HKA

The Stock Exchange of Hong Kong Limited and the Securities and Futures Commission take no responsibility for
the contents of this Application Proof,

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 Application Proof.
Application Proof of
Hong Kong Airlines International Holdings Limited
(Incorporated in the Cayman Islands with limited liability)
WARNING
This Application Proof is being published as required by The Stock Exchange of Hong Kong Limited (the Exchange) / the
Securities and Futures Commission (the Commission) solely for the purpose of providing information to the public in Hong Kong.
This Application Proof is in draft form. The information contained in it is incomplete and is subject to change which can be material.
By viewing this document, you acknowledge, accept and agree with Hong Kong Airlines International Holdings Limited (the
Company) and any and all of its directors, officers, agents, affiliates, sponsors, advisers and members of the underwriting syndicate
that:
(a)
this document is only for the purpose of providing information about the Company to the public in Hong Kong and not for
any other purpose. No investment decision should be based on the information contained in this document;
(b)
the publication of this document or supplemental, revised or replacement pages on the Exchanges website does not give rise
to any obligation of the Company, any of its directors, officers, agents, affiliates, sponsors, advisers or members of the
underwriting syndicate to proceed with an offering in Hong Kong or any other jurisdiction. There is no assurance that the
Company will proceed with any offering;
(c)
the contents of this document or any supplemental, revised or replacement pages may or may not be replicated in full or in
part in the actual final listing document;
(d)
the Application Proof is not the final listing document and may be updated or revised by the Company from time to time in
accordance with the Listing Rules and other applicable laws and rules;
(e)
this document does not constitute, and shall not be deemed to be, a prospectus, offering circular, notice, circular, brochure
or advertisement or document, or an extract from or an abridged version of a prospectus or document, offering to sell any
securities to the public in any jurisdiction, nor is it an invitation or solicitation to the public to make offers to acquire,
subscribe for or purchase any securities, nor is it calculated to invite or solicit offers by the public to acquire, subscribe for
or purchase any securities, and this document does not constitute or contain an invitation to the public to enter into or offer
to enter into an agreement to acquire, dispose of, subscribe for or underwrite securities;
(f)
this document must not be regarded as an inducement to acquire, subscribe for or purchase any securities, and no such
inducement is intended;
(g)
neither the Company nor any of its directors, officers, agents, affiliates, sponsors, advisers or members of the underwriting
syndicate is offering, or is soliciting offers to acquire, subscribe for or purchase, any securities in any jurisdiction through
the publication of this document;
(h)
no application for the securities mentioned in this document should be made by any person nor would such application be
accepted;
(i)
the Company has not registered and will not register the securities referred to in this document under the United States
Securities Act of 1933 (the Securities Act), as amended, or any state securities laws of the United States;
(j)
as there may be legal restrictions on the distribution of this document or dissemination of any information contained in this
document, you agree to inform yourself about and observe any such restrictions applicable to you; and
(k)
the application to which this document relates has not been approved for listing and the Exchange and the Commission may
accept, return or reject the application for the subject public offering and / or listing.
THIS APPLICATION PROOF IS NOT FOR PUBLICATION OR DISTRIBUTION TO PERSONS IN THE UNITED STATES.
ANY SECURITIES REFERRED TO HEREIN HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE
SECURITIES ACT, AND MAY NOT BE OFFERED OR SOLD WITHOUT REGISTRATION THEREUNDER OR
PURSUANT TO AN AVAILABLE EXEMPTION THEREFROM. NO PUBLIC OFFERING OF THE SECURITIES WILL BE
MADE IN THE UNITED STATES.
NEITHER THIS APPLICATION PROOF NOR THE INFORMATION CONTAINED HEREIN CONSTITUTES AN OFFER
TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES IN THE UNITED STATES OR IN ANY
OTHER JURISDICTION WHERE SUCH AN OFFER OR SALE IS NOT PERMITTED. THIS APPLICATION PROOF IS
NOT BEING MADE AND MAY NOT BE DISTRIBUTED OR SENT TO ANY JURISDICTION WHERE SUCH
DISTRIBUTION OR DELIVERY IS NOT PERMITTED.
If an offer or an invitation is made to the public in Hong Kong in due course, prospective investors are reminded to make their
investment decisions solely based on a prospectus of the Company registered with the Registrar of Companies in Hong Kong, copies
of which will be distributed to the public during the offer period. No offer or invitation will be made to the public in Hong Kong
unless and until a prospectus of the Company is registered with the Registrar of Companies in Hong Kong in accordance with the
Companies (Winding Up and Miscellaneous Provisions) Ordinance (Chapter 32 of the Laws of Hong Kong).
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE
READ IN CONJUNCTION WITH THE SECTION HEADED WARNING ON THE COVER OF THIS DOCUMENT.
IMPORTANT
IMPORTANT: If you are in any doubt about any of the contents of this [REDACTED], you should seek independent professional advice.
(Incorporated in the Cayman Islands with limited liability)
[REDACTED]
Number of [REDACTED] under the [REDACTED]
Nominal value
:
:
[] Shares (subject to the Over-allotment Option)

HK$[0.10] per Share
Number
of
[REDACTED]
[] HKD [REDACTED] and []

[REDACTED]
(subject
to
adjustment and reallocation)
Number
[REDACTED]
Maximum HKD
[REDACTED]
HK$[] per [REDACTED] under

the HKD [REDACTED], plus
brokerage
of
1%,
SFC
transaction levy of 0.003% and
Stock Exchange trading fee of
0.005% (payable in full on
application in Hong Kong dollars
and subject to refund)
Stock code for

[REDACTED]
[REDACTED]
of
[] Shares (subject to adjustment,

reallocation and the Overallotment Option, consisting of
HKD
[REDACTED]
and/or
[REDACTED])
Maximum
[REDACTED]
[REDACTED]
[]
per
[REDACTED]
under
the
[REDACTED], plus brokerage of
1%, SFC transaction levy of
0.003% and Stock Exchange
trading fee of 0.005% (payable in
full on application in Renminbi
and subject to refund)
Stock code for

[REDACTED]
[REDACTED]
Sole Sponsor
Sole Global Coordinator

[REDACTED]
[Joint Bookrunners and Joint Lead Managers]
[REDACTED]
Financial Adviser
Hong Kong Exchanges and Clearing Limited, The Stock Exchange of Hong Kong Limited and Hong Kong Securities Clearing Company Limited take no responsibility for the contents of this [REDACTED], 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
[REDACTED].
A copy of this [REDACTED], having attached thereto the documents specified in Appendix [V] Documents Delivered to the [REDACTED] and Available for Inspection, has been registered by the Registrar
of Companies in Hong Kong as required by Section 342C of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Chapter 32 of the Laws of Hong Kong). The Securities and Futures Commission
and the Registrar of Companies in Hong Kong take no responsibility as to the contents of this [REDACTED] or any of the other documents referred to above.
The HKD [REDACTED] and the [REDACTED] are expected to be fixed by agreement between the Sole Global Coordinator (for itself and on behalf of the other Underwriters) and us on the [REDACTED]
which is expected to be on or around [REDACTED] and, in any event, not later than [REDACTED]. The HKD [REDACTED] will not be more than [REDACTED] and is currently expected to be not less
than [REDACTED] per [REDACTED] under the HKD [REDACTED] unless otherwise announced. The [REDACTED] will not be more than [REDACTED] and is currently expected to be not less than
[REDACTED] per [REDACTED] under the [REDACTED] unless otherwise announced. If, for any reason, the HKD [REDACTED] and/or the [REDACTED] are not agreed on [REDACTED] between the
Sole Global Coordinator (for itself and on behalf of the other Underwriters) and us, the [REDACTED] will not proceed and will lapse.
Prior to making an investment decision, prospective investors should consider carefully all of the information contained in this [REDACTED], including the risk factors set forth in the section headed Risk
Factors.
The Sole Global Coordinator (for itself and on behalf of the other Underwriters) may reduce the indicative HKD [REDACTED] and/or the [REDACTED] and/or the number of Hong Kong [REDACTED]
below that stated in this [REDACTED] at any time prior to the morning of the last day for lodging applications under the [REDACTED]. In the case of such reduction, notices of the reduction in the indicative
HKD [REDACTED] and/or the [REDACTED] and/or the number of [REDACTED] will be published in the [South China Morning Post] (in English) and the [Hong Kong Economic Times] (in Chinese)
as soon as practicable following the decision to make such reduction, and in any event not later than the morning of the day which is the last day for lodging applications under the [REDACTED]. Further
details are set out in the sections headed Structure of the [REDACTED] starting on page [] and How to Apply for [REDACTED] starting on page [] in this [REDACTED].
The obligations of the Hong Kong Underwriters under the Hong Kong Underwriting Agreement are subject to termination by the Sole Global Coordinator (for itself and on behalf of the other Underwriters) if
certain grounds arise prior to [] a.m. Hong Kong time on [the [REDACTED]]. Such grounds are set out in the section entitled Underwriting Underwriting Arrangements, Commissions and Expenses Hong
Kong Underwriting Agreement Grounds for Termination on page [] of this [REDACTED].
The [REDACTED] have not been and will not be registered under the U.S. Securities Act or any state securities law in the United States and may not be offered, sold or transferred within the United States
except that the [REDACTED] may be offered, sold or delivered outside the United States in offshore transactions in accordance with Rule 903 or 904 of Regulation S.
[REDACTED]
EXPECTED TIMETABLE (1)
[REDACTED]
[REDACTED]
ii
[REDACTED]
iii
CONTENTS
IMPORTANT NOTICE TO INVESTORS

This [REDACTED] is issued by the Company solely in connection with the [REDACTED]
and the [REDACTED] and does not constitute an offer to sell or a solicitation of an offer to buy
any security other than the [REDACTED] offered by this [REDACTED] pursuant to the
[REDACTED]. This [REDACTED] may not be used for the purpose of, and does not constitute,
an offer or invitation in any other jurisdiction or in any other circumstances. No action has been
taken to permit a [REDACTED] of the [REDACTED] in any jurisdiction other than Hong Kong
and no action has been taken to permit the distribution of this [REDACTED] in any jurisdiction
other than Hong Kong. The distribution of this [REDACTED] and the [REDACTED] and sale
of the [REDACTED] in other jurisdictions are subject to restrictions and may not be made except
as permitted under the applicable securities laws of such jurisdictions pursuant to registration
with or authorization by the relevant securities regulatory authorities or an exemption therefrom.
You should rely only on the information contained in this [REDACTED] and the
[REDACTED] to make your investment decision. We have not authorized any person to provide
you with information that is different from what is contained in this [REDACTED]. Any
information not given or representation not made in this [REDACTED] must not be relied on by
you as having been authorized by us, the Sole Global Coordinator, the Sole Sponsor, the Joint
Bookrunners and the Joint Lead Managers, any of the Underwriters, any of their respective
shareholders, directors, officers or representatives, or any other person or party involved in the
[REDACTED]. Information contained in our website, located at www.hongkongairlines.com does
not form part of this [REDACTED].
Page
Expected Timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
iv
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13
Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29
Forward-looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32
Waivers from Strict Compliance with the Listing Rules . . . . . . . . . . . . . . . . . . . . . . . . . . .
58
Information about this [REDACTED] and the [REDACTED] . . . . . . . . . . . . . . . . . . . . . .
60
Directors and Parties Involved in the [REDACTED] . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
63
iv
CONTENTS
Corporate Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
68
Industry Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
71
Regulatory Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
87
History and Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
95
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
107
Relationship with Controlling Shareholders and Other Existing Shareholders . . . . . . . . . .
152
Continuing Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
166
Directors, Senior Management and Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
189
Substantial Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
204
Share Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
207
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
210
Future Plans and Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
283
Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
285
Structure of the [REDACTED] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
295
[REDACTED] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
312
How to Apply for [REDACTED] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
320
Appendix I
Accountants Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
I-1
Appendix II
Unaudited Pro Forma Financial Information . . . . . . . . . . . . . . . . . . .
II-1
Appendix III
Summary of the Constitution of Our Company and

Cayman Companies Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
III-1
Appendix IV
Statutory and General Information . . . . . . . . . . . . . . . . . . . . . . . . . .
IV-1
Appendix V
Documents Delivered to the Registrar of Companies and

Available for Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
V-1
SUMMARY
This summary aims to give you an overview of the information contained in this
[REDACTED]. As this is a summary, it does not contain all the information that may be important
to you and is qualified in its entirety by, and should be read in conjunction with, the full text of this
[REDACTED]. You should read the whole document including the appendices hereto, which
constitute an integral part of this [REDACTED], before you decide to invest in our [REDACTED].
There are risks associated with any investment. Some of the particular risks in investing in our
[REDACTED] are set forth in the section headed Risk Factors starting from page 32 of this
[REDACTED]. You should read that section carefully before you decide to invest in our
[REDACTED].
OVERVIEW
We are a Hong Kong based full-service network carrier, primarily focused on the PRC market, one
of the largest and fastest growing air travel markets in the world. In 2013, we were the second largest
airline group in Hong Kong in terms of passenger market share, according to the ICF Report. From 2007
to 2013, we were the fastest growing airline based on increase in market share as measured by average
weekly departures in Hong Kong, according to the ICF Report. Our passengers carried more than doubled
from 1.8 million in 2011 to 4.1 million in 2013, doubling our market share in Hong Kong in terms of
passengers carried from 3.4% in 2011 to 6.8% in 2013.
We adopt a hub-and-spoke model using HKIA as our hub. As of the Latest Practicable Date, our
scheduled passenger service covered 26 destinations in the Asia-Pacific region. In particular, our
scheduled passenger route network in the PRC covers 18 destinations, enabling us to carry Hong Kong and
overseas passengers to the PRC and carry passengers in the PRC to Hong Kong and onward to various
destinations in Japan, Southeast Asia and Taiwan. For details, please see the section headed Business
Our Services. In addition, we currently hold a license issued by ATLA in relation to 193 destinations
worldwide which allows us the opportunity to arrange for scheduled flights to and from such destinations
for passenger and cargo transportation services.
We have leading market share by capacity across many of the markets we currently serve. As of
August 2014, we were the largest and second largest airline by capacity share on seven and five out of the
15 second-tier cities we served in the PRC, respectively, which were among the fastest growing routes
between Hong Kong and the PRC in 2013, according to the ICF Report. We believe our ability to win
market share from our competitors on these fast-growing routes has been a key driver of our rapid growth.
We strive to provide high quality in-flight and ground services to our passengers. Since 2011, we
have been awarded a four-star airline rating by Skytrax annually, which we believe attests to the strength
of our product and service relative to our competitors. In 2014, we were awarded the Worlds Most
Improved Airline by Skytrax. We place strong emphasis on safety and have recently adopted improved
protocols which are designed to achieve higher safety standards. Our commitment to safety and security
is reflected in our system of repair and maintenance of our aircraft and engines and the extensive training
we provide to flight crew and other employees.
We operate a young and all-Airbus fleet with an average age of approximately 2.4 years as of May
31, 2014, which we believe is one of the youngest fleets among major international airlines in the world.
A young and homogenous fleet generally results in greater fuel efficiency and lower maintenance and
operating costs compared to an older and varied fleet. We believe a younger fleet also contributes towards
a superior onboard product and greater passenger comfort, strengthening our value proposition to
1
SUMMARY
customers. As of May 31, 2014, our fleet consisted of 40 aircraft of which we operated 23 aircraft and
sub-leased 17 aircraft. We intend to expand our operating fleet and sub-leased fleet in future in line with
our development strategy by adding 31 aircraft to our operating fleet by December 31, 2018. For details,
please see the section headed Business Our Fleet.
During the Track Record Period, our main sources of revenue include (i) passenger revenue, (ii)
cargo revenue and (iii) rental income from operating lease. Our major customers include travel agents,
cargo agents and other airlines that lease our aircraft. During the Track Record Period, our largest
passenger services customer and cargo services customer were HNA Tourism and HNA Aviation,
respectively, both of which are our related parties. Our main suppliers include aircraft fuel suppliers, as
well as providers of aircraft leasing services, aircraft spare parts, ground services and in-flight catering
services. For details on our suppliers, please see the section headed Business Suppliers. During the
Track Record Period, the largest component of our total operating expenses was aircraft fuel costs. Besides
fuel costs, our operating expenses also include landing, parking and route expenses, aircraft and other
depreciation, aircraft operating lease rentals, aircraft maintenance expenses, wages, salaries and benefits,
food and beverages and selling and marketing expenses.
For the years ended December 31, 2011, 2012 and 2013, our revenue was HK$4,675.5 million,
HK$6,250.1 million and HK$8,546.8 million, respectively, representing a CAGR of 35.2%. Our profit
attributable to shareholders for the same periods was HK$147.9 million, HK$274.7 million and HK$493.3
million, respectively, representing a CAGR of 82.6%. For the five months ended May 31, 2013 and 2014,
our revenue was HK$3,298.6 million and HK$3,958.5 million, respectively, and we recorded profit for the
period of HK$186.1 million and HK$165.9 million, respectively.
OUR COMPETITIVE STRENGTHS
We believe the following competitive strengths will continue to drive our future success:
Focus on the PRC market, one of the largest and fastest growing air travel markets in the world.
(i)
We believe China is a highly attractive air travel market.
(ii)
China is the largest contributor to our traffic revenue.
(iii) We made the majority of our ticket sales in China.
We have leading market share by capacity across many of the markets we currently serve,
including fast-growing second-tier cities in China.
Well positioned in Hong Kong, a leading international aviation hub with a large home market.
Strong value proposition: high quality product and service at attractive fares.
Young, fuel-efficient and homogenous operating fleet.
Substantial synergies from partnerships with aviation and tourism business of HNA Group.
Experienced management team with proven track record.
SUMMARY
OUR STRATEGIES
We aim to increase our market share with a focus on improving profitability, by leveraging Hong
Kongs position as a transit hub and harnessing the growth potential of Hong Kong and PRC markets. We
intend to achieve this goal through implementing the following strategic initiatives:
Expand our network through

(i)
increasing frequency on existing routes;
(ii)
adding new destinations within the Asia-Pacific region;
(iii) developing long-haul network; and

(iv) expanding our codeshare, interline and other partnership.
Expand our fleet.
Build our brand and grow a loyal customer base.
Focus on cost management. In particular, we intend to

(i)
operate a fleet of new, single manufacturer and fuel-efficient aircraft;
(ii)
enhance operating cost efficiency; and
(iii) maintain low sales and distribution costs.
Drive growth in ancillary revenue.
Develop complementary ancillary services organically or through acquisition.
SUMMARY HISTORICAL COMBINED FINANCIAL INFORMATION

The following tables set forth our summary combined financial information as derived from our
combined financial statements included in Appendix I Accountants Report, which contains our
combined financial statements as of and for the years ended December 31, 2011, 2012 and 2013 and the
five months ended May 31, 2013 and 2014. The following information should be read in conjunction with
our combined financial statements included in Appendix I Accountants Report, together with the
accompanying notes, and the section headed Financial Information. Our combined financial statements
have been prepared in accordance with HKFRS, which may differ in certain material respects from
generally accepted accounting principles in other jurisdictions. Our historical results are not necessarily
indicative of results that may be achieved in any future periods.
SUMMARY
Summary Combined Income Statement Information
For the year ended December 31,
Revenue . . . . . . . . . . . . . . . . . . .
Operating expenses . . . . . . . . . . .
For the five months

ended May 31,
2011
2012
2013
2013
2014
HK$000
HK$000
HK$000
HK$000
unaudited
HK$000
4,675,498
(4,241,093)
6,250,108
(5,830,887)
8,546,835
(7,606,182)
3,298,639
(2,884,702)
3,958,496
(3,649,518)
434,405
60,305
5,366
500,076
3,977
(403,743)
47,575
147,885
419,221
49,912
271,235
740,368
38,237
(508,917)
5,034
274,722
(64)
940,653
104,352
564
1,045,569
30,422
(629,169)
4,056
450,878
42,384
413,937
28,668
442,605
8,219
(268,556)
3,836
186,104
308,978
88,886
397,864
32,900
(239,665)
1,273
192,372
(26,450)
Profit for the year/period . . . . . .
147,885
274,658
493,262
186,104
165,922
EBITDAR(1) . . . . . . . . . . . . . . . . .
1,197,181
1,539,014
2,816,933
1,179,165
1,227,844
Gross profit . . . . . . . . . . . . .
Other income . . . . . . . . . . . .
Other gains net . . . . . . . . . .
Operating profit . . . . . . . . . .
Finance income . . . . . . . . . . .
Finance costs . . . . . . . . . . . .
Share of profit of an associate
Profit before income tax . . .
Income tax (expense)/credit . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Note:
(1)
EBITDAR refers to earnings before other gains, finance costs (including interest income, interest expense and exchange
gains/losses), income taxes, share of profits of associate, depreciation and amortization, aircraft operating lease expenses, and
other operating lease expenses as computed under HKFRS. EBITDAR is a useful benchmark in light of the airline industrys
unique nature. Airlines typically acquire aircraft, the most important asset class of their operations, through purchase and
operating leases. An operating lease is accounted for through recognition of lease payments as cost in the income statement
as compared to a finance lease that is treated as debt on the balance sheet. EBITDAR, therefore, may not be the best measure
of an airlines operating performance since an airline with more operating leases (higher leasing expense) should not be
compared to an airline with more purchased aircraft (higher depreciation and potentially higher financing cost). As a result,
EBITDAR, which adjusts for the difference, may be regarded as a more meaningful performance indicator. EBITDAR is not
a standard measurement under HKFRS but is presented here because we believe that such measurement is a commonly used
performance indicator in the airline industry of an airlines operating performance. Prospective investors should be aware that
such measurement may not be comparable to other similarly titled measure reported by other companies due to different
calculations methods or assumptions.
SUMMARY
The following table sets forth details of our revenue for the periods indicated:
2011
HK$000
For the five months ended May 31,
2012
%
HK$000
2013
%
HK$000
2013
%
2014
HK$000
%
unaudited
HK$000
Passenger Revenue . . . . .
2,916,496
62.4
3,765,285
60.2
5,447,640
63.7
2,102,490
63.7
2,581,394
65.2
Cargo Revenue . . . . . . .
1,202,389
25.7
1,698,069
27.2
1,762,789
20.7
622,388
18.9
905,896
22.9
Rental income from air

craft under operating
lease(1) . . . . . . . . . .
541,556
11.6
767,410
12.3
1,310,474
15.3
565,308
17.1
458,293
11.6
Others(2) . . . . . . . . . .
15,057
0.3
19,344
0.3
25,932
0.3
8,453
0.3
12,913
0.3
Total . . . . . . . . . . . .
4,675,498
100.0
6,250,108
100.0
8,546,835
100.0
3,298,639
100.0
3,958,496
100.0
Notes:
1.
We sub-leased certain passenger aircraft and cargo freighters which we owned and leased under finance leases and operating
leases to Hong Kong Express, Hainan Airlines and Yangtze River Express.
2.
Other revenue represents primarily in-flight sales commission.
Summary Combined Balance Sheet Information

As of December 31,
As of May 31,
2011
2012
2013
2014
HK$000
HK$000
HK$000
HK$000
Total assets . . . . . . . . . . . . . . . . . . . . . .
2,692,428
2,092,623
2,969,108
3,362,861
Total liabilities . . . . . . . . . . . . . . . . . . . .
3,169,643
3,672,978
5,717,881
6,102,480
(1,580,355)
(2,748,773)
(2,739,619)
Net current liabilities . . . . . . . . . . . . . . .
(477,215)
SUMMARY
KEY FINANCIAL RATIOS
The following table sets forth certain financial ratios as of the dates or for the periods indicated:
As of or for
the five
months ended
May 31,
As of or for the year ended December 31,

2011
EBITDAR margin (1) . . . .

Operating profit margin (2)
Net debt to equity ratio (3) .
Return on equity (4) . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2012
25.6%
10.7%
235.9%
4.1%
2013
24.6%
11.8%
322.8%
6.3%
2014
33.0%
12.2%
180.9%
8.9%
31.0%
10.1%
166.4%
N/A
Notes:
(1)
EBITDAR margin is calculated by dividing EBITDAR for the year/period by revenue for the relevant year/period.
(2)
Operating profit margin is calculated by dividing operating profit for the year/period by revenue for the relevant
year/period.
(3)
Net debt to equity ratio is calculated by dividing net debt by total equity. Net debt is calculated as total debt (including
total bank borrowings, notes payable and obligation under finance leases) less cash and cash equivalents and restricted
cash deposits pledged for borrowings.
(4)
Return on equity is calculated by dividing profit attributable to equity holders of our Company for the year by average
balance of total equity and multiplying the resulting value by 100%.
Please see the section headed Financial Information Key Financial Ratios for description of the
above ratios.
KEY PERFORMANCE INDICATORS
The following table sets forth certain operating information regarding our passenger and cargo
services for the periods indicated:
For the five months
ended May 31,

2011
Passenger services:
Passenger carried (in millions) . . . .
Passenger revenue (HK$ in millions) .
RPKs (in millions). . . . . . . . . . .
ASKs (in millions). . . . . . . . . . .
Passenger load factor . . . . . . . . .
Passenger yield (in HK$) . . . . . . .
RASK (HK$ per ASK) . . . . . . . .
Daily aircraft utilization (block hours
per day per aircraft) . . . . . . . . .
Cargo services:
Cargo revenue (HK$ in millions) . . .
RFTKs (in millions) . . . . . . . . . .
AFTKs (in millions) . . . . . . . . . .
Cargo load factor . . . . . . . . . . .
Cargo yield (HK$ per RFTK) . . . . .
per day per aircraft) . . . . . . . . .
2012
2013
2013
2014
.
.
.
.
.
.
.
1.8
2,916
3,446
4,829
71%
0.85
0.60
2.5
3,765
4,168
5,831
71%
0.90
0.65
4.1
5,448
6,238
8,163
76%
0.87
0.67
1.5
2,102
2,262
2,975
76%
0.93
0.71
2.0
2,581
2,899
3,838
76%
0.89
0.67
10.8
10.3
10.6
9.7
11.3
.
.
.
.
.
1,202
296
615
48%
4.06
1,698
403
723
56%
4.22
1,763
384
831
46%
4.59
622
132
283
47%
4.71
906
224
483
46%
4.04
8.1
8.1
9.5
8.9
10.4
SUMMARY
OUR CONTROLLING SHAREHOLDERS AND OTHER MAJOR SHAREHOLDERS
Immediately upon completion of the [REDACTED] (assuming the Over-allotment Option is not
exercised), HKA Holdings, Mr. Zhong and Mr. Mung will, directly and indirectly, hold an aggregate of
approximately [REDACTED]% of the then enlarged total issued share capital of our Company and will
therefore be our Controlling Shareholders. HKA Holdings, Mr. Zhong and Mr. Mung also, directly and
indirectly, hold an aggregate of approximately 44% interest in Hong Kong Express, a low-cost carrier in
Hong Kong which our Directors consider not competing with our business. Please see the sections headed
Relationship with Controlling Shareholders and Other Existing Shareholders Relationship with Our
Controlling Shareholders and Relationship with Controlling Shareholders and Other Existing
Shareholders Delineation of Business for details.
exercised), Hainan Airlines will indirectly hold approximately [REDACTED] of the then enlarged total
issued share capital of our Company and will therefore be our substantial shareholder. HNA Group will
indirectly hold less than [REDACTED]% of the then enlarged total issued share capital of our Company.
Both Hainan Airlines and HNA Group engage and/or have interest in certain airlines or other aviation
related business in the industry which our Directors consider not competing with our business. Please see
the sections headed Relationship with Controlling Shareholders and Other Existing Shareholders
Relationship with Our Controlling Shareholders and Relationship with Controlling Shareholders and
Other Existing Shareholders Delineation of Business for details.
During the Track Record Period, we entered into a number of continuing transactions with Hainan
Airlines, HNA Group, Hong Kong Express and/or their respective associates in connection with our
business operations, including leasing-in and leasing-out of aircraft, passenger block seat arrangements,
cargo block space arrangements and codesharing arrangements. For instance, as of the Latest Practicable
Date, among our fleet of 40 aircraft, we held 23 aircraft under finance lease or operating lease
arrangements with HKIAL or its wholly-owned subsidiaries as lessors. In addition, among these 40
aircraft, we subleased 17 aircraft to our related parties, including Hong Kong Express, Hainan Airlines and
Yangtze River Express. For details on our fleet, please see the section headed Business Our Fleet. In
addition, for the years ended December 31, 2011, 2012 and 2013 and the five months ended May 31, 2013
and 2014, HNA Tourism and HNA Aviation were our largest passenger services customer and largest cargo
services customer, respectively. For details on our customers, please see the section headed Business
Customers. After the [REDACTED], our Group will have certain continuing transactions with Hong
Kong Express, Hainan Airlines and HNA Group. Please see the section headed Continuing Transactions
for details.
[REDACTED] MODEL
[REDACTED]
SUMMARY
[REDACTED]
SUMMARY
[REDACTED]
SUMMARY
DIVIDENDS AND DIVIDEND POLICY
During the Track Record Period, we did not declare any dividends to our then shareholders. We have
no plan to pay or declare any dividends prior to the [REDACTED]. After completion of the
[REDACTED], our Shareholders will be entitled to receive dividends that we declare. We cannot assure
you that we will be able to distribute dividends of any amount, or at all, in any year. Our Board will decide
at its sole discretion whether the dividends will be paid in HKD or [REDACTED], or in HKD for our
[REDACTED] while in [REDACTED] for our [REDACTED], which will be announced when we
declare dividends.
Shareholders will receive any dividend payable by the Company in the currency in which it is
declared, but may be given the option to elect to receive such dividend in the alternative currency. Any
such option, if given, will be given to all Shareholders, and Shareholders who will have validly made an
election will receive the dividend in the currency they elect.
In addition, the terms of certain of our outstanding loans prohibit the relevant borrower from
distributing any dividends in any form before full repayment of the relevant loans. These loans consist of
working capital loans and aircraft financing loans. Please see the section headed Financial Information
Dividends and Dividend Policy on page 280 of this [REDACTED] for additional information.
[REDACTED] EXPENSES
The total amount of [REDACTED] expenses and commissions, together with [REDACTED] and
[REDACTED] that will be borne by us in connection with the [REDACTED] and excluding the costs in
relation to the [REDACTED], is estimated to be approximately HK$[REDACTED] (based on the
mid-point of the HKD [REDACTED] and the [REDACTED]). As of May 31, 2014, we incurred
[REDACTED] fees and expenses in the Track Record Period in the amount of approximately
HK$[REDACTED], of which HK$[REDACTED] was recognized as prepayments and
HK$[REDACTED] was charged to our combined income statements. We expect that, for the remaining
HK$[REDACTED] of fees and expenses to be incurred, approximately HK$[REDACTED] will be
charged to our combined income statements for the year ended December 31, 2014 and approximately
HK$[REDACTED] will be capitalized as reserves after the [REDACTED] under the relevant accounting
standards. See the subsection headed Financial Information [REDACTED] Expenses.
10
SUMMARY
USE OF PROCEEDS
The [REDACTED] will be a [REDACTED], with the Hong Kong [REDACTED] under the
[REDACTED] being concurrently [REDACTED] in both HKD and [REDACTED].
We estimate the aggregate net proceeds of the [REDACTED] from both the HKD [REDACTED]
and the [REDACTED], assuming a HKD [REDACTED] of HK$[REDACTED] per [REDACTED]
under the HKD [REDACTED] (being the mid-point of the HKD [REDACTED] stated in this
[REDACTED]) and a [REDACTED] of [REDACTED] per [REDACTED] under the [REDACTED]
(being the mid-point of the [REDACTED] stated in this [REDACTED]), respectively, and based on the
exchange rate of [REDACTED] to HK$[], being the exchange rate set forth by PBOC on [], 2014, will
be approximately HK$[REDACTED], after deduction of underwriting fees and commissions and
estimated expenses payable in connection with the [REDACTED] and assuming the Over-allotment
Option is not exercised.
Amount
(HK$ million)
% of total
estimated net
proceeds
Intended use
(%)
[REDACTED]
[REDACTED]
expansion of our fleet through acquisition or leasing

arrangement,
in
particular,
(i)
approximately
[REDACTED]%, or HK$[REDACTED] for partial payment
in relation to our acquisition of 15 A350 aircraft and related
equipment, which we intend to add into our operating fleet
starting from 2017; (ii) approximately [REDACTED]%, or
HK$[REDACTED] for partial payment in relation to
addition of six A330 aircraft that we intend to add into our
operating fleet and related equipment; and (iii) approximately
[REDACTED]%, HK$[REDACTED] for partial payment in
relation to addition of 13 A320 aircraft that we intend to add
into our operating fleet and related equipment
[REDACTED]
[REDACTED]
payment of our obligations under our existing aircraft and

spare parts lease agreements
[REDACTED]
[REDACTED]
repayment of a bank loan
[REDACTED]
[REDACTED]
development of our capacities in relation to ancillary

operations through organic growth or acquisition when we
deem appropriate. As of the Latest Practicable Date, we were
still in the process of searching for suitable targets and have
not entered into any definitive and legally binding agreement
in this respect
[REDACTED]
[REDACTED]
working capital needs, including expenses in relation to

opening new flight routes in the PRC
For more information, please see the section headed Future Plans and Use of Proceeds.
11
SUMMARY
RISK FACTORS
We believe that there are uncertain risks and uncertainties involved in our operations, some of which
are beyond our control. We believe a few of the more significant risks relating to our business include the
facts that (i) the supply and demand dynamics of airline industry tend to be volatile and are subject to
many unpredictable factors, including general economic conditions; (ii) volatility in fuel costs or
significant disruptions in the supply of fuel could have a material and adverse effect on our business,
results of operations and financial condition; (iii) we generated all of our rental income from aircraft under
operating leases with our related parties, which represents a significant portion of our Groups total
revenue and we rely on our lessees continuing performance of their lease obligations; (iv) we operate in
an extremely competitive industry, where our performance will significantly depend on how effectively we
compete with other airlines; (v) we depend on regulatory approvals and licenses to operate in our existing
markets and to gain access to new markets; (vi) we were in net current liabilities position as of December
31, 2011, 2012 and 2013 and May 31, 2014; (vii) airlines are often affected by factors beyond their control,
including air traffic congestion at airports, weather conditions, disease outbreaks or concerns, or increased
security measures, any of which could harm our business, results of operations and financial condition;
(viii) adverse changes in economic, political and social conditions or government policies of the PRC and
Hong Kong could have a material and adverse effect on our business, results of operations, financial
condition and prospects; and (ix) we are exposed to variations in landing charges and other airport access
fees and restrictions.
The risks mentioned above are not the only significant risks that may affect our operations. As
different investors may have different interpretations and standards for determining materiality of risk, you
are cautioned that you should carefully read the Risk Factors section in its entirety starting from page
32 of this [REDACTED].
[REDACTED]
RECENT DEVELOPMENTS
Our revenue, gross profit and gross margin for the six months ended June 30, 2014 decreased
compared to those for the six months ended June 30, 2013 primarily due to a decrease in demand for air
transportation in general mainly as a result of political upheavals in Thailand and Vietnam, as well as
multiple accidents involving other airlines in 2014. Our Directors confirm that, after having performed
reasonable due diligence on our Group, there has been no material and adverse change in our Groups
financial or trading position or prospects since May 31, 2014 (being the date to which our latest audited
consolidated financial information was prepared) to the Latest Practicable Date.
We intend to issue short-term RMB notes in the amount between RMB800 million and RMB1,500
million to professional and institutional investors prior to the [REDACTED]. As of the Latest Practicable
Date, we were still evaluating market conditions to determine details of the issuance of the notes.
As far as our Directors are aware, there have been no changes in the general economic or market
conditions or in the aviation industry of the Asia Pacific region as a whole, or in the markets where we
have operations, which would have a material and adverse impact on our business operations or financial
condition since May 31, 2014 (being the date to which our latest audited consolidated financial
information was prepared) to the Latest Practicable Date.
12
DEFINITIONS
Unless the context otherwise requires, the following terms shall have the meanings set out
below.
Affiliate(s)
in relation to any specified person, such other person, directly or

indirectly, controlling or controlled by or under common control
with such specified person
Air China
Air China Limited (), also known as

China International Airlines Company, a limited liability company
incorporated under the laws of the PRC, one of our competitors and
an Independent Third Party
Airbus
AIRBUS S.A.S., a legal successor of Airbus S.N.C., formerly

known as Airbus G.I.E., created and existing under French law
Airport Authority Hong Kong
Airport Authority Hong Kong is a statutory body wholly owned by

the Hong Kong SAR Government and is responsible for the
operation and development of HKIA
AMECO
Aircraft Maintenance and Engineering Co., Ltd. (

), a limited liability company incorporated under the
laws of the PRC, one of our service providers and an Independent
Third Party
[REDACTED]
Articles or Articles of
Association
the articles of association of our Company adopted on [] 2014 and

as amended from time to time, a summary of which is contained in
Appendix III to this [REDACTED]
associate(s)
has the meaning ascribed thereto under the Listing Rules
ATLA
Air Transport Licensing Authority
Beijing Capital Airlines
Beijing Capital Airlines Company Limited (

), a company incorporated under the laws of the PRC on
November 16, 1998 and an associate of HNA Group
Blue Sky Fliers
Blue Sky Fliers Company Limited, a company incorporated under

the laws of the BVI with limited liability on April 12, 2011, and a
wholly-owned subsidiary of our Company
Board or Board of Directors
the board of Directors of our Company
13
DEFINITIONS
[REDACTED]
BPs
basis points, a basis point is equal to 0.01%
Business Day
any day (other than a Saturday, Sunday or public holiday in Hong

Kong) on which banks in Hong Kong are open generally for normal
banking business
BVI
British Virgin Islands
CAD
Civil Aviation Department
CAGR
compound annual growth rate
CASL
China Aircraft Services Limited, a company incorporated under the

laws of Hong Kong with limited liability, one of our service
providers and an Independent Third Party
Cathay Pacific
Cathay Pacific Airways Limited, a company incorporated under the

laws of Hong Kong with limited liability, one of our competitors
and an Independent Third Party
Cayman Companies Law
the Companies Law, Cap. 22 (Law 3 of 1961, as consolidated and

revised) of the Cayman Islands as amended from time to time
CCASS
the Central Clearing and Settlement System established and

operated by HKSCC
CCASS Clearing Participant
a person admitted to participate in CCASS as a direct clearing

participant or a general clearing participant
CCASS Custodian Participant
a person admitted to participate in CCASS as a custodian

participant
CCASS Investor Participant
a person admitted to participate in CCASS as an investor

participant who may be an individual or joint individuals or a
corporation
CCASS Participant
a CCASS Clearing Participant, a CCASS Custodian Participant or

a CCASS Investor Participant
14
DEFINITIONS
CCASS Terminals
in relation to a CCASS Participant (other than a CCASS Investor

Participant) or a designated bank, a terminal which provides direct
electronic linkage to the CCASS host computer of HKSCC, as
referred to in Section 3.1.1 of the CCASS Operational Procedures,
installed at the office premises of the CCASS Participant, its
settlement agent or the designated bank
China or PRC
the Peoples Republic of China and, for the purpose of this

[REDACTED] only, excludes Hong Kong, Macau and Taiwan
China Eastern Airlines
China Eastern Airlines Corporation Limited (

), a joint stock limited company incorporated under the laws
of the PRC with limited liability, one of our competitors and an
Independent Third Party
China Southern Airlines
China Southern Airlines Company Limited (

), a company incorporated under the laws of the PRC with
limited liability, one of our competitors and an Independent Third
Party
China Xinhua Airlines
China Xinhua Airlines Group Co., Ltd. (

limited liability on March 6, 1991 and a wholly-owned subsidiary
of Hainan Airlines
close associate(s)
Code
Corporate Governance Code as set out in Appendix 14 to the

Listing Rules
Companies Ordinance
the Companies Ordinance (Chapter 622 of the Laws of Hong

Kong) as amended from time to time, or if the context requires, the
predecessor Companies Ordinance (then Chapter 32 of the Laws of
Hong Kong) as in force before March 3, 2014
Companies (Winding Up and

Miscellaneous Provisions)
Ordinance
the Companies (Winding Up and Miscellaneous Provisions)

Ordinance (Chapter 32 of the Laws of Hong Kong) as amended
from time to time
Company or our Company
Hong Kong Airlines International Holdings Limited, an exempted

company incorporated in the Cayman Islands on January 30, 2014
with limited liability, and whose shareholding structure is set out in
the section headed History and Reorganization of this
[REDACTED]
connected person(s) and core

connected person(s)
have the respective meaning ascribed thereto in the Listing Rules
15
DEFINITIONS
connected transaction(s) and
continuing connected
transaction(s)
have the respective meaning ascribed thereto in Chapter 14A of the

Listing Rules
Controlling Shareholder(s)
has the meaning ascribed thereto under the Listing Rules and, in
respect of the Company, refers to HKA Holdings, Mr. Zhong and
Mr. Mung
Director(s) or our Director(s)
the director(s) of our Company
Dragonair
Hong Kong Dragon Airlines Limited, a company incorporated

under the laws of Hong Kong with limited liability, one of our
competitors and an Independent Third Party
[REDACTED]
EVA Airways
EVA Airways Corporation, a company incorporated under the laws

of Taiwan, one of our competitors and an Independent Third Party
Exchange Participant(s)
GDP
gross domestic product
GFA
gross floor area
[REDACTED]
Grand China Air
Grand China Air Co., Ltd. (), a company

incorporated under the laws of the PRC on July 12, 2004, one of
our Shareholders and a shareholder of Hainan Airlines
16
DEFINITIONS
Group, our Group,
we or us
our Company and its subsidiaries or, where the context so requires
in respect of the period before our Company became the holding
company of our present subsidiaries, the present subsidiaries of our
Company
HACTL
Hong Kong Air Cargo Terminals Limited, a company incorporated

under the laws of Hong Kong with limited liability, owner and
operator of Super Terminal 1 at HKIA and an Independent Third
Party
HAECO
Hong Kong Aircraft Engineering Company Limited, a company

incorporated under the laws of Hong Kong with limited liability,
one of our service providers and an Independent Third Party
Hainan Airlines
Hainan Airlines Company Limited (), a

joint stock limited company incorporated under the laws of the
PRC with limited liability, one of our substantial shareholders,
whose shares are listed on the Shanghai Stock Exchange under
stock codes 600221 and 900945
Hainan Airlines (Hong Kong)
Hainan Airlines (Hong Kong) Co., Limited (()

), a company incorporated under the laws of Hong Kong on June
2, 2011 with limited liability, which is a wholly-owned subsidiary
of Hainan Airlines
Hainan Airlines Investment
Hainan Airlines Investment Holding Company Limited (

), a company incorporated under the laws of the
BVI on December 1, 2011 with limited liability, which is a
wholly-owned subsidiary of Hainan Airlines
Hainan SASAC
State-owned Assets Supervision and Administration Commission

of Hainan Provincial Government (
)
Hainan Xinsheng Information

Technology
Hainan Xinsheng Information Technology Co. Ltd. (

), a company incorporated under the laws of the PRC
with limited liability on February 22, 2008 and an associate of
HNA Group
HKA Consultation
Hong Kong Airlines Consultation Service Company Limited (

), a company incorporated under the laws
of Hong Kong on January 19, 2010 with limited liability, which is
wholly-owned by Mr. Zhong
17
DEFINITIONS
HKA Group
Hong Kong Airlines Group Limited (()

), a company incorporated under the laws of Hong Kong on June
30, 2006 with limited liability, which is wholly-owned by Mr.
Mung
HKA Holdings
Hong Kong Airlines Holdings Co., Limited (

), a company incorporated under the laws of Hong Kong on
December 17, 2009 with limited liability, which is owned
ultimately as to approximately 51.04% by Mr. Zhong and 48.96%
by Mr. Mung upon completion of the Reorganization, our
Controlling Shareholders
HKAG Company
HKA Group Company Limited, a company incorporated under the

laws of the BVI on November 28, 2011 with limited liability, a
direct wholly-owned subsidiary of the Company
HKAG Holdings
HKA Group Holdings Company Limited, a company incorporated

under the laws of the BVI on November 28, 2011 with limited
liability, which is owned as to approximately 44% in aggregate by
our Controlling Shareholders, and which is the holding company of
Hong Kong Express
[REDACTED]
18
DEFINITIONS
[REDACTED]
HKFRS
Hong Kong Financial Reporting Standards (including Hong Kong

Financial Reporting Standards, Hong Kong Accounting Standards
and Interpretations) issued by HKICPA
HKIA
Hong Kong International Airport
HKIAL
Hong Kong International Aviation Leasing Company Limited, a

company incorporated under the laws of Hong Kong with limited
liability on February 15, 2007 and an associate of HNA Group
HKICPA
the Hong Kong Institute of Certified Public Accountants
HKSCC
Hong Kong Securities Clearing Company Limited, a wholly-owned

subsidiary of Hong Kong Exchanges and Clearing Limited
HKSCC Nominees
HKSCC Nominees Limited, a wholly-owned subsidiary of HKSCC
HNA Aviation
HNA Aviation Group Company Limited (),

a limited liability company incorporated under the laws of the
PRC, one of our customers and a connected person of our
Company
HNA Aviation (Hong Kong)

Holdings
HNA Aviation (Hong Kong) Holdings Co., Ltd (()

), a company incorporated under the laws of Hong
Kong with limited liability on January 16, 2012 and a whollyowned subsidiary of Hainan Airlines
19
DEFINITIONS
HNA Aviation Technik
HNA Aviation Technik Company Limited (

limited liability on December 10, 2009, and an associate of Hainan
Airlines
HNA Finance
HNA Group Finance Co., Ltd. (), a

company incorporated under the laws of the PRC on January 10,
1994 and an associate of HNA Group
HNA Group
HNA Group Co., Ltd. (), a limited liability

company incorporated under the laws of the PRC
HNA Group International
HNA Group (International) Company Limited (()

) (formerly known as HNA Group International Headquarter
(Hong Kong) Company Limited (()
)), a company incorporated under the laws of Hong Kong with
limited liability on July 12, 2010 and an associate of HNA Group
HNA Investment
HNA Group (Hong Kong) Investment Co., Ltd. (()

), a company incorporated under the laws of Hong Kong
with limited liability on December 18, 2009 and a wholly-owned
subsidiary of HNA Group
HNA Property Holding
Hong Kong HNA Property Holding (Group) Co., Limited (

()), a company incorporated under the laws of
Hong Kong with limited liability on July 27, 2010 and an associate of
HNA Group
HNA Tianjin
HNA Tianjin Center Development Co., Ltd. (

limited liability on November 15, 2005, with 75% and 25% of its
equity interests being held by an associate of HNA Group and
ultimately our Company, respectively
HNA Tourism
HNA Tourism Group Company Limited (), a

limited liability company incorporated under the laws of the PRC, one
of our customers and a connected person of our Company
HNA Yisheng Holding
HNA Yisheng Holding Co., Ltd. (), a

company incorporated under the laws of the PRC with limited liability
on September 4, 2009 and an associate of HNA Group
holding company
Hong Kong or HK
the Hong Kong Special Administrative Region of the PRC
20
DEFINITIONS
Hong Kong Airlines
Hong Kong Airlines Limited () (formerly known

as CR Airways Limited), a company incorporated under the laws of
Hong Kong on March 28, 2001 with limited liability, an indirect
Hong Kong Dollars, HKD or

HK$
Hong Kong dollars, the lawful currency of Hong Kong
Hong Kong Express
Hong Kong Express Airways Limited (), a

company incorporated under the laws of Hong Kong with limited
liability on July 18, 1995, a direct wholly-owned subsidiary of HKAG
Holdings
[REDACTED]
Hong Kong Securities and Futures

Ordinance or SFO
the Securities and Futures Ordinance (Chapter 571 of the Laws of

Hong Kong), as amended from time to time
[REDACTED]
Hong Kong Stock Exchange or

Stock Exchange
The Stock Exchange of Hong Kong Limited
Hong Kong Underwriters
the several underwriters for the [REDACTED] as listed in the section

headed Underwriting Hong Kong Underwriters of this
[REDACTED]
Hong Kong Underwriting

Agreement
the underwriting agreement dated [REDACTED] relating to the

[REDACTED] entered into by, among other parties, our Company,
the Sole Global Coordinator and the Hong Kong Underwriters, as
further described in the section headed Underwriting
[REDACTED] Hong Kong Underwriting Agreement of this
[REDACTED]
21
DEFINITIONS
ICF
ICF International, an independent industry consultant commissioned

by us to prepare the ICF Report
ICF Report
an independent research report commissioned by us and prepared by

ICF for the purpose of this [REDACTED]
IMF
International Monetary Fund
Independent Third Party(ies)
any entity or person who is not a connected person of our Company

within the meaning ascribed under the Listing Rules
[REDACTED]
International Underwriters
the several underwriters for the [REDACTED] who are expected to

enter into the International Underwriting Agreement to underwrite the
[REDACTED]
International Underwriting
Agreement
the underwriting agreement expected to be entered into on or around

[REDACTED] by, among other parties, our Company, the Sole
Global Coordinator and the International Underwriters in respect of
the [REDACTED], as further described in the section headed
Underwriting The [REDACTED] of this [REDACTED]
IT
information technology
[REDACTED]
J.P. Morgan
J.P. Morgan Securities (Far East) Limited
22
DEFINITIONS
Latest Practicable Date
August 19, 2014, being the latest practicable date for ascertaining
certain information in this [REDACTED] before its publication
LCC
low cost carrier, a business model for airlines offering lower fares due
to lower costs
LIBOR
London Interbank Offered Rate
[REDACTED]
Listing Committee
the listing sub-committee of the board of directors of the Hong Kong

Stock Exchange
[REDACTED]
Listing Rules
the Rules Governing the Listing of Securities on The Stock Exchange

of Hong Kong Limited, as amended from time to time
[REDACTED]
Lucky Air
Lucky Air Company Limited (), a

company incorporated under the laws of the PRC with limited liability
on June 10, 2004 and an associate of Hainan Airlines
Main Board
the stock exchange (excluding the option market) operated by the

Hong Kong Stock Exchange which is independent from and operates
in parallel with the Growth Enterprise Market of the Hong Kong
Stock Exchange
[REDACTED]
Memorandum of Association
the memorandum of association of our Company adopted on [] 2014,

as amended from time to time
23
DEFINITIONS
Mr. Mung
Mr. Mung Kin Keung, a non-executive Director and a Controlling

Shareholder
Mr. Zhong
Mr. Zhong Guosong, a Controlling Shareholder
[REDACTED]
NDIA
New Destination Incentive Arrangement, an arrangement under the

NDIA scheme which was established by Airport Authority Hong Kong
in 2001 to encourage airlines to add new destinations to the network
already served by carriers operating from HKIA
O&D
origin and destination
[REDACTED]
Over-allotment Option
the option expected to be granted by our Company to the International

Underwriters, exercisable by the Sole Global Coordinator, pursuant to
which our Company may be required to allot and issue up to []
additional Shares (representing in aggregate [REDACTED] of the
initial number of [REDACTED] available under the [REDACTED])
to cover over-allocations in the [REDACTED], if any, which may
increase the [REDACTED] being offered under the HKD
[REDACTED] and/or the [REDACTED] as further described in the
section headed Structure of the [REDACTED] Over-allotment
Option of this [REDACTED]
PRC Government or State
the government of the PRC, including all governmental subdivisions

(including provincial, municipal and other regional or local
government entities) and instrumentalities thereof, or, where the
context requires, any of them
24
DEFINITIONS
[REDACTED]
Regulation S
Regulation S under the U.S. Securities Act
Renminbi or RMB
Renminbi, the lawful currency of the PRC
Reorganization
the reorganization of our corporate structure and the businesses

comprising our Group in preparation for the [REDACTED], as
described in the section headed History and Reorganization of this
[REDACTED]
Reorganization Deed
a deed dated [] 2014 entered into between the Company (as

transferee), HKAG Holdings (as transferor), and the Controlling
Shareholders, HNA Group and Grand China Air (together as
warrantors) pursuant to which the Company acquired the entire issued
share capital of HKAG Company which in turn holds the entire issued
share capital of Hong Kong Airlines and its subsidiaries
[REDACTED]
25
DEFINITIONS
[REDACTED]
SASAC or State-owned Assets

Supervision and Administration
Commission
State-owned Assets Supervision and Administration Commission of

the PRC ()
Securities and Futures

Commission or SFC
Securities and Futures Commission of Hong Kong
Shanghai Airlines
Shanghai Airlines Co., Ltd. (), a company

incorporated under the laws of the PRC with limited liability and a
wholly-owned subsidiary of China Eastern Airlines, one of our
competitors and an Independent Third Party
Share(s)
ordinary share(s) with par value of HK$0.10 in the share capital of our
Company
26
DEFINITIONS
Shareholder(s)
holder(s) of our Share(s)
SMECO
Sichuan Aircraft Maintenance Engineering Co., Ltd. (

), a limited liability company incorporated under the
laws of the PRC, one of our service providers and an Independent
Third Party
[REDACTED]
Sole Sponsor
SPA II Tianjin Center
SPA II Tianjin Center, Ltd, a company incorporated under the laws of

the BVI with liability limited by shares on December 1, 2009 and a
sq.ft.
square feet
sq.m.
square meter
SSA with Statement Service
Stock Segregated Account of a CCASS Clearing Participant or a

CCASS Custodian Participant in relation to which SSA Statement
Recipient is named and/or maintained by such participant
[REDACTED]
STARCO
Shanghai Technologies Aerospace Co., Ltd. (

), a limited liability company incorporated under the laws of the
PRC, one of our service providers and an Independent Third Party
[REDACTED]
subsidiary or subsidiaries
substantial shareholder
Tianjin Airlines
Tianjin Airlines Co., Ltd. (), a company

incorporated under the laws of the PRC with limited liability on
November 15, 2006 and an associate of Hainan Airlines
Track Record Period
the three years ended December 31, 2011, 2012 and 2013 and the five
months ended May 31, 2014
[REDACTED]
27
DEFINITIONS
TSF Accounts
the TSF Principal Account or the TSF Segregated Account, as the

context may require
Underwriters
the Hong Kong Underwriters and the International Underwriters
Underwriting Agreements
the Hong Kong Underwriting Agreement and the International

Underwriting Agreement
Unique Ocean
Unique Ocean Limited (), a company incorporated

under the laws of Hong Kong with limited liability on February 18,
2008, previously a wholly-owned subsidiary of our Company whose
shareholding interests in such company were transferred to an
Independent Third Party in 2012
United States or U.S.
the United States of America, its territories and possessions, any State
of the United States, and the District of Columbia
U.S. Securities Act
U.S. Securities Act of 1933, as amended
US$
United States dollars, the lawful currency of the United States

[REDACTED]
Yangtze River Express
Yangtze River Express Airlines Company Limited (

limited liability on July 15, 2002 and an associate of HNA Group
per cent
28
GLOSSARY
This glossary contains certain definitions and technical terms used in this [REDACTED] in
connection with our Company and our business. The terms and their meaning may not correspond
to meanings or usage of these terms as used by others.
A checks
the basic inspection and routine servicing conducted on an aircraft

every 800 hours flown to ensure that the aircraft is in an airworthy
state to continue flying
AFTK
available freight tonne kilometers, which is the total number of

tonnes of capacity available for the carriage of cargo and mail
multiplied by the number of kilometers that freight was flown over
a particular period
AOC
Air Operators Certificate
ASK
available seat kilometers, which is the total number of seats

available on scheduled flights multiplied by the number of
kilometers those seats were flown over a particular period
block hours
each whole or partial hour elapsing from the moment the chocks
are removed from the wheels of the aircraft for flights until the
chocks are next again returned to the wheels of the aircraft
C checks
the maintenance performed on an aircraft at 18-month intervals,

which takes approximately one week to complete, with a longer
24-day check every 72 months
cargo load factor
a measure of the average occupancy of the total available capacity

of cargo of an airline, i.e. RFTK expressed as a percentage of
AFTK
cargo traffic
measured in RFTK, unless otherwise specified
cargo yield
revenue from cargo operations divided by RFTK
IATA
the International Air Transport Association, an international trade

body which represents approximately 240 airlines and the airline
industry in general
IATA Prorate Manual
the manual issued by IATA setting out the prorate factors and base
amounts for calculating interline passenger revenue proration
29
GLOSSARY
ICAO
the United Nations International Civil Aviation Organization, a

United Nations specialized agency which sets standards and
regulations necessary for aviation safety, security, efficiency and
regularity, as well as for aviation environment protection
narrow-body aircraft
a medium-sized airliner with a single passenger aisle, with

typically smaller passenger capacity and lower flight range
capabilities as compared to wide-body aircraft
passenger load factor
a measure of the average occupancy of the total available capacity

of passengers of an airline, i.e. RPK expressed as a percentage of
ASK
passenger traffic
measured in RPK, unless otherwise specified
passenger yield
revenue from passenger operations divided by RPK
RFTKs
revenue freight tonne kilometers, which is the revenue cargo and

mail load in tonnes multiplied by the number of kilometers those
freight was flown over a particular period
RPK
revenue passenger kilometers, which is the number of paying

passengers carried on passenger flights multiplied by the number
of kilometers those seats were flown over a particular period
Skytrax
a specialist research adviser to the air transport industry providing

product and service analysis and passenger research studies for
airlines, airline alliances, airports and related air transport product
and service suppliers globally
tonne
a metric ton, equivalent to approximately 2,204.6 pounds
utilization rates
the actual number of block hours per aircraft per day
wide-body aircraft
a large airliner with two passenger aisles, with typically larger

passenger capacity and higher flight range capabilities as
compared to narrow-body aircraft
30
FORWARD-LOOKING STATEMENTS
This [REDACTED] contains certain forward-looking statements and information relating to our
Company and our subsidiaries that are based on the beliefs of our management as well as assumptions
made by and information currently available to our management. When used, the words aim,
anticipate, believe, could, expect, estimate, going forward, intend, may, ought to,
plan, project, seek, should, will, would and the negative of these words and other similar
expressions, as they relate to the Group or our management, are intended to identify forward-looking
statements. Such statements reflect the current views of our management with respect to future events,
operations, liquidity and capital resources, some of which may not materialize or may change. These
statements are subject to certain risks, uncertainties and assumptions, including the other risk factors as
described in this [REDACTED]. You are strongly cautioned that reliance on any forward-looking
statements involves known and unknown risks and uncertainties. The risks and uncertainties facing our
Company which could affect the accuracy of forward-looking statements include, but are not limited to,
the following:
our business prospects;
future developments, trends and conditions in the industry and markets in which we operate;
our business strategies and plans to achieve these strategies;
general economic, political and business conditions in the markets in which we operate;
changes to the regulatory environment and general outlook in the industry and markets in
which we operate;
the effects of the global financial markets and economic crisis;
our ability to reduce costs;
our dividend policy;
the amount and nature of, and potential for, future development of our business;
capital market developments;
the actions and developments of our competitors; and
change or volatility in interest rates, foreign exchange rates, equity prices, volumes, operations,
margins, risk management and overall market trends.
Subject to the requirements of applicable laws, rules and regulations, we do not have any and
undertake no obligation to update or otherwise revise the forward-looking statements, whether as a result
of new information, future events or otherwise. As a result of these and other risks, uncertainties and
assumptions, the forward-looking events and circumstances discussed might not occur in the way we
expect or at all. Accordingly, you should not place undue reliance on any forward-looking information. All
forward-looking statements are qualified by reference to the cautionary statements in this section.
Statements of or references to our intentions or those of the Directors or our management are made
as of the date of this [REDACTED]. Any such information may change in light of future developments.
31
RISK FACTORS
An investment in our [REDACTED] involves a high degree of risk. You should carefully
consider the following information about risks, together with the other information contained in this
[REDACTED], including our consolidated financial statements and related notes, before you
decide to buy our [REDACTED]. If any of the circumstances or events described below actually
arises or occurs, our business, results of operations, financial condition and prospects would likely
suffer. In any such case, the market price of our [REDACTED] could decline and you may lose all
or part of your investment. This [REDACTED] also contains forward-looking information that
involves risks and uncertainties. Our actual results could differ materially from those anticipated in
these forward-looking statements as a result of many factors, including the risks described below.
RISKS RELATING TO OUR COMPANY

