31st Mar 2006 07:30
Air China Ld31 March 2006 THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ACTION If you are in any doubt as to any aspect of this circular, you should consult astockbroker or other registered dealer in securities, bank manager, solicitor,professional accountant or other professional adviser. If you have sold or transferred all your shares of Air China Limited, you shouldat once hand this circular to the purchaser or transferee or to the bank,stockbroker or other agent through whom the sale was effected for transmissionto the purchaser or the transferee. The Stock Exchange of Hong Kong Limited takes no responsibility for the contentsof this circular, makes no representation as to its accuracy or completeness andexpressly disclaims any liability whatsoever for any loss however arising fromor in reliance upon the whole or any part of the contents of this circular. AIR CHINA LIMITED (a joint stock limited company incorporated in the People's Republic of Chinawith limited liability) (Stock Code: 753) PURCHASE OF 10 BOEING 737 AIRCRAFT DISCLOSEABLE TRANSACTION 29 March 2006 CONTENTS Page Definitions . . . . . . . . . . . . . . . . . . . . . .............1 Letter from the Board 1. Introduction............... . . . . . . . . . . . . . . . . 4 2. The Boeing Aircraft Purchase Agreement . . . . . . .........5 3. Effect of the Transaction ...... . . . . . . . . . . . . . 7 4. Additional Information. ...... . . . . . . . . . . . . . 7 Appendix - General Information . . . . . . . . . . . . . . 8 i DEFINITIONS In this circular, the following expressions have the following meanings, unlessthe context requires otherwise: "AIE" Air China Group Import and Export Trading Co. a company incorporated under thelaws of the People's Republic of China and a wholly-owned subsidiary of theCompany as at the date of this circular "Air China Cargo" Air China Cargo Co., Ltd. a company with limited liability incorporated underthe laws of the People's Republic of China and with 51% of its registeredcapital owned by the Company as at the date of this circular "Air Macau" Air Macau Company Limited, a company with limited liability incorporated underthe laws of Macau and with 51.0% of its share capital owned by CNAC (Macau) asat the date of this circular "Ameco" Aircraft Maintenance and Engineering Corporation, Beijing , a company withlimited liability incorporated under the laws of the People's Republic of Chinaand with 60% of its registered capital owned by the Company as at the date ofthis circular "Board" the board of directors of the Company "Boeing Aircraft" 10 Boeing 737 aircraft to be purchased by the Company pursuant to the BoeingAircraft Purchase Agreement "Boeing Aircraft Purchase Agreement" the aircraft acquisition agreement dated 17 January 2006 pursuant to which theCompany has agreed to acquire and Boeing Company has agreed to sell the BoeingAircraft "Boeing Company" Boeing Company, a company incorporated under the laws of Delaware of the UnitedStates "Cathay Pacific" Cathay Pacific Airways Limited 1 DEFINITIONS "CNAC" China National Aviation Company Limited, a company with limited liabilityincorporated under the laws of Hong Kong and listed on The Stock Exchange ofHong Kong Limited with stock code 1110 and with approximately 68.36% of itsshare capital owned by the Company as at the date of this circular "CNAC (Macau)" China National Aviation Corporation (Macau) Company Limited, a company withlimited liability incorporated under laws of Macau and a wholly-owned subsidiaryof CNAC as at the date of this circular "CNACG" China National Aviation Corporation (Group) Limited, a company incorporatedunder the laws of Hong Kong and a wholly-owned subsidiary of CNAHC as at thedate of this circular "CNAHC" China National Aviation Holding Company, a company incorporated under the lawsof the People's Republic of China which currently directly owns approximately51.16% of the Company's share capital as at the date of this circular "the Company" Air China Limited, a company incorporated under the laws of the People'sRepublic of China with primary listing on The Stock Exchange of Hong KongLimited with stock code 753 and secondary listing on the Official List of the UKListing Authority "Director(s)" the director(s) of the Company "Group" the Company and its subsidiaries and joint ventures "Latest Practicable Date" 24 March 2006, being the latest practicable date prior to the printing of thiscircular for ascertaining certain information contained herein "Listing Rules" The Rules Governing the Listing of Securities on The Stock Exchange of Hong