REG - Air China Ld - CONTINUING CONNECTED TRANSACTIONS
18/11/2024 08:30
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RNS Number : 6025M Air China Ld 18 November 2024
THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION
If you are in any doubtas to any aspect of this circular, you should consult a
stockbroker or other registered dealer in securities, bank manager, solicitor,
professional accountant or other professional adviser.
If you have sold or transferredall your shares of Air China Limited, you
should at once hand this circular and the form of proxy to the purchaser or
transferee or to the bank, stockbroker or other agent through whom the sale
was effected for transmission to the purchaser or the transferee.
Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong
Limited take no responsibility for the contents of this circular, 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 circular.
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
AND
NOTICE OF EXTRAORDINARY GENERAL MEETING
Independent Financial Adviser
to the Independent Board Committee and the Independent Shareholders
A letter from the Board is set out on pages 6 to 50 of this circular.
A letter from the Independent Board Committee, containing its advice to the
Independent Shareholders of the Company, is set out on pages 51 to 52 of this
circular.
A letter from the Independent Financial Adviser, containing its advice to the
Independent Board Committee and the Independent Shareholders of the Company,
is set out on pages 53 to 66 of this circular.
A notice convening the EGM to be held at 11:30 a.m. on Thursday, 5 December
2024 at The Conference Room, C713, No. 30, Tianzhu Road, Airport Industrial
Zone, Shunyi District, Beijing, the PRC, is set out on pages 72 to 74 of this
circular. Whether or not you are able to attend the EGM, you are requested to
complete and return the accompanying form of proxy in accordance with the
instructions printed thereon as soon as possible but in any event not less
than 24 hours before the time appointed for convening the EGM or any
adjournment thereof. Completion and return of the form of proxy will not
preclude you from attending and voting in person at the EGM or any adjournment
thereof should you so wish.
18 November 2024
CONTENTS
Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
. . . . . . . . . . . . . . . . . . . . . .
LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
. . . . . . . . . . . . . . .
I. Introduction . . . . . . . . . . . . . . . . . . . . . . . . 6
. . . . . . . . . . . . . . . . . . . . . . . . .
II. CNAHC Transactions . . . . . . . . . . . . . . . . . . . . . . 7
. . . . . . . . . . . . . . . . . . . .
III. ACC Transactions . . . . . . . . . . . . . . . . . . . . . . . . 33
. . . . . . . . . . . . . . . . . . . .
IV. The EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
. . . . . . . . . . . . . . . . . . . . . .
V. Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . 49
. . . . . . . . . . . . . . . . . . . .
VI. Additional Information . . . . . . . . . . . . . . . . . . . . . . 49
. . . . . . . . . . . . . . . . . . .
LETTER FROM THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . . . . . 51
. . .
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER . . . . . . . . . . . . . . . . 53
. . . .
APPENDIX I GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 67
. . . . . . . . . . .
NOTICE OF EXTRAORDINARY GENERAL MEETING . . . . . . . . . . . . . . . . . . . 72
. . . . . .
DEFINITIONS
In this circular, unless the context otherwise requires, the following
expressions have the following meanings:
"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 corporations 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 Latest Practicable Date
"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 Latest Practicable
Date
"CNAHC Framework 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 at 11:30 a.m. on
Thursday, 5 December 2024 at The Conference Room C713, No. 30, Tianzhu Road,
Airport Industrial Zone, Shunyi District, Beijing, the PRC
"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 activity 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
"Latest Practicable Date" 12 November 2024, being the latest practicable date prior to the printing of
this circular for ascertaining certain information contained herein
"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
"SFO" the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
"substantial shareholder(s)" has the meaning ascribed thereto under the Hong Kong Listing Rules
"Supervisor(s)" the supervisor(s) of the Company
"US$" United States dollars, the lawful currency of the United States
"Zhejiang Zhongyu" Zhejiang Zhongyu Aviation Development Co., Ltd.
(浙江中宇航空發展有限公司)
"%" per cent
LETTER FROM THE BOARD
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)
Directors:
Executive Directors:
Ma Chongxian (Chairman)
Wang Mingyuan
Non-executive Directors:
Cui Xiaofeng
Patrick Healy
Employee Representative Director:
Xiao Peng
Independent Non-executive Directors:
He Yun
Xu Junxin
Winnie Tam Wan-chi
Registered Address:
1st Floor-9th Floor 101,
Building 1
30 Tianzhu Road Shunyi District
Beijing, the PRC
Principal Place of Business in Hong Kong:
5th Floor, CNAC House
12 Tung Fai Road
Hong Kong International Airport
Hong Kong
18 November 2024
To the Shareholders
Dear Sir or Madam,
CONTINUING CONNECTED TRANSACTIONS AND
NOTICE OF EXTRAORDINARY GENERAL MEETING
I. INTRODUCTION
Reference is made to the announcement of the Company dated 30 October 2024 in
relation to, among other things, certain continuing connected transactions of
the Company.
The purpose of this circular is to provide you with further information on the
abovementioned matters and all the information reasonably necessary to enable
you to make an informed decision on voting in respect of the relevant
resolutions at the EGM.
II. 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 Connected Relationship between the Parties
The Company, whose principal business activity is 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 Latest Practicable Date. As
at the Latest Practicable Date, 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
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 31 December
Annual cap for the year Annual cap for the year Annual cap for the year 2022 2023 30 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 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 the 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
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 31 December
Annual cap for the year Annual cap for the year Annual cap for the year 2022 2023 30 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
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 31 December
2022 2023 30 June 2024 2024
Annual cap for the year Annual cap for the year Annual cap for the year 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
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 31 December
Annual cap for the year Annual cap for the year Annual cap for the year 31 December 31 December 30 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
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, being
the Directors of the Company also holding directorship in CNAHC, 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.
III. 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 Latest Practicable Date. As
at the Latest Practicable Date, 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 the 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 in 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 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 operation of the Passenger
Aircraft Cargo Business, by placing the Passenger Aircraft Cargo Business 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
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
Estimated amounts
Historical Annual Caps Actual Historical Amounts for the year Proposed Annual Caps
ending 31 December
2024
For the year For the year For the year For the year For the year For the six months ended For the year For the year For the year
ended 31 December ended 31 December ending December ended 31 December ended 31 December 30 June ending 31 December ending 31 December ending 31 December
2022 2023 2024 2022 2023 2024 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.
Mr. Ma Chongxian, Mr. Wang Mingyuan, Mr. Cui Xiaofeng, Mr. Patrick Healy and
Mr. Xiao Peng, being the Directors of the Company also holding directorship in
CNAHC and/or Cathay Pacific, 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
According to the Shanghai Listing Rules, the renewal of the ACC Framework
Agreement and the proposed annual caps thereunder shall be approved by the
Independent Shareholders.
IV. THE EGM
The Company will convene the EGM at 11:30 a.m. on Thursday, 5 December 2024 at
The Conference Room C713, No. 30, Tianzhu Road, Airport Industrial Zone,
Shunyi District, Beijing, the PRC, 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. Votes on the resolutions to be considered at the EGM shall
be taken by way of poll. A form of proxy is also enclosed herein, and
published on the websites of the Hong Kong Stock Exchange (www.hkexnews.hk)
and the Company (www.airchina.com.cn). The notice of EGM is reproduced in this
circular.