We may not be successful in implementing our growth strategy
Our growth strategy involves expanding our market share by increasing the frequency of flights to
markets that we currently serve, as well as increasing the number of markets we serve to expand our route
network. The effective implementation of our growth strategy is critical for our business to achieve
economies of scale and to sustain or increase our profitability.
Our success in implementing our growth strategy may be materially and adversely affected by:
contraction or lower growth rates in the global and Asian economies;
decreased demand for air transportation services;
our inability to maintain existing and secure future necessary, landing and departure slots at
targeted airports;
our inability to obtain additional or new traffic rights to airports situated within our targeted
markets;
limitations on our ability to acquire additional aircraft imposed by regulation or due to aircraft
availability;
increases in fuel prices;
our inability to locate adequate and affordable air transport infrastructure such as terminal
space, ground and maintenance facilities, landing rights and support equipment at our targeted
airports;
our inability to compete effectively with competitors in terms of price or service offering;
our inability to form and maintain codeshare and interline arrangements with partner airlines
to develop our route network and offer connecting flights to passengers;
our inability to obtain sufficient funds to meet our capital commitments to acquire aircraft;
32
RISK FACTORS
the regulatory restrictions on the total number of aircraft we may operate; or
the failure of aircraft manufacturers to fulfill our aircraft orders on a timely basis and our
inability to finance such aircraft on acceptable terms.
Many of these factors are beyond our control. In particular, in line with our current development
strategy, we plan to expand our operating fleet to 54 aircraft by the end of 2018. For details on our current
expansion plan of operating fleet and fleet to be sub-leased to other parties, please see the section headed
Business Our Fleet Future Fleet Development. We may not be able to meet the development plan
due to various reasons beyond our control, including the failure of aircraft manufacturers to fulfill our
aircraft orders on a timely basis and our inability to finance such aircraft on acceptable terms or limitations
on our ability to acquire additional aircraft imposed by regulation or due to aircraft availability. We may
also have to adjust our fleet expansion from time to time due to unforeseeable changes beyond our control,
such as restrictions on our capacity of obtaining additional or new traffic rights to airports, changes in the
conditions imposed on our AOC in terms of the number of aircraft we may operate, or sufficient fund in
time or at the reasonable costs to acquire relevant aircraft. In particular, according to our current AOC,
we are allowed to operate 17 A330 aircraft and eight A320 aircraft. As of the Latest Practicable Date, we
operated 23 aircraft, including 17 A330 aircraft and six A320 aircraft. There is no assurance that the CAD
would increase the number of aircraft we are permitted to operate in a time, or at all. Please also see the
section headed We depend on regulatory approvals and licenses to operate in our existing markets and
to gain access to new markets. In addition, as we intend to introduce new routes to expand our route
network, it is likely that we may operate in the future in countries where we have limited operating
experience. The operation of our business in these markets may present operational, financial and legal
challenges that are significantly different from those we currently face in our existing markets. Further,
upon the commencement of new routes, we often experience a lower initial passenger volume per flight
and higher operating and compliance costs compared to those for our more established routes. There can
be no assurance that we will succeed in expanding into these markets, increasing our passenger volume
and realizing our growth strategy. In the event that we are unable to successfully implement our growth
strategy, our business, financial condition and results of operations could be materially and adversely
affected.
We have a significant amount of obligations under operating leases that could impair our liquidity
and thereby have an adverse effect on our business, results of operations and financial condition
The majority of our aircraft is leased, and we undertook payment of the lease rentals aggregating
HK$214.6 million, HK$395.6 million, HK$918.1 million, HK$375.8 million and HK$451.8 million,
respectively, under operating leases in 2011, 2012, 2013 and for the five months ended May 31, 2013 and
2014. As of May 31, 2014, we have future operating lease obligations aggregating approximately
HK$6,407.6 million over the next five years. The majority of our operating leasee payments is linked with
LIBOR and would increase should LIBOR rise in future. In addition, we have significant obligations for
aircraft that we have ordered from Airbus for delivery over the next five years. Our ability to meet our
contractual obligations will depend on our operating performance and cash flow, which will in turn depend
on, among other things, the success of our current business strategies, whether fuel prices continue to
fluctuate at current levels, further weakening or improvement in the PRC and other Asian economies,
whether financing is available on reasonable terms or at all, as well as general economic and political
conditions and other factors that are, to some extent, beyond our control. The amount of our
aircraft-related obligations could have a material and adverse effect on our business, results of operations
and financial condition and could:
require a substantial portion of cash flow from our operations to be used to pay for operating
leases and other fixed cost obligations, thereby reducing the availability of our cash flow to
fund working capital, capital expenditures and other general corporate purposes;
33
RISK FACTORS
limit our ability to obtain additional financing to support our expansion plans and for working
capital and other purposes on acceptable terms or at all;
make it more difficult for us to pay our other obligations as they become due during adverse
general economic and industry-specific conditions, as any decrease in revenue could cause us
to not have sufficient cash flows from operations to make our scheduled payments;
reduce our flexibility in planning for, or reacting to, changes in our business conditions and the
airline industry and, consequently, place us at a competitive disadvantage to our competitors
with fewer fixed payment obligations; and
cause us to lose access to one or more aircraft and forfeit our rent and purchase deposits if we
are unable to make our required aircraft lease rental payments or purchase installments.
Any failure to pay our operating leases and other fixed cost obligations or a breach of our contractual
obligations could result in a variety of adverse consequences, including the exercise of remedies by our
lessors. In such a situation, it is unlikely that we would be able to fulfill our obligations, make required
lease payments or otherwise cover our fixed costs, which would have a material and adverse effect on our
business, results of operations and financial condition.
In addition, the airline industry is capital intensive. One of the critical factors in determining the
success and the profitability of our business is whether we can sustain and expand our financing source.
We also plan to expand our operating fleet and sub-leased fleet in future in line with our development
strategy which may need more funds. For details, please see the section headed Business Our Fleet.
Our ability to access to adequate funds could be influenced by factors outside of our control. If adequate
funds are not available, whether on satisfactory terms or at all, we may be forced to delay or abandon our
development and expansion plans, and our business, financial condition and results of operations may be
materially and adversely affected.
Volatility in fuel cost or significant disruptions in the supply of fuel could have a material and
adverse effect on our business, results of operations and financial condition
Fuel cost is our largest operating expense. The cost of fuel accounted for 35.9%, 33.9%, 31.6%,
30.1% and 32.9% of our total operating expenses in 2011, 2012 and 2013 and the five months ended May
31, 2013 and 2014, respectively. As such, our operating results are significantly affected by changes in the
cost of fuel. Both the cost and the availability of fuel are subject to economic, social and political factors,
and other events occurring throughout the world, which we can neither control nor accurately predict. Fuel
prices have been subject to high volatility, fluctuating substantially over the past decades, and we expect
the volatility of fuel prices may continue. We cannot assure you that we will be able to pass on any
incremental costs increases to our customers. In addition, we cannot assure you that our fuel suppliers will
continue to provide us with aircraft fuel at reasonable prices at the quantities we need, if at all. We have
not and do not currently engage in any market transactions to hedge against risks relating to fluctuations
in the price of fuel. As a result, even a relatively small increase in the price of fuel can have a significant
negative impact on our operating costs and on our business, results of operations and financial condition.
Please see the sections headed Industry Overview Aircraft Fuel and Financial Information Fuel
Prices for analysis of how various changes in fuel cost can impact our results of operations.
34
RISK FACTORS
We generated all of our rental income from aircraft under operating lease from leases with our
related parties, which represents a significant portion of our Groups total revenue and we rely on
our lessees continuing performance of their lease obligations
During the Track Record Period, we generated all of our rental income from aircraft under operating
lease through sub-leasing aircraft to three of our related parties, namely Hong Kong Express, Hainan
Airlines and Yangtze River Express. As of May 31, 2014, our fleet consisted of 40 aircraft, among which,
we operated 23 aircraft and sub-leased the remaining 17 aircraft to such related parties. We entered into
long-term leasing arrangements with the lessees at agreed pricing terms throughout the contract period. As
a result, compared with revenue generated from our passenger and cargo services, rental income from
aircraft under operating lease tends to be less volatile and less vulnerable to turbulence of general
economic conditions. During the Track Record Period, rental income from aircraft under operating lease
constituted a significant portion of our total revenue, representing 11.6%, 12.3%, 15.3%, and 11.6%,
respectively, of our total revenue, and we believe it also contributed a significant amount of profit. For
details of the aircraft we leased to our related parties, please also see the sections headed Business Our
Fleet Fleet Management and Continuing Transactions.
Our aircraft sub-leasing operations depend upon the financial strength of our lessees, our ability to
assess the credit risk of our lessees and the ability of lessees to perform their contractual obligations to
us. The ability of each lessee to perform its obligations under its lease will depend primarily on the lessees
financial condition and cash flows, which may be affected by factors beyond our control, including
competition, fare levels, fuel prices, airfreight rates and passenger and freight air travel demand. A
delayed, missed or reduced rental payment from a lessee would reduce our rental income. As we currently
only lease our aircraft to three related parties, any deterioration of the financial strength of them,
termination of current leases with them before expiration or their failure in performing their lease
obligations for any reasons beyond our control could materially and adversely impact to our business,
results of operations, including our total revenue and net profit, and financial condition.
There is no assurance that we could re-lease or sell aircraft when our current leases expire. Our
ability to re-lease or sell aircraft on favorable terms or without significant off-lease time and transition
costs could be materially and adversely affected by depressed conditions in the passenger airline, freight
airline and aircraft industries, the supply and demand for a given aircraft model at any point in time,
fluctuations in the cost of fuel and other materials, cyclical changes in interest rates and the availability
of credit, our ability to repossess an aircraft from a defaulted lease, the ability to export an aircraft from
or import an aircraft to a given jurisdiction, airline bankruptcies, the effects of terrorism and war, or other
factors. In addition, we cannot assure you that, in the event that a lessee defaults under a lease, any
security deposit paid or letter of credit provided by the lessee will be sufficient to cover the lessees
outstanding or unpaid lease obligations and required maintenance expenses or be sufficient to discharge
liens that may have attached to the aircraft or otherwise compensate us for our losses. The occurrence of
any of the above mentioned factors, could materially and adversely affect our business, results of
operations and financial condition.
We may not be able to generate sufficient cash flows to service our debt obligations
Our total debt which consists of total bank borrowings, notes payable and obligations under finance
leases amounted to HK$11,442.8 million, HK$15,055.6 million, HK$13,750.0 million and HK$13,570.3
million as of December 31, 2011, 2012 and 2013 and May 31, 2014. Our ability to make scheduled
payments on, or to refinance our obligations with respect to, our indebtedness will depend on our financial
35
RISK FACTORS
and operating performance, which in turn will be affected by general economic conditions and by
financial, competitive, regulatory and other factors that are beyond our control. Our business may not
generate sufficient cash flow from operations and future sources of capital may not be available to us in
an amount sufficient to service our indebtedness or to fund other liquidity needs. If we are unable to
generate sufficient cash flow to satisfy our debt obligations, we may have to adopt alternative strategies,
such as refinancing or restructuring our debt, selling assets, reducing or delaying capital investments or
seeking to raise additional capital. There is no assurance that any refinancing would be possible, that any
assets could be sold or, if sold, of the timing of the sales and the amount of proceeds that may be realized
from those sales, or that additional financing could be obtained on acceptable terms, if at all. Our inability
to generate sufficient cash flows to satisfy our debt obligations, or our inability to refinance our
indebtedness on commercially reasonable terms, would materially and adversely affect our business,
financial condition and results of operations.
We were in net current liabilities position as of December 31, 2011, 2012 and 2013 and May 31, 2014
As of December 31, 2011, 2012 and 2013 and May 31, 2014, we had net current liabilities of
HK$477.2 million, HK$1,580.4 million, HK$2,748.8 million and HK$2,739.6 million, respectively. Please
see the section headed Financial Information Net Current Liabilities in this [REDACTED]. We may
continue to have net current liabilities in the future. Having significant net current liabilities could
constrain our operational flexibility and materially and adversely affect our ability to expand our business.
If we do not generate sufficient cash flow from our operations to meet our present and future financial
needs, we may need to rely on additional external borrowings for funding. There is no assurance that we
could obtain necessary funds on commercially acceptable terms, or at all. This could materially and
adversely affect our business expansion plans, financial condition and results of operations.
We depend on regulatory approvals and licenses to operate in our existing markets and to gain access
to new markets
We require certain approvals, licenses, registrations and permissions to operate our business, and we
must comply with all regulations applicable to the operation of our business in order to retain those
approvals, licenses, registrations and permissions. We have no control over the regulations that apply to
our business and there can be no assurance that we will obtain all the necessary approvals and licenses for
our business operations. If we fail to obtain any of these approvals or licenses or renewals thereof in a
timely manner or at all, our business could be materially and adversely affected. Further, if we fail to
comply with applicable regulations, we may be subject to corrective measures and monitoring by the
relevant governmental bodies in order to maintain our licenses and approvals, or we may lose our licenses
and approvals, either of which may have a material and adverse effect on our business, results of
We are required to hold an AOC which is granted, and is subject to conditions imposed by the CAD.
Our AOC is valid for a prescribed period following which an application for renewal has to be made. Our
current AOC was issued on March 12, 2014 and is subject to renewal upon expiry on March 31, 2016. One
of the conditions imposed on our AOC is the limit on the total number of aircraft we may operate. We are
currently allowed to operate 17 A330 aircraft and eight A320 aircraft. As of the Latest Practicable Date,
we operated 23 aircraft, including 17 A330 aircraft and six A320 aircraft. For details of our fleet, please
see the section headed Business Our Fleet. There is no assurance that the CAD would increase the
number of aircraft we are permitted to operate in time, or at all.
36
RISK FACTORS
To operate scheduled passenger and air cargo services from Hong Kong to other destinations, we are
also required, among other things, to obtain a license from ATLA. We currently hold a license issued by
ATLA in relation to 193 destinations worldwide which allows us the opportunity to arrange for scheduled
flights to and from such destinations for passenger and air cargo transportation services. Our current ATLA
license was issued on April 28, 2014, and is subject to renewal upon expiry on March 24, 2018. There can
be no assurance that a new AOC and/or ATLA license will be granted to us upon their expiration, without
which we will not be able to operate air services. Furthermore, even if we maintained our license under
ATLA, there is no assurance that the relevant government authorities could succeed in their negotiations
for commencement of new flights to relevant destinations, or we could be chosen by the relevant
government authorities among all qualified flights to operate such new airlines in the end.
For each route we operate, we are required to hold the requisite licenses, permits and approvals from
the countries and regions to and over which we fly. The validity of each license, permit or approval varies
by country and region. If any license, permit or approval is revoked or not renewed upon its expiry or if
such renewal is on less favorable terms, we may not be able to operate on the affected route or may have
to operate at a reduced frequency. For further details, please see the section headed Regulatory
Overview for regulations that apply to us and the section headed Business Legal and Regulatory
Matters Licenses, Permits, Approvals and Certificates for our major licenses, permits, approvals and
certificates.
We may fail to comply with certain financial or restrictive covenants under bank loans and
unsecured guaranteed notes issued by our wholly-owned subsidiary
We have entered into various loan agreements with banks to fund our acquisition of aircraft and
business operations. These bank loans require us to comply with certain financial or restrictive covenants
during the term of each agreement. In addition, our wholly-owned subsidiary, Skyliner Company Limited,
issued US$30 million 7 per cent. notes in June 2014 which are guaranteed by Hong Kong Airlines Limited.
The guaranteed notes also require us to comply with various restrictive covenants including specified
financial ratios and tests. Our failure to meet these covenants could result in defaults under the relevant
bank loans and/or the guaranteed notes, respectively. In the event of a default and our inability to obtain
a waiver of the default, the outstanding amount under relevant bank loans and/or the guaranteed notes may
be declared immediately due and payable. Furthermore, as a result of cross default provisions in certain
loan agreements and/or the guaranteed notes, covenant defaults in any of these loan agreements and/or the
guaranteed notes could result in the acceleration of other relevant indebtedness. Our failure to comply with
these covenants could materially and adversely affect our results of operations and financial condition.
Please see the section headed Financial Information Indebtedness for further details of the financial
and restrictive covenants under the bank loans and the guaranteed notes.
If some of our related parties terminate business relationship with us or fail to fulfill their
obligations for delivery of services to us or payment obligations for services we provide to them, our
business, results of operations and financial condition could be materially and adversely affected
We have entered into a number of continuing transactions with Hainan Airlines, HNA Group, Hong
Kong Express and/or their respective associates in connection with our business operations, including
leasing-in and leasing-out of aircraft, passenger block seat arrangements, cargo block space arrangements
and codesharing arrangements. For instance, as of the Latest Practicable Date, among our 40 aircraft fleet,
we held 23 aircraft under finance lease or operating lease arrangements with HKIAL or its wholly-owned
subsidiaries. In addition, among these 40 aircraft, we subleased 17 aircraft to our related parties, including
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RISK FACTORS
Hong Kong Express, Hainan Airlines and Yangtze River Express. For details on our fleet, please see the
sections headed Business Our Fleet and Continuing Transactions. Furthermore, during the Track
Record Period, we entered into block seat agreements with HNA Tourism annually (which was our largest
passenger services customer during the Track Record Period), through which we sold certain number of
seats or full planeload capacity of our scheduled passenger flights and HNA Tourism agreed to pay us an
amount based on the total number of seats it agreed to purchase in the agreement and at a price parties
determined through negotiation. In addition, since 2012, we entered into one-year cargo freighter block
space agreements with HNA Aviation (which was our largest cargo services customer) each year, pursuant
to which we provided part of the capacity of cargo schedule flights that we operated by utilizing our cargo
freighters and HNA Aviation shall pay us an amount based the total cargo space it agreed to purchase in
the agreement and at a price parties determined through negotiation. For details, please also see the
sections headed Business Sales and Marketing and Continuing Transactions Non-exempt
Continuing Connected Transactions. We also entered into a number of continuing transactions with our
related parties including Hainan Airlines, HNA Group, Hong Kong Express and/or their respective
associates, for the provision of various services, such as aircraft leasing, ground handling services, and
aircraft maintenance services. Details of such continuing transactions are set forth in the section headed
Continuing Transactions in this [REDACTED].
If any of these related parties were to reduce materially or terminate its business relationship with
us entirely or breach its obligations under the relevant contracts for the continuing transactions with us,
there can be no assurance that we would be able to obtain similar services from other suppliers to replace
the services they provide to us, or to obtain such services from other suppliers on similar terms, nor can
there be any assurance that we could replace the revenue we receive from providing services to these
related parties or from our leasing and block seat arrangements with these related parties. Further, in such
cases we may be unable to successfully claim for damages against any of these related parties for its
breach of contract. As a result, our results of operations, financial condition and business may be
Our ability to distribute dividends may be restricted by the terms of our outstanding loans
We maintain a certain level of indebtedness to finance our operations. As of December 31, 2011,
2012 and 2013 and May 31, 2014, our total debt which consists of total bank borrowings, notes payable
and obligations under finance leases amounted to HK$11,442.8 million, HK$15,055.6 million,
HK$13,750.0 million and HK$13,570.3 million, respectively. Certain of our outstanding loans prohibit us
from distributing any dividends in any form before full repayment of the relevant loans. Please see the
section headed Financial Information Indebtedness Working Capital Loans for further information.
In order to comply with the financial undertakings and covenants imposed under the borrowings, we may
be required to set aside amounts which would otherwise be available for distribution and/or may also be
restricted from paying any dividend or distribution. Such requirement/restriction may negatively impact
our ability to make dividend distributions to our Shareholders, including periods in which we are
profitable. The value of our Shareholders investment in our Shares would be reduced as a result.
Our results of operations tend to be volatile and fluctuate due to seasonality.
The operation results of airline industry are affected by the supply and demand dynamics, which are
cyclic in nature and tend to be volatile. For instance, our revenue substantially depends on the passenger
and cargo traffic volume carried, which is subject to seasonal and other changes that may influence travel
demand and cargo volume, including, without limitation, general economic conditions, changes in traffic
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RISK FACTORS
patterns, the availability of appropriate time slots for our flights and alternative routes and the degree of
competition from other airlines and alternative means of transportation, many of which are unpredictable
and beyond our control. As a result, our results of operations tend to be volatile and subject to rapid and
unexpected change. Please also see the section headed The supply and demand dynamics of the airline
industry tend to be volatile and are subject to many unpredictable factors, including general economic
conditions.
In particular, we generally expect demand to be greater during summer and holiday seasons, such as
Christmas, Chinese New Year and Easter, compared to the rest of the year. As a result, comparisons of our
sales and results of operations of the first five months of each year with other corresponding period within
a single year or in different years are not necessarily meaningful and should not be relied as indicators of
our performance for any future period.
Our maintenance costs will increase as our fleet ages which would have a material and adverse effect
on our margins and our business, results of operations and financial condition
As of May 31, 2014, the average age of our operating fleet in service was approximately 2.4 years.
Our relatively new aircraft require less maintenance now than they will in the future. As a result, we expect
our fleet to require increasing levels of maintenance as it ages, which will increase our total maintenance
and repair expenses. We expect scheduled and unscheduled aircraft maintenance expenses to increase as
a percentage of our revenue over the next several years. Any significant increase in maintenance and repair
expenses, if not offset by increased revenue or other cost savings, would have a material and adverse effect
on our margins and our business, results of operations and financial condition.
Our future expansion plan may not be successfully executed or completed within our anticipated
time frame or budget
We have a strategy to improve our capacities in providing ancillary operations to maximize our cost
efficiency, including cargo handling and passenger ground handling services, aircraft maintenance,
in-flight catering service, simulation training centre for pilots and cabin crew and in-flight entertainment
services. We plan to improve our capacities in this respect either through organic growth or acquiring
suitable targets when we deem appropriate. However, there is no assurance that we could succeed in
developing this strategy. On one hand, we may not be able to hire or retain qualified employees with
relevant expertise, or we may fail to obtain necessary licence or permit from relevant government
authorities in time. On the other hand, the success of our expansion through acquisition is limited by the
availability of, and competition for, suitable acquisition targets and by our financial resources, including
available cash and borrowing capacity. Furthermore, future acquisitions may expose us to potential risks,
including potential difficulties in the retention and assimilation of personnel, the diversion of management
attention and resources from our existing business and the inability to generate sufficient cost-saving
effect to offset the costs and expenses of an acquisition. In addition, acquisitions may result in the
incurrence and inheritance of debts and other liabilities, assumption of potential legal liabilities in respect
of the acquired businesses, and incurrence of impairment charges related to goodwill and other intangible
assets. As a result, there can be no assurance that we will be able to achieve the strategic purpose of any
acquisition, the desired level of operational integration or our investment return target. The occurrence of
any of the above factors may cause a material and adverse effect on our business, financial condition and
results of operations.
We will be controlled by our Controlling Shareholders, whose interests may differ from those of our
other Shareholders
Upon the completion of the [REDACTED], assuming the Over-allotment Option is not exercised at
all, our Controlling Shareholders will beneficially own and control an aggregate of approximately
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RISK FACTORS
[REDACTED]% of the then enlarged total issued share capital of our Company. In addition, our
Controlling Shareholders will pledge our [REDACTED] held by them as security for loans obtained by
them or other parties. Such pledging of [REDACTED] if created, will be subject to the risk of foreclosure
by the lender(s) or the risk of disposals upon enforcement of the pledge if the borrower fails to perform
the repayment or other obligations under the loan. According to the relevant loan agreements, [] shares
in our Company held by our Controlling Shareholders, representing []% of outstanding shares
immediately after the [REDACTED], (assuming the Over-allotment Option is not exercised) are pledged
to the financier. The financier has the rights to request for top-up of additional securities. If the market
price drops below [], the financier has the rights to dispose of all or part of the shares pledged. In
addition, Mr. Zhong currently has an outstanding loan in the amount of HK$468,020,000 as the
consideration for his acquisition of shares in HKA Holdings. Mr. Zhong may have to sell his stake in HKA
Holdings or dispose of his effective interest in our Company by instructing HKA Holdings to sell its shares
in our Company after the relevant lock-up period, so that he could utilize the proceeds to repay the
outstanding amount to HNA Group, which has an initial repayment schedule of not less than 10% of the
total outstanding loan amount annually for every year starting from the second anniversary of the
[REDACTED] until the total outstanding loan amount is fully repaid. Any take over of our [REDACTED]
or subsequent disposals by the lender(s), disposal of Mr. Zhongs stake in HKA Holdings or sale of our
[REDACTED] by HKA Holdings pursuant to instruction from Mr. Zhong, disposal of Mr. Mungs stake
in the HKA Holdings or sales of our Shares by the HKA Holdings pursuant to instruction from Mr. Mung
(or the perception that such take over or disposals may occur) may cause the prevailing market price of
our Shares to fall, a change in control of our Company or our Company ceases to have any controlling
shareholder. Any new controlling or substantial shareholder of our Company may exercise its voting rights
in our Company or otherwise exercise its influence on our Company (if any) in a way that conflicts with
the interests of our other Shareholders.
Subject to our Articles of Association, our Controlling Shareholders will continue to have the ability
to exercise a controlling influence over the management, policies and business of our Company through
the power to nominate and elect board members, determine the timing and amount of dividend
distributions, approve or disapprove significant corporate transactions such as mergers and acquisitions,
and approve or disapprove annual budgets. Our Controlling Shareholders may cause us to enter into
transactions or to make decisions that conflict with the interests of our other Shareholders.
If our lessors fail to perform their obligations to provide aircraft in due course, we may breach our
obligations to deliver aircraft to our sub-lessees in a timely manner
Our business operations involve sub-leasing aircraft we have purchased or leased from our lessors,
and we rely on our lessors for aircraft. As of May 31, 2014, we had 12 aircraft leased under finance leases
with HKIAL, as lessor, including six A330-200 aircraft, three A330-300 aircraft and three Boeing
737-300SF freighters, of which, we operated six A330-200 aircraft and sub-leased three A330-300 aircraft
and three Boeing 737-300SF freighters to our related parties. As of May 31, 2014, we had 15 aircraft
leased under operating leases, among which, we leased 11 aircraft from HKIAL or its wholly-owned
subsidiaries, and another four aircraft from Independent Third Parties. Among the total 15 aircraft we
leased under operating leases, we operated three A330-300 aircraft and one A320-200 aircraft and five
A330-200F cargo freighters, and sub-leased the remaining aircraft to Hainan Airlines. For details of our
leased aircraft, please see the section headed Business Our Fleet Aircraft Purchasing and Leasing
Arrangements. If our lessors fail to perform their obligations to provide aircraft to us in due course, we
may not be able to deliver aircraft to our sub-lessees in a timely manner. As a result, we may breach our
obligations under the sub-lease agreements which could materially and adversely affect our reputation,
business, financial condition and results of operations.
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RISK FACTORS
Our operations and reputation could be materially and adversely affected in the event of any
emergency, accident, serious incident or other similar event involving our aircraft
We are exposed to potential significant losses and our business operations and reputation could be
materially and adversely affected in the event that any of our aircraft is subject to an emergency, accident,
serious incident or other similar event. Any such events could involve significant costs related to
passenger claims, repairs or replacement of a damaged aircraft and its temporary or permanent loss from
service. Further, any such events, even if our passengers or planes were not harmed, could generate
negative publicity and damage our reputation, and reduce the demand for our services. There can be no
assurance that we will not be affected by such events, or that the amount of our insurance coverage will
be adequate in the event such circumstances arise. Such events could also cause a substantial increase in
our insurance premiums or the loss of insurance coverage.
During August and September in 2013, we had certain publicized incidents of air traffic
communication lapses with air traffic controllers at HKIA. We consider these air traffic communication
lapses to represent a low level of risk, and none of our air traffic communication lapses impacted the safety
of the affected flights. However, any future aircraft emergency, public reports on air traffic communication
lapses, or similar events, even if fully covered by insurance and no passengers are injured or even if it does
not involve our airline, may create a public perception that our airline or the equipment we fly is less safe
or reliable than other transportation alternatives, which could have an adverse impact on our reputation
and could have a material and adverse effect on our business, results of operations and financial condition.
We rely on maintaining a high daily utilization rate for each aircraft to make our business profitable,
which makes us especially vulnerable to flight delays or cancellations or aircraft unavailability
One of the key elements of our profitability is to maintain a high daily utilization rate for each
aircraft. Our daily aircraft utilization under passenger services was 10.8, 10.3, 10.6, 9.7 and 11.3 block
hours as of December 31, 2011, 2012 and 2013 and May 31, 2013 and 2014, respectively. Our daily aircraft
utilization under cargo services was 8.1, 8.1, 9.5, 8.9 and 10.4 block hours as of December 31, 2011, 2012
and 2013 and May 31, 2013 and 2014, respectively. Our revenue per aircraft can be increased by higher
daily aircraft utilization, which is achieved in part by reducing turnaround times at airports, so we can fly
more hours on average in a day. Aircraft utilization is reduced by delays and cancellations arising from
various factors, many of which are beyond our control, including air traffic congestion at airports or other
air traffic control problems, limitations on slot availability, adverse weather conditions, increased security
measures or breaches in security, international or domestic conflicts, terrorist activity, disease outbreaks
or other changes in business conditions. In addition, removing aircraft from service for unscheduled and
scheduled maintenance, which could increase as our fleet ages, may materially reduce our average fleet
utilization. High aircraft utilization increases the risk that if an aircraft falls behind schedule during the
day, it could remain behind schedule during the remainder of that day and potentially into the next day,
which can result in disruption in operating performance, leading to passenger dissatisfaction related to
delayed or canceled flights and missed connections. Due to the relatively small size of our fleet and high
daily aircraft utilization rate, the unavailability of one or more aircraft and resulting reduced capacity, or
our failure to operate within time schedules, could have a material and adverse effect on our business,
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RISK FACTORS
We rely heavily on technology and automated systems to operate our business and any failure of
these technologies or systems or failure by their operators could harm our business
We are highly dependent on technology and automated systems to operate our business and achieve
low operating costs. These technologies and systems include our website, internet booking and payment
system, revenue management system, financial planning, management and accounting system, route
planning system, flight scheduling system, crew rostering system and cargo management system. In order
to maximize our operating efficiency, our website and booking and payment system must be able to
accommodate a high volume of traffic, maintain secure information and deliver accurate flight
information. A significant portion of our tickets are issued to passengers as electronic tickets. We depend
on our internet booking system, which is hosted and maintained under a two-year renewable contract by
a third party service provider, to be able to issue, track and accept these electronic tickets. If our website
and booking and payment system fails or experiences interruptions, and we are unable to book seats for
any period of time, we could lose a significant amount of revenue if customers book seats on competing
airlines. We also rely on third party service providers of certain other automated systems for technical
support, system maintenance and software upgrades. If our automated systems are not functioning or if the
current providers were to fail to adequately provide technical support or timely software upgrades for any
one of our key existing systems, we could experience service disruptions, which could harm our business,
result in the loss of important data, increase our expenses and decrease our revenue. In the event that one
or more of our primary technology or systems vendors goes into bankruptcy, ceases operations or fails
to perform as anticipated, replacement services may not be readily available on a timely basis, at
competitive rates or at all and any transition time to a new system may be significant.
In addition, we cannot completely protect our automated systems against events that are beyond our
control, including natural disasters, computer viruses or telecommunications failures. Substantial or
sustained system failures could cause service delays or failures and result in our customers purchasing
tickets from other airlines. Disruption in, changes to or a breach of these systems could also result in a
disruption to our business and the loss of important data. Any of the foregoing could result in a material
and adverse effect on our business, financial condition and results of operations.
We rely on third party service providers to perform many functions integral to our operations and
failure by any of them to perform their contracts may have an adverse impact on our business
operations
We rely on agreements with third party service providers to furnish certain services required for our
operations, including ground handling, passenger handling, aircraft maintenance, aircraft cleaning,
landing and parking, in-flight catering and cargo handling services. For details, please see the sections
headed Business Operations and Business Aircraft Maintenance. Failure to renew any of the
agreements with third party service providers or negotiate replacement agreements with other service
providers at comparable or acceptable rates on the termination or expiration of such contracts could harm
our results of operations. We are likely to enter into similar service agreements in new markets that we
decide to enter, and there can be no assurance that we will be able to obtain the necessary services at
acceptable rates or consistent with our customer service standards.
Although we seek to monitor the performance of third party service providers, their efficiency,
timeliness and quality of contract performance are often beyond our control, and failure by any of them
to perform their contracts may have an adverse impact on our business operations. We expect to be
dependent on such third party arrangements for the foreseeable future.
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RISK FACTORS
We are exposed to foreign exchange rate fluctuation risk
We operate our business in many countries and territories. Our revenue streams are denominated in
a number of foreign currencies resulting in exposure to foreign exchange rate fluctuations. The currencies
giving rise to risk are primarily the US Dollar, Renminbi, Japanese yen and others. We attempt to measure
and minimize foreign currency risk by employing sensitivity analysis, and taking into account current and
anticipated exposures. We also try, where possible, to finance assets in those foreign currencies in which
net operating surpluses are anticipated. However, we remain subject to foreign exchange risks in many
aspects of our operations, and severe fluctuations in the currencies in which we incur costs or generate
revenue could materially and adversely impact our financial performance.
Increased insurance costs, or the occurrence of uninsured risks, could have a material and adverse
effect on our business, financial condition and results of operations
As a result of the September 11, 2001 terrorist attacks, aviation insurers significantly reduced the
amount of insurance coverage available to commercial air carriers for liability to persons other than
employees or passengers for claims resulting from acts of terrorism, war or similar events (war risk
insurance). Accordingly, our insurance costs increased significantly and our ability to continue to obtain
certain types of insurance remains uncertain. While the price of commercial insurance has declined since
the period immediately after the terrorist attacks, in the event commercial insurance carriers further reduce
the amount of insurance coverage available to us, or significantly increase costs, we would be materially
and adversely affected. We currently maintain commercial aviation insurance with several underwriters.
However, there can be no assurance that the amount of such coverage will not be changed, or that we will
not bear substantial costs from accidents. We could incur substantial claims resulting from an accident in
excess of related insurance coverage that could have a material and adverse effect on our results of
Furthermore, in line with industry practice, we leave certain business risks uninsured when insurance
coverage is generally unavailable. These include risks such as business interruptions and loss of profit and
revenue and consequential business losses arising from mechanical breakdown. To the extent that any
uninsured risks materialize, our business, results of operations and financial condition could be materially
and adversely affected. There can be no assurance that our insurance coverage will cover any or all actual
losses incurred during our operations. To the extent that actual losses incurred by us exceed the amount
insured, we may have to bear substantial losses which could have a material and adverse effect on our
business, financial condition and results of operations.
We are exposed to variations in landing charges and other airport access fees and restrictions
Certain airports that we serve (or that we plan to serve in the future) are subject to capacity
constraints during certain periods of the day. As a result, we cannot assure you that we will be able to
obtain a sufficient number of slots, gates and other facilities at airports to maintain or expand our services
as we are proposing to do. It is also possible that airports not currently subject to capacity constraints may
become so in the future. In addition, an airline must use its slots on a regular and timely basis or risk
having those slots reallocated to other airlines. Where slots or other airport resources are not available or
their availability is restricted in some way, we may have to amend our schedules, change routes or reduce
aircraft utilization, any of which could have an adverse effect on our business, financial condition and
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RISK FACTORS
In addition, certain airports impose various restrictions, including limits on aircraft noise levels,
limits on the number of average daily departures and curfews on runway use. We cannot assure you that
airports at which there are currently no such restrictions may not implement restrictions in the future or
that, where such restrictions exist, they may not become more onerous. These restrictions may limit our
ability to continue to provide or to increase services at such airports.
We must pay fees to airport operators for the use of their facilities. Any substantial increase in airport
charges could have a material and adverse impact on our results of operations and financial condition.
Passenger taxes and airport charges have also increased in recent years. We cannot assure you that the
airports at which we intend to operate will not impose, or further increase, passenger taxes and airport
charges in the future. Any such increase could have an adverse effect on our business, results of operations
and financial condition.
Our success in operations and future expansion is subject to our ability to access to adequate
facilities and landing rights, in particular, those in HKIA
We are dependent on the quantity and quality of airport infrastructure for our current operations and
for our future expansion. We compete with other airlines for the availability of terminal space, time slots
and aircraft parking and others at HKIA and the other airports at which we operate. In line with our
business expansion plans, we will require support equipment and ground and maintenance facilities,
including gates and hangars, at the various airports in which we currently operate, and we will require such
equipment and facilities at the various airports from which we operate in the future. There can be no
assurance that such equipment and facilities will be available in a reliable and timely manner in the future.
There also can be no assurance of our ability to lease, acquire or access airport facilities or services on
commercially acceptable terms and at preferred times to support our growth and expansion plans, and the
lack of any of these facilities or services may have a material and adverse effect on our business operations
and financial results.
Furthermore, we are highly dependent on our operations at our hub, HKIA, where all of our
scheduled flights originate. According to the ICF Report, the capacity of current two runways at HKIA will
reach saturation in 2020. There is a project underway for the construction of the third runway at HKIA,
which, when completed, may allow us to increase the frequency of flights and number of routes we serve
from our hub. If construction of this new runway is delayed, our expansion strategy may be impeded. In
addition, if fees and other costs related to the new runway increase as compared to our current fees and
costs, our business, financial condition and results of operations could be materially and adversely
affected.
Any real or perceived problem with aircraft manufactured by Airbus could materially and adversely
affect our operations
We currently only operate aircraft manufactured by Airbus. Our dependence on these aircraft makes
us particularly vulnerable to any problems that might be associated with such aircraft. We have not
experienced any significant design defects or mechanical problems to date. However, if any such defect
or problem is discovered, the relevant aircraft may have to be withheld from service until such defect or
problem is resolved. Further, our business operations could be materially and adversely affected if
passengers avoid flying with us due to real or perceived safety concerns or other problems associated with
aircraft manufactured by Airbus. Governmental authorities could also restrict or suspend the use of aircraft
manufactured by Airbus while they conduct their own investigation into any actual or perceived design
defects or mechanical problems.
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RISK FACTORS
Our lack of marketing alliances could harm our business
Many airlines have marketing alliances with other airlines, under which they market and advertise
their status as marketing alliance partners. These alliances, such as OneWorld, SkyTeam and Star Alliance,
generally provide for codesharing, frequent flyer program reciprocity, coordinated scheduling of flights to
permit convenient connections and other joint marketing activities. Such arrangements permit an airline
to market flights operated by other alliance members as its own. This increases the destinations,
connections and frequencies offered by the airline and provides an opportunity to increase traffic on that
airlines segment of flights connecting with alliance partners.
Although we participate in the Hainan Airlines frequent flyer program, called Fortune Wings
Club, and have entered into codeshare agreements with Hainan Airlines, China Eastern Airlines, Shanghai
Airlines and EVA Airways, we are not a member of any other marketing alliances with respect to passenger
services. There can be no assurance that we will be able to enter into any other marketing alliances in the
future. Our lack of marketing alliances puts us at a competitive disadvantage to major network carriers,
who are able to attract passengers through more widespread alliances, particularly on international routes,
and that disadvantage may result in a material and adverse effect on our passenger traffic, business, results
of operations and financial condition.
We have a relatively short operating history
Hong Kong Airlines was originally incorporated in Hong Kong on March 28, 2001 as CR Airways
Limited, and was renamed as Hong Kong Airlines Limited on September 30, 2006. Hong Kong Airlines
established its cargo business in 2006 and introduced its first cargo freighter in 2010. Compared to the
other local airline, Cathay Pacific, which has had a local market presence for more than 50 years and
Dragonair (Cathay Pacifics subsidiary), which has been operating for nearly 30 years, our operating
history is significantly shorter, as a result of which, they may have more advantages in penetration into
relevant markets and enjoy more market recognitions.
As such, our business and prospects must be considered in light of the risks, uncertainties and
difficulties frequently encountered by air service providers during the early stage of operations. Our future
performance will depend upon a number of factors, including our ability to implement our growth strategy,
choose new markets successfully, provide high-quality customer service at low prices, attract, retain and
motivate qualified personnel, react to customer and market demands, operate at airports providing
adequate service, and maintain the safety of our operations. We cannot assure you that we will successfully
address any of these factors, and our failure to do so could materially and adversely affect our business,
We may not be able to continue enjoying certain tax benefits, which could have a material and
adverse effect on our financial condition and results of operations
Under Hong Kong tax law, we are eligible to enjoy an initial allowance of 60% on the cost of
purchase of an aircraft, and annual allowances of 30% on the tax written down value of the purchase of
aircraft. We sustained a tax loss for the years ended December 31, 2011, 2012 and 2013 and the five
months ended May 31, 2013 and 2014, thus no provision for Hong Kong profits tax has been made in the
financial statements for those periods. However, revisions to the Hong Kong tax law or changes in our
aircraft purchase schedule could have a material and adverse effect on our business, results of operations
and financial condition.
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RISK FACTORS
Environmental laws and regulations may became more stringent and more expensive to comply with,
which may materially and adversely affect our business, financial condition and results of operations
As of May 31, 2014, we operated 23 aircraft for our passenger and cargo services. Our operations
in the Asia Pacific region are subject to a variety of environmental and related laws and regulations at
local, national and international levels. These regulations govern, among other things, greenhouse gas
emission. As climate change initiatives become more prevalent globally, many governments and
international organizations have increased their focus on reducing greenhouse gas emissions and
enhancing environmental sustainability in the business sector. Customers may also demand higher
environmental standards with respect to our aircraft. Compliance with all environmental laws and
regulations can require significant expenditures and any future regulatory developments in Hong Kong and
abroad could materially and adversely affect operations and increase operating costs in the airline industry.
For example, in October 2013, ICAO approved a roadmap for establishing a ceiling on aviation emissions
to take effect in 2020. Compliance with these regulations and new or existing regulations that may be
applicable to us in the future could increase our cost base and could have a material and adverse effect
on our business, results of operations and financial condition.
Our processing, storage, use and disclosure of confidential information and personal data could give
rise to liabilities
In the processing of our customer transactions, we receive, process, transmit and store a large volume
of identifiable personal data, including financial data such as credit card information. This data is subject
to legislation and regulation, intended to protect the privacy of personal data that is collected, processed
and transmitted. More generally, we rely on consumer confidence in the security of our system, including
our internet site on which we sell a significant portion of our tickets. There are significant challenges to
secure transmission of confidential information over public networks. We may not be able to prevent third
parties, such as hackers or criminal organizations, from stealing information provided by our customers
to us through internet. Any compromise of our security or third-party service providers security could
have a material and adverse effect on our reputation, business, prospects, financial condition and results
of operations. In addition, significant capital and other resources may be required to protect against
security breaches or to alleviate problems caused by such breaches. The methods used by hackers and
others engaged in online criminal activity are increasingly sophisticated and constantly evolving. Even if
we are successful in adapting to and preventing new security breaches, any perception by the public that
online commerce and transactions, or the privacy of user information, are becoming increasingly unsafe
or vulnerable to attack could materially and adversely affected our business, results of operations and
financial condition. Furthermore, lawsuits may be initiated against us and our reputation may be
negatively affected if we fail to comply with applicable law and privacy obligations.
Our results of operations may be materially and adversely affected if we fail to retain, hire or train
qualified personnel at reasonable costs
Our business requires highly skilled and experienced pilots, trained and competent cabin crew,
experienced engineers and maintenance crew and other personnel. The current labor market for such
qualified and skilled personnel in Hong Kong is highly competitive. Our growth strategy requires the
hiring, training and retention of a significant number of skilled employees in the future. From time to time,
the airline industry may experience a shortage of skilled and experienced personnel, especially pilots, and
our competitors may be able to offer more competitive salaries to the same personnel that we are trying
to attract or retain. If we are unable to hire, train and retain qualified employees at a reasonable cost, our
competitive ability and our business, results of operations and financial condition may be materially and
adversely affected.
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RISK FACTORS
We are dependent on the continued services of our senior management team and other key personnel
We are highly dependent on the continued service of our senior management and executive officers,
in particular, Mr. Zhang Kui, Mr. Sun Jianfeng and Mr. Wu Hao who together have an average of nearly
17 years experience in airline industry. Our executive officers and other senior management members are
charged with designing and implementing our business strategy, and running our operations on daily basis.
Competition for senior management in our industry is intense, and we may not be able to effectively retain
our senior management personnel or attract and retain new senior management personnel in the future. If
any of these executive officers or other senior management members leaves our Company, or if we are
unable to recruit suitable or comparable substitutes in a timely manner, our business, financial condition
and results of operations could be materially and adversely affected.
Adverse changes in economic, political and social conditions or government policies of the PRC or
Hong Kong could have a material and adverse effect on our business, financial condition, results of
operations and prospects
We conduct a significant portion of business operation in the PRC and derive significant portion of
our revenue from the PRC. For instance, revenue based on passenger and cargo flights to and from the PRC
amounted to HK$1,549.8 million, HK$2,228.0 million, HK$3,275.5 million, HK$1,286.2 million and
HK$1,714.8 million, respectively, in 2011, 2012 and 2013 and the five months ended May 31, 2013 and
2014, respectively, which represented approximately 33.1%, 35.6%, 38.3%, 39.0% and 43.3% of our total
revenue in those periods, respectively. In addition, as we hub in Hong Kong, all of our scheduled passenger
flights and substantially all of our scheduled cargo flights originate from or terminate at HKIA.
Accordingly, our business, financial condition, results of operations and prospects are, to a significant
degree, subject to economic, political and social developments in the PRC or Hong Kong. The PRC
economy differs from the economies of most developed countries in many respects, including the extent
of government involvement, level of development, growth rate, control of foreign exchange and allocation
of resources. While the PRC economy has experienced significant growth over the past decade, the growth
has been uneven across different regions and among various economic sectors, and such growth may not
continue. In addition, there is no assurance that Hong Kong will not experience any adverse economic,
political or social conditions as a result of factors beyond our control, including epidemic, social
disturbance or economic recession. Any adverse changes in economic, political or social conditions or
government policies in the PRC or Hong Kong could have a material and adverse effect on the overall
economic growth of the PRC or Hong Kong, which in turn could lead to a reduction in demand for our
services and consequently have a material and adverse effect on our business, financial condition and
The undertakings contained in the deed of non-competition provided by our Controlling
Shareholders in favor of us in respect of their interest in Hong Kong Express may not be effective
in eliminating the potential competition between the business of Hong Kong Express and the
business of our Group
Our Controlling Shareholders have an aggregate of approximately 44% interest in Hong Kong
Express, the fourth largest Hong Kong based carrier, which does not form part of our Group. Hong Kong
Express, as a low-cost carrier, has a different model targeting a different group of customers. Whilst, as
of the Latest Practicable Date, there were no overlapping passenger route between us and Hong Kong
Express, there is no assurance that Hong Kong Express may not, in the future, operate passenger routes
that overlap with our existing passenger routes or with route that we may develop in the future. Our
47
RISK FACTORS
Controlling Shareholders have undertaken in the deed of non-competition for the benefit of us that they
will exert their best efforts by exercising their voting rights in Hong Kong Express to procure Hong Kong
Express to (i) seek our prior written consent before Hong Kong Express decides to commence operating
any passenger route(s) that overlaps or may overlap with the passenger route(s) that we operate; and
(ii) divert or first offer to us any relevant new business opportunity that the Controlling Shareholders
become aware of. However, as the Controlling Shareholders only own 44% interest in and do not control
the composition of the board of directors of Hong Kong Express, they may not be effective in procuring
Hong Kong Express not to engage in business or activities that potentially compete with our business. If
Hong Kong Express engages in such competing business or activities, it may materially and adversely
affect our financial performance.
RISKS RELATING TO THE AIRLINE INDUSTRY
The supply and demand dynamics of the airline industry tend to be volatile and are subject to many
unpredictable factors, including general economic conditions
The operating results of airlines are largely determined by the demand for passenger and cargo
transportation and the supply of air transportation capacity. The demand for air transportation is subject
to seasonal and other changes that may influence travel demand and cargo volume, including, without
limitation, general economic conditions, changes in traffic patterns, the availability of appropriate time
slots, the competition among peer airlines or alternative means of transportation, proliferation of
terrorism, natural disasters, epidemics, and social and political unrest, many of which are highly variable
and unpredictable. As a result, the results of airlines tend to be volatile and subject to rapid and unexpected
change. In particular, the airline industry is highly sensitive to changes in economic conditions. Robust
demand for our air transportation services depends largely on favorable economic conditions. Adverse
economic conditions could cause changes in travel patterns and result in reduced spending for both leisure
and business travel. Air transportation is often a discretionary purchase that leisure travellers may limit
or eliminate during difficult economic times. In addition, during periods of unfavorable economic
conditions, business travellers usually reduce the volume of their travel, or may be more likely to purchase
less expensive tickets to reduce costs, which can result in a decrease in average revenue per seat.
Unfavorable economic conditions also hamper the ability of airlines to raise fares to counteract increased
fuel, labor, and other costs. These conditions could negatively affect our results of operations or cause us
to adjust our business strategies. For example, the eurozone crisis and weak demand had contributed to
our decision to withdraw from our all business-class scheduled flights between Hong Kong and London
in 2012.
In particular, we currently conduct substantially all of our operations and generate substantially all
of our revenue in the Asia Pacific region. We expect to focus on network development in markets in the
Asia Pacific region and will prioritize capacity towards launching new routes and expanding frequency in
the foreseeable future into the Asia Pacific region. The success of our business depends substantially on
the favorable general economic conditions in these regions, and poor economic conditions in the other
regions within which we operate would have an adverse effect on our business, results of operations and
financial condition. There can be no assurance that the current economic conditions in the Asia Pacific
region can be sustained. An economic crisis and any continuing impact thereof on the economies of
countries and regions in the Asia Pacific region, or any new adverse economic developments therein, could
materially and adversely affect the markets in which we operate, causing the growth or demand for our
services to slow down, which may negatively affect our business, financial condition and results of
operations.
48
RISK FACTORS
We operate in an extremely competitive industry, where our performance will significantly depend
on how effectively we compete with other airlines
There is intense competition in the airline industry between airlines, principally in terms of price,
quality of services, punctuality, frequency, safety, security, branding, customer base or passenger loyalty,
and other related ancillary services. We compete with traditional network airlines, regional airlines and
other low-cost airlines, either on our current routes or on new routes that we add to our network. The
intensity of the competition we face varies from route to route and depends on a number of factors,
including the strength of competing airlines. Our competitors may have better brand recognition and
greater financial and other resources than we do. In the event our competitors reduce their fares to levels
which we are unable to match while sustaining profitable operations or are more successful in the
operation of certain routes (as a result of service or otherwise), we may be required to reduce or withdraw
services on the relevant routes, which may cause us to incur losses or may impact our growth, financial
condition or results of operations.
The airline industry is characterized by high fixed costs and relatively elastic revenue, and therefore
airlines cannot quickly reduce their costs to respond to shortfalls in expected revenue
The airline industry is characterized by high fixed costs and revenue that generally exhibits
substantially greater elasticity than costs. The operating costs of each flight do not vary significantly with
the number of passengers flown and, therefore, a relatively small change in the number of passengers, fare
pricing or traffic mix could have a significant effect on operating and financial results. These fixed costs
cannot be adjusted quickly to respond to changes in revenue and a shortfall from expected revenue levels
could have a material and adverse effect on our business, results of operations and financial condition.
We may face competition from alternative means of transportation
High-speed railway has been rapidly developing in China in recent years. According to the
International Union of Railways, the PRC nationwide high-speed railway network has by far the longest
operational route in the world. In addition, the PRC continues to grow its inter-city expressway network
and has the largest scale of high-speed railway under construction. Given the recent development of
high-speed train travel, the construction of the nationwide high-speed railway network and the
improvement of the inter-city expressway network in the PRC, the PRC commercial aviation sector and
the Hong Kong commercial aviation sector, as a whole, faces increasing competition from alternative
means of transportation such as railways and expressways. In addition, the public may choose alternative
means of transportation due to concerns on safety or availability of flights, all of which might be
negatively affected by factors beyond our control, including terrorist activities, governmental control on
air traffic or default of other airline operators. Such increased competition from PRC high-speed railway
and also expressway network may materially and adversely affect our business, financial condition and
49
RISK FACTORS
Any terrorist attacks, natural disasters, epidemics and social and political unrest may lead to travel
restrictions and reduced levels of economic activity in the affected areas, which may in turn
significantly reduce demand for our services and have a material and adverse effect on our business,
financial condition and results of operations
The airline industry in general has suffered substantial losses in recent years as a result of terrorism,
natural disasters, epidemics, social and political unrest and other global factors. Terrorist attacks, such as
those on September 11, 2001 in the United States, natural disasters such as volcanic eruptions in
Eyjafjallajkull in Iceland in 2010 and Tohoku earthquake and tsunami in Japan in 2011, epidemics such
as the outbreak of avian influenza, Influenza A (H1N1) and Severe Acute Respiratory Syndrome, or SARS,
in Asian countries including China, and volatility in social and political conditions in the regions in which
we operate have in the past, and may in the future, cause substantial reductions in passenger demand, flight
cancellations or delays. Terrorist attacks and threatened attacks have from time to time materially and
adversely affected the demand for air travel and also have resulted in increases in our safety and security
costs. Safety measures create delays and inconveniences and can, in particular, reduce our competitiveness
against surface transportation for short-haul routes. Additional terrorist attacks, even if not made directly
on the airline industry, or the fear of such attacks or other hostilities (including elevated national threat
warnings or selective cancellation or redirection of flights due to terror threats) would likely have a further
significant negative impact on us and the airline industry.
In addition, a series of earthquakes in Tohoku and tsunami in 2011 resulted in severe damage to the
city and caused continuing radiation leak of nuclear plants. These have affected Japans attractiveness as
a tourist destination and contributed to the decrease of our passenger revenue generated from Japan and
South Korea to HK$220.4 million in 2012 from HK$468.1 million in 2011. Moreover, in 2013, the
political upheaval in Thailand materially and adversely affected the demand for our air transportation
services to Thailand. The changes in political environment of Hong Kong may reduce the number of
Chinese and international visitors to Hong Kong. As a result, the tourism industry and the overall economy
of Hong Kong may suffer from such changes, which will in turn have a material and adverse effect on our
business, financial condition and results of operations. Furthermore, accidents of other airlines may also
have negative impact on demand for airline services of the entire industry, which in turn may affect our
operation results. For instance, in 2014, as a result of multiple accidents involving other airlines in the
world, we experienced a decrease in market demand for our airline services, which in turn caused a
decrease in our operating profit for the five months ended May 31, 2014 compared with that for the five
months ended May 31, 2013.
Accordingly, the occurrence of any of such events, or other events that are not within our control,
may have a significant adverse impact on the demand for our services which may have a material and
adverse effect on our business, financial condition and results of operations.
Airlines are often affected by factors beyond their control resulting in delays or cancellations which
in turn could harm our business, results of operations, financial condition and reputation
Like other airlines, we are subject to delays or cancellations caused by factors beyond our control,
including air traffic congestion at airports or other air traffic control problems, adverse weather conditions,
disease outbreaks or concerns and increased security measures. Delays or cancellations frustrate
passengers, reduce aircraft utilization and increase costs, all of which in turn could have a material and
adverse effect on our business, results of operations and financial condition. Furthermore, such events
could generate negative publicity and damage our reputation, and reduce the demand for our services.
50
RISK FACTORS
Consolidation or new alliances in the airline industry may reduce our relative competitiveness
The global airline industry has experienced substantial consolidation and the formation of
international alliances and this trend may continue. For example, American Airlines, Inc. and U.S. Airways
merged in December 2013, which created the biggest airline in the world. Airline consolidation may
improve market share, provide cost structure advantages, enhance operating efficiency and expand sales
and marketing channels for the participants. Consolidation of other airlines may increase the competitive
pressures that we experience and may materially and adversely affect our growth prospects. Moreover,
international alliances, through which member airlines advertise their status as alliance partners to
increase passenger traffic and brand recognition, may also increase competition. Although we currently
have bilateral codeshare agreements with some airlines, we are not currently a member of any international
alliance and our results of operations and ability to compete effectively may be materially and adversely
affected as a result.
RISKS RELATING TO THE [REDACTED]
There has been no prior public market for our [REDACTED], and an active [REDACTED] market
may not develop, which could have a material and adverse effect on our [REDACTED] price and
your ability to sell your [REDACTED]
Before the [REDACTED], there was no public market for our [REDACTED]. The initial
[REDACTED] range of our [REDACTED], and the HKD [REDACTED] and the [REDACTED], will
be the result of negotiations between the Joint Bookrunners (on behalf of the Underwriters) and us. In
addition, while we have applied to have our [REDACTED] on the Stock Exchange, there can be no
guarantee that (i) an active [REDACTED] market for our [REDACTED] will develop or, (ii) if it does,
that it will be sustained following the completion of the [REDACTED], or (iii) that the market price of
our [REDACTED] will not decline below the HKD [REDACTED] and/or the [REDACTED]. You may
not be able to resell your [REDACTED] at a price that is attractive to you, or at all.
The price and [REDACTED] volume of our [REDACTED] may be volatile which could result in
substantial losses for investors purchasing our [REDACTED] in the [REDACTED]
The price and [REDACTED] volume of our [REDACTED] may be volatile. The market price of our
[REDACTED] may fluctuate significantly and rapidly as a result of the following factors, among others,
some of which are beyond our control:
variations in our results of operations (including variations arising from foreign exchange rate
fluctuations);
changes in our pricing policy as a result of the presence of competitors;
loss of significant customers or material defaults by our customers;
changes in securities analysts estimates of our financial performance;
announcements by us of significant acquisitions, strategic alliances or joint ventures;
additions or departures of key personnel;