KongLimited "PRC" People's Republic of China excluding, for the purpose of this circular only,Hong Kong, Macau and Taiwan 2 DEFINITIONS "SFO" the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong), asamended, supplemented or otherwise modified from time to time "Stock Exchange" The Stock Exchange of Hong Kong Limited "Supervisor(s)" the supervisor(s) of the Company "Transaction" the acquisition by the Company of the Boeing Aircraft pursuant to the BoeingAircraft Purchase Agreement 3 LETTER FROM THE BOARD AIR CHINA LIMITED (a joint stock limited company incorporated in the People's Republic of Chinawith limited liability) (Stock Code: 753) Directors: Non-executive Directors: Li Jiaxiang (Chairman)Kong Dong (Vice Chairman) Wang Shixiang (Vice Chairman) Yao Weiting Executive Directors: Ma Xulun Cai Jianjiang Fan Cheng Independent Non-executive Directors: Hu Hung Lick, HenryWu Zhi PanZhang Ke Registered address: 9th Floor, Blue Sky Mansion 28 Tianzhu Road Zone A Tianzhu Airport Industrial Zone Shunyi District Beijing PRC Principal place of business in Hong Kong: 5th Floor, CNAC House 12 Tung Fai Road Hong Kong International Airport Hong Kong 29 March 2006 To the Shareholders Dear Sir or Madam, DISCLOSEABLE TRANSACTION 1. INTRODUCTION On 10 February 2006, the Company announced that on 17 January 2006 the Companyand AIE entered into the Boeing Aircraft Purchase Agreement with Boeing Company,pursuant to which the Company has agreed to purchase 10 Boeing 737-800 aircraftfrom Boeing Company. The Transaction constitutes a discloseable transaction of the Company under theListing Rules. The purpose of this circular is to set out further details of the Transaction. 4 LETTER FROM THE BOARD 2. THE BOEING AIRCRAFT PURCHASE AGREEMENT (1) Date of the Transaction 17 January 2006 (2) Parties to the Transaction (i) the Company, as the purchaser, the principal business activity of whichis air passenger, air cargo and airline-related services; (ii) AIE, as the import agent for the Company; and (iii) Boeing Company, as the vendor, one of whose principal business activity isaircraft manufacturing. The Company confirms that, to the best of the Directors' knowledge,information and belief having made all reasonable enquiry, Boeing Company andeach of the ultimate beneficial owner of Boeing Company are independent thirdparties and not connected persons (as defined in the Listing Rules) of theCompany. (3) Aircraft to be acquired Boeing Aircraft, i.e.10 Boeing 737 aircraft As at the Latest Practicable Date, the Company operated a fleet of 180 aircraft,including 172 passenger aircraft, 6 freighters and two corporate jets. (4) Consideration The aircraft basic price comprises the airframe price, optional features pricesand engine price. The aircraft basic price of the Boeing Aircraft in aggregateis US$655.2 million. The airframe price is subject to price escalation byapplying a formula. Boeing has granted to the Company significant priceconcessions with regard to the Boeing Aircraft. These will take the form ofcredit memoranda which may be used by the Company towards the purchase of theBoeing Aircraft or spare parts, goods and services or may be used towards thefinal delivery invoice payment of the Boeing Aircraft. Such credit memorandawere determined after arm's length negotiations between the parties and as aresult, the actual consideration for the Boeing Aircraft is lower than theaircraft basic price mentioned above. The Transaction was negotiated and enteredinto in accordance with customary business practice. Taking into account all thefactors relating to the purchase of aircraft by the Company, including themarket condition, the type, number and delivery schedule of aircraft beingpurchased, and the terms of the umbrella agreement entered into between BoeingCompany and the China Aviation Supplies Import and Export Group Corporation inNovember 2005 (the Umbrella Agreement), the extent 5 LETTER FROM THE BOARD of the price concessions granted to the Company in the Transaction is comparablewith the price concessions that the Company had obtained in the previousaircraft purchase transaction entered into between the Company and BoeingCompany on 8 August 2005 (the 2005 Aircraft Purchase). The Company believes that there is no materialdifference between the effect of the price concessions obtained in theTransaction and the 2005 Aircraft Purchase on the Company's operating costs taken as a whole. The Boeing Aircraft Purchase Agreement was signed pursuant to the UmbrellaAgreement. The 2005 Aircraft Purchase was signed pursuant to an umbrellaagreement entered into between