interest of the Group to enter into the above transactions with CNAHC.
Historical amounts and proposed caps:
Set forth below is a summary of the historical annual caps for the total of
and the actual amounts paid and received by the Group to and from CNAHC Group
in accordance with the comprehensive services framework agreement and the
proposed annual caps for the total amount payable and receivable by the Group
to and from CNAHC Group in accordance with the New Comprehensive Services
Framework Agreement:
Unit: RMB Million
Historical Annual Cap Historical Actual Amounts Proposed Annual Caps
Unaudited historical amount for the period
Actual annual amount for the year ended Actual annual amount for the year ended from 1 January Estimated annual amount for the year ending
31 December 31 December 2024 to 30 31 December
Annual cap for the year Annual cap for the year Annual cap for the year 2022 2023 June 2024 2024 Annual cap for the year Annual cap for the year Annual cap for the year
ended 31 December ended 31 December ending 31 December ending 31 December ending 31 December ending 31 December
2022 2023 2024 2025 2026 2027
Amount payable by the Group
2,650 2,750 2,780 825 1,920 1,052 2,571 3,200 3,300 3,400
Amount receivable by the Group
100 110 121 25 57 32 73 150 160 170
As the international transport capacity has not yet recovered to pre-pandemic
level, and hence the supply of in-flight meals and amenities correspondingly
decreased by a large extent. Furthermore, facing the impact of the pandemic,
the Company enhanced refined management on rigid costs and controllable
expenses. The interplay of the above factors has caused the actual amounts
paid by the Group to CNAHC Group were lower than the annual caps.
Basis for the annual caps for the next three years:
In arriving at the annual caps for the amounts payable by the Group to the
CNAHC Group under the New Comprehensive Services Framework Agreement, the
Directors have considered the historical transaction amounts for the same type
of transactions, which were RMB825 million and RMB1,920 million for the years
ended 31 December 2022 and 2023, respectively, and RMB1,052 million for the
six months ended 30 June 2024, as well as the expected growth of the Group's
air passenger services in the next few years. Considering that (i) the
transaction amount for the year 2023 was RMB1,920 million, and it is expected
that the Group's transport capacity will gradually return to the pre-pandemic
level over the next three years (as of the end of 2023, the number of
international and regional weekly flights was recovered to 74% of that in the
same period of 2019), leading to a corresponding increase in demand for
ancillary production and supply services, such as in-flight supplies services,
airline catering services and aviation ground services. Consequently, the
transaction amount payable to the CNAHC Group is expected to increase, leading
an estimated transaction amount of RMB2,571 million for the year 2024; and
(ii) the expected increase in labour cost over the next three years will
contribute to an increase in transaction amount. Additionally, the inclusion
of entrusted property management services in the New Comprehensive Services
Framework Agreement and the provision of services such as information
technology services by the CNAHC Group will lead to an increase of transaction
amount. Based on the above and considering a reasonable buffer to accommodate
potential fluctuations, the growth rate from 2024 to 2025 is expected to be
around 20%, resulting in an increase in the amount payable by the Group to the
CNAHC Group to no more than RMB3,200 million in 2025. Thereafter, it is
expected that the amount will increase by 3% per year from 2025 onwards (the
3% rate is derived with reference to the forecast of China's GDP growth by
relevant institutions and also reflects effective cost management). As a
result, the amounts payable by the Group to the CNAHC Group under the New
Comprehensive Services Framework Agreement are expected to not exceed RMB3,300
million and RMB3,400 million in 2026 and 2027, respectively.
In arriving at the annual caps for the amount payable by CNAHC Group to the
Group under the New Comprehensive Services Framework Agreement, the Directors
have considered (i) the historical actual transaction amount was RMB57 million
for the year 2023. It is expected that the Group will continue to provide
services such as human resources management, which will result in a
corresponding rise in the expenditure of transaction amount of the CNAHC Group
under the New Comprehensive Services Framework Agreement, leading to an
estimated transaction amount of RMB73 million for the year 2024; (ii) the
expected increase in labour costs in the next three years, which will also
result in an increase in the transaction amount of approximately RMB60
million. Taking into account the abovementioned factors, it is expected that
the amount receivable by the Group from the CNAHC Group in 2024 under the New
Comprehensive Services Framework Agreement will not exceed RMB150 million, and
thereafter, the amount is expected to increase by 6.5% per year (such rate is
determined with reference to the forecast of China's GDP growth by relevant
institutions, and taking into consideration a reasonable growth in income), so
that the amount receivable by the Group from the CNAHC Group will not exceed
RMB160 million and RMB170 million in 2026 and 2027, respectively.
3. Internal Control
The Company has adopted the following measures to ensure that the above
continuing connected transactions will be conducted on normal commercial terms
and in accordance with their respective framework agreements and the pricing
policies of the Company:
• Before entering into the above connected transactions, the
Finance Department, the Legal Department, the Asset Management Department
(which has a dedicated subdivision responsible for managing the connected
transactions) and if applicable, certain other relevant departments of the
Company will review the proposed terms for the individual transactions and
discuss with the relevant business department of the Group to ensure that such
transactions are conducted on normal commercial terms and the terms of
applicable framework agreements and in compliance with the pricing policies of
the Group before these relevant departments approve the finalized transaction
agreements according to their authority within the Group.
• The Asset Management Department of the Company is
responsible for supervising connected transactions. The Asset Management
Department will regularly monitor and collect detailed information on relevant
continuing connected transactions (including but not limited to the
implementation of the pricing policies, duration of the agreement and the
actual transaction amounts of the above continuing connected transactions) to
ensure that such transactions are conducted in accordance with applicable
framework agreements for continuing connected transactions. In addition, the
Asset Management Department will be responsible for reviewing and evaluating
the actual transaction amount and cap balance of the above continuing
connected transactions on a monthly basis. If the relevant cap is expected to
be exceeded, the Asset Management Department will report to the management of
the Company and take appropriate measures in accordance with the relevant
requirements of the Hong Kong Listing Rules and/or the Shanghai Listing Rules.
• The Internal Audit Department of the Company is responsible
for carrying out annual assessment on the internal control procedures of the
Group, including but not limited to information relating to the management of
continuing connected transactions. In addition, the Internal Audit Department
is responsible for preparing the annual assessment report on internal control
and will submit the same to the Board for review and approval.
• The independent auditor and the independent non-executive
Directors will conduct annual review on the non-exempt continuing connected
transactions.
4. Hong Kong Listing Rules Implications
As each of the applicable percentage ratios (other than the profits ratio) of
the continuing connected transactions (excluding the de minims continuing
connected transactions) set out above, on an annual basis, is higher than 0.1%
but less than 5%, they therefore fall under Rule 14A.76(2)(a) of the Hong Kong
Listing Rules. Accordingly, these continuing connected transactions are
subject to the reporting, announcement and annual review requirements under
Chapter 14A of the Hong Kong Listing Rules, but are exempted from the
Independent Shareholders' approval requirement.