51
RISK FACTORS
fluctuations in stock market price and volume;
involvement in litigation; and
general economic and stock market conditions.
In addition, stock markets and the [REDACTED] of other companies [REDACTED] on the Stock
Exchange with significant operations and assets in China have experienced increasing price and volume
fluctuations in recent years, some of which have been unrelated or disproportionate to the operating
performance of such companies. These broad market and industry fluctuations may materially and
adversely affect the market price of our [REDACTED].
We may not be able to distribute dividends to our Shareholders
Our ability to pay dividends or make other distributions to our Shareholders is subject to the future
financial performance and cash flow position of our Group. We may not be able to distribute dividends
to our Shareholders as a result of the abovementioned factors.
We may not be able to record profits and have sufficient funds above our funding requirements, other
obligations and business plans to declare dividends to our Shareholders.
Future sales or a major divestment of [REDACTED] by any of our Shareholders or pledging of
[REDACTED] could materially and adversely affect the prevailing market price of our
[REDACTED]
The future sale of a significant number of our [REDACTED] in the public market after the
[REDACTED], or the possibility of such sales, by our Controlling Shareholders or other substantial
shareholders of the Company could materially and adversely affect the market price of our [REDACTED]
and could materially impair our future ability to raise capital through offerings of our [REDACTED]. If
our Controlling Shareholders sell all or substantially all of our [REDACTED] held by them, it may lead
to a change of control of our Company or that our Company ceases to have any controlling shareholder.
Although our Controlling Shareholders have agreed to a lock-up of their [REDACTED], any major
divestment of our [REDACTED] by any of our Controlling Shareholders upon expiry of the relevant
lock-up periods (or the perception that these divestments may occur) may cause the prevailing market
price of our [REDACTED] to fall which could negatively impact our ability to raise equity capital in the
future.
In addition, our Controlling Shareholders may pledge our [REDACTED] held by them as security
for loans obtained by them or other parties. Such pledging of [REDACTED] may be exempt from the
restrictions of the lock-up undertakings provided by our Controlling Shareholders or our Company and the
Global Coordinator may provide consent for the creation of such pledge notwithstanding the restrictions
under the lock-up undertakings. Such pledging of [REDACTED] if created, will be subject to the risk of
foreclosure by the lender(s) or the risk of disposals upon enforcement of the pledge if the borrower fails
to perform the repayment or other obligations under the loan. Any take over of our [REDACTED] or
subsequent disposals by the lender(s) (or the perception that such take over or disposals may occur) may
cause the prevailing market price of our [REDACTED] to fall, a change in control of our Company or our
Company ceases to have any controlling shareholder.
52
RISK FACTORS
There will be a [Five] Business-Day time gap between pricing and [REDACTED] of our
[REDACTED] offered in this [REDACTED]
The initial price to the public of our [REDACTED] sold in this [REDACTED] will be determined
on the [REDACTED]. However, the [REDACTED] of our [REDACTED] on the Hong Kong Stock
Exchange will not commence until they are delivered, which is expected to be the [fifth] Business Day
after the [REDACTED]. As a result, investors may not be able to sell or otherwise deal in our
[REDACTED] during that period. Consequently, holders of our [REDACTED] may bear risks as adverse
market conditions or other unfavorable circumstances may arise during the period between the time of sale
and the time trading begins and the price of our [REDACTED] may be lower than the HKD
[REDACTED] and/or [REDACTED] at the start of [REDACTED].
Certain statistics contained in this [REDACTED] are derived from a third party report and publicly
available official sources
This [REDACTED], particularly the section headed Industry Overview in this [REDACTED],
contains information and statistics, including but not limited to information and statistics relating to China
and the air transportation industry and markets. Such information and statistics have been derived from
various official government and other publications and from a third party report commissioned by us. The
sources of such information are conventional sources for such information and we have taken reasonable
care in extracting and reproducing such information. We have no reason to believe that such information
is false or misleading in any material respect or that any fact has been omitted that would render such
information false or misleading in any material respect. The information has not been independently
verified by us, the Sole Global Coordinator, the Joint Bookrunners, the Joint Lead Managers, the Sole
Sponsor, the Underwriters, any of our or their respective directors, officers or representatives or any other
person involved in the [REDACTED] and no representation is given as to its accuracy of such facts and
statistics, which may not be consistent with other information compiled within or outside the PRC and may
not be complete or up-to-date. Due to possibly flawed or ineffective data collection methods or
discrepancies between published information and market practice and other problems, the facts, forecasts
and statistics in this [REDACTED], including those with respect to China, the economy and the air
transportation industry in China, may be inaccurate or may not be comparable to facts, forecasts and
statistics produced with respect to other economies. Furthermore, we cannot assure you that they are stated
or compiled on the same basis or with the same degree of accuracy as may be the case elsewhere.
Therefore, you should not unduly rely upon the facts, forecasts and statistics with respect to China, the
economy and the passenger vehicle dealership industry in China contained in this [REDACTED].
Investors should read the entire [REDACTED] carefully and should not consider any particular
statements in published media reports without carefully considering the risks and information
contained in this [REDACTED]
There has been coverage in the media regarding the [REDACTED] and our operations. We do not
accept any responsibility for the accuracy or completeness of such media coverage or forward looking
statements and make no representation as to the appropriateness, accuracy, completeness or reliability of
any information disseminated in the media. We disclaim any information in the media to the extent that
such information is inconsistent or conflicts with the information contained in this [REDACTED].
Accordingly, prospective investors should not rely on any of the information in press articles or other
media coverage.
53
RISK FACTORS
The HKD [REDACTED] and the [REDACTED] may not be indicative of prices that will prevail in
the [REDACTED] market
The HKD [REDACTED] and the [REDACTED] will be the result of negotiations between the Sole
Global Coordinator (on behalf of the Underwriters) and us, and may differ from the market prices for our
[REDACTED] after the [REDACTED]. Due to a gap between pricing and [REDACTED] of the
[REDACTED] and because our [REDACTED] will not commence trading on the Stock Exchange until
the [REDACTED], the initial [REDACTED] price of the [REDACTED] may be lower than the HKD
[REDACTED] and/or the [REDACTED].
RISKS RELATING TO INVESTMENT IN OUR [REDACTED]
RMB is not freely convertible
The PRC government continues to regulate the conversion between RMB and foreign currencies,
including the HKD, despite the significant reduction over the years by the PRC government in control over
routine foreign exchange transactions on the current account. Participating banks in Hong Kong have been
permitted to engage in the settlement of RMB trade transactions under a pilot scheme introduced in July
2009. This represents a current account activity. The pilot scheme was extended in June 2010 to cover
more than 20 provinces and cities in the PRC (including Beijing) and to make RMB trade and other current
account item settlement available in all countries worldwide. The control over the conversion between
RMB and foreign currencies as well as the remittance of RMB into and out of the PRC may affect the
demand and supply of RMB for the [REDACTED] in our [REDACTED] and therefore the market price
in the [REDACTED] of our [REDACTED].
There is no assurance that the PRC government will continue to gradually liberalise the level of
control over cross-border RMB remittances in the future or that new PRC regulations will not be
promulgated in the future which have the effect of restricting the remittance of RMB into or out of the
PRC.
There is only limited availability of RMB outside the PRC and there are limitations on the
conversion of RMB, which may materially and adversely affect the liquidity of the [REDACTED]
and our ability to raise funds in RMB in the future
As a result of the restrictions by the PRC government on cross-border RMB fund flows, the
availability of RMB outside of PRC is limited.
Since February 2004, in accordance with arrangements between the PRC central government and the
Hong Kong government, licensed banks in Hong Kong may offer limited [REDACTED] banking services
to Hong Kong residents and specified business customers. The PBOC, the central bank of the PRC, has
also established an RMB clearing and settlement system for participating banks in Hong Kong. Pursuant
to the Settlement Agreement, all corporates are allowed to open RMB accounts in Hong Kong; there is no
longer any limit on the ability of corporates to convert RMB; and there is no longer any restriction on the
transfer of RMB funds between different accounts in Hong Kong subject to the practices of individual
banks and other applicable regulatory requirements that may be imposed on the banks in Hong Kong from
time to time.
54
RISK FACTORS
In the case of an investor who is an individual, the investor will be subject to a number of restrictions
when opening an RMB bank account or settling RMB payments, including:
RMB bank accounts are only available to Hong Kong residents;
the existing permitted conversions in relation to personal customers are up to RMB20,000

conducted through RMB deposit accounts per person per day or up to RMB20,000 per
transaction per person in bank notes for walk-in personal customers; and
although there is no restriction in Hong Kong on RMB fund transfers, cross-border fund
transfers to and from the PRC are subject to relevant rules and regulations in the PRC. For
instance, the daily maximum remittance amount to the PRC is RMB80,000 and a remittance
service is only available to an RMB deposit account-holder who remits from his or her RMB
deposit account to the PRC and provided that the account name of the account in the PRC is
identical with that of the RMB bank account with the bank in Hong Kong.
A potential investor may also need to accumulate sufficient [REDACTED] to pay the
[REDACTED] and other fees in connection with its application for [REDACTED] under the
[REDACTED].
The above restrictions are not exhaustive as different banks could have different and/or additional
restrictions.
[The current size of [REDACTED] financial assets outside the PRC is limited. As at the end of []
2014, the total amount of RMB deposits held by institutions authorised to engage in RMB banking
business in Hong Kong amounted to approximately RMB[] billion.] In addition, participating banks are
also required by the Hong Kong Monetary Authority to maintain a total amount of RMB (in the form of
cash and its settlement account balance with the RMB Clearing Bank) of no less than 25 per cent. of their
RMB deposits, which further limits the availability of RMB that participating banks can utilise for
conversion services for, or for lending to, its customers. RMB business participating banks do not have
direct RMB liquidity support from PBOC. The RMB Clearing Bank only has access to onshore liquidity
support from PBOC to square open positions of participating banks for limited types of transactions,
including open positions resulting from conversion services for corporates in relation to cross-border trade
settlement and for personal customers of up to RMB20,000 per person per day. The RMB Clearing Bank
is not obliged to square for participating banks any open positions resulting from other foreign exchange
transactions or conversion services and the participating banks will need to source RMB from the offshore
market to square such open positions.
Although it is expected that the offshore RMB market will continue to grow in depth and size, its
growth is subject to many constraints as a result of PRC laws and regulations on foreign exchange.
There is no assurance that new PRC laws and regulations will not be promulgated in the future which
have the effect of restricting availability of RMB offshore. As the [REDACTED] will be [REDACTED],
the limited availability of RMB outside the PRC may materially and adversely affect the liquidity of
[REDACTED]. As such, there may only be a limited [REDACTED] market for the Companys
[REDACTED] and the ability of the Company to raise funds in RMB in the future may be limited.
55
RISK FACTORS
The liquidity and [REDACTED] price of the [REDACTED] may be materially and adversely
affected by the limitations on the [REDACTED] of foreign currency into RMB
There are a number of limitations on the [REDACTED] (see the risk factor headed There is only
limited availability of RMB outside the PRC and there are limitations on the [REDACTED] of RMB,
which may materially and adversely affect the liquidity of the [REDACTED] and our ability to raise funds
in RMB in the future above). These factors may affect the amount of liquidity in RMB for investors of
[REDACTED] on the Hong Kong Stock Exchange and accordingly, materially and adversely affect the
market demand for the [REDACTED] (including the [REDACTED]). In turn this may affect the liquidity
and [REDACTED] price of [REDACTED] in the secondary market. Therefore, Shareholders of
[REDACTED] may not be able to sell their [REDACTED] in the secondary market in as timely a manner
as some other equity products [REDACTED] in Hong Kong, and the [REDACTED] price may not fully
reflect the intrinsic value of the [REDACTED].
Investment in the [REDACTED] is subject to exchange rate risks
The value of RMB against the Hong Kong dollar and other foreign currencies fluctuates and is
affected by changes in the PRC and international political and economic conditions and by many other
factors. The [REDACTED] will be [REDACTED] and the Shareholders may not be able to
[REDACTED], and the Company may set a default currency for the [REDACTED] and/or
[REDACTED]. As a result, the value of these [REDACTED] payments in Hong Kong dollars may vary
with the prevailing exchange rates in the marketplace. For example, when a Shareholder purchases
[REDACTED], the Shareholder may have to [REDACTED] at the exchange rate available at that time.
If the value of [REDACTED] depreciates against the Hong Kong dollar between then and when the
Shareholder dispose of its [REDACTED] in [REDACTED], the value of the Shareholders original
investment in Hong Kong dollar terms will have declined (which may not be offset by an appreciation in
the [REDACTED] price of the [REDACTED], if any).
Investment in the [REDACTED] is subject to arbitrage risks between the [REDACTED] and the
[REDACTED]
The characteristics and market demand for the [REDACTED] and the [REDACTED] are different.
Despite having a [REDACTED], investors are still subject to risks arising from speculative arbitrage
activities. Although the [REDACTED] and the [REDACTED] are both tradable at the Hong Kong Stock
Exchange with the same [REDACTED] hours, [REDACTED] characteristics (including [REDACTED]
volume and liquidity), market demand and investor bases (including different levels of retail and
institutional participation). As a result of these differences, the [REDACTED] prices of the
[REDACTED] and the [REDACTED] might not be the same, even taking into account the
[REDACTED]. Fluctuations in the [REDACTED] prices of the [REDACTED] and the [REDACTED]
are due to different circumstances peculiar to the currency risks of HKD and [REDACTED], namely,
political, socio-economic and regulatory environment of Hong Kong versus that of China, fiscal policy and
monetary policy adopted by the Hong Kong Monetary Authority versus that of the Peoples Bank of China
etc.
56
RISK FACTORS
Such fluctuations in the [REDACTED] prices of the [REDACTED] and the [REDACTED] may set
a spread between the [REDACTED] of [REDACTED] and thus create an arbitrage opportunity. In theory,
through [REDACTED], the market force would be able to bring the arbitrage activities to the end when
the [REDACTED] and the [REDACTED] comes to the same value (taking into account the
[REDACTED]). In practice, however, the [REDACTED] would not be instantaneously effective as there
is a time lag between the receipt of the request instruction, validation of the request and the completion
of the conversion. [REDACTED].
The [REDACTED] may be of lower [REDACTED] volume, lower liquidity and higher price volatility
There are only a few [REDACTED] equity securities [REDACTED] on the Hong Kong Stock
Exchange. These [REDACTED] equity securities are generally traded in lower volumes and are generally
subject to greater and less predictable price changes than the [REDACTED] HKD-denominated equity
securities on the Hong Kong Stock Exchange. In case of a low [REDACTED] volume, a single trade of
substantial amount of the [REDACTED] may cause a significant increase or decrease of its
[REDACTED] price. The potentially low liquidity and high volatility of the [REDACTED] may
materially and adversely affect its average [REDACTED] price.
57
WAIVERS FROM STRICT COMPLIANCE WITH THE LISTING RULES

In preparation for the [REDACTED], we have sought the following waivers from strict compliance
with the relevant provisions of the Listing Rules.
WAIVER IN RESPECT OF NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS
We have entered into certain transactions which would constitute continuing connected transactions
of the Company under Chapter 14A of the Listing Rules upon [REDACTED]. We have applied for, and
the Stock Exchange [has granted], a waiver from strict compliance with the relevant requirements under
Chapter 14A of the Listing Rules in relation to our non-exempt continuing connected transactions. Details
of such non-exempt continuing connected transactions and the waiver are set out in the section headed
Continuing Transactions of this [REDACTED].
WAIVER IN RESPECT OF DEALINGS IN [REDACTED] PRIOR TO [REDACTED]
Pursuant to Rule 9.09(b) of the Listing Rules, there must be no dealing in the [REDACTED] by any
core connected person of our Company from the date which is four clear business days before the Listing
Committee hearing date until [REDACTED] is granted.
On [] 2014, as part of the Reorganization, Mr. Mung, through his wholly-owned and controlled
entity, acquired from HNA Investment [] [REDACTED]. The consideration for such transfer was
determined on an arms length basis by reference to the net book value of Hong Kong Airlines according
to its unaudited financial statements for the year ended December 31, 2013. Since such transfer took place
after the Listing Committee hearing date and before the [REDACTED], but for a waiver from the Stock
Exchange, such transfer to an associate of Mr. Mung, being a core connected person of the Company,
would have been restricted under Listing Rule 9.09(b).
The above transfer of [REDACTED] were made due to and as a step to implement the
Reorganization in preparation for the [REDACTED], and is fully disclosed in this [REDACTED]. For
further details about the transfer, see History and Reorganization Our Reorganization (VI) Transfer
of [REDACTED] by HNA Investment to Mr. Mung of this [REDACTED]. Further, as stated above, the
consideration for such transfer was determined on an arms length basis. It is not the intention for Mr.
Mung to, and he did not, benefit to the detriment of the Company or any other Shareholders as a whole
through such transfer before [REDACTED]. On this basis, we believe that strict compliance with Rule
9.09(b) of the Listing Rules would be irrelevant or unduly burdensome in that the Reorganization would
not have taken place as planned.
Accordingly, we have applied for, and the Stock Exchange [has granted], a waiver from strict
compliance with Rule 9.09(b) of the Listing Rules in respect of the above transfer of [REDACTED] made
due to the Reorganization.
WAIVER IN RESPECT OF MULTIPLE APPLICATIONS
Pursuant to Rule 10.09(1) of the Listing Rules, where securities are offered to the public for
subscription or purchase, issuers, their directors, sponsors and underwriters must take reasonable steps to
ensure that multiple or suspected multiple applications are identified and rejected.
Pursuant to Rule 10.09(2) of the Listing Rules, multiple applications mean circumstances where (i)
more than one application is made by the same person; (ii) a person applies for more than 100% of the
securities on [REDACTED] or (iii) a person applies for more than 100% of the [REDACTED] available
in any pool into which the securities on [REDACTED] are divided in accordance with Practice Note 18
of the Listing Rules.
58
WAIVERS FROM STRICT COMPLIANCE WITH THE LISTING RULES

As our Company has adopted the [REDACTED] with respect to the [REDACTED] and the
[REDACTED] of our [REDACTED] on the Hong Kong Stock Exchange, there will be a simultaneous
[REDACTED], [REDACTED] and [REDACTED] of [REDACTED] of [REDACTED] in
[REDACTED] by the same issuer. The Sole Sponsor believes that the spirit of Rule 10.09 of the Listing
Rules shall apply strictly for multiple applications within the same [REDACTED], and on that basis, the
Sole Sponsor believes that the application process under the [REDACTED] should not be treated as
multiple applications under Listing Rule 10.09.
Accordingly, the Sole Sponsor has on our behalf applied to the Stock Exchange, and the Stock
Exchange has granted, a waiver from strict compliance with Listing Rule 10.09 in respect of the
aforementioned multiple applications.
Further details of the [REDACTED] are set out in the subsection headed Structure of the
[REDACTED] [REDACTED] of this [REDACTED].
59
INFORMATION ABOUT THIS [REDACTED] AND THE [REDACTED]
[REDACTED]
60
[REDACTED]
61
[REDACTED]
62
DIRECTORS AND PARTIES INVOLVED IN THE [REDACTED]

DIRECTORS
Name
Address
Nationality
Mr. Zhang Kui ()
Flat B, 16/F, Blk 1

Seaview Crescent
8 Tung Chung Waterfront Road
Tung Chung, Lantau
Hong Kong
Chinese
Mr. Sun Jianfeng ()
Flat E, 8/F, Blk 5

Le Bleu Deux Phase IV
Coastal Skyline
Tung Chung, Lantau
Hong Kong
Chinese
Mr. Mung Kin Keung ()
Room 00, 43/F

Convention Plaza Apartments
HK Convention & Exhibition Centre
1 Harbour Road
Hong Kong
Chinese
Mr. Cui Yeng Xu ()
21-8 Run Xue Yuan

No. 1 Xin Dian Road
Chaoyang
Beijing
China
Chinese
Mr. Re Qiongba ()
Flat A, 73/F, Block 2

Grand Promenade
38 Tai Hong Street
Sai Wan Ho
Hong Kong
Chinese
Mr. Mung Bun Man Alan

()
Room 00, 43/F

Convention Plaza Apartments
HK Convention & Exhibition Centre
1 Harbour Road
Hong Kong
Chinese
Executive Directors
Non-executive Directors
63

Name
Address
Nationality
Independent non-executive Directors

Mr. Liu Changle ()
Suite PH08, Sutton Court

Gateway Apartments
Harbour City
Kowloon
Hong Kong
Chinese
Mr. Lam Kin Fung Jeffrey

()
26/F, Flat A, Block 2

Cavendish Height
33 Perkins Road
Jardines Lookout
Hong Kong
Chinese
Mr. Wong Tak Ming Gary

()
Room 3, 7th Floor, Block 15

Heng Fa Chuen
Hong Kong
Chinese
For further information about our Directors, please refer to the section headed Directors, Senior
Management and Employees.
64

PARTIES INVOLVED IN THE [REDACTED]
Sole Sponsor

28/F, Chater House
8 Connaught Road
Central
Hong Kong
[REDACTED]
Financial Adviser
Oriental Patron Asia Limited

27/F, Two Exchange Square
8 Connaught Place
Central
Hong Kong
65

Legal Advisers to our Company
As to Hong Kong law

Baker & McKenzie
14th Floor, Hutchison House
10 Harcourt Road
Central
Hong Kong
As to Cayman Islands law
Maples and Calder
53/F, The Center
99 Queens Road
Central
Hong Kong
As to PRC law
Jun He Law Offices
Suite 2117, Nanyang Building
81 Binhai Avenue
Haikou, Hainan
PRC
Legal Advisers to the Sole Sponsor

[REDACTED]
As to Hong Kong law

Clifford Chance
27/F, Jardine House
One Connaught Place
Central
Hong Kong
As to PRC law
Grandall Law Firm (Shanghai)
45-46/F, Nanzheng Building
580 Nanjing West Road
Shanghai 200041, China
Reporting Accountant
PricewaterhouseCoopers
Certified Public Accountants
22/F, Princes Building
Central
Hong Kong
66

Independent Industry Consultant
ICF International
9300 Lee Highway, Fairfax
VA 22031-1207
USA
[REDACTED]
67
CORPORATE INFORMATION
Registered Office
PO Box 309
Ugland House
Grand Cayman
KY1-1104
Cayman Islands
Headquarters and Principal Place of Business

in Hong Kong
11th Floor, One Citygate

20 Tat Tung Road
Tung Chung, Lantau
Hong Kong
Companys Website
www.hongkongairlines.com
(information contained in this website does not
form part of this [REDACTED])
Company Secretary
Mr. Chan, Victor Sun Ho

Solicitor of the High Court of Hong Kong
Harbour Place
8 Oi King Street
Hung Hom
Kowloon, Hong Kong
Authorized Representatives
Mr. Zhang Kui

Flat B, 16/F, Blk 1
Seaview Crescent
Tung Chung, Lantau
Hong Kong
Mr. Chan, Victor Sun Ho
Harbour Place
8 Oi King Street
Hung Hom
Kowloon, Hong Kong
Executive Committee
Mr. Zhang Kui (Chairman)

Mr. Sun Jianfeng
Audit Committee
Mr. Wong Tak Ming Gary (Chairman)

Mr. Mung Bun Man Alan
68
Remuneration Committee
Mr. Wong Tak Ming Gary (Chairman)

Mr. Sun Jianfeng
Nomination Committee
Mr. Lam Kin Fung Jeffrey (Chairman)

Mr. Zhang Kui
Mr. Wong Tak Ming Gary
Risk Management Committee
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Zhang Kui (Chairman)

Sun Jianfeng
Wu Hao
Ben Wong
Alex Linhares
Chan, Victor Sun Ho
Compliance Adviser
Guotai Junan Capital Limited

27/F, Low Block, Grand Millennium Plaza
181 Queens Road Central
Hong Kong
Principal Bankers
The Hong Kong and Shanghai Banking

Corporation Limited
1 Queens Road Central
Hong Kong
Bank of Communications Co., Ltd,
Hong Kong Branch
20 Pedder Street
Central
Hong Kong
Industrial and Commercial Bank of China (Asia)
Limited
ICBC Tower
3 Garden Road
Central
Hong Kong
[REDACTED]
69
[REDACTED]
70
INDUSTRY OVERVIEW
This section and other sections in this [REDACTED] contain information which is derived
from official government sources, as well as information from the ICF Report, a report
commissioned by us and prepared by ICF for the purpose of this [REDACTED]. We believe that the
sources of this information are appropriate sources for such information, and we have taken
reasonable care in extracting and reproducing such information. We have no reason to believe that
such information is materially false or misleading or that any fact has been omitted that would
render such information materially false or misleading. However, the information derived from the
above sources has not been independently verified by us, our Directors, officers, agents or advisers
or the Sole Sponsor, the Sole Global Coordinator, the Joint Bookrunners, the Underwriters or any
other party involved in the [REDACTED] and no representation is given as to its accuracy. Such
information should not be unduly relied upon.
SOURCES OF INFORMATION
We commissioned ICF to conduct an analysis of, and to report on, the Hong Kong and China air
transport market. ICF has been engaged in a number of market assessment projects in connection with
airline IPOs, airline start-ups and restructurings, aircraft and asset valuations, airport privatizations and
aviation forecasts. We have agreed to pay a fee of approximately HK$545,000 for the ICF Report, of
which, HK$273,000 has already been paid. The remaining amount will be fully repaid after the
[REDACTED]. Our Directors are of the view that the payment of the fee does not affect the fairness of
conclusions in the ICF Report. ICF is an independent market research firm which has six global aviation
offices with more than 100 aviation industry consultants, market research analysts, technology analysts
and economists. Its services include forecasting, valuation, industry reports, strategy recommendations,
and advice on mergers and acquisitions. The ICF Report includes both historical and forecast information
on the air transport market in China and Hong Kong, the LCC market in Hong Kong, the competition
landscape of Hong Kong-based airlines compared to other major Asia airlines, and other economic data.
ICF undertook independent research through various resources within air transport market in China and
Hong Kong. The primary research involved reviewing information sourced from Official Airline Guide
(OAG), IATA PAXIS Origin and Destination Traffic and Fare data base, ACAS Fleet data base, IMF,
data published by Hong Kong Government, Airports Council International, HKIA, IATA, Guangdong
Statistical Bureau, National Bureau of Statistics of China, Hong Kong Planning Department and ATLA.
ICF also adopted certain assumptions and relied on other sources of information and conventions
while making projections for the air transport market in China and Hong Kong, including the following:
There will be no catastrophic events, such as natural disasters, wide-spread disease, war or acts
of terrorism that would affect the demand for air travel and the ability of airlines and airports
to provide air service in Hong Kong and other key aviation markets;
The growth in aviation demand is sourced from IATA, the global airline trade association and
standard data-provider; IATA is also the supplier of PAXIS, which is a database of O&D air
passenger traffic;
71
INDUSTRY OVERVIEW
Air service data is sourced from the OAG that provides flight schedules, aircraft types,
configurations and related data;
Airports Council International (ACI) provides data such as the number of passengers using
airports each year, which is originally sourced from the airports;
ACAS is a standard source of data for aircraft that airlines have in their fleets and on-order;
and
HKIA publishes the number of passengers that have used the facility, among other data.
OVERVIEW OF HONG KONGS AVIATION MARKET

Introduction
Hong Kong is a major international business and tourist destination. Strongly supported by Chinese
tourists, Hong Kong received over 54 million visitors in 2013, approximately 75% of which originated
from China. The total number of Chinese visitors to Hong Kong grew at a CAGR of 22.7% from 2009 to
2013. According to the ICF Report, nearly one fourth of inflow visitors use air travel as their preferred
mode of transport and the air traffic to or from Hong Kong is forecast to grow at over 5% consistently for
the next five years. This growth is primarily led by traffic from Northeast Asia, particularly China.
HKIA is a leading international aviation hub in Asia. According to the ICF Report, HKIA ranked as
the 11th largest airport in the world and the fourth largest airport in Asia by passenger volume, serving
just over 59.9 million passengers in 2013. In terms of international passenger seats, HKIA is currently the
largest airport in Asia. In 2013, HKIA also ranked as the busiest airport in the world in terms of freight
traffic.
72
INDUSTRY OVERVIEW
Strategic Geographic Position within Asia
Hong Kong is strategically located at the southern end of Chinas coast and near the center of the
Asia Pacific region, with all major Chinese cities within a 3.5 hour flight radius and almost half of the
worlds population within a six hour flight radius and 369 cities within a five hour flight radius, according
to the ICF Report. This provides Hong Kong with a geographical advantage against other international
aviation hubs in the region, with shorter flight times to a wider number of cities. The following chart
shows cities within five hours flight time radius that are served by Hong Kong:
Cities within Five Hours Flight Time Radius Served by Hong Kong
Source: OAG; Great Circle Mapper; ICF Analysis
73
INDUSTRY OVERVIEW
Hong Kong as an International Aviation Hub and a Major Gateway for China
Hong Kong is a well-established international aviation hub with world leading connectivity. The
advantage of HKIA as an international connecting hub over the other hubs in the region is evident in the
number of origin-and-destination (O&D) city-pair connections. According to the ICF Report, HKIA
enables over 6,400 O&D market connections in a month as of June 2013, more than any other airport in
the region.
Airport
Hong Kong . . . . .
Bangkok . . . . . . .
Beijing. . . . . . . . .
Guangzhou . . . . . .
Kuala Lumpur . . .
Seoul Incheon . . .
Shanghai Pu Dong
Singapore . . . . . . .
Taipei . . . . . . . . .
Tokyo Haneda . . .
Tokyo Narita . . . .
Code
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HKG
BKK
PEK
CAN
KUL
ICN
PVG
SIN
TPE
HND
NRT
Country
Hong Kong
Thailand
China
China
Malaysia
South Korea
China
Singapore
Taiwan
Japan
Japan
All Pairs
Num.
% of HKG
6,408
4,305
6,171
3,745
3,865
4,538
3,500
5,662
1,228
3,050
5,934
100%
67.2%
96.3%
58.4%
60.3%
70.8%
54.6%
88.4%
19.2%
47.6%
92.6%
OAG, June 2013
Hong Kong is an important regional passenger hub and gateway for destinations in China and the rest
of Asia. According to the ICF Report, HKIA currently has scheduled air services with 49 Chinese cities,
making Hong Kong a major O&D market for China. Hong Kong also serves as an important connecting
hub for international passengers to or from China. According to the ICF Report, more than 6.6 million
passengers who traveled to or from China connected through HKIA, representing approximately 11% of
the airports total traffic in 2013.
Hong Kong is also currently one of the worlds busiest cargo gateways. According to the ICF Report,
Hong Kong, if regarded as a single country, ranked 5th globally in 2013 in terms of freight tonnes handled,
only behind the United States, China, UAE and South Korea.
Substantial Catchment Area Hong Kong and Pearl River Delta
HKIA has a large home market in terms of O&D traffic. According to the ICF Report, HKIA handled
approximately 59.9 million passengers in 2013, of which approximately 44.6 million were O&D
passengers. In addition to Hong Kongs own population of 7.2 million, HKIAs catchment area also
includes a population of approximately 40.8 million in the Pearl River Delta region. Direct connections
from HKIA to major cities in the Pearl River Delta region include ferry services and cross-boundary
coaches. Ferry services to cities include Shenzhen, Guangzhou, Macao, Zhuhai, Zhongshan and
Dongguan, with travel times of 30 to 70 minutes. For many travelers living in the Pearl River Delta region,
HKIA remains the nearest airport for direct air travel to many international destinations.
74
INDUSTRY OVERVIEW
Among the 59.9 million passengers handled by HKIA in 2013, approximately 64% were local O&D
(i.e. visiting or originating from Hong Kong, and not connecting flights at HKIA, nor crossing the border
to or from China after landing or before departing from HKIA). Another approximately 26% were
passengers connecting flights through HKIA, out of which more than approximately 43% were connecting
to or from China and the rest were connecting to or from other destinations around the world. The
remaining approximately 10%, a significant portion of HKIAs passenger traffic, originated from or
destined to the Pearl River Delta (PRD) region, before departing from or after landing at HKIA instead
of the airports at Guangzhou and Shenzhen. While airports at Guangzhou and Shenzhen may be closer to
the point of origin or destination in the PRD region, they not offer the quality or frequency of service or
the fare levels available at HKIA. The following table from the ICF Report summarizes passenger traffic
distribution at HKIA in 2013:
Passenger Traffic Distribution at HKIA (2013)
Passengers
(Millions)
% of Total
Airport
13.9
24.7
23%
41%
38.6
64%
4.0
2.0
7%
3%
6.0
10%
6.6
8.7
11%
15%
Subtotal Connections
15.3
26%
Total
59.9
100%
HKIA Traffic Grouping
HKIA Category
Local Origin & Destination
Origin Hong Kong

Origin International
Subtotal Local O&D

China Border Crossers1
Origin PRD/China
Origin International
Subtotal Border Crossers

Hub Connections via HKIA2
China
Other International
In this table, China Border Crossers means a passenger that originates or ends their journey in China outside of Hong Kong,
but begins or terminates their flight in Hong Kong.
In this table, Hub Connections via HKIA refers to passengers that fly between two destinations outside Hong Kong but use
HKIA as a point of transfer between connecting flights.
IATA PAXIS O&D and Leakage Modules and ICF Analysis
75
INDUSTRY OVERVIEW
Key Growth Drivers
Economic growth in Hong Kong, China and the surrounding region
According to the IMF, Hong Kong recorded close to US$40,000 per capita GDP in 2013, one of the
highest if compared with other Asian countries. The IMF estimates that Hong Kongs GDP will grow
annually in the range of 5 8% for the period of 2014 to 2018. Continuous economic growth and
increasing consumption power of the Hong Kong population are key factors which support outbound air
travel demand, benefitting Hong Kong and foreign-based airlines departing from Hong Kong for overseas
destinations.
China is the single largest source of visitors for Hong Kong, accounting for approximately 75% of
visitors in 2013. As a result, the growth in passenger air travel to Hong Kong is significantly driven by
the increasing air travel demand in China. We believe an increasing population, growth in GDP and
disposable income per capita, low air travel penetration, urbanization, growing tourism and international
business activities will all contribute to growth in Chinas air travel demand.
Located in the center of Asia, Hong Kongs air traffic is also well positioned to benefit from the
spurring economic growth in the surrounding emerging Asian economies, such as Singapore, Taiwan,
Thailand, Philippines, South Korea and Malaysia.
Historical and Forecast Passenger Traffic for Hong Kong
According to the ICF Report, the total passenger volume handled by HKIA increased by 35.2% from
44.3 million in 2006 to 59.9 million in 2013. O&D and transfer passengers accounted for approximately
74% and 26% of the overall passenger volume in 2013, respectively. Despite only representing a quarter
of the total traffic at HKIA, transfer passenger volume has witnessed higher growth over recent years,
recording a total growth of approximately 43% from 2006 to 2013, reflecting HKIAs continuous growth
as a transfer or connection hub in the Asia Pacific region. The following chart shows the historical and
forecast passenger volume for Hong Kong from 2006 to 2017:
Historical and Forecast Passenger Volume at HKIA from 2006 to 2017F
Passenger Volume (Millions)
80.0
70.0
60.0
50.0
40.0
Passenger Forecast ('14E-'17F CAGR = 4.0%)

Transfer Passenger ('06-'13 CAGR = 6.2%)
OD Passenger ('06-'13 CAGR = 4.8%)
Total Passenger ('06-'17F CAGR = 4.8%)
Total Passenger ('06-'13 CAGR = 5.2%)
44.3
10.7
47.2
47.8
11.3
12.8
35.8
35.0
2007
2008
49.2
44.6
12.8
13.0
53.1
13.8
56.5
14.1
59.9
63.3
66.8
70.4
74.1
15.3
30.0
20.0
10.0
0.0
33.7
2006
31.8
2009
36.2
39.3
2010
2011
42.3
2012
44.6
2013 2014F 2015F 2016F 2017F
Source: PaxIS (Historical data); IATA (Forecast); HKIA; ICF Analysis

Note: IATA forecast does not break out traffic into O&D vs. transfers; Passenger figures are bi-directional totals
76
INDUSTRY OVERVIEW
According to the ICF Report, the total passenger volume handled by HKIA is estimated to grow from
59.9 million in 2013 to 74.1 million in 2017, representing a CAGR of 5.4%. China is expected to remain
as the single largest source of air passengers traveling to or from Hong Kong, and its passenger volume
is estimated to grow from 13.4 million in 2013 to 17.8 million in 2017 at a CAGR of 7.3%, highest among
all destinations. We believe China will continue to be a major growth driver of both O&D and transfer
passenger traffic at HKIA. The following chart shows the forecast passenger volume for HKIA from 2013
to 2017:
Forecast Passenger Volume at HKIA from 2013 to 2017F
80.0
74.1
Others (CAGR = 4.7%)
70.4
70.0
66.8
Australia (CAGR = 4.5%)
63.3
60.0
59.9
South Korea (CAGR = 6.8%)

USA (CAGR = 6.3%)
50.0
Philippines (CAGR = 4.9%)

40.0
Singapore (CAGR = 4.3%)

Thailand (CAGR = 6.0%)
30.0
Japan (CAGR = 4.2%)

20.0
Taiwan (CAGR = 4.2%)

Mainland China (CAGR = 7.3%)
10.0
Total Passenger (CAGR = 5.4%)

0.0
2013
2014F
2015F
2016F
Source: PaxIS (Historical data); IATA (Forecast); ICF Analysis
77
2017F
INDUSTRY OVERVIEW
IMPORTANCE OF THE CHINESE AVIATION MARKET TO HONG KONG
Aviation in China
China is the second largest and also one of the fastest growing air travel markets in the world.
According to the ICF Report, total air passenger traffic volume in China increased from 213 million in
2007 to 411 million in 2013, the largest growth in absolute passenger volume globally.
900
14%
12%
800
778
10%
8%
600
CAGR (2007 2013)
500
400
411
300
200
6%
12%
10%
4%
7%
2%
3%
2%
0%
1%
-2%
-5%
177
148
100
146
143
125
117
101
-1%
-1%
-1%
-4%
100
78
In
di
a
Br
az
il
Ita
ly
Fr
an
ce
Sp
ai
n
U
SA
In
di
a
Br
az
il
Ita
ly
Fr
an
ce
Ja
pa
n
U
K
Sp
ai
n
Ch
in
a
G
er
m
an
y
U
SA
Source: OAG (Aug 2014); ICF Analysis
Ch
in
a
G
er
m
an
y
-6%
Ja
pa
n
Total Passenger Volume (2013)
700
U
K
Millions
Worlds Top 10 Countries by 2013 Passenger Volume
INDUSTRY OVERVIEW
According to the ICF Report, China is expected to remain as one of the strongest air travel markets
for traffic growth measured in passenger volume, with CAGR forecast at approximately 10% from 2013
to 2017.
Passenger Traffic for China (2007 2017F)
700.0
International Passenger (2007-17F CAGR = 8.2%)
600.0
599.4
Domestic Passenger (2007-17F CAGR = 11.6%)

Total Passenger (2007-17F CAGR = 10.9%)
549.1
Domestic Passenger (2007-13 CAGR = 12.4%)
500.0
501.8
International Passenger (2007-13 CAGR = 8.8%)
455.6
Total Passenger (2007-13 CAGR = 11.6%)
400.0
371.0
303.2
300.0
213.2
200.0
100.0
411.3
50.9
233.1
49.4
162.3
183.6
2007
2008
247.2
59.5
325.4
97.5
90.7
84.6
79.1
69.3
404.3
49.2
198.1
243.6
2009
2010
111.5
104.4
326.7
444.7
487.9
364.9
256.1
291.9
2011
2012 2013E 2014F 2015F 2016F 2017F
0.0
Source: PaxIS; IATA (Forecast); ICF Analysis
The expected strong growth can be attributed to several factors, including but not limited to:
Continued high single-digit GDP growth;
Worlds largest population;
Continued urbanization and increasing disposable income per capita;
Increasing demand for outbound business and tourist travel;
Low air travel penetration level compared to developed economies; and
Continued long-term economic growth across Asia and globally, leading to strong demand for
international passenger and cargo services.
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INDUSTRY OVERVIEW
As shown below, the GDP per capita levels correlate well with levels of air travel around the world.
Countries with high GDP per capita levels typically exhibit high levels of air travel, while countries with
low GDP per capita levels have lower air travel levels. Although China witnessed continued growth in
terms of GDP and per capita disposable income in the past years, the air transport penetration in China
is lower than other major economies in the world, which demonstrates the significant growth potential of
air travel market in China.
The Air Travel Penetration for Selected World Economies in 2013
Annual Flight Departures per Capita (Log)
0.100
Australia
United States
Singapore
United Kingdom
Malaysia
0.010
Thailand
Brazil
Indonesia
Philippines
South Korea
Mainland China
Vietnam
0.001
India
0.000
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
2013 GDP per Capita (USD)

Source: OAG (Aug 2014); IME World Economics Outlook, ICF Analysis
Hong Kong as a Hub for Chinas International Passenger Traffic

Being an O&D hub for China, Hong Kong also serves as an important connecting point for traffic
to or from China. According to the ICF Report, HKIA handled as much as approximately 18% of Chinas
international O&D traffic in 2013.
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INDUSTRY OVERVIEW
As one of the most preferred gateway hubs for Chinas international passengers, HKIA is superior
to other major Asian airports outside China in terms of the weekly seats and destinations to China.
According to the ICF Report, HKIA had the highest number of weekly frequencies, the largest number of
weekly seats and the largest number of non-stop destinations to China among major Asian airports. The
following table shows a comparison between HKIA and other Asian airports in terms of the total weekly
services to and from China in 2013:
200,000
180,000
60
179,905
# of Non-Stop Destinations in China
Average Annual Weekly Seats to China
Weekly Service to or from China for Hong Kong and other Major Asian Airports in 2013
160,000
140,000
115,916
120,000
100,000
85,477
80,000
70,775
58,210
60,000
40,000
20,000
0
HKIA
Seoul Incheon
Taipei
Taoyuan
Singapore
Changi
Bangkok
Suvarnabhumi
50
49
47
40
40
29
29
30
20
10
0
HKIA
Seoul Incheon
Taipei
Taoyuan
Singapore
Changi
Bangkok
Suvarnabhumi
PRD Region as Catchment Area for Hong Kong

The PRD region is the most affluent region in Guangdong Province, and includes nine of its most
populous cities, namely Guangzhou, Shenzhen, Dongguan, Zhuhai, Foshan, Zhongshan, Huizhou,
Jiangmen and Zhaoqing. The GDP of the PRD region was approximately RMB5,306 billion in 2013,
accounting for 85.4% of the total GDP of Guangdong Province. Due to its proximity to Hong Kong, the
PRD region has been an important source of passengers for HKIA as a catchment area. According to the
ICF Report, approximately 91,000 passengers departing at HKIA in June 2013 bought their tickets in the
PRD region. These passengers only represented border crossers who purchased tickets through travel
agents based in PRD region. The annual number of border crossers from the PRD region departing at
HKIA was estimated to be 1.0 million based on the monthly passenger traffic in June 2013. It was
estimated that these border crossers would return to PRD region via HKIA as well, resulting in a total of
approximately 2.0 million passengers from PRD region who annually flew out of and into HKIA region.
The total number of border crossers from the PRD region was estimated to double to a total of 4.0 million
annually, if the border crossers who purchase tickets directly from airlines were also included. Lastly, the
number of passengers who originated their journeys from international destinations, landed at HKIA and
then crossed the border into the PRD region of China was estimated to be another 2.0 million. Altogether
this would add up to an annual total of approximately 6.0 million of border crossers to or from the PRD
region that contributed to passenger traffic at HKIA.
After decades of development, the transportation connectivity between the PRD region and HKIA is
now very well established. Direct connections from HKIA to major cities in the PRD region include
transportation by coach, ferry and rail services. For example, it takes only approximately 50 minutes and
180 minutes to commute from HKIA by ferry and coach, respectively to Guangzhou where the population
is approximately 12 million. Moreover, it takes only approximately 40 minutes and 60 minutes to commute
from HKIA by ferry and coach, respectively to Shenzhen where the population is approximately 10.4
million. Visitors can travel into the city center to transit for rail connections provided by the Mass Transit
Railway (MTR), airport shuttle buses operated by franchised buses, and taxis to reach the Mainland.
81
INDUSTRY OVERVIEW
Overview of Direct Transportation Connection between HKIA and the PRD
Source: Hong Kong Planning Department, Highway Department, Census Statistics Department, Hong Kong Airport Authority and
Statistics Bureau of Guangzhou, Shenzhen, Zhongshan, Dongguan, Macao, and Zhuhai
Two major infrastructure projects are expected to provide more efficient and direct road connections
between the PRD region and HKIA. The first project is the Hong Kong Zhuhai Macao Bridge
(HZMB), which will link up HKIA and the western PRD region cities of Zhuhai and Macao, and which
is expected to be completed in 2018. Visitors from Zhuhai and Macao will be able to reach HKIA in
approximately 60 minutes.
The second project is the proposed Tuen Mun Chek Lap Kok Link (TMCLK Link), together
with the proposed Tuen Mun Western Bypass. The HZMB will connect to the TM-CLK Link on a
man-made island to the east of HKIA. The TM-CLK Link will offer direct linkage between western Hong
Kong and HKIA. The TM-CLK Link will be connected to the proposed Tuen Mun Western Bypass,
offering a direct way to the Shenzhen Bay Bridge.
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INDUSTRY OVERVIEW
COMPETITIVE LANDSCAPE
Major passenger airlines in Hong Kong
Hong Kong historically has been heavily served by its largest home carrier, Cathay Pacific, and its
subsidiary, Dragonair. Chinese and Taiwanese airlines are the other key players, by mainly offering
passenger traffic connecting Hong Kong to or from other international destinations. In 2006, Hong Kong
Airlines entered the Hong Kong market as the third home carrier. According to the ICF Report, Hong Kong
Airlines market share, in terms of average weekly departures at HKIA, increased from 1.5% in 2009 to
7.2% in 2013, making it the third largest airline in the Hong Kong passenger aviation market. Hong Kong
Airlines was also the fastest growing airline at HKIA during the same period. Hong Kong Express, which
announced a plan to transform into the first home-based low cost carrier in Hong Kong, is the fourth
largest Hong Kong based carrier.
The following chart shows the top 10 airlines operating flights from HKIA from 2009 to the first half
of 2014:
Market Share of Top 10 Airlines Operating Flights from HKIA from 2009 to 1H2014
30.00%
Cathay Pacific Airways

Dragonair
Hong Kong Airlines
25.00%
China Eastern
China Airlines
Air China
20.00%
Hong Kong Express Airways

EVA Air
Singapore Airlines
15.00%
China Southern Airlines
10.00%
5.00%
0.00%
2009
2010
2011
2012
2013
Note: Market share by frequencies/departures

83
1H 2014
INDUSTRY OVERVIEW
Competition in Hong Kong China Passenger Air Market
More than two-thirds of the capacity in 2013 for the passenger air service market between Hong
Kong and China was contributed by the four Hong Kong-based airlines licensed to operate large passenger
aircraft, namely Cathay Pacific, Dragonair, Hong Kong Airlines and Hong Kong Express. The remaining
one-third of the market is served by another nine China-based airlines, namely China Eastern Airlines, Air
China, China Southern Airlines, Spring Airlines, Xiamen Airlines, Shenzhen Airlines, Juneyao Airlines,
Shanghai Airlines and Sichuan Airlines. According to the ICF Report, Hong Kong-based airlines have
successfully expanded market share over competing China-based airlines on HK-China routes over the
past six years, from 52.5% in 2007 to 68.0% in 2013. The following table shows the market share of
individual Hong Kong-based airlines and China-based airlines that operate scheduled passenger services
between Hong Kong and China in 2013:
Market Share of Airlines with Scheduled Services between Hong Kong and China in 2013
Others
Spring
China Southern
6%
3%
4%
China-based
carriers
32%
Air China
8%
Dragonair
44%
Eastern
11%
HK-based
Carriers
68%
HK Express
3%
Cathay
7%
HK Airlines
14%

Note: Market share by frequencies/departures
Entry Barriers to Hong Kongs Air Transport Market

Hong Kong enjoys a high degree of autonomy on matters relating to civil aviation as specified in the
Basic Law. Hong Kong is responsible for its own matters of routine business and technical management
of civil aviation with its own aircraft register. The main entry barriers to Hong Kongs air transport market
include (i) the incorporation requirements as a local airline in Hong Kong; (ii) traffic rights; (iii) available
take-off and landing slots; and (iv) tariff approval.
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INDUSTRY OVERVIEW
There is currently no specific provision in the Basic Law or the Air Transport (Licensing of Air
Services) Regulations (Cap 448A) on the limitation of foreign ownership of local airlines incorporated in
Hong Kong. The definition of a local airline in Hong Kong is stipulated in Article 134 of the Basic Law
which specifies that the government of Hong Kong is authorized to issue licenses to airlines incorporated
in Hong Kong and having their principal place of business in Hong Kong.
Airlines incorporated in Hong Kong must apply for traffic rights from ATLA which is an independent
statutory body set up under the Air Transport (Licensing of Air Services) Regulations (Cap 448A). The
considerations of granting the license of route rights by ATLA include:
The existence of other air services in the area through which the proposed services are to be
operated;
The demand for air transport in that area;
The degree of efficiency and regularity of the air services, if any, already provided in that area
whether by the applicant or by other operators;
The period in that area whether by the applicant or by other operators;
The period for which such services have been operated by the applicant or by other operators;
The extent to which it is probable that the applicant will be able to provide a satisfactory
service in respect of safety, continuity, regularity of operations, frequency, punctuality,
reasonableness of charges and general efficiency;
The financial resources of the applicant;
The type of aircraft proposed to be used; and
The remuneration and general condition of employment of aircrew and other personnel
employed by the applicant.
Airlines incorporated in Hong Kong must apply for slots at HKIA from the Hong Kong Schedule
Coordination Office (HKSCO) under the CAD, which is the responsible agency that coordinates airport
slot utilization with a neutral, transparent and nondiscriminatory schedule coordination mechanism.
HKSCO takes into account various airport capacity constraints applicable at HKIA, which include runway
capacity, aircraft parking capacity and terminal and passenger flow capacity. The allocation of slots is
independent from the assignment of traffic rights under bilateral air service agreement. However,
according to the ICF Report, the current two runways of the HKIA will reach their saturation by as early
as 2020.
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INDUSTRY OVERVIEW
According to the air services agreements signed between Hong Kong and other jurisdictions, the
tariffs to be charged by the airlines for air services (including the fares charged for the carriage of
passengers, rates charged for the carriage of cargo, the charges and conditions for services ancillary to the
carriage, and the rate of commission paid to an agent in respect of air tickets sold for carriage on scheduled
air services) must be approved by the aviation authorities of both contracting parties. In the case of Hong
Kong, that would be the CAD. Such requirements aim to prevent airlines of either contracting party from
adopting such practices as dumping and discriminatory or predatory pricing, which could distort normal
market operations and affect air services, to the extent of adversely affecting the interest of passengers.
Our Directors confirm that after taking reasonable care, there is no adverse change in the market
information since the date on which we obtained the data from ICF which may qualify, contradict or have
an impact on the information in the section.
Aircraft Fuel
For the four years ended December 31, 2013 and seven months ended July 31, 2014, the average
aircraft fuel price as reported in the United States was highly volatile. During this period, the lowest price
was US$1.26 per gallon in 2009, while the highest price was US$3.27 per gallon in 2011. From 2009 to
2011, the average aircraft fuel price continuously increased. However, the average aircraft fuel price kept
fluctuating from 2011 to July 2014. The table below sets forth the average aircraft fuel price in the United
States between 2009 and July 2014.
Average Aircraft Fuel Price (USD per Gallon)

3.5
High : $3.27
$3.13
$2.89
3.0
$2.82
2.5
$1.71
2.0
$2.02
1.5
Low : $1.26
1.0
0.5
Source: US Energy Information Agency; ICF SH&E Analysis
86
Jul-14
Apr-14
Jan-14
Jul-13
Oct-13
Apr-13
Jan-13
Oct-12
Jul-12
Apr-12
Jan-12
Jul-11
Oct-11
Jan-11
Apr-11
Oct-10
Jul-10
Apr-10
Jan-10
Oct-09
Jul-09
Jan-09
Apr-09
0.0
REGULATORY OVERVIEW
THE INTERNATIONAL REGULATORY FRAMEWORK
Principal International Conventions
International commercial air transport is regulated by international conventions that each
participating country undertakes to ratify and directly apply within its national air space.
The principal international conventions are:
the Convention for the Unification of Certain Rules Relating to International Carriage by Air
of 1929 (the Warsaw Convention);
the Convention for the Unification of Certain Rules for International Carriage by Air of 1999
(the Montreal Convention);
the Convention on International Civil Aviation of 1944 (the Chicago Convention); and
the Convention, Supplementary to the Warsaw Convention, for the Unification of Certain Rules
Relating to International Carriage by Air Performed by a Person Other Than the Contracting
Carrier of 1961 (the Guadalajara Convention).
The Warsaw Convention

The Warsaw Convention, which was later modified by the Protocol to Amend the Convention for the
Unification of Certain Rules Relating to International Carriage by Air of 1929 (the Hague Protocol),
established the principle of limited liability of air transport companies based on a presumption of fault.
The financial limits on liability set out in the Warsaw Convention may be exceeded only if it is
proved that the damage resulted from an act or omission of the carrier done (i) with intent to cause damage
or (ii) recklessly and with knowledge that damage would probably result.
Hong Kong is a party to the Warsaw Convention.
The Montreal Convention
The Montreal Convention changed the airline accident liability system established by the Warsaw
Convention. It changed the low liability limits, and modernized and clarified other aspects of the
international airline accident liability system.
Hong Kong is a party to the Montreal Convention.
The Chicago Convention
The Chicago Convention sets out the legal and technical principles governing international
commercial aviation. In addition, the Chicago Convention subjects participant states, which include
substantially all the member states of the United Nations, to a common legal framework governing
international air transport that participant states are required to implement in their respective national air
space and apply in their relations with each another. The Chicago Convention established the general
principle that each state has sovereignty over its air space and has the right to control the operation of
scheduled international air services over or into its territory.
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REGULATORY OVERVIEW
The Chicago Convention permits non-scheduled flights, both charter and cargo, to fly over the
territories of participant states and gives rights for non-scheduled flights to make stops for non-traffic
purposes in the territories of such states, subject to certain restrictions which may be imposed by the
individual states.
The ICAO was established based on the Chicago Convention and in 1947 became the aviation
division of the United Nations. Within the framework of the ICAO, participant states establish the
international technical regulations applicable to civil aviation.
Hong Kong is a party to the Chicago Convention.
The Guadalajara Convention
By making both the actual carrier and contracting carriers responsible, the Guadalajara Convention
closes the loophole that the protection under the Warsaw Convention was implied to apply only to the
contracting carrier.
Hong Kong is a party to the Guadalajara Convention.
Bilateral Air Services Agreements and Air Services Transit Agreements
International air transport requires transport rights (also known as traffic rights or route rights) to be
established between states. A state may acquire transport rights by negotiating with another state for such
rights. Following such negotiation, the two states enter into bilateral air transport agreements.
Bilateral air services agreements
These agreements generally contain the principles governing the designation of airlines for the
operation of specified routes, the capacity offered by such airlines and the procedures for the agreement
of tariffs.
Contracting states under bilateral air services agreements typically designate only certain number of
local airlines to exercise the rights to operate on the routes granted under bilateral air services agreements
or treaties.
Air services agreements with foreign countries may be negotiated and entered into by the Hong Kong
government, acting under specific authorization from the PRC government.
Hong Kong is a party to 59 bilateral air services agreements.
Bilateral air services transit agreements
These agreements generally contain the principles governing the rights to make stops in the
contracting countries at which there is no embarking or disembarking of passengers or cargo.
Hong Kong is a party to four bilateral air services transit agreements.
88
REGULATORY OVERVIEW
International Air Transport Association
The IATA provides an important international self-regulatory framework for the airline industry.
Established in 1945, IATA has approximately 240 members, including almost every major airline in the
world, and its members generate more than 84% of total air traffic (measured by available seat kilometers).
The main functions of IATA include:
establishing regulations for certain aspects of the airline industry;
setting tariffs for international passenger and cargo services;
settling payments among IATA members or between IATA members and non-members;
licensing of travel agents;
improving technological cooperation among IATA members; and
improving the performance and efficiency of airports.
We have been a member of IATA since October 13, 2010.

Under the auspices of IATA, airlines have entered into agreements that have modified the limits of
liability for injured or deceased passengers established by the Warsaw Convention.
Pursuant to the IATA Intercarrier Agreement on Passenger Liability, signatory airlines agreed to
waive the limitation of liability on recoverable compensatory damages under the Warsaw Convention to
enable recoverable compensatory damages to be determined and awarded by reference to the law of the
domicile of the passenger.
Many IATA members have also entered into the Agreement on Measures to Implement the IATA
Intercarrier Agreement pursuant to which signatory airlines have agreed that injured passengers or
dependants of deceased passengers can receive up to 100,000 Special Drawing Rights (SDR). SDR is
an artificial currency unit created by the International Monetary Fund and 100,000 SDR represents an
equivalent of approximately US$0.6530 as of July 31, 2014.
We are not a party to any of the IATA Intercarrier Agreement on Passenger Liability and the
Agreement on Measures to Implement the IATA Intercarrier Agreement.
REGULATION OF THE HONG KONG AIRLINE INDUSTRY
Transport and Housing Bureau (THB)
THB is responsible for the formulation of policies on matters relating to Hong Kongs internal and
external transportation, including air services, land transport, maritime transport and logistics.
The Air Transport Licensing Authority (ATLA)
ATLA is an independent statutory body set up under the Air Transport (Licensing of Air Services)
Regulations. Its terms of reference are to grant, revoke or suspend licenses to carry passengers, cargo or
mail by air for hire or reward on scheduled journeys.
89
REGULATORY OVERVIEW
CAD of the Government of Hong Kong
Generally, the administration of both regional and international civil aviation in Hong Kong is
centralised under the CAD, whose responsibilities include:
assisting the THB in negotiations on air transport agreements;
administering aircraft airworthiness certification and registration, crew and personnel

licensing, and other documentation;
providing information to the ATLA in respect of the licensing of scheduled air services to Hong
Kong;
investigating aircraft accidents and other incidents; and
supervising various aspects of air traffic control, airport operation and management (though an
important part of the responsibility for airport operation at the HKIA is in the hands of the
Airport Authority Hong Kong).
Hong Kong Civil Aviation Law

The HK government is responsible, on its own, for matters of routine business and technical
administration of civil aviation, including the management of airports and the provision of air traffic
services and the discharge of other responsibilities under the air navigation procedures of the ICAO.
The main regulations governing the airline industry in Hong Kong include:
the Civil Aviation Ordinance;
the Airport Authority Ordinance;
the Aviation Security Ordinance; and
the Carriage by Air Ordinance.
Civil Aviation Ordinance

This ordinance implements the Chicago Convention and provides legislative authority for Hong
Kongs system of civil aviation regulation and administration, including:
regulation of air navigation;
investigation of accidents;
investigation of dangerous flying; and
air transport licensing.

