Joint Announcement

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Framework Agreement dated 26th June 2008 and to be renewed on 1st October 2019

Parties:      (1)   Air China

                   (2)   Cathay Pacific

Background and Particulars

Reference is made to the joint announcements dated 26th June 2008, 10th September 2010, 26th September 2013 and 30th August 2016 issued by Air China and Cathay Pacific in connection with the Framework Agreement entered into between Air China and Cathay Pacific on 26th June 2008.  The Framework Agreement will be renewed on 1st October 2019 for a term of three years from 1st January 2020 to 31st December 2022.

As Air China is a substantial shareholder and therefore a connected person of Cathay Pacific, the Transactions constitute continuing connected transactions for Cathay Pacific under Rule 14A.31 of the Listing Rules and are subject to reporting, annual review and announcement requirements under Chapter 14A of the Listing Rules.

As Cathay Pacific is a substantial shareholder and therefore a connected person of Air China, the Transactions constitute continuing connected transactions for Air China under Rule 14A.31 of the Listing Rules and are subject to reporting, annual review and announcement requirements under Chapter 14A of the Listing Rules.

The Framework Agreement provides the framework under which Relevant Agreements between members of Air China Group on the one hand and members of Cathay Pacific Group on the other hand are entered into, renewed and extended.  The Transactions (under the Relevant Agreements) are transactions between members of Air China Group on the one hand and members of Cathay Pacific Group on the other hand arising from interline arrangements, code sharing arrangements, joint operating arrangements, aircraft leasing, frequent flyer programmes, the provision of airline catering, ground support and engineering services and other services agreed to be provided and other transactions agreed to be undertaken under the Framework Agreement.

The Framework Agreement was renewed on 1st October 2016 for the three years from 1st January 2017 to 31st December 2019.  Under its terms, it is renewed automatically for successive periods of three years unless either party to it gives to the other notice of termination of not less than three months expiring on any 31st December.

Pricing Terms and Policies

The pricing terms and policies for the Transactions in the left hand column below are those stated opposite such transactions in the right hand column below.

The annual caps

The annual caps for the Transactions have been determined by reference to the actual payments in respect of the Transactions in the three years ended 31st December 2018 and the forecast payments in respect of the Transactions to be made by Air China Group to Cathay Pacific Group, and by Cathay Pacific Group to Air China Group, having regard, among other things, to the projections of Air China Group and Cathay Pacific Group in respect of their fleet sizes, the delivery schedules of new aircraft which they have ordered, aircraft daily utilisation and other operating parameters.

The Air China Directors estimate that the amounts payable by Cathay Pacific Group to Air China Group, and payable by Air China Group to Cathay Pacific Group, in respect of the Transactions will not exceed the annual caps set out below.

The Cathay Pacific Directors estimate that the amounts payable by Air China Group to Cathay Pacific Group, and payable by Cathay Pacific Group to Air China Group, in respect of the Transactions will not exceed the annual caps set out below.

Reasons for, and benefits of, the Transactions

The cooperation between Air China Group and Cathay Pacific Group is expected to continue to further the development of Beijing Capital International Airport and Hong Kong International Airport as gateways to and hubs for Mainland China and will assist Air China Group and Cathay Pacific Group in their efforts to optimise the allocation of operating resources.

Connection between the parties

Air China, by virtue of its 29.99% shareholding in Cathay Pacific, is a substantial shareholder and therefore a connected person of Cathay Pacific under the Listing Rules.

Cathay Pacific, by virtue of its 18.13% shareholding in Air China, is a substantial shareholder and therefore a connected person of Air China under the Listing Rules.

Compliance with Listing Rules

As the highest of the relevant percentage ratios as defined under Rule 14.07 of the Listing Rules (other than the profits ratio) in respect of the annual caps applicable to the Transactions will, on an annual basis, be more than 0.1% but less than 5%, the Transactions constitute continuing connected transactions for each of Air China and Cathay Pacific and are subject to the announcement, annual review and annual reporting requirements but are exempt from the circular (including independent financial advice) and shareholders' approval requirements under Chapter 14A of the Listing Rules.

Each of Air China and Cathay Pacific will comply with the continuing obligations under Rules 14A.55-59 of the Listing Rules and will re-comply with the relevant Listing Rules if the annual caps are exceeded, when the Framework Agreement is renewed or when there is a material change to its terms.

Opinion of the directors

The Air China Directors, including the independent non-executive directors, consider that the terms of the Framework Agreement are fair and reasonable and that the Framework Agreement is on normal commercial terms or better and in the ordinary and usual course of business of the Air China Group and is in the interests of Air China and its shareholders as a whole.

The Cathay Pacific Directors, including the independent non-executive directors, consider that the terms of the Framework Agreement are fair and reasonable and that the Framework Agreement is on normal commercial terms or better and in the ordinary and usual course of business of the Cathay Pacific Group and is in the interests of Cathay Pacific and its shareholders as a whole.

Cai Jianjiang, Song Zhiyong and John Robert Slosar, being directors of Cathay Pacific, are materially interested in the Transactions and have abstained from voting on the relevant board resolutions of Air China in respect of the Transactions.

John Robert Slosar, Cai Jianjiang, Song Zhiyong, Xiao Feng and Zhao Xiaohang, being directors and/or chief executives of Air China, are materially interested in the Transactions and have abstained from voting on the relevant board resolutions of Cathay Pacific in respect of the Transactions.

Directors of Air China

As at the date of this announcement, the Air China Directors are:

Non-Executive Directors:  Cai Jianjiang (Chairman), Cao Jianxiong, Xue Yasong, John Robert Slosar;

Executive Director:  Song Zhiyong; and

Independent Non-Executive Directors:  Wang Xiaokang, Liu Deheng, Stanley Hui Hon-chung and Li Dajin.

Directors of Cathay Pacific

As at the date of this announcement, the Cathay Pacific Directors are:

Executive Directors:  John Robert Slosar (Chairman), Gregory Hughes, Ronald Lam, Martin Murray, Augustus Tang;

Non-Executive Directors:  Cai Jianjiang, Ivan Chu, Michelle Low, Song Zhiyong, Merlin Swire, Samuel Swire, Xiao Feng, Zhao Xiaohang;

Independent Non-Executive Directors:  Bernard Chan, John Harrison, Robert Milton and Andrew Tung.