Mr. Ma Chongxian, Mr. Wang Mingyuan, Mr. Cui Xiaofeng and Mr. Xiao Peng are
considered to have material interests in each of the continuing connected
transactions set out above and therefore have abstained from voting in the
relevant Board resolutions in respect of the continuing connected
transactions. Save as disclosed above, none of the Directors have a material
interest in any of the continuing connected transactions and hence no other
Director is required to abstain from voting in the relevant Board resolutions.
The Board (including the independent non-executive Directors) considers that
the terms and conditions of the above-mentioned continuing connected
transactions are fair and reasonable. Such continuing connected transactions
are on normal commercial terms or better and in the ordinary and usual course
of business of the Company, and are in the interests of the Company and its
Shareholders as a whole. The Board also considers that the annual caps for
each of the three years ending 31 December 2025, 2026 and 2027 for the
abovementioned continuing connected transactions are fair and reasonable.
5. Shanghai Listing Rules Implications
Pursuant to the Shanghai Listing Rules, the following agreements shall be
approved by the Independent Shareholders at the EGM:
(1) the Government Charter Flight Service Framework Agreement;
(2) the New Comprehensive Services Framework Agreement;
(3) the New Properties Leasing Framework Agreement; and
(4) the Media Services Framework Agreement.
II. ACC TRANSACTIONS
Reference is made to the announcement of the Company dated 20 September 2022
and the circular of the Company dated 28 September 2022 in relation to, among
other things, the ACC Transactions. The current term of the ACC Framework
Agreement will expire on 31 December 2024. As the Company expects that the ACC
Transactions will continue to be conducted after 31 December 2024, on 30
October 2024, the Board resolved to renew the ACC Framework Agreement for a
term of three years commencing from 1 January 2025 to 31 December 2027,
subject to Independent Shareholders' approval at the EGM.
1. Parties and the Relationship between the Parties
Air China Cargo is indirectly owned as to approximately 45.00% by CNAHC, the
controlling Shareholder of the Company, and is therefore a connected person of
the Company under the Hong Kong Listing Rules. Air China Cargo is a joint
stock company incorporated under the laws of the PRC with limited liability
and is principally engaged in air cargo and mail transportation business.
CNAHC directly holds 39.57% of the Company's shares and holds 11.75% of the
Company's shares through its wholly-owned subsidiary CNACG, and is the
controlling Shareholder of the Company as at the date of this announcement. As
at the date of this announcement, the State-owned Assets Supervision and
Administration Commission of the State Council is a controlling shareholder
and de facto controller of CNAHC. CNAHC primarily operates all the state-owned
assets and state-owned equity interests invested by the State in CNAHC and its
invested entities, aircraft leasing and aviation equipment and facilities
maintenance businesses.
2. Description of the ACC Transactions
The ACC Transactions contemplated under the ACC Framework Agreement are as
follows:
• Exclusive operation of the Passenger Aircraft Cargo
Business: After arm's length negotiations between both parties, the Group and
the ACC Group have determined to carry out a long-term collaboration for the
Passenger Aircraft Cargo Business under an exclusive operating model. The
entire Passenger Aircraft Cargo Business of the Group will be operated
exclusively by the ACC Group, and the ACC Group shall undertake the overall
responsibilities for transporting the cargos to the consignors with respect to
the cargos which are transported through the passenger aircraft.
As the term of the exclusive operation of the Passenger Aircraft Cargo
Business between the Company and the ACC Group commences from the effective
date of the ACC Framework Agreement (i.e. 14 October 2022) and ends on 31
December 2034 pursuant to the ACC Framework Agreement, pursuant to Rule 14A.52
of the Hong Kong Listing Rules, the Company had engaged an independent
financial adviser, Somerley Capital Limited ("Somerley"), to explain why a
period exceeding three years for such agreements is required and the
independent financial adviser had confirmed that it is in the normal business
practice for contracts of these types to be of such duration. For details of
the independent financial adviser's opinions, please refer to the circular of
the Company dated 28 September 2022 (the "2022 Circular"). As disclosed in the
2022 Circular, "Somerley is of the view that a term of longer than three years
is required for the effective operation of the transactions relating to the
Passenger Aircraft Cargo Business (the "Cargo Transactions") and is a normal
business practice in the industry after having considered the factors (i) Air
China Cargo intends to apply for the listing of A shares and to comply with
the applicable guidelines on initial public offering and listing of shares
issued by CSRC, the Cargo Transactions having a term more than three years is
necessary for facilitating te potential listing of Air China Cargo; (ii)
entering into of the Cargo Transactions could provide a clear delineation of
business and thereby eliminating concerns associated with competition between
the Company and Air China Cargo;
(iii) Air China Cargo is the sole service provider for the Passenger Aircraft
Cargo Business and is view of the shareholding structure of both the Group and
Air China Cargo, it is not practical or commercially sensible for the Company
to entrust such services with another party in the PRC as such counterparty
would have to have a reasonable business scale to handle the Group's Passenger
Aircraft Cargo Business and possible candidates with such business scale would
normally be under control of an industry competitor; and (iv) Somerley
considers the practice of having a term of longer than three years is not
uncommon in the industry because Somerley noted that the similar exclusive
passenger aircraft bellyhold space contractual operation arrangement of China
Eastern Airlines Corporation Limited is also for a long term of 12 years".
• Ground support services and other services: The ground
support services and other services provided by the Group to the ACC Group
include but are not limited to operation support services, IT sharing
services, comprehensive support services (mainly include crew accommodation
and meal support, ground transportation services and medical and health
services provided by the Group to the ACC Group), engine and aircraft-related
materials sharing services, retiree management services, training services,
human resources services (including general, servicing and information
services in respect of personnel employment, archival information, salaries
and benefits, social insurance and employee services), and procurement and
maintenance services. The ground support and other services provided by the
ACC Group to the Group include but are not limited to ground support services
(cargo terminal services and airport apron services), container and pallet
management services, engine and aircraft-related materials sharing services.
In respect of the engine and aircraft-related materials sharing services
between the Group and the ACC Group, they mainly involve the provision of
common engine and aircraft-related materials by the other party when one
party's own engine and aircraft-related materials could not be able to meet
its respective needs (mainly involving high-priced reusable components on the
aircraft), for the purpose of reducing the procurement costs and timeliness in
the event of temporary needs of the parties, while, on the other hand, improve
each of their inventory utilization efficiency, hence bringing certain source
of revenue.
The difference between ground support services and other services provided by
the Group and the ACC Group under the ACC Framework Agreement lies in the
specific nature and expertise required for each type of service. As described
above, the types of services differ, and based on expertise, the Group
requires the specialised capabilities that the ACC Group offers. The mutual
provision of services allows both parties to leverage their strengths and meet
their needs effectively.
• Property leasing: The Group may rent out its own properties
or land with legal right of use to ACC Group for its production and operation,
office and storage use, and the Group may lease self-owned properties and land
from the ACC Group in the event that its own properties could not be able to
meet its business needs such as production and operation, office and storage.