90
REGULATORY OVERVIEW
Airport Authority Ordinance
This ordinance establishes the Airport Authority to operate and maintain the HKIA in accordance
with the Airport Authority Bylaw.
Under this ordinance, the Airport Authority is empowered to impose airport fees and charges payable
in connection with the landing, parking or taking off of aircraft at the airport.
Aviation Security Ordinance
This ordinance sets up the Aviation Security Authority (ASeA) and requires airline operators to
establish security programs in respect of operational areas under their control, notably passenger and
baggage screening. It also governs implementation in Hong Kong of certain significant international
conventions and protocol, such as the standards set by ICAO, affecting offenses on board aircraft and
aviation and airport security.
Carriage by Air Ordinance
This ordinance governs private law principles and procedures concerning the liabilities of air carriers
and, to an extent, their agents, in respect of (i) death, injury or delay to passengers, and (ii) damage, loss
or delay to baggage and cargo, occasioned in the course of international air carriage under any of the
various Warsaw Convention regimes, which arrangements also apply, with some modifications, to
non-international (essentially domestic) air carriage.
It also governs air carrier liabilities for damage caused to persons and property on the surface of
airport facilities.
Airfare Pricing
International airfare
Under Hong Kongs bilateral air services agreements, a designated and licensed airline can not begin
operating a scheduled international air service until a complete set of tariffs is established in accordance
with the tariff clause in the agreement. Consideration is given to the international airfare standards
established through the IATA.
All published airfares for international routes must be approved by the Hong Kong government.
Mainland China airfare
Published airfares for Mainland China routes are determined by the relevant civil aviation authorities
in Hong Kong and the PRC government through CAAC, and are subject to consultation between the
relevant airlines.
91
REGULATORY OVERVIEW
Traffic Rights
Under air services agreements, each government grants to the other the right to designate an airline
or airlines of the relevant country to operate scheduled services on the specified routes. Each airline
designated to fly international routes must also obtain the necessary operating permits from the relevant
foreign government. Such operating permits are unlikely to be withheld so long as the airline fulfills the
conditions prescribed under the laws and regulations normally and reasonably applied to the operation of
international air services by the relevant aviation authority of the foreign government, including meeting
the required international safety standards.
Once an air services agreement has been reached, the Hong Kong government awards the traffic
rights to designated airlines qualified to fly routes based on certain criteria, including quality of the
services, availability of appropriate aircraft and aircraft equipment, management and flight personnel,
management system, size of the airline, safety record, financial condition, on-time performance, hub
location and ability to bear civil liabilities in air services. To be designated as a Hong Kong airline, there
is a specific requirement that the airline must be incorporated and have its principal place of business in
Hong Kong.
Mainland China traffic rights and the corresponding landing rights are based on air transportation
arrangements entered into between the government of Hong Kong and the PRC government. The air
transportation arrangements provide for equal opportunities for airlines based in Hong Kong and airlines
of the mainland of China.
Licensing
Both the Director-General of Civil Aviation (DGCA) and the ATLA perform licensing functions for
commercial air services pursuant to Air Transport (Licensing of Air Services) Regulations.
Under the Civil Aviation Ordinance, aircraft are required to be licensed for use in Hong Kong for the
specified types of commercial flight. Different provisions may be made in respect of different classes of
aircraft and different classes of licenses.
Licensing involves:
the issue of a license, by the ATLA, authorizing the use of an aircraft, on scheduled air services,
for the carriage for reward of passengers or cargo, including mail;
the issue of an operating permit by the DGCA authorizing the use of an aircraft, on scheduled
air services, for the carriage for reward of passengers or cargo, including mail, when such
aircraft are registered in any of three jurisdictions specified in the regulations; and
the issue of a permit for non-scheduled (charter) air services by the DGCA.
92
REGULATORY OVERVIEW
Certificates
The DGCA regulates and supervises the airworthiness of all commercial aircraft registered in Hong
Kong.
Certificates of airworthiness
An aircraft can be operated only when an airworthiness certificate has been issued to the relevant
aircraft. An airworthiness certificate specifies the category of the aircraft, designates the performance
group to which the aircraft belongs, term of the certificate and other conditions and restrictions required
to ensure the safe operation of the aircraft.
Certificates of maintenance review
Under the Air Navigation (Hong Kong) Order 1995, an aircraft registered in Hong Kong with a
certificate of airworthiness is also required to obtain a certificate of maintenance review.
Noise certificates
Under the Civil Aviation (Aircraft Noise) Ordinance, if an aircraft is a subsonic narrow-bodied or
wide-bodied jet aircraft, it may only land or take off in Hong Kong if it has obtained a noise certificate
and documentary proof of compliance of the aircraft with the relevant standards of noise.
Air operators certificates
Under the Air Navigation (Hong Kong) Order 1995, a person who for the time being has the
management or control of aircraft is required to obtain an air operators certificate for an aircraft registered
in Hong Kong to fly for the purpose of public transport.
The certificate certifies that the holder is a competent person to operate aircraft safely, and it
specifies the types of aircraft to be used and the description and purposes of flights for which they may
be used.
Safety
In general, ICAO establishes safety standards for the airline industry.
The civil aviation administration authority of the country in which the airline is incorporated
implements related regulations and is responsible for ensuring that the aircraft and flight crew meet such
standards. All members of ICAO recognize certifications of compliance issued by the country of registry.
Environmental and Noise Regulations
All airlines and the HKIA are required to comply with the environmental and noise regulations of
the Hong Kong government. These regulations include rules relating to discharges to surface and
subsurface waters, the management of hazardous substances, oils and waste materials and levels of noise
and vibration.
We are also subject to the environmental and noise regulations in each country in which we operate.
93
REGULATORY OVERVIEW
Detention of Aircraft
The Chief Executive and other authorized persons have wide powers to detain an aircraft which is
intended or likely to be flown in circumstances contrary to the Air Navigation (Hong Kong) Order 1995
and its subsidiary regulations concerning matters such as air operators certificates, certificate of
airworthiness, composition of crew, licensing of crew, carriage of weapons and ammunitions, carriage of
dangerous goods or other similar matters.
The Airport Authority may, under the Airport Authority Ordinance, detain an aircraft or any other
aircraft of which the default person operates and sell the aircraft in order to satisfy HKIA charges in
default.
PRC REGULATION FOR A FOREIGN AIRLINE OPERATING IN THE PRC
According to the Regulations of Operation Licensing for Route of Foreign Air Transport Enterprises
() issued by Civil Aviation Administration of China with effect on
July 11, 2008, a foreign airline should apply to Civil Aviation Administration of China for operation
licenses of route between the locations in China and foreign countries. According to the Rules on the
Examination and Approval of the Operation of Foreign Public Air Transportation Carriers (
) issued by Civil Aviation Administration of China with effect on January
1, 2005, a foreign airline should be examined and obtain the Operation Specifications for Foreign Air
Transportation Carriers from Civil Aviation Administration of China for its operation.
94
HISTORY AND REORGANIZATION

OUR BUSINESS MILESTONES
The following table sets forth the important milestones in our business development:
Year
Events
2006
CR Airways Limited was renamed as Hong Kong Airlines Limited in

September
Introduced the first Boeing 737 passenger aircraft and launched passenger
routes between Hong Kong and cities in the PRC
Officially joined IATA
Operating fleet size reached 10 aircraft
2010
Passenger services
Introduced the first Airbus A330 passenger aircraft, being a wide body
aircraft which better caters the increasing demand on popular routes
Launched new passenger routes between Hong Kong and (i) Beijing, (ii)
Shanghai and (iii) Bangkok
Cargo freighter services
2011
2012
Introduced the first Airbus A330F cargo freighter to better cater for our
expanding cargo carrier operation
Launched the first full cargo route from Hong Kong to Hangzhou
Launched new passenger routes between Hong Kong and (i) Okinawa and
(ii) Denpasar (Bali)
2011 passenger traffic exceeded 1.7 million, serving 20 destinations
First awarded 4-star rating by Skytrax
Operating fleet size reached 20 aircraft
Launched new passenger route between Hong Kong and Taipei
2012 passenger traffic exceeded 2.5 million, serving 25 destinations
Introduced the first Airbus A320 passenger aircraft
95

Year
Events
2013
All operating Boeing aircraft were replaced by homogenous Airbus fleet
Launched new passenger route between Hong Kong and Maldives
Aired our title-sponsored TV series Triumph in the Skies II
2013 passenger traffic exceeded four million
Launched new passenger routes between Hong Kong and (i) Ho Chi Minh,
(ii) Tianjin and (iii) Kagoshima
Increased to four flights to Beijing and five flights to Shanghai daily
Awarded the worlds best improved airlines by Skytrax
2014
OUR KEY HISTORICAL SHAREHOLDING CHANGES

The Groups corporate history traced back to 2001 when CR Airways Limited was incorporated by
Mr. Yip Kwong on March 28, 2001 to provide helicopter passenger services. In August 2006, with his own
financial resources, Mr. Mung (through his 100% controlled entity, HKA Group) acquired from Mr. Yip
Kwong shares in CR Airways Limited, and at the same time, CR Airways Limited allotted shares to China
Sun Wah Airline Group Co., Ltd. Immediately after completion of these events, Mr. Yip Kwong ceased to
hold any shareholding interest in CR Airways Limited, which was owned ultimately as to 55% by Mr.
Mung and 45% by China Sun Wah Airline Group Co., Ltd. On September 30, 2006, CR Airways Limited
changed its name to Hong Kong Airlines Limited and the Group then began development of our carrier
business.
The Company sets out the key historical events relating to certain changes in the Groups corporate
structure as follows:
Before the Companys Track Record Period
August 2006
With his own financial resources, Mr. Mung (through his 100% controlled
entity, HKA Group) acquired from Mr. Yip Kwong shares in CR Airways
Limited, and at the same time, CR Airways Limited allotted shares to China
Sun Wah Airline Group Co., Ltd. Immediately after completion of these
events, Mr. Yip Kwong ceased to hold any shareholding interest in CR
Airways Limited, which was owned ultimately as to 55% by Mr. Mung and
45% by China Sun Wah Airline Group Co., Ltd.
September 2006
CR Airways Limited changed its name to Hong Kong Airlines Limited.
January 2008
Using its own internal funding, Grand China Air, an entity held as to
24.97% by Hainan SASAC and 23.11% by HNA Group as of the Latest
Practicable Date, acquired 45% shareholding interest in Hong Kong
Airlines from China Sun Wah Airline Group Co., Ltd.
96

February 2010
December 2010
Mr. Mung transferred all of his 55% shareholding interest in Hong Kong
Airlines to HKA Holdings, and Hong Kong Airlines allotted certain shares
to HKA Holdings, after which Hong Kong Airlines was beneficially held as
to 94.51% by HKA Holdings and 5.49% by Grand China Air.
As at the date of the above transfer and allotment of shares in Hong Kong
Airlines, HKA Holdings was ultimately beneficially held as to 43.26% by
Mr. Zhong, 22.47% by Mr. Mung and 34.27% by HNA Group through and
following the subscription for certain shares in HKA Holdings by each of
Mr. Zhong, Mr. Mung and HNA Group.
In connection with the allotments to HKA Consultation (an entity 100%

controlled by Mr. Zhong), for which HNA Group had financed the
consideration for Mr. Zhong, HKA Consultation issued a promissory note
in the amount of HK$385,000,000 (the First Promissory Note) in favour
of HNA Investment (an entity 100% controlled by HNA Group). Mr. Zhong
(through HKA Consultation) charged his then entire ultimate shareholding
interest in HKA Holdings in favour of HNA Investment (the HKA
Holdings Charge) as security for his obligations under the First
Promissory Note, under which he authorised HNA Investment to exercise
the voting rights in respect of all of his ultimate shareholding interest in
HKA Holdings.
Each of Mr. Zhong (through HKA Consultation) and HNA Group (through
HNA Investment) further subscribed for certain shares in Hong Kong
Airlines, after which Hong Kong Airlines was ultimately beneficially held
as to 48.34% by HKA Holdings, 14.65% by Mr. Zhong, 34.21% by HNA
Group and 2.81% by Grand China Air.
In connection with the allotments to HKA Consultation (the entity 100%

controlled by Mr. Zhong), for which HNA Group had financed the
consideration for Mr. Zhong, HKA Consultation issued another promissory
note in the amount of HK$854,212,848 in favour of HNA Investment (the
Second Promissory Note). Mr. Zhong (through HKA Consultation)
charged his then entire ultimate shareholding interest in Hong Kong
Airlines in favour of HNA Investment (the HKA Charge) as security for
his obligations under the Second Promissory Note, under which he
authorised HNA Investment to exercise the voting rights in respect of all of
his ultimate shareholding interest in Hong Kong Airlines.
97

During the Companys Track Record Period
December 2011
January 2012
April 2012
Further restructuring steps involving share swaps took place such that Hong
Kong Airlines became wholly-owned by HKAG Company, which in turn
was wholly-owned by HKAG Holdings. Immediately after the share swaps,
HKAG Holdings allotted certain shares to Hainan Airlines (for a
consideration of RMB842,000,000 which was determined with reference to
the then valuation of Hong Kong Airlines conducted by an Independent
Third Party), after which HKAG Holdings became ultimately beneficially
held as to 39.15% by HKA Holdings, 11.86% by Mr. Zhong, 19.02% by
Hainan Airlines, 27.70% by HNA Group and 2.27% by Grand China Air.
In connection with the above restructuring steps, Mr. Zhong (through HKA
Consultation) charged his then entire ultimate shareholding interest in
HKAG Holdings in favour of HNA Investment (the HKAG Holdings
Charge) to replace the HKA Charge, and authorised HNA Investment to
exercise the voting rights in respect of all of his ultimate shareholding
interest in HKAG Holdings.
HNA Investment released Mr. Zhong from the HKA Charge, the HKA
Holdings Charge and the HKAG Holdings Charge. Since then, Mr. Zhong
has been entitled to exercise all the voting rights in respect of his ultimate
shareholding interest in HKA Holdings and HKAG Holdings without any
direction or interference from any other Shareholders or parties.
At the same time, Mr. Zhong (through HKA Consultation) created a new
charge over his then entire ultimate shareholding interest in HKA Holdings
and HKAG Holdings in favour of HNA Investment (the Mr. Zhong
Charge).
HKAG Company acquired an aggregate of 74.7% shareholding interest in

Hong Kong Express from Mr. Mung and HNA Group (through its then
wholly owned subsidiary) and a 25.3% shareholding interest in Hong Kong
Express from Dr. Stanley Ho, an Independent Third Party. In consideration
for and in connection with the transfers, HKAG Holdings (as the then
holding company of the HKAG Company) allotted certain shares to each of
Mr. Mung, HNA Group (through its then wholly owned subsidiary) and Dr.
Stanley Ho.
98

January 2013
Upon completion of the transfers and allotments in April 2012 and as at

January 1, 2013 (i.e., the beginning of the Companys most recent audited
financial year), HKAG Holdings was ultimately beneficially held as to
32.55% by HKA Holdings, 9.86% by Mr. Zhong, 0.59% by Mr. Mung,
15.81% by Hainan Airlines, 35.13% by HNA Group, 1.89% by Grand China
Air and 4.16% by Dr. Stanley Ho.
As at January 1, 2013, HKA Holdings was ultimately beneficially held as

to 43.26% by Mr. Zhong, 22.47% by Mr. Mung and 34.27% by HNA Group.
HKAG Holdings has further allotted certain shares to Mr. Zhong (through
HKA Consultation), HKA Holdings and Hainan Airlines, after which
HKAG Holdings became ultimately beneficially held as to 31.14% by HKA
Holdings, 12.69% by Mr. Zhong, 0.48% by Mr. Mung, 22.20% by Hainan
Airlines, 28.57% by HNA Group, 1.54% by Grand China Air and 3.39% by
Dr. Stanley Ho.
Mr. Zhong (through HKA Consultation) and HNA Group also further
subscribed for certain shares in HKA Holdings, after which HKA Holdings
became ultimately beneficially held as to 46.04% by Mr. Zhong, 19.80% by
Mr. Mung and 34.16% by HNA Group.
HNA Investment provided loans to Mr. Zhong in an aggregate amount of

HK$468,020,000 for the payment of consideration for his acquisition of
shares in HKA Holdings and HKAG Holdings during this period.
September 2013
and
immediately
before the
Reorganization
HNA Group transferred a 4.82% shareholding interest in HKAG Holdings

to Hainan Airlines at a consideration of US$52,000,000, after which HKAG
Holdings became ultimately beneficially held as to 31.14% by HKA
Holdings, 12.69% by Mr. Zhong, 0.48% by Mr. Mung, 27.02% by Hainan
Airlines, 23.75% by HNA Group, 1.54% by Grand China Air and 3.39% by
Dr. Stanley Ho.
June to July
2013
99

OUR REORGANIZATION
Pre-Reorganization Structure
The simplified shareholding structure of the Group immediately before commencement of the
Reorganization is set out below:
100%
100%
HKA Group
(HK)
Hainan
SASAC
(PRC)
HNA Group
(PRC) (Note 1)
Mr. Zhong
Mr. Mung
100%
HKA Consultation
(HK)
23.11%
HNA Investment
(HK)
Dr.
Stanley Ho
24.97%
Grand China Air

(PRC) (Note 2)
29.95%
100%
4.89%
China Energy
Development Limited
(BVI)
Hainan Airlines
(PRC) (Note 3)
46.04%
19.80%
4.89%
34.16%
HKA Holdings
(HK)
0.24%
0.24%
12.69%
31.14%
23.75%
1.54%
27.02%
3.39%
HKAG Holdings
(BVI)
100%
HKAG Company
(BVI)
100%
Hong Kong Airlines
(HK)
100%
Hong Kong Express
(HK)
Notes:
1)
For details of shareholders of HNA Group, please see the section headed Substantial Shareholders. Hainan Airlines
Co., Ltd. Trade Community Union (), through its controlled entities including HNA
Group, holds an indirect interest in HKAG Holdings. The Company has been advised that Hainan Airlines Co., Ltd.
Trade Community Union () is operating independently and shall conduct its work
independently in accordance with its constitution, without control by Hainan Airlines or any of its legal representatives,
directors or senior management.
2)
According to the 2013 PRC annual report of Hainan Airlines and assuming there have not been any changes or updates
to the information stated in that report which we have not independently verified, Hainan SASAC (through a
wholly-owned subsidiary, Hainan Provincial Development Holdings Company Limited ())
indirectly holds an approximate 24.97% interest in Grand China Air. According to the search results available on the
website of the State Administration for Industry and Commerce of the PRC as of the Latest Practicable Date, no
shareholder of Grand China Air other than Hainan Provincial Development Holdings Company Limited and HNA
Group individually held 10% or more interest in Grand China Air. Grand China Air holds its 29.95% interest in Hainan
Airlines directly and/or indirectly through its wholly-owned subsidiary(ies).
3)
Hainan Airlines is a joint stock limited company incorporated in the PRC on December 29, 1995, whose shares are
listed on the Shanghai Stock Exchange. According to the 2013 PRC annual report of Hainan Airlines and assuming
there have not been any changes or updates to the information stated in that report which we have not independently
verified, the de facto controller of Hainan Airlines is attributable to Hainan SASAC. Hainan Airlines holds its
shareholding interest in the Group through a wholly-owned subsidiary, Hainan Airlines Investment.
4)
The percentage figures of the Companys shareholding structure as shown above were derived at after rounding
adjustments.
100

Reorganization
We [underwent] the Reorganization in preparation for the [REDACTED], and as a result, the
Company became the holding company of the Group.
According to the Companys PRC legal advisers, no PRC governmental approval is required of the
Company to implement the Reorganization.
In respect of Hong Kong Airlines minority interest in HNA Group (International) Company Limited,
which in turn holds interest in certain SFC-licensed corporations, the Group will, if and as required, seek
approval from the SFC for the potential change of the substantial shareholder(s) (as defined in Schedule
1 to the SFO) of such SFC-licensed corporations that may result from the implementation of the
Reorganization. Hong Kong Airlines investment in HNA Group (International) Company Limited is
accounted for in our consolidated financial statements as an available-for-sale financial asset, details of
which are set out in Note 16 of the Accountants Report included in Appendix I to this [REDACTED].
The principal steps of the Reorganization are summarized below:
(I)
Incorporation of the Company
The Company was incorporated on January 30, 2014 in the Cayman Islands with limited liability
with an initial authorized share capital of HK$350,000 divided into 350,000 shares of HK$1.00 each, with
one share allotted and issued to Mapcal Limited. On the same date, Mapcal Limited transferred its one
share to HKAG Holdings for a consideration of HK$1.00.
(II) Distribution of shares in Hong Kong Express by HKAG Company to HKAG Holdings
On [], HKAG Company distributed a dividend in specie of its entire shareholding interest in Hong
Kong Express to HKAG Holdings, being the then sole shareholder of HKAG Company. Immediately after
such distribution, HKAG Holdings (i) directly held the entire issued share capital of Hong Kong Express,
and (ii) through HKAG Company, indirectly held the entire issued capital of Hong Kong Airlines.
Hong Kong Express does not form part of the Group for the following business and strategic reasons:
(a)
Hong Kong Express has been focusing on its business strategy as a low-cost carrier. It is
believed that the carve-out of Hong Kong Express would enable the Company to fully focus
on and deploy its fund towards development of Hong Kong Airlines existing business as a full
service passenger carrier; and
(b)
Due to the relatively short operating history of Hong Kong Express after its remodelling as a
low-cost carrier, the business strategy for Hong Kong Express is not consistent with the
Groups business strategy.
For details of the delineation of business of our business with that of Hong Kong Express, please
refer to the section headed Relationship with Controlling Shareholders and other Existing Shareholders
Delineation of Business.
101

(III) Transfer of shares in HKAG Company by HKAG Holdings to the Company
On [], the Company sub-divided every share of HK$1.00 in its share capital into 10 Shares of
HK$0.10 each. As a result, the authorized share capital of the Company changed from 350,000 shares of
HK$1.00 each to 3,500,000 Shares of HK$0.10 each. On the same day, the Company increased its
authorized share capital from 3,500,000 Shares of HK$0.10 each to 10,000,000,000 Shares of HK$0.10
each.
On [], pursuant to the Reorganization Deed, HKAG Holdings transferred 5,324,767,500 shares in
HKAG Company, representing its entire issued share capital, to the Company in consideration for the
allotment and issue by the Company of 2,662,383,744 additional Shares credited as fully paid to HKAG
Holdings. Under the Reorganization Deed, the Controlling Shareholders together with certain other
pre-existing Shareholders have given certain warranties and indemnities in favour of the Company in
respect of the business of the Group. Since then, the Company has become the holding company of HKAG
Company and in turn Hong Kong Airlines and its subsidiaries.
(IV) Distribution of Shares by HKAG Holdings to its shareholders
On [], HKAG Holdings distributed a dividend in specie of its entire shareholding interest in the
Company to the then shareholders of HKAG Holdings essentially on a pro rata basis. Since then, HKAG
Holdings has ceased to be the holding company of our Company, while HKAG Holdings continues to be
the holding company of Hong Kong Express which does not form part of our Group.
(V) Transfer of shares in HKA Holdings by HNA Investment to Mr. Zhong and Mr. Mung
On [], HNA Investment transferred a 5% shareholding interest in HKA Holdings to HKA
Consultation (an entity 100% controlled by Mr. Zhong) and transferred a 29.16% shareholding interest in
HKA Holdings to HKA Group (an entity 100% controlled by Mr. Mung). Immediately after completion of
such transfers, HNA Investment ceases to have any shareholding interest in HKA Holdings, which is
ultimately beneficially held as to 51.04% by Mr. Zhong and 48.96% by Mr. Mung. The consideration for
the transfers was determined on an arms length basis by reference to the net book value of HKA Holdings
according to its unaudited financial statements for the year ended December 31, 2013.
(VI) Transfer of Shares by HNA Investment to Mr. Mung
On [], HNA Investment transferred a 11% shareholding interest in the Company to China Energy
Development Limited (an entity 100% controlled by Mr. Mung). Immediately after completion of such
transfer, but before the [REDACTED], the direct shareholding interest of HNA Investment in the
Company reduced to approximately 12.75%, while the direct and/or indirect shareholding interest of Mr.
Mung in the Company (excluding his interest in the Company through and held by HKA Holdings)
increased to approximately 11.48%. The consideration for the transfer was determined on an arms length
basis by reference to the net book value of Hong Kong Airlines according to its unaudited financial
statements for the year ended December 31, 2013.
102

In connection with the transfers to Mr. Mung as set out in steps (V) and (VI) above, Mr. Mung
[funded] his acquisitions of shareholding interests in HKA Holdings and the Company by way of loan
financing. As part of such financing, Mr. Mung [has charged] his ultimate shareholding interests (without
fettering the voting rights in respect of such shares) in the Company as security, which will survive
[REDACTED]. The Mr. Zhong Charge will also survive [REDACTED]. Since these share charges made
by Mr. Zhong and Mr. Mung were made pursuant to pre-existing arrangements entered into before
[REDACTED], such share charges do not fall within the ambit of restrictions on disposal of shares by the
Controlling Shareholders following the [REDACTED] pursuant to Rule 10.07 of the Listing Rules. HNA
Investment [has agreed] not to take steps to enforce the Mr. Zhong Charge during the 12 months after the
[REDACTED].
According to Mr. Zhong, it is his intention to repay all his pre-existing repayment obligations to
HNA Investment by way of staged payments after [REDACTED], and to thereby discharge his obligations
under the First Promissory Note, the Second Promissory Note and the Mr. Zhong Charge. Mr. Zhong
currently has outstanding loans to HNA Investment in the aggregate amount of HK$468,020,000 and the
parties currently intend that the initial repayment schedule should be not less than 10% of the total
outstanding loan amount annually for every year starting from the second anniversary of the
[REDACTED] until the total outstanding loan amount is fully repaid. To this end, Mr. Zhong may obtain
funds by means such as to arrange for loan financing from another financier or to dispose of and realise
his interest in the Company after the expiry of the lock-up period that applies to Mr. Zhong under Rule
10.07 of the Listing Rules.
In April 2012, HNA Group gave a non-competition undertaking in favour of Hainan Airlines as a
company whose shares are listed on the Shanghai Stock Exchange, pursuant to which HNA Group agreed
to, among other things, inject its direct and indirect interests in Hong Kong Airlines into Hainan Airlines
as a measure to reduce its potential competition with Hainan Airlines. In connection with the share
transfers by HNA Investment as contemplated under steps (V) and (VI) above, we have been advised by
HNA Group that it is taking all steps and will do all such acts and things as are necessary or desirable to
procure the waiver (including from Hainan Airlines) of any restrictions on the transfer in relation to its
direct and/or indirect interests in Hong Kong Airlines pursuant to its constitutional documents or any
contracts or undertakings to which it is a party; and that HNA Group considers it appropriate to reduce
potential competition between HNA Group and Hainan Airlines through an alternative means by realising
the value of some of its interest in Hong Kong Airlines through selling such interest to Mr. Zhong and Mr.
Mung, who are long term business partners of HNA Group in respect of the investments in Hong Kong
Airlines, thereby reducing the interest of HNA Group in Hong Kong Airlines.
103

The following sets out our simplified corporate structure and the Shareholders immediately upon
completion of the Reorganization but before completion of the [REDACTED]:
100%
100%
HKA Group
(HK)
100%
China Energy
Development Limited
(BVI)
0.24%
11.24%
100%
23.11%
HNA Investment
(HK)
HKA Consultation
(HK)
48.96%
Hainan
SASAC
(PRC)
HNA Group
(PRC) (Note 1)
Mr. Zhong
Mr. Mung
Dr.
Stanley Ho
24.97%
Grand China Air

(PRC) (Note 2)
29.95%
51.04%
4.89%
HKA Holdings
(HK)
31.14%
12.69%
12.75%
Hainan Airlines
(PRC) (Note 3)
1.54%
27.02%
4.89%
3.39%
Company
(Cayman Islands)
100%
HKAG Company
(BVI)
100%
Hong Kong Airlines
(HK)
Notes:
1)
Group, holds an indirect interest in the Company. The Company has been advised that Hainan Airlines Co., Ltd. Trade
Community Union () is operating independently and shall conduct its work
2)
3)
verified, the de facto controller of Hainan Airlines is attributable to Hainan SASAC. Hainan Airlines holds its
shareholding interest in the Group through a wholly-owned subsidiary, Hainan Airlines Investment.
4)
The percentage figures of the Companys shareholding structure as shown above were derived at after rounding
adjustments.
104

The following sets out our simplified corporate structure and the Shareholders immediately after
completion of the [REDACTED] (assuming that the Over-allotment Option is not exercised):
100%
100%
HKA Group
(HK)
100%
100%
23.11%
HNA Investment
(HK)
HKA Consultation
(HK)
48.96%
Hainan
SASAC
(PRC)
HNA Group
(PRC) (Note 1)
Mr. Zhong
Mr. Mung
24.97%
29.95%
51.04%
HKA Holdings
(HK)
[REDACTED] [REDACTED]
[REDACTED]
Grand China Air

(PRC) (Note 2)
4.89%
China Energy
Development Limited
(BVI)
Dr.
Stanley Ho
[REDACTED]
[REDACTED]
[REDACTED]
Hainan Airlines
(PRC) (Note 3)
[REDACTED]
4.89%
[REDACTED]
[REDACTED] [REDACTED]
Company
(Cayman Islands)
100%
HKAG Company
(BVI)
100%
Hong Kong Airlines
(HK)
HK Aircraft
Sub1 Company
Limited (HK)
100%
HK Aircraft
Sub2 Company
Limited (HK)
100%
HK Aircraft
Sub3 Company
Limited (HK)
HK Aircraft
Sub7 Company
Limited (HK)
100%
HK Aircraft
Sub8 Company
Limited (HK)
100%
100%
HK Aircraft
Sub9 Company
Limited (HK)
100%
HK Aircraft
Sub4 Company
Limited (HK)
100%
HK Aircraft
Sub10 Company
Limited (HK)
100%
HK Aircraft
Sub5 Company
Limited (HK)
100%
HK Aircraft
Sub11 Company
Limited (HK)
100%
HK Aircraft
Sub6 Company
Limited (HK)
100%
HK Aircraft
Sub12 Company
Limited (HK)
100%
HK Aircraft
Sub13 Company
Limited (HK)
100%
Blue Sky Fliers

Company Limited
(BVI)
Skyliner
Company Limited
(BVI)
Hong Kong
Airlines Cargo
Company Limited
(HK)
100%
100%
SPA II Tianjin
Center
(BVI) (Note 4)
100%
100%
100%
Hong Kong
Aviation
100%
Maintenance and
Engineering
Corporation Limited
(HK)
Hong Kong Aviation 100%
Ground Services
Limited (HK)
HKA Cabin Media
Company Limited
(HK)
HKA FFM
Company Limited
(HK)
100%
HKA Investment
Development
Company Limited
(HK)
100%
Hong Kong Airlines

Aviation Training 100%
Centre Limited
(HK)
HKA Information
Technology Service 100%
Company Limited
(HK)
HKA Tourism
Services
Company Limited
(HK)
Prime Way
Management
Limited
(BVI)
100%
100%
Notes:
1)
Group, holds an indirect interest in the Company. The Company has been advised that Hainan Airlines Co., Ltd. Trade
Community Union () is operating independently and shall conduct its work
105

2)
3)
verified, the de facto controller of Hainan Airlines is attributable to Hainan SASAC. Immediately after the
completion of the [REDACTED], Hainan Airlines will indirectly hold approximately 17.56% of the issued share
capital of the Company through its indirect wholly-owned subsidiary, Hainan Airlines Investment.
4)
On December 30, 2010, Hong Kong Airlines acquired the entire issued share capital of SPA II Tianjin Center, a
company incorporated in the BVI on December 1, 2009. SPA II Tianjin Center holds a 25% equity interest in HNA
Tianjin, a PRC-incorporated company which in turn holds a commercial complex in Tianjin, PRC. During the Track
Record Period, SPA II Tianjin Center has been an investment holding company.
5)
The shareholding figures of the Companys shareholding structure as shown above were derived at after rounding
adjustments.
OUR MAJOR SUBSIDIARIES

As of the Latest Practicable Date, we had 28 wholly-owned subsidiaries including HKAG Company
and Hong Kong Airlines. These subsidiaries were each incorporated in Hong Kong or the BVI.
1.
Airline operations
Hong Kong Airlines is our principal operating subsidiary.
We provide passenger and cargo air transportation services mainly through our wholly-owned
subsidiary, Hong Kong Airlines, formerly known as CR Airways Limited, a company incorporated in Hong
Kong on March 28, 2001. CR Airways Limited subsequently changed its name to Hong Kong Airlines
Limited in 2006. Hong Kong Airlines is our principal operating subsidiary which made material
contribution to the results of the Group during the Track Record Period.
2.
Aircraft holding
HK Aircraft Sub1 Company Limited, HK Aircraft Sub2 Company Limited, HK Aircraft Sub3
Company Limited, HK Aircraft Sub4 Company Limited, HK Aircraft Sub5 Company Limited, HK Aircraft
Sub6 Company Limited, HK Aircraft Sub7 Company Limited, HK Aircraft Sub8 Company Limited, HK
Aircraft Sub9 Company Limited, HK Aircraft Sub10 Company Limited, HK Aircraft Sub11 Company
Limited, HK Aircraft Sub12 Company Limited and HK Aircraft Sub13 Company Limited were all
incorporated in Hong Kong on March 23, 2011 and each of them has been a wholly-owned subsidiary of
Hong Kong Airlines since its incorporation. Each of these subsidiaries commenced business on June 30,
2011, and they individually entered into aircraft financing arrangement for separate aircraft. From a risk
management perspective, we manage the aircraft holding and leasing operations of each of our aircraft
through separate entity.
106
BUSINESS
OVERVIEW
airline group in Hong Kong in terms of passenger market share, according to the ICF Report. From 2007
to 2013, we were the fastest growing airline based on increase in market share as measured by average
weekly departures in Hong Kong, according to the ICF Report. Our passengers carried more than doubled
from 1.8 million in 2011 to 4.1 million in 2013, doubling our market share in Hong Kong in terms of
passengers carried from 3.4% in 2011 to 6.8% in 2013.
We adopt a hub-and-spoke model using HKIA as our hub. As of the Latest Practicable Date, our
scheduled passenger service covered 26 destinations in the Asia-Pacific region. In particular, our
scheduled passenger route network in the PRC covers 18 destinations, enabling us to carry Hong Kong and
overseas passengers to the PRC and carry passengers in the PRC to Hong Kong and onward to various
destinations in Japan, Southeast Asia and Taiwan. For details, please see the section headed Business
Our Services. In addition, we currently hold a license issued by ATLA in relation to 193 destinations
worldwide which allows us the opportunity to arrange for scheduled flights to and from such destinations
for passenger and air cargo transportation services.
We have leading market share by capacity across many of the markets we currently serve. As of
August 2014, we were the largest and second largest airline by capacity share on seven and five out of the
15 second-tier cities we served in the PRC, respectively, which were among the fastest growing routes
between Hong Kong and the PRC in 2013, according to the ICF Report. We believe our ability to win
market share from our competitors on these fast-growing routes has been a key driver of our rapid growth.
We strive to provide high quality in-flight and ground services to our passengers. Since 2011, we
have been awarded a four-star airline rating by Skytrax annually, which we believe attests to the strength
of our products and services relative to our competitors. In 2014, we were awarded the Worlds Most
Improved Airline by Skytrax. We place strong emphasis on safety and have recently adopted improved
protocols which are designed to achieve higher safety standards. Our commitment to safety and security
is reflected in our system of repair and maintenance of our aircraft and engines and the extensive training
we provide to flight crew and other employees.
We operate a young and all-Airbus fleet with an average age of approximately 2.4 years as of May
31, 2014, which we believe is one of the youngest fleets among major international airlines in the world.
A young and homogenous fleet generally results in greater fuel efficiency and lower maintenance and
operating costs compared to an older and varied fleet. We believe a younger fleet also contributes towards
a superior onboard product and greater passenger comfort, strengthening our value proposition to
customers. As of May 31, 2014, our fleet consisted of 40 aircraft of which we operated 23 aircraft and
sub-leased 17 aircraft. We intend to expand our operating fleet and sub-leased fleet in future in line with
our development strategy by adding 31 aircraft to our operating fleet by December 31, 2018. For details,
please see the section headed Business Our fleet.
107
BUSINESS
OUR STRENGTHS
We operate a well-balanced network, with our hub in HKIA serving destinations in the PRC,
Southeast Asia, Taiwan and Japan. We have experienced significant growth in revenue and profit for the
year/period during the Track Record Period. Our market share in Hong Kong in terms of passengers
carried has doubled from 3.4% in 2011 to 6.8% in 2013. We believe these achievements were primarily
due to the following competitive strengths:
Focus on the PRC market, one of the largest and fastest growing air travel markets in the world
We believe China is a highly attractive air travel market
China was the second largest market in the world in terms of passenger traffic volume in 2013, with
411 million passengers carried, according to the ICF Report. China is also one of the fastest growing air
travel markets in the world, forecast to account for the highest change in both international and domestic
passenger volume in absolute terms between 2013 and 2017 of any country in the world according to the
ICF Report. Chinas passenger traffic volume grew at a CAGR of 11.6% from 2007 to 2013, and is
projected to grow at 9.9% CAGR from 2013 to 2017 according to the ICF Report. Air travel penetration
in China remains low which suggests that there remains significant growth potential in the future.
China was the largest contributor to our traffic revenue
In 2013, the flights between destinations in China and Hong Kong were the largest contributor to our
revenue by route, accounting for 45.4% of our traffic revenue, and passengers on these routes accounted
for 49.5% of our total scheduled passenger traffic. As of the Latest Practicable Date, 18 out of the 26
destinations we served were in China. The majority of the passengers on these flights were from
destinations in China destined for Hong Kong or other destinations by connecting through Hong Kong. We
therefore believe that the rapid increase in disposable income and international air travel in China is a key
driver of our growth.
The majority of our passenger ticket sales are made in China
In 2013, approximately 66% of our passenger ticket sales made through travel agents and sales office
channels in China, reflecting the strength of our sales channels in China and our ability to capture
outbound air travel demand in China.
We have leading market share by capacity across many of the markets we currently serve, including
fast-growing second-tier cities in China
As of the Latest Practicable Date, we were the largest and second largest airline by capacity share
on ten and six out of the 26 destinations we served, respectively, according to OAG Schedules. In
particular, as of the Latest Practicable Date, based on OAG Schedules, we had the largest and second
largest market share by capacity share on seven and five out of the 15 second-tier cities we served in
China, respectively, which were among the fastest growing routes between Hong Kong and China in 2013,
according to the ICF Report.
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BUSINESS
We currently serve 15 cities in China which we refer to as second-tier cities. Out of these, based on
OAG Schedules for August 2014:
In seven markets we were the leading airline by capacity share, with between 46% and 100%
capacity share of which in four markets we had 100% capacity share, specifically, Nanning,
Guiyang, Hohhot and Xuzhou; and
In five markets we were the second largest airline by capacity share. In many of these markets,
such as Fuzhou and Hangzhou, we achieved higher-than-market growth and successfully
gained market share from our competitors.
In major Chinese cities like Beijing and Shanghai, we were also able to grow by winning market
share from our competitors, according to the ICF Report.
Outside China, we were the leading airline on three popular holiday destinations, based on OAG
Schedules for August 2014:
Denpasar (Bali), where we had 51% capacity share;
Okinawa, where we had 78% capacity share; and
Kagoshima, where we had 100% capacity share.
Well positioned in Hong Kong, a leading international aviation hub with a large home market
We believe our hub in Hong Kong positions us well to benefit from fast-growing Chinese and
intra-Asian air travel markets given its geographical location and other factors. Hong Kong also benefits
from being a major international business and tourism destination, and operates one of the most efficient
airports in the world which has world leading connectivity. According to the ICF Report, HKIA enabled
over 6,400 O&D market connections in a month as of June 2013, more than any other airport in the region.
A large home market In 2013, HKIA handled over 59.9 million passengers, of which over 44.6
million were O&D passengers. In addition to Hong Kongs own population of 7.2 million, HKIAs
catchment area also includes a population of over 40 million in the Pearl River Delta. Direct connections
from HKIA to major cities in the Pearl River Delta include ferry services and cross-boundary coaches,
such as to Shenzhen, Guangzhou, Macao, Zhuhai, Zhongshan and Dongguan, with travel times of between
30 to 70 minutes. For many travelers living in the Pearl River Delta, HKIA remains the nearest airport for
direct air travel to many international destinations.
Strategic geographical position with a majority of the cities in the PRC within a 3.5 hour flight
radius and over 200 Asian cities within a five hour flight radius from Hong Kong, we believe Hong Kong
has a geographic advantage compared to most of the other international transfer hubs in the region, with
a shorter flight time to a wider number of cities.
Leading international aviation hub Hong Kong is a well-established international aviation hub
and a gateway for the PRC. HKIA offers superior connectivity, enabling one of the largest number of O&D
connections among airports in the world: over 6,400 market connections (including secondary connections
before or after connecting from Hong Kong) as of June 2013, according to the ICF Report. Hong Kong
also offers the largest number of destinations, average daily frequencies and average daily seats to the PRC
among international airports in the world, according to the ICF Report.
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BUSINESS
Preferred international hub and stopover for Chinese travelers we believe Hong Kong remains
the preferred transfer hub and stopover for passengers in the PRC traveling to overseas destinations,
compared with other international hubs within China. We believe this provides us with a competitive
advantage against carriers based in other hubs in the PRC. According to the ICF Report, approximately
68% of scheduled seat capacity between Hong Kong and the PRC was provided by Hong Kong-based
airlines, more than twice the approximately 32% shared among the PRC-based airlines in 2013.
High barriers to entry Hong Kong Airlines is one of only four airlines with an AOC to operate
large aircraft for both scheduled passenger and cargo flights in Hong Kong, and the CAD has not issued
any such new AOCs to airlines since November 2006, maintaining strict controls on its evaluation of new
applicants. Furthermore, HKIA is becoming increasingly slot constrained, with its existing two runway
slot capacity expected to be fully utilized by as early as 2020 and limited additional new slots expected
to be made available before a third runway is constructed according to the ICF Report. This provides
limited room for any new entrants looking to operate from HKIA. We believe we are well positioned to
secure additional slots when they become available, having already secured approximately 8% of slots in
HKIA, the third largest share of any airline as of the Latest Practicable Date. In addition, we believe we
are well positioned to capitalize on any new slots that we are awarded, as a result of our Hong Kong base
of operations and extensive network.
Strong value proposition: high quality product and service at attractive fares
We believe we offer a strong value proposition to customers, given the following attributes:
High quality product and service we were rated a four-star airline by Skytrax for four consecutive
years from 2011 to 2014.
High frequencies on key routes since 2013 we have offered a high level of frequencies on key
routes during peak hours such as flights to and from Beijing, Shanghai, Taipei, Bangkok and Denpasar
(Bali) through our self-operated and codeshare flights. We also offer frequent flights to second-tier cities
such as Hangzhou, Fuzhou and Nanjing.
Frequent flyer program our customers are able to participate in the frequent flyer program named
Fortune Wings Club, a common loyalty program with Hainan Airlines, Air Berlin and four other HNA
affiliated airlines. Through the Fortune Wings Club, members are able to redeem tickets for 145
destinations in the PRC and worldwide, presenting a strong proposition to frequent flyers in the PRC in
particular. As of December 31, 2013, Fortune Wings Club had over 14 million members.
Young, fuel-efficient and homogenous operating fleet
As of May 31, 2014, the average age of our operating fleet was 2.4 years, which we believe is one
of the youngest fleets among major international airlines in the world and significantly younger than our
key competitors. According to the ICF Report, the fleet age of Dragonair, Air China, China Eastern
Airlines and China Southern Airlines was 12.3 years, 5.8 years, 6.0 years and 6.0 years, respectively, as
of December 31, 2013.
A younger fleet is generally more reliable in terms of on time performance and results in greater
fuel-efficiency, and therefore lower costs for fuel. A younger fleet also generally results in lower costs for
maintenance and spare parts. We believe a younger fleet also contributes towards a superior onboard
product and greater passenger comfort, strengthening our value proposition to customers.
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BUSINESS
We operate a limited number of aircraft types, all of which are Airbus aircraft. As a result, we enjoy
costs savings and operational efficiencies due to similarities in systems, operating and maintenance
procedures, and training programs for our pilots and cabin crew. In particular, the Airbus A320 and A330
aircraft series share many commonalities, as a result of which, our well-trained cabin crews are
interchangeable across many of our aircraft and we are able to reduce costs associated with training.
Substantial synergies from partnerships with aviation and tourism business of HNA Group
HNA Group, one of our Shareholders, is a large conglomerate in China engaging in aviation, retail,
tourism, real estate, finance, logistics and other businesses. Airlines related to HNA Group include Hainan
Airlines and six other airlines based in the PRC, which on aggregate operate over 313 aircraft, serving 145
destinations in the PRC and worldwide. We believe we derive substantial benefits by leveraging HNA
Groups distribution network in the PRC, frequent flyer program, collective purchasing power and other
resources of airlines related to HNA Group and other related entities.
Joint negotiation in relation to procurement of aircraft, maintenance and spare parts we
negotiate for procurement of aircraft, spare parts, maintenance and other services with Hainan Airlines and
other airlines related to HNA Group jointly. By negotiating jointly to place larger combined orders, we
believe we are able to achieve better prices and terms than if we acted alone.
Codeshare and interline agreements with Hainan Airlines we have entered into codesharing
agreements with Hainan Airlines on nine of our routes to the PRC. In addition, we have special pro-rate
agreements with Hainan Airlines whereby we can sell tickets on the routes operated by Hainan Airlines
that we do not serve. Codesharing agreements and special pro-rate agreements, enabling us to increase the
frequencies offered to passengers and reach customer base we do not serve directly, expand our network
of routes offered and increase our appeal to our target customers.
Optimize fleet and capacity deployment we historically have been able to manage our aircraft
capacity by subleasing certain aircraft to airlines related to HNA Group, namely Hainan Airlines and
Yangtze River Express. We believe that our relationship with HNA Group has provided us with an
additional channel to dynamically manage our aircraft capacity based on changing market conditions and
outlook.
For a detailed description of HNA Group and our relationship with HNA Group, please see the
section headed Substantial Shareholders in this [REDACTED].
Experienced management team with proven track record
We have an entrepreneurial culture and our experienced management team is focused on sustainable
growth and long-term profitability. There has been significant growth in our business as demonstrated by
our track record of financial performance. Since 2006, we have expanded significantly to an airline
operating 23 aircraft servicing a route network of 26 passenger flight destinations and 12 cargo flight
destinations in the Asia Pacific region as of May 31, 2014.
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BUSINESS
We attribute our significant growth and current success to, among other things, our seasoned
management team. Our senior management team consists of Mr. Zhang Kui, Mr. Sun Jianfeng and Mr. Wu
Hao. Mr. Zhang and Mr. Sun are also directors of our Company. Members of our management team have
extensive experience. Our management team also embraces entrepreneurial spirit, and together with its
significant industry experience, can promptly make business decisions in response to changing market
conditions. We believe the experience and expertise of our key management team have contributed
significantly to our growth and profitability.
OUR STRATEGIES
We aim to increase our market share and improve our profitability, by leveraging Hong Kongs
position as a transit hub and harnessing the growth potential of Hong Kong and PRC markets. We intend
to achieve this goal through implementing the following strategic initiatives:
Expand our network
Increase frequency on existing routes
We will focus on increasing the frequency of flights to selected PRC destinations that have a track
record of route profitability. By analyzing key metrics such as passenger loading, yield, seasonal demand
and other factors, we plan to increase frequencies to destinations which have the potential to deliver
consistently high passenger load factors at attractive yields, such as Beijing, Shanghai, Chengdu,
Chongqing, Nanjing, Hangzhou and Fuzhou.
Add new destinations within the Asia-Pacific region
We intend to continue expanding our route network both within the PRC and internationally. In the
PRC, we intend to add more directly-served destinations and codeshare routes. Over the next several years,
we intend to expand our PRC footprint to approximately 30 destinations. Outside the PRC, we intend to
enhance our regional and global connectivity to more international destinations to provide more options
for passengers from Hong Kong, the Pearl River Delta catchment area, and transit passengers from
Mainland China. Over the next several years, we intend to launch approximately ten new international
destinations in the Asia Pacific region, including destinations in India, Indonesia and elsewhere in
Southeast Asia.
Develop long-haul network
In the medium to long-term, we plan to develop a long haul network, potentially serving destinations
in North America, Europe and Australia. Prior to this, we may seek to add long haul destinations to our
network through codeshare agreements.
Expand our codeshare, interline and other partnerships
In addition to serving new destinations with our own aircraft, we intend to broaden and deepen our
network through broadening codeshare and interline agreements with numerous domestic PRC and
international airlines. As of May 31, 2014, we had passenger codeshare agreements with five airlines,
pursuant to which our codeshare partners operated 340 and we operated 448 scheduled flights per week.
We also had interline agreements with 71 international and PRC airlines, through which passengers on our
flights may connect to over 500 destinations worldwide.
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BUSINESS
Expand our fleet
To service the expected increase in passenger numbers, we intend to grow our fleet with new and
fuel-efficient aircraft, thereby supporting the future growth in passenger demand while maintaining our
competitive cost advantage. As of the Latest Practicable Date, we intend to add 31 aircraft into our
operating fleet by the end of 2018. For details of our fleet expansion, please see the section headed Our
Fleet Future Fleet Development.
Build our brand and grow a loyal customer base
We plan to foster greater customer loyalty by continually improving our product and service, offering
additional destinations through expanding our network and by continually enhancing the attractiveness of
our loyalty program, in partnership with Fortune Wings Club.
We intend to actively promote the Hong Kong Airlines brand and raise awareness in our core markets
through innovative and targeted media campaigns. We have recently sponsored a Hong Kong popular TV
series Triumph in the Skies 2, which has been instrumental in enhancing our brand recognition in Hong
Kong and the PRC through broadcasting by television or other public media in Hong Kong and the PRC.
We intend to implement a variety of exciting media campaigns and sponsorship programs that drive
consumer awareness of our brand and value proposition, while further strengthening our online presence
through continued upgrading of website and mobile phone platforms.
Focus on cost management
Operate a fleet of new, single manufacturer and fuel-efficient aircraft
We believe that by maintaining a young operating fleet, we will continue to enjoy greater fuel
efficiency and lower maintenance costs compared to the fleets of our competitors. Further, by operating
a fleet of 100% Airbus aircraft, we are able to maximize the cost efficiency of our operations as
maintenance is simplified, spare parts inventory requirements are reduced, and scheduling of aircraft and
crew is more efficient.
Enhance operating cost efficiency
We plan to maximize the cost efficiency of our operations by (i) increasing our capability to provide
ancillary operations through our own resources where doing so reduces our cost profile or (ii) outsourcing
ancillary services to low cost third party providers where we determine it will be more cost competitive
to do so. As of the Latest Practicable Date, we considered the following ancillary operations key to
improve our cost efficiency, including cargo handling and passenger ground handling services, aircraft
maintenance, in-flight catering service, simulation training centre for pilots and cabin crew and in-flight
entertainment services. Since receipt in 2011 of a permit to engage in passenger self-handling services by
Airport Authority Hong Kong, we have delivered passenger handling services in-house at HKIA. In March
2014, we were granted a permit to engage in passenger handling services by Airport Authority Hong Kong,
pursuant to which we could provide passenger handling services to both passengers carried by us and
passengers carried by other airlines at HKIA. In addition, we intend to expand the capabilities of our
aircraft maintenance services in the next several years as we believe it will be more cost effective and
efficient with the growth of our fleet.
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BUSINESS
Maintain low sales and distribution costs
We plan to develop and promote our website, www.hongkongairlines.com, particularly its internet
booking and payment services, as a key way to maintain low sales and distribution costs. We view our
website as an important component of our business operation as it contributes to lower overhead and
reduced operating costs, and reduces the need for payment of commissions or other fees to third party sales
agents. Our website also provides an opportunity for us to maintain a direct relationship with our
customers and develop an online community.
Drive growth in ancillary revenue
To supplement our core revenue stream from ticket sales, we plan to continue to pursue and expand
ancillary revenue opportunities and provide value-added services to customers. We currently generate
ancillary revenue through various fees including excess baggage handling fees, seat selection fees, and
travel insurance for selected destinations. While ancillary services have not traditionally been a major
source of revenue, we intend to aggressively focus on growing our ancillary revenue streams by
introducing new and innovative services and products such as customized seating selection methods and
other pre-departure add-ons. We also plan to expand our sales of in-flight merchandise by increasing the
selection of products that are available for purchase on board. We also plan to introduce or increase sales
of third party products and services like hotel accommodation, car rentals and trip interruption insurance,
on which we receive commissions.
Develop complementary ancillary services organically or through acquisition
We intend to develop ancillary operations complementary to our main business either in-house or
through acquisition of suitable targets when we deem appropriate, in order to improve our cost efficiency
and develop additional revenue streams. Such ancillary operations could include cargo handling and
passenger ground handling services, aircraft maintenance, in-flight catering service, simulation training
services for pilots and cabin crew and in-flight entertaining services and products. As of the Latest
Practicable Date, we were still in the process of searching for suitable targets and have not entered into
any definitive and legally binding agreement in this respect. When we explore future acquisition
opportunities, we will consider various criteria, including qualification, service quality and management
expertise of the target, time for us to obtain license and approval to conduct relevant operations by
ourselves and potential synergies with the target in terms of technology, know-how and business
compatibility. Please also see the section headed Risk Factors Our future expansion plan may not be
successfully executed or completed within our anticipated time frame or budget.
OUR SERVICES
We provide air passenger and air cargo services, through which we obtain traffic revenue, comprising
(i) passenger revenue, representing the revenue we generated from sales of passenger seats on passenger
flights and providing charter services and (ii) cargo revenue, representing the revenue we generated from
sales of cargo capacity on dedicated cargo freighters as well as in the bellyhold space of passenger aircraft,
where we provide both scheduled flights and charter cargo services. During the Track Record Period, we
also sub-leased our aircraft to Hong Kong Express, Hainan Airlines and Yangtze River Express through
which we receive rental income.
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BUSINESS
The following table sets forth details of our revenue for the periods indicated:
2011
HK$000
Traffic Revenue
Passenger Revenue
Scheduled service . . .
Charter service . . . . .
Subtotal . . . . . . . . .
2012
%
HK$000

2013
HK$000
2013
%
2014
HK$000
%
unaudited
HK$000
2,850,175
66,321
2,916,496
61.0
1.4
62.4
3,712,205
53,080
3,765,285
59.4
0.8
60.2
5,332,737
114,903
5,447,640
62.4
1.3
63.7
2,048,492
53,998
2,102,490
62.1
1.6
63.7
2,581,394
2,581,394
65.2
65.2
.
.
.
.
976,335
226,054
1,202,389
4,118,885
20.9
4.8
25.7
88.1
1,574,603
123,466
1,698,069
5,463,354
25.2
2.0
27.2
87.4
1,613,890
148,899
1,762,789
7,210,429
19.0
1.7
20.7
84.4
559,913
62,475
622,388
2,724,878
17.0
1.9
18.9
82.6
851,398
54,498
905,896
3,487,290
21.5
1.4
22.9
88.1
. .
. .
541,556
15,057
11.6
0.3
767,410
19,344
12.3
0.3
1,310,474
25,932
15.3
0.3
565,308
8,453
17.1
0.3
458,293
12,913
11.6
0.3
Total . . . . . . . . . . . .
4,675,498
100.0
6,250,108
100.0
8,546,835
100.0
3,298,639
100.0
3,958,496
100.0
Cargo Revenue
Scheduled service .
Charter service . . .
Subtotal . . . . . . .
Total traffic revenue . .
Rental income from air
craft under operating
lease (1) . . . . . . . .
Others(2) . . . . . . . .
.
.
.
.
Notes:
1.
leases to Hong Kong Express, Hainan Airlines and Yangtze River Express.
2.
Passenger Services
We provide passenger services for economy and business air travel passengers with a focus on China
and other countries and regions in Asia. We carried approximately 1.8 million, 2.5 million, 4.1 million,
1.5 million and 2.0 million passengers for the years ended December 31, 2011, 2012 and 2013 and the five
months ended May 31, 2013 and 2014.
All of our passenger flights originate from or terminate at our route network hub at HKIA. HKIA
is one of the worlds busiest airports in terms of both passenger and cargo traffic. According to the ICF
Report, HKIA carried approximately 59.9 million passengers in 2013, making it the eleventh largest
airport in the world in terms of the number of total passengers in 2013.
Passenger Route Network
In managing our scheduled passenger services, we operate a network of passenger flights that
covered 26 routes to 25 cities across seven countries and regions in Asia as of the Latest Practicable Date.
18 of our 26 destinations were in China as of Latest Practicable Date. In addition, through codeshare and
interline arrangements, we could further expand our scheduled passenger service route network to cover
those destinations that our partner airlines serve. As of May 31, 2014, we had approximately 340
scheduled codeshare flights every week operated by our codeshare partners and we operated
approximately 448 scheduled codeshare flights every week. As of May 31, 2014, we had passenger
interline arrangements with 71 international and PRC airlines. For details, please see the sections headed
Codeshare Arrangements and Interline Arrangements.
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BUSINESS
For charter services, we are able to provide passenger services to worldwide destinations beyond our
existing network. During the year ended December 31, 2013, we operated 462 passenger charter flights
to nine destinations for business, government or tourist groups traveling to destinations in China and other
countries and regions, including Japan and Maldives.
The map below sets forth our route network of our scheduled passenger flights as of the Latest
Practicable Date.
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BUSINESS
Scheduled Services
During the Track Record Period, we mainly generated passenger revenue from passenger seat sales
on passenger flights. According to the ICF Report, we are one of the only four Hong Kong airlines licensed
to operate large passenger aircraft, who collectively represented approximately 68% of the capacity in
2013 for the passenger air service market between Hong Kong and China. According to the ICF Report,
we took around 14.3% of the passenger air service market between Hong Kong and China in terms of seat
departures in 2013. For details, please see the section headed Industry Overview Competitive
Landscape Competition in Hong Kong China Passenger Air Market. As of May 31, 2014, we operated
more than 513 passenger flights every week. China is a key focus of our passenger services operation. We
currently operated approximately 319 scheduled weekly flights to or from the destinations in China. As
of May 31, 2014, our scheduled weekly flights to or from the destinations in China accounted for 62.2%
of our total scheduled weekly flights.
The revenue generated by scheduled passenger services was HK$2,850.2 million, HK$3,712.2
million, HK$5,332.7 million, HK$2,048.5 million and HK$2,581.4 million, which accounted for 97.7%,
98.6%, 97.9%, 97.4% and 100%, respectively, of total passenger revenue for the years ended December
31, 2011, 2012 and 2013 and the five months ended May 31, 2013 and 2014, respectively.
In managing our scheduled passenger services, we enter into codeshare arrangements and interline
arrangement with other airlines, through which we strengthen the frequency of our flight schedule and
offer increased access to certain destinations for our passengers. For details, please see the subsections
headed Codeshare Arrangements and Interline Arrangements Passenger Interline.
Charter Services
We provide passenger charter services to travel agents which are Independent Third Parties. We
typically enter into charter agreements with a term of less than one year with travel agents, pursuant to
which we provide full planeload capacity of flights between Hong Kong and specific destinations during
the term of the charter agreements. Travel agents pay a fixed charter fee which is paid to us in full after
the agreement is signed. The charter flight is not open for sales to the public and flight seats there can only
be sold by the travel agents. The travel agents cannot cancel the agreement. We can terminate the
agreement by giving the travel agents not less than 14 days written notice of our intention to do so and
upon the occurrence of the following events: (i) the travel agents are in breach of the agreement; (ii) the
travel agents cease to hold any requisite permission or authority; and (iii) the travel agents become
bankrupt. The charter agreements contain terms and conditions which we believe are in line with industry
practice.
During the year ended December 31, 2013, we operated 462 passenger charter flights to nine
destinations for business, government or tourist groups traveling to destinations in China and other
countries and regions. We determine our charter flight arrangements primarily in accordance with market
demand and profitability. We typically determine our charter schedule at least three months prior to
implementing such schedule, but we also arrange charter flights on short notice. The operation of charter
flights may at times involve the redeployment of aircraft away from regularly scheduled passenger flights.
We believe charter flights help to enhance our aircraft utilization rate, reduce operating costs and improve
profitability.
The revenue generated by charter services amounted to HK$66.3 million, HK$53.1 million,
HK$114.9 million, HK$54.0 million and nil, which accounted for 2.3%, 1.4%, 2.1%, 2.6% and nil of the
passenger revenue for the years ended December 31, 2011, 2012 and 2013 and the five months ended May
31, 2013 and 2014, respectively. We did not record revenue from charter services mainly because in 2014,
we opened sales for certain flights that used to be covered by charter services only, including flights to
Xuzhou and Maldives, which were then categorized as scheduled passenger services instead.
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BUSINESS
Operating Data
The following table sets forth certain operating information relating to our passenger services and
the geographic breakdown of our passenger services based on flights to or from Hong Kong for the periods
indicated:
Passenger services:
Passenger carried (in millions) . . . . .
China . . . . . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . .
Passenger revenue (HK$ in millions)
China . . . . . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . .
RPKs (in millions) . . . . . . . . . . . . . .
China . . . . . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . .
ASKs (in millions) . . . . . . . . . . . . .
China . . . . . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . .
Passenger load factor . . . . . . . . . . .
China . . . . . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . .
Passenger yield (HK$ per RPK) (1) . .
RASK (HK$ per ASK) . . . . . . . . . .
per day per aircraft) . . . . . . . . . . .
Block hours . . . . . . . . . . . . . . . . . .
Weighted average number of
passenger aircraft . . . . . . . . . . . . .
Flight frequency (passenger flights
per week) . . . . . . . . . . . . . . . . . . .
Number of passenger flights . . . . . .
For the five months

ended May 31,
2011
2013
2012
2013
2014
1.8
1.0
0.8
2,916
1,126
1,790
3,446
1,229
2,217
4,829
1,672
3,157
71%
74%
70%
0.85
0.60
2.5
1.3
1.2
3,765
1,734
2,031
4,168
1,700
2,468
5,831
2,319
3,512
71%
73%
70%
0.90
0.65
4.1
2.0
2.1
5,448
2,684
2,764
6,238
2,564
3,674
8,163
3,426
4,737
76%
75%
78%
0.87
0.67
1.5
0.8
0.7
2,102
1,071
1,031
2,262
962
1,300
2,975
1,304
1,671
76%
74%
78%
0.93
0.71
2.0
1.1
0.9
2,581
1,459
1,122
2,899
1,411
1,488
3,838
1,875
1,963
76%
75%
76%
0.89
0.67
10.8
33,410
10.3
46,761
10.6
61,450
9.7
23,287
11.3
28,317
8.55
13.31
16.52
16.84
16.83
207
10,896
314
16,323
453
23,559
420
9,053
513
11,072
Note:
(1)
Calculated by dividing passenger revenue by RPKs.
The increase in our passenger services during the Track Record Period was mainly caused by the
expansion of our fleet and increased demand for our passenger services. For details, please also see the
section headed Financial Information Results of Operations.
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BUSINESS
Cargo Services
We provide cargo services through scheduled cargo flights and cargo charter services, utilizing cargo
freighters and available bellyhold space on our passenger aircraft. As of May 31, 2014, we operated five
A330-200F cargo freighters under operating leases in our cargo transportation services.
Our cargo services include the provision of general air cargo services, as well as the provision of
special air cargo services for goods and materials that require special handling such as perishables, live
animals, valuables, vulnerable and dangerous goods.
Our primary cargo terminal is Super Terminal 1, which is owned and operated by HACTL at HKIA.
We entered into a service agreement with HACTL in December 2012 with respect to the cargo handling,
documentation, storage and custom clearance at Super Terminal 1. The agreement consists of two terms.
The first term consists of three years commencing from January 1, 2013 and the second term consists of
an additional three years commencing from January 1, 2016. Such agreement will automatically renew for
another three years upon termination. We can terminate such agreement with written notice to HACTL no
less than 180 days prior to expiration of each term. In addition, HACTL has the right to terminate the
agreement by giving no less than 60 days prior written notice to us before the expiration of the second
term or at any time thereafter. We also maintain a 24-hour cargo tracking system at the Super Terminal
1 to track the shipment of goods handled by Super Terminal 1.
Cargo Route Network
As of May 31, 2014, we provided scheduled cargo services utilizing our cargo freights to 12
destinations across nine countries and regions in Asia. In addition, we could deliver cargo to other
destinations that are covered by our passenger services through utilizing bellyhold space of scheduled and
charter passenger flights.
Furthermore, we are able to provide cargo services to worldwide destinations beyond the network of
our scheduled flight.
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The map below sets forth our route networks of cargo schedule flights as of May 31, 2014.
Scheduled Services
The cargo revenue generated by scheduled cargo services was HK$976.3 million, HK$1,574.6
million, HK$1,613.9 million, HK$559.9 million and HK$851.4 million, which accounted for 81.2%,
92.7%, 91.6%, 90.0% and 94.0% of the cargo revenue for the years ended December 31, 2011, 2012 and
2013 and the five months ended May 31, 2013 and 2014, respectively.
Charter Services
During the Track Record Period, we also provided cargo charter services to cargo agents which are
Independent Third Parties. We provide cargo charter services through cargo freighter only. We typically
enter into one-year charter agreements with cargo agents, pursuant to which we provide full planeload
capacity of flights between Hong Kong and specific destinations in China during the term of the charter
agreements. Cargo agents pay a fixed charter fee which is fully paid to us after the agreement is signed.
The charter flight is not open for sales to the public and can only be sold by the travel agents. The cargo
agents cannot cancel the agreement. We can terminate the agreement by giving the cargo agents not less
than 14 days written notice of our intention to do so and upon the occurrence of the following events: (i)
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the cargo agents are in breach of the agreement, (ii) the cargo agents cease to hold any requisite permission
or authority and (iii) the cargo agents become bankrupt. The charter agreements contain terms and
conditions which we believe are in line with industry practice.
For the year ended December 31, 2013, we operated 408 cargo charter flights for two routes in China.
The revenue generated by cargo charter services was HK$226.1 million, HK$123.5 million and HK$148.9
million, respectively, which accounted for 18.8%, 7.3% and 8.4% of total cargo revenue for the years
ended December 31, 2011, 2012 and 2013, respectively. For the five months ended May 31, 2013 and
2014, revenue generated from charter services was HK$62.5 million and HK$54.5 million, respectively,
representing 10.0% and 6.0% of the cargo revenue for the relevant periods.
Operating Details
The table below sets forth certain operating information relating to our cargo operations for the
periods indicated:
Cargo services:
Cargo revenue (HK$ in millions) . . .
China . . . . . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . .
RFTK (in millions) . . . . . . . . . . . . .
China . . . . . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . .
AFTKs (in millions) . . . . . . . . . . . .
Cargo load factor . . . . . . . . . . . . . .
Cargo yield (HK$ per RFTK) . . . . .
Weighted average number of cargo
freighters . . . . . . . . . . . . . . . . . . .
passenger aircraft with bellyhold
space . . . . . . . . . . . . . . . . . . . . .
per day per aircraft) . . . . . . . . . . .
Cargo freighter:
Revenue (HK$ in millions) . . .
RFTKs (in millions) . . . . . . . .
China . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . .
AFTKs (in millions) . . . . . . . .
China . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . .
Cargo load factor . . . . . . . . . .
China . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . .
Cargo freighter yield (HK$ per
RFTK). . . . . . . . . . . . . . . . .
For the five months