Boeing Company and the airline companiesincluding the Company in January 2005. The purchase of the Boeing Aircraft wasnot in contemplation at the time of the 2005 Aircraft Purchase. Accordingly, theTransaction and the 2005 Aircraft Purchase are not part of the same series oftransactions and are not treated as if they were one transaction and thesetransactions are not required to be aggregated for the relevant classificationof the Transaction pursuant to Rule 14.22. As the relevant percentage ratiounder Rule 14.07 of the Listing Rules for the Transaction is more than 5% butless than 25%, the Transaction on its own constitutes a discloseable transaction, and istherefore not subject to approval by the Company's shareholders under theListing Rules. (5) Payment and delivery terms The aggregate consideration for the acquisition of Boeing Aircraft is payable bycash in eight instalments, with first seven instalments to be paid prior todelivery of each Boeing Aircraft and the remaining balance, being a substantialportion of the consideration, to be paid upon delivery of each Boeing Aircraft.The Company is expecting to take delivery of the Boeing Aircraft in stages fromend 2007 to end 2008. (6) Source of funding The Transaction will be funded through cash generated from the Company'sbusiness operations, commercial bank loans and other debt instruments of theCompany and subject to the completion of the proposed A share issue as set outin the announcement by the Company dated 9 February 2006, the proceeds from theA share issue. (7) Reasons for and benefits of the Transaction The Boeing Aircraft will expand the fleet capacity of the Company and willprincipally reinforce Beijing's position as a transportation hub and increasefrequency of flights, departing originally from Beijing, of a number of keydomestic flight courses. The Company expects the Boeing Aircraft will delivermore cost-efficient performance and provide more comfortable services topassengers. 6 LETTER FROM THE BOARD Although the Boeing Aircraft was purchased with other aircrafts under a packageacquisition plan, which is coordinated by the NDRC, the decision to purchase theBoeing Aircraft was made independently by the Company. The negotiations underthe acquisition plan were done as a package to increase bargaining power. The Directors believe that the terms of the Transaction are fair and reasonableand in the interests of the shareholders of the Company as a whole. 3. EFFECT OF THE TRANSACTION Based on the technical specifications of the Boeing Aircraft, the Companyexpects the Boeing Aircraft to operate with a higher utilization rate, moreefficient jet fuel consumption and relatively low maintenance cost. This willenable the Company to operate on a cost-efficient basis and would potentiallyhave a positive effect on the earnings of the Company. As mentioned above, the Transaction will be partly financed by commercial bankloans and other debt instruments of the Company. The Transaction will thereforeincrease the Group's fixed assets and liabilities. The Transaction may alsoresult in an increase in the Group's debt-to-equity ratio. The total cashoutflow of the Company in 2006 in respect of the Transaction is approximatelyRMB873 million. However, the Company does not expect the Transaction to have anymaterial negative impact on its cash-flow position or its business operations. Save as described above, the Transaction is not expected to have any materialimpact on earnings, assets and liabilities of the Group. 4. ADDITIONAL INFORMATION Your attention is drawn to the additional information set out in the appendix tothis circular. By Order of the Board Li Jiaxiang Chairman Beijing, the PRC 7 APPENDIXGENERAL INFORMATION 1. RESPONSIBILITY STATEMENT This circular includes particulars given in compliance with the Listing Rulesfor the purpose of giving information with regard to the Group. The Directorscollectively and individually accept full responsibility for the accuracy of theinformation contained in this circular and confirm, having made all reasonableenquiries, that to the best of their knowledge and belief there are no otherfacts the omission of which would make any statement herein misleading. 