The properties leased to each other between the Group and the ACC Group differ
in terms of aspects such as geographical location, area and purpose.
Currently, the properties rent out by the Group to the ACC Group are mainly
properties invested and built by the Group in the vicinity of the Beijing
Capital International Airport for warehouse purpose, and the properties leased
by the Group from the ACC Group at present are mainly properties owned by the
ACC Group which are adjacent to the Group and were leased to the Group for its
use under the circumstances that the Group's own properties could not be able
to meet its office and operation needs.
Generally, the leasing term of properties or land shall not exceed three
years. If there are specific government and/or industry requirements, the
leasing term of properties or land shall comply with such requirements. When
the terms expired, the leasing terms could be extended with unanimous consent
after negotiation between both parties. The Company will comply with Chapter
14A of the Hong Kong Listing Rules by then.
3. Pricing Policies for the ACC Transactions
The consideration of any specific ACC Transactions shall be determined after
arm's length negotiations between the Group and the ACC Group and on normal
commercial terms, and shall be determined in accordance with the pricing
policies set forth below on a case-by-case basis.
• Exclusive operation of the Passenger Aircraft Cargo Business:
During the exclusive operation term, the Group shall charge the ACC Group the
transportation service fee regularly in each year. Such transportation service
fee shall be determined based on the ACC Group's actual cargo revenue
generated from the exclusive operation of the Group's Passenger Aircraft Cargo
Business after deducting certain operating fee rate. The specific formulas are
as follows:
Transportation service fee = actual revenue from the Passenger Aircraft Cargo
Business × (1 - operating fee rate)
Operating fee rate = operation expense rate + reward/punishment rate
Reward/punishment rate = (growth rate of yield level of the Passenger Aircraft
Cargo Business of the current year - growth rate of yield level of the cargo
business in the industry of the current year) × 50%
Of which:
(1) The actual revenue of the Passenger Aircraft Cargo Business
represents the actual cargo revenue generated by ACC Group's exclusive
operation of the Group's Passenger Aircraft Cargo Business.
(2) The operation expense rate represents the ratio of operating
expenses to actual revenue from the Passenger Aircraft Cargo Business.
Operation expenses are determined by the parties through arm's length
negotiation primarily based on the operation expenses in the historical years,
with reference to factors such as the price level in the similar market and
industry and its variation trend.
(3) In order to enhance the operating results of the exclusive
operation of the Passenger Aircraft Cargo Business, the both parties decide to
apply the reward/ punishment rate after negotiation. The basic index of
reward/punishment rate represents 50% of the difference between the yield
level growth rate of the Passenger Aircraft Cargo Business and the yield level
growth rate of the cargo business in the industry of the current year. The
parties may make reasonable adjustments according to the changes in the market
environment and the operation direction of the Passenger Aircraft Cargo
Business with unanimous consent after negotiation. The rate of 50% is
determined by the Company and Air China Cargo through arm's length negotiation
with reference to industry practice. The rate of 50% is the same as the
relevant ratios of similar transactions of comparable companies in the
industry, which will encourage the ACC Group to enhance its capacity of the
Passenger Aircraft Cargo Business, thereby boosting the operating efficiency
of the Group's Passenger Aircraft Cargo Business, and hence the rate is fair
and reasonable.
(4) The growth rate of yield level of the Passenger Aircraft Cargo
Business of the current year represents the growth rate of the yield level of
the Passenger Aircraft Cargo Business of the current year generated by ACC
Group's exclusive operation of the Group's Passenger Aircraft Cargo Business
as compared with that of the previous year.
(5) The growth rate of yield level of the cargo business in the
industry of the current year represents the growth rate of the revenue of the
cargo business in the industry of the current year as compared with that of
the previous year.
(6) The yield level of the cargo business represents the revenue of
cargo business divided by the investment amount for the cargo business. The
investment amount for the cargo business represents the total available cargo
and mail traffic measured by the capacity available for the carriage of the
cargo and mail for every route, and the calculation formula of which is Σ
(capacity available for the carriage of the cargo and mail of the route
multiplied by the distance of the route).
• Ground support services and other services:
Both parties shall, according to the service items and specific needs,
determine the relevant service fees of the ground support services and other
service provided to or by the Group through arm's length negotiations in
accordance with the following principles:
(1) Follow the government and industry pricing or guide price if it is
available, including but not limited to the guidance from CAAC and the
International Air Transport Association on the prices of ground support
services and other terms, and the requirements on the pricing of navigation
information stipulated by CAAC and Air Traffic Management Bureau (ATMB), and
the transaction price shall be determined by the parties through arm's length
negotiation with reference to factors such as comparable prices (if any) in
the market, relevant laws and tax policies. Generally, CAAC and the
International Air Transport Association will publish the guidance on their
official websites from time to time (for the International Air Transport
Association, the guidance may also be provided by selling to customers).
(2) If no government and industry pricing or guide price is available,
the final transaction price shall be determined through arm's length
negotiations between the parties with firstly making reference to the market
prices offered by at least two independent third parties on the market for the
same type of service, and then taking certain factors into account such as the
service standard, service scope, business volume and specific needs of the
parties. If any service needs of the service recipient change, appropriate
adjustment will be made to the transaction price after negotiation between
both parties based on the extent of variation in relevant costs, service
quality or other factors.
(3) If none of the above prices are applicable, the service price
shall be determined by both parties on the basis of cost plus reasonable
profit. The costs are mainly based on the costs and expenses of the service
provider, including costs of human resources and costs of facility, equipment
and materials. Reasonable profit margin will be determined with mainly making
reference to the historical average prices on similar products or services
(where possible) published regarding the relevant industry, and/or the profit
margin of the comparable products and services disclosed by other listed
companies. The reasonable profit margin of ACC Group shall not exceed 10%. The
final transaction prices shall be determined on terms that to the Group are no
less favourable than those provided by independent third parties to the Group
or those provided by ACC Group to independent third parties. The Group
generally obtains historical average prices of the reasonable profit margin of
similar products or services of the relevant industry through official
websites of other listed companies. Besides, prior to entering into
transactions of various ground support services and other services, the Group
will request the ACC Group to provide and hence obtain the terms of similar
and comparable transactions between the ACC Group and independent third
parties whenever possible as its reference for determining the transaction
price. While making reference to the profit margin of comparable products and
services disclosed by other listed companies, the Group will try to acquire
comparable data as more as possible, and generally by referring to at least
two listed companies' relevant data where practicable.