ended May 31,
2011
2013
2012
2013
2014
1,202
424
778
296
68
228
615
48%
4.06
1,698
494
1,204
403
82
321
723
56%
4.22
1,763
592
1,171
384
109
275
831
46%
4.59
622
215
407
132
37
95
283
47%
4.71
906
256
650
224
51
173
483
46%
4.04
4.5
5.18
4.0
4.0
4.7
8.55
13.31
16.52
16.84
16.83
8.1
8.1
9.5
8.9
10.4
.
.
.
.
.
.
.
.
.
.
926
231
42
188
389
66
324
59%
64%
58%
1,285
280
42
237
456
62
394
61%
68%
60%
1,324
277
60
217
450
107
343
62%
56%
63%
453
92
20
72
150
40
110
62%
50%
66%
707
170
25
145
291
48
243
58%
52%
60%
4.01
4.60
4.78
4.92
4.17
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Bellyhold space on passenger

aircraft:
Revenue (HK$ in millions)
RFTKs (in millions) . . . . .
China . . . . . . . . . . . . . .
Others . . . . . . . . . . . . .
AFTKs (in millions) . . . . .
China . . . . . . . . . . . . . .
Others . . . . . . . . . . . . .
Cargo load factor . . . . . . .
China . . . . . . . . . . . . . .
Others . . . . . . . . . . . . .
Belly cargo yield (HK$ per
RFTK) . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
For the five months

ended May 31,
2011
2013
2012
2013
2014
.
.
.
.
.
.
.
.
.
.
276
65
25
40
225
78
147
29%
32%
27%
413
123
40
83
267
104
163
46%
39%
51%
439
107
49
58
380
135
245
28%
36%
24%
169
40
17
23
133
49
84
30%
35%
27%
199
54
26
28
193
85
108
28%
31%
26%
....
4.24
3.35
4.11
4.23
3.66
OUR FLEET
As of the Latest Practicable Date, our fleet consisted of 40 aircraft, among which we operated 23
aircraft, including 18 passenger aircraft and five cargo freighters. We sub-leased the remaining 17 aircraft,
including 14 passenger aircraft and three cargo freighters, to Hong Kong Express, Hainan Airlines and
Yangtze River Express in line with our aircraft capacity management strategy. For details, please see the
section headed Fleet Management.
Operating Fleet
The following table below sets forth details regarding our operating fleet as of the Latest Practicable
Date:
Number of Aircraft
Owned
Passenger aircraft:
Narrow-body:
Airbus 320-200
Wide-body:
Airbus 330-200
Airbus 330-300 .
Sub-total. . . . . . . .
Held
Under
Operating
Lease
Held
Under
Finance
Lease
Subtotal
Number
of Seats
Freighter
Capacity
(Tonnes)
Average
Age(1)
(in Years)
..
152/174
1.3
..
..
..
3
4
9
3
18
264/283
292
3.1
1.3
Cargo freighter:
Airbus 330-200F . .
Sub-total. . . . . . . . . .
5
5
5
5
65
2.8
Total Fleet . . . . . .
23
Notes:
(1)
The average age of aircraft was calculated as of May 31, 2014.
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BUSINESS
We currently operate the Airbus A320 and A330 series aircraft exclusively. We typically operate our
narrow-body A320 aircraft on our routes to the cities in China. We generally utilize our wide-body A330
aircraft on our routes to cities in China, Japan, Southeast Asia and Taiwan. Our A330-200F cargo freighters
are used in our cargo operations.
As our operating fleet is composed solely of Airbus aircraft, we are able to take advantage of
efficiencies and cost management due to similarities in systems, operating and maintenance procedures
and training programs for our flight crew. The Airbus A320 and A330 aircraft series share many
commonalities. As a result, our well-trained cabin crews are interchangeable across many of our aircraft
and we are able to reduce costs typically associated with, among others, training, maintenance and
procurement of spare parts.
Our operating fleet had an average aircraft age of approximately 2.4 years as of May 31, 2014,
compared to 12.3 years, 5.8 years, 6.0 years and 6.0 years for Dragonair, Air China, China Eastern Airlines
and China Southern Airlines, respectively, as of December 31, 2013, according to the ICF Report.
According to industry standards, the actual operating life of an aircraft ranges from 20 to 40 years,
depending on its aircraft type, maintenance record, utilization rate and operating environment. Aging
aircraft typically requires higher maintenance and repair services to maintain safe and efficient operations.
We believe our relatively lower average fleet age of our operating fleet contributes to lower maintenance
costs and greater fuel efficiency of our aircraft.
Fleet Management
We believe that sub-leasing our aircraft on arms length terms to other carriers is a flexible and
efficient way to manage our fleet. Our operating lease arrangements are usually entered through long-term
contracts with agreed pricing terms throughout the contract period. As a result, we believe that such
arrangements help us to mitigate risks associated with volatility in the global airline industry. As of the
Latest Practicable Date, we sub-leased 17 passenger aircraft and cargo freighters through operating lease
to Hong Kong Express, Hainan Airlines and Yangtze River Express. In addition, as of the Latest
Practicable Date, we had agreements to sublease another five aircraft to our related parties.
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The following table sets forth details regarding the aircraft we sub-leased to Hong Kong Express,
Hainan Airlines and Yangtze River Express as of the Latest Practicable Date:
Number of Aircraft
Owned
Held
Under
Finance
Lease
Held
Under
Operating
Lease(3)
Subtotal
Lessee
Passenger aircraft:
Airbus 320-200 . . .
Airbus 330-300 . . .
Airbus 330-300 . . .
3(4)
2(4)
5 Hong Kong
Express(1)
2 Hainan Airlines
3 Hainan Airlines
Boeing 737-800 . . .
4(5)
4 Hainan Airlines
Sub-total . . . . . . . . . .
Cargo freighter:
Boeing 737-300SF . .
3(4)
Sub-total . . . . . . . . . .
Total Fleet . . . . . . .
Expiry
year
Average
Age
(in
Years) (2)
2021
1.8
2025
Subject to
renewal
year by
year
2014/2015/
2018(6)
1.7
3.4
13
14
3 Yangtze River
Express
3
2019
20.4
17
Notes:
(1)
We intend to terminate the sub-leases with Hong Kong Express in connection with five A320-200 aircraft, and take
possession of two A320-200 aircraft in 2015 and three A320-200 aircraft in 2016 from Hong Kong Express,
respectively. Please also see the section headed Future Fleet Development Operating Fleet Development.
(2)
The average age of aircraft is calculated as of May 31, 2014.
(3)
As of the Latest Practicable Date, we entered into operating lease agreements with HKIAL to obtain three A330-200
aircraft, which we agreed to sub-lease to Hainan Airline through operating lease arrangement according to our fleet
management strategy. According to the relevant agreement, we expect these A330-200 aircraft to be delivered in
September 2014, November 2014 and February 2015, respectively. In addition, as of the Latest Practicable Date, we
entered into an operating lease agreement with an Independent Third Party to obtain two A320-200 aircraft, which we
agreed to sub-lease to Hong Kong Express according to our fleet management strategy. According to the relevant
agreement, we expect these two A320-200 aircraft to be delivered in September 2014 and October 2014, respectively.
(4)
We leased these flights from our related parties. For details, please see the sections headed Aircraft Purchasing and
Leasing Arrangements and Continuing Transactions.
(5)
We leased these aircraft from Independent Third Parties. For details, please see the section headed Aircraft
Purchasing and Leasing Arrangements.
(6)
Regarding the operating lease arrangements for these four Boeing 737-800 aircraft, one agreement will expire in
December 2014, one agreement will expire in 2015 and the other two agreements will expire in 2018.
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Aircraft Purchasing and Leasing Arrangements
We obtain aircraft through purchasing and finance or operating lease arrangement based on our
working capital management strategy.
Purchased Aircraft
As of the Latest Practicable Date, 13 aircraft of our fleet were purchased by us utilizing proceeds
of bank borrowings, among which five A320-200 aircraft and three A330-200 aircraft were operated by
us and five A320-200 aircraft were sub-leased to Hong Kong Express. For details of these bank
borrowings, please see the section headed Financial Information Indebtedness Aircraft Financing
Loans.
Aircraft Under Finance Leases
As of May 31, 2014, we entered into finance leases with HKIAL, as lessor, for our six A330-200
aircraft, three A330-300 aircraft and three Boeing 737-300SF freighters. Under the finance leases, we
make lease payments that finance most of the purchase price of an aircraft over the lease term and have
the obligation to purchase and obtain title of the aircraft upon the expiration of the leases. We may enter
into similar transactions in the future from time to time when we deem appropriate.
These finance leases generally have terms of 15 years for A330-200 aircraft and A330-300 aircraft
and nine years for Boeing 737-300SF freighters from the execution of the leases. Our finance leases
generally provide for lease payments on a quarterly basis. Although the title remains with the lessor, we
are responsible during the lease term for legal and regulatory compliance, maintenance, servicing,
insurance, taxes and repair of the aircraft. The lessor generally has the right to terminate the lease early
and require us to pay off outstanding rent due and payable and other expenses upon the occurrence of
certain events of default such as delay in payment of rent, failure to purchase the required insurance or
maintain the required insurance coverage, breach of representations, warranties or covenants under the
leases and insolvency. After such payment, the lessor is obligated to transfer the ownership of the aircraft
to us.
As of May 31, 2014, among the total twelve aircraft we leased under finance leases, we operated six
A330-200 aircraft and sub-leased three A330-300 aircraft and three Boeing 737-300SF freighters to
Hainan Airlines and Yangtze River Express, respectively.
As of December 31, 2011, 2012 and 2013, and May 31, 2014, our liabilities under these finance
leases with HKIAL amounted to HK$7,525.0 million, HK$6,825.7 million, HK$4,590.2 million and
HK$4,267.3 million, respectively.
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BUSINESS
Aircraft Under Operating Leases
As of May 31, 2014, we had five A330-300 and one A320-200 passenger aircraft and five A330-200F
cargo freighters under operating leases with HKIAL or its wholly-owned subsidiaries as lessor, two Boeing
737-800 aircraft, one Boeing 737-800 aircraft and one Boeing 737-800 aircraft under operating leases with
various Independent Third Parties, as lessors. Our operating leases generally have terms ranging from 12
to 13 years from the execution of the operating lease or delivery of the aircraft. Under the operating leases,
lease payments are generally paid on a quarterly basis. We are required to return the aircraft in the agreed
condition at the end of the lease term. Although the title remains with the lessor, we are responsible during
the lease term for legal and regulatory compliance, maintenance, servicing, insurance, taxes and repair of
the aircraft. The lessor generally has the right to terminate the lease early and require us to pay off the
outstanding rent due and payable and other expenses upon the occurrence of certain events of default such
as delay in payment of rent, failure to purchase the required insurance or maintain the required insurance
coverage, breach of representations, warranties or covenants under the leases and insolvency.
As of the Latest Practicable Date, among the total 15 aircraft we leased under operating leases, we
operated three A330-300 aircraft and one A320-200 aircraft and five A330-200F cargo freighters, and
sub-leased two A330-300 aircraft and four Boeing 737-800 aircraft to Hainan Airlines.
Future Fleet Development
We intend to selectively add aircraft to our fleet to support the growth and development of our
operations. The actual acquisition of any aircraft may depend on such factors as general economic
conditions, the levels of prevailing interest rates and foreign exchange rates, the level of inflation, credit
conditions in Hong Kong and international markets, conditions in the aviation industry in Hong Kong,
China and globally, our financial condition and results of operations, our financing requirements, the terms
of any financing arrangements, such as finance lease, and other capital requirements. We believe that our
aircraft acquisition plan will help us accomplish our expansion plans while maintaining an efficient fleet
and ensuring alternative sources of supply of aircraft. For details on risks associated with our fleet
expansion plan, please also see the sections headed Risk Factors We may not be successful in
implementing our growth strategy and Risk Factors We depend on regulatory approvals and licenses
to operate in our existing markets and to gain access to new markets.
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BUSINESS
Operating Fleet Development
As of the Latest Practicable Date, we intended to expand our operating fleet to 54 aircraft by the end
of 2018 in line with our development strategy. According to the current AOC granted by the CAD, the total
number of aircraft we are allowed to operate is limited to 25 aircraft which include 17 A330 aircraft and
eight A320 aircraft. As of the Latest Practicable Date, we operated (i) 17 A330 aircraft, including 12
passenger aircraft and five cargo freighters and (ii) six A320 aircraft, all of which are passenger aircraft.
We will apply to the CAD to increase the total number of aircraft we could operate when we reach the
current limit. Please see the section headed Risk Factors We depend on regulatory approvals and
licenses to operate in our existing markets and to gain access to new markets for more information. The
table below sets forth details regarding our anticipated schedule of addition of aircraft into our operating
fleet since June 1, 2014 and up to December 31, 2018.
Total number
of aircraft we
intend to add
into our
operating fleet
from June 1,
2014
to December
31, 2018
Estimated Number of Aircraft to be Added for

Seven
Months
ending
December 31,
2014
Aircraft for which we have entered

into legally binding agreements
as of the Latest Practicable Date
A320 . . . . . . . . . . . . . . . . . .
A330 . . . . . . . . . . . . . . . . . .
A350 . . . . . . . . . . . . . . . . . .
Aircraft that we intend to take
back from relevant parties
through terminating relevant
sub-leasing agreements
A320(4) . . . . . . . . . . . . . . . . .
Aircraft for which we were in the
process of negotiating with
relevant suppliers as of the
Latest Practicable Date
A320 . . . . . . . . . . . . . . . . . .
A330 . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . .
Year ending December 31,

2015
1(1)
2016
2017
2018
2(1)
1(2)
3
1
1(3)
2(3)
3(3)
1
2
5
2
6
2
13(5)
6(5)
10
31
Notes:
(1)
We entered into relevant agreements with HKIAL to obtain these aircraft through operating lease arrangement.
(2)
We entered into a relevant agreement with HKIAL in June 2014 to obtain the aircraft through operating lease
arrangement.
(3)
As of the Latest Practicable Date, we entered into a contract with Airbus to purchase fifteen A350 aircraft among
which, the number of aircraft expected to be delivered in 2017 and 2018 is one and two, respectively. In addition,
the remaining twelve aircraft are expected to be delivered after 2018.
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BUSINESS
(4)
We intend to terminate the sub-leases with Hong Kong Express in connection with five A320-200 aircraft, and take
possession of two A320-200 aircraft in 2015 and three A320-200 aircraft in 2016 from Hong Kong Express,
respectively.
(5)
We intend to obtain these aircraft through purchasing or leasing arrangement with relevant parties as we deem
appropriate taking into account various factors, including the age of aircraft, delivery plan and purchasing costs.
Fleet to be Leased
We plan to obtain the following aircraft for sub-leasing to our related parties in accordance with our
fleet management strategy:
We entered into operating lease agreements with HKIAL to obtain three A330 aircraft, which
we agreed to sub-lease to Hainan Airline through operating lease arrangement. According to the
relevant agreements, we expect these A330 aircraft to be delivered in September 2014,
November 2014 and February 2015, respectively.
As of the Latest Practicable Date, we leased two A320 aircraft from an Independent Third Party
and agreed to sub-lease them to Hong Kong Express. According to the relevant agreement, we
expect these two A320-200 aircraft to be delivered in September 2014 and October 2014,
respectively.
As of the Latest Practicable Date, we had a plan to lease another three A330 aircraft from
HKIAL through finance leases and sub-lease them to Hainan Airline through operating lease.
As of the Latest Practicable Date, we were still in the process of negotiating these agreements.
OPERATIONS
Route Planning
We carefully evaluate and plan our route network to maximize our fleet utilization. We also evaluate
our current routes profitability and adjust our flight schedule and frequency to maximize profitability. Our
flight planning department and marketing and sales department jointly prepare and periodically update a
rolling route plan. We generally take into account three primary factors when analyzing our route network
and evaluating whether to commence new routes: (i) the strategic fit of the route within our existing
network and its potential to increase passenger demand across our entire network; (ii) the overall potential
for passenger demand for the route, based on market size, catchment area and demographics for the route,
and competition from other airlines that service the route; and (iii) the feasibility of establishing the route
and the costs and potential profit associated with the route.
We currently possess a license issued by ATLA covering 193 destinations worldwide which allows
us the opportunities to arrange for scheduled flights to and from such destinations for passenger and/or
cargo transportation services and to expand our route network. Please see the section headed Risk Factors
We depend on regulatory approvals and licenses to operate in our existing markets and to gain access
to new markets for further details on restrictions of our license under ATLA. Our decisions with respect
to our route network are in part governed by the availability of air traffic rights and landing and departure
slots, as certain limitations on their availability may prevent us from increasing flight capacity to
destinations with more profit-generating potential and higher market demand. There are various factors
that would affect the timeliness of obtaining the traffic rights, including but not limited to whether the
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BUSINESS
rights are available on a bilateral basis between Hong Kong and the destination countries; whether the
rights are limited or unlimited and whether other airlines in Hong Kong are also applying for the use of
the same rights. In addition to air traffic rights, the HKCAD and other local aeronautical authorities of the
relevant destinations, together with the respective airports, also grant time slots for aircraft to arrive and
depart from each airport. Available time slots correspond to the capacity of an airports facilities and
influence our ability to land at or take off from an airport at a specified time and date.
Flight Scheduling
Our flight planning department formulates flight schedules to meet market demands for our route
network. Consistent with market practice and with IATA guidelines, we publish summer and winter
schedules each year. The winter schedule runs from the last Sunday of October to the last Saturday of
March and the summer schedule runs from the last Sunday of March to the last Saturday of October each
year. From time to time, we also vary the flight frequency and type of aircraft utilized on scheduled routes
based on anticipated seasonal demand.
Flight Operations
Our operations control center supervises and controls our flight activities in accordance with our
flight operation schedules. The operations control center collects and analyzes information relating to the
weather condition and status of aircraft equipment and coordinates necessary ground services. The
operations control center monitors flights by radio communications and air-to-ground datalink
communications. In the event of irregular flights, the operations control center may adjust flight schedules,
combine flights and, if necessary, cancel flights.
Ground Services
Ground services cover a wide range of operational activities, including ground handling, aircraft
cabin cleaning, cargo handling and landing and parking services. Ground handling services include ramp
services, baggage handling services and passenger handling services. Passenger handling services include
check-in services and boarding services. In 2011, we were granted a permit to engage in passenger
self-handling services by Airport Authority Hong Kong. Since the receipt of this permit, we have been
providing passenger handling services to our passengers at HKIA. In April 2014, we were granted a permit
to engage in passenger handling services by Airport Authority Hong Kong, pursuant to which we could
provide passenger handling services to both passengers carried by us and passengers carried by other
airlines at HKIA. We outsource other ground services to third party service providers. For example, we
have entered into a service agreement with Jardine Airport Services Limited, an Independent Third Party,
to provide ramp, baggage handling and cargo handling services at HKIA for a term of four years
commencing from November 2013. Upon expiration, such agreement shall be automatically renewed for
an extended term of three years. All rates and fees shall be fully paid and settled to Jardine Airport
Services Limited in Hong Kong dollars within 30 days after we receive the monthly invoice. Either party
could terminate the service agreement by giving no less than six months prior notice in writing before the
expiration of the agreement.
At airports of our destinations outside of Hong Kong, we outsource all ground services to third party
ground service providers. We award contracts to third party ground service providers based on a
competitive bidding process. We also perform a periodic review of our contracts to determine if the terms
we receive are attractive and consistent with current market practice.
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BUSINESS
In-flight Catering
We contract with third party providers to provide catering services which include the provision of
in-flight meals, snacks and beverages offered to passengers on board our flights. Our current catering
contract for flights departing from Hong Kong is with Independent Third Party, for a term of two years
commencing from May 11, 2013. Either party could terminate the catering contract by giving written
notice if the other party fails to perform its material obligation in this agreement or has final and binding
steps taken towards its liquidation. We typically enter into three-year catering services contracts with local
catering companies for flights originating from other airports of our network.
In November 2012, we submitted applications to Airport Authority Hong Kong to establish our own
catering services which we believe will be more cost efficient as our fleet size increases in the future. As
of May 31, 2014, Airport Authority Hong Kong was still reviewing our applications.
Fuel Supplies
Aircraft fuel is a major cost component for airlines and is our largest operating expense. The cost
of aircraft fuel accounted for 35.9%, 33.9%, 31.6%, 30.1% and 32.9% of our operating expenses for the
years ended December 2011, 2012 and 2013 and the five months ended May 31, 2013 and 2014,
respectively. During the Track Record Period, we purchased fuel from various fuel vendors such as Shell
Hong Kong Limited, World Fuel Services (Singapore) Pte Ltd., Idemitsu Kosan Co., Ltd., China Aviation
Oil (Hong Kong) Company Limited, PetroChina International (Hong Kong) Corporation Limited and
Hyundai Corporation. These fuel supply contracts are generally valid for 12 to 24 months and typically
provide us with a quantity of fuel as we request at specific airports. In general, the payment shall be made
within 14 days from the date of receiving the invoice. Either party could terminate the agreement
immediately in the event the other party: (i) fails to perform any material obligation and does not remedy
such failure within 15 days of receiving such written notice; (ii) becomes bankrupt or insolvent or goes
into liquidation; or (iii) fails to make payment when due and payable. In terms of fuel availability, we have
not experienced any fuel shortage in the past. Please see the sections headed Risk Factors Volatility in
fuel cost or significant disruptions in the supply of fuel could have a material and adverse effect on our
business, results of operations and financial condition and Industry Overview Aircraft Fuel in this
[REDACTED].
As of the Latest Practicable Date, we have not entered into any jet fuel derivative or forward
contracts to hedge against fluctuations in aircraft fuel prices. Given that the scale of our operations is
relatively small at present, we believe the benefits of hedging are not significant for us relative to its cost.
As we continue to grow, we may consider adopting fuel cost hedging in the future when its benefits are
more evident. Currently, we believe that we are generally able to pass on a majority of the significant
increases in fuel prices to passengers by means of fuel surcharges. However, in the event that our ability
to pass on fuel surcharge costs was disallowed by the relevant governmental authorities, increases in fuel
prices may materially and adversely impact our profitability.
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BUSINESS
AIRCRAFT MAINTENANCE
Our aircraft maintenance and repair primarily consists of two components: line maintenance and
heavy maintenance. Line maintenance typically consists of routine pre-flight, daily, weekly checks and
A level checks on our aircraft, as well as any diagnostics and routine repairs and any unscheduled items
on an as needed basis. Heavy maintenance typically, including C level checks and more extensive
services which require more time, consists of more complex tasks and involves a more substantive scope
of maintenance and repairs. A level checks on our A320 aircraft and A330 aircraft are conducted at 750
flight hours intervals and 800 flight hours intervals respectively, typically once every two months. C
level checks are conducted at 18 months intervals on our A330 aircraft and 20 months intervals on our
A320 aircraft.
Line maintenance on our A330 aircraft at HKIA is carried out by our in-house line maintenance team,
which was approved by the CAD as an HKAR-145 approved maintenance organization for A320 and A330
aircraft since July 2006. Line maintenance on our A320 aircraft at HKIA is currently outsourced to CASL.
We also engage local service providers approved by the CAD at all our route destinations, as needed, to
provide us with the applicable maintenance and repair services. The contracts with our line maintenance
service providers are typically one year in duration. Either party could terminate the maintenance
agreement at any time by giving 60 days prior written notice to the other party.
Heavy maintenance on our fleet is outsourced to third party service providers, which are approved
by the CAD. We conduct competitive bidding process to select heavy maintenance service providers every
year and enter into general terms agreements with selected service providers. We will further enter into
work orders with selected service providers in relation to the specific scope of work for every C level
checks. During the Track Record Period, we outsourced C checks to HNA Aviation Technik, HAECO,
CASL and STARCO. For the C level checks to be conducted in 2014, we outsourced to CASL and
SMECO for our A320 aircraft and to STARCO and AMECO for our A330 aircraft. In general, either party
could terminate the maintenance agreement at any time by giving at least 60 days prior written notice to
the other party. Either party could also terminate the agreement immediately in the event the other party:
(i) fails to perform any material obligations and does not remedy such failure within 30 days of receiving
such written notice; (ii) becomes bankrupt or insolvent or shall go into liquidation; and (iii) fails to make
due and payable payment.
Our aircraft currently utilize engines from Rolls-Royce plc, Pratt & Whitney and CFM International,
Inc. We entered into service agreements with Rolls-Royce Total Care Services Limited pursuant to which
Rolls-Royce Total Care Services Limited provides engine maintenance, repair and overhaul services,
component support, engine technical support, spare engine support and an engine health monitoring
program. Pratt & Whitney and CFM International, Inc. also provides engine maintenance, repair and
overhaul and technical support services. Honeywell International Sarl provides us maintenance and
exchange services for our auxiliary power units.
We intend to expand the capabilities of our own aircraft maintenance services in the next several
years because we believe it will be more cost effective and efficient with the growth of our fleet. For
example, we plan to broaden the service scope of our own line maintenance team by providing line
maintenance services to our A320 aircraft at HKIA in the future. Due to the relatively low average aircraft
age of our operating fleet, our maintenance expenses have historically been lower than our expected future
maintenance cost. We expect our maintenance cost to increase as the frequency and complexity of
maintenance increases with the age of our aircraft. Our aircraft maintenance expenses was HK$173.0
million, HK$278.8 million, HK$385.3 million, HK$139.7 million and HK$147.8 million for the years
ended December 31, 2011, 2012 and 2013 and the five months ended May 31, 2013 and 2014, respectively.
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BUSINESS
REVENUE MANAGEMENT
We have implemented a revenue management system to maximize revenue by flight, by market and
across our entire operations. Revenue management is an integrated set of business processes used to
calculate the optimal pricing and inventory seats policy for maximizing profits generated by the sale of
tickets based on forecasting of demand behavior for each market. The goal of our revenue management
policy is to sell each ticket at the best price possible to maximize revenue.
Similar to other airlines, we have a multiple pricing structure to meet the varying demands of each
market segment. In general, we take into consideration our flight schedule and frequency, our competitors
flight schedule and frequency, our target sales market and customers, and rules and conditions of air ticket
in pricing our services. Our price also varies upon whether the route is a new or existing one, whether the
demand for the destination is stable or subject to seasonal change, whether the flight is during peak season
or slack season, and the day of the week of the flight. Our aircraft cabins are typically divided into
business cabins and economy cabins. Generally, we use past booking history, seasonal trends and current
bookings to forecast anticipated demand. Afterwards, we use the forecast demand, combined with
upcoming events, competitive pressures and other factors, to establish a fare structure for maximizing
revenue.
SALES AND MARKETING
Passenger Services
We sell our passenger transportation services through travel agents, our sales offices network and our
internet booking system. The table below sets forth the revenue generated from passenger services by
distribution channel and the percentage of revenue for each distribution channel for the periods indicated:
2011
HK$000
Travel Agents . . . . . 2,295,472

Sales Offices . . . . .
546,429
Internet Booking
System . . . . . . . .
74,595
2012
%
HK$000
78.7 3,027,366
18.7
509,925
2.6
227,994
2013
%
HK$000
80.4 4,508,202
13.5
462,553
6.1
476,885
2013
%
82.7 1,767,993
8.5
174,469
8.8
2014
HK$000
%
unaudited
160,028
HK$000
84.1 2,152,730
8.3
147,667
7.6
280,997
83.4
5.7
10.9
Total . . . . . . . . . . 2,916,496 100.0 3,765,285 100.0 5,447,640 100.0 2,102,490 100.0 2,581,394 100.0
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BUSINESS
We believe that we have a strong sales channels in China to capture outbound air travel demand. The
table below sets forth the revenue generated from passenger services by distribution channels in the
relevant geographies for the periods indicated. We believe this reflects the geographical area in which the
demand originates.
2011
HK$000
Travel Agents and

Sales Offices
Hong Kong . . . . .
China . . . . . . . .
Southeast Asian
Countries . . . . .
Others . . . . . . .
2012
%
HK$000
..
524,519
. . 1,897,235
18.0
545,380
65.1 2,483,006
..
..
10.7
3.7
312,515
107,633
Subtotal . . . . . . . . 2,841,902
Internet Booking
System . . . . . . . .
74,595
307,389
201,516
97.4 3,537,291
2.6
227,994
2013
%
HK$000
14.5
801,201
65.9 3,609,841
8.2
5.4
340,510
219,203
93.9 4,970,755
6.1
476,885
2013
%
HK$000
14.7
273,645
66.3 1,433,963
6.3
4.0
147,670
87,184
91.2 1,942,462
8.8
160,028
2014
%
HK$000
13.0
287,607
68.2 1,783,911
7.0
4.1
11.1
69.1
139,854
89,025
5.4
3.4
92.4 2,300,397
89.1
7.6
280,997
10.9
Total . . . . . . . . . . 2,916,496 100.0 3,765,285 100.0 5,447,640 100.0 2,102,490 100.0 2,581,394 100.0
Travel Agents
The majority of our passenger tickets is sold by travel agents. As of May 31, 2014, we worked with
over 8,000 travel agents in Hong Kong, China and other overseas destinations. The commission varies
among travel agents with a range of nil to 7% of the ticket prices. We also offer incentive schemes to the
travel agents if they meet the specific sales targets in order to incentivize travel agents to promote our
services and assist in ticket sales. We typically do not enter into contracts with travel agents. We settle the
sales of individual passengers tickets with travel agents through Billing and Settlement Plan (BSP)
system hosted by IATA. BSP is a system designed and maintained by IATA to facilitate and simplify the
settlement between member airlines and member travel agents. We settle the sales of group passengers
sales with travel agents directly.
We also entered into membership agreements with several international reservation system operators.
These reservation systems provide real-time information to travel agents worldwide to access our fares and
schedules and facilitate the booking and management of reservations of airline tickets and are
cost-effective ways to expand our sales distribution channels.
Furthermore, during the Track Record Period, we entered into one-year block seat agreements with
HNA Tourism and other travel agents, through which we sold certain number of seats or full planeload
capacity of our scheduled passenger flights. According to the agreements, the flight is open for sales to
the public. The relevant parties shall pay us an amount based the total number of seats they agreed to
purchase in the agreement and at the a price parties determined through negotiation. We determine the
number of seats to be sold under this arrangement and the flight ticket price with the relevant parties based
on various factors, the market price of relevant flights, the anticipated demand for our services and
potential fluctuation of price as well as market competition. Please also see the sections headed
Revenue Management and Continuing Transactions Non-exempt Continuing Connected Transactions.
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BUSINESS
We believe that block seat agreements provide a predictable amount of annual revenue, and help us
to minimize the risk of fluctuations in demand in our passenger services. For further details of the block
seat agreements with HNA Tourism, please see the section headed Continuing Transactions. Please also
see the section headed Risk Factors If some of our related parties terminate business relationship with
us or fail to fulfill their obligations for delivery of services to us or payment obligations for services we
provide to them, our business, results of operations and financial condition could be materially and
adversely affected.
Sales Offices
We maintained a network consisting of one sales office in Hong Kong, ten in China and six in other
overseas destinations within our route network staffed by our own employees as of May 31, 2014. Our
employees at our sales offices mainly provide customer support service such as handling requests for
change of itinerary and contacting travel agents in addition to promoting in-person ticket sales. If we do
not have our own sales office in a particular city, we generally work together with local general sales and
service agents on a contractual basis to provide customers with reservations and sales services. As of May
31, 2014, we entered into agreements to appoint 79 general sales and services agents for specific countries
and regions.
Internet Booking System
We launched our official website, www.hongkongairlines.com, with internet booking and payment
service in 2008. Passengers can search information regarding flight schedules, seat availability and fare
options as well as make ticket purchases and manage trips directly through this website. We view our
official website as an important component of our business operation as it contributes to lower operating
costs and eliminates the need for payment of commissions to sales agents. Our official website also
provides an opportunity for us to conduct direct interactions with our customers and receive first-hand
customer preferences on timely basis.
In 2013, we developed and launched a smartphone application named Hong Kong Airlines that
provides mobile flight booking, online checking and flight status notifications services, to provide our
customers with additional convenient and value-added services. Mobile phones subscribers with internet
access can make reservations through this smartphone application. We encourage passengers to book and
purchase tickets through our official website and mobile portal through offering fares exclusively available
there.
The revenue generated from our internet booking system was HK$74.6 million, HK$228.0 million,
HK$476.9 million, HK$160.0 million and HK$281.0 million for the years ended December 31, 2011, 2012
and 2013 and the five months ended May 31, 2013 and 2014, respectively. As of the Latest Practicable
Date, we had not experienced any material technical difficulty or system instability with our internet
booking system since its inception.
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BUSINESS
Cargo Services
Our primary sales channel for cargo services is through cargo agents. Cargo agents generally track
available air cargo space among all airlines and act as an intermediary between the airlines and the
shippers. We typically pay such cargo agents a commission based on a percentage of the cargo freight rate.
As of May 31, 2014, we entered into cargo sales agent agreements with approximately 190 cargo agents
in Hong Kong, China and other overseas destinations. We typically pay such cargo agents a commission
of 5% of cargo freight rate.
We engage two types of cargo agents:
global integrated logistics companies; and
freight forwarders which include: (i) international transport and logistics companies with
extensive overseas sales networks to serve the needs of multinational companies; (ii)
conglomerates based in China with extensive sales networks in China; and (iii) local cargo
agents in Hong Kong, China and overseas that typically have large market shares in their local
markets and are knowledgeable of local regulatory requirements and customs procedures.
In addition, since 2012, we entered into one-year cargo freighter block space agreements with HNA
Aviation each year, pursuant to which we provided part of the capacity of cargo schedule flights that we
operated by utilizing our cargo freighters. Under such block space agreements, the flight is open for sales
to the public. HNA Aviation shall pay us an amount based on the total cargo space it agreed to purchase
in the agreement and at the a price parties determined through negotiation. We determine the amount of
space to be sold under this arrangement and the price to be charged after taking into account various
factors, including the market price of relevant flights, the anticipated demand for our services and
potential fluctuation of price as well as market competition. Please also see the section headed Revenue
Management.
We believe that block space agreements provide a predictable amount of annual revenue and help us
to minimize the risk associated with fluctuations in demand for our cargo services. For further details of
block space agreements with HNA Aviation, please see the section headed Continuing Transactions.
Please also see the section headed Risk Factors If some of our related parties terminate business
relationship with us or fail to fulfill their obligations for delivery of services to us or payment obligations
for services we provide to them, our business, results of operations and financial condition could be
In addition to the cargo agents, we also entered into general sales and services agent agreements to
appoint approximately 19 cargo general sales and service agents in the PRC, Hong Kong and other
overseas destinations as of May 31, 2014. Under such agreements, the general sales and service agents
agreed to solicit and promote our cargo services in specific territories to local cargo agents. We believe
that through engaging such cargo general sales and service agents, we could lower our start-up costs and
time-to-market when we enter into a new market.
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BUSINESS
Marketing and Advertising
Our marketing strategy targets at potential customers based in Hong Kong, China and the greater
Asia region and focuses on increasing awareness of our brand name, reputation and existing and growing
passenger route network. Our marketing and advertising activities include the use of the internet, our
website, printed materials and television media. For example, we have formed strategic cooperation with
Ctrip and Taobao Travel, the online travel services platform of Taobao.com, leveraging their strong online
platforms to market and sell our tickets. We have also launched a flagship store on Taobao Travel, which
makes us the first airline company incorporated outside of Mainland China to sell international and Hong
Kong/Macau/Taiwan tickets on Taobao Travel. We also strive to maintain a strong presence in social media
outlets, such as Weibo, Facebook, WeChat, Twitter and YouTube. We engage in many promotional
activities, including sponsorship of important cultural and sporting events. For example, in June 2012, we
became the official airline appointed by Hong Kong Paralympic Committee of the 2012 London
Paralympic Games. We sponsored Triumph in the Skies 2, a popular television series which aired in
Hong Kong during the summer of 2013. We believe the airing of the television series has contributed
positively towards the recognition of our brand in Hong Kong and the greater Asia region. In addition, we
occasionally run special advertising campaigns to highlight our promotional fares and cooperative
advertising campaigns with other travel-related entities including local tourist authorities to increase brand
exposure to the public.
We currently participate in the Hainan Airlines frequent flyer program, called Fortune Wings
Club, the loyalty and rewards program of Grand China Air, Hainan Airlines, Lucky Air, Tianjin Airlines,
Beijing Capital Airlines, Air Berlin and us. As of December 31, 2013, the Fortune Wings Club had over
14 million members. The Fortune Wings Club has secured several partnerships to provide members of the
Fortune Wings Club with a wide array of gifts and benefits. Members can earn mileage credits by flying
with us and other Fortune Wings Club partner airlines, using dedicated credit cards or staying in specified
hotels and renting cars from dedicated car rental companies. Members can use the mileage credits to
redeem free air tickets, upgrade ticket class and earn other lifestyle awards. Please also see the section
headed Financial Information Significant Accounting Policies and Estimates Revenue Recognition.
In March 2011, we launched the Hong Kong Airlines-ICBC(Asia) co-branded VISA platinum
credit card jointly with the Industrial and Commercial Bank of China (Asia), which provides our
customers with benefits such as VIP lounge service at HKIA, Fortune Wings Club membership, conversion
of accumulated points into mileage credits under Fortune Wings Club, shopping discounts with dedicated
merchants and emergency medical services in China underwritten by dedicated insurance company.
CODESHARE ARRANGEMENTS
We have entered into passenger codeshare agreements with Hainan Airlines, China Eastern Airlines,
Shanghai Airlines, EVA Airways and Air India to strengthen the frequency of our flight schedule and offer
increased access to certain destinations for our passengers. These agreements do not have a definite term
and may be terminated by either party by giving 90 days advance written notice. Under codeshare
arrangements, one airline provides and operates the aircraft while other airlines may market seats on
flights operated by its codeshare partner as its own product using its own airline designator code. The
airline that provides and operates the aircraft issues bills to the marketing airline in the codeshare
arrangement and receives the revenue from sales of passenger tickets.
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BUSINESS
As of May 31, 2014, we had approximately 340 scheduled codeshare flights every week operated by
our codeshare partners and we operated approximately 448 scheduled codeshare flights every week. The
table below sets forth certain details of our codeshare arrangements as of May 31, 2014:
Routes
Codeshare Partners
Hong Kong-Shanghai . . . . . China Eastern

Airlines
Hong Kong-Shanghai . . . . . China Eastern
Airlines
Hong Kong-Shanghai . . . . . Shanghai Airlines
Hong Kong-Shanghai . . . . . Shanghai Airlines
Hong Kong-Beijing . . . . . . Hainan Airlines
Operating Airlines
Marketing Airlines
Hong Kong
Airlines
China Eastern
Airlines
Hong Kong
Airlines
Shanghai Airlines
China Eastern
Airlines
Hong Kong
Airlines
Shanghai Airlines
Beijing-Changchun . . . . . . Hainan Airlines
Hong Kong
Airlines
Hong Kong
Airlines
China Eastern
Airlines
Hong Kong
Airlines
Hong Kong
Airlines
China Eastern
Airlines
Hong Kong
Airlines
Hong Kong
Airlines
Hong Kong
Airlines
Hong Kong
Airlines
Hong Kong
Airlines
Hainan Airlines
Beijing-Lanzhou . . . . . . . . Hainan Airlines
Hainan Airlines
Hong Kong-Sanya . . . . . . . Hainan Airlines
Hong Kong
Airlines
Hong Kong
Airlines
EVA Airways
Hong Kong-Hangzhou . . . . China Eastern

Airlines
Hong Kong-Hangzhou . . . . China Eastern
Airlines
Hong Kong-Hangzhou . . . . Hainan Airlines
Hong Kong-Nanjing. . . . . . China Eastern
Airlines
Hong Kong-Nanjing. . . . . . China Eastern
Airlines
Hong Kong-Nanjing. . . . . . Hainan Airlines
Hong Kong-Fuzhou . . . . . . Hainan Airlines
Hong Kong-Chengdu . . . . . Hainan Airlines
Hong Kong-Chongqing . . . Hainan Airlines
Hong Kong-Haikou . . . . . . Hainan Airlines
Hong Kong-Taipei . . . . . . EVA Airways

Hong Kong-Taipei . . . . . . EVA Airways
137
Scheduled
Flights
(per week)
56
116
56
Hong Kong
Airlines
Hainan Airlines
28
China Eastern
Airlines
Hong Kong
Airlines
Hainan Airlines
42
China Eastern
Airlines
Hong Kong
Airlines
Hainan Airlines
28
28
Hainan Airlines
28
Hainan Airlines
14
Hainan Airlines
14
Hainan Airlines
14
Hong Kong
Airlines
Hong Kong
Airlines
Hainan Airlines
14
EVA Airways
56
Hong Kong
Airlines
56
14
42
14
14
14
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BUSINESS
Routes
Codeshare Partners
Operating Airlines
Marketing Airlines
Hong Kong-New Delhi . . . Air India
Air India
Hong Kong-Osaka .. . . . . . Air India
Air India
Hong Kong-Seoul .. . . . . . . Air India
Air India
Hong Kong
Airlines
Hong Kong
Airlines
Hong Kong
Airlines
Scheduled
Flights
(per week)
14
6
8
INTERLINE ARRANGEMENTS
Passenger Interline
As of May 31, 2014, we had passenger interline arrangements with 71 international and PRC airlines
to expand our passenger service route network so that our passengers could access more international and
PRC destinations. We typically entered into one-year special pro-rate agreements with these interline
airlines to specify the fares under relevant interline arrangements. Either party may terminate the
agreements by giving a 30 days prior written notice. Under the passenger special pro-rate agreements, the
airlines which sell the tickets to passengers for an interline itinerary collect the entire fare. The
participating interline airlines collect the prorate share of fare for transportation of the passengers on its
own flying sectors from the airlines which issue the tickets. As of May 31, 2014, through interline
arrangements, passengers on our flights could access over 500 destinations in more than 40 countries and
regions on routes served by our interline airlines. Similarly, we are also able to access our interline
airlines passengers to fill our flights departing from Hong Kong. The network under the interline
arrangements gives us access to a much larger passenger base compared with that we serve through our
own scheduled and charter flights.
Cargo Interline
As of May 31, 2014, we had cargo interline arrangements with 77 international and PRC airlines to
expand our cargo service route network and provide more international and PRC destinations for our cargo
customers. We typically entered into one-year special pro-rate agreements with these interline airlines to
specify the freight rates under interline arrangements. Either party could terminate the agreements by
giving a 30 days prior written notice. Under the cargo special pro-rate agreements, the airlines which issue
the airway bills for carriage of a transhipment collect the entire freightage. The participating interline
airlines collect the prorate share of freightage for carriage of the transhipment on its own flying sectors
from the airlines which issue the airway bills. Through interline arrangements, we can ship cargo to 285
destinations in 35 countries and regions on routes served by our interline airlines. Similarly, we are also
able to access our interline airlines cargo customers to supplement our cargo capacity originating from
Hong Kong. The network under the interline arrangements allows us to access to a much larger cargo
customer base compared with that we serve through our own scheduled and charter flights.
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BUSINESS
CUSTOMERS
During the Track Record Period, our five largest passenger services customers were HNA Tourism,
a related party, and other travel agents. For the years ended December 31, 2011, 2012 and 2013 and the
five months ended May 31, 2013 and 2014, the revenue generated from HNA Tourism, our largest
passenger services customer, was HK$837.9 million, HK$828.0 million, HK$913.2 million, HK$405.7
million and HK$641.3 million, respectively, which accounted for 28.7%, 22.0%, 16.8%, 19.3% and 24.8%,
respectively, of our passenger revenue, respectively. For the years ended December 31, 2011, 2012 and
2013 and the five months ended May 31, 2013 and 2014, our five largest passenger services customers
accounted for 37.1%, 29.8%, 27.1%, 28.5% and 32.2% of our passenger revenue, respectively. Please also
see the sections headed Continuing Transactions and Risk Factors If some of our related parties
terminate business relationship with us or fail to fulfill their obligations for delivery of services to us or
payment obligations for services we provide to them, our business, results of operations and financial
condition could be materially and adversely affected.
During the Track Record Period, our five largest cargo services customers were HNA Aviation, a
related party, and other cargo agents. For the years ended December 31, 2011, 2012 and 2013 and the five
months ended May 31, 2013 and 2014, the revenue generated from HNA Aviation, our largest cargo
services customer, was nil, HK$225.1 million, HK$228.6 million, HK$53.8 million and HK$131.4
million, which accounted for nil, 13.3%, 13.0%, 8.6% and 14.5% of our cargo revenue, respectively. For
the years ended December 31, 2011, 2012 and 2013 and the five months ended May 31, 2013 and 2014,
our five largest cargo services customers accounted for 32.3%, 30.8%, 28.9%, 27.3% and 32.7% of our
cargo revenue, respectively. Please also see the sections headed Continuing Transactions and Risk
Factors If some of our related parties terminate business relationship with us or fail to fulfill their
obligations for delivery of services to us or payment obligations for services we provide to them, our
business, results of operations and financial condition could be materially and adversely affected.
SUPPLIERS
Our main suppliers include aircraft fuel suppliers, aircraft leasing service providers, aircraft spare
parts providers, ground services providers and in-flight catering service providers. For details, please see
the sections headed Operations and Aircraft Maintenance. During the Track Record Period, our
largest supplier was aircraft fuel supplier. For the years ended December 31, 2011, 2012 and 2013 and the
five months ended May 31, 2013 and 2014, the purchases attributable to our largest supplier accounted for
15.4%, 14.4%, 12.5%, 12.0% and 15.9% of total operating expenses, respectively and the purchases
attributable to our five largest suppliers accounted for 41.0%, 40.4%, 34.6%, 36.4% and 41.4% of our
operating expenses, respectively.
INFORMATION TECHNOLOGY
Information technology is an essential element of our business operations. We invest in information
technology in order to increase our operational and management efficiency.
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BUSINESS
We utilize IT system for inventory and sales management, reservations and check-in under our
internet booking system, which operates through a single database and provides us with real time access
to revenue information. We use this system to fully integrate bookings received through the internet, travel
agents, sales offices, mobile phones and tablets. We are in the process of establishing a full disaster
recovery site in Hong Kong for our internet booking system which we expect to be completed by the end
of 2014.
In addition, we use a demand forecasting and revenue optimization system to continually monitor
and adjust the number of seats for each booking class based on the relevant route, the date of the flight
and departure time, which enables us to maximize revenue from every future departure. Furthermore, we
have implemented IT systems for financial planning, management, accounting and reporting; route
planning; flight scheduling and crew rostering; and sales, operations and management of cargo services.
Our in-house dedicated information technology specialists designed and developed enterprise portal
Smart Organization for employee self-service and internal collaboration.
All critical systems and data networks have redundancies for business continuity. If one server or
network link fails, we switch to the back up immediately and downtime is minimal, if any.
SAFETY AND SECURITY
We are committed to ensuring the safety and security of our passengers during air transportation and
our employees at workplace. This commitment is reflected in our safety and security management system.
We provide extensive training to our employees, and we adopt stringent policies and procedures, which
are designed to ensure compliance with applicable regulations, international standards and industry best
practices. We staff our safety and security departments with personnel who have extensive experience and
knowledge in their areas of responsibility.
Safety
We adopt a safety management system that consists of written policies and procedures that applied
throughout our operations. The safety management system is an integrated set of organizational structures,
accountabilities, policies and procedures for monitoring and improving the safety of our operations,
identifying the potential errors, reporting hazards and incidents, and formulating defense to ensure that the
errors do not result in unwanted major incidents or events.
We utilize three methods for hazard identification: (a) reactive methods, which respond to the
incidents and accidents occurred (including mandatory occurrence reports); (b) proactive methods, which
actively identify safety risks through the analysis of our daily operations (including internal surveys,
safety audits and voluntary reports); and (c) predictive methods, which monitor system performance as it
happens in real-time operations to identify future problems (including flight data analysis and normal
operations monitoring). We have also established various safety performance indicators and targets which
are short-term and long-term measurable objectives in numerical terms to provide us with an early warning
against any potential safety hazard. In addition, we regularly track the indicators and measure them against
our safety targets.
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BUSINESS
We request flight crew to report all accidents, incidents and hazards through the air safety report
program and cabin safety report program. They can also use our confidential hazard reporting program
established by our corporate safety department. The confidential hazard reporting program affords flight
crew the opportunity to report directly to the management any event, error or discrepancy in flight
operations that they do not wish to report through standard channels. The confidential hazard reporting
program is designed to increase managements awareness of problems that may be encountered by flight
crew in their day-to-day operations. We use the information reported through all reporting programs to
carry out risk assessments, manage any identified hazards, modify operating procedures and improve flight
operation standards.
As part of our safety management system, we have established Safety Review Board to oversee our
safety function, which consists of our senior management team and chaired by Mr. Zhang Kui, our
President. Our Safety Review Board holds quarterly meetings to review our safety performance by
examining safety data, incident and accident reports. We also have Safety Action Group, whose members
include departmental management and chaired by the head of corporate safety department. Our Safety
Action Group meets twice every month to review safety data, audit findings, incidents or accidents reports,
safety performance against objectives, adequately investigate and address the risks identified, and report
to Safety Review Board on the safety performance of our operations. We also engage an external
consultant from Transportation Safety Board of Canada to assist us with the investigations in relation to
the safety reports on a periodic basis. In addition, regular internal and external audits are conducted,
including audits by the CAD and similar regulatory bodies in other jurisdictions. As of the Latest
Practicable Date, we have never failed any such audits.
We have from time to time experienced difficulties in communicating with air traffic control
operations in certain locations where we operate. As of the Latest Practicable Date, these air traffic control
communication lapses were classified as posing a low level of risk and we have not experienced any
material and adverse impact to the safety of the relevant flights as a result of our historical traffic
communication lapses. As of the Latest Practicable Date, we have not experienced any penalties or
liabilities in relation to these incidents. Subsequent to each communication lapse incident, we conducted
a thorough review of the causes of these incidents, reported to the CAD in relation to these incidents and
implemented corrective plans and measures to reduce the possibility of a recurrence. The corrective
measures include reviewing the incidents through training sessions with all pilots to emphasize proper
communications procedures and conducting interview sessions with airport traffic controllers to discuss
the reasons for the communication lapses and improve the communication procedures.
Security
While the relevant airport operators are responsible for security screening of passengers and baggage
at destinations within our network, we train our staff to identify potential security breaches and to handle
unruly passengers. Operational employees undergo thorough background screening prior to being hired
and are subsequently screened by the local aviation regulators and airport police before they are permitted
access to relevant airports.
We provide extensive training to ensure that our employees have the appropriate skills to carry out
their duties. All flight crew and our passenger handling staff at HKIA are required to undergo dangerous
goods awareness training to be able to identify potentially dangerous goods and items that threaten the
safety of the flight including flammable liquids and containers that are likely to explode under pressure.
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BUSINESS
Following the terrorist attacks in the United States on September 11, 2001, ICAO adopted
regulations and guidelines requiring airlines to adhere to certain security measures. These include (i)
installation of reinforced cockpit doors and review of policies and procedures on cockpit visits; (ii)
occupying of jump seats; (iii) removal of checked-in luggage from the aircraft when the passenger fails
to board the aircraft; (iv) review of items allowed as cabin luggage; (v) enhanced surveillance of holding
baggage; and (vi) flight crew training on handling of disruptive passengers and passenger profiling. We
are in compliance with all of the CADs and the ICAOs regulations.
As of the Latest Practicable Date, we have not been subject to any fine or legal action involving any
material non-compliance with any relevant safety and security regulations.
RISK MANAGEMENT
The aviation industry is a heavily regulated industry. We are subject to a very stringent regulatory
regime in Hong Kong. There are mandatory compliance requirements in relation to most aspects of our
business, including aircraft safety and maintenance, flight crew qualifications and health and safety of
employees. We are also required to submit reports to the relevant Hong Kong government agencies to
maintain our good standing. Apart from meeting the mandatory regulatory requirements, we have also
established a risk management system which consists of written policies and procedures designed to
identify, monitor and manage risks as they may occur. Our risk management process consists of six steps:
(i)
Establishment of the context, which includes definition of intent, scope and objectives of the
relevant activities and determination of the acceptable level of risk in relation to such activities.
(ii)
Hazards identification, which includes using a variety of methods such as interview, audits or
survey to identify the widest range of potential hazards effectively.
(iii) Risk analysis, which is to examine the source of risk, their consequences and the likelihood that
those consequences may occur. A scale of measurement is used to assist in communicating the
importance of the risk and its potential impact.
(iv) Risk evaluation, which involves comparing the level of risk found during the analysis process
with previously established risk criteria, and deciding whether these risks are acceptable or
unacceptable. If not, the risk is prioritized for treatment.
(v)
Risk treatment, which includes considering options for treating risks, preparing risk treatment
plan and the implementation of risk treatment plan. Where risks cannot be eliminated, they
must be controlled or treated to the maximum extent practicable.
(vi) Monitoring and reviewing of risk, which is to ensure that treatment plans are implemented and
monitor the effectiveness of the risk treatment plan.
We regularly review our existing risk management system to ensure that our risk management system
is effective and efficient and can help identify risks at an early stage.
We have also implemented internal policies on cyber-security and internet safety to prevent loss of
information due to cyber-security incidents, network outages or hardware incidents. During the Track
Record Period and up to the Latest Practicable Date, we had not experienced any material cyber-security
incidents or related loss.
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BUSINESS
We have established a risk management committee under the authority of the Board to oversee and
manage the overall risks associated with our business, operation, finance, reputation, environment
protection and legal and compliance. The risk management committee, which is led by our president, Mr.
Zhang Kui, has five other members, namely our chief operating officer, Mr. Sun Jianfeng, our chief
financial officer, Mr. Wu Hao, director of corporate governance department, Mr. Ben Wong, director of
corporate safety department, Mr. Alex Linhares and company secretary, Mr. Chan, Victor Sun Ho. Please
see the section headed Directors, Senior Management and Employees for the qualification and
experience of Mr. Zhang Kui, Mr. Wu Hao and Mr. Chan, Victor Sun Ho and the section headed Director,
Senior Management and Employees Company Committees for further details about Mr. Ben Wong and
Mr. Alex Linhares.
COMPETITION
We are currently the second largest airline group based in Hong Kong in terms of the number of
passengers handled and fleet size according to the ICF Report. We focus on the air transport market in the
Asia Pacific region, especially the routes between Hong Kong and cities in China. The passenger air
transport market between Hong Kong and cities in China is highly competitive. Almost all of the routes
between Hong Kong and cities in China we service are also serviced by other Hong Kong-based airlines
and China-based airlines. According to the ICF Report, the market share of Hong Kong-based airlines for
the routes between Hong Kong and cities in China was 68.0% in terms of the number of annual seat
departures in 2013.
Our largest competitors are two Hong Kong-based airlines, namely Cathay Pacific and Dragonair
which is a subsidiary of Cathay Pacific. According to the ICF Report, the market share of Cathay Pacific
and Dragonair for the routes between Hong Kong and cities in China was 6.6% and 44.5% in terms of the
number of annual seat departures in 2013, respectively. Our market share was 14.3% for the routes
between Hong Kong and China in terms of seat departures in 2013. According to the ICF Report, for the
destinations in Asia where all of Cathay Pacific, Dragonair and us have non-stop service from Hong Kong,
Cathay Pacific and Dragonair had a market share of 24.4% and 23.2% in terms of seat departures,
respectively, while we had a market share of 19.2% as of January 2014.
In addition to competing with other Hong Kong-based airlines and China-based airlines that operate
on our routes, we may, in certain circumstances, also compete with other modes of transportation, such
as trains, automobiles, buses, ships and ferries between Hong Kong and the PRC.
EMPLOYEES
We place great importance on attracting and retaining qualified employees. We recruit our employees
based on a number of factors, including their work experience, educational background and the needs of
our vacancies. We offer competitive remuneration and are committed to investing in our employees
training and development.
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BUSINESS
As of December 31, 2011, 2012 and 2013 and May 31, 2014, we had a total of 1,716, 1,899, 2,442
and 2,462 employees, respectively. The following table sets forth a breakdown of our employees by
function and by geographic location as of the dates indicated:
As of December 31,
2011
Function:
Flight crew
Pilot . . . . . . . . . . . . . . . . . . .
Cabin crew . . . . . . . . . . . . . .
Operation
Flight operation. . . . . . . . . . .
Ground operation . . . . . . . . .
Maintenance and Engineering.
Service delivery . . . . . . . . . .
Procurement . . . . . . . . . . . . .
Marketing and sales
Passenger . . . . . . . . . . . . . .
Cargo . . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . .
2012
As of May 31,
2013
2014
....
....
242
653
297
638
272
918
269
937
.
.
.
.
.
.
.
.
.
.
29
31
97
228
20
45
26
157
252
39
35
50
192
421
47
39
53
207
415
45
....
....
....
225
65
126
293
49
103
244
77
186
233
74
190
Total . . . . . . . . . . . . . . . . . . . . . .
1,716
1,899
2,442
2,462
.
.
.
.
.
.
.
.
.
.
As of December 31,
2011
2012
As of May 31,
2013
2014
Geographic location:
Hong Kong . . . . . . . . . . . . . . . . . . .
China . . . . . . . . . . . . . . . . . . . . . . .
Other jurisdictions . . . . . . . . . . . . . .
1,503
141
72
1,681
169
49
2,154
208
80
2,196
197
69
Total . . . . . . . . . . . . . . . . . . . . . .
1,716
1,899
2,442
2,462
None of our employees is represented by collective bargaining arrangements or is a member of a

labor union. During the Track Record Period and up to the Latest Practicable Date, we had not experienced
any major labor dispute or other labor disturbance that had materially interfered with our operations.
Employee Remuneration and Incentives
Our employee remuneration policy focuses on maximizing efficiency and productivity while keeping
employees motivated and committed to our Company. Our pilots receive basic compensation, flight
allowance in relation to hours flown and performance bonus. Our cabin crew receive basic compensation,
flight allowance in relation to hours flown and commission of selling in-flight duty free products. Cabin
crew also qualify for Best Cabin Crew Awards which is an annual performance-based award granted to
selected cabin crew. Our other employees qualify for other performance or profit-related bonus schemes.
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BUSINESS
We also maintain an employee incentive scheme in the form of annual Presidents Awards, which
rewards teams and employees who have made an outstanding contribution to our Company. The
Presidents Awards are comprised of the following categories: Excellent Team, Sales Performance,
Excellent Service, Devotion and Innovation.
Training
We require our employees to comply with training requirements relevant to their responsibilities.
Due to the highly regulated nature of the aviation industry, there are extensive mandatory or regulatory
training requirements, both recurrent and non-recurrent. In addition, as part of our efforts to remain aware
of latest developments, we offer training programs which may not necessarily be mandated by law but
which we believe contribute towards the improvement of our operations. The majority of our training
programs are centered on technical competence, specifically the skills of our pilots, flight crew and
engineers. There are also various training requirements imposed on our all employees in relation to our
safety management system.
Pilots
We offer a series of training programs for our pilots (both captains and first officers) to provide them
with the opportunity to maintain and develop their skills. Senior first officers on the A330 fleet are
required to have a minimum of 5,000 hours of flight time, of which 1,500 hours must be jet time in aircraft
over 60,000 kg before they can be considered for command upgrade on the A330 fleet. Senior first officers
on the A320 fleet are required to have a minimum of 4,000 hours of flight time, of which 1,500 hours must
be jet time, before they can be considered for command upgrade on the A320 fleet. All pilots are also
required to undergo proficiency checks every six months conducted by examiners approved by the CAD
in Hong Kong. The hiring and promotion of pilots to the rank of captain is based on performance reviews,
seniority and past experience.
Cabin crew
We also provide our cabin crew with a training program, which includes courses in first aid, cabin
familiarization, public announcements, grooming, passenger care, in-flight selling skills, handling of
dangerous goods, handing of disruptive passengers and security awareness. Our cabin crew is also required
to attend refresher courses on a periodic basis.
Engineers
Our engineers are required to attend specific type-rating and manufacturer-related courses,
depending on the type(s) of aircraft and engines on which they work. The training programs are conducted
by the respective manufacturers or an training organization approved by the CAD. Aircraft type-rating
training for A330 and A320 aircraft is primarily conducted by Airbus Hua-Ou Aviation Training Center.
Intensive engine-related training is conducted by Pratt & Whitney China Customer Training Center,
Rolls-Royce Engine Training Center and Aero Engine Maintenance Training Center. The training
programs are intended to equip our engineers with adequate technical knowledge for specific types(s) of
aircraft and engines. Our engineers are also required to attend internal recurrent technical training courses.
The recurrent training courses are intended to enable our engineers to be kept up-to-date with not only the
basic skill sets to maintain our aircraft but also the latest developments in aviation engineering. The
recurrent training courses are held once every two years.
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BUSINESS
Safety Management System
We provide extensive training to all employees in line with our commitment to maintaining the safety
and security of our passengers and our employees. All employees are required to attend an initial course,
a recurrent course and a refresher course under our safety management system in order to understand our
safety management system and to be familiar with the particular aspects of the systems that are relevant
to their roles. The recurrent and refresher course will alternate every twelve months.
PROPERTIES AND FACILITIES
Leased Properties
Hong Kong
As of May 31, 2014, we leased a total of 18 properties with an aggregate GFA of approximately
90,722 sq.ft. in Hong Kong. These properties leased by us in Hong Kong are primarily used for office
space and warehousing purposes. The lease term typically ranges from one to five years.
China and Overseas
As of May 31, 2014, we leased a total of 16 properties with an aggregate GFA of approximately
22,041 sq.ft. in China and overseas. These properties leased by us in China and overseas are primarily used
for sales office purposes. The lease term typically ranges from one to five years. From May 31, 2014 to
the Latest Practicable Date, we leased another two properties with an aggregate GFA of approximately
2,000 sq.ft. in China.
Among the 18 leased properties in China and overseas, there are eleven lease agreements regarding
eleven properties in China with an aggregate GFA of approximately 15,600 sq.ft., which have not been
registered according to the relevant PRC laws and regulation as of the Latest Practicable Date. As advised
by our PRC legal adviser, such lease agreements shall be registered by the lessor and us within thirty days
after we enter into such agreements. Should we fail to have such lease agreements registered, we are
subject to rectification within a period of time designated by the government, and if we fail to rectify upon
such deadline, we are subject to a fine between RMB1,000 and RMB10,000. As advised by our PRC legal
adviser, such lease agreements remain effective despite the lack of registration.
As of the Latest Practicable Date, save as disclosed above, we are not in breach of any other lease
covenants or conditions, and we are not aware of non-compliance with current statutory requirements, land
rules or building regulations by the lessors with respect to all leased properties, that will have a material
and adverse impact on our business operations.
Facilities
We lease all of our facilities at each of the airports we serve. Our leases for our terminal passenger
service facilities, which include ticket counter and gate space, operations support areas, baggage service
offices, lounges and store rooms, generally have a lease term ranging from one to three years, and contain
provisions for periodic adjustments of lease rates. We also are responsible for maintenance, insurance and
other facility-related expenses and services. We have entered into use agreements at each of the airports
we serve that provide for the landing and parking services and other facilities. Landing fees under these
agreements are based on the number of landings and weight of the aircraft.
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BUSINESS
INSURANCE
We maintain aviation and non-aviation insurance in connection with our operations and to comply
with relevant regulatory and aircraft financing and leasing arrangements. We believe our overall insurance
coverage is consistent with industry practice and is maintained at adequate levels. We maintain hull all
risks (which includes aircraft engines and spare parts), hull (including spares) war and allied risks, aircraft
hull and spares all risks deductible insurance and aircraft third party, passenger, baggage, cargo, mail and
airline general third party legal liability insurance. All of our aviation insurance policies are renewed
annually. The rates for the above insurances are obtained together with HNA Group and other airlines
controlled by or affiliated to HNA Group, but the costs for maintaining these policies are borne solely by
us.
We also carry non-aviation insurance which covers our assets, properties, machinery and equipment,
money, public liability and personal accident insurance for our employees. All of our non-aviation
insurance policies are renewed annually. We do not carry insurance covering business interruptions.
During the Track Record Period and up to the Latest Practicable Date, we had not experienced any material
interruption to our business operations.
During the Track Record Period and up to the Latest Practicable Date, none of our insurance policies
have been revoked, nor have we been denied coverage by any insurer. Please see the section headed Risk
Factors Risks Relating to Our Company Increased insurance costs, or the occurrence of uninsured
risks, could have a material and adverse effect on our business, financial condition and results of
operations for more information on our insurance coverage.
INTELLECTUAL PROPERTY RIGHTS
As of the Latest Practicable Date, we held three registered trademarks, including the name Hong
Kong Airlines used in our logo. The trademarks are registered in Hong Kong. We consider the Hong
Kong Airlines brand name and the related trademarks to be important to our business because we believe
they can enhance the awareness and recognition of our business among many existing or potential
customers. For more details of our intellectual property rights, please see the section headed Appendix
IV Statutory and General Information Further Information about the Business of the Company
Intellectual property rights of the Group. During the Track Record Period and up to the Latest Practicable
Date, we had not been subject to any litigation, arbitration or claim alleging infringement of intellectual
property rights owned by third parties, nor had we been aware of any litigation, arbitration or claim to be
pending or threatened in relation to infringement of intellectual property rights against us.
Certain of our information technology systems such as our enterprise portal were internally designed
and developed by our dedicated information technology specialists. We own the source codes relating to
all of these proprietary information technology systems and are entitled to the related intellectual property
rights. In order to safeguard our intellectual property rights, each employee has given an undertaking in
their employment contracts that he or she will not exploit or divulge to any other persons any source codes,
trade secrets, among other information, during or following the cessation of employment.
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BUSINESS
AWARDS
Although we are a relatively young company, we have started to receive awards, recognition and
accolades for our performance. The following table sets forth key awards and recognition we have
received:
Year of Award
Award/Recognition
Primary Awarding Body
2011, 2012, 2013, 2014 . . . . . . .