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 Latest Practicable Date, 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. As at the
Latest Practicable Date, CNAHC and CNACG, in aggregate, held 8,516,024,075
shares of the Company, representing approximately 51.32% of the issued share
capital of the Company, controlled or were entitled to control over the voting
right in respect of the shares held by them in the Company. To the best
knowledge, information and belief of the Directors, having made all reasonable
enquiries, save as disclosed above, no Shareholder has a material interest in
the resolutions in respect of the CNAHC Transactions or should be required to
abstain from voting on the relevant resolutions 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 Latest Practicable Date, 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. As at the Latest
Practicable Date, CNAHC and CNACG, in aggregate, held 8,516,024,075 shares of
the Company, representing approximately 51.32% of the issued share capital of
the
Company, controlled or were entitled to control over the voting right in
respect of the shares held by them in the Company. As at the Latest
Practicable Date, Cathay Pacific and its associates, in aggregate, held
2,633,725,455 shares of the Company, representing approximately 15.87% of the
issued share capital of the Company, and controlled or were entitled to
control over the voting right in respect of their shares in the Company. As at
the Latest Practicable Date, Cathay Pacific, through subsidiaries, held
approximately 24% of the issued share capital of Air China Cargo. To the best
knowledge, information and belief of the Directors, having made all reasonable
enquiries, save as disclosed above, no Shareholder has a material interest in
the resolution in respect of the ACC Transactions or should be required to
abstain from voting on the relevant resolution at the EGM.
The register of members of H Shares will be closed from Monday, 2 December
2024 to Thursday, 5 December 2024 (both days inclusive), during which no
transfer of H Shares will be effected in order to determine the list of
holders of H shares of the Company who will be entitled to attend and vote at
the EGM. H Shareholders of the Company whose names appear on the register of
members of H Shares of the Company after the close of business on Friday, 29
November 2024 are entitled to attend the EGM after completing the registration
procedures. In order to qualify for attendance at the EGM, all the transfer
documents must be lodged with the Company's H Share registrar, Computershare
Hong Kong Investor Services Limited, by 4:30 p.m. on Friday, 29 November 2024.
Whether or not you intend to attend the EGM, you are requested to complete and
return the form of proxy in accordance with the instruction printed thereon as
soon as possible but in any event not less than 24 hours before the time
appointed for convening the EGM or any adjournment thereof. Completion and
return of the form of proxy will not preclude you from attending and voting in
person at the EGM or at any adjourned meeting thereof should you so wish.
V. RECOMMENDATION
The Board (including the independent non-executive Directors) considers that
the CNAHC Transactions and 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. The Board considers that the annual caps for each
of the three years ending 31 December 2025, 2026 and 2027 for the CNAHC
Transactions and the ACC Transactions are fair and reasonable. The Board
recommends the Independent Shareholders to vote in favour of the resolutions
which will be proposed at the EGM.
VI. ADDITIONAL INFORMATION
Your attention is drawn to the letter from the Independent Board Committee of
this circular which contains its recommendation to the Independent
Shareholders as to the voting in relation to the Non-exempt Transactions.
You attention is also drawn to the letter from the Independent Financial
Adviser of this circular, which contains, among other things, its advice to
the Independent Board Committee and the Independent Shareholders in relation
to the Non-exempt Transactions as well as the principal factors and reasons
considered by it concluding its advice.
You attention is also drawn to the additional information set out in Appendix
I to this circular.
By order of the Board
Air China Limited
Ma Chongxian
Chairman
Beijing, the PRC
LETTER FROM THE INDEPENDENT BOARD COMMITTEE
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)
Independent Board Committee:
Mr. He Yun Mr. Xu Junxin
Ms. Winnie Tam Wan-chi
18 November 2024
To the Independent Shareholders of the Company
Dear Sir or Madam,
CONTINUING CONNECTED TRANSACTIONS AND
NOTICE OF EXTRAORDINARY GENERAL MEETING
We refer to the circular dated 18 November 2024 issued by the Company to its
Shareholders (the "Circular") of which this letter forms a part. Terms defined
in the Circular shall have the same meanings in this letter unless the context
otherwise requires.
On 30 October 2024, the Board approved the ACC Framework Agreement in respect
of the ACC Transactions and the proposed annual caps of the transactions
contemplated thereunder for the three years ending 31 December 2027 as set out
in the Circular. The Non-exempt Transactions are 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.
The terms and the reasons for the ACC Framework Agreement are summarised in
the Letter from the Board of the Circular.
We have been appointed to form the Independent Board Committee to make a
recommendation to the Independent Shareholders as to whether the Non-exempt
Transactions are fair and reasonable and whether such transactions are in the
interest of the Company and the Shareholders as a whole. BaoQiao Partners has
been appointed as the independent financial adviser to advise the Independent
Board Committee and the Independent Shareholders in this regard.
As your Independent Board Committee, we have discussed with the management of
the Company the reasons for the Non-exempt Transactions, their terms and the
basis upon which the terms have been determined. We have also considered the
key factors taken into account by the Independent Financial Adviser in
arriving at its opinion regarding the above mentioned transactions and their
proposed annual caps as set out in the Letter from the Independent Financial
Adviser of the Circular, which we urge you to read carefully.
The Independent Board Committee, after taking into account, among other
things, the advice of the Independent Financial Adviser, considers that the
Non-exempt Transactions are conducted on normal commercial terms or on terms
no less favourable than those available to independent third parties and are
entered into in the ordinary and usual course of business of the Group, are
fair and reasonable and in the interest of the Company and the Shareholders as
a whole, and that the proposed annual caps under those transactions are also
fair and reasonable. Accordingly, the Independent Board Committee recommends
the Independent Shareholders to vote in favor of the relevant ordinary
resolutions as set out in the notice of the EGM.
Yours faithfully,
Independent Board Committee
Mr. He Yun Mr. Xu Junxin Ms. Winnie Tam Wan-chi
Independent Independent Independent
non-executive Director non-executive Director non-executive Director
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER
The following is the full text of the letter of advice from BaoQiao Partners
Capital Limited to the Independent Board Committee and the Independent
Shareholders in respect of Passenger Aircraft Cargo Transactions, which has
been prepared for the purpose of inclusion in this circular.
Unit 2803-2805, 28/F, Tower 1, Admiralty Centre,
18 Harcourt Road, Admiralty, Hong Kong
18 November 2024
To the Independent Board Committee and the Independent Shareholders of
Air China Limited
Dear Sir or Madam,
CONTINUING CONNECTED TRANSACTIONS
INTRODUCTION
We refer to our engagement as the Independent Financial Adviser to advise the
Independent Board Committee and the Independent Shareholders in respect of the
continuing connected transactions relating to the Passenger Aircraft Cargo
Business (the "Passenger Aircraft Cargo Transactions") under the ACC Framework
Agreement, details of which are set out in the Letter from the Board ("Letter
from the Board") contained in the circular issued by the Company to the
Shareholders dated 18 November 2024. Terms used herein shall have the same
meanings as those defined in the Circular unless the context requires
otherwise.
Reference is made to the announcements of the Company dated 30 October 2019
and 20 September 2022 and the circular of the Company dated 28 September 2022
in relation to, among other things, the ACC Transactions. As disclosed in the
announcement (the "Announcement") of the Company dated 30 October 2024 in
relation to, among others, the Passenger Aircraft Cargo 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.