• Property leasing services:
The parties shall, according to the service items and specific needs,
determine the relevant service fees of the property leasing services through
arm's length negotiations in accordance with the following principles:
(1) The Group as lessor: First, the Group shall provide quotation of
the leased properties or land to ACC Group after taking into account the
factors including the relevant costs, tax and reasonable profit margin
relating to the properties or land. The relevant costs include construction
costs, depreciation costs, funding costs and maintenance costs. Reasonable
profit margin will be determined with mainly making reference to the
historical average prices on similar services (where possible) published
regarding the property leasing industry, and/or the profit margin of the
comparable services disclosed by other listed companies. Then, the rental
prices for the leased properties or land shall be determined through arm's
length negotiations between the Group and ACC Group after ACC Group takes into
account the factors such as the location of the leased properties or land and
the service quality. Such rental prices shall not be lower than the rent
offered by the Group to an independent third party (if any) in comparable
circumstances.
(2) The Group as lessee: First, the Group shall conduct market
research and collect, consolidate and analyze information in respect of
provision of leasing services by independent third parties for the same type
of properties or land (if any) in close proximity to the properties or land to
be leased. Generally, the Group shall assign a department or an officer to
verify the price and terms available from at least two independent third
parties (if any) by email, fax or telephone. Then, (a) if there is comparable
market of the same type identified through market research, the parties shall
determine the rental prices for the leased properties or land through arm's
length negotiations with reference to the market price for the same type of
services available from at least two independent third parties after taking
into account the relevant factors. The relevant factors include the
geographical location, function and layout, furnishing, ancillary facilities
and property services of the property or land as well as the specific needs of
the lessee; and (b) if there is no comparable market of the same type found in
the neighboring areas through market research, the price shall be determined
by adopting the cost-plus approach: the rental price of the leased properties
or land shall be determined through arm's length negotiations between the
parties based on the relevant costs, tax and reasonable profit margin of the
properties or land offered by ACC Group. The relevant costs include
construction costs, depreciation costs, funding costs and maintenance costs.
Reasonable profit margin will be determined with mainly making reference to
the historical average prices on similar services (where possible) published
regarding the property leasing industry and/or the profit margin of the
comparable services disclosed by other listed companies, and the reasonable
profit margin of ACC Group shall not exceed 10%. The abovementioned rental
prices shall not be higher than those offered by ACC Group to the independent
third parties (if any) in comparable circumstances.
The Group generally obtains historical average prices of the
reasonable profit margin of similar products or services of the relevant
industry through the official websites of other listed companies. Besides,
prior to entering into transactions of various ground support services and
other services, the Group will request the ACC Group to provide and hence
obtain the terms of similar and comparable transactions between the ACC Group
and independent third parties whenever possible as its reference for
determining the transaction price. While making reference to the profit margin
of comparable products and services disclosed by other listed companies, the
Group will try to acquire comparable data as more as possible, and generally
by referring to at least two listed companies' relevant data where
practicable.
(3) The Group as lessee and lessor: When leasing each other's
properties or land, as a separate matter, the parties may determine the
quotation for the rental prices of their respective properties or land based
on the above pricing principles, and then exchange the lease of properties and
land use right in accordance with the principle of equivalent exchange.
(4) The payment method of rental fee shall be subject to specific
agreement.
4. Term of the ACC Framework Agreement
The renewal of the ACC Framework Agreement is subject to the approval of
Independent Shareholders at the EGM. If the approval of Independent
Shareholders is obtained, the ACC Framework Agreement will be renewed for a
term of three years commencing from 1 January 2025 to 31 December 2027, and
may be renewed automatically for successive terms of three years each, subject
to the compliance with the requirements of the Hong Kong Listing Rules/the
Shanghai Listing Rules and the approval procedures required under the Hong
Kong Listing Rules/the Shanghai Listing Rules. During the term of the ACC
Framework Agreement, the agreement can be terminated upon the expiry on any 31
December by either party thereto by serving the other party a prior written
notice of not less than three months. However, the exclusive operation term of
the Passenger Aircraft Cargo Business between the Group and ACC Group under
the ACC Framework Agreement shall not be terminated upon the termination of
the ACC Framework Agreement, provided that the requirements (including but not
limited to obtaining approval and fulfilling disclosure procedures for the
annual caps) under the Hong Kong Listing Rules/Shanghai Listing Rules shall
then be complied with.
5. Independent Financial Adviser's opinion on the leasing term of properties under the ACC Framework Agreement
As mentioned above, under the ACC Framework Agreement, the term of the leases
of properties or land should not exceed three years with the exception where
there are special government and/or industry requirements on the duration of
the tenure of the leased property(ies) or land (the "ACC Property(ties)").
According to Rule 14A.52 of the Hong Kong Listing Rules, the term for the
agreement for a continuing connected transaction shall not exceed three years
except in special circumstances where the nature of the transaction requires a
longer term. In this case, the listed issuer shall appoint an independent
financial adviser to explain why the agreement requires a longer term and to
confirm that it is normal business practice for the agreements of this type to
be of such duration.
Accordingly, the Company has engaged BaoQiao Partners as the Independent
Financial Adviser, and BaoQiao Partners has formulated its opinion as follows:
As both the Group and ACC Group are engaged in related business sectors, both
groups have similar demands on certain type of properties and/or properties in
specific areas (for example, properties within or adjacent to airports) owned
by each other for their general and/or business operation purposes.
Based on BaoQiao Partners' discussion with the management of the Company, the
ACC Properties represents properties (including properties that are
custom-built by the Group, based on industry requirements and at the request
of ACC Group) that may be subject to oversight and administration of
government or industrial authorities with specific regulations/requirements on
the duration of the tenure, which may exceed three years, when leased from
time to time. As such, it is normal business practice for the Group with
regards to the compliance with applicable government/industrial regulations or
observe the industry requirements for leasing of ACC Properties.
As advised by the management of the Company, there are existing leasing
transactions of the ACC Properties entered into between the Group and the ACC
Group (the "Existing Transactions") in January 2017 and BaoQiao Partners has
obtained and reviewed the agreements of these Existing Transactions, which
were governed by the GAC. The initial lease terms of these Existing
Transactions were 6 years, which were renewed in 2023 for an additional 3
years to 2026. BaoQiao Partners understands that the initial lease terms of 6
years of the Existing Transactions were in compliance with the GAC Rules
issued by the GAC on 30 January 2008, which required, among others, the lease
term of property for the use of loading, unloading, storage, delivery and
shipping of import and export goods in the areas that are subject to the
oversight and supervision of GAC to be at least five years.
Despite the GAC Rules were superseded by the new rules issued by GAC on 1
November 2017 and there is no specific lease term requirement under the new
rules, as advised by the management of the Company, the Company cannot rule
out the possibility that any government or industrial authorities (including
GAC) will require the lease term of the ACC Properties to be more than 3 years
during the period of the ACC Framework Agreement. Based on BaoQiao Partners'
discussion with the management of the Company, in order to maintain stable and
smooth airline operation needs, both the Company and the ACC Group intend to
continue the leasing arrangement of the Existing Transactions upon expiry in
2026 and there may be other new ACC Properties leasing arrangements between
the Group and the ACC Group under the ACC Framework Agreement, which from the
perspective of the Company, the entering into leases of ACC Properties will
allow the Group (as the lessee) to obtain the right of use of ACC Properties
owned by ACC Group for the Group's operation, while also providing the
flexibility for the Group (as the lessor) to lease out its vacant ACC
Properties for rental income. As such, the property leasing services with
flexibility on leasing period to satisfy the regulatory compliance and
industry requirements for the ACC Properties under the ACC Framework Agreement
also align with the Group's long-term strategies and signifies the lasting
cooperation commitment between the Group and the ACC Group.