2014 . . . . . . . . . . . . . . . . . . . .
4-Star Airline
The Worlds Most Improved
Airline
Capital Weekly Service Awards
Best Service in Aviation
Supreme Service Awards
Outstanding Corporate Strategy
Awards
Yahoo! Emotive Brand Award
Airlines category
Caring Company
Skytrax
Skytrax
2012 . . . . . . . . . . . . . . . . . . . .
2012, 2013 . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . .
2012-2013, 2013-2014. . . . . . . .
2010-2014 . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . .
2012 (2), 2013 . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . .
Business Excellence Awards

Service Excellence Award
Social Service Excellence
Award
Innovation Strategy Excellence
Award
Environmental Protection
Excellence Award
ERB Manpower Developer
Award
Corporate Excellence Award
Best Customer Service of The
Year
The Best Smiling Customer
Service (1)
Customer Relationship
Excellence Awards
Top 100 Growth Brand in Asia
Weibo Star Top 10 Influential
Corporations (HK)
Notes:
1.
The award was granted to employees of Hong Kong Airlines.
2.
The award was granted to employees of Hong Kong Airlines.
148
Capital Weekly
Capital CEO
East Week
Yahoo! Hong Kong
The Hong Kong Council
of Social Service
Professional Validation
Center of Hong Kong
Business Sector
Employees Retraining
Board
Hong Kong International
Airport
Hong Kong International
Airport
Asia Pacific Customer
Service Consortium
Asia Brand Association
Sina Weibo HK
BUSINESS
LEGAL AND REGULATORY MATTERS
Licenses, Permits, Approvals and Certificates
During the Track Record Period and up to the Latest Practicable Date, we had obtained all requisite
licenses, permits, approvals and certificates from the relevant government authorities that are material for
our business operations and such licenses, permits, approvals and certificates remained in full effect, and
no circumstances existed that would render their revocation or cancellation. The following table sets forth
details of our material licenses, permits, approvals and certificates:
License/Permit
Holder
Granting Authority
Grant Date
Expiry Date
AOC . . . . . . . . . . . . . . . .
Hong Kong
Airlines
Hong Kong
Airlines
Hong Kong
Airlines
Hong Kong
Airlines
CAD
March 12,
2014
April 28,
2014
May 30, 2014
March 31,
2016
March 24,
2018
July 10, 2016
Airport Authority
Hong Kong
April 2, 2014
April 1, 2015
Hong Kong
Airlines
Airport Authority
Hong Kong
December 3,
2013
November 2,
2014
Hong Kong
Aviation Ground
Services Limited
Airport Authority
Hong Kong
April 1, 2014
March 31,
2015
ATLA License . . . . . . . . .
HKAR-145 Approval . . .
Permit For Self-Handling
of Technical Line
Maintenance Services . .
Permit For CrossHandling of Technical
Line Maintenance
Services . . . . . . . . . . .
Passenger Handling
Services Permit . . . . . .
ATLA
CAD
Our Permit For Cross-Handling of Technical Line Maintenance Services will expire on November 2,
2014. We will submit application to CAD for the renewal of such permit within one month before its
expiry in line with the industry practice. We do not foresee any legal or practical impediment to the
renewal of such permit.
Work Safety
Our operations are subject to regulations and periodic examinations by local work safety authorities.
We have obtained all of the material work safety approvals and permits necessary to conduct our business.
We have adopted an occupational health and safety standard system to protect our employees during the
course of work. Our system covers, among others, labour safety and health care education and prevents
accidents during work and reduces occupational hazards. During the Track Record Period and up to the
Latest Practicable Date, our Directors confirmed that we were in compliance with all applicable work
safety laws and regulations in all material respects.
Environmental Protection
Our business operations are subject to a variety of environmental and related laws and regulations
at local, national and international levels. These regulations cover, among other things, carriage of
dangerous goods, disposal of hazardous substances, oils and waste materials and other activities incidental
to our operations. As of the Latest Practicable Date, we have not been subject to any fines or legal action
involving any material non-compliance with any relevant environmental regulations, nor are we aware of
any threatened or pending action by any relevant environmental regulatory authority. We have not incurred
and do not expect to incur material costs in connection with the compliance with environmental laws and
regulations.
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BUSINESS
Legal Proceedings
As of the Latest Practicable Date, we were not a party to any legal, arbitral or administrative
proceedings, nor were we aware of any pending or threatened legal, arbitral or administrative proceedings
against us or any of our Directors, which would have a material and adverse effect on our business, results
of operations or financial condition. However, we may from time to time become a party to various legal,
arbitral or administrative proceedings arising in the ordinary course of our business.
Non-compliance Incidents in relation to the Predecessor Companies Ordinance
The following are incidents of non-compliance on the part of certain Hong Kong-incorporated
subsidiaries of the Company which took place during the Track Record Period.
Subsidiaries involved
Non-compliance incidents
Cause of non-compliance
(1)
Failure on the part of the relevant

Hong Kong-incorporated
subsidiaries to file required
notices with the Registrar of
Companies in Hong Kong upon
certain changes to their corporate
particulars within the prescribed
timeframe under the predecessor
Companies Ordinance.
The omission was not wilful

and was primarily due to
absence of timely and
professional advice to our
relevant subsidiaries to ensure
compliance with the
predecessor Companies
Ordinance.
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
HK Aircraft Sub1 Company

Limited
Limited
Limited
Limited
Limited
Limited
Limited
Limited
Limited
Limited
Limited
Limited
Limited
Hong Kong Airlines Cargo
Company Limited
Hong Kong Aviation
Maintenance and
Engineering Corporation
Limited
Hong Kong Aviation Ground
Services Limited
Hong Kong Airlines Limited
Legal consequences,
maximum potential fine
Under Sections 45, 55, 92, 107,
109 and 158 of the predecessor
Companies Ordinance (the
Relevant Sections), a Hong
Kong-incorporated company
must file a notice with the
Registrar of Companies in
Hong Kong upon certain
changes to its corporate
particulars within the
timeframe specified in the
Relevant Sections.
The relevant Hong Kong
subsidiaries of the Company
and every officer of such
subsidiaries who are in default
may be subject to fines for
such previous non-compliance
of level 3 (HK$10,000) or level
5 (HK$50,000) (as the case
may be) and a daily default
fine of HK$300 (for level 3) or
HK$700 (for level 5) (as the
case may be) for each late
filing under the Relevant
Sections.
150
Measures in place to prevent

recurrence of non-compliance
incidents
The relevant Hong Kong
subsidiaries have filed all the
necessary prescribed forms and
notices with the Hong Kong
Companies Registry, and as at
the Latest Practicable Date, no
notification of any potential
prosecution against the
subsidiaries or the respective
officers in relation to those late
filings was received by the
defaulting subsidiaries or their
respective officers.
We have adopted the following
enhanced internal control
measures:
Our company secretary,

Mr. Chan, Victor Sun
Ho, a qualified lawyer
in Hong Kong, will
oversee the company
secretarial matters for
our Hong Kong
subsidiaries;
A checklist will be
prepared and updated
from time to time to
record the details of all
our Hong Kong
subsidiaries such as
incorporation date and
date of last annual
general meeting. The
checklist will be
reviewed by our
company secretary or
any person designated
by him regularly to keep
monitoring the corporate
compliance matters; and
Going forward, the

Group will retain
external legal advisers to
advise on compliance
and corporate secretarial
matters if necessary.
BUSINESS
We confirm that since the above non-compliance incidents were not directly related to the
management or maintenance of the licenses crucial for our operation, such incidents would not materially
and adversely affect the operation of our Groups business. Further, as remedial or heightened internal and
compliance controls have been put in place, we are of the view that such historical incidents which have
now ended or no longer continue should not reflect negatively on our Companys or our Directors ability
or tendency to operate in a compliant manner, and did not and would not give rise to significant financial
penalties or have a material financial impact on us.
151
RELATIONSHIP WITH CONTROLLING SHAREHOLDERS AND OTHER EXISTING SHAREHOLDERS

INDEPENDENCE FROM OUR EXISTING SHAREHOLDERS
A.
RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS
exercised), HKA Holdings, Mr. Zhong and Mr. Mung will together hold approximately [REDACTED] of
the enlarged issued share capital of our Company and hence are considered to be our Controlling
Shareholders. Mr. Zhong and Mr. Mungs previous investment and historical shareholding changes in our
Group are set out in the section headed History and Reorganisation Our Key Historical Shareholding
Changes. Mr. Zhong is currently a vice president of Hong Kong Airlines and Mr. Mung is our Director.
For details of the shareholding structure immediately after the completion of the [REDACTED],
please refer to the section headed History and Reorganization Reorganization.
We believe that our Group is capable of carrying on its business independently from our Controlling
Shareholders and their close associates after [REDACTED] for the following reasons:
Operational Independence
Although our Controlling Shareholders will retain a controlling interest in us after [REDACTED],
we have full rights to make all decisions on, and to carry out, our own business operations independently.
We, through our subsidiaries, hold the licenses and qualifications necessary to carry on our current
business, and have sufficient capital, facilities, technology and employees to operate the business
independently from our Controlling Shareholders. None of our Controlling Shareholders nor their
respective close associates (including Hong Kong Express) is our supplier or service provider except for
the transactions which are regulated by the continuing connected transaction agreements as set out in the
section headed Continuing Transactions 2. Transactions with Hong Kong Express. In addition, we
have access to third parties independently from and not connected to our Controlling Shareholders and
their close associates for sources of suppliers and customers.
Based on the above, our Directors and the Sole Sponsor are satisfied that there is no operational
dependence by us on our Controlling Shareholders.
Management Independence
The Board comprises two executive Directors, four non-executive Directors and three independent
non-executive Directors.
At the HKA Holdings level, Mr. Yang Jianhong was appointed as the sole director of HKA Holdings
in December 2009. Mr. Yang is the sole director of HNA Investment and Mr. Yang currently holds other
positions in certain associates of HNA Group. In August 2014, Mr. Yang resigned, and Mr. Zhong was
appointed, as the sole director of HKA Holdings.
There have been no agreements or other contractual arrangements among the Shareholders as to the
appointment of directors at the level of HKA Holdings or Hong Kong Airlines in the past 12 months. There
is no such right provided for in the articles of association of HKA Holdings or Hong Kong Airlines.
152

Save as disclosed above and except for Mr. Mung who is himself a Controlling Shareholder, none
of our other Directors or member of our senior management held any director or executive management
position in our Controlling Shareholders or their respective close associates (including Hong Kong
Express) as of the Latest Practicable Date. There are sufficient non-overlapping Directors who are
independent of our Controlling Shareholders and have relevant experience to ensure the proper functioning
of the Board.
We believe that we have good corporate governance measures and adequate arrangements to manage
potential conflicts of interests if any, and safeguard the interests of our Shareholders in respect of our
dealings with other companies controlled by our Controlling Shareholders or their respective close
associates. Based on the above, our Directors are satisfied that the Board as a whole together with the
senior management team is able to manage our Group independently of our Controlling Shareholders and
their close associates.
Financial Independence
We have established our own independent finance department and accounting systems and we make
financial decisions according to our own business needs. We have a team of independent financial staff,
which is responsible for financial control, accounting, reporting, group credit and internal control
functions of our Company independent from our Controlling Shareholders and their close associates. We
can make financing decisions independently and our Controlling Shareholders and their close associates
do not interfere with our use of funds. We have also established an independent audit system, a
standardized financial and accounting system and a complete financial management and books and records
system. In addition, we maintain bank accounts with banks independently and our Controlling
Shareholders and their close associates do not share any bank accounts with us.
Our Directors confirm that our Group is capable of carrying on our business without financial
reliance on our Controlling Shareholders and their close associates.
B.
RELATIONSHIP WITH OTHER EXISTING SHAREHOLDERS
exercised):
Hainan Airlines will through its wholly-owned subsidiaries indirectly hold an approximately
[REDACTED] of the then enlarged total issued share capital of the Company and therefore
will be a substantial shareholder of the Company. As Hainan Airlines is not entitled to exercise
or control the exercise of 30% or more of the voting power at general meetings of our
Company, for the purpose of the Listing Rules, Hainan Airlines is not considered a controlling
shareholder of our Company immediately following completion of the [REDACTED]; and
HNA Group will through its wholly-owned subsidiary indirectly hold less than 10% of the then
enlarged total issued share capital of the Company. Therefore, for the purpose of the Listing
Rules, HNA Group is not considered a controlling shareholder or substantial shareholder of our
Company immediately following completion of the [REDACTED].
For details of the shareholding structure immediately after the completion of the [REDACTED],
please refer to the section headed History and Reorganization Reorganization.
153

We believe that our Group is capable of carrying on its business independently from Hainan Airlines
and HNA Group and their respective associates after [REDACTED] for the following reasons:
Operational Independence
As part of our Groups operation, we enter into transactions, including aircraft leasing and provision
of technical and administrative support services and cooperative arrangements, with industry players like
Hainan Airlines and HNA Group and their respective associates, which have the relevant expertise in the
aviation market. For details of the continuing connected transactions with Hainan Airlines and the
continuing transactions HNA Group, please refer to the section headed Continuing Transactions.
In respect of our aircraft fleet
We have a self-sufficient fleet of operating aircraft. As of the Latest Practicable Date, out of our 23
operating aircraft, our Group owned eight aircraft for our business operation.
Of the 23 aircraft we operate, our Group leases from HKIAL six aircraft under finance leases and
nine aircraft under operating leases. HKIAL is a non-wholly-owned subsidiary of HNA Group. The Group
leases aircraft from HKIAL mainly because of the reputation of HKIAL as a specialised aircraft supplier
in the market and the quality of the aircraft from HKIAL which the Company believes best suits its
operating needs. Indeed, given these qualities and competitive strengths available from HKIAL, it would
not be commercially sensible not to take aircraft leases from HKIAL only because of its being an associate
of HNA Group, if it, like any other independent aircraft supplier, is able to provide aircraft on arms length
terms acceptable to the Group. During the Track Record Period, we obtained quotations from at least two
other Independent Third Party providers for comparison to check that the price and the terms offered by
HKIAL were fair and reasonable and comparable to those offered by Independent Third Party providers.
The Company confirms that HKIAL does not provide any preferential terms or agreed discount to our
Group. The aircraft leasing arrangement with HKIAL is disclosed in the section headed Continuing
Transactions Continuing Transactions with HNA Group not subject to Chapter 14A of the Listing Rules
HNA Aircraft Lease Framework Agreement.
In respect of our Groups customers
In 2003, the Group was the second largest airline group in Hong Kong in terms of passenger market
share. The Group has established its brand and has a diversified customers base of generally the traveling
public at large.
Currently, the sources of the Groups revenue are twofold traffic income and aircraft rental income.
Based on the Groups consolidated financial statements for the year ended December 31, 2013,
approximately 80% of its total traffic revenue was derived from revenue generated by passenger and cargo
services transacting with parties who are not Hainan Airlines or HNA Group or their respective associates.
154

We set out below a breakdown of the total traffic revenue and traffic revenue generated from
transactions with Hainan Airlines and HNA Group and their respective associates during the Track Record
Period.
Year ended
December 31, 2011
HK$000
HK$000
Total traffic
revenue
Traffic
revenue
generated
from Hainan
Airlines and
HNA Group
and their
respective
associates
Year ended
December 31, 2012
HK$000
HK$000
Total traffic
revenue
Traffic
revenue
generated
from Hainan
Airlines and
HNA Group
and their
respective
associates
Year ended
December 31, 2013
HK$000
HK$000
Total traffic
revenue
Traffic
revenue
generated
from Hainan
Airlines and
HNA Group
and their
respective
associates
Five months ended

May 31, 2014
HK$000
HK$000
Total traffic
revenue
Traffic
revenue
generated
from Hainan
Airlines and
HNA Group
and their
respective
associates
Passenger
revenue . . . . .
Cargo revenue . .
2,916,496
1,202,389
847,177
3,765,285
1,698,069
838,291
225,097
5,447,640
1,762,789
921,289
228,572
2,581,394
905,896
655,339
131,400
Total . . . . . . .
4,118,885
847,177
5,463,354
1,063,388
7,210,429
1,149,861
3,487,290
786,739
In respect of our Groups suppliers

Our main suppliers include aircraft fuel suppliers, as well as providers of aircraft leasing services,
aircraft spare parts, ground services and in-flight catering services. During the Track Record Period, our
largest supplier was an aircraft fuel supplier. The operating expenses paid to Hainan Airlines and HNA
Group and their respective associates were insignificant compared to the total operating expenses of the
Group. The Company sets out below the breakdown of the total operating expenses paid to Hainan Airlines
and HNA Group and their respective associates during the Track Record Period:
Year ended
December 31, 2011
Operating
expenses . . . .
HK$000
HK$000
Total
operating
expenses
Operating
expenses paid
to Hainan
Airlines and
HNA Group
and their
respective
associates
4,241,093
46,411
Year ended
December 31, 2012
HK$000
HK$000
Total
operating
expenses
Operating
expenses paid
to Hainan
Airlines and
HNA Group
and their
respective
associates
5,830,887
60,803
155
Year ended
December 31, 2013
HK$000
HK$000
Total
operating
expenses
Operating
expenses paid
to Hainan
Airlines and
HNA Group
and their
respective
associates
7,606,182
702,840
Five months ended

May 31, 2014
HK$000
HK$000
Total
operating
expenses
Operating
expenses paid
to Hainan
Airlines and
HNA Group
and their
respective
associates
3,649,518
433,347

Provision of mutual operational and other general services
Our Group shall continue to conduct various transactions with Hainan Airlines, HNA Group and/or
their respective associates in respect of mutual provision of operational and other general services, details
of which are set out in the section headed Continuing Transactions. Our Directors confirm that these
continuing transactions were entered into on normal commercial terms and on an arms length basis in the
ordinary course of our business. Our Directors believe that the following services shall not be regarded
as reliance on Hainan Airlines or HNA Group because:
our Group also entered into codeshare arrangements with four Independent Third Party airlines
and interline arrangements with over 50 Independent Third Party airlines, apart from Hainan
Airlines, HNA Group and their respective associates;
certain transactions relating to landing, parking and ground handling charges payable to the
airports operated by Hainan Airlines, HNA Group and their respective associates are
compulsory charges equally applicable to all airlines; and
the transactions relating to the provision of operational services, sales and marketing services,
technology support and training services were entered into mainly for cost-effectiveness and
administrative convenience reasons. We can find alternative providers for such services and we
are able to, at our own discretion, seek the relevant services from Independent Third Parties if
we are offered similar or more favourable terms for those services.
The Company believes that it would not have made logical or best business and commercial sense
if the Group were to not carry out such transactions only because the counterparties were Hainan Airlines,
HNA Group or their respective associates. We believe that those continuing transactions with Hainan
Airlines, HNA Group and/or their respective associates do not compromise or negatively reflect on the
Groups capability to independently operate its business.
Based on the above analysis, our Directors and the Sole Sponsor are satisfied that we can operate
independently of Hainan Airlines and HNA Group.
Management Independence
Save as disclosed below, none of our Directors or member of our senior management held any
management position in Hainan Airlines or HNA Group as of the Latest Practicable Date. Mr. Zhang Kui,
one of our executive Directors, is currently a director of an associate of HNA Group in which our Group
holds a 10% interest. Mr. Zhang is the director of such associate of HNA Group who was nominated by
the Group.
We believe that our Directors and member of our senior management are able to perform their roles
in our Company independently and that we are capable of managing our business independently from
Hainan Airlines and HNA Group and their respective associates for the following reasons:
each of our Directors is aware of his fiduciary duties as a Director, which require, among other
things, that he acts for the Companys benefits and best interest and does not allow any conflict
between his duties as a Director and his personal interests. The decision-making mechanism of
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the Board set out in the Articles of Association includes provisions to avoid conflict of interest.
In the event of a conflict of interest arising out of any transactions to be entered into by our
Group with Hainan Airlines, HNA Group and/or their respective close associates, the
Director(s) with a material conflicting interest shall abstain from voting in respect of such
transactions and shall not be counted in the quorum at the relevant Board meetings;
our three independent non-executive Directors have extensive experience in different areas and
have been appointed in accordance with the requirements under the Listing Rules to ensure that
the major decisions of the Board are made only after due consideration of independent and
impartial opinions; and
our member of the senior management has no employment relationship with Hainan Airlines,
HNA Group and/or their respective associates.
Financial Independence
As of the Latest Practicable Date, we had the following facilities or financial arrangements with
associated guarantees or letter(s) of support provided by HNA Group or Grand China Air (as the case may
be) in favour of our Group that will be released upon [REDACTED]:
a bank facility amounted to approximately US$40 million, comprising of US$25 million

invoice financing and US$15 million bank guarantee facility (the US$40M Facility) that has
a term of three years and that is guaranteed by HNA Group. The aforesaid guarantees were
provided by HNA Group in favour of us and will be released and be replaced by a guarantee
by the Company upon [REDACTED]. As of the Latest Practicable Date, we had utilized
US$25 million under such bank facility;
a bank facility amounted to RMB200 million (the RMB200M Facility) with a letter of
support by HNA Group in favour of our Group that has a term of three years. Such letter of
support from HNA Group will be released and replaced by a guarantee by the Company upon
[REDACTED]. As of the Latest Practicable Date, we had fully utilized such bank facility;
a US$88 million facility (the US$88M Facility) with an Independent Third Party financier
that has a term of three years under which our Company, HKAG Company, HKAG Holdings
and HNA Investment, as original guarantors, provided a guarantee in favour of Hong Kong
Airlines. The guarantee obligations of HKAG Holdings and HNA Investment will be released
upon [REDACTED]. In relation to this US$88M Facility, HNA Group also provided a letter
of support to Hong Kong Airlines, which does not create any legal obligation or constitute a
guarantee, surety or security in any form nor is it a letter of guarantee. We have been in
discussions with the financier so that such letter of support will be released upon
[REDACTED]. As of the Latest Practicable Date, we had utilized US$44 million under such
facility; and
a commitment in an aggregate amount of approximately US$243 million for sale-and-leaseback and finance lease arrangements in respect of certain aircraft engines and aircraft space
parts (the Finance Lease Arrangements). Grand China Air provided a guarantee in favour
of Hong Kong Airlines for the utilized amount of approximately US$117 million under the
Finance Lease Arrangements. Such guarantee will be released and replaced by a guarantee by
the Company upon [REDACTED] in respect of the utilized amount of approximately US$117
million and the unutilized balance of approximately US$127 million under the Finance Lease
Arrangements.
157

In February 2013, 13 wholly-owned subsidiaries of Hong Kong Airlines entered into aircraft
financing agreements with a financial institution for loans to purchase 13 aircraft from Independent Third
Parties. Under or pursuant to each of such aircraft financing agreements, each relevant subsidiary of Hong
Kong Airlines, being the purchaser, entered into an aircraft lease agreement with Hong Kong Airlines, as
the primary lessee, and Beijing Capital Airlines, as the secondary lessee, pursuant to which (i) Hong Kong
Airlines agreed to lease from such subsidiary the aircraft for a consideration of a total rental amount of
not less than the aggregate principal amount of the loan and the interest accrued thereon; and (ii) Beijing
Capital Airlines, as the secondary lessee, agreed to replace Hong Kong Airlines as lessee to operate the
aircraft in the event that Hong Kong Airlines does not continue to perform its obligations in accordance
with the aircraft lease agreement (the Aircraft Financing Arrangements). Beijing Capital Airlines, an
associate of HNA Group, undertook to be the secondary lessee of all such aircraft purchased by the
subsidiaries of Hong Kong Airlines. HNA Group has also agreed, in the event that Beijing Capital Airlines
is in default of the rental under the aircraft leases, to repay the aggregate outstanding amount and become
the owner of all rights and benefits under such Aircraft Financing Agreements. The term of each of the
pre-existing aircraft financing agreements will end in 2026. Hong Kong Airlines is not required to pay any
fee to Beijing Capital Airlines or HNA Group for such arrangements. We believe that Beijing Capital
Airlines entered into the Aircraft Financing Arrangements for its own commercial reasons and that it is not
uncommon in the aviation industry to put in place a secondary lessee arrangement for financing aircraft
purchase, as the financial institution will normally require such a secondary lessee to operate the aircraft
so as to generate revenue as part of the Aircraft Financing Arrangements. Considering that the aircraft are
the primary assets underlying such Aircraft Financing Arrangements, we believe that even if this
secondary lessee arrangement were not put in place, financial institutions might still provide loans to
finance our purchase of aircraft. We have not breached or been in default of any terms under any of these
pre-existing Aircraft Financing Arrangements. As of May 31, 2014, the total outstanding amount under the
Aircraft Financing Agreements was approximately US$739 million. In respect of these Aircraft Financing
Arrangements, we believe that early termination or re-negotiation of such pre-existing arrangements
would not be in the best commercial interest of our Group, and it may give rise to early termination
liabilities and practical or commercial difficulties on our part. For details of the Aircraft Financing
Arrangements, please refer to the section headed Financial Information Borrowings Aircraft financing
loans.
In June 2014, Grand China Air provided a keepwell deed agreeing to maintain sufficient liquidity of
Hong Kong Airlines in connection with the issuance of 7% US$30 million notes due June 2016 (the
US$30M Notes) by the Group. According to the terms and conditions of such keepwell deed, it does not
constitute guarantee obligations imposed on Grand China Air and that the performance by Grand China
Air of its obligations under that keepwell deed shall be conditional upon all governmental or regulatory
requirements, to which Grand China Air and our Company are subject, having been duly fulfilled,
including all relevant approvals having been obtained in accordance with the Listing Rules that are
applicable to our Company from time to time. As the Group has already arranged sufficient available
facilities on a stand-alone basis from other independent commercial banks without financial assistance,
guarantee or security from our Shareholders, the Company considers that it is not necessary or
commercially viable nor practical to early redeem the US$30M Notes prior to [REDACTED].
On a stand-alone basis and without any financial assistance, guarantee or security from our
Shareholders, we have independently obtained facilities, commitments and other alternative financing
arrangements to finance the operation of our Group as follows:
Unutilized balance under existing facilities or commitments from independent commercial

banks We have an unutilized balance under our existing facilities or commitments from
independent commercial banks in an aggregate amount of approximately US$1,059 million.
Such unutilized amount includes an unutilized balance under a facility that we independently
158

obtained from a commercial bank, the unutilized portions of the US$40M Facility and of the
US$88M Facility with the associated guarantees or letter(s) of support from HNA Group and/or
its associates to be released upon [REDACTED] and commitments from third party
commercial banks to provide facilities of a total amount of approximately US$974 million on
a stand-alone basis. Out of these existing facilities and commitments we obtained
independently from third party commercial banks, the existing facilities generally have a term
of one to three years with an interest rate in a range of three-month LIBOR plus three to four
percent for the utilized amounts. We may apply the unutilized amounts for general purposes
including aircraft financing and working capital needs.
Unutilized balance under the Finance Lease Arrangements commitment We have an

unutilized balance in the aggregate amount of approximately US$127 million under the
committment for the Finance Lease Arrangements.
The Company and our Directors are of the view that the principal terms of such existing facilities,
commitments and other existing alternative financing arrangements are not entirely comparable to those
of the US$30M Notes and the Aircraft Financing Arrangements, as these are financial products that are
structured significantly different from typical banking or similar facilities. However, the utilized amounts
of the existing facilities generally have a term of one to three years with an interest rate in a range of
three-month LIBOR plus three to four percent. The Company and the Directors have considered the
interest rates payable to (i) the financial institution under the Aircraft Financing Arrangements, (ii) the
noteholders under the US$30M Notes, (iii) the financial institutions under the Finance Lease
Arrangements and (iv) the commercial banks and the financial institutions under our existing facilities and
other financing arrangements. Based on the above, the Company and the Directors believe that (i) our
Group is able to obtain, on a stand-alone basis, facilities or other financing arrangements at an interest rate
comparable to the interest rate in respect of the Aircraft Financing Arrangements or the US$30M Notes;
and (ii) in view of the availability of the unutilized balance under our existing facilities, commitments and
the other existing alternative financing arrangements from third party commercial banks and financial
institutions, our Group has access to adequate financing resources and thereby sufficient liquidity to cover
the outstanding repayment obligations under the Aircraft Financing Arrangements and the US$30M Notes
should it for whatever reasons become necessary, and on this basis, we are able to operate financially
independently of Hainan Airlines and HNA Group notwithstanding the existence of such Aircraft
Financing Arrangements and the US$30M Notes.
Further, the Directors believe that we are capable of carrying on our business financially
independently of our Shareholders and their respective close associates for the following reasons:
We have a proven capability to obtain adequate financing independently of our Shareholders.

Without any financial assistance, guarantee or security from any Shareholders (but taking into
account the US$40M Facility, the US$88M Facility and the Finance Lease Arrangements with
the associated guarantees and letter(s) of support from HNA Group or Grand China Air, as the
case may be, to be released upon [REDACTED]), we on a stand-alone basis obtain from third
party commercial banks and other financial institutions facilities of a total amount of
approximately US$1,607 million. This amount includes commitments from third party
commercial banks to provide us a facility of up to US$974 million. Out of the total amount of
US$1,607 million, a balance of approximately US$1,186 million has not been utilized. The
interest rate payable by us under the existing facilities (including the interest rate applicable to
the utilized portion and the unutilized balance) is fixed at a rate which is no less favourable
than that in respect of the Aircraft Financing Arrangements and the US$30M Notes;
159
We [plan to issue] bonds in [] 2014, without financial assistance, guarantee or security from
our Shareholders for refinancing some of our existing indebtedness;
In respect of the US$40M Facility, the RMB200M Facility and the US$88M Facility, the
relevant guarantees or letter(s) of support provided by HNA Group and/or its associates will be
released upon [REDACTED]. In respect of the Finance Lease Arrangements, the guarantee
provided by Grand China Air will be released upon [REDACTED]. We will not obtain any
refreshed or additional guarantee from our Shareholders after the lapse or termination of the
existing Aircraft Financing Arrangements or the US$30M Notes;
We are currently in discussions with a number of commercial banks to increase our standby
credit facility before [REDACTED];
We open and manage our own bank accounts independently and do not share any bank accounts
with any of our Shareholders; and
We have made independent tax registrations and paid tax independently pursuant to the
applicable laws and regulations.
Based on the above, the Directors and the Sole Sponsor are of the view that we will be financially
independently of our Shareholders including Hainan Airlines, HNA Group and their respective close
associates upon [REDACTED].
DELINEATION OF BUSINESS
Our Group is a full-service network carrier based in Hong Kong providing services including air
passenger transport, air cargo transport and other airline-related services. The Group adopts a
hub-and-spoke model using HKIA as our hub flying to various destinations in the Asia Pacific region with
a primary focus in China. We operate international routes and have international freighter operations. Our
targeted customers are mid-to-high end business travellers or customers who are living in or visiting Hong
Kong or transit passengers who pass through Hong Kong. We currently only operate routes to and from
Hong Kong and do not operate any routes originating from other destinations. We set out below details
of the delineation of our business with those of Hong Kong Express, Hainan Airlines and HNA Group:
Hong Kong Express
Different nature of business We understand that (i) Hong Kong Express is a low-cost carrier
and its business model generally entails no-frills and point-to-point non-transit services; (ii) it
offers much lower fares than full-service airlines such as the Group; (iii) it charges its
customers additional fees for services such as food and beverages, seat allocation and check-in
luggage; and (iv) it may arrange flights departing or arriving in late evenings or early mornings.
On the other hand, we are a full-service airline charging all-inclusive fares providing in-flight
catering, check-in luggage, in-flight entertainment options and transiting services. We adjust
the frequency of scheduled flights to popular destinations according to the travelling needs and
transit schedule of our customers, who are mainly mid-to-high end business travellers or
customers and transit passengers.
160
No overlapping passenger routes As of the Latest Practicable Date, Hong Kong Express
operated only short-haul passenger routes in Asia. Our passenger route network covered 26
routes to 25 cities, including Beijing, Shanghai, Taipei and Bangkok, which we understand
were not covered by Hong Kong Express. For details of our passenger routes, please refer to
the section headed Business Passenger Route Network. As of the Latest Practicable Date,
there were no overlapping passenger routes between us and Hong Kong Express.
Different target customer groups The aircraft operated by Hong Kong Express are in relatively
high-seat density with no business class targeting leisure budget travellers. Our flights provide
both business class and economy class with lower seat density targeting mid-to-high end business
travellers and customers. In particular, for the popular routes between Hong Kong and Beijing,
Shanghai, Taipei and Bangkok, we operate Airbus A330-300 that are equipped with 32 seats with
a 1-2-1 seating configuration and 180 degree reclining seats in the business class. We also provide
business lounge service and frequent flyer mileage program to our customers, which we believe
are not available to the travellers flying with Hong Kong Express.
Different fleet composition We understand that Hong Kong Express has a fleet composition
with narrow-body Airbus 320-200 with 174-180 seats best suited for short haul routes. In
respect of our passenger aircraft, we have both narrow-body Airbus 320-200 aircraft and
wide-body 330-200 and 330-300 aircraft to meet our operational needs. For details of our fleet
composition, please refer to the section headed Business Our Fleet.
No cargo freighter carrier service Hong Kong Express does not provide freighter
transportation services. We provide cargo freighter carrier services to destinations in Asia.
Future operation and business plan We believe that Hong Kong Express may continue to
provide services as a low-cost carrier focusing on point-to-point non-transit services and will
continue to focus its route network on the regional market as a low-cost carrier; whereas our
Group will continue to expand as a full-service network operator focusing on the PRC market,
in particular, the transit passengers passing through Hong Kong departing for other
international destinations. Our Group is also planning to expand our route network to cover
medium-to-long haul flights in the medium to long-term.
Ticket sales and marketing As our target market is mainly mid-to-high end business travellers
or customers, we distribute our tickets through various channels including numerous travel
agencies, sales offices and internet booking system; whereas Hong Kong Express, as we
believe, mainly focuses on internet sales.
Interline and codeshare arrangements We have entered into interline arrangements with over
71 airlines operators and codeshare arrangements with other five airlines operators that allow
us to cover various international destinations, particularly catering for the needs of transit
passengers. For details of the interline and codeshare arrangements, please refer to the sections
headed Business Codeshare Arrangements and Interline Arrangements. Hong Kong
Express, on the contrary, focuses mainly on point-to-point non-transit services as a low-cost
carrier, and we trust that it therefore has entered into fewer codeshare or interline arrangements
with other airlines operators. We also entered into an interline arrangement with Hong Kong
Express and the historical transaction amounts from such interline arrangements have been
gradually declining since Hong Kong Express has focused on its business model as a low-cost
161

carrier. For details, please refer to section headed Continuing Transactions Non-exempt
Continuing Connected Transactions 2. Transactions with Hong Kong Express HKE
Outsourcing Services and Cooperation Framework Agreement.
Hainan Airlines
Different nature of business and target customer groups Hainan Airlines is headquartered in
Haikou, the PRC. It has an extensive network covering cities in the PRC and operates domestic
scheduled and charter services within the PRC. Hainan Airlines also operates international
scheduled and charter services to other international destinations departing from the PRC
airports. The targeted market of Hainan Airlines comprises mainly passengers and customers
based in the PRC.
Non-Hong Kong based services Hainan Airlines does not operate any passenger or cargo
freighter scheduled and charter flights to and from Hong Kong. Hainan Airlines therefore
entered into the codeshare arrangement with Hong Kong Airlines to cover Hong Kong as its
destination. There has been no overlapping route between our Group and Hainan Airlines.
HNA Group
Different nature of business and target customer groups HNA Group and its subsidiaries are
principally engaged in aviation, retail, tourism, real estate, logistics, business and finance
services. Apart from Hainan Airlines, HNA Group also holds interest in various passenger
airlines, including Grand China Air, Tianjin Airlines, Beijing Capital Airlines and West Air.
Those airlines operators mainly operate mainland PRC domestic flights and international
flights originating from the PRC. HNA Group, through its associate, Yangtze River Express,
operates scheduled and charter cargo freight services to and from mainland PRC covering the
mainland and international destinations. The targeted market of such airlines in which HNA
Group holds interest comprises mainly passengers and customers who are not travelling to and
from Hong Kong.
Non-Hong Kong based services There is no overlapping route between our Group and the
airline operators controlled by HNA Group. HNA Group and its associates do not operate any
passenger scheduled and charter flights to and from Hong Kong. Except for Yangtze River
Express which operates limited cargo freighter transportation service from the PRC to Hong
Kong, HNA Group and its associates do not operate any cargo freighter scheduled and charter
flights to and from Hong Kong.
Based on the above, our Directors and the Sole Sponsor consider that the businesses of Hong Kong
Express, Hainan Airlines and the airlines controlled by HNA Group are not likely to compete, directly or
indirectly, with our core businesses.
EXCLUDED BUSINESS
Our Controlling Shareholders have an aggregate of approximately 44% interest in Hong Kong
Express (the Excluded Business) which does not form part of our Group. Hong Kong Express, as a
low-cost carrier, has a different business model targeting a different group of customers.
According to the audited financial statements which were not audited by the Companys auditors,
Hong Kong Express had a revenue of HK$792 million for the year ended 31 December 2013, and a net
cash outflow from operating activities of HK$0.55 million for that year.
162

There is no overlapping of management members (including Directors and senior management)
between our Group and Hong Kong Express. Hong Kong Express will continue to outsource services of
certain functions to our Group. For details of those connected transactions with Hong Kong Express,
please refer to the section headed Continuing Transactions Non-exempt Continuing Connected
Transactions 2. Transactions with Hong Kong Express HKE Outsourcing Services and Cooperation
Framework Agreement.
Having considered the business delineation between our business and that of Hong Kong Express as
described in Delineation of Business above, it was decided that the Excluded Business does not form
part of our Group for the following business and strategic reasons:
(a)
Hong Kong Express has been focusing on its business strategy as a low-cost carrier. It is
believed that the carve-out of Hong Kong Express would enable the Company to fully focus
on and deploy its fund towards development of Hong Kong Airlines existing business as a full
service passenger carrier; and
(b)
Due to the relatively short operating history of Hong Kong Express after its remodelling as a
low-cost carrier, the business strategy for Hong Kong Express is not consistent with the
Groups business strategy.
Based on the above, our Directors believe that it will be in the best interest of our Company and the
Shareholders as a whole if our Group maintains its focus and devotions to its existing business as a
full-service passenger carrier, and for these reasons, the Excluded Business was not included in our Group.
Our Directors have been advised by our Controlling Shareholders that currently, there is no intention
to inject the Excluded Business into our Group and our Group does not currently have any plan to engage
in the Excluded Business.
RULE 8.10 OF THE LISTING RULES
As the Excluded Business does not constitute competition with our Groups businesses, apart from
the Groups business, none of our Controlling Shareholders is engaged or has interest in any business
which, directly or indirectly, competes or may compete with the Groups business and which would require
disclosure under Rule 8.10 of the Listing Rules. None of our Directors has an interest in any business
which competes or is likely to compete, either directly or indirectly, with our business.
DEED OF NON-COMPETITION WITH CONTROLLING SHAREHOLDERS
The Controlling Shareholders (together, the Covenantors and each a Covenantor) entered into
a deed of non-competition dated [] 2014 in favor of our Company (the Deed of Non-Competition),
pursuant to which, with effect from the [REDACTED] and ending, in respect of each Covenantor, on the
earlier of (i) the date on which such Covenantor ceases to be a Controlling Shareholder and (ii) the date
on which the Shares cease to be [REDACTED] the Stock Exchange (the Non-Compete Period), the
Covenantors have, jointly and severally, irrevocably and unconditionally undertaken to and for the benefit
of the Company (for itself and on behalf of each other member of the Group) that:
(a)
except for their existing ultimate beneficial shareholding interest in Hong Kong Express, they
shall not, and shall procure his/its associates not to, either alone or jointly with any other
person or entity, or for any other person or entity, or as principal, partner, director, employee,
163

consultant or agent through any body corporate, partnership, joint venture or other contractual
arrangement, engage, invest, or otherwise be involved, whether as a shareholder, director,
employee, partner, agent or otherwise, directly or indirectly, in the carrying on of any business
in any form or manner in Hong Kong that is in competition or is likely to be in competition,
directly or indirectly, with the business operated by our Group from time to time (the
Restricted Businesses); and
(b)
without prejudice to (a), the Covenantors shall exert their best efforts by exercising their voting
rights in Hong Kong Express to procure Hong Kong Express to seek our prior written consent
before Hong Kong Express resolves or decides to commence operating any passenger route(s)
that overlaps or may overlap with the passenger route(s) that our Group at any time and from
time to time operates.
In the event of any disagreement between the Covenantors and the Company as to whether or not any
business or proposed business constitutes Restricted Businesses, the matter shall be determined by the
independent board committee of the Company, comprising the independent non-executive Directors from
time to time, whose decision shall be final and binding on the Covenantors.
Future Business Opportunities
Under the Deed of Non-Competition, during the Non-Compete Period, if any of the Covenantors or
his/its associates become aware of any business opportunity that relates to operation of any new passenger
route (i.e., any passenger route not then or previously operated by our Group nor Hong Kong Express)
which nonetheless is available to and can be taken up by either our Group or Hong Kong Express, then
he/it shall exert his/its best efforts by exercising his/its voting rights in Hong Kong Express to procure that
such business opportunity be diverted or first offered to our Group.
Right of First Refusal
Under the Deed of Non-Competition, during the Non-Compete Period, if any of the Covenantors or
his/its associates intend to dispose of any of their respective direct and/or indirect interests in Hong Kong
Express, the relevant Covenantor or his/its associates shall first offer to our Company the right to acquire
such interests and none of the Covenantors or their respective associates may proceed with such disposal
to any third party, unless the terms of disposal are not more favourable than those offered to our Company
and such offer has been rejected by our Company. We will also seek approval from a committee of our
Board consisting exclusively of independent non-executive Directors who do not have a material interest
in the matter as to whether to pursue or decline such offer. We will fully comply with the applicable
requirements of the Listing Rules if we decide to exercise such a right of first refusal.
Corporate Governance Measures
Our independent non-executive Directors shall review, at least on an annual basis, the compliance
with the Deed of Non-Competition by the Covenantors and/or their respective associates. They may
engage professional advisers at our Companys expense for advice on matters relating to the Deed of
Non-Competition under appropriate circumstances. We shall disclose decisions on matters reviewed by our
independent non-executive Directors relating to the compliance with the undertakings and first right of
refusal provided by the Covenantors either through the corporate governance report as set out in the annual
report of our Company, or by way of announcements to the public. Unless invited by a majority of the
independent non-executive Directors, Mr. Mung being a Covenantor shall exclude himself from any
meeting convened to consider any issues arising under the Deed of Non-Competition.
164

Further, any transactions that is proposed between our Group and the Controlling Shareholders
and/or their respective associates will be required to comply with the requirements of the Listing Rules,
including, where appropriate, the reporting, annual review, announcement, circular and independent
Shareholders approval requirements to the extent applicable.
In addition, we have appointed Guotai Junan Capital Limited as our compliance adviser, which will
provide advice and guidance to us in respect of compliance with the applicable Listing Rules including
various requirements on Directors fiduciary duties and internal controls.
CONTROLLING SHAREHOLDERS MATERIAL INTERESTS IN OTHER LISTED COMPANIES
The following table summarizes Mr. Mungs material shareholding interests, held directly or
indirectly, in listed companies other than the Company as of the Latest Practicable Date:
Approximate
shareholding
interests
Company name
Principal business activities of the company
Shougang Concord Technology

Holdings Limited, a company
listed on the Main Board
(Stock code: 521) . . . . . . . . .
Development and provision of system

integration solutions, system design and sale of
system hardware; provision of recreational
tourism services
12.66%
Mastermind Capital Limited,

a company listed on the Main
Board (Stock code: 905) . . . .
Investment in listed and unlisted companies

mainly in Hong Kong and in the PRC
30.83%
China Star Entertainment

Limited, a company listed on
the Main Board
(Stock code: 326) . . . . . . . . .
Film production, distribution of film and

television drama series, sales of health products,
investing in operations which receive profit
streams from the gaming promotion business,
property and hotel investment, and property
development
31.16%
(Note)
Well Way Group Limited,

a company listed on the GEM
Board (Stock code: 8063) . . .
Provision and operation of travel business,

treasury management and precious metals
trading
20.13%
Note: Mr. Mung subscribed for convertible bonds issued by China Star Entertainment Limited on 8 July 2014. Assuming full
conversion of such bonds, 4,500,000,000 shares in China Star Entertainment Limited (representing approximately
31.16% of its issued share capital as at the date when Mr. Mung subscribed for those bonds) will be allotted and issued
to Mr. Mung.
Save as disclosed above, the Controlling Shareholders had no other material interests, held directly
or indirectly, in the shareholding of listed companies other than the Company as of the Latest Practicable
Date.
165
CONTINUING TRANSACTIONS
CONTINUING CONNECTED TRANSACTIONS SUBJECT TO THE REQUIREMENTS UNDER
THE LISTING RULES
Upon completion of the Reorganization and immediately after completion of the [REDACTED]
(assuming the Over-allotment Option is not exercised): (i) Hainan Airlines will become our substantial
shareholder and indirectly hold approximately [REDACTED] of the then enlarged total issued share
capital of our Company and hence is our connected person under the Listing Rules; and (ii) Hong Kong
Express will be held as to approximately 44% in aggregate by our Controlling Shareholders and is
therefore an associate of our Controlling Shareholders and hence our connected person under the Listing
Rules.
Summary of Our Continuing Connected Transactions
Nature of transaction
Connected person
Waiver sought
Exempt continuing connected

transactions
1. Sharing of spare part inventory
2. Sharing of office premises
3. Frequent flyer program
Hainan Airlines
Hainan Airlines
Hainan Airlines
Not applicable
Not applicable
Not applicable
Hainan Airlines
Waiver from announcement,

circular and independent
shareholders approval
requirements
Waiver from announcement
requirement
Non-exempt continuing connected

transactions
1. HA Aircraft Lease Framework
Agreement
2. HA Operational Services and

Cooperation Framework
Agreement
3. HKE Aircraft Lease Framework
Agreement
4. HKE Outsourcing Services and
Cooperation Framework
Agreement
Hainan Airlines
Hong Kong Express

Hong Kong Express
Waiver from announcement

requirement
Waiver from announcement,
circular and independent
shareholders approval
requirements
EXEMPT CONTINUING CONNECTED TRANSACTIONS

Following the [REDACTED], the following transactions will constitute continuing connected
transactions exempt from the annual review, reporting, announcement, circular and independent
shareholders approval requirements under Chapter 14A of the Listing Rules.
1.
Sharing of spare part inventory
As part of our mutual shared administrative services, our Group agreed with Hainan Airlines (for
itself and on behalf of its associates) to share each others aircraft spare part inventory on a cost basis. By
having this arrangement with Hainan Airlines, our Group will not be required to purchase large quantities
of aircraft spare parts for its operation, and it is cost-efficient for our Group as we are not required to incur
166
additional costs in stocking up the spare part inventory from time to time. It is also mutually convenient
for both parties as our Group or Hainan Airlines will be able to obtain aircraft spare parts from each other
at airports where either our Group or Hainan Airlines does not have the local inventory support. The costs
of the spare parts payable by our Group and Hainan Airlines are identifiable in accordance with the
purchase price invoiced by the suppliers. The costs are shared on a fair and equitable basis, and therefore
such continuing connected transactions shall be fully exempt pursuant to Rule 14A.98 of the Listing Rules.
2.
Sharing of office premises
As part of our mutual shared administrative services, our Group agreed with Hainan Airlines (for
itself and on behalf of its associates) in respect of the sharing of certain office premises in the PRC. Hainan
Airlines and our Group agreed to share the rental costs, the utility expenses and management fee on a
pro-rata basis calculated in accordance with the gross floor area occupied by our Group and Hainan
Airlines under the leases entered into with Independent Third Parties. By sharing the office premises with
Hainan Airlines, we believe that we can obtain a more cost-effective and competitive rental rate. The rental
costs, utility expenses and the management fee payable by our Group and Hainan Airlines are identifiable
as set out in the relevant leases for such shared office premises, which are shared on a fair and equitable
basis, and therefore such continuing connected transactions shall be fully exempt pursuant to Rule 14A.98
of the Listing Rules.
3.
Frequent flyer program
We are an alliance member to the Fortune Wings Miles, a frequent flyer program operated by Fortune
Wings Club under Hainan Airlines. For our passengers who are members of the Fortune Wings Club, we
pay a mileage fee to Fortune Wings Club for the mileage points earned by such passengers for certain
flights with Hong Kong Airlines depending on the flying distance. Such mileage fee payable by our Group
to Fortune Wings Club depends on the number of mileage points earned by such passengers which in turn
depends on the distance of the relevant flights. In return, Fortune Wings Club pays to Hong Kong Airlines
a redemption fee if any member to the Fortune Wings Miles program redeems a flight ticket with Hong
Kong Airlines using the accrued mileage points. Such redemption fee payable to our Group depends on
the number of mileage points used for redeeming the flight ticket.
As the highest relevant percentage ratio in respect of the transactions relating to this frequent flyer
program will be, on an annual basis, less than 0.1% and such transactions are on normal commercial terms,
they will constitute de minimis continuing connected transactions exempt pursuant to Rule 14A.76(1)(a)
of the Listing Rules, and will be fully exempt from the requirements under Chapter 14A of the Listing
Rules.
167
NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS
Following the [REDACTED], the following transactions with Hainan Airlines (and its associates)
and Hong Kong Express will constitute continuing connected transactions of our Company and will be
subject to the reporting, annual review, announcement and/or circular and independent shareholders
approval requirements under Chapter 14A of the Listing Rules.
1.
Transactions with Hainan Airlines
Summary of Our Connected Persons Related to Hainan Airlines

Connected person
Relationship
Hainan Airlines . . . . . . . . . . . . . . . . . . . . . .
Our substantial shareholder, which will hold

approximately [REDACTED] of our then enlarged total
issued share capital immediately upon completion of the
[REDACTED] (assuming the Over-allotment Option is
not exercised).
Grand China Air . . . . . . . . . . . . . . . . . . . . . .
It is, for the purpose of the Listing Rules, a holding

company of Hainan Airlines. It is an associate of Hainan
Airlines and hence our connected person under the
Listing Rules.
Lucky Air . . . . . . . . . . . . . . . . . . . . . . . . . .
It is approximately 86.68% controlled by Hainan

Airlines. It is a subsidiary of Hainan Airlines and hence
our connected person under the Listing Rules.
HNA Aviation Technik . . . . . . . . . . . . . . . . .

Airlines. It is an associate of Hainan Airlines and hence
Tianjin Airlines . . . . . . . . . . . . . . . . . . . . . .