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 Framework Agreement 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.
OUR INDEPENDENCE
In the last two years, prior to the Latest Practicable Date, BaoQiao Partners
was appointed as the independent financial adviser by the Company (i) to
advise of the Board in respect of the opinion pursuant to Rule 14A.52 of the
Hong Kong Listing Rules, as set out in (a) the announcement and circular of
the Company dated 30 March 2023 and 3 May 2023 respectively; and (b) the
announcement of the Company dated 30 October 2024; (ii) to advise the
independent board committee and independent shareholders of the Company in
respect of the disclosable transaction and continuing connected transactions
of the Company and the proposed revision of annual cap and entering into
financial service agreements, as set out in the circular of the Company dated
3 May 2023; and (iii) to advise the independent board committee and the
independent shareholders of the Company in respect of the connected
transaction involving the proposed issuance of A Shares and H Shares to
specific investor, as set out in the circular of the Company dated 9 January
2024.
As at the Latest Practicable Date, we do not have any relationship with, or
have any interest in, the Company, Air China Cargo and their respective
associates that could reasonably be regarded as relevant to our independence.
Apart from the normal professional fees payable to us in connection with this
appointment as the Independent Financial Adviser, no other arrangement exists
whereby we had received or will receive any fees or benefits from the Company
or any other parties that could reasonably be regarded as relevant to our
independence. As such, we consider that we are independent pursuant to Rule
13.84 of the Hong Kong Listing Rules.
BASIS OF OUR OPINION
In formulating our opinion to the Independent Board Committee and the
Independent Shareholders, we have relied on the accuracy of the statements,
information, opinions and representations contained or referred to in the
Circular and the information and representations provided to us by the
Company, the Directors and the management of the Company (collectively, the
"Management"). We have reviewed, among others, the annual reports of the
Company for each of the years ended 31 December 2022 ("FY2022") (the "2022
Annual Report") and 31 December 2023 ("FY2023") (the "2023 Annual Report"),
the interim report of the Company for the six months ended 30 June 2024
("HY2024") ("2024 Interim Report"), the ACC Framework Agreement, certain
corporate and financial information of the Group and the ACC Group, and the
information set out in the Announcement and the Circular. We have assumed that
all information and representations that have been provided by the Management,
for which they are solely and wholly responsible, are true, accurate and
complete in all material respects and not misleading or deceptive at the time
when they were made and continue to be so as at the Latest Practicable Date.
We have also assumed that all statements of belief, opinion, expectation and
representations made by the Management in the Circular and/or discussed
with/provided to us were reasonably made after due enquiries and careful
consideration. We have no reason to suspect that any material facts or
information have been withheld or to
doubt the truth, accuracy and completeness of the information and facts
contained in the Circular, or the reasonableness of the opinions expressed by
the Company, its advisers, the Management, which have been provided to us.
All Directors collectively and individually accept full responsibility for the
purpose of giving information with regard to the Group in the Circular and,
having made all reasonable enquiries, confirm that to the best of their
knowledge and belief, the information contained in the Circular is accurate
and complete in all material respects and not misleading or deceptive, and
there are no other facts not contained in the Circular, the omission of which
would make any statement in the Circular misleading.
We consider that we have been provided with sufficient information to reach an
informed view and to provide a reasonable basis for our opinion. We have not,
however, conducted any independent in-depth investigation into the business
and affairs, financial condition and future prospects of the Company, its
subsidiaries or associates, nor have we considered the taxation implication on
the Group or the Shareholders as a result of the entering into the ACC
Framework Agreement. Our opinion is necessarily based on financial, economic,
market and other conditions in effect, and the facts, information,
representations and opinions made available to us, at the Latest Practicable
Date.
This letter is issued for the information for the Independent Board Committee
and the Independent Shareholders solely in connection with the Passenger
Aircraft Cargo Transactions under the ACC Framework Agreement, and this
letter, except for its inclusion in the Circular as required under the Hong
Kong Listing Rules, is not to be quoted or referred to, in whole or in part,
nor shall this letter be used for any other purposes, without our prior
written consent.
PRINCIPAL FACTORS AND REASONS CONSIDERED
In giving our recommendation to the Independent Board Committee and the
Independent Shareholders with regard to the Passenger Aircraft Cargo
Transactions, we have taken into consideration the following factors and
reasons:
1. Background Information of the Parties
Information on the Company and Group
The Company is incorporated in the People's Republic of China with limited
liability, the Shares of which have been listed on the Main Board of the Hong
Kong Stock Exchange since 15 December 2004. As disclosed in the 2023 Annual
Report, the Group is principally engaged in the provision of airline and
airline related services, including aircraft engineering services and airport
ground handling services.
According to the 2023 Annual Report, airline industry is recovering gradually
from COVID-19 pandemic, the Group reported a revenue of approximately
RMB141,100 million, representing a year- on-year increase of approximately
166.74%. For FY2023, the income from air passenger operation increased by
240.81% to RMB130,517 million, while the income from air cargo and mail
business,
decreased by 58.70% to RMB4,165 million. In line with the increase in revenue,
the loss attributable to equity shareholders of the Company decreased to
approximately RMB1,038 million for FY2023 as compared to loss of approximately
RMB38,617 million for the year ended 31 December 2022.
Based on the 2024 Interim Report, the Group's revenue was RMB79,520 million,
representing a year-on-year increase of RMB19,907 million or 33.39%. Among the
revenues, air passenger revenue was RMB73,137 million, representing a
year-on-year increase of RMB17,668 million or 31.85% and the income from air
cargo and mail business was RMB3,328 million, representing a year- on-year
increase of RMB1,919 million. In line with the increase in revenue, the loss
attributable to equity shareholders of the Company decreased to approximately
RMB2,779 million for HY2024 as compared to loss of approximately RMB3,447
million for the corresponding period last year.
During FY2022, FY2023 and HY2024, the Group introduced 36 aircraft, 23
aircraft and 16 aircraft, phased out 20 aircraft, 12 aircraft and 6 aircraft
respectively. As at 30 June 2024, the Group operated a fleet of 915 aircraft
in total, with an average age of 9.64 years, of which the Company operated a
fleet of 496 aircraft with an average age of 9.38 years.
Information on Air China Cargo
Based on the information from the website of Air China Cargo, Air China Cargo
was established in December 2003. Headquartered in Beijing, Air China Cargo
takes Shanghai as its main long haul air freighter operation base and is
primarily engaged in air cargo and mail transportation.
As at the Latest Practicable Date, Air China Cargo is a non-wholly owned
subsidiary of CNAHC, a 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 limited liability company established under the laws of
the PRC 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 Latest Practicable Date, 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. Overview of Aviation Industry
According to the press release published by the International Air Transport
Association ("IATA") on 31 January 2024, in respect of air passenger traffic,
in 2023 (measured in revenue passenger kilometers or RPKs) rose 36.9% compared
to 2022. Globally, full year 2023 traffic was at 94.1% of pre-pandemic (2019)
levels. In respect of air cargo traffic, global full-year demand in 2023,
measured in cargo tonne-kilometers (CTKs), reached a level slightly 1.9% below
2022 and 3.6% below 2019. Passenger demand continues to grow in 2024. Based on
the press release published by IATA on 3 June 2024, the revenue passenger
kilometers (RPKs) growth is expected to be 11.6% year-on-year. Air cargo
traffic also shows strong growing
demand in the first half of 2024, with volume exceeding the corresponding
periods in each of the preceding three years. In addition, according to the
press release published by IATA on 28 August 2024, it is expected that the air
cargo business continues to benefit from growth in global trade, booming
e-commerce and capacity constraints on maritime shipping.
