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
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Page
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DEFINITIONS
. . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
|
1
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LETTER FROM THE
BOARD . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
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6
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I.
Introduction . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
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6
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II. CNAHC
Transactions . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
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7
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III. ACC
Transactions . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
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33
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IV.
The EGM . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
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48
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V.
Recommendation . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
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49
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VI. Additional
Information . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
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49
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LETTER FROM THE INDEPENDENT
BOARD COMMITTEE . . . . . . . . . .
. . . . . . . . . .
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51
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LETTER FROM THE INDEPENDENT
FINANCIAL ADVISER . . . . . . . . .
. . . . . . . . . . .
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53
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APPENDIX I GENERAL
INFORMATION . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
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67
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NOTICE OF EXTRAORDINARY
GENERAL MEETING . . . . . . . . . .
. . . . . . . . . . . . . . .
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72
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DEFINITIONS
In this circular, unless the context otherwise requires, the
following expressions have the following meanings:
|
"2021 Circular"
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the circular issued by the Company
on 12 November 2021 to the Shareholders in respect of, among other
things, certain continuing connected transactions
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"2021 EGM"
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the extraordinary general meeting
of the Company held on 30 December 2021
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"ACC Framework Agreement"
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the framework agreement dated 20
September 2022 entered into between the Company and Air China Cargo
in respect of the ACC Transactions
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"ACC Group"
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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
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"ACC Transactions"
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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
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"Air China Cargo"
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Air China Cargo Co., Ltd., a joint
stock company incorporated under the laws of the PRC with limited
liability
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"associate(s)"
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has the meaning ascribed to it by
the Hong Kong Listing Rules
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"Board"
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the board of Directors
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"CAAC"
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the Civil Aviation Administration
of China
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"Cathay Pacific"
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Cathay Pacific Airways
Limited
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"CNACD"
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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
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"CNACD Group"
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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
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|
"CNACG"
|
China National Aviation
Corporation (Group) Limited, a company incorporated under the laws
of Hong Kong and a wholly-owned subsidiary of CNAHC 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
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|
"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"
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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)
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"CNAHC Transactions"
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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
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"CNAMC"
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China National Aviation Media Co.,
Ltd., a wholly-owned subsidiary of CNAHC
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"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
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"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
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"connected person(s)"
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has the meaning ascribed thereto
under the Hong Kong Listing Rules
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"Director(s)"
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the director(s) of the
Company
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"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
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"Group"
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the Company and its subsidiaries
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"HK$"
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Hong Kong dollar, the lawful
currency of Hong Kong
|
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"Hong Kong"
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Hong Kong Special Administrative
Region of the PRC
|
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"Hong Kong Listing Rules"
|
The Rules Governing the Listing of
Securities on The Stock Exchange of Hong Kong Limited
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"Hong Kong Stock Exchange"
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The Stock Exchange of Hong Kong
Limited
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"H Share(s)"
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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
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"H Shareholder(s)"
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holders of the H Shares
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"Independent Board Committee"
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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
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"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
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"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
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"Latest Practicable Date"
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12 November 2024, being the latest
practicable date prior to the printing of this circular for
ascertaining certain information contained herein
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"Media Services"
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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
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"Media Services Framework
Agreement"
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the framework agreement for the
continuing related (connected) transactions of media services
entered into between the Company and CNAMC on 29 October
2021
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"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
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"New Properties Leasing Framework
Agreement"
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the framework agreement for the
continuing related (connected) transactions of properties leasing
entered into between the Company and CNAHC on 30 October
2024
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"Non-exempt Transactions"
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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
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"Passenger Aircraft Cargo
Business"
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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)
|
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"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
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"RMB"
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Renminbi, the lawful currency of
the PRC
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"Shanghai Listing Rules"
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The Rules Governing the Listing of
Stocks on the Shanghai Stock Exchange
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"Shareholder(s)"
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holder(s) of the shares of the
Company
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"SFO"
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the Securities and Futures
Ordinance (Chapter 571 of the Laws of Hong Kong)
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"substantial shareholder(s)"
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has the meaning ascribed thereto
under the Hong Kong Listing Rules
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"Supervisor(s)"
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the supervisor(s) of the
Company
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"US$"
|
United States dollars, the lawful
currency of the United States
|
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"Zhejiang Zhongyu"
|
Zhejiang Zhongyu Aviation
Development Co., Ltd.