Airlines. It is an associate of Hainan Airlines and hence
168
Framework Agreements with Hainan Airlines
Our Group entered into the following framework agreements with Hainan Airlines (for itself and on
behalf of its associates) on [date]:
(1)
an aircraft lease framework agreement (the HA Aircraft Lease Framework Agreement);

and
(2)
an operational services and cooperation framework agreement (the HA Operational Services

and Cooperation Framework Agreement).
HA Aircraft Lease Framework Agreement

(a)
Nature of transactions and principal terms
On [], we entered into the HA Aircraft Lease Framework Agreement with Hainan Airlines, pursuant
to which our Group agreed to sub-lease certain passenger aircraft to Hainan Airlines by way of operating
leases as we may both agree from time to time in the ordinary course of our business. The HA Aircraft
Lease Framework Agreement has a term commencing from the [REDACTED] and ending on December
31, 2030. Our Group will enter into separate sub-leases with Hainan Airlines for each aircraft sub-leased
with a term falling within the term of the HA Aircraft Lease Framework Agreement. Hainan Airlines will
have the absolute control and right in the use of aircraft sub-leased to it and be responsible for all legal
and regulatory compliance, maintenance, servicing, insurance, taxes and repair of the aircraft. The
sub-lease will not result in the change of title of the aircraft. The sub-leased aircraft will be returned to
our Group by Hainan Airlines at the end of the relevant sub-lease. The rental will be payable by Hainan
Airlines on a quarterly or monthly basis. Each of our Group and Hainan Airlines has the right to terminate
the sub-leases with a 12-month advance notice to the other party at any time. Therefore, we may terminate
the sub-leases in case, for example, our Group requires additional aircraft to meet our operational needs.
We can also terminate the sub-leases if Hainan Airlines is in default of rental payments or other material
terms of the sub-leases.
As of the Latest Practicable Date, our Group agreed to sub-lease 12 passenger aircraft, comprising
three Airbus 330-200, five Airbus 330-300 and four Boeing 737-800 aircraft, to Hainan Airlines. For
details, please refer to the section headed Business Fleet Management.
The HA Aircraft Lease Framework Agreement is for a duration longer than the three-year period
normally permitted under Rule 14A.52 of the Listing Rules. The existing sub-leases between our Group
and Hainan Airlines have terms of up to 16 years. We consider that the duration of the HA Aircraft Lease
Framework Agreement is in line with normal business practice for agreements of this type in the industry
and on normal commercial terms.
(b)
Reasons for the transactions
In respect of the Airbus 330-200, Airbus 330-300 and Boeing 737-800 aircraft sub-leased to Hainan
Airlines, as it normally takes two to five years for the delivery of aircraft by the manufacturers from the
time of ordering of aircraft, our Group purchased or entered into leasing agreements for aircraft based on
the predicted market demands and assessed our future business development at the time when order was
placed or the lease agreement was entered into. In around 2011, considering the then expected market
169
conditions and business needs of the Group, the Company anticipated that certain aircraft delivered at or
around that time would not have been fully utilized in the then coming few years. Therefore, as part of
the Companys risk management measures, starting from 2011, we have sub-leased aircraft to Hainan
Airlines under various considerations, including, but not limited to, leasing out the then anticipated
under-utilised aircraft to generate rental income and to unify our fleet composition. We will also be able
to better manage our maintenance and operational costs as we will not be required to separately appoint
experts to conduct regular inspection on the aircraft that do not fit into our fleet composition.
(c)
Pricing policies
The amount of rental payable by Hainan Airlines shall be determined with reference to (i) the age
of aircraft; (ii) the aircraft type; (iii) the contractual rental payable by our Group under the primary leases
for the aircraft (if applicable); (iv) the term of the sub-lease and (v) the prevailing market rates. Prior to
entering into any new sub-lease with Hainan Airlines, our Group will invite quotations from at least two
Independent Third Party lessees for comparison to check that the key terms of the new sub-lease, including
the interest rates, rental lease rates and other contractual and payment terms offered to Hainan Airlines,
are fair and reasonable and on normal commercial basis.
(d)
Historical amounts and proposed annual caps
The following table sets forth a summary of the historical amounts and the annual caps in respect
of the transactions contemplated under the HA Aircraft Lease Framework Agreement:
Historical amount (HK$000)
Annual cap (HK$000)
For the year ending December 31,
2011
433,549
2012
539,482
2013
2014
1,037,991
809,000
2015
2016
1,007,000
1,356,000
The annual caps are determined with reference to (i) the historical amount; (ii) the number of
existing aircraft sub-leased to Hainan Airlines; (iii) the rental payable by our Group under the primary
leases; (iv) our Groups current and anticipated future operational needs; and (v) the business development
of Hainan Airlines and the expected increase in number of aircraft to be sub-leased to Hainan Airlines. Our
Group entered into sub-leases with Hainan Airlines in respect of two Airbus A330-200 aircraft to be
delivered in 2014 and one Airbus A330-200 aircraft to be delivered in 2015, which results in the increase
in the annual caps from 2014 to 2016. According to our current delivery schedule and our business plan,
we expect there will be around three additional aircraft sub-leases to be entered into with Hainan Airlines
in 2015.
The Company will comply with the then applicable requirements under the Listing Rules in respect
of the annual caps after December 31, 2016.
170
(e)
Listing Rules requirements
As the relevant applicable percentage ratios in respect of the transactions under the HA Aircraft
Lease Framework Agreement are expected to exceed 5% on an annual basis, such transactions will
constitute non-exempt continuing connected transactions of the Company subject to the requirements
under Chapter 14A of the Listing Rules.
HA Operational Services and Cooperation Framework Agreement
(a)
Pursuant to the HA Operational Services and Cooperation Framework Agreement, our Group and
Hainan Airlines agreed on provision of the following services and cooperation:
(A) Provision of operational services by Hainan Airlines and/or its associates
(B)
(i)
Hainan Airlines will provide to our Group ticketing settlement services to confirm the
ticket sales revenue at the information technology processing centre located in Haikou,
the PRC;
(ii)
HNA Aviation Technik will provide to our Group maintenance and repair services and
ramp services, aircraft repair services, engines maintenance services, aircraft emergency
recovery services, aircraft cleaning services and other technical support services at
airports in the PRC.
Cooperation with Hainan Airlines and/or its associates

Our Group agreed to cooperate with Hainan Airlines on codeshare arrangement. Our
Group also agreed to cooperate with Hainan Airlines and its associates, namely, Grand China
Air, Lucky Air and Tianjin Airlines, for the joint operation of flights under the interline
arrangement. For details of the mutual codeshare and interline arrangements, please refer to the
sections headed Business Codeshare Arrangements and Business Interline
Arrangements.
The HA Operational Services and Cooperation Framework Agreement has a term commencing from
the [REDACTED] and ending on December 31, 2016.
171
(b)

In relation to the ticketing settlement services provided by Hainan Airlines, as opposed to
separately establishing a ticketing settlement system, it is more cost-efficient for us to engage Hainan
Airlines to provide such services on its existing platform. We are offered a more competitive service
package after comparing the quotations offered by Independent Third Party service providers in the
region. It is administratively burdensome for us to set up a separate local team or establish a local
operation centre.
In respect of the provision of maintenance and repair services, ramp services and other
services, Hainan Airlines is serving our Group at airports in the PRC where our Group does not have
local support teams. It would be cost efficient and administratively convenient for our Group to
engage HNA Aviation Technik to provide maintenance and repair service, ramp services and other
services in close proximity. With its industry expertise and understanding of our Groups culture and
business, HNA Aviation Technik is able to provide efficient and quality services and the necessary
technical support to our Group to meet our operational needs.
(B)
We believe that cooperative arrangements such as codeshare and interline arrangements with
other airlines help our Group strengthen the frequency of our flight schedule and offer increased
access to certain destinations for our passengers. It also enables us to have access to a wider
customer base by having joint operation with other airlines. The codeshare and interline
arrangements with other airlines will enhance our reputation and branding in Hong Kong, the PRC
and internationally.
(c)
Pricing policies
In relation to ticketing settlement services, maintenance and repair services, ramp services and
other services, the service fees are determined by reference to (i) the prices of substantively the same
services quoted by at least two Independent Third Party service providers and (ii) the service fees
charged by Hainan Airlines to other independent airlines.
(B)
Under the codeshare and interline arrangements, the ticketing prices are determined with
reference to the ticket selling price of the relevant flight and prorate factors, including the distance
in the IATA Prorate Manual published by IATA, the applicable booking classes and the available
sector yield data. In respect of the ticket prices payable under the codeshare and interline
arrangements: (i) the ticket prices payable to our Group will be calculated based on the mileages in
kilometres flew by Hong Kong Airlines as the operating carrier; and (ii) the ticket prices payable by
our Group will be calculated based on the mileages in kilometres flew by other airlines as the
operating carrier when Hong Kong Airlines is the marketing carrier.
172
(d)
of the transactions contemplated under the HA Operational Services and Cooperation Framework
Agreement:
Annual cap (HK$000)
2011
2012
2013
2014
2015
2016
Expense items
Provision of operational services
by Hainan Airlines and/or its
associates
Ticketing settlement services .
Maintenance and repair
services, ramp services and
other services . . . . . . . . . . .
1,080
2,785
4,012
6,000
8,000
11,000
26,241
20,948
23,707
41,000
46,000
51,000
Cooperation
Codeshare/interline
arrangements payable to
Hainan Airlines and/or its
associates . . . . . . . . . . . . .
6,485
4,043
3,477
9,000
12,000
16,000
Total: . . . . . . . . . . . . . . . . . .
33,806
27,776
31,196
56,000
66,000
78,000
Revenue items
Codeshare/interline
arrangements payable by
Hainan Airlines and/or its
associates . . . . . . . . . . . . .
8,421
10,023
6,000
14,000
19,000
25,000
173
In arriving at the annual caps for provision of ticketing settlement services, we have taken into
account the relevant historical amounts as well as the expected increase in our ticket sales volume.
In arriving at the annuals caps for provision of the maintenance and repair services, ramp services
and other services, we have taken into account the relevant historical amounts and the total number of
aircraft to be repaired and handled in accordance with the maintenance schedule for the three years ending
December 31, 2016, together with the new aircraft to be introduced by our Group in light of the expected
increase of destinations and frequency of our flights.
In arriving at the annual caps for the codeshare and interline arrangements, we have taken into
account the relevant historical amounts and the expected increase in the number of our operating flights.
The increase of annual caps for three years ending December 31, 2016 is attributable to the expected
increased number of operating flights under the interline arrangement with Hainan Airlines and/or its
associates to cover more international destinations.
(e)
As the relevant applicable percentage ratios in respect of the transactions under the HA Operational
Services and Cooperation Framework Agreement are expected to be more than 0.1% but less than 5% on
an annual and aggregated basis, such transactions therefore will be exempt pursuant to Rule 14A.76(2)(a)
of the Listing Rules from the circular and independent shareholders approval requirements but will be
subject to the annual review, reporting and announcement requirements under Chapter 14A of the Listing
Rules.
2.
Transactions with Hong Kong Express
Framework Agreements with Hong Kong Express

Our Group [entered] into the following framework agreements with Hong Kong Express on [date]:
(1)
an aircraft lease framework agreement (the HKE Aircraft Lease Framework Agreement);
and
(2)
an outsourcing services and cooperation framework agreement (the HKE Outsourcing

Services and Cooperation Framework Agreement).
Upon completion of the Reorganization, Hong Kong Express will not form part of our Group and will
be held as to approximately 44% in aggregate by our Controlling Shareholders. Therefore, Hong Kong
Express is an associate of our Controlling Shareholders and a connected person of our Company.
174
HKE Aircraft Lease Framework Agreement
(a)
On [], we entered into the HKE Aircraft Lease Framework Agreement with Hong Kong Express,
pursuant to which our Group agreed to sub-lease certain passenger aircraft to Hong Kong Express as we
may both agree from time to time in the ordinary course of our business. The HKE Aircraft Lease
Framework Agreement has a term commencing from the [REDACTED] and ending on December 31,
2023. Our Group will enter into separate sub-leases with Hong Kong Express for each aircraft sub-leased
with a term falling within the term of the HKE Aircraft Lease Framework Agreement. The sub-leases will
not result in the change of title of the aircraft. The sub-leased aircraft will be returned to our Group by
Hong Kong Express at the end of the relevant sub-lease. The rental will be payable by Hong Kong Express
on a quarterly basis. Each of our Group and Hong Kong Express has the right to terminate the sub-leases
with a 12-month advance notice to the other party at any time. Therefore, we may terminate the sub-leases
in case, for example, our Group requires additional aircraft to meet our operational needs. We can also
terminate the sub-leases if Hong Kong Express is in default of rental payments or other material terms of
the sub-leases.
As of the Latest Practicable Date, our Group sub-leased seven Airbus 320-200 passenger aircraft to
Hong Kong Express. For details, please refer to the section headed Business Fleet Management.
The HKE Aircraft Lease Framework Agreement is for a duration longer than the three-year period
normally permitted under Rule 14A.52 of the Listing Rules. The existing sub-leases between our Group
and Hong Kong Express have terms of up to nine years. We consider that the duration of the HKE Aircraft
Lease Framework Agreement is in line with normal business practice for agreements of this type in the
industry and on normal commercial terms.
(b)
As it normally takes two to five years for the delivery of the aircraft by the manufacturers from the
time of ordering of aircraft, our Group purchased or entered into leasing agreements for aircraft based on
the predicted market demands and assessed our future business development at the time when order was
placed or the lease agreement was entered into. As some of the aircraft may not be fully utilised when
delivered because of change of market conditions, our Group sub-leased to Hong Kong Express the
under-utilised aircraft to generate rental income to our Group. We maintain our flexibility in managing our
fleet composition as we may terminate the sub-leases and take possession of the aircraft from Hong Kong
Express by giving a 12-month notice in case our Group requires additional aircraft to meet our operational
needs. The term of these sub-leases is determined with reference to our fleet expansion plans, the
utilization rate of the aircraft and the prevailing market practice.
(c)
Pricing policies
The amount of rental payable by Hong Kong Express shall be determined with reference to (i) the
age of aircraft; (ii) the aircraft type; (iii) the contractual rental payable by our Group under the primary
leases for the aircraft (if applicable); (iv) the term of the sub-lease and (v) the prevailing market rates.
Prior to entering into any new sub-lease with Hong Kong Express, our Group will invite quotations from
at least two Independent Third Party lessees for comparison to check that the key terms of the new
sub-lease, including the interest rates, rental lease rates and other contractual and payment terms offered
to Hong Kong Express, are fair and reasonable and on normal commercial basis.
175
(d)
of the transactions contemplated under the HKE Aircraft Lease Framework Agreement:
Annual cap (HK$000)
2011
2012
89,815
207,825
2013
2014
227,805
244,080
2015
258,030
2016
150,250
The annual caps are determined with reference to (i) the contractual rental amounts payable by us
under the primary lease (if applicable); (ii) the contractual rental payable by Hong Kong Express under
the sub-leases and (iii) the total number of aircraft continued to be sub-leased to Hong Kong Express in
the coming three years. The annual caps are expected to decrease from 2016 because we intend to
terminate certain existing leases and take possession of two A320-200 aircraft in 2015 and three A320-200
aircraft in 2016 to meet our Groups operational needs arising from our Groups business expansion.
The Company will comply with the then applicable requirements under the Listing Rules in respect
of the annual caps after December 31, 2016.
(e)
As the relevant applicable percentage ratios in respect of the transactions under the HKE Aircraft
Lease Framework Agreement are expected to be more than 0.1% but less than 5% on an annual basis, such
transactions therefore will be exempt pursuant to Rule 14A.76(2)(a) of the Listing Rules from the circular
and independent shareholders approval requirements but will be subject to the annual review, reporting
and announcement requirements under Chapter 14A of the Listing Rules.
HKE Outsourcing Services and Cooperation Framework Agreement
(a)
Pursuant to the HKE Outsourcing Services and Cooperation Framework Agreement, our Group and
Hong Kong Express agreed on provision of the following services and cooperation:
(i)
We will provide supporting services to Hong Kong Express covering the following functions:
Administrative support
Cargo handling and management
Advisory of corporate governance and development
General commercial revenue management, e-commence and marketing and promotion
Engineering quality assurance function and maintenance support function

176
(ii)
Finance and audit
Ground operation
Human resources
Information technology
Procurement
Service delivery
We will also cooperate with Hong Kong Express in respect of the interline arrangements for the
joint operation of flights.
The HKE Outsourcing Services and Cooperation Framework Agreement has a term commencing
from the [REDACTED] and ending on December 31, 2016.
(b)
Hong Kong Express has been focusing on its business strategy as a low-cost carrier. Hong Kong
Express outsourced certain functions to our Group to better manage its operational costs and Hong Kong
Express may at its discretion choose other Independent Third Party service providers to provide similar
services. We will continue to provide various services to Hong Kong Express after [REDACTED]
pursuant to the HKE Outsourcing Services and Cooperation Framework Agreement. By providing such
services to Hong Kong Express, our Group will be able to better utilize our available resources and the
existing manpower and to lower our operating costs.
In respect of the interline arrangements with Hong Kong Express, the arrangements strengthen the
frequency of our flight schedule and offer increased access to certain destinations for our passengers. We
entered into similar interline arrangements with other airlines, as this enables us to have access to a wider
customer base and expand our route network by having joint operation with interline combined itineraries.
(c)
Pricing policies
Pursuant to the HKE Outsourcing Services and Cooperation Framework Agreement, the service fees
payable by Hong Kong Express shall be determined with reference to the costs and expenses incurred by
our Group. Each of the above functions of our Group will calculate the service fees based on (i) the hourly
rate of the relevant supporting staff; (ii) the costs and expenses relating to the services outsourced from
Hong Kong Express and (iii) a buffer amount to cover additional expenses.
In respect of the interline arrangements, the ticketing prices are determined with reference to the base
amounts and prorate factors, including the distance in the IATA Prorate Manual published by IATA, the
applicable booking classes and the available sector yield data. In respect of the ticket prices payable under
the interline arrangements: (i) the ticket prices payable to our Group will be calculated based on the
mileages in kilometres flew by Hong Kong Airlines as the operating carrier; and (ii) the ticket prices
payable by our Group will be calculated based on the mileages in kilometres flew by other airlines as the
operating carrier when Hong Kong Airlines is the marketing carrier.
177
(d)
of the transactions contemplated under the HKE Outsourcing Services and Cooperation Framework
Agreement:
Annual cap (HK$000)
2011
2012
2013
2014
2015
2016
Revenue items
Provision of services to
Hong Kong Express. . . . .
Cooperation
Interline arrangements
payable by Hong Kong
Express . . . . . . . . . . . . .
Nil
Nil
15,744
150,000
200,000
300,000
579,303
494,434
234,397
200,000
200,000
200,000
Total . . . . . . . . . . . . . . . . .
579,303
494,434
250,141
350,000
400,000
500,000
Expense items
Cooperation
Interline arrangements
payable to Hong Kong
Express . . . . . . . . . . . . .
260,405
360,981
307,016
300,000
300,000
300,000
In determining the annual caps for the provision of the outsourcing services to Hong Kong Express,
we have considered the following factors: (i) the historical amounts and the scope of services previously
provided to Hong Kong Express; and (ii) the expected volume required by Hong Kong Express arising
from its possible business expansion. In November 2013, our Group started providing the services to Hong
Kong Express and the historical amount for the year ended December 31, 2013 covered only two months
service in that year. We expect the future transaction amount, as compared to that for 2013, will increase
significantly because our Group started providing full scope of services to Hong Kong Express since the
beginning of 2014 and the annual cap for each of the three years ending December 31, 2016 represents
the full service fees payable by Hong Kong Express on an annual basis.
The historical amounts of the payables by Hong Kong Express arising from the interline
arrangements have been gradually declining since Hong Kong Express has focused on a business model
as a low-cost carrier. The historical amounts of the payables to Hong Kong Express from such interline
arrangements increased from 2011 to 2012 because Hong Kong Express had during that period covered
new destinations. We expect the transaction amounts will become relatively stable and steady in the
coming three years.
(e)
As the relevant applicable percentage ratios in respect of the transactions under the HKE
Outsourcing Services and Cooperation Framework Agreement are expected to exceed 5% on an annual and
aggregated basis, such transactions will constitute non-exempt continuing connected transactions of the
Company subject to the requirements under Chapter 14A of the Listing Rules.
178
WAIVER APPLICATION FOR NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS
In respect of each of the HA Aircraft Lease Framework Agreement and the HKE Outsourcing
Services and Cooperation Framework Agreement, the highest of all applicable percentage ratios as set out
in the Listing Rules is expected to exceed 5% on an annual and, if applicable, aggregated basis, such
transactions therefore will constitute non-exempt continuing connected transactions of the Company
subject to the requirements under Chapter 14A of the Listing Rules.
In respect of each of the HA Operational Services and Cooperation Framework Agreement and the
HKE Aircraft Lease Framework Agreement, the highest of all applicable percentage ratios as set out in the
Listing Rules is expected to be more than 0.1% but less than 5% on an annual and, if applicable,
aggregated basis, such transactions therefore will be exempt pursuant to Rule 14A.76(2)(a) of the Listing
Rules from the circular (including independent financial advice) and independent shareholders approval
requirements but will be subject to the annual review, reporting and announcement requirements under
Chapter 14A of the Listing Rules.
As described above, we expect these non-exempt continuing connected transactions will be carried
out on a continuing basis and will extend over a period of time. The Directors therefore consider that strict
compliance with the relevant requirements under the Listing Rules would be impractical and unduly
burdensome and would impose unnecessary administrative costs upon us.
Accordingly, we [have applied] for, and the Stock Exchange [has granted] to us, a waiver pursuant
to Rule 14A.105 of the Listing Rules: (i) to exempt the transactions contemplated under the HA Aircraft
Lease Framework Agreement and the HKE Outsourcing Services and Cooperation Framework Agreement
from compliance with the announcement, circular and independent shareholders approval requirements;
and (ii) to exempt the transactions contemplated under the HA Operational Services and Cooperation
Framework Agreement and the HKE Aircraft Lease Framework Agreement from compliance with the
announcement requirement, and that the duration of each of the HA Aircraft Lease Framework Agreement
and the HKE Aircraft Lease Framework Agreement can be longer than three years.
We will comply at all times with the other applicable provisions under Chapter 14A of the Listing
Rules in respect of these non-exempt continuing connected transactions. In the event of any future
amendments to the Listing Rules imposing more stringent requirements than those as of the date of this
[REDACTED] on the continuing connected transactions referred to in this section, or there are any
material changes to the terms of these agreements or revision of the annual caps proposed above, we will
take appropriate steps to ensure compliance with the then applicable requirements under the Listing Rules.
CONFIRMATION FROM DIRECTORS
The Directors [(including the independent non-executive Directors)] are of the view that the
non-exempt continuing connected transactions of the Group as described above are entered into in the
ordinary and usual course of our business, are on normal commercial terms, are fair and reasonable and
in the interests of the Shareholders as a whole, and that the proposed annual caps for these transactions
referred to above are fair and reasonable and in the interests of the Shareholders as a whole.
In respect of the non-exempt continuing connected transactions under the HA Aircraft Lease
Framework Agreement and the HKE Aircraft Lease Framework Agreement each with a term exceeding
three years, the Directors [(including the independent non-executive Directors)] are of the view that it is
normal business practice for aircraft lease agreements of this type to have a longer duration.
179
CONFIRMATION FROM THE SOLE SPONSOR
The Sole Sponsor is of the view that the non-exempt continuing connected transactions described in
this section are entered into in the ordinary and usual course of business, are on normal commercial terms,
are fair and reasonable and in the interests of the Company and the Shareholders as a whole, and that the
proposed annual caps for these transactions referred to in this section are fair and reasonable and in the
interests of the Company and the Shareholders as a whole. In respect of the non-exempt continuing
connected transactions under the HA Aircraft Lease Framework Agreement and the HKE Aircraft Lease
Framework Agreement each with a term exceeding three years, the Sole Sponsor is of the view that it is
normal business practice for aircraft lease agreements of this type to have a longer duration.
CONTINUING TRANSACTIONS WITH HNA GROUP NOT SUBJECT TO CHAPTER 14A OF
THE LISTING RULES
Upon completion of the Reorganization and immediately after completion of the [REDACTED],
HNA Group will hold less than 10% of the then enlarged total issued share capital of the Company.
Therefore, HNA Group and its associates will not be our connected persons under the Listing Rules. To
improve the transparency for the investing public to be fully aware of the Groups relationship with HNA
Group and as a matter of good corporate governance, the Company makes voluntary disclosures relating
to the continuing transactions with HNA Group and its associates after the [REDACTED] in our future
annual reports as if such annual disclosure requirements of Chapter 14A of the Listing Rules were
applicable.
Summary of HNA Groups associates
Associates of HNA Group
Relationship
HNA Aviation. . . . . . . . . . . . . . . . . . . . . . . .
It is a wholly-owned subsidiary of HNA Group.
HNA Tourism . . . . . . . . . . . . . . . . . . . . . . .
It is a wholly-owned subsidiary of HNA Group.
HNA Finance . . . . . . . . . . . . . . . . . . . . . . .
It is a non-wholly-owned subsidiary of HNA Group.
HKIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . .
It is a non-wholly-owned subsidiary of HNA Group.
(Sanya Phoenix International Airport

Company Limited) (Sanya Airport) . . . .
It is approximately 74.45% controlled by HNA Group,

and is a non-wholly-owned subsidiary of HNA Group.
Beijing Capital Airlines . . . . . . . . . . . . . . . .
It is 70% controlled by HNA Group, and is a

non-wholly-owned subsidiary of HNA Group.
(Hainan eKing Technology Company

Limited) (Hainan eKing Technology) . .
It is approximately 52.54% controlled by HNA Group,

and is a non-wholly-owned subsidiary of HNA Group.
Hong Thai Travel Services Limited

(Hong Thai Travel) . . . . . . . . . . . . . . . .
It is 51% controlled by HNA Group, and is a

non-wholly-owned subsidiary of HNA Group.
Yangtze River Express . . . . . . . . . . . . . . . . .
It is approximately 36.65% controlled by HNA Group.
180
Associates of HNA Group
Relationship
(Beijing Xinhua Air Catering Company

Limited) (Beijing Xinhua Air Catering).
It is a subsidiary of a 30%-controlled company (as

defined in Rule 14A.06(1) of the Listing Rules as if
such rule applied) of HNA Group.
(Hainan Air Catering Company Limited)

(Hainan Air Catering) . . . . . . . . . . . . .
It is a subsidiary of a 30%-controlled company (as

defined in Rule 14A.06(1) of the Listing Rules as if
such rule applied) of HNA Group.
Framework Agreements with HNA Group

Our Group [entered] into the following framework agreements with HNA Group (for itself and on
behalf of its associates) on []:
(1)
an aircraft lease framework agreement (the HNA Aircraft Lease Framework Agreement);
(2)
an operational and general services framework agreement (the HNA Operational and
General Services Framework Agreement); and
(3)
a financial services agreement (the HNA Financial Services Agreement).
Separately, prior to the [REDACTED], we entered into certain pre-existing finance leases with
HKIAL to lease aircraft from HKIAL and we will after [REDACTED] continue to repay the principal and
interest under and in accordance with the terms of those finance leases. For details of such finance leases
with HKIAL, please refer to section headed Business Aircraft Purchase and Leasing Arrangements.
HNA Aircraft Lease Framework Agreement
(a)
Pursuant to the HNA Aircraft Lease Framework Agreement, HNA Group, through its associate,
HKIAL, agreed to lease passenger aircraft and cargo freighters to our Group, and we agreed to sub-lease
Boeing cargo freighters to Yangtze River Express. In respect of the sub-leases to Yangtze River Express,
each of our Group and Yangtze River Express has a mutual right to terminate the lease with a 12-month
advance notice. For details, please refer to the section headed Business Fleet Management.
The HNA Aircraft Lease Framework Agreement has a term commencing from the [REDACTED]
and ending on December 31, 2030.
181
(b)
Our Group from time to time requires additional aircraft for its business expansion. It is in line with
our Groups long-term strategy to maintain steady growth in the market and expand our Groups
transportation capacity without incurring material financing costs or significant on-balance sheet
liabilities. We have established a long-term business relationship with HNA Group which understands our
Groups specific requirements for aircraft and it provides competitive terms when compared to other
Independent Third Party service providers.
Starting from 2011, we obtained five A330-200 freighters for our cargo transportation business to
gradually replace the existing Boeing 737-300 cargo freighters. We continue leasing the Boeing cargo
freighter to Yangtze River Express as it allows us flexibility to adjust our business plan to accommodate
the market demands. By having this leasing arrangement with Yangtze River Express, it is efficient for our
Group to manage our fleet composition and minimize the maintenance and operational costs.
(c)
Pricing policies
The rental payable by our Group to HKIAL under the HNA Aircraft Lease Framework Agreement is
determined with reference to (i) the age of the aircraft; (ii) the aircraft type; (iii) the term of the lease; and
(iv) the prevailing market rates. Prior to entering into any lease with HKIAL, our Group will review the
terms, including the interest rates, the rental lease rates and other contractual and payment terms, offered
by HKIAL and obtain quotations from at least two other Independent Third Party providers for comparison
to check that the price and the terms offered by HKIAL are fair and reasonable and comparable to those
offered by other Independent Third Party providers.
The rental payable by Yangtze River Express to us under the HNA Aircraft Lease Framework
Agreement is determined with reference to (i) the age of the aircraft; (ii) the aircraft type; (iii) the term
of the sub-lease; and (iv) the prevailing market rates. Prior to entering into any sub-lease with Yangtze
River Express, our Group will review the terms, including the interest rates, the rental lease rates and other
contractual and payment terms, offered by Yangtze River Express and obtain quotations from at least two
other Independent Third Party lessees for comparison to check that the price and the terms offered by
Yangtze River Express are fair and reasonable and comparable to those offered by other Independent Third
Party lessees.
182
(d)
Historical amounts and anticipated annual transaction amounts
The following table sets forth a summary of the historical amounts and the anticipated annual
transaction amounts in respect of the transactions contemplated under the HNA Aircraft Lease Framework
Agreement:
Anticipated annual transaction amount

(HK$000)
2011
2014
2012
2013
2015
2016
Lease from HNA Group and

its associates including
HKIAL . . . . . . . . . . . .
Nil
16,303
649,945
1,030,000
1,332,000
1,573,000
Sub-lease to Yangtze River

Express . . . . . . . . . . . . .
18,192
20,103
44,678
45,000
45,000
45,000
Total . . . . . . . . . . . . . . . .
18,192
36,406
694,623
1,075,000
1,377,000
1,618,000
The anticipated annual transaction amounts of the rental payable to HNA Group and its associates
are determined with reference to (i) the contractual rental to be paid by us on a quarterly basis under the
existing primary leases; and (ii) the expected increase of two aircraft to be introduced to our Group
according to the aircraft delivery plan. In determining the anticipated annual transaction amounts for the
leases with HKIAL, the increase of such amounts for the three years ending December 31, 2016 is
principally attributable to the rental payable under the new operating leases signed or expected to be
signed in 2014 in respect of the aircraft to be delivered from 2014 to 2016.
The anticipated annual transaction amounts of the rental payable by Yangtze River Express are
determined with reference to (i) the contractual rental payable by us under the existing primary leases; and
(ii) the existing contractual amounts payable by Yangtze River Express to us.
HNA Operational and General Services Framework Agreement
(a)
Pursuant to the HNA Operational and General Services Framework Agreement, our Group and HNA
Group (for itself and on behalf of its associates) agreed on mutual provision of the following operational
and general services:
(A) Provision of operational services by HNA Group and/or its associates
HNA Group, through its associates, Beijing Xinhua Air Catering and Hainan Air Catering
agreed to provide in-flight catering services to our Group, and Sanya Airport agreed to provide
aircraft landing, parking and ground handling services to our Group at the airports in the PRC.
183
(B)
(C)
Provision of sales and marketing services by/to HNA Group and/or its associates
(i)
HNA Group, through its associates, HNA Aviation and HNA Tourism which are
principally engaged in aviation and tourism services in the PRC, agreed to purchase
passenger seats and cargo space from our Group. This includes passenger block seats and
cargo block space purchase arrangements; and
(ii)
Our Group agreed to engage Hong Thai Travel, an associate of HNA Group, as an agent
for the sale of our air tickets.
Provision of other general services by HNA Group and/or its associates

HNA Group, through its associate, Hainan eKing Technology, agreed to provide to our Group
system maintenance services and technology support (including cloud computing, email server
services and intranet support), and HNA Group, through its associates, agreed to provide staff
training services and other general services to our Group.
(b)

As it is administratively burdensome and cost-inefficient for us to set up a separate local team
or establish a local operation center at various airports we covered, we will continue procuring
catering services from Beijing Xinhua Air Catering and Hainan Air Catering, which will be able to
provide quality catering service at those airports at reasonable costs.
At all the airports our aircraft land and park, we are required to pay for the landing and parking
charges and the ground handling support at those airports. In respect of the landing and parking
charges at the airport in Sanya, these charges are imposed on all airlines in accordance with the
guideline issued by the Civil Aviation Administration of China (). Sanya Airport is
the only landing, parking and ground handling services provider at the airport in Sanya and there are
no other Independent Third Party service providers available.
(B)
In respect of passenger block seats and cargo block space arrangements which we have with
HNA Group, HNA Aviation and HNA Tourism will provide an expected volume of required
passenger seats and cargo space to our Group on a monthly basis. With these passenger block seats
and cargo block space arrangements, our Group can better utilize our flight capacity and further
expand in the PRC market based on the demands for our passenger seats and cargo space.
We engage Hong Thai Travel as one of our ticket sales agent because it is one of the leading
travel agencies in Hong Kong, whose extensive branch network will assist the Group to better
penetrate into the Hong Kong market. We also sell passenger tickets through other Independent Third
Party distributors and travel agents.
184
(C)
We have been outsourcing our cloud computing, intranet support and email server operation to
Hainan eKing Technology and, formerly, another associate of HNA Group, for two to three years.
Hainan eKing Technology has a good understanding of our system and requirements. As it is highly
technical to maintain an aviation business-related server and system, it is cost-efficient and
administratively convenient for us to continue using such technology support services from Hainan
eKing Technology without incurring significant set-up costs. Knowing the culture and the business
of our Group and with its expertise in the aviation market, HNA Group, through its associates, shall
be able to provide professional training to our staff and other general services that suits our business
needs.
(c)
Pricing policies
The service fees payable by our Group for the catering services shall be determined based on
prevailing market rates available from Independent Third Party service providers under comparable
conditions. Such service fees shall be determined based on arms lengths negotiation and shall be
no less favourable than those offered by Beijing Xinhua Air Catering and Hainan Air Catering to
other Independent Third Parties. Our Group will invite quotations from at least two other
Independent Third Party catering service providers available in the region to decide the prevailing
market rates on an annual basis.
The landing, parking and ground handling charges payable by our Group at the airport in
Sanya, are subject to the rates as prescribed and approved by the Civil Aviation Administration of
China () which are applicable to all airlines using such services.
(B)
Pursuant to the HNA Operational and General Services Framework Agreement, in determining
the fixed unit price for each passenger seat and cargo space, our Group will refer to the average
passenger seats and cargo space price for the same route in the preceding year and the expected
market demand. HNA Aviation and HNA Tourism will notify our Group in writing on a monthly basis
the expected volume of purchase for the next month. The total amount payable by HNA Aviation and
HNA Tourism shall be the product of the expected volume of the passenger block seats and cargo
block space and the fixed unit price per seat or space.
In relation to the ticket sales agency services, the commission fees payable to Hong Thai Travel
by our Group shall be no more than 5% of the value of the air tickets sold in Hong Kong. The prices
are determined by reference to the commission rate payable to other Independent Third Party
distributors and/or travel agents for ticket sale services.
(C)
The service fee shall not be more than the service fees charged by HNA Group and/or its
associates to other Independent Third Parties for comparable services. Our Group will invite
quotations from at least two other Independent Third Party service providers available in the region
to decide the prevailing market rates on an annual basis.
185
(d)
transaction amounts in respect of the transactions contemplated under the HNA Operational and General
Services Framework Agreement:

(HK$000)
2011
2014
2012
2013
2015
2016
Provision of services by
HNA Group and/or its
associates
Provision of operational
services. . . . . . . . . . . . .
14,113
15,301
12,822
25,000
26,500
29,300
Provision of sales and

marketing services
Commission for ticket
services. . . . . . . . . . . . .
1,296
658
3,461
4,000
5,000
7,000
Provision of other general

services (Note) . . . . . . . .
Nil
Nil
109
3,000
4,000
5,000
Total: . . . . . . . . . . . . . . .
15,409
15,959
16,392
32,000
35,500
41,300
Provision of services to
HNA Group and/or its
associates
Passenger block seats and
cargo block space
arrangements
837,926
1,053,068
1,141,794
1,650,000
1,750,000
1,850,000
Total: . . . . . . . . . . . . . . .
837,926
1,053,068
1,141,794
1,650,000
1,750,000
1,850,000
Note: (Hainan HNA Aviation Information System Company Limited) provided the
technology support services to our Group for the three years ended December 31, 2013 and Hainan eKing Technology
started providing the technology support services since 2013. The historical amount for each of the three years ended
December 31, 2013 was HK$169,000, HK$1,006,000 and HK$415,000, respectively.
In arriving at the anticipated annual transaction amounts payable to HNA Group and/or its associates
for the operational services and other general services, we have taken into account (i) the respective
historical figures for the three years ended December 31, 2013; and (ii) the expected business expansion
of our Group in the forthcoming years. In particular, we have considered the following factors:
in-flight catering services the need for in-flight catering services for the additional passenger
flights from Beijing, Tianjin or Haikou which return to Hong Kong on the next day;
186
landing, parking and take-off charges the inflation and the expected increase in frequency of
flights to the airports operated by HNA Group;
technology support the expected gradual increase in the demand for information technology
support as we further expand our business operation and our team in the forthcoming years;
training services our plan to recruit more cabin crew members and to expand our professional
team.
In determining the anticipated annual transaction amounts for the sales and marketing services, we
have considered: (i) the historical transaction amounts for the three years ended December 31, 2013; (ii)
the possible growth of the tourism market in the PRC leading to the increase of volume of our passenger
seats needed; and (iii) the expected growth in the demand of our freight transportation services in the PRC
resulting in a potential increase of the volume of our cargo space in demand.
HNA Financial Services Agreement
(a)
HNA Group through its associate, HNA Finance, agreed to provide to our Group deposit services to
our Group outside the PRC. It is provided in the HNA Financial Services Agreement that HNA Finance
shall ensure the strict compliance with the relevant regulations and requirements issued by the Peoples
Bank of China and China Banking Regulatory Commission that apply to it and the services it provides.
(b)
The Group has benefited from the efficient and cost-saving services provided by HNA Finance. The
interest rates provided by HNA Finance are more favourable than the interest rates offered by banks for
the similar deposit service in Hong Kong. HNA Finance provides an efficient settlement platform that
allows our Group to better manage its current capital and cashflow position and gives flexibility to our
Group in making deposits and withdrawals. We have established a business relationship with HNA
Finance, which has been providing services to our Group as cost efficient and flexible as that may be
provided by other Independent Third Party banks.
Under the HNA Financial Service Agreement, we are not prevented from using, and may choose in
our sole and absolute discretion, any other banks or financial institutions for the same types of financial
services.
(c)
Pricing policies
In respect of the financial services provided by HNA Finance, we will obtain for our reference the
deposit interest rate from two other Independent Third Party banks in Hong Kong for similar deposit
service with a comparable term. The interest rate applicable to our deposits with HNA Finance shall not
be lower than the deposit interest rate so obtained from such other Independent Third Party banks in Hong
Kong.
187
(d)
transaction amounts in respect of the transactions contemplated under the HNA Financial Services
Agreement:
Deposits. . . . . . . . . . . . . .
Interest income . . . . . . . . .

(HK$000)
2011
2014
2012
Nil
Nil
2013
Nil
Nil
933,371
Nil
1,500,000
14,000
2015
1,500,000
28,000
2016
1,500,000
28,000
In respect of the finance services provided by HNA Finance, the anticipated annual transaction
amounts are calculated based on an amortised interest method. In arriving at the above anticipated annual
transaction amounts, the deposit balance is determined with reference to the historical amounts and the
expected deposit amount that caters for the future plans of our Group.
Post-[REDACTED] disclosure
As HNA Group and its associates are not connected persons of our Company after the
[REDACTED], the transactions set out in each of the HNA Aircraft Lease Framework Agreement, the
HNA Operational and General Services Framework Agreement and the HNA Financial Services
Agreement are not subject to the requirements under Chapter 14A of the Listing Rules. As a matter of good
corporate governance, to enhance the transparency of our Group, and to provide further information to
enable our Shareholders and investors to appreciate the details and extent of our Groups dealings with
HNA Group as a Shareholder and its associates, we will make voluntary disclosure of such continuing
transactions in our future annual reports, and our independent non-executive Directors and the Companys
auditors will review those continuing transactions as if the annual review requirements under Rules
14A.55 and 14A.56 of Chapter 14A were applicable.
188
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

DIRECTORS
Our Board is responsible and has general powers for the management and conduct of our business.
It consists of nine Directors comprising two executive Directors, four non-executive Directors and three
independent non-executive Directors.
The following table sets forth certain information relating to our Directors and senior management.
Relationship with
our Directors
and senior
management
Appointment
Position/Title Date
Date of joining
our Group
Principal duties/
Responsibilities
Mr. Zhang Kui

47
() . . . . . . . .
Executive
chairman,
executive
Director and
president
January 2014
May 2013
Strategic and overall

development planning,
management of the
Group
Nil
Mr. Sun Jianfeng

47
() . . . . . . .
Executive
Director
August 2014
May 2009
Overall operation
planning and routine
management of the
Group
Nil
Name
Age
Executive Directors
Mr. Mung Kin Keung
54
() . . . . . . .
Chairman of the August 2014

Board,
Non-executive
Director
August 2006
Strategic development
planning of the Group
Father of Mr. Mung

Bun Man Alan
Mr. Cui Yeng Xu

51
() . . . . . . .
Non-executive
Director
August 2014
March 2007
Operation development
of the Group
Nil
Mr. Re Qiongba
45
() . . . . . . .
Non-executive
Director
August 2014
September 2011
Business and culture

development of the
Group
Nil
Mr. Mung Bun Man

27
Alan () . . . .
Non-executive
Director
August 2014
November 2011
Business development
planning of the Group
Son of Mr. Mung

Kin Keung
Nil

Mr. Liu Changle
62
() . . . . . . .
Independent
non-executive
Director
[]
[]
Supervising and
providing independent
judgment to the Board
Mr. Lam Kin Fung

62
Jeffrey () . . .
Independent
non-executive
Director
[]
[]
Supervising and
Nil
judgment to the Board;
member of the audit and
remuneration
committees, chairman of
the nomination
committee
Mr. Wong Tak Ming

38
Gary () . . . .
Independent
non-executive
Director
[]
[]
Supervising and
judgment to the Board;
member of the
nomination committee,
chairman of the audit
and remuneration
committees
189
Nil
Name
Age
Address
Position
11/F,
One Citygate,
20 Tat Tung
Road
Tung Chung
Lantau, HK
Chief financial
officer
Appointment
Date
Date of
joining
our Group
August 2014
May 2009
Relationship
with our
Directors and
Principal duties senior
/Responsibilities management
Senior
management
Mr. Wu Hao
35
() . . . . . .
Financial planning Nil

and management of
the Group
Executive Directors
Mr. Zhang Kui (), aged 47, is the executive chairman, executive Director of the Company and
president of the Group. Mr. Zhang is mainly responsible for the strategic and overall development
planning, management of our Group. Mr. Zhang joined the Group in May 2013 as the president of the
Group. He was appointed as a Director in January 2014. Mr. Zhang is also a director of certain subsidiaries
of the Company, namely (1) Hong Kong Airlines, (2) Skyliner Company Limited, (3) HKA Cabin Media
Company Limited, (4) HKA FFM Company Limited, (5) HKA Investment Development Company
Limited, (6) HKA Information Technology Services Company Limited and (7) HKA Tourism Services
Company Limited.
Mr. Zhang graduated from Sun Yat-sen University () in the PRC with a degree from the
Department of Atmospheric Science () majoring in meteorology in July 1988 and
obtained a masters degree in business administration (aviation management) from the Royal Melbourne
Institute of Technology in September 2001.
Mr. Zhang also has the following working experience:
Company name
Principal business
activities of the
company
HNA Group International . . . . . . . . . Investment
Last position
held
Responsibilities
Director
HNA Group . . . . . . . . . . . . . . . . . Investment holding

Sanya Phoenix International Airport
Airport operation
Co., Ltd (
) . . . . . . . . . . . . . . . . . . .
Beijing Capital Airlines . . . . . . . . . . Airline operator
Hainan Airlines . . . . . . . . . . . . . . . Airline operator
190
Period of services
Strategic
planning and
management
General manager Procurement
of procurement
President
Strategic
planning and
management
General manager Corporate jet
of corporate jet
management
August 2011 to
January 2013
June 2011 to
August 2011
Assistant to
president
June 1993 to
August 2008
Flight training,
human
resources,
corporate safety,
service delivery
and aircraft
maintenance
January 2013 to
August 2014
August 2008 to
June 2011

Mr. Zhang does not have any other current or past directorships in any listed companies in the three
years immediately preceding the date of this [REDACTED].
Mr. Sun Jianfeng (), aged 47, is the executive vice-president of the Group, an executive
Director of the Company. Mr. Sun is mainly responsible for our overall operation planning and routine
management of the Group as a captain and the vice-president of the Group. Mr. Sun joined the Group in
May 2009. He was appointed as a Director in August 2014. Mr. Sun is also a director of certain
subsidiaries of the Company, namely (1) Hong Kong Airlines; (2) Blue Sky Fliers; (3) Hong Kong Airlines
Cargo Company Limited; (4) Hong Kong Aviation Maintenance and Engineering Corporation Limited; (5)
Hong Kong Aviation Ground Services Limited; (6) HK Aircraft Sub1 Company Limited; (7) HK Aircraft
Sub2 Company Limited; (8) HK Aircraft Sub3 Company Limited; (9) HK Aircraft Sub4 Company Limited;
(10) HK Aircraft Sub5 Company Limited; (11) HK Aircraft Sub6 Company Limited; (12) HK Aircraft
Sub7 Company Limited; (13) HK Aircraft Sub8 Company Limited; (14) HK Aircraft Sub9 Company
Limited; (15) HK Aircraft Sub10 Company Limited; (16) HK Aircraft Sub11 Company Limited; (17) HK
Aircraft Sub12 Company Limited; (18) HK Aircraft Sub13 Company Limited; (19) Skyliner Company
Limited; (20) HKA Cabin Media Company Limited; (21) HKA FFM Company Limited; (22) HKA
Investment Development Company Limited; (23) HKA Information Technology Services Company
Limited; (24) HKA Tourism Services Company Limited; and (25) Hong Kong Airlines Aviation Training
Centre Limited.
Mr. Sun graduated from the Peoples Liberation Army Air Force Academy (
) in April 1991 with a bachelors degree in military science (). Mr. Sun obtained
a masters degree in business administration from Tianjin University in September 2002.
Mr. Sun also has the following working experience:
Company name
Principal business
activities of the
company
China Xinhua Airlines/

Airline operator
Hainan Airlines . . . . . . . . . . . . .
Last position
held
General manager
of operations
Responsibilities
Period of services
Crew and flights

operation
management
1997 to 2009
Mr. Sun does not have any other current or past directorships in any listed companies in the three
191

Mr. Mung Kin Keung (), aged 54, is one of our Controlling Shareholders, the chairman of
the Board and a non-executive Director. Mr. Mung is mainly responsible for the strategic development
planning of our Group. Mr. Mung joined the Group in August 2006. He was appointed as a Director in
August 2014. Mr. Mung is also a director of Hong Kong Airlines, a subsidiary of the Group.
Mr. Mung has over 10 years experience in the areas of business management, strategic planning and
development. In November 2007, Mr. Mung was conferred an honorary doctorate degree in business
administration from the Sinte Gleska University of California in the United States and was awarded the
9th World Outstanding Chinese Award by the World Chinese Business Investment Foundation.
Mr. Mung also has the following working experience:
Company name
Hong Kong Resources Holdings
Company Limited, a company listed
on the Main Board
(Stock code: 2882) . . . . . . . . . . .

Holdings Limited, a company listed
on the Main Board
(Stock code: 521) . . . . . . . . . . . .
Mastermind Capital Limited, a

company listed on the Main Board
(Stock code: 905) . . . . . . . . . . . .
Bestway International Holdings
Limited, a company listed on the
Main Board
(Stock code: 718) . . . . . . . . . . . .
China Star Entertainment Limited
(Stock code: 326) . . . . . . . . . . . .
Well Way Group Limited, a company

listed on the GEM Board
(Stock code: 8063) . . . . . . . . . . .
Principal business
activities of the
company
Retailing and
franchising operations
for selling gold and
jewellery products in
the PRC, including
Hong Kong and
Macau under the
trade name 3DGOLD, La Milky
Way and Tao Zhi Zun
Development and
provision of system
integration solutions,
system design and
sale of system
hardware; provision
of recreational and
tourism services
Investment in listed
and unlisted
companies mainly in
Hong Kong and in
the PRC
Investment holding
and trading cotton
yarns; and mining
business
Film production,
distribution of film
and television drama
series, sales of health
products, investing in
operations which
receive profit streams
from the gaming
promotion business,
property and hotel
investment, and
property development
Provision and
operation of travel
business, treasury
management and
precious metals
trading
Last position
held
Responsibilities
Period of services
Executive
director
Business
development and
day-to-day
management
October 2008 to
November 2012
Executive
chairman
Lead the
operations and
discussion of the
board of
directors
February 2009 to
present
Executive
director
Business
development and
day-to-day
management
March 2007 to
present
Executive
director
General
management and
business
planning
Co-lead the
operations and
discussion of the
board of
directors
October 2013 to
present
General
management and
business
planning
June 2014 to
present
Co-chairman,
Executive
director
Executive
director
July 2014 to
present
Save as disclosed above, Mr. Mung does not have any current or past directorships in any listed
companies in the three years immediately preceding the date of this [REDACTED]. Mr. Mung is the father
of Mr. Mung Bun Man Alan, who is also a non-executive Director.
192

Mr. Cui Yeng Xu (), aged 51, is a non-executive Director. Mr. Cui is mainly responsible for
the operation development of the Group. He joined the Group in March 2007 and was appointed as a
Director in August 2014. Mr. Cui is also a director of Hong Kong Airlines, a subsidiary of the Company.
Mr. Cui obtained a Bachelor of Arts degree in Chinese language from Liaoning University in the
PRC in July 1984.
Mr. Cui also has the following working experience:
Company name
Principal business
activities of the
company
Keyon International Limited

Investment advisory
() . . . . . . . . . .
Last position
held
Executive
director
Responsibilities
Period of services
February 2000 to
Business
present
strategic
decision marking
and leading the
operations of the
board
Mr. Cui does not have any other current or past directorships in any listed companies in the three
Mr. Re Qiongba (), aged 45, is a non-executive Director. Mr. Re is mainly responsible for
the business and culture development of the Group as a part of the senior management in corporate
development. Mr. Re joined the Group in September 2011. He was appointed as a Director in August 2014.
Mr. Re is also a director of Hong Kong Airlines, a subsidiary of the Company.
Mr. Re obtained a degree majoring in business from Renmin University of China () in
the PRC in July 1992.
Mr. Re also has the following working experience:
Principal business
activities of the
company
Last position
held
Responsibilities
Period of services
Peking University () . . . . . . Education
Researcher
Research
June 2009 to
June 2011
Shandong University () . . . . Education
Part-time
professor and
researcher
Teaching and
research
September 2002 to
September 2006
Company name
Mr. Re does not have any other current or past directorships in any listed companies in the three
193

Mr. Mung Bun Man Alan () (previously known as Mung Chiu Yu Alan ()), aged 27,
is a non-executive Director. Mr. Alan Mung is mainly responsible for the business development planning
of the Group. Mr. Alan Mung joined the Group as a director of Hong Kong Airlines in November 2011.Mr.
Alan Mung was appointed as a Director in August 2014.
Mr. Alan Mung obtained a Bachelor of Arts degree with a major in business economics from the
University of California Santa Barbara in the United States in March 2007 and a Master of Finance from
Peking University in the PRC in July 2010.
Mr. Alan Mung also has the following working experience:
Company name
Principal business
activities of the
company
Last position
held
Responsibilities
Period of services
Listed Company
Mastermind Capital Limited, a
Investment in listed
and unlisted
(Stock code: 905) . . . . . . . . . . . . . companies mainly in
Hong Kong and in
the PRC
Executive
director
General
management and
business
planning
November 2010
to April 2013;
March 2014 to
present
Well Way Group Limited, a company

Provision and
listed on the GEM Board
operation of travel
(Stock code: 8063) . . . . . . . . . . . . business, treasury
management and
precious metals
trading
Executive
director
General
management and
business
planning
March 2014
to present

(Stock code: 521) . . . . . . . . . . . . .
Executive
director
General
management and
business
planning
October 2013
to present
Executive
director
General
management and
business
planning
October 2013
to present
Development and
provision of system
system design and
sale of system
hardware; provision
of recreational and
tourism services
Bestway International Holdings

Investment holding
Limited, a company listed on the Main and trading cotton
Board (Stock code: 718) . . . . . . . . . yarns; and mining
business
Save as disclosed above, Mr. Alan Mung does not have any other current or past directorships in any
listed companies in the three years immediately preceding the date of this [REDACTED]. Mr. Alan Mung
is the son of Mr. Mung, a non-executive Director and chairman of the Board.
Mr. Liu Changle (), aged 62, was appointed as an independent non-executive Director in [].
Mr. Liu gained widespread recognition both locally and overseas for his enthusiasm for and
achievements in the media industry. Mr. Liu is the recipient of numerous titles and awards, among which
include the International Emmy Directorate Award, Wiseman of the Media Industry, the Most
Innovative Chinese Business Leaders in the Asia Pacific Region, Top 10 Most Innovative Media
Entrepreneurs in Mainland China and Person of the Chinese Charity. Mr. Liu has also been awarded
the Robert Mundell Successful World CEO Award, the Media Entrepreneur Award in Ernst &
Youngs China Entrepreneur Award and the Man of Year for Asia Brand Innovation Award. He is also
the recipient of the Outstanding Media Management Award of the Chinese Society in the Truth, Virtue
and Beauty Media Award initiated by Buddhist Master Hsing Yun, the Person of the Year award of the
Chinese Business Leaders Annual Meeting, and the 2009 Prominent Contributing Person in China Media
Ideology by the StanChina and the Business Person of the Year Award by the DHL/SCMP Hong Kong
Business Awards 2012.
194

He has been appointed to the board of directors of Nanjing University, Tongji University and
Huaqiao University. He was also conferred an honorary doctoral degree in literature by the City University
of Hong Kong and was appointed as the chairman of the College International Advisory Board by the
College of Business of the City University of Hong Kong.
Mr. Liu was appointed as the honorary chairman of World Chinese-language Media Co-operation
Alliance in 2009 and as the special consultant to the 8th Council of the Buddhist Association of China
in 2010.
Mr. Liu has been appointed as a Justice of the Peace by the government of the Hong Kong in July
2004. In July 2010, Mr. Liu was awarded the Silver Bauhinia Star by the Hong Kong government. He was
a member of the National Committee of the Chinese Peoples Political Consultative Conference, and the
vice-chairman of the Subcommittee on Education, Science, Culture, Health and Sports, of the Eleventh
National Committee of the Chinese Peoples Political Consultative Conference. He is currently a Standing
Committee Member of the Twelfth National Committee of the Chinese Peoples Political Consultative
Conference.
Mr. Liu also has the following working experience:
Company name
Principal business
activities of the
company
Last position
held
Responsibilities
Period of services
Supervising
and providing
independent
judgment to
the Board
November 2011
to present
China Southern Airlines Company Airline operations

Main Board
(Stock code: 1055) . . . . . . . . . .
Independent
non-executive
director
Phoenix Satellite Television

(Stock code: 2008) (transferred
from the GEM Board (Stock
Code: 8002) to the Main Board in
December 2008) . . . . . . . . . . . .
Chairman and
Overall/General February 2000
chief executive business
to present
officer
management
Provision of
satellite television
broadcasting
activities
195

Save as disclosed above, Mr. Liu does not have any other current or past directorships in any listed
companies in the three years immediately preceding the date of this [REDACTED].
Mr. Lam Kin Fung Jeffrey (), aged 62, was appointed as an independent non-executive
Director in [].
In June 1974, Mr. Lam obtained a bachelors degree in mechanical engineering from Tufts University
in the United States. Mr. Lam was appointed as a university fellow of Tufts University in the US and Hong
Kong Polytechnic University in December 1997 and in 2000, respectively.
Mr. Lam is a member of the National Committee of the Chinese Peoples Political Consultative
Conference. He is also a member of the Legislative Council of Hong Kong, a non-official member of the
Executive Council of the Hong Kong, the chairman of the Mega Events Fund Assessment Committee, a
member of the board of the Airport Authority Hong Kong, a member of the board of the West Kowloon
Cultural District Authority, a member of the Independent Commission Against Corruption Complaints
Committee, a member of the Fight Crime Committee, a general committee member of the Hong Kong
General Chamber of Commerce, a council member of The Hong Kong Trade Development Council, and
an honorary member of the Court of The Hong Kong Polytechnic University.
Mr. Lam has over 30 years of experience in the toy industry. Mr. Lam was awarded the Young
Industrialist Award of Hong Kong in 1989 and the Outstanding Achievement Award Hong Kong Toy
Industry in 1999. In 1996, he was appointed as a Justice of the Peace and became a member of the Most
Excellent Order of the British Empire. Mr. Lam was awarded the Silver Bauhinia Star in 2004 and the Gold
Bauhinia Star in 2011 respectively.
196

Mr. Lam also has the following working experience:
Company name
Principal business
activities of the
company and its
subsidiaries
Last position
held
Responsibilities
Period of services

Holdings Ltd., a company listed on
the Main Board
(stock code: 521) . . . . . . . . . . . . .
Development and
provision of system
system design and
sale of system
hardware; provision
of recreational and
tourism services
Independent
non-executive
director
Member of audit
committee,
remuneration
committee and
nomination
committee
October 2013 to
present
Chow Tai Fook Jewellery Group

Main Board
(stock code: 1929) . . . . . . . . . . . .
Raw material
procurement, design,
production and
marketing to sale of
luxury and high-end
luxury jewellery
products, including
gem-set jewellery,
platinum/karat gold
products, gold
products and watches
Independent
non-executive
director
Member of audit
committee and
nomination
committee
November 2011 to
present
Sateri Holdings Limited, a company

Manufacture and
sales of cellulose
(stock code: 1768) . . . . . . . . . . . . products and viscose
staple fibers
Independent
non-executive
director
Chairman of
remuneration
committee
October 2010 to
present
China Overseas Grand Oceans Group

Ltd. , a company listed on the Main
Board
(Stock code: 81) . . . . . . . . . . . . .
Independent
non-executive
director
Chairman of
remuneration
committee and
member of audit
committee and
nomination
committee
May 2010 to
present
Wynn Macau, Limited, a company

Develop, own and
operate of destination
(stock code: 1128) . . . . . . . . . . . . casino gaming and
entertainment resort
facilities in Macau
Independent
non-executive
director
Chairman of
nomination and
corporate
governance
committee and
member of
remuneration
committee
September 2009 to
present
Hsin Chong Construction Group

Main Board
(stock code: 404) . . . . . . . . . . . . .
Building
construction, civil
engineering, electrical
and mechanical
installation, property
development and
investment, provision
of property and
facility management
services and interiors
and special projects
and investment
holding
Independent
non-executive
director
Chairman of
nomination
committee and
member of
remuneration
committee
August 2002 to
May 2014
CC Land Holdings Limited, a

Investment holding,
provision of
(stock code: 1224) . . . . . . . . . . . . corporate
management services,
property development
and investment
Independent
non-executive
director
Chairman of
audit committee
and member of
nomination
committee and
remuneration
committee
June 1998 to
present
Forward Winsome Industries Limited . Toys manufacturing

and exporting
Managing
director
Managing all the

administrative
matters,
financing, sales
and marketing
and affiliate
companies in
China
August 1974
to present
Property investment
and development,
property leasing and
investment holding
197

Save as disclosed above, Mr. Lam does not have any current or past directorships in any listed
companies in the three years immediately preceding the date of this [REDACTED].
Mr. Wong Tak Ming Gary (), aged 38, was appointed as an independent non-executive
Director in []. In 2002, Mr. Wong obtained a Bachelor of Science degree in applied accounting from
Oxford Brookes University in the United Kingdom.
Mr. Wong has over ten years of experience in accounting, auditing, taxation and corporate finance.
Mr. Wong has been a practicing certified public accountant in Hong Kong since October 2004. Mr. Wong
was admitted as a fellow of the Association of Chartered Certified Accountants in October 2006, a fellow
of the Taxation Institution of Hong Kong in January 2007 and also an associate of the Institute of
Chartered Accountants in England and Wales in October 2007.
Mr. Wong also has the following working experience:
Company name
Emperor International Holdings
Limited, a company listed on the Main
Board
(Stock code: 163) . . . . . . . . . . . . .
Principal business
activities of the
company
Responsibilities
Period of services
Chairman of
audit committee,
member of
nomination
committee and
corporate
governance
committee
August 2013 to
present
Independent
non-executive
director
Chairman of
audit committee,
member of
nomination
committee
September 2006 to
present
Music production and Independent

distribution, film and non-executive
television programme director
production and
distribution, artiste
management and
event production
Member of audit
and
remuneration
committee
September 2004 to
November 2010
Property investments, Independent

property development non-executive
and hospitality in
director
Hong Kong, Macau
and the PRC
Century Legend (Holdings) Limited, a

Health and beauty
services, lending and
(Stock code: 79) . . . . . . . . . . . . . . stock broking, and
property investments
Emperor Entertainment Group Limited,
a company listed on the GEM Board
(Stock code: 8078) (currently known as
China 3D Digital Entertainment Ltd.) .
Last position
held
WTMG Certified Public Accountants . . Certified Public

Accountants
Sole proprietor
Carrying on the
professional
accounting,
auditing and
taxation services
April 2005 to
present
Y.F. Pang & Co. . . . . . . . . . . . . . . Certified Public

Accountants
Audit manager
Supervise all
auditing staffs
and company
secretary team,
review audit
assignments and
handle tax
planning and
accounting
matters
August 2003 to
October 2005
H. H. Liu & Co. . . . . . . . . . . . . . . Certified Public

Accountants
Audit senior
Audit,
accounting,
taxation and
finance nature
task
April 1997 to
August 2002
198

Save as disclosed above, Mr. Wong does not have other current or past directorships in any listed
companies in the three years immediately preceding the date of this [REDACTED] save as disclosed
above.
Save as disclosed above, in the section headed Substantial Shareholders and in the section headed
C. Further information about Directors and Shareholders in Appendix IV to this [REDACTED], as of
the Latest Practicable Date, each of our Directors had no interest in the Shares within the meaning of Part
XV of the SFO and was independent from and not related to any other Directors, senior management,
substantial shareholders and Controlling Shareholders of our Company.
Save as disclosed above, each of our Directors has confirmed with respect to himself that there are
no other matters concerning his directorship with the Company that need to be brought to the attention of
the Shareholders and the Stock Exchange and there are no other matters in connection with his
appointment which shall be disclosed pursuant to Rule 13.51(2) of the Listing Rules.
SENIOR MANAGEMENT
Mr. Wu Hao (), aged 35, is the chief financial officer of our Company. He joined the Group in
May 2009. Mr. Wu is mainly responsible for financial planning and management of the Group. Mr. Wu
is also a director of certain subsidiaries of the Company, namely (1) Hong Kong Aviation Maintenance and
Engineering Corporation Limited; and (2) Hong Kong Aviation Ground Services Limited. Mr. Wu obtained
a bachelors degree majoring in accounting from Wuhan University () in the PRC in June 2001.
Mr. Wu obtained a masters degree in business administration from the City University of Seattle in
December 2009.
Mr. Wu also has the following working experience:
Company name
Principal business
activities of the
company
Hainan Airlines . . . . . . . . . . . . . . Airline operation
Last position
held
Deputy general
manager of the
finance
department
Responsibilities
Period of services
General
management of
financial matters
July 2001 to
April 2009
Mr. Wu does not have any current or past directorships in any listed companies in the three years
immediately preceding the date of this [REDACTED].
Save as disclosed above, in the section headed Substantial Shareholders and in the section headed
C. Further information about Directors and Shareholders in Appendix IV to this [REDACTED], as of
the Latest Practicable Date, none of our senior management had any interest in the Shares within the
meaning of Part XV of the SFO or was related to any other Directors, senior management, substantial
shareholders and Controlling Shareholders of the Company.
Save as disclosed above, our senior management, i.e. Mr. Wu Hao, has confirmed with respect to
himself that there are no other matters concerning his position with the Company that need to be brought
to the attention of the Shareholders and the Stock Exchange.
199