China also witnessed growth in demand for air transport in 2023. According to
the 2023 Statistical Bulletin (the "CAAC Bulletin") on the Development of the
Civil Aviation Industry published by the Civil Aviation Administration of
China ("CAAC"), China's full year air passenger traffic rose 142.2% versus
2022, and was at 93.2% of pre-pandemic (2019) level, of which domestic traffic
recovered fast and rose 134.8% versus 2022 (at 100% of 2019 level), while
international traffic has shown a recovery trend and rose 1,184.6% versus
2022, it remained at 34% of 2019 level. In respect of air cargo, aviation
cargo is the backbone of global supply chain and has served an important role
as an alternative revenue source when passenger flights ground to a halt
during COVID-19 pandemic in China. Cargo transportation continued to grow and
the total demand (measured by tonne) for 2023 increased by 15.8%, and was at
98.4% of 2019 level. In addition, with reference to the monthly statistics for
September 2024 released by CAAC in October 2024, the total traffic volume for
the nine months ended 30 September 2024 has reached 110.7 billion tonne
kilometres, representing an increase of 27.4% as compared to the same period
last year and the cargo volume also increased by 24.4% as compared to the same
nine-months period ended 30 September 2024.
3. Background of and reasons for the Passenger Aircraft Cargo Transactions
As advised by the Management and as disclosed in the Letter from the Board, we
note that the Company has developed its cooperation relationship with Air
China Cargo for a long time. Air China Cargo is equipped with the level of
qualification and experience required and such continuing relationship between
the Company and Air China Cargo in relation to the Passenger Aircraft Cargo
Business would allow the Company (i) to better focus its resources on its core
passenger transport business, thereby enhancing resource efficiency and
improving the management and operational capabilities of its passenger
transport business; (ii) to enjoy a steady income from cargo business by
utilizing Air China Cargo's expertise in the cargo industry; and (iii) to
further strengthen the Group's brand image and competitiveness in the
passenger transport market and increasing returns for the Shareholders with
the view that the collaboration can maximize the economies of scale for both
the Group and the ACC Group.
In light of the long-established cooperation relationship between the Company
and Air China Cargo as well as Air China Cargo's proven track record, we
concur with the Director's view that such collaboration would allow the Group
as a whole to focus on devoting its resources to expanding its air passenger
transportation business and, thus increasing returns for the Shareholders.
4. Principal Terms of the Passenger Aircraft Cargo Transactions under the ACC Framework Agreement
Services In order to further address the issue of business competition and optimize
transaction structure, 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.
The term of the exclusive operation of the Passenger Aircraft Cargo Business
between the Group and the ACC Group is commencing from the effective date of
the ACC Framework Agreement and ending on 31 December 2034.
Pricing 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 x (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 ∑
(capacity available for the carriage of the cargo and mail of the route
multiplied by the distance of the route).
We have discussed with the Management that in determining the pricing
mechanism for the Passenger Aircraft Cargo Transactions, it has referenced the
pricing mechanism used in similar transactions entered into by industry
players, including that used by China Eastern Airlines Corporation Limited
("CEA") (Hong Kong stock code: 670), and considered the Group's own
circumstances as well as the prevailing market conditions.
In this respect, we have compared the formulae for transportation fee against
the pricing mechanism used in the similar transactions ("CEA Transactions") as
disclosed in the circular published by CEA dated
26 October 2022 (the "2022 CEA Circular") to ascertain whether the pricing
mechanism used by the Company is in line with those adopted by its industry
peers. With reference to 2022 CEA Circular, we note that whilst CEA has
adopted a similar concept, namely transportation service fee = actual income
from Passenger Aircraft Cargo Business x (1- business fee rates), for the
purpose of calculating the amount of transportation service fee payable by
China Cargo Airlines under conventional business circumstances under the CEA
Transaction. We note that such formulae are largely similar to that proposed
under the Passenger Aircraft Cargo Transactions and both formulae are of
similar calculation concept primarily with reference to historical revenue
derived from the airlines' Passenger Aircraft Cargo Business and historical
operating expenses.
We further note that in determining the transportation service fee payable, a
reward/penalty factor is also considered for both the Passenger Aircraft Cargo
Transactions and the CEA Transactions. The major difference being that under
the CEA Transactions, the reward/penalty factor is determined based on
comparisons made with revenue growth rate of passenger aircraft bellyhold
space cargo businesses of the PRC's three major state-owned airlines, namely
CEA itself, the Group and China Southern Airlines Company Limited ("CSA")
(stock code: 1055) whereas under the Passenger Aircraft Cargo Transactions,
performance is compared with the growth rate of yield level of the Passenger
Aircraft Cargo Business and the growth rate of yield level of the cargo
business industry published by CAAC. We have discussed and understand from the
Management that the reference to yield level in this case is considered to be
a more specific measurement of performance and efficiency as it measures
revenue generated from the Passenger Aircraft Cargo Business per cargo
capacity provided. Based on this understanding, we consider the use of the
broader industry as a comparison benchmark is reasonable due to its wider
industry coverage and hence it would be considered as representative of market
conditions. We would also consider measuring reward/ punishment in terms of
revenue generated per capacity of cargo business provided is reasonable
because it is an appropriate measurement of efficiency in cargo space
utilisation.
We understand from the Management that the purpose of Reward/punishment Rate
is used as a mean of motivation for and to encourage Air China Cargo to
continuously improve its Passenger Aircraft Cargo Business such that both the
Company as well as Air China Cargo would be able to mutually benefit. In
determining the Reward/punishment Rate, the Company considered the average
growth rate of comparable companies' passenger aircraft cargo business within
the same industry, which is an indication of fair pricing under continuing
connected transactions. Based on the disclosures in the Letter from the Board,
the rate of 50% is the same as the relevant ratios of similar transactions of
comparable companies in the industry. Furthermore, with reference to the 2022
CEA Circular, the rate of 50% in the formulae, was also adopted by CEA.
Therefore, we consider inclusion of this input in the pricing term is
reasonable and in line with the market.
We also note from the 2022 CEA Circular that CEA's Passenger Aircraft Cargo
Business has been categorised into two circumstances, namely conventional
business which is the provision of cargo services by utilisation of bellyhold
space of passenger aircraft, and the unconventional business which is the
provision of cargo services by passenger aircraft which has been temporarily
converted solely for the purpose of carrying cargoes (i.e. a cargo only
passenger aircraft). Under the unconventional business circumstances, CEA has
adopted a slightly different formulae, which involve, among other things, the
use of a reasonable profit margin of the three major airlines in the PRC to
arrive at the business fee rate, for
calculating the transportation service fee, whilst the Group proposes to use
the same a formulae for its Passenger Aircraft Cargo Business which
essentially covers both the conventional and unconventional scenarios as
referred by CEA.