(浙江中宇航空發展有限公司)
|
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"%"
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per cent
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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
|
|
|
Annual
cap
for the
year
ended
31 December
2022
|
Annual
cap
for the
year
ended
31 December
2023
|
Annual
cap
for the
year
ending
31 December
2024
|
Actual
annual amount for the year ended
31
December
2022
|
Actual
annual amount for the year ended
31
December
2023
|
Unaudited historical amount for the period
from
1 January
2024
to
30
June 2024
|
Estimated
annual amount for the year ending
31
December
2024
|
Annual
cap
for the
year
ending
31 December
2025
|
Annual
cap
for the
year
ending
31 December
2026
|
Annual
cap
for the
year
ending
31 December
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
|
|
|
Annual
cap
for the
year
ended
31 December
2022
|
Annual
cap
for the
year
ended
31 December
2023
|
Annual
cap
for the
year
ending
31 December
2024
|
Actual
annual amount for the year ended
31
December
2022
|
Actual
annual amount for the year ended
31
December
2023
|
Unaudited
historical amount for the period
from
1 January
2024
to
30
June 2024
|
Estimated
annual amount for the year ending
31
December
2024
|
Annual
cap
for the
year
ending
31 December
2025
|
Annual
cap
for the
year
ending
31 December
2026
|
Annual
cap
for the
year
ending
31 December
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
|
|
|
Annual
cap
for the
year
ended
31 December
2022
|
Annual
cap
for the
year
ended
31 December
2023
|
Annual
cap
for the
year
ending
31 December
2024
|
Actual
annual amount for the year ended
31
December
2022
|
Actual
annual amount for the year ended
31
December
2023
|
Unaudited
historical amount for the period
from
1 January
2024
to
30
June 2024
|
Estimated
annual amount for the year ending
31
December
2024
|
Annual
cap
for the
year
ending
31 December
2025
|
Annual
cap
for the
year
ending
31 December
2026
|
Annual
cap
for the
year
ending
31 December
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
|
|
|
Annual
cap
for the
year
ended
31 December
2022
|
Annual
cap
for the
year
ended
31 December
2023
|
Annual
cap
for the
year
ending
31 December
2024
|
Actual
annual amount for the year
ended
31
December
2022
|
Actual
annual amount for the year
ended
31
December
2023
|
Unaudited
historical amount for the period
from
1 January
2024
to
30
June 2024
|
Estimated
annual amount for the year ending
31
December
2024
|
Annual
cap
for the
year
ending
31 December
2025
|
Annual
cap
for the
year
ending
31 December
2026
|
Annual
cap
for the
year
ending
31 December
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
|
|
Historical Annual
Caps
|
Actual Historical
Amounts
|
Estimated
amounts
for
the year
ending
31 December
2024
|
Proposed Annual
Caps
|
|
|
For
the year
ended
31 December
2022
|
For
the year
ended
31 December
2023
|
For
the year
ending
December
2024
|
For
the year
ended
31 December
2022
|
For
the year
ended
31 December
2023
|
For
the
six
months
ended
30
June
2024
|
For
the year
ending
31 December
2025
|
For
the year
ending
31 December
2026
|
For
the year
ending
31 December
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
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Mr. Xu Junxin
|
Ms. Winnie Tam Wan-chi
|
|
Independent
non-executive Director
|
Independent
non-executive Director
|
Independent
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
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Services
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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.
|
|
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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.
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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 Business payable by
ACC Group to the Group:
|
(in millions of RMB)
|
|
|
|
|
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:
|
Name
|
Type of
interests
|
Type and number of shares
held
|
Approximate
percentage
of
the
total
number
of
Shares in
issue
|
Percentage
of
the total issued
A Shares of the Company
|
Percentage
of
the
total issued H Shares of the
Company
|
|
|
|
|
CNAHC
|
Beneficial owner
|
6,566,761,847 (L)
A Shares
|
39.57%
|
56.42%
|
-
|
|
|
|
|
CNAHC(1)
|
Equity attributable
|
1,332,482,920 (L)
A Shares
|
8.03%
|
11.45%
|
-
|
|
|
|
|
CNAHC(1)
|
Equity attributable
|
616,779,308 (L)
H Shares
|
3.72%
|
-
|
12.45%
|
|
|
|
|
CNACG
|
Beneficial owner
|
1,332,482,920 (L)
A Shares
|
8.03%
|
11.45%
|
-
|
|
|
|
|
CNACG
|
Beneficial owner
|
616,779,308 (L)
H Shares
|
3.72%
|
-
|
12.45%
|
|
|
|
|
Cathay Pacific
|
Beneficial owner
|
2,633,725,455 (L)
H Shares
|
15.87%
|
-
|
53.15%
|
|
|
|
|
Swire Pacific Limited(2)
|
Equity attributable
|
2,633,725,455 (L)
H Shares
|
15.87%
|
-
|
53.15%
|
|
|
|
|
John Swire &
Sons (H.K.)
Limited(2)
|
Equity attributable
|
2,633,725,455 (L)
H Shares
|
15.87%
|
-
|
53.15%
|
|
|
|
|
John Swire &
Sons Limited(2)
|
Equity attributable
|
2,633,725,455 (L)
H Shares
|
15.87%
|
-
|
53.15%
|
|
|
|
|
|
|
| |
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