COMPANY SECRETARY
Mr. Chan, Victor Sun Ho (), aged 32, was appointed as the company secretary of the
Company in August 2014. Mr. Chan joined the Group in February 2013 as manager, corporate governance
(company secretary) in corporate governance and development department. In October 2013, he was
promoted to general manager, corporate governance (company secretary) in the corporate governance and
development department. As company secretary, Mr. Chan is responsible for overseeing corporate
governance, legal and compliance functions of the Group. Mr. Chan was admitted as a solicitor of the High
Court of Hong Kong in July 2009 and is currently a solicitor in Hong Kong.
Mr. Chan obtained Bachelor of Laws (honours), Master of Laws (international business law) with
distinction and Postgraduate Certificate in Laws from the City University of Hong Kong in November
2004, November 2005 and July 2006 respectively. In December 2009, Mr. Chan obtained Master of
Science degree in finance from The Chinese University of Hong Kong. In October 2013, Mr. Chan
obtained a bachelors degree in science with first class honours in aviation management from Coventry
University by studying part-time at the City University of Hong Kong.
Mr. Chan also has the following working experience:
Principal business
activities of the
company
Last position
held
Responsibilities
Period of
services
Hong Kong Express Airways Limited. . . Airline operations
Company
secretary
Company
secretary matters
March 2013 to
August 2014
Allen & Overy . . . . . . . . . . . . . . . . Law firm
Associate
Provide legal
advice and
services
July 2011 to
July 2012
Ashurst Hong Kong . . . . . . . . . . . . . Law firm
Associate
Provide legal
advice and
services
November 2008 to
June 2011
Angela Ho & Associates . . . . . . . . . . Law firm
Trainee solicitor
Provide legal
advice and
services
February 2007 to
January 2008
Company name
COMPANY COMMITTEES
Executive Committee
The executive committee comprises all the executive Directors, whose primary duties are to approve
the Companys day-to-day operational matters. The chairman of the executive committee is the executive
chairman of the Company.
Audit Committee
An audit committee was established by the Board on [] with written terms of reference in
compliance with Rule 3.22 of the Listing Rules and paragraph C3 of the Code.
200

The primary duties of the audit committee are to review and approve our Groups financial reporting
process and internal control system.
The audit committee comprises Mr. Wong Tak Ming Gary, Mr. Mung Bun Man Alan and Mr. Lam
Kin Fung Jeffrey. The chairman of the audit committee is Mr. Wong Tak Ming Gary.
Remuneration Committee
A remuneration committee was established by the Board on [] with written terms of reference in
compliance with Rule 3.26 of the Listing Rules and paragraph B1 of the Code.
The primary duties of the remuneration committee of the Board are to review and determine the
terms of remuneration packages, bonuses and other compensation payable to the Directors and senior
management of our Group.
The remuneration committee comprises Mr. Sun Jianfeng, Mr. Wong Tak Ming Gary and Mr. Lam
Kin Fung Jeffrey. The chairman of the remuneration committee is Mr. Wong Tak Ming Gary.
Nomination Committee
A nomination committee was established by the Board on [] with written terms of reference in
compliance with paragraph A5 of the Code.
The primary duties of the nomination committee of the Board are to make recommendations to the
Board on the appointment of Directors and senior management of our Group.
The nomination committee comprises Mr. Zhang Kui, Mr. Wong Tak Ming Gary and Mr. Lam Kin
Fung Jeffrey. The chairman of the remuneration committee is Mr. Lam Kin Fung, Jeffrey.
We have established a risk management committee under the authority of the Board to oversee and
manage the overall risks associated with our business, operation, finance, reputation, environment
protection and legal and compliance. The risk management committee, which is led by our president, Mr.
Zhang Kui, has five other members, including Mr. Sun Jianfeng, our chief financial officer, Mr. Wu Hao,
director of corporate governance department, Mr. Wong Ching Ho, Ben, director of corporate safety
department, Mr. Alex Linhares and company secretary, Mr. Chan, Victor Sun Ho.
Mr. WONG Ching Ho, Ben () is the director of Corporate Governance and Development
Department of the Company. Mr. Wong has served Hong Kong Airlines for more than 11 years in the
capacity of a member of the senior management. Mr. Wong is a licensed aircraft engineer, a fellow of Hong
Kong Institute of Engineers and has more than 24 years of experience in the airline industry.
Mr. Alex LINHARES is the director of Corporate Safety Quality Assurance & Security Department
of the Company. Mr. Linhares joined the Group in November 2010. Mr. Linhares has more than 18 years
of experience in the airline industry and he is a Type Rating Examiner (TRE) and a Type Rating Instructor
(TRI) authorized by CAD.
201

CORPORATE GOVERNANCE MEASURES
Our Directors are aware that upon [REDACTED], we are expected to comply with, but may choose
to deviate from the Code. Any such deviation from the Code shall however be carefully considered, and
the reasons for such deviation shall be given in the interim report and the annual report in respect of the
relevant period.
We are committed to achieving high standards of corporate governance with a view to safeguarding
the interests of our Shareholders as a whole. Save as disclosed in the above, we will comply with the code
provisions set out in the Code after [REDACTED].
COMPENSATION OF DIRECTORS AND SENIOR MANAGEMENT
Our remuneration policies are formulated based on the qualifications, years of experience and
performance of individual employees and are reviewed regularly. The same policies will be maintained
after the [REDACTED].
The aggregate amounts of remuneration (including any salaries, fees, discretionary bonuses, housing
allowances, other allowances, contributions to pension schemes, and benefits in kind) paid to our Directors
(executive and non-executive), chief financial officer and company secretary for the three financial years
ended December 31, 2011, 2012 and 2013 were HK$3,465,000, HK$4,262,000 and HK$10,090,000,
respectively.
Under the arrangements currently in force, the aggregate amount of remuneration (including any
salaries, fees, discretionary bonuses, housing allowances, allowances, contributions to pension schemes,
and benefits in kind) payable to our Directors (executive and non-executive), chief financial officer and
company secretary for the financial year ending 31 December 2014 is expected to be approximately
HK$9,000,000. For further details of the Directors remuneration, please refer to the section headed C.
Further information about Directors and Shareholders 1. Directors in Appendix IV to this
[REDACTED].
During the three financial years ended December 31, 2011, 2012 and 2013, the five highest paid
individuals in the Group included one Director for the year ended December 31, 2011, no Director for the
year ended December 31, 2012 and no Director for the year ended December 31, 2013. The aggregate
amounts of remuneration (including any salaries, fees, discretionary bonuses, housing allowances, other
allowances, contributions to pension schemes and benefits in kind) paid to the five highest paid individuals
were HK$8,027,000, HK$11,115,000 and HK$11,555,000 for the three financial years ended December
31, 2011, 2012 and 2013, respectively.
During the Track Record Period, no emoluments were paid by the Group to any of the Directors, or
the five highest paid individuals, as an inducement to join or upon joining the Group or as compensation
for loss of office, and no arrangement under which a Director or the highest paid individuals waived or
agreed to waive any of the emoluments was made.
202

EMPLOYEES
We maintain good working relationships with our staff. We have not experienced any significant
problems with the recruitment and retention of experienced employees. In addition, our normal business
operations have not suffered from any material disruption as a result of labour disputes or strikes. For
breakdown of our employees by function and by geographic location, please refer to the section headed
Business Employees in this [REDACTED].
COMPLIANCE ADVISER
We have appointed Guotai Junan Capital Limited as our compliance adviser pursuant to Rule 3A.19
of the Listing Rules. Pursuant to Rule 3A.23 of the Listing Rules, the compliance adviser will advise us
in the following circumstances:
before the publication of any announcements, circulars or financial reports under any
applicable laws, rules, codes and guidelines;
where a transaction, which might be a notifiable or connected transaction under the Listing
Rules, is contemplated including share issues and share buy-back;
where we propose to use the proceeds from the [REDACTED] in a manner different from that
detailed in this [REDACTED] where our business activities, developments or results deviate
from any forecast, estimate, or other information in this [REDACTED]; and
where the Stock Exchange makes an inquiry of us in respect of unusual movements in price or
trading volume or other issues under Rule 13.10 of the Listing Rules.
The terms of the appointment shall commence on the [REDACTED] and end on the date on which
we comply with Rule 13.46 of the Listing Rules in respect of our financial results for the first full financial
year commencing after the [REDACTED] (being the financial year ending December 31, 2015).
203
SUBSTANTIAL SHAREHOLDERS
So far as our Directors are aware, immediately following completion of the [REDACTED] (without
taking into account any exercise of the Over-allotment Option), the following persons will have an interest
and/or a short position in the [REDACTED] or underlying shares of our Company which would fall to
be disclosed to us and the Stock Exchange pursuant to the provisions of Divisions 2 and 3 of Part XV of
the SFO, or who will, directly or indirectly, be interested in 10% or more of the then enlarged issued share
capital of our Company carrying rights to vote in all circumstances at our general meetings:
Name of interested party
Capacity/Nature of interest
HKA Holdings . . . . . . . . . . . . . . Beneficial owner

HKA Consultation (1) . . . . . . . . . . Beneficial owner
Interest of a controlled
corporation
Mr. Zhong (2) . . . . . . . . . . . . . . . . Interest of a controlled
corporation
HKA Group (3) . . . . . . . . . . . . . . . Interest of a controlled
corporation
China Energy
Beneficial owner
Development Limited . . . . . . .
Mr. Mung (4) . . . . . . . . . . . . . . . . Beneficial owner
corporation
corporation
Hainan Airlines Investment . . . . Beneficial owner
Hainan Airlines (Hong Kong) (5) . . Interest of a controlled
corporation
Hainan Airlines (5) . . . . . . . . . . . . Interest of a controlled
corporation
Grand China Air (6) . . . . . . . . . . . Interest of a controlled
corporation
HNA Investment . . . . . . . . . . . . . Beneficial owner
HNA Group (7) . . . . . . . . . . . . . . . Interest of a controlled
corporation
Hainan Traffic Administration
corporation
Holding Co. Ltd
() (8) . . .
Tang Dynasty Development
corporation
(Yangpu) Company Limited
(8)
(()) . . .
204
Total number of
Shares
Percentage of
interest in our
Company
immediately upon
completion of the
[REDACTED]
(without taking
into account any
exercise of the
Over-allotment
Option)
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
Total number of
Shares
Percentage of
interest in our
Company
immediately upon
completion of the
[REDACTED]
(without taking
into account any
exercise of the
Over-allotment
Option)
corporation
[REDACTED]
[REDACTED]
corporation
[REDACTED]
[REDACTED]
Hainan Province Cihang

Foundation
() (8) . . . .
Hainan Airlines Co., Ltd. Trade
Community Union (
) (8) . . . .
Notes:
(1)
HKA Consultation directly holds an approximate [REDACTED] interest in our Company. HKA Consultation directly
holds an approximate 51.04% interest in HKA Holdings. Accordingly, HKA Consultation will be deemed to have an
approximate [REDACTED] interest in our Company which is held by HKA Holdings.
(2)
Mr. Zhong is the sole beneficial owner of HKA Consultation. Accordingly, Mr. Zhong will be deemed to have an
approximate [REDACTED] interest in our Company which is held directly and indirectly by HKA Consultation.
(3)
HKA Group directly holds an approximate 48.96% interest in HKA Holdings. Accordingly, HKA Group will be deemed
to have an approximate [REDACTED] interest in our Company which is held by HKA Holdings.
(4)
Mr. Mung directly holds an approximate [REDACTED] interest in our Company. Mr. Mung is the sole beneficial
owner of each of HKA Group and China Energy Development Limited. Accordingly, Mr. Mung will be deemed to have
an approximate [REDACTED] interest in our Company of which [REDACTED] is held by HKA Holdings and
[REDACTED] is held by China Energy Development Limited.
(5)
Hainan Airlines is the holding company of Hainan Airlines (Hong Kong) which in turn holds 100% interest in Hainan
Airlines Investment. Accordingly, each of Hainan Airlines (Hong Kong) and Hainan Airlines will be deemed to have
an approximate [REDACTED] interest in our Company which is held by Hainan Airlines Investment.
(6)
Grand China Air is a holding company of Hainan Airlines. Accordingly Grand China Air will be deemed to have an
approximate [REDACTED] interest in our Company which is held by Hainan Airlines Investment.
(7)
HNA Group is the holding company of HNA Investment. Accordingly, HNA Group will be deemed to have an
approximate [REDACTED] interest in our Company which is held by HNA Investment.
(8)
HNA Group is held as to 70% by Hainan Traffic Administration Holding Co. Ltd. (), which is
in turn held as to 50% by Tang Dynasty Development (Yangpu) Company Limited (()). Tang
Dynasty Development (Yangpu) Co., Ltd. is held as to 65% by Hainan Province Cihang Foundation (
). Two-thirds of the committee members of Hainan Province Cihang Foundation are nominated by Hainan
Airlines Co., Ltd. Trade Community Union (). Accordingly, each of Hainan Traffic
Administration Holding Co. Ltd, Tang Dynasty Development (Yangpu) Co., Ltd., Hainan Province Cihang Foundation
and Hainan Airlines Co., Ltd. Trade Community Union will be deemed to have an approximate [REDACTED] interest
in our Company which is held by HNA Investment.
205
Save as disclosed in this [REDACTED], we are not aware of any other person who will, immediately
following completion of the [REDACTED] (without taking into account any exercise of the Overallotment Option), have an interest or short position in our [REDACTED] or our underlying shares which
would fall to be disclosed to us and the Stock Exchange pursuant to the provisions of Divisions 2 and 3
of Part XV of the SFO, or who will, directly or indirectly, be interested in 10% or more of the then enlarged
issued share capital of our Company carrying rights to vote in all circumstances at our general meetings.
All subsidiaries of the Company are wholly-owned by the Company, details of which are set out in
Note 35 of the Accountants Report included in Appendix I to this [REDACTED].
206
SHARE CAPITAL
The following is a description of the authorised share capital and share capital of our Company in
issue and to be issued as fully paid or credited as fully paid immediately following completion of the
[REDACTED]:
Authorised share capital:
10,000,000,000
HK$
Shares of HK$0.10 each
1,000,000,000
1,000,000,000
Our share capital immediately following the [REDACTED] (excluding any [REDACTED] which
may be issued under the Over-allotment Option) will be as follows:
HK$
[REDACTED]
Shares in issue as at the date of this [REDACTED]
[REDACTED]
[REDACTED]
Shares to be issued under the [REDACTED] (excluding any

Shares which may be issued under the Over-allotment Option)
[REDACTED]
[REDACTED]
Shares in total
[REDACTED]
ASSUMPTIONS
The above table assumes that the [REDACTED] becomes unconditional and the [REDACTED] are
issued pursuant to the [REDACTED]. The above does not take into account any [REDACTED] which
may be issued and/or sold pursuant to the exercise of the Over-allotment Option or any [REDACTED]
which may be issued or bought back by us pursuant to the general mandates granted to our Directors to
issue or buy back [REDACTED] as described below.
RANKING
The [REDACTED] are ordinary shares in our share capital and rank equally with all [REDACTED]
currently in issue or to be issued. In particular, they will rank in full for all dividends or other distributions
declared, made or paid on the [REDACTED] in respect of a record date which falls after the date of this
[REDACTED].
The Shares to be issued under the [REDACTED] (including any [REDACTED] which may be
issued under the Over-allotment Option) will be [REDACTED] in both HKD and [REDACTED] and will
be traded in the [REDACTED] and the [REDACTED] respectively. The [REDACTED] and the
[REDACTED] will be of the same class with identical shareholders rights attached thereto. Shareholders
will receive any dividend payable by the Company in the currency in which it is declared, but may be
given the option to elect to receive such dividend in the alternative currency. Any such option, if given,
will be given to all Shareholders, and Shareholders who will have validly made an election will receive
the dividend in the currency they elect.
207
SHARE CAPITAL
CIRCUMSTANCES UNDER WHICH GENERAL MEETING IS REQUIRED
Pursuant to the Cayman Companies Law and the terms of our Memorandum of Association and
Articles of Association, the Company may from time to time, alter its share capital by ordinary resolution
and vary the rights of [REDACTED] by special resolution. For details, please refer to Summary of the
Constitution of our Company and Cayman Companies Law 2. Articles of Association.
GENERAL MANDATE
Subject to the conditions stated in the section headed Structure of the [REDACTED] the
[REDACTED] of this [REDACTED], our Directors have been granted a general unconditional mandate
to allot, issue and deal with [REDACTED] or securities convertible into Shares or options, warrants or
similar rights to subscribe for [REDACTED] or such convertible securities and to make or grant offers,
agreements or options which would or might require the exercise of such powers, provided that the
aggregate number of [REDACTED] allotted or agreed to be allotted by the Directors other than pursuant
to:
(a)
a rights issue;
(b)
exercise of any subscription rights attaching to any warrants which may be allotted and issued
by us from time to time on a specific authority granted by the Shareholders in general meeting;
(c)
any scrip dividend scheme or similar arrangement providing for the allotment of
[REDACTED] in lieu of the whole or part of a dividend on [REDACTED] in accordance with
our Articles of Association; or
(d)
a specific authority granted by the Shareholders in general meeting,
shall not exceed the aggregate of:

(i)
20% of the then enlarged total issued share capital of our Company immediately following
completion of the [REDACTED] (but excluding any [REDACTED] which may be issued
pursuant to the exercise of the Over-allotment Option); plus
(ii)
the total number of [REDACTED] bought back by us (if any) under the general mandate to buy
back [REDACTED] referred to in Buy-Back Mandate below.
This general mandate will expire:

(a)
at conclusion of our next annual general meeting; or
(b)
at the end of the period within which we are required by any applicable law or our Articles of
Association to hold our next annual general meeting; or
(c)
when being varied or revoked by an ordinary resolution of our Shareholders in general meeting,
whichever is the earliest.

For further details of this general mandate, please see the section headed Statutory and General
Information A. Further Information about the Company 4. Resolutions in writing of the Shareholders
passed on [] in Appendix IV to this [REDACTED].
208
SHARE CAPITAL
BUY-BACK MANDATE
Subject to the conditions stated in the section headed Structure of the [REDACTED] the
[REDACTED] of this [REDACTED], our Directors have been granted a general unconditional mandate
to exercise all of our powers to buy back [REDACTED] with a total number of not more than 10% of the
then enlarged total issued [REDACTED] capital of our Company immediately following completion of
the [REDACTED] (but excluding any [REDACTED] which may be issued pursuant to the exercise of the
Over-allotment Option).
This general mandate relates only to buy-backs made on the Stock Exchange (or on any other stock
exchange for this purpose), and made in accordance with the Listing Rules. A summary of the relevant
Listing Rules is set out in the section headed Statutory and General Information A. Further Information
about the Company 6. Securities buy-back mandate in Appendix IV to this [REDACTED].
This general mandate to buy back [REDACTED] will expire:
(a)
at the conclusion of our next annual general meeting; or
(b)
at the end of the period within which we are required by any applicable law or our Articles of
Association to hold our next annual general meeting; or
(c)
when varied or revoked by an ordinary resolution of our Shareholders in general meeting,
whichever is the earliest.

For further details of this general mandate, please see the section headed Statutory and General
Information A. Further Information about the Company 4. Resolutions in writing of the Shareholders
passed on [] in Appendix IV to this [REDACTED].
209
FINANCIAL INFORMATION
You should read the following discussion and analysis of our financial condition and results
of operations in conjunction with our combined financial statements, including the accompanying
notes thereto, included in Accountants Report set out in Appendix I to this [REDACTED]. Our
combined financial statements has been prepared in accordance with HKFRS, which may differ in
certain material respects from generally accepted accounting principles in other jurisdictions. This
discussion and analysis contains certain forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated in these forwardlooking statements due to various factors, including those set forth in the sections headed
Forward-Looking Statements, Risk Factors and elsewhere in this [REDACTED].
OVERVIEW
airline group in Hong Kong in terms of passenger market share, according to the ICF Report.
During the Track Record Period, our main sources of revenue included (i) passenger revenue,
representing the revenue we generated from sales of passenger seats on passenger flights and providing
charter services; and (ii) cargo revenue, representing the revenue we generated from sales of cargo
capacity on dedicated cargo freighters and that in the bellyhold space of passenger aircraft, through which
we provide both scheduled flights and charter cargo services. For the years ended December 31, 2011,
2012 and 2013 and the five months ended May 31, 2013 and 2014, our passenger revenue represented
62.4%, 60.2%, 63.7%, 63.7% and 65.2%, respectively of our total revenue. For the same periods, our cargo
revenue contributed to 25.7%, 27.2%, 20.7%, 18.9% and 22.9%, respectively of our total revenue. For the
same periods, we also obtained rental income through leasing aircraft to our related parties, amounting to
11.6%, 12.3%, 15.3%, 17.1% and 11.6%, respectively of our total revenue. For details, please see the
section headed Description of Major Components of Results of Operations Revenue.
We have achieved significant growth during the Track Record Period. For the years ended December
31, 2011, 2012 and 2013, our revenue was HK$4,675.5 million, HK$6,250.1 million and HK$8,546.8
million, respectively, representing a CAGR of 35.2% over the period. For the same periods, our profit for
the year was HK$147.9 million, HK$274.7 million and HK$493.3 million, respectively, representing a
CAGR of 82.6% over the period. For the five months ended May 31, 2013 and 2014, our revenue was
HK$3,298.6 million and HK$3,958.5 million, respectively, and we recorded profit for the period of
HK$186.1 million and HK$165.9 million, respectively.
BASIS OF PRESENTATION
Our Company was incorporated in the Cayman Islands on January 30, 2014 as an exempted company
with limited liability under the Cayman Companies Law. Prior to the Reorganization, our Company did
not engage in any other business and our operations did not meet the definition of a business.
In preparation of the [REDACTED], we conducted the Reorganization, immediately prior to and
after which, the business of passenger and air cargo transportation services, or the [REDACTED]
Business, was carried out by Hong Kong Airlines. As a result of the Reorganization, both Hong Kong
Airlines and the [REDACTED] Business are under the control of our Company. The Reorganization is
merely a reorganization of the [REDACTED] Business and did not result in any change in the business
substance, management or the Controlling Shareholders of the [REDACTED] Business. Accordingly, the
financial information of the companies now comprising our Group for the Track Record Period as
contained in the Accountants Report set out in Appendix I to this [REDACTED] has been prepared using
the carrying value of the [REDACTED] Business for all periods presented. For the details of the
Reorganization, please see the section headed History and Reorganization in this [REDACTED].
210
SIGNIFICANT FACTORS AFFECTING OUR RESULTS OF OPERATIONS
Our results of operations have been, and are expected to continue to be, affected by a number of
factors, which primarily include the following:
Demand for Our Services
Our results of operations depend significantly on the economic growth in Hong Kong, China and
Southeast Asia. We believe that the rapid economic growth in Hong Kong, China and Southeast Asia in
the past has led to higher disposable income and increasing demand for air transportation services, which
further led to increase in our revenue during the Track Record Period. In particular, our traffic revenue
generated from routes between Hong Kong and destinations in China accounted for 37.6%, 40.8%, 45.4%,
47.3% and 49.2% of our total traffic revenue for the years ended December 31, 2011, 2012 and 2013 and
the five months ended May 31, 2013 and 2014, respectively. The traffic revenue generated from routes
between Hong Kong and destinations in Southeast Asia accounted for 40.0%, 37.4%, 41.3%, 41.1% and
37.4% of our total traffic revenue for the years ended December 31, 2011, 2012 and 2013 and the five
months ended May 31, 2013 and 2014, respectively.
Continuous economic growth and increasing consumption power of the Hong Kong population
support outbound air travel demand, benefitting Hong Kong-based airlines departing from Hong Kong for
overseas destinations. In the meantime, the growth in passenger air travel to Hong Kong is significantly
driven by the increasing air travel demand in China, which is the single largest source of visitors for Hong
Kong. We believe an increasing population, growth in GDP and disposable income per capita, low air
travel penetration, urbanization, growing tourism and international business activities will all contribute
to growth in Chinas air travel demand. Furthermore, located in the center of Asia, Hong Kongs air traffic
is also well positioned to benefit from economic growth in the surrounding Southeast Asian economies.
Please also see the section headed Industry Overview.
Furthermore, demand for our service can also be affected by various factors beyond our control,
including without limitation, consumer confidence and discretionary spending, fear of terrorism or war,
disease outbreaks, natural disasters, political instability, weakening economic conditions, which could
further result in significant fluctuations in our revenue and results of operations. For details, please see
the sections headed Risk Factors Any terrorist attacks, natural disasters, epidemics and social and
political unrest may lead to travel restrictions and reduced levels of economic activity in the affected areas,
which may in turn significantly reduce demand for our services and have a material and adverse effect on
our business, financial condition and results of operations and Industry Overview.
Aircraft Capacity
Our ability to generate revenue is dependent upon our ability to provide sufficient passenger and
cargo capacity to service demand from our passengers and cargo customers in the Asia-Pacific region.
We measure our passenger capacity in terms of both (i) seat capacity, representing the number of
seats that are available to our passengers for sale during the relevant period, and (ii) ASKs, representing
the total number of seats available on passenger flights multiplied by the number of kilometers those seats
were flown over a particular period. As of May 31, 2014, we operated 23 aircraft including 18 passenger
aircraft and five cargo freighters. For details, please see the section headed Business Our Fleet. The
increase in our passenger capacity is evidenced by the growth in seat capacity of passenger flights from
211
2.48 million seats in 2011 to 3.53 million seats in 2012 and to 5.39 million seats in 2013, and our growth
in ASKs from 4,829 million in 2011 to 5,831 million in 2012 and to 8,163 million in 2013. For the five
months ended May 31, 2013 and 2014, our seat capacity of passenger flights amounted to 1.98 million
seats and 2.65 million seats, respectively, and our ASKs amounted to 2,975 million and 3,838 million,
respectively.
The increase in our cargo capacity is evidenced by the growth in AFTKs from 615 million AFTKs
in 2011 to 723 million AFTKs in 2012 and further to 831 million AFTKs in 2013. For the five months
ended May 31, 2013 and 2014, our AFTKs amounted to 283 million and 483 million, respectively. We
intend to take possession of two passenger aircraft in 2015 and three passenger aircraft in 2016, all of
which are currently sub-leased to a related party. We intend to take delivery of one A320-200 aircraft in
the second half of 2014 and two A320-200 aircraft in 2015, respectively, under operating leases with
HKIAL as lessor. We have committed to take delivery of an additional five passenger aircraft between
2017 and 2018 from Airbus in order to execute our route development plan and increase our total aircraft
capacity.
Primarily as a result of our increased passenger and cargo capacity, we have been able to increase
total passenger volumes and cargo volumes during the Track Record Period. Our total passengers carried
increased from 1.8 million in 2011 to 4.1 million in 2013. Our total cargo carried increased from 0.15
million tonnes in 2011 to 0.23 million tonnes in 2013. Accordingly, our traffic revenue increased from
HK$4,118.9 million in 2011 to HK$7,210.4 million in 2013. For the five months ended May 31, 2013 and
2014, our traffic revenue amounted to HK$2,724.9 million and HK$3,487.3 million, respectively.
Competition
The airline industry is highly competitive. The principal competitive factors in the airline industry
are fare pricing, flight schedules, aircraft type, passenger amenities, number of routes served to and from
a city, customer service, safety record and reputation, code-sharing relationships, frequent flyer programs
and redemption opportunities. Price competition occurs on a market-by-market basis through pricing
discounts, fare matching, targeted promotions and frequent flyer initiatives. Airlines typically use discount
fares and other promotions to stimulate traffic during normally slower travel periods to generate cash flow
and to maximize unit revenue. The prevalence of discount fares can be particularly acute when a
competitor has excess capacity that it is under financial pressure to sell.
Aircraft Utilization
We seek to maximize revenue by achieving a high daily aircraft utilization rate. For the years ended
December 31, 2011, 2012 and 2013 and the five months ended May 31, 2013 and 2014, our aircraft
utilization under passenger services, measured by block hours per day per aircraft was 10.8, 10.3, 10.6,
9.7 and 11.3, respectively. For the same periods, our daily aircraft utilization under cargo services was 8.1,
8.1, 9.5, 8.9 and 10.4 block hours, respectively. The key drivers of our aircraft utilization rate are securing
air traffic rights to attractive traffic destinations, favorable arrival and departure slots, maintaining an
efficient aircraft turnaround time and ensuring a high-quality and time-efficient aircraft maintenance
program.
Air Traffic Rights: Our aircraft utilization is in part affected by the traffic routes which we
serve. Air traffic rights specify the permitted destinations, volume and frequency of flights to
a country or region. There may be caps placed on the number of total seats on the aircraft and
212
total tonnages of cargo on the aircraft that an airline is allowed to fly to a particular airport
according to the local government or airport regulations. Having sufficient air traffic rights in
our target markets is critical for us to match available capacity to the specified route.
Arrival and Departure Slots: Our aircraft utilization is also affected by our capability to secure
both arrival and departure time slots that fit an optimal aircraft flying pattern (rotation). We try
to maintain a balance of airports without slot constraints to offset those with slot constraints
and optimize our aircraft fly pattern to improve our aircraft utilization rate.
Turnaround Time: Turnaround time between the time our aircraft arrive at an airport and the
time they subsequently depart for their next destination also affects aircraft utilization rate. We
are committed to decrease delays in departure to optimize the turnaround time.
Maintenance: We focus on implementing a high-quality and time-efficient aircraft maintenance

beyond to ensure that our aircraft operate with a high degree of reliability while minimizing
down-time from scheduled or unscheduled maintenance work. By having a strong maintenance
program focused on predictive and preventive maintenance, we attempt to minimize
unscheduled maintenance downtime to increase aircraft utilization.
Furthermore, aircraft utilization rates, could be influenced by a number of other factors that are
beyond our control, including but not limited to air traffic control and airport congestion at the airports
within our route network, adverse weather conditions, delays caused by security requirements, unforeseen
mechanical problems with our aircraft and delays in receiving timely services from third parties, such as
ground handling and refueling.
Fuel Prices
The largest component of our total operating expenses is aircraft fuel costs, which include cost of
fuel and other into-plane costs such as airfield fees, throughput fees and storage fees. Aircraft fuel costs
represented 35.9%, 33.9%, 31.6%, 30.1% and 32.9% of our total operating expenses for the years ended
December 31, 2011, 2012 and 2013 and the five months ended May 31, 2013 and 2014, respectively. Our
aircraft fuel costs fluctuate based on global oil prices, which have historically been, and are expected to
continue to be, subject to price volatility as a result of various factors that are beyond our control. Our
average fuel costs were HK$1,032.4 per barrel, HK$1,032.8 per barrel, HK$1,013.9 per barrel,
HK$1,033.0 per barrel and HK$1,030.7 per barrel in 2011, 2012 and 2013 and the five months ended May
31, 2013 and 2014, respectively. Given the significance of fuel expenses in relation to our total operating
expenses, changes in fuel prices have a significant impact on our operating expenses and results of
operations. For the years ended December 31, 2011, 2012 and 2013, if fuel price had been 5% higher or
lower with all other variables held constant, our aircraft fuel costs would have been approximately
HK$76.2 million, HK$98.9 million, HK$120.0 million, HK$43.4 million and HK$60.0 million higher or
lower, respectively. Please see the section headed Industry Overview Aircraft Fuel.
During the Track Record Period, we did not enter into any fuel hedging arrangement. To help
improve our fuel efficiency, we implement various fuel management techniques including using relatively
fuel efficient aircraft, purchasing fuel in jurisdictions where the price of fuel is relatively lower such as
Hong Kong and controlling the total weight carried on our aircraft.
213
Non-Fuel Operating Expenses
Besides fuel costs, our operating expenses also include landing, parking and route expenses, wages,
salaries and benefits, aircraft operating lease payments, aircraft maintenance expenses, food and beverages
and selling and marketing expenses.
During the Track Record Period, our non-fuel operating expenses increased primarily due to the
expansion of our fleet. Our average number of aircraft in our operating fleet increased from 13.1 in 2011
to 18.5 in 2012 and further to 20.5 in 2013. For the same years, our non-fuel operating expenses amounted
to approximately HK$2,717.6 million, HK$3,852.3 million and HK$5,205.7 million, respectively,
representing 64.1%, 66.1% and 68.4%, respectively, of our total operating costs in each of these years. For
the five months ended May 31, 2013 and 2014, our average number of aircraft in our operating fleet was
20.8 and 21.5, and our total non-fuel operating expenses amounted to approximately HK$2,016.5 million
and HK$2,449.5 million, respectively, representing 69.9% and 67.1%, respectively, of our total operating
costs for the relevant periods.
In addition, our non-fuel operating expenses are also affected by the number of flight routes we
operate, the number of destinations we cover and the size of our crew, which are further affected by
various factors beyond our control, including, without limitation, the general economic conditions,
government control and competition for qualified employees. As we continue to expand our business, we
expect our operating expenses to continue to increase. Furthermore, we expect our aircraft maintenance
expenses to increase in the future as our fleet ages.
214
KEY PERFORMANCE INDICATORS
The following table sets forth certain operating information regarding our passenger and cargo
services for the periods indicated:
For the five months ended
May 31,

2011
Passenger services:
Passenger carried (in
millions) . . . . . . . . . . . . .
Passenger revenue (HK$ in
millions) . . . . . . . . . . . . . .
RPKs (in millions) . . . . . . . .
ASKs (in millions) . . . . . . . .
Passenger load factor . . . . . .
Passenger yield (in HK$) . . .
RASK (HK$ per ASK) . . . . .
Daily aircraft utilization
(block hours per day per
aircraft) . . . . . . . . . . . . . .
passenger aircraft . . . . . . .
Flight frequency (passenger
flights per week) . . . . . . . .
Number of passenger flights .
Cargo services:
Cargo revenue (HK$ in
millions) . . . . . . . . . . . .
RFTKs (in millions) . . . . .
AFTKs (in millions) . . . . .
Cargo load factor . . . . . . .
Cargo yield (HK$ per
RFTK) . . . . . . . . . . . . .
Daily aircraft utilization
(block hours per day per
aircraft) . . . . . . . . . . . .
2012
2013
2013
2014
1.8
2.5
4.1
1.5
2.0
2,916
3,446
4,829
71%
0.85
0.60
3,765
4,168
5,831
71%
0.90
0.65
5,448
6,238
8,163
76%
0.87
0.67
2,102
2,262
2,975
76%
0.93
0.71
2,581
2,899
3,838
76%
0.89
0.67
10.8
10.3
10.6
9.7
11.3
8.55
13.31
16.52
16.84
16.83
207
10,896
314
16,323
453
23,559
420
9,053
513
11,072
.
.
.
.
1,202
296
615
48%
1,698
403
723
56%
1,763
384
831
46%
622
132
283
47%
906
224
483
46%
..
4.06
4.22
4.59
4.71
4.04
..
8.1
8.1
9.5
8.9
10.4
.
.
.
.
215
SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
We have identified certain accounting policies that are significant to the preparation of our
consolidated financial statements. Our significant accounting policies, which are important for an
understanding of our financial condition and results of operations, are set forth in detail in Note 2 to the
Accountants Report included in Appendix I to this [REDACTED]. Some of our significant accounting
policies involve subjective assumptions and estimates, as well as complex judgments by our management
relating to accounting items. We base the assumptions and estimates on historical experience and on
various other assumptions that we believe are reasonable and which form the basis of making judgments
about matters that are not readily apparent from other sources. Actual results may differ from those
estimates as facts, circumstances and conditions may change.
In each case, the determination of these items requires management judgments based on information
and financial data that may change in future periods. Our management has formulated and implemented
control measures with respect to our managements estimates in accordance with our internal management
manual. We have not experienced any material deviation between our managements estimates and actual
results and have not changed these estimates during the Track Record Period. Our management does not
expect any material changes in these estimates in the foreseeable future. When reviewing our financial
statements, you should consider: (i) our selection of significant accounting policies, (ii) the judgment and
other uncertainties affecting the application of such policies, and (iii) the sensitivity of reported results to
changes in conditions and assumptions. We set forth below those accounting policies that we believe
involve the most significant estimates and judgments used in the preparation of our financial statements.
Revenue Recognition
Revenue is measured at the fair value of the consideration received or receivable. We recognize
revenue when (i) the amount of revenue can be reliably measured; (ii) it is probable that future economic
benefits will flow to the entity; and (iii) specific criteria have been met for each of our activities.
Traffic Revenue. We recognize traffic revenue when the transportation services are provided
rather than when the tickets are sold.
The value of sold but unused tickets is included in current liabilities on our balance sheet and
recognized as sales in advance of carriage (SIAC). Unused tickets are recognized in traffic
revenue based on current estimates. We annually evaluate the SIAC balance and record any
adjustments, which can be material, in the period the evaluation is completed. These
adjustments result from differences between the estimates of certain revenue transactions and
the timing of recognizing revenue for any unused air tickets and the related sales price, and are
impacted by various factors, including a complex pricing structure and interline agreements
throughout the industry, which affect the timing of revenue recognition.
During the Track Record Period, we participated in a frequent flyer program named Fortune
Wings Club, operated by Hainan Airlines, which provides travel awards to program members
based on an accumulated mileages. The charges from Hainan Airlines for the mileages earned
with our flights are recognized as our cost. The charges to Hainan Airlines for the mileages
redeemed for our tickets are recognized as our revenue.
Rental income from aircraft operating leases. We recognize rental income from aircraft
operating lease on a straight-line basis over the term of the lease.
216
During the Track Record Period, we also generated revenue through obtaining in-flight sales
commission, which we recognize when the services are rendered.
Property, Plant and Equipment
Depreciation of components related to airframe and engine overhaul costs are based on our historical
experience with similar airframe and engine models and taking into account anticipated overhaul costs,
timeframe between each overhaul, ratio of actual flying hours and estimated flying hours between
overhauls. Different judgments or estimates could significantly affect the estimated depreciation charge
and the results of operations.
Our property, plant and equipment are depreciated on a straight-line basis over the estimated useful
lives, after taking into account the estimated residual value. The useful lives are based on our historical
experience with similar assets and taking into account anticipated technological changes. We review the
estimated useful lives of assets regularly in order to determine the amount of depreciation expense to be
recorded during any reporting period. The depreciation expense for future periods is adjusted if there are
significant changes from previous estimates.
The following table sets forth a breakdown of our property, plant and equipment along with
information about estimated useful lives of these groups of assets:
Depreciation Life
Aircraft and engines

Mainframe and core parts . . . . . . . . . . . . . . .
Replaceable components relating to overhauls
Aircraft related equipment. . . . . . . . . . . . . . . . . .
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . .
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Equipment and vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15-20 years
6 years
4-15 years
40 years
shorter of 10
years or leasing
period
5 years
Maintenance and Overhaul Costs

Routine repairs and maintenance costs are charged to the combined income statement as and when
incurred. For aircraft and engines owned or held under finance leases by us, overhaul costs which meet
the definition of property, plant and equipment are capitalized as a component of property, plant and
equipment and depreciated over the overhaul cycles. In respect of aircraft and engines under operating
leases, we are obligated to fulfill certain return conditions upon expiration of the leases.
217
Provisions for return conditions for aircraft and engines under operating leases
Provision for checks and overhauls we conduct to fulfill the return conditions for aircraft and engines
under operating leases is made based on the estimated costs of checks and overhaul to be required at the
end of the leases. Such estimates need to take into account anticipated aircraft and engines flying hours,
flying cycles, overhaul interval and overhaul costs to be incurred at the end of the lease. These judgments
or estimates are based on historical experience on returning similar airframe and engine models, actual
costs incurred and aircraft and engines status. Different judgments or estimates would affect the estimated
provision for the costs of return condition checks and overhauls.
Expendable Spare Parts
Expendable spare parts are stated at the lower of cost and net realizable value. Cost is determined
using the first in first out method. The cost of expendable spare parts comprises purchase price (net of
discounts), freight charges and other miscellaneous charges. Net realizable value is the estimated selling
price in the ordinary course of business, less applicable variable selling expenses.
Valuation of available-for-sale financial assets
We have a significant amount of available-for-sale financial assets that are classified as Level 1 and
Level 3 investments under HKFRS 13. As the unlisted investments held by us are not traded in an active
market, their fair values are determined with reference to the valuation report.
Current and Deferred Income Tax
We are subject to enterprise income tax in Hong Kong. Significant judgment is required in
determining the provision for corporate income tax. There are transactions and calculations for which the
ultimate determination is uncertain. We recognize liabilities for anticipated tax audit issues based on
estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different
from the amounts that we initially recorded, such difference will impact the current income tax and
deferred tax provision in the period in which such determination is made.
Deferred income tax assets relating to certain temporary differences and tax losses are recognized
when management considers it to be probable that future taxable profit will be available against which the
temporary differences or tax losses can be utilized. The outcome of their actual utilization may be
different.
218
DESCRIPTION OF MAJOR COMPONENTS OF RESULTS OF OPERATIONS
Revenue
Our revenue mainly includes traffic revenue, which includes revenue generated by passenger and
cargo services. Our revenue also includes rental income from aircraft under operating leases and other
revenue. The following table sets forth the components of our revenue for the periods indicated:
2011
HK$000
2012

2013
2013
2014
HK$000
HK$000
HK$000
%
unaudited
HK$000
62.4
25.7
3,765,285
1,698,069
60.2
27.2
5,447,640
1,762,789
63.7
20.7
2,102,490
622,388
63.7
18.9
2,581,394
905,896
65.2
22.9
4,118,885
88.1
5,463,354
87.4
7,210,429
84.4
2,724,878
82.6
3,487,290
88.1
541,556
15,057
11.6
0.3
767,410
19,344
12.3
0.3
1,310,474
25,932
15.3
0.3
565,308
8,453
17.1
0.3
458,293
12,913
11.6
0.3
Total . . . . . . . . . . . 4,675,498
100.0
6,250,108
100.0
8,546,835
100.0
3,298,639
100.0
3,958,496
100.0
Traffic revenue
Passenger revenue. . . . 2,916,496
Cargo revenue . . . . . . 1,202,389
Total traffic revenue . .
Rental income from
aircraft under
operating lease(1) . . . .
Others(2) . . . . . . . . . .
Notes:
1.
leases to our related parties, Hong Kong Express, Hainan Airlines and Yangtze River Express.
2.
Traffic Revenue
During the Track Record Period, our main sources of revenue include (i) passenger revenue,
representing the revenue we generated from sales of passenger seats on passenger flights and providing
charter services and (ii) cargo revenue, representing the revenue we generated from the sale of cargo
capacity on dedicated cargo freighters as well as in the bellyhold space of passenger aircraft, where we
provide both scheduled and charter services.
219
The following table sets forth details of our traffic revenue for the periods indicated:
2011
HK$000
2012
% of
total
traffic
revenue
% of
total
traffic
revenue
HK$000

2013
HK$000
2013
% of
total
traffic
revenue
2014
% of
total
traffic
HK$000 revenue
unaudited
HK$000
% of
total
traffic
revenue
Traffic revenue
Passenger revenue
Scheduled service . . . . . 2,850,175
Charter service . . . . . . .
66,321
69.2 3,712,205
1.6
53,080
67.9 5,332,737
1.0 114,903
73.9 2,048,492
1.6
53,998
75.2 2,581,394
2.0
74.0
Subtotal . . . . . . . . . . . . 2,916,496
70.8 3,765,285
68.9 5,447,640
75.5 2,102,490
77.2 2,581,394
74.0
Cargo revenue
Scheduled service . . . . .
Charter service . . . . . . .
976,335
226,054
23.7 1,574,603
5.5 123,466
28.8 1,613,890
2.3 148,899
22.4
2.1
559,913
62,475
20.5
2.3
851,398
54,498
24.4
1.6
Subtotal . . . . . . . . . . . . 1,202,389
29.2 1,698,069
31.1 1,762,789
24.5
622,388
22.8
905,896
26.0
Total traffic revenue . . . . . 4,118,885
100.0 5,463,354
100.0 7,210,429
100.0 3,487,290
100.0
100.0 2,724,878
The following table sets forth break-down of our traffic revenue by geographical area (based on
flights between countries or regions to or from Hong Kong) for the periods indicated:
2011
HK$000
China. . . . . . . . . .
Southeast Asia . . . .
Taiwan . . . . . . . . .
Japan and South Korea
Europe . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2012
% of
total
traffic
revenue
HK$000

2013
% of
total
traffic
revenue
HK$000
2013
% of
total
traffic
revenue
2014
% of
total
traffic
HK$000 revenue
unaudited
HK$000
% of
total
traffic
revenue
. 1,549,765
. 1,646,547
.
. 468,893
. 453,680
37.6 2,228,002
40.0 2,043,324
366,646
11.4 484,409
11.0 340,973
40.8 3,275,464
37.4 2,975,557
6.7 629,891
8.9 329,517
6.2
45.4 1,286,234
41.3 1,120,236
8.7 249,010
4.6
69,398
47.2 1,714,764
41.1 1,304,241
9.1 287,292
2.5 180,993
49.2
37.4
8.2
5.2
Total traffic revenue . . . . . 4,118,885
100.0 5,463,354
100.0 7,210,429
100.0 2,724,878
100.0 3,487,290
100.0
220
Rental Income from aircraft under operating leases
Rental income from aircraft under operating leases represents the rental income generated from the
aircraft sub-leased to Hong Kong Express, Hainan Airlines and Yangtze River Express, our related parties.
Other Revenue
Other revenue represents revenue from other operating businesses, comprising primarily in-flight
sales commission.
Operating Expenses
Substantially all of our operating expenses are related to our passenger and cargo services. The
following table sets forth details of our operating expenses for the periods indicated:
Aircraft fuel . . . . . . . . .
Landing, parking and route
expenses . . . . . . . . . .
Aircraft and other
depreciation . . . . . . . .
Aircraft operating lease
rentals . . . . . . . . . . .
Aircraft maintenance . . . .
Wages, salaries and benefits
Food and beverages . . . . .
Selling and marketing
expenses . . . . . . . . . .
Other expenses . . . . . . .
2011
2012
2013
2013
2014
% of
total
operating
HK$000 expenses
% of
total
operating
HK$000 expenses
% of
total
operating
HK$000 expenses
% of
total
operating
HK$000 expenses
unaudited
% of
total
operating
HK$000 expenses
. 1,523,467
35.9 1,978,607
33.9 2,400,439
31.6
868,181
30.1 1,200,023
32.9
857,223
20.2 1,048,157
18.0 1,236,718
16.3
479,108
16.6
650,566
17.8
487,911
11.5
674,298
11.6
853,823
11.2
360,809
12.5
378,192
10.4
.
.
.
.
214,560
172,954
476,291
160,425
5.1
4.1
11.2
3.8
395,583
278,752
760,389
207,988
6.8
4.8
13.0
3.6
918,105
385,336
925,955
282,886
12.1
5.1
12.2
3.7
375,751
139,718
356,985
94,949
13.0
4.9
12.4
3.3
451,788
147,771
407,636
128,469
12.4
4.0
11.2
3.5
.
.
183,806
164,456
4.3
3.9
248,309
238,804
4.3
4.0
348,305
254,615
4.6
3.2
119,289
89,912
4.1
3.1
183,015
102,058
5.0
2.8
100.0 3,649,518
100.0
Total . . . . . . . . . . . . . . 4,241,093
100.0 5,830,887
100.0 7,606,182
221
100.0 2,884,702
Aircraft fuel expense
Aircraft fuel expense is our single largest operating expense. It represents the cost of fuel and other
into-plane costs such as airfield fees, throughput fees and storage fees. During the Track Record Period,
we did not have any fuel hedging arrangement.
Landing, parking and route expenses
Landing, parking and route charges include landing and parking fees, handling charges, and other
rents (which include fixed and variable facilities expenses, such as the fees charged by airports for the
use or lease of airport facilities), as well as costs associated with ground services that we outsource to third
party service providers at certain airports. These expenses also include route charges, which are the costs
of using a countrys or territorys airspace, and are levied depending on the distance flown over such
airspace.
Aircraft and other depreciation
Aircraft and other depreciation is calculated using the straight-line method to allocate the cost of the
assets to their residual values over the assets estimated useful lives, which assets include aircraft and
engines, aircraft related equipment, buildings, leasehold improvements, equipments and vehicles.
Aircraft operating lease rentals
Aircraft operating lease rentals consist of lease rentals incurred for our aircraft leased under
operating leases. Aircraft operating lease rentals increased throughout the three years ended December 31,
2011, 2012 and 2013 and the five months ended May 31, 2013 and 2014, which was primarily due to the
increase in the average number of aircraft we held under operating leases. For details, please see the
subsection headed Results of Operations.
Aircraft maintenance expense
Aircraft maintenance expense consists mainly of maintenance and repair expenses for our aircraft,
engine and spares, and also includes our maintenance and other related expenses.
Wages, salaries and benefits consist of the remuneration of our employees which include basic
salaries, bonuses, allowances and pension costs of defined contribution plans.
222
Food and beverages expense
Food and beverages expense consists of in-flight catering expenses.
Selling and marketing expenses
Selling and marketing expenses include reservation expenses, sales commissions on passenger ticket
and cargo sales to travel agents and cargo agents, sales office expenses, sales incentives and advertising
and promotional expenses.
Other expenses
Other expenses mainly consist of legal and professional fees, office and warehouse rental expenses,
training costs, delay compensation expenses, aircraft and engine insurance premiums and general and
administrative expenses.
Other Income
Other income consists primarily of flight route subsidies granted by local governmental authorities
at certain destinations in the PRC, rebate of landing charges we receive from the Airport Authority of Hong
Kong under the NDIA scheme, and fees that we charge to passengers when they change their itinerary or
cancel their tickets after purchase.
The NDIA scheme was established by Airport Authority Hong Kong in 2001 to encourage airlines
to add new destinations to the network already served by carriers operating from HKIA. Under the NDIA
scheme, airlines are offered a 75% rebate on landing charges for flights they operate to a new destination
for the first six months they fly the route and a 25% rebate during the next six months.
Other gains net
Other gains-net includes gains from disposal of subsidiaries and gains from disposal of property,
plant and equipment.
Operating Profit
Operating profit represented the aggregate of (i) revenue, comprising traffic revenue and rental
income from aircraft operating lease, (ii) other income and (iii) other gains net, net of operating
expenses. During the Track Record Period, the increase in our operating profit were mainly caused by
expansion of our passenger and cargo services and leasing operations through which, we generated rental
income from aircraft under operating lease. All of these services contribute significant part of our total
revenue and operating profit.
Finance Income
Finance income consists primarily of interest income on bank deposits, interest income generated by
available-for-sale financial assets and foreign exchange gain.
Finance Costs
Finance costs consist primarily of interest expense on obligations under finance leases, interest
expense on bank borrowings, interest expense on notes payable and foreign exchange loss. The amount of
223
interest capitalized on our balance sheet under advanced payments on acquisition of aircraft is subtracted
from this amount in our calculation of finance costs.
Share of Profit of an associate
Share of profit of an associate represents the aggregate share of our associates profits or losses for
the year/period attributable to our interests in such associate. Under the relevant accounting policies, an
associate is an entity over which we have significant influence but have no control, which has a different
meaning from the definition in this [REDACTED]. During the Track Record Period, such associate was
HNA Tianjin and share of profit of an associate represented solely our share of profit of HNA Tianjin. We
acquired a 100% equity interest in SPA II Tianjin Center, which owns a 25% equity interest in HNA
Tianjin, as consideration for issuing 213,553,212 ordinary shares to HKA Consultation in December 2010.
SPA II Tianjin Center has no material assets other than HNA Tianjin. HNA Tianjin owns properties which
consist of an office building, serviced apartment and hotel in Tianjin, China. Our share of profit of HNA
Tianjin was approximately HK$47.6 million, HK$5.0 million, HK$4.1 million, HK$3.8 million and
HK$1.3 million for the years ended December 31, 2011, 2012 and 2013 and the five months ended May
31, 2013 and 2014, respectively.
Share of profit of an associate accounted for 32.2%, 1.8%, 0.8%, 2.1% and 0.8% of our profit for
the years ended December 31, 2011, 2012 and 2013 and the five months ended May 31, 2013 and 2014,
respectively. Share of profit of an associate fluctuates from period to period as it depends on HNA
Tianjins performance, which is affected by, among other factors, the performance of the office building
market, serviced apartment building market and hospitality service market in Tianjin and the PRC and
competition from other office buildings, serviced apartment buildings and hotels in Tianjin and the PRC,
and global economic conditions. The significant contribution to share of profit of an associate in 2011 was
primarily due to evaluation gain in the properties owned by HNA Tianjin to reflect a significant increase
in property prices in the PRC real estate market.
Income Tax Expense
Pursuant to the laws and regulations of the Cayman Islands and the BVI, we are not subject to any
taxation in the Cayman Islands and the BVI.
We are subject to Hong Kong profits tax. The Hong Kong profits tax rate is currently 16.5% of
assessable profit. All profits tax assessed for the Track Record Period has been paid when due. Our income
tax was nil and HK$64,000 for the years ended December 31, 2011 and 2012, respectively. Our effective
tax rate was 0.00% and 0.02% during the same periods, respectively. We had tax credit of HK$42.4 million
for the year ended December 31, 2013 arising from recognition of previously unrecognized tax losses. We
had tax expense of HK$26.5 million for the five months ended May 31, 2014 primarily arising from
income tax calculated at statutory rate of 16.5%.
Under Hong Kong tax law, we are eligible to enjoy an initial allowance of 60% on the cost of
purchase of an aircraft, and annual allowances of 30% on the tax written down value of the purchase of
aircraft. In addition, we are able to carry forward and utilize our net losses in prior years to offset our
taxable profits during more profitable years. We sustained a tax loss for the years ended December 31,
2011, 2012 and 2013, thus no provision for Hong Kong profits tax has been made in the financial
statements for those periods.
224
We also assess our future profitability for the purpose of deferred income tax assets recognition in
respect of tax losses carried-forward. For the year ended December 31, 2013, we experienced a significant
growth in profit. Based on the latest assessment, we estimated that we would continue to deliver
sustainable profit growth and be able to generate sufficient taxable profit to realize the tax losses brought
forward in the foreseeable future. Accordingly, we recognized a deferred income tax benefit as of
December 31, 2013, to the extent that the entire unrecognized tax losses brought-forward from previous
years were fully recognized. As of the Latest Practicable Date and during the Track Record Period, we had
fulfilled all our tax obligations and did not have any unresolved tax dispute.
The income tax on our profit before income tax differs from the theoretical amount that would arise
using the statutory tax rate of 16.5%. The following table sets forth the reconciliation between the
statutory tax expenses and the actual tax credit earned by us for the periods indicated:
For the five months
ended May 31,
Profit before tax . . . . . . . . . . . . . .

Income tax calculated at statutory rate of
16.5%. . . . . . . . . . . . . . . . . . . .
Associates results reported net of tax . .
Income not subject to tax . . . . . . . . . .
Effect of expenses not deductible for income
tax purposes . . . . . . . . . . . . . . . .
Utilization of previously unrecognized tax
losses . . . . . . . . . . . . . . . . . . . .
Recognition of deferred tax assets for
previously unrecognized tax losses . . . .
2011
2012
2013
2013
2014
HK$000
HK$000
HK$000
HK$000
unaudited
HK$000
147,885
274,722
450,878
186,104
192,372
.
.
.
24,401
(7,850)
(1,397)
45,329
(831)
(47,995)
74,395
(669)
(2,149)
30,707
(633)
(895)
31,742
(210)
(6,429)
4,031
3,742
6,111
2,546
1,347
(19,185)
(181)
(77,688)
(31,725)
(42,384)
Total income tax expense/(credit) . . . . .
64
(42,384)
26,450
225
RESULTS OF OPERATIONS
The following table sets forth our consolidated results of operations for the periods indicated:
For the five months ended
May 31,
Revenue . . . . . . . . . . . . . . . . .
Operating expenses
Aircraft fuel . . . . . . . . . . . . . . .
Landing, parking and route expenses.
Aircraft and other depreciation . . . .
Aircraft operating lease rentals . . . .
Aircraft maintenance . . . . . . . . . .
Wages, salaries and benefits . . . . . .
Food and beverages . . . . . . . . . .
Selling and marketing expenses . . . .
Other expenses . . . . . . . . . . . . .
2011
2012
2013
2013
2014
HK$000
HK$000
HK$000
HK$000
unaudited
HK$000
4,675,498
6,250,108
8,546,835
3,298,639
3,958,496
.
.
.
.
.
.
.
.
.
(1,523,467)
(857,223)
(487,911)
(214,560)
(172,954)
(476,291)
(160,425)
(183,806)
(164,456)
(1,978,607)
(1,048,157)
(674,298)
(395,583)
(278,752)
(760,389)
(207,988)
(248,309)
(238,804)
(2,400,439)
(1,236,718)
(853,823)
(918,105)
(385,336)
(925,955)
(282,886)
(348,305)
(254,615)
(868,181)
(479,108)
(360,809)
(375,751)
(139,718)
(356,985)
(94,949)
(119,289)
(89,912)
(1,200,023)
(650,566)
(378,192)
(451,788)
(147,771)
(407,636)
(128,469)
(183,015)
(102,058)
Total operating expenses . . . . . . . .
(4,241,093)
(5,830,887)
(7,606,182)
(2,884,702)
(3,649,518)
Other income . . . . . . . . . . . . . . .
Other gains - net . . . . . . . . . . . . .
60,305
5,366
49,912
271,235
104,352
564
28,668
88,886
Operating profit . . . . . . . . . . . . .
500,076
740,368
1,045,569
442,605
397,864
Finance income . . . . . . . . . . . . . .
Finance costs . . . . . . . . . . . . . . .
3,977
(403,743)
38,237
(508,917)
30,422
(629,169)
8,219
(268,556)
32,900
(239,665)
Finance costs net . . . . . . . . . . .
(399,766)
(470,680)
(598,747)
(260,337)
(206,765)
Share of profit of an associate . . . . .
47,575
5,034
4,056
3,836
1,273
Profit before income tax . . . . . . . .
147,885
274,722
450,878
186,104
192,372
Income tax (expense)/credit . . . . . . .
(64)
42,384
(26,450)
Profit for the year/period . . . . . . .
147,885
274,658
493,262
186,104
165,922
Profit for the year/period

attributable to the equity holders
of our Company . . . . . . . . . . . .
147,885
274,658
493,262
186,104
165,922
EBITDA(1) . . . . . . . . . . . . . . . .
EBITDAR(2) . . . . . . . . . . . . . . .
982,621
1,197,181
1,143,431
1,539,014
1,898,828
2,816,933
803,414
1,179,165
776,056
1,227,844
226
Notes:
(1)
EBITDA refers to earnings before other gains, finance costs (including interest income, interest expense and exchange
gains/losses), income taxes, share of profits of associate, depreciation and amortization as computed under HKFRS. EBITDA
is a commonly used performance indicator in the airline industry to compare operating performance on a uniform basis,
eliminating differences caused by an airlines depreciation and amortization policy, financing situation and tax treatment.
EBITDA may also be used to approximate operating cash flow, if such airlines working capital is relatively stable. EBITDA
is not a standard measurement under HKFRS but is presented here because we believe that such measurement is a commonly
used performance indicator in the airline industry of an airlines operating performance. Prospective investors should be aware
that such measurement may not be comparable to other similarly titled measure reported by other companies due to different
(2)
EBITDAR refers to earnings before other gains, finance costs (including interest income, interest expense and exchange
gains/losses), income taxes, share of profits of associate, depreciation and amortization, aircraft operating lease expenses, and
other operating lease expenses as computed under HKFRS. EBITDAR is a useful benchmark in light of the airline industrys
unique nature. Airlines typically acquire aircraft, the most important asset class of their operations, through purchase and
operating leases. An operating lease is accounted for through recognition of lease payments as cost in the income statement
as compared to a finance lease that is treated as debt on the balance sheet. EBITDA, therefore, may not be the best measure
of an airlines operating performance since an airline with more operating leases (higher leasing expense) should not be
compared to an airline with more purchased aircraft (higher depreciation and potentially higher financing cost). As a result,
EBITDAR, which adjusts for the difference, may be regarded as a more meaningful performance indicator. EBITDAR is not
a standard measurement under HKFRS but is presented here because we believe that such measurement is a commonly used
performance indicator in the airline industry of an airlines operating performance. Prospective investors should be aware that
such measurement may not be comparable to other similarly titled measure reported by other companies due to different
Five months ended May 31, 2014 compared to Five months ended May 31, 2013
Revenue
Our revenue increased by HK$659.9 million, or 20.0%, to HK$3,958.5 million from the five months
ended May 31, 2014 from HK$3,298.6 million from the five months ended May 31, 2013, primarily due
to increases in revenue from traffic revenue and other revenue.
Passenger Revenue
Passenger revenue increased by HK$478.9 million, or 22.8%, to HK$2,581.4 million for the five
months ended May 31, 2014 from HK$2,102.5 million for the five months ended May 31, 2013. The
increase was primarily due to increases in passenger capacity in ASKs and passenger traffic in RPKs as
a result of increase in flight frequency and flights. However, this increase in our passenger services was
negatively affected by deteriorated market conditions of the entire airline industry primarily caused by
political upheavals in Thailand and Vietnam and multiple flight accidents involving other airlines in the
first half of 2014.
Passenger capacity in ASKs increased by 863 million ASKs, or 29.0%, to 3,838 million ASKs for the
five months ended May 31, 2014 from 2,975 million ASKs for the five months ended May 31, 2013. The
increase in ASKs was primarily due to increase in flights as we increased