Based on our discussion with the Management, since the unconventional business
of CEA represents a special economic slump environment, resulting in (i) a
decrease in passengers; and (ii) the Passenger-to- Cargo Conversion approach
that helps to utilise the empty spaces in passenger aircraft by converting
passenger aircraft into cargo aircraft, the abovementioned situation is a
temporary measure, which was determined by CEA due to limited supply of the
passenger aircraft bellyhold space cargo as a result of the COVID-19 pandemic,
where historical data for calculation of revenue growth rate for the purpose
of the "business fee rates" have yet been available, currently more relevant
historical revenue growth rate data have become available since the outbreak
of the COVID-19 pandemic almost four years ago, we consider the Management's
view to consider all passenger aircraft cargo related transactions as one
business unit (instead of dividing into "conventional" and "unconventional"
business) and is equivalent to that of the "conventional business" described
in the CEA Transactions is not without basis.
In light of the above, we consider that the pricing term of the Passenger
Aircraft Cargo Transactions is fair and reasonable.
5. Proposed Annual Caps
Set out below are the historical transaction figures for the Passenger
Aircraft Cargo Transactions under the ACC Framework Agreement for FY2022,
FY2023 and for HY2024 and the expected transaction amount of the Passenger
Aircraft Cargo Transactions for the year ending 31 December 2024 ("FY2024")
estimated by the Company and the Proposed Annual Caps for the three years
ending 31 December 2025 ("FY2025"), 31 December 2026 ("FY2026") and 31
December 2027 ("FY2027") for the Passenger Aircraft Cargo Transactions to be
contemplated under the ACC Framework Agreement:
Historical transaction figures and Historical Annual Caps
FY2022 FY2023 HY2024 FY2024
In terms of the transportation service fees of the Passenger Aircraft Cargo (in millions of RMB)
Business payable by ACC Group to the Group:
Historical transaction amounts 9,666 3,412 3,009 8,100 Note 2
Historical Annual Caps 15,500 17,000 N/A 18,000
Utilisation rate (Note) (1) 62.4% 20.1% N/A 45.0%
Notes:
1. The utilisation rate is calculated as the actual/expected
transaction amount of Passenger Aircraft Cargo Transactions divided by the
Historical Annual Cap for the respective year.
2. It represents the expected transaction amount for FY2024
estimated by the Company.
Proposed Annual Caps
FY2025 FY2026 FY2027
(in millions of RMB)
In terms of the transportation service fees of the Passenger Aircraft Cargo
Business payable by
the ACC Group to the
Group
11,000
12,000 13,000
With respect to the utilisation rate of the Historical Annual Caps of the
Passenger Aircraft Cargo Transactions, we note that the actual amount of the
transportation service fees of the Passenger Aircraft Cargo Business paid by
the ACC Group to the Group amounted to approximately RMB9,666 million,
RMB3,412 million and RMB3,009 million for FY2022, FY2023 and HY2024
respectively and the expected transaction amount for FY2024 estimated by the
Company would be RMB8,100 million, representing a utilisation rate of
approximately 62.4%, 20.1% and 45.0% (estimated) for FY2022, FY2023 and
FY2024, respectively. We have discussed and understand from the Management
that the relatively overall lower utilisation rate for the Historical Annual
Caps for FY2022, FY2023 and FY2024 was principally due to the decline in
international flights operated by the Company as a result of COVID-19
pandemic. Based on the disclosures in the 2022 Annual Report and the 2023
Annual Report, the number of international flights operated by the Group
declined to 15,787 for FY2022 and 46,956 for FY2023, as compared with pre-
COVID-19 pandemic levels of 94,783 in 2018 and 97,785 in 2019. Since 2024, as
disclosed in the Letter from the Board, the Group's international flights
operation begins to recover and, it operates at approximately 74% of its
pre-pandemic level in 2024 and we note from the 2024 Interim Report that the
number of international flights operated by the Group increased by 244.16% to
47,201 for HY2024 as compared to 13,715 for the corresponding period in 2023
("HY2023") and the expected utilisation rate for FY2024 will be increased to
45% as compared to 20.1% for FY2023.
We also note that despite an increase in international flights operated by the
Group in 2023 and as expected, for 2024, the actual amount/expected
transaction amount (as the case may be) of the transportation service fees of
the Passenger Aircraft Cargo Business paid/payable by ACC Group to the Group
for 2023 and 2024 were RMB3,412 million and RMB8,100 million respectively,
both lower than that of RMB9,666 million for FY2022, which is consistent with
our review of the Group's operating data as shown in the 2023 Annual Report
and 2024 Interim Report. We note that, although there was an upward trend of
capacity, as measured by the available freight tonne kilometres ("AFTK"), of
year-on-year increase of 15.88% in FY2023 and such trend continues for HY2024
with an 49.66% increase in AFTK as compared to that of HY2023, the lower yield
of cargo and mail (measured by yield per revenue freight tonne kilometres
("RFTK")) of RMB1.3811 per RFTK and RMB1.4878 per RFTK for FY2023 and HY2024
respectively and cargo and mail load factor of 31.26% and 36.54% for FY2023
and HY2024 respectively as compared to that of RMB2.9644 per RFTK and 40.86%
for FY2022 pull down the Group's air cargo and mail revenue and resulted in
lower transportation service fees of the Passenger Aircraft Cargo Business for
both FY2023 and HY2024 (and as expected for FY2024). We have also reviewed the
annual reports of CEA and CSA, both the peer companies in the PRC airline
industry, for FY2023, which the cargo and mail revenue of these two companies
decreased by 53.23% and 26.86% respectively in 2023, indicating similar
operating situations to the Group.
Basis for Determining the Proposed Annual Caps
As stated in the Letter from the Board, the Proposed Annual Caps for the three
years ending 31 December 2027 for the Passenger Aircraft Cargo Transactions
are determined with reference to the following primary factors:
(i) Estimated revenue of Passenger Aircraft Cargo Business -
The Group operated at 74% of its pre-pandemic capacity on international routes
in 2023 and it is expected by the Management that international flight
operations will return to pre-pandemic level by 2025. As such, based on the
estimated revenue in the amount of RMB8,100 million from the Passenger
Aircraft Cargo Business for 2024 and 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 2025. As for 2026
and 2027, with an estimated growth rate of 7%, the revenue for 2026 and 2027
are estimated to be RMB11,700 million and RMB12,600 million, respectively;
(ii) The operating fee rate ("Operating Fee Rate") is estimated
to be between 7% and 8%;
(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.
For our due diligence purpose, we have discussed with the Management and
reviewed the basis adopted by the Company in determining the Proposed Annual
Caps for the Passenger Aircraft Cargo Transactions under the ACC Framework
Agreement as follows.
Estimated revenue of Passenger Aircraft Cargo Business
Based on the information provided by the Management, the actual transaction
amount of the Passenger Aircraft Cargo Business was RMB3,009 million for
HY2024 and taking into account of the seasonal factors (i.e. income in the
second half of the year, in particular the 4th quarter tend to be higher than
the other three quarters of the year, is the peak season for traveling), the
Company estimated the revenue for FY2024 will be RMB8,100 million. In
addition, we note that the Company, mainly due to the recovery of
international routes and the increasing yield per RFTK (as demonstrated by the
operating data for HY2024 disclosed in the 2024 Interim Report), estimated a
growth of approximately 69.19% in revenue from RMB3,009 million for HY2024 to
RMB5,091 million for the second half of 2024 and a further increase of
approximately 35.80% year-on-year to RMB11,000 million for FY2025.