2. DISCLOSURE OF INTERESTS OF DIRECTORS AND SUPERVISORS As at the Latest Practicable Date, Mr. Zhang Xianlin, a Supervisor of theCompany, had interests in 33,126,000 shares, which represents approximately 1%of the share capital of CNAC. Save as disclosed above, as at the Latest Practicable Date, none of theDirectors, Supervisors or chief executive of the Company has interests or shortpositions in the shares, underlying shares and/or debentures (as the case maybe) of the Company or its associated corporations (within the meaning of Part XVof the SFO) which were notified to the Company and the Stock Exchange pursuantto SFO (including interests or short positions which he is taken or deemed tohave under such provisions of the SFO), or recorded in the register maintainedby the Company pursuant to Section 352 of the SFO, or which were notified to theCompany and the Stock Exchange pursuant to the Model Code for SecuritiesTransactions by Directors of the Listed Companies. None of the Directors or Supervisors of the Company and their respectiveassociates (as defined in the Listing Rules) has any competing interests whichwould be required to be disclosed under Rule 8.10 of the Listing Rules if eachof them were a controlling shareholder of the Company. 3. SUBSTANTIAL SHAREHOLDERS As at the Latest Practicable Date, to the knowledge of the Directors,Supervisors and chief executive of the Company, the interests and shortpositions of the following persons (other than a Director, Supervisor or chiefexecutive of the Company) who have an interest or short position in the sharesand underlying shares of the Company which would fall to be disclosed to theCompany pursuant to the SFO, or who are, directly or indirectly, interested in10% or 8 APPENDIXGENERAL INFORMATION more of the nominal value of any class of share capital carrying rights to votein all circumstances at general meetings of any members of the Group are asfollows: (a) Substantial interests in the Company Name Type of interests Type and number Percentage Percentage Percentage Percentage of of shares of the total of the total of the the total issued of the Company issued shares issued total H shares of Short concerned of the Company domestic issued the Company position shares of non H the Company foreign shares of the Company CNAHC Beneficial owner 4,826,195,989 51.16% 100% - - - domestic shares CNAHC(1) Attributable 1,380,482,920 14.64% - 100% - - interests non-H foreign shares China Beneficial owner 1,380,482,920 14.64% - 100% - -National non-H foreign sharesAviation Corporation (Group) Limited Cathay Pacific Beneficial owner 943,321,091 10.00% - - 29.24% - H shares Swire Attributable interests 943,321,091 10.00% - - 29.24% -Pacific H sharesLimited(2) John Swire Attributable interests 943,321,091 10.00% - - 29.24% -& Sons H sharesLimited(2) John Swire Attributable interests 943,321,091 10.00% - - 29.24% -& Sons H shares(H.K.) Limited (2) Wellington Investment manager 153,112,100 1.62% - - 4.75% -Management H sharesCompany, LLP(3) HSBC Investment manager 163,840,000 1.74% 5.08%Halbis H sharesPartners(Hong Kong) Limited Temasek Attributable interests 400,450,000 4.25% - - 12.41% -Holdings H shares(Private) Limited(4) Note: Based on the information available to the Directors, chief executive andSupervisors of the Company (including such information as was available on thewebsite of the Stock Exchange) and so far as the Directors, chief executive andSupervisors are aware, as at the Latest Practicable Date: 1. By virtue of CNAHC's 100% interest in China National AviationCorporation (Group) Limited, CNAHC is deemed to be interested in the1,380,482,920 non-H foreign shares of the Company directly held by ChinaNational Aviation Corporation (Group) Limited. 9 APPENDIXGENERAL INFORMATION 2. By virtue of John Swire & Sons Limited's 100% interest in John Swire& Sons (H.K.) Limited and their approximately 30% equity interest and 53% votingrights in Swire Pacific Limited, and Swire Pacific Limited's approximately46% interest in Cathay Pacific, John Swire & Sons Limited, John Swire & Sons(H.K.) Limited and Swire Pacific Limited are deemed to be interested in the943,321,091 H shares of the Company directly held by Cathay Pacific. 3. Pursuant to the last notification filed by Wellington ManagementCompany, LLP dated 20 December 2005, it had an interest of 5.45% of the total issued H shares of theCompany. Given subsequent issuance of H shares pursuant to the over-allotmentoption in January 2005, the Company believes the interests of WellingtonManagement Company, LLP in the total issued shares and in the total issued Hshares of the Company have been reduced to 1.62% and 4.75%, respectively, as at30 June 2005. 