Review of comparable transactions
In considering whether it is a normal business practice for the lease of the
ACC Properties under the ACC Framework Agreement to have a duration longer
than three years, BaoQiao Partners has identified and selected 18 Comparable
Transactions based on the following selection criteria, (a) continuing
connected transactions announcements related to leasing arrangements of land
and properties for general and/or business operation purposes published by
companies listed on the Hong Kong Stock Exchange since 2021;
(b) the transactions with lease term longer than three years. Based on BaoQiao
Partners' review of the Comparable Transactions, it is not uncommon to enter
into long-term leases for properties leasing in the PRC and 17 out of 18 of
the Comparable Transactions were related to leasing arrangements for PRC
land/properties. BaoQiao Partners also notes that the lease terms of these
Comparable Transactions ranged from 5 years to 50 years, with an average of
approximately 13 years. In addition, 3 out of 18 Comparable Transactions were
similar with that of custom-built arrangements. Two of them involved
properties for airline operations entered into by CEA, a peer company within
the Chinese aviation industry with lease term of 6 years in 2021 and 2022 and
the other was leasing of land for construction of factory buildings/facilities
with lease term of 20 years. The use of properties under these 18 Comparable
Transactions included industrial production, commercial operation, hospital
operation and offices. Although there was no Comparable Transaction that
involved leasing of regulated properties as the Company, BaoQiao Partners
considers the Comparable Transactions can represent the general market
practices of the property leasing arrangements for general and/or business
operation purposes in the PRC, regardless the types of properties involved.
As such, based on BaoQiao Partners' review of the Comparable Transactions with
lease terms ranged from 5 years to 50 years and the Existing Transactions with
initial tenure of 6 years, BaoQiao Partners considers the lease terms of
the Properties under the ACC Framework Agreement, which based on the
representation given by the management of the Company will not be over 20
years, fall within the range of the Comparable Transactions.
Having considered the principal factors discussed above, BaoQiao Partners is
of the view that it is normal business practice for the Group and the ACC
Group to enter into leases for the Properties under the ACC Framework
Agreement with terms of more than three years and to be of such duration for
agreements of this type.
6. Reasons for and Benefits of the ACC Transactions
The Directors believe that it is in the best interest of the Group to continue
the ACC Transactions with the ACC Group having taken into account the
following factors:
• In respect of the exclusive contracting operation of the
Passenger Aircraft Cargo Business, by placing the Passenger Aircraft Cargo
Transactions of the Group exclusively with the ACC Group, the Group is able to
better focus its resources on its core passenger transport business, which
will result in a more efficient utilization of resources and enhance the
management and operation capabilities of the passenger transport business. The
collaboration between the Group and the ACC Group allows Air China Cargo to
utilize its expertise in the cargo industry, providing the Group with a steady
income from contracted cargo business. The aforesaid collaboration maximizes
the economies of scale for the Group and the ACC Group, while the Group's
increased focus on the core passenger transport business will further
strengthen the Group's brand image and competitiveness in the passenger
transport market, thereby enhancing returns to the Shareholders.
• In respect of ground support services and other services,
the long established successful cooperative relationship between the Company
and Air China Cargo is able to provide streamlined and efficient cooperation
and transaction between the Group and the ACC Group.
• In respect of properties leasing services, the Group has
entered into similar property leasing transactions with various parties
including both connected persons and independent third parties in the ordinary
course of business. The leasing of the Group's properties to the ACC Group is
beneficial to the Group in improving the efficiency of asset utilization and
obtaining rental income. The properties leased by the ACC Group to the Group
are generally located in the vicinity of the Group's office, and therefore can
meet the Group's relevant needs in a more efficient and convenient way.
7. Historical Amounts and Proposed Caps
The table below sets out (i) the historical annual caps of the ACC Group or
the Group for each of the three years ended/ending 31 December 2022, 2023 and
2024, respectively; (ii) the actual amounts for each of the two years ended 31
December 2022 and 2023 and for the six months ended 30 June 2024, and the
estimated amounts payable for the year ending 31 December 2024; and (iii) the
proposed annual caps for the next three years:
Unit: RMB Million
Historical Annual Caps Actual Historical Amounts Estimated amounts Proposed Annual Caps
for the year
ending 31 December
2024
For the six
For the year For the year For the year For the year For the year months ended 30 June For the year For the year For the year
ended 31 December ended 31 December ending December ended 31 December ended 31 December 2024 ending 31 December ending 31 December ending 31 December
2022 2023 2024 2022 2023 2025 2026 2027
Amounts Payable by the ACC Group to the Group
In terms of the transportation service under the Passenger Aircraft Cargo
Business
15,500 17,000 18,000 9,666 3,412 3,009 8,100 11,000 12,000 13,000
In terms of ground support services and other services
1,500 2,500 2,700 1,046 887 326 1,242 2,100 2,300 2,500
In terms of properties leasing services
250 250 250 137 134 70 149 250 250 250
Amounts payable by the Group to the ACC Group
In terms of ground support services and other services
1,400 1,500 1,600 598 681 420 1,116 1,500 1,500 1,500
In respect of the passenger aircraft cargo services provided by the Group to
the ACC Group, given that the transport capacity of passenger aircraft on the
international routes of the Group has not yet recovered to pre-pandemic
levels, the revenue of the Passenger Aircraft Cargo Business was lower than
expected, resulting in a decrease in the amount of actual revenue from the
transportation services under the Passenger Aircraft Cargo Business from 2022
to 2024 as compared with the annual cap for each of the respective year.
In respect of the ground support services and other services provided by the
Group to the ACC Group, given that the ACC Group delayed its purchase of
maintenance services from the Group based on the arrangement
under the aircraft introduction plan, the corresponding revenue of
the Group has decreased, resulting in a decrease in the amount of actual
revenue from ground support services and other services from 2022 to 2024 as
compared with the annual cap for each of the respective year.
In respect of the ground support services and other services provided by the
ACC Group to the Group, given that the transport capacity of the passenger
aircraft of the Group has not yet recovered to pre-pandemic levels, and that
the business volumes of flight-related warehouse and airport apron operations
both decreased accordingly, there was a corresponding decrease in the relevant
fees paid by the Group to the ACC Group, resulting in a decrease in the amount
of actual expenditure incurred for ground support services and other services
from 2022 to 2024 as compared with the annual cap for each of the respective
year.