Growth in international flights operations
According to the 2024 Interim Report, it is the Groups' strategy to promote
the resumption of international flights and the opening of new routes,
steadily increased the fleet capacity to expand the scale of international
route operations and continuously improved the international fare product
system.
Based on our review of the 2023 Annual Report and 2024 Interim Report, we note
that the number of international flights operated by the Group increased by
approximately 190.05% year-on- year for FY2023 and approximately 244.16% for
HY2024 as compared to the same period last year and the Group's overall
revenue contributed by international markets was RMB13,299 million, RMB24,208
million and RMB19,076 million for FY2022, FY2023 and HY2024 with increasing
share of the Group's revenue from 17.16% for FY2023 to 23.99% for HY2024.
Based on the Letter from the Board, we understand that the Management expects
that the growth trend continues and the Group's international flights
operations will return to its pre-pandemic level in 2025.
Growth in the Group's fleet of aircraft
We have discussed and understand from the Company that the expected growth in
the Passenger Aircraft Cargo Business and in turn, the revenue, is positively
co-related to the growth in the Group's fleet of aircraft. We also note that
the Group have adopted an annual growth rate of 3.6% for FY2025 and roughly 7%
for each of FY2026 and FY2027 in the expected growth in its fleet of aircraft
and such growth rate was used for the purpose of estimating the proposed
annual caps for Passenger Aircraft Cargo Transactions.
Based on our review of the Company's annual reports for the past ten years
since 2014, we note that due to COVID-19 pandemic, the Company has been
postponing/slowing its pace to acquire aircraft and equipment to update and/or
replace its existing fleet and portfolio. Prior to FY2020, the Group has been
acquiring on average, 56 aircraft per year, and phasing out, on average 20
aircraft per year. We also note that the average age of the Group's fleet
prior to COVID-19 pandemic was approximately 6.48 years. However, for the
years from 2020 to 2023, the average growth in total fleet dropped to 29
aircraft per year and phasing out only, on average 10 aircraft per year. We
also note that the average age of the Group's fleet has also significantly
increased to 9.36 years in 2023, which is much higher than the average age of
around 6.48 years during the pre-COVID- 19 period.
In addition, based on our review of the annual reports of CEA and CSA for
FY2023, the Company is currently operating a fleet with relatively higher
average age amongst its peers, which the average fleet age of China Eastern
Airlines and China Southern Airlines are 8.7 years and 9.2 years respectively.
Nevertheless, we note that the Company has demonstrated its effort in
acquiring aircraft in 2024, including but not limited to, the major
transaction of aircraft acquisition conducted in April 2024. Furthermore,
based on the 2024 Interim Report, the Group had introduced 16 aircraft and
phased out 6 aircraft. In addition, the Group plans to introduce 48 aircraft,
40 aircraft and 76 aircraft for FY2024, FY2025 and FY2026 respectively, with
an average of 54 aircraft per year, representing an average growth of 86% as
compared to an average of 29 aircraft per year for the years from 2020 to
2023.
Furthermore, based on our discussion with the Management, we understand that
the Group has reference to the target growth rate of 6.5% of the guaranteed
number of taking-off and landing as set out in the "14th Five-Year Plan"
issued by the CAAC ("14th Five-Year Plan") for the estimated annual growth
rate of about 7% for each of FY2026 and FY2027.
As such, taking into account the Company's expected growth in the Group's
international flights operations, its business plan to align with the national
and industry development as set out in 14th Five-Year Plan, the growth
prospects of the aviation industry as supported by the statistics published by
IATA and CAAC as discussed in section headed "2. Overview of Aviation
Industry" in this letter and the Group's plans to catch up on modernizing of
its existing aircraft portfolio and the expansion of its fleet size in order
to enhance its competitiveness among its closest peers, we consider the growth
rate used for the purpose of estimating the annual caps for FY2025, FY2026 and
FY2027 is also not without basis.
Operating Fee Rate
We note that the Company has considered the actual Operating Fee Rate for the
past two years in determining the estimated Operating Fee Rate for the purpose
of estimating the Proposed Annual Caps. We have obtained from the Management
and reviewed the actual operating fee rates from years 2018 to 2023 taking
into account the impact of COVID-19 pandemic. We note that the actual
operating fee rates were between 7%-8% for 2018 and 2019 (the pre-pandemic
level) and in a range of 4% to 9.5% from 2020 to 2023, with an average of 6.3%
for years 2020-2023. As such, we note that the Operating Fee Rate adopted by
the Company is slightly higher than the average for the years between
2020-2023 but similar to that of 2018 and 2019. As the Management expects that
the Group's international flights will return to its pre-pandemic level in
2025 and in view of the expected growth in estimated revenue of Passenger
Aircraft Cargo Business in the coming years, we consider using the proposed
Operating Fee Rate as an input for the estimation of the Proposed Annual Caps
to be not unreasonable.
As such, we consider the inputs used by the Company, namely expected revenue
from the Passenger Aircraft Cargo Business and Operating Fee Rate for the
purpose of estimating the Proposed Annual Caps to be fair and reasonable.
Taking into account the above and the reasons discussed under paragraph headed
"2. Overview of Aviation Industry", we consider the basis of determining the
Proposed Annual Caps for the Passenger Aircraft Cargo Transactions under the
ACC Framework Agreement is fair and reasonable.
6. Internal Control
The Company has also adopted the measures as set out under the section headed
"Internal Control Procedures" of the Letter from the Board for monitoring the
ACC Transactions and 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.
Upon our enquiry, we note that the Directors confirmed that the Company shall
comply with the requirements of Rules 14A.53 to 14A.59 of the Hong Kong
Listing Rules pursuant to which (i) the values of the ACC Transactions must be
restricted by the applicable annual caps for the period concerned under the
ACC Framework Agreement; (ii) the terms of the ACC Transactions must be
reviewed by the independent non-executive Directors annually; and (iii)
details of independent non-executive Directors' annual review on the terms of
the ACC Transactions must be included in the Company's subsequent published
annual reports and financial accounts.
Furthermore, it is also required by the Hong Kong Listing Rules that the
auditors of the Company must provide a letter to the Board confirming, among
other things, whether anything has come to their attention that causes them to
believe that the ACC Transactions (i) have not been approved by the Board;
(ii) were not, in all material respects, in accordance with the relevant
agreement governing the transactions; and
(iii) have exceeded the applicable annual caps. We have obtained from the
Company and reviewed the letters issued by the Company's external auditors in
2022 and 2023 and note that the auditors have confirmed that the internal
control procedures implemented by the Company have been effective in all
material aspects.
Given the above stipulated requirements for continuing connected transactions
pursuant to the Hong Kong Listing Rules, we concur with the view of the
Directors that the Company has internal control in place to monitor the ACC
Transactions including Passenger Aircraft Cargo Transactions and thus the
interest of the Independent Shareholders would be safeguarded.