4. Temasek Holdings (Private) Limited, through its controlled entities, had anattributable interest in 400,450,000 H shares of the Company , out of which theinterest in 292,500,000 H shares (representing approximately 9.07% of the totalissued H shares) was held directly by Aranda Investment (Mauritius) Pte Ltd. andthe interest in the remaining 107,950,000 H shares was held directly by DahliaInvestments Ptd Ltd, FPL Alpha Investment Pte Ltd and Fullerton (Private)Limited. (b) Substantial interests in CNAC Capacity No. of shares Percentage of the issued share capital CNAHC(1) Attributable interest 2,264,628,000 68.36 The Company(2) Beneficial owner 2,264,628,000 68.36 Best Strikes Limited Beneficial owner 187,656,000 5.66 On Ling Investments Limited(3) Attributable interest 322,856,000 9.75 Novel Investments HoldingsLimited(3) Attributable interest 322,856,000 9.75 Novel Enterprises Limited(3) Attributable interest 322,856,000 9.75 Novel Enterprises (BVI) Limited(3) Attributable interest 322,856,000 9.75 Novel Credit Limited(3) Attributable interest 322,856,000 9.75 Novel Holdings (BVI) Limited(3) Attributable interest 322,856,000 9.75 Westleigh Limited(3) Attributable interest 322,856,000 9.75 Notes: 1. CNAHC owns approximately 51.16 per cent of the total issued sharecapital of the Company and the entire issued share capital of CNACG, a companyincorporated in Hong Kong, which in turn owns approximately 14.64 per cent ofthe total issued share capital of the Company. Accordingly its interests in CNACduplicate with those interest of the Company. 10 APPENDIXGENERAL INFORMATION 2. CNAGC, the Company's former immediate controlling shareholder, transferredits approximately 69 per cent shareholding interest in CNAC to the Company inSeptember 2004 by way of a capital contribution in return for the Company's non-H foreign shares, as such the Company becomes the immediate controllingshareholder of CNAC. Its interest in CNAC duplicates with those interests ofCNAHC. 3. 5.6% of the interest held by each of these companies in CNAC duplicateswith Best Strikes Limited's interest in CNAC. The interests of these companies in CNAC alsoduplicate each other. (c) Substantial interests in other members of the Group Member of the Group Name Approximate % of share capital Air Macau CNAC 51% Air Macau Sociedale de Turismo 14% e Diversaes de Macau Air Macau Servico, Administracao e 20% Participacoes, Lda. Ameco Deutsche Lufthansa AG 40% Air China Cargo Capital Airport Holding Company 24% Air China Cargo CITIC Pacific Limited 25% Save as disclosed above, as at the Latest Practicable Date, to the knowledge ofthe Directors, chief executive and Supervisors of the Company, no other person(other than a Director, Supervisor or chief executive of the Company) had aninterest or short position in the shares and underlying shares of the Companywhich would fall to be disclosed to the Company pursuant to the SFO, orotherwise was, directly or indirectly, interested in 10% or more of the nominalvalue of any class of share capital carrying rights to vote in all circumstancesat general meetings of any members of the Group. 4. LITIGATION As at the Latest Practical Date, the litigation or claims of material importancepending or threatened against a member of the Group are as disclosed in thefourth paragraph of the section headed "Capital Commitments and ContingentLiabilities" and note 17 to the unaudited condensed consolidated interimfinancial statements in the Company's 2005 interim report dated 5 September2005. Except as disclosed above, there was no litigation or claims of materialimportance pending or threatened against any member of the Group. 5. SERVICE CONTRACTS None of the Directors has any existing or proposed service contract with anymember of the Group which is not expiring or terminable by the Group within oneyear without payment of compensation (other than statutory compensation). 11 APPENDIXGENERAL INFORMATION 6. MISCELLANEOUS (a) The joint company secretaries of the Company are Zheng Baoan and Li ManKit. Mr. Li is an associate member of the Institute of Chartered Secretaries andAdministrators, UK and the Hong Kong Institute of Company Secretaries. (b) The qualified accountant of the Company is David Tze-kin Ng. Mr. Ng is amember of the Hong Kong Institute of Certified Public Accountants. (c) The registered address of the Company is at 9th Floor, Blue Sky Mansion,28 Tianzhu Road, Zone A, Tianzhu Airport Industrial Zone, Shunyi District, Beijing,PRC. The head office of the Company is at South Terminal, Beijing CapitalInternational Airport, Chaoyang District, Beijing, PRC. (d) The Hong Kong branch share registrar and transfer office of the Company isComputershare Hong Kong Investor Services Limited, Rooms 1712-1716, 17th Floor,Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong. 12 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Air ChinaBOE.L