8. Basis for the Annual Caps for the Next Three Years
Accounts Payable by the ACC Group to the Group
In arriving at the annual caps for the transportation service fees of the
Passenger Aircraft Cargo Business payable by the ACC Group to the Group for
each of the three years ending 31 December 2025, 2026 and 2027, the Company
has considered, among other things, the historical transaction amounts, which
were RMB9,666 million and 3,412 million for the years ended 31 December 2022
and 2023, respectively, and RMB3,009 million for the six months ended 30 June
2024, and the estimated transaction amounts for 2025 to 2027 along with the
following factors:
(i) In 2023, the Group operated at 74% of its pre-pandemic capacity
on international routes. It is expected that international flight operations
may return to pre-pandemic levels by 2025. Based on the estimated revenue in
the amount of RMB8,100 million from the Passenger Aircraft Cargo Business for
the year 2024, assuming no reduction in pricing levels and a 30% increase in
passenger aircraft deployment (mainly due to the recovery of international
routes), the revenue from the Passenger Aircraft Cargo Business is expected to
reach RMB11,000 million for the year 2025. For the year 2026 and 2027, an
estimated growth rate of 7% has been adopted, with reference to the target
growth rate of 6.5% of the guaranteed number of takeoff and landing as set out
in the "14th Five-Year Plan" issued by CAAC. As a result, the revenue for the
year 2026 and 2027 is estimated to be RMB11,700 million and RMB12,600 million,
respectively;
(ii) The operating fee rate is estimated to be between 7% and 8%. In
determining the estimated operating fee rate, the Company has taken into
account the actual operating fee rates from the past years. It was observed
that the actual operating fee rates were between 7% and 8% in 2018 and 2019
and ranged from 4% to 9.5% from 2020 to 2023, with an average of 6.3% during
those years. Given the expectation that the Group's international flights will
return to pre-pandemic levels in 2025, along with the anticipated growth in
estimated revenue from the Passenger Aircraft Cargo Business in the coming
years, the operating fee rate of 7% to 8% is considered fair and reasonable;
(iii) The maximum transportation service fee is calculated based on the
formula contemplated under the ACC Framework Agreement (i.e. Transportation
service fee = actual revenue from the Passenger Aircraft Cargo Business × (1
- operating fee rate)), and a reasonable buffer is included; and
(iv) Based on the above, it is estimated that the transportation service
fees of the Passenger Aircraft Cargo Business payable by the ACC Group to the
Group for year 2025 to 2027 will not exceed RMB11,000 million, RMB12,000
million and RMB13,000 million, respectively.
In arriving at the annual caps for the amounts payable by the ACC Group to the
Group in connection with the ground support services and other services
provided by the Group for each of the three years ending 31 December 2027, the
Company has considered, among other things, (i) the historical transaction
amounts which were RMB1,046 million and RMB887 million for the years ended 31
December 2022 and 2023, respectively, and RMB326 million for the six months
ended 30 June 2024. The Group expects the transaction amount to be paid to the
ACC Group in 2024 will be around RMB1,242 million, among which, the amounts
payable by the ACC Group to the Group for the maintenance services provided by
the Group to the ACC Group are expected to be around RMB600 million to RMB700
million; (ii) the estimated transaction amounts for 2025 to 2027 (especially
taking into account the possible increase in demand of the ACC Group for
pilots and aircraft and engines maintenance services, for which the Company
can provide the corresponding personnel and services); and (iii) a reasonable
buffer has been included. Based on the above and considering the peak
historical annual cap was in the amount of RMB2,700 million, it is estimated
that the amounts payable by the ACC Group to the Group in connection with the
ground support services and other services provided by the Group for each of
the three years ending 31 December 2027 will not exceed RMB2,100 million,
RMB2,300 million and RMB2,500 million, respectively.
In arriving at the annual caps for the amounts payable by the ACC Group to the
Group in connection with the properties leasing services provided by the Group
for each of the three years ending 31 December 2027, the Company has
considered, among other things, (i) the annual rentals of the properties
currently leased by the Group to the ACC Group, and the peak historical
transaction amount of which was RMB137 million over the past two years;
(ii) the potential additional rentals from the possible new property lease
projects from 2025 to 2027 are estimated to be approximately RMB50 million;
and (iii) the peak historical annual cap proposed amounted to RMB250 million.
Accordingly, it is estimated that the annual transaction amounts for 2025 to
2027 will not exceed RMB250 million.
Amounts payable by the Group to the ACC Group
In arriving at the annual caps for the amounts payable by the Group to the ACC
Group in connection with the ground support services and other services
provided by the ACC Group for each of the three years ending 31 December 2027,
the Company has considered
(i) the historical transaction amounts, which were RMB598 million and RMB681
million for the years ended 31 December 2022 and 2023, respectively, and
RMB420 million for the six months ended 30 June 2024, (ii) the Group expects
the amounts payable by the Group to the ACC Group in connection with the
ground support services and other services provided by the ACC Group for 2024
will be around RMB1,116 million; and (iii) the estimated transaction amounts
for 2025 to 2027 (including the corresponding increase in the scale of ground
support services as the number of flights increase after the end of the
pandemic), and has included a reasonable buffer. Based on the above, it is
estimated that the amounts payable by the Group to the ACC Group in connection
with the ground support services and other services provided by the ACC Group
for each of the three years ending 31 December 2027 will not exceed RMB1,500
million.
9. Internal Control Procedures
The Group has adopted the following internal control procedures to ensure that
the ACC Transactions will be conducted on normal commercial terms, and in
accordance with the ACC Framework Agreement and the pricing policies of the
Group:
• Before entering into individual ACC Transactions, the
Finance Department, Legal Department, Asset Management Department (which has a
dedicated sub-division responsible for the management of connected
transactions) and if applicable, certain other relevant departments of the
Company will review the proposed terms for the individual ACC Transactions and
discuss with the relevant departments of the Group to ensure that such
transactions are conducted on normal commercial terms and in compliance with
the pricing policies of the Group before these relevant departments approve
the finalized transaction agreements according to their authority within the
Group.
• The Asset Management Department of the Company is
responsible for overseeing the connected transactions of the Company. The
Asset Management Department will monitor and collect detailed information on
the ACC Transactions on a regular basis, including but not limited to the
implementation of pricing policies, the terms of the agreement and actual
transaction amount to ensure that the transactions are conducted in accordance
with the framework agreement. In addition, the Asset Management Department is
responsible for monitoring and reviewing the balance amount of the annual cap
for the ACC Transactions on a monthly basis and if the annual cap for the ACC
Transactions is expected to be exceeded for a particular year, it will report
to the management and take appropriate measures in accordance with the
relevant requirements of the Hong Kong Listing Rules and/or the Shanghai
Listing Rules.
• The Company's Internal Audit Department is responsible for
performing annual assessment on the internal control procedures of the Group,
including but not limited to the relevant information on the management of
continuing connected transactions. In addition, the Internal Audit Department
is responsible for compiling the annual internal control assessment report and
submitting the report to the Board for examination and approval.