RECOMMENDATION
Having taken into consideration the factors and reasons as stated above, we
are of the opinion that the Passenger Aircraft Cargo Transactions under the
ACC Framework Agreement is conducted on normal commercial terms and in the
ordinary and usual course of business of the Group, and is fair and reasonable
so far as the Independent Shareholders are concerned, and is in the interests
of the Company and the Shareholders as a whole. Accordingly, we recommend the
Independent Shareholders, and the Independent Board Committee to recommend the
Independent Shareholders, to vote in favour of the relevant ordinary
resolution to be proposed at the EGM.
Yours faithfully,
For and on behalf of
BaoQiao Partners Capital Limited
Irene Poon
Executive Director
Ms. Irene Poon is a responsible officer registered under the SFO to carry out
Type 6 (advising on corporate finance) regulated activity for BaoQiao Partners
Capital Limited and has over 20 years of experience in the accounting and
corporate financial services industry.
APPENDIX I GENERAL INFORMATION
1. RESPONSIBILITY STATEMENT
This circular, for which the Directors collectively and individually accept
full responsibility, includes particulars given in compliance with the Hong
Kong Listing Rules for the purpose of giving information with regard to the
Group. The Directors, having made all reasonable enquiries, confirm that to
the best of their knowledge and belief, the information contained in this
circular is accurate and complete in all material respects and not misleading
or deceptive, and there are no other matters the omission of which would make
any statement herein or this circular misleading.
2. DISCLOSURE OF INTERESTS OF DIRECTORS AND SUPERVISORS
As at the Latest Practicable Date, none of the Directors, Supervisors or chief
executive of the Company had interests or short positions in the shares,
underlying shares and/or debentures (as the case may be) of the Company or its
associated corporations (within the meaning of Part XV of the SFO) which were
notifiable to the Company and the Hong Kong Stock Exchange pursuant to the
SFO, or were recorded in the register maintained by the Company pursuant to
section 352 of the SFO, or which were notifiable to the Company and the Hong
Kong Stock Exchange pursuant to the Model Code for Securities Transactions by
Directors of Listed Issuers.
As at the Latest Practicable Date, none of the Directors or Supervisors of the
Company had any direct or indirect interest in any assets which have been,
since 31 December 2023 (being the date to which the latest published audited
financial statements of the Group were made up), acquired or disposed of by or
leased to any member of the Group or are proposed to be acquired or disposed
of by or leased to any member of the Group.
As at the Latest Practicable Date, none of the Directors or Supervisors of the
Company was materially interested in any contract or arrangement which is
significant in relation to the business of the Group and subsisting as at the
Latest Practicable Date.
Mr. Patrick Healy, a non-executive Director, is concurrently the chairman and
an executive director of Cathay Pacific. Cathay Pacific is a substantial
shareholder of the Company, holding 2,633,725,455 H Shares of the Company
(representing approximately 15.87% of the total issued shares of the Company)
as at the Latest Practicable Date. Mr. Ma Chongxian and Mr. Wang Mingyuan,
both are executive Directors, are concurrently non-executive directors of
Cathay Pacific. Cathay Pacific competes or is likely to compete either
directly or indirectly with some aspects of the business of the Company as it
operates airline services to certain destinations, which are also served by
the Company.
Save as disclosed above, as at the Latest Practicable Date, none of the
Directors or Supervisors of the Company and their respective close associates
(as defined in the Hong Kong Listing Rules) had any competing interests which
would be required to be disclosed under Rule 8.10 of the Hong Kong Listing
Rules.
3. DISCLOSURE OF INTERESTS OF SUBSTANTIAL SHAREHOLDERS
As at the Latest Practicable Date, so far as the Directors were aware, the
following persons (not being a Director or Supervisor or chief executive of
the Company or their associate) had an interest or short position (if any) in
the Shares or the underlying Shares which would fall to be disclosed to the
Company under Divisions 2 and 3 of Part XV of the SFO, or which were recorded
in the register of the Company required to be kept under section 336 of the
SFO:
Approximate percentage of
the total Percentage of the total issued A Shares of the Company Percentage of the total issued H Shares of the Company
Type and number of shares held number of Shares in issue
Name Type of interests
CNAHC Beneficial owner 6,566,761,847 (L) 39.57% 56.42% -
A Shares
CNAHC((1)) Equity attributable 1,332,482,920 (L) 8.03% 11.45% -
A Shares
CNAHC((1)) Equity attributable 616,779,308 (L) 3.72% - 12.45%
H Shares
CNACG Beneficial owner 1,332,482,920 (L) 8.03% 11.45% -
A Shares
CNACG Beneficial owner 616,779,308 (L) 3.72% - 12.45%
H Shares
Cathay Pacific Beneficial owner 2,633,725,455 (L) 15.87% - 53.15%
H Shares
Swire Pacific Limited((2)) Equity attributable 2,633,725,455 (L) 15.87% - 53.15%
H Shares
John Swire & Sons (H.K.) Limited((2)) Equity attributable 2,633,725,455 (L) 15.87% - 53.15%
H Shares
John Swire & Sons Limited((2)) Equity attributable 2,633,725,455 (L) 15.87% - 53.15%
H Shares
Notes:
(1) By virtue of CNAHC's 100% interest in CNACG, CNAHC was
deemed to be interested in the 1,332,482,920 A Shares and 616,779,308 H Shares
directly held by CNACG.
(2) By virtue of John Swire & Sons Limited's 100% interest
in John Swire & Sons (H.K.) Limited and their approximately 61.73% equity
interest and 69.19% voting rights in Swire Pacific Limited, and Swire Pacific
Limited's approximately 44.99% interest in Cathay Pacific as at the Latest
Practicable Date, John Swire & Sons Limited, John Swire & Sons (H.K.)
Limited and Swire Pacific Limited were deemed to be interested in the
2,633,725,455 H Shares of the Company directly held by Cathay Pacific.
(3) The letter "L" denotes a long position in the Shares.
Save as disclosed above, as at the Latest Practicable Date, no other persons
(not being a Director or Supervisor or chief executive of the Company or their
associate) had any interest or short position (if any) in the Shares or the
underlying Shares which would fall to be disclosed to the Company under
Divisions 2 and 3 of Part XV of the SFO, or which were recorded in the
register of the Company required to be kept under section 336 of the SFO.
4. SERVICE CONTRACTS OF DIRECTORS AND SUPERVISORS
As at the Latest Practicable Date, none of the Directors or Supervisors had
any existing or proposed service contract with any member of the Group which
is not expiring or terminable by the Group within one year without payment of
compensation (other than statutory compensation).
5. DIRECTORS' AND SUPERVISORS' EMPLOYMENT WITH SUBSTANTIAL SHAREHOLDERS
The followings are the particulars of Directors' and Supervisors' employment
with substantial Shareholders (holding interests or short positions in the
shares and underlying shares of the Company required to be disclosed to the
Company pursuant to Divisions 2 and 3 of Part XV of the SFO) as at the Latest
Practicable Date:
Directors
Mr. Ma Chongxian, an executive Director, the chairman of the Board and the
secretary of the Party Committee of the Company, serves as a director, the
chairman, a member of the Party Leadership Group and the secretary of the
Party Leadership Group of CNAHC. He is also the deputy chairman of the board
of directors and a non-executive director of Cathay Pacific.
Mr. Wang Mingyuan, an executive Director, the vice chairman of the Board, the
president and the deputy secretary of the Party Committee of the Company,
serves as a director, the general manager, a member of the Party Leadership
Group and the deputy secretary of the Party Leadership Group of CNAHC. He is
also a non-executive director of Cathay Pacific.
Mr. Cui Xiaofeng, a non-executive Director of the Company, is a director, a
member of the Party Leadership Group and the deputy secretary of the Party
Leadership Group of CNAHC.
Mr. Patrick Healy, a non-executive Director of the Company, is the chairman of
the board of directors and an executive director of Cathay Pacific, a director
of Swire Pacific Limited, and a director of John Swire & Sons (H.K.)
Limited.
Mr. Xiao Peng, the employee representative Director of the Company, serves as
the chairman of the labour union and the employee representative director of
CNAHC.
Supervisor
Ms. Lyu Yanfang, a Supervisor of the Company, serves as the general manager of
the law department of CNAHC.
6. NO MATERIAL ADVERSE CHANGE
As at the Latest Practicable Date, there has been no material adverse change
in the Group's financial or trading position since 31 December 2023, being the
date to which the latest published audited financial statements of the Group
have been made up.
7. LITIGATION
As at the Latest Practical Date, the Company was not involved in any
significant litigation or arbitration and to the knowledge of the Company,
there were no litigation or claims of material importance pending or
threatened against any member of the Group.
8. EXPERT
The following is the qualification of the expert who has given its opinions or
advices, which are contained in this circular:
Name Qualification
BaoQiao Partners a corporation licensed to carry out Type 6 (advising on corporate finance)
regulated activity under the SFO
a. As at the Latest Practicable Date, BaoQiao Partners did not
have any direct or indirect interest in any assets which have been acquired or
disposed of by or leased to any member of the Group, or are proposed to be
acquired or disposed of by or leased to any member of the Group since 31
December 2023 (the date to which the latest published audited financial
statements of the Group were made up);
b. As at the Latest Practicable Date, BaoQiao Partners was not
beneficially interested in the share capital of any member of the Group and
had no right, whether legally enforceable or not, to subscribe for or to
nominate persons to subscribe for securities in any member of the Group; and
c. BaoQiao Partners has given and has not withdrawn its
written consent to the issue of this circular with inclusion of its opinion
and the references to its name, logo and qualification included herein in the
form and context in which they respectively appear.
9. MISCELLANEOUS
a. The joint company secretaries of the Company are Mr. Xiao
Feng and Mr. Huen Ho Yin. Mr. Huen Ho Yin is a practicing solicitor of the
High Court of Hong Kong.
b. The registered address of the Company is at 1st Floor - 9th
Floor 101, Building 1, 30 Tianzhu Road, Airport Industrial Zone, Shunyi
District, Beijing, the PRC. The head office of the Company is at No. 30
Tianzhu Road, Airport Industrial Zone, Shunyi District, Beijing, the PRC.
c. The H Share registrar and transfer office of the Company is
Computershare Hong Kong Investor Services Limited, the address of which is
Shops 1712-1716, 17/F, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong
Kong.
10. DOCUMENTS ON DISPLAY
Copies of the following documents will be published on the websites of the
Hong Kong Stock Exchange (www.hkexnews.hk) and the Company
(www.airchina.com.cn) for a period of 14 days from the date of this circular:
a. the ACC Framework Agreement; and
b. this circular.
NOTICE OF EXTRAORDINARY GENERAL MEETING
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)
NOTICE OF EXTRAORDINARY GENERAL MEETING
NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the "EGM") of
Air China Limited (the "Company") will be held at 11:30 a.m. on Thursday, 5
December 2024 at The Conference Room C713, No. 30, Tianzhu Road, Airport
Industrial Zone, Shunyi District, Beijing, the PRC to consider and, if thought
fit, to pass the following resolutions. Unless otherwise indicated,
capitalised terms used herein shall have the same meaning as those defined in
the circular of the Company dated 18 November 2024 (the "Circular").
ORDINARY RESOLUTIONS
1. To consider and approve the resolutions on the continuing
related (connected) transactions between the Company and CNAHC and its
subsidiary:
1.01 To consider and approve the resolution on the renewal of the
Government Charter Flight Service Framework Agreement between the Company and
CNAHC and the application for the annual transaction caps for 2025 to 2027.
1.02 To consider and approve the resolution on the entering into of
the New Properties Leasing Framework Agreement between the Company and CNAHC
and the application for the annual transaction caps for 2025 to 2027.
1.03 To consider and approve the resolution on the renewal of the
Media Services Framework Agreement between the Company and CNAMC and the
application for the annual transaction caps for 2025 to 2027.
1.04 To consider and approve the resolution on the entering into of
the New Comprehensive Services Framework Agreement between the Company and
CNAHC and the application for the annual transaction caps for 2025 to 2027.
2. To consider and approve the resolution on the renewal of
the ACC Framework Agreement between the Company and Air China Cargo and the
application for the annual transaction caps for 2025 to 2027.
By order of the Board
Air China Limited
Xiao Feng Huen Ho Yin
Joint Company Secretaries
Beijing, the PRC, 18 November 2024
As at the date of this notice, 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 Notes:
1. Closure of register of members and eligibility for
attending and voting at the EGM
Holders of H Shares of the Company are advised that the H Share register of
members of the Company will be closed from Monday, 2 December 2024 to
Thursday, 5 December 2024 (both days inclusive), during which time no transfer
of shares will be effected and registered. In order to qualify for attendance
and voting at the EGM, holders of H Shares shall lodge all instruments of
transfer with the Company's H Share registrar in Hong Kong, Computershare Hong
Kong Investor Services Limited, at Shops 1712-1716, 17/F, Hopewell Centre, 183
Queen's Road East, Wanchai, Hong Kong, by 4:30 p.m. on Friday, 29 November
2024.
H Shareholders whose names appear on the register of members of the Company at
the close of business on Friday, 29 November 2024 are entitled to attend and
vote at the EGM.
2. Proxy
Every Shareholder who has the right to attend and vote at the EGM is entitled
to appoint one or more proxies, whether or not they are members of the
Company, to attend and vote on his/her behalf at the EGM.
A proxy shall be appointed by an instrument in writing. Such instrument shall
be signed by the appointor or his attorney duly authorized in writing. If the
appointor is a legal person, then the instrument shall be signed under a legal
person's seal or signed by its director or an attorney duly authorized in
writing. The instrument appointing the proxy for holders of H Shares shall be
deposited at the Company's H Share registrar not less than 24 hours before the
time specified for the holding of the EGM (or any adjournment thereof). If the
instrument appointing the proxy is signed by a person authorized by the
appointer, the power of attorney or other document of authority under which
the instrument is signed shall be notarized. The notarized power of attorney
or other document of authority shall be deposited together and at the same
time with the instrument appointing the proxy at the Company's H Share
registrar.
3. Other businesses
(i) The EGM is expected to last for no more than a half of a
business day. Shareholders and their proxies attending the meeting shall be
responsible for their own traveling and accommodation expenses.
(ii) The address of Computershare Hong Kong Investor Services
Limited is: 17M Floor
Hopewell Centre
183 Queen's Road East
Wanchai
Hong Kong
Tel No.: (852) 2862 8628
Fax No.: (852) 2865 0990
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