• The independent auditor of the Company and the independent
non-executive Directors will conduct an annual review on the continuing
connected transactions of the Group.
The Company considers that the above internal control procedures could
function as effective measures to regulate continuing connected transactions.
The Company also provides accurate materials in relation to continuing
connected transactions as always to facilitate the annual review conducted by
the independent non-executive Directors and the independent auditor.
Therefore, the Directors consider that the above internal control procedures
could ensure the continuing connected transactions will be conducted on normal
commercial terms and not prejudicial to the interests of the Company and its
minority Shareholders.
10. Hong Kong Listing Rules Implications
As a non-wholly owned subsidiary of CNAHC, the Company's controlling
Shareholder, Air China Cargo is a connected person of the Company as defined
under the Hong Kong Listing Rules, and accordingly the ACC Transactions
constitute continuing connected transactions of the Company under Chapter 14A
of the Hong Kong Listing Rules. As the highest applicable percentage ratio in
respect of the proposed annual caps of the transportation service fees of the
Passenger Aircraft Cargo Business payable by the ACC Group under the ACC
Transactions is, on an annual basis, higher than 5%, such transactions are
therefore subject to the announcement, annual review, circular (including
advice of independent financial adviser) and Independent Shareholders'
approval requirements under Chapter 14A of the Hong Kong Listing Rules.
In respect of ground support services and other services provided by the
Group, as the highest applicable percentage ratio in respect of the proposed
annual caps of amounts payable by the ACC Group is, on an annual basis, higher
than 0.1% but less than 5%, these transactions are therefore subject to the
announcement and annual review requirements under Chapter 14A of the Hong Kong
Listing Rules but are exempt from the Independent Shareholders' approval
requirement.
In respect of ground support services and other services provided by the ACC
Group, as the highest applicable percentage ratio in respect of the proposed
annual caps of amounts payable by the Group is, on an annual basis, higher
than 0.1% but less than 5%, these transactions are therefore subject to the
announcement and annual review requirements under Chapter 14A of the Hong Kong
Listing Rules but are exempt from the Independent Shareholders' approval
requirement.
In respect of properties leasing services provided by the Group, as the
highest applicable percentage ratio in respect of the proposed annual caps of
amounts payable by the ACC Group is, on an annual basis, higher than 0.1% but
less than 5%, these transactions are therefore subject to the announcement and
annual review requirements under Chapter 14A of the Hong Kong Listing Rules
but are exempt from the Independent Shareholders' approval requirement.
In respect of properties leasing services provided by the ACC Group, it is
expected that the total amounts payable by the Group for each of the years
2025, 2026 and 2027 are below the de minimis threshold as stipulated under
Rule 14A.76(1)(a) of the Hong Kong Listing Rules, and therefore the
transaction will be exempted from announcement, annual review and the
Independent Shareholders' approval requirements under Chapter 14A of the Hong
Kong Listing Rules.
The Board (including the independent non-executive Directors) considers that
the ACC Transactions are on normal commercial terms or better, and are entered
into in the ordinary and usual course of business of the Group, and the terms
and conditions contained therein and the proposed annual caps are fair and
reasonable and in the interests of the Company and the Shareholders as a
whole.
Mr. Ma Chongxian, Mr. Wang Mingyuan, Mr. Cui Xiaofeng, Mr. Patrick Healy and
Mr. Xiao Peng are considered to have material interests in the ACC
Transactions and therefore have abstained from voting in the relevant Board
resolutions in respect of the continuing connected transactions.
Save as disclosed above, none of the Directors have a material interest in ACC
Transactions and hence no other Director is required to abstain from voting in
the relevant Board resolutions.
11. Shanghai Listing Rules Implications
Pursuant to the Shanghai Listing Rules, the renewal of ACC Framework Agreement
and the propose annual caps thereunder shall be approved by the Independent
Shareholders.
V. GENERAL INFORMATION
The Company will convene the EGM for the Independent Shareholders to consider
and approve the CNAHC Framework Agreements, the CNAHC Transactions and the
proposed annual caps for each of the CNAHC Transactions, and the ACC Framework
Agreement, the ACC Transactions and the proposed annual caps for the ACC
Transactions.
In respect of the CNAHC Transactions, pursuant to Rule 14A.36 of the Hong Kong
Listing Rules, any Shareholder with a material interest in the CNAHC
Transactions is required to abstain from voting on the relevant resolutions at
the EGM. As at the date of this announcement, CNACG is a wholly-owned
subsidiary of CNAHC. Therefore, CNAHC and CNACG are required to abstain from
voting on the resolutions in respect of the CNAHC Transactions at the EGM.
In respect of the ACC Transactions, pursuant to Rule 14A.36 of the Hong Kong
Listing Rules, any Shareholder with a material interest in the ACC
Transactions is required to abstain from voting on the relevant resolution at
the EGM. As at the date of this announcement, CNAHC, the controlling
Shareholder of the Company, indirectly held approximately 45.00% equity
interest in Air China Cargo. CNACG, a substantial shareholder of the Company,
is a wholly-owned subsidiary of CNAHC. In addition, Cathay Pacific is a
substantial shareholder of the Company and Air China Cargo. Therefore, CNAHC,
CNACG, Cathay Pacific and their respective associates are required to abstain
from voting on the resolution in respect of the ACC Transactions.
The Independent Board Committee comprising all the independent non-executive
Directors has been established to advise the Independent Shareholders on the
Non-exempt Transactions. BaoQiao Partners has been appointed as the
Independent Financial Adviser of the Company to advise the Independent Board
Committee and the Independent Shareholders in this regard.
A circular containing, among others, (i) details regarding the CNAHC
Transactions and the ACC Transactions; (ii) a letter from the Independent
Financial Adviser to the Independent Board Committee and the Independent
Shareholders regarding its advice on the Non-exempt Transactions; and (iii)
the recommendation from the Independent Board Committee regarding the
Non-exempt Transactions, will be despatched to Shareholders on or before 20
November 2024.
DEFINITIONS
In this announcement, unless the context otherwise requires, the following
terms shall have the meanings as set out below:
"2021 Circular" the circular issued by the Company on 12 November 2021 to the Shareholders in
respect of, among other things, certain continuing connected transactions
"2021 EGM" the extraordinary general meeting of the Company held on 30 December 2021
"ACC Framework Agreement" the framework agreement dated 20 September 2022 entered into between the
Company and Air China Cargo in respect of the ACC Transactions
"ACC Group" Air China Cargo and the corporations or other entities in which Air China
Cargo holds 30% or more equity interests or voting rights at the general
meeting or the majority directors of which are controlled, directly or
indirectly, by Air China Cargo
"ACC Transactions" the continuing connected transactions contemplated under the ACC Framework
Agreement between any member of the Group on the one hand, and any member of
the ACC Group on the other hand
"Air China Cargo" Air China Cargo Co., Ltd., a joint stock company incorporated under the laws
of the PRC with limited liability
"associate(s)" has the meaning ascribed to it by the Hong Kong Listing Rules
"Board" the board of Directors
"CAAC" the Civil Aviation Administration of China
"Cathay Pacific" Cathay Pacific Airways Limited
"CNACD" China National Aviation Construction and Development Company, a wholly-owned
subsidiary of CNAHC and is primarily engaged in businesses such as entrusted
asset management, real estate development and construction project
implementation and supervision
"CNACD Group" CNACD and the corporation or other entities in which CNACD holds 30% or more
equity interests or voting rights at the general meeting or the majority
directors of which are controlled, directly or indirectly, by CNACD
"CNACG" China National Aviation Corporation (Group) Limited, a company incorporated
under the laws of Hong Kong and a wholly-owned subsidiary of CNAHC and a
substantial shareholder of the Company, which directly holds approximately
11.75% of the Company's issued share capital as at the date of this
announcement
"CNAHC" China National Aviation Holding Corporation Limited, a PRC state-owned
enterprise and the controlling Shareholder of the Company, directly and
through its wholly-owned subsidiary CNACG, holding approximately 51.32% of the
issued share capital of the Company in aggregate as at the date of this
announcement
" C N A H C F r a m e w o r k Agreements" the Government Charter Flight Services Framework Agreement, the New Properties
Leasing Framework Agreement, the Media Services Framework Agreement and the
New Comprehensive Services Framework Agreement
"CNAHC Group" CNAHC and the corporation or other entities in which CNAHC holds 30% or more
equity interests or voting rights at the general meeting or the majority
directors of which are controlled, directly or indirectly, by CNAHC (excluding
the Group, Air China Cargo and the corporations or other entities in which Air
China Cargo holds 30% or more equity interests or voting powers or the
majority of the directors of which are controlled, directly or indirectly, by
Air China Cargo)
"CNAHC Transactions" the continuing connected transactions contemplated under the Government
Charter Flight Services Framework Agreement, the New Properties Leasing
Framework Agreement, the Media Services Framework Agreement and the New
Comprehensive Services Framework Agreement for the three years ending 31
December 2027
"CNAMC" China National Aviation Media Co., Ltd., a wholly-owned subsidiary of CNAHC
"Company" or "Air China" Air China Limited, a company incorporated in the PRC, whose H Shares are
listed on the Hong Kong 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
"Comprehensive Services Framework Agreement" the framework agreement for the continuing related (connected) transactions of
comprehensive services entered into between the Company and CNAHC on 29
October 2021
"connected person(s)" has the meaning ascribed thereto under the Hong Kong Listing Rules
"Director(s)" the director(s) of the Company
"EGM" the extraordinary general meeting of the Company to be held to consider and
approve the continuing connected transactions set out in this announcement
"Government Charter Flight Service Framework Agreement" the framework agreement for the continuing related (connected) transactions of
government charter flight service entered into between the Company and CNAHC
on 29 October 2021
"Group" the Company and its subsidiaries
"HK$" Hong Kong dollar, the lawful currency of Hong Kong
"Hong Kong" Hong Kong Special Administrative Region of the PRC
"Hong Kong Listing Rules" The Rules Governing the Listing of Securities on The Stock Exchange of Hong
Kong Limited
"Hong Kong Stock Exchange" The Stock Exchange of Hong Kong Limited
"H Share(s)" ordinary share(s) in the share capital of the Company, with a nominal value of
RMB1.00 each, which are listed on the Hong Kong Stock Exchange as primary
listing venue and have been admitted into the Official List of the UK Listing
Authority as secondary listing venue
"H Shareholder(s)" holders of the H Shares
"Independent Board Committee" a board committee comprising Mr. He Yun, Mr. Xu Junxin and Ms. Winnie Tam
Wan-chi, all being the independent non- executive Directors, to advise the
Independent Shareholders on the Non-exempt Transactions
"Independent Financial Adviser" or "BaoQiao Partners" BaoQiao Partners Capital Limited, a corporation licensed to carry out Type 6
(advising on corporate finance) regulated activities under the SFO, being the
independent financial adviser to the Independent Board Committee and the
Independent Shareholders to advise on the Non-exempt Transactions, and also
being the independent financial adviser to give opinion on the leasing term of
properties under the New Properties Leasing Framework Agreement and the ACC
Framework Agreement
"Independent Shareholders" In respect of the CNAHC Transactions, the Shareholders of the Company other
than CNAHC and its associate(s); in respect of the ACC Transactions, the
Shareholders of the Company other than CNAHC, CNACG, Cathay Pacific and their
respective associates
"Media Services" including but not limited to the operation, design, creation, planning,
production, promotion and dissemination in relation to aviation-related
all-media business sectors such as in-flight entertainment system, in-flight
network platform, brand management, media publicity management, advertisement
management, all-media platform management, media cooperation management and
copyright management
"Media Services Framework Agreement" the framework agreement for the continuing related (connected) transactions of
media services entered into between the Company and CNAMC on 29 October 2021
"New Comprehensive Services Framework Agreement" the framework agreement for the continuing related (connected) transactions of
comprehensive services entered into between the Company and CNAHC on 30
October 2024
"New Properties Leasing Framework Agreement" the framework agreement for the continuing related (connected) transactions of
properties leasing entered into between the Company and CNAHC on 30 October
2024
"Non-exempt Transactions" the relevant transactions of the Passenger Aircraft Cargo Business under the
ACC Framework Agreement and the relevant annual caps for the three years
ending 31 December 2027
"Passenger Aircraft Cargo Business" all passenger aircraft cargo businesses and a series of relevant business
operation activities (including but not limited to sales, pricing and
settlement of aircraft cargo space) operated by the Group (including all
airlines controlled by the Group)
"Properties Leasing Framework Agreement" the framework agreement for the continuing related (connected) transactions of
properties leasing entered into between the Company and CNAHC on 29 October
2021
"RMB" Renminbi, the lawful currency of the PRC
"Shanghai Listing Rules" The Rules Governing the Listing of Stocks on the Shanghai Stock Exchange
"Shareholder(s)" holder(s) of the shares of the Company
"substantial shareholder(s)" has the meaning ascribed thereto under the Hong Kong Listing Rules
"Supervisor(s)" the supervisor(s) of the Company
"Zhejiang Zhongyu" Zhejiang Zhongyu Aviation Development Co., Ltd.
(浙江中宇航空發展有限公司)
"%" per cent
By Order of the Board
Air China Limited
Xiao Feng Huen Ho Yin
Joint Company Secretaries
Beijing, the PRC, 30 October 2024
As at the date of this announcement, the directors of the Company are Mr. Ma
Chongxian, Mr. Wang Mingyuan, Mr. Cui Xiaofeng, Mr. Patrick Healy, Mr. Xiao
Peng, Mr. He Yun*, Mr. Xu Junxin* and Ms. Winnie Tam Wan-chi*.
* Independent non-executive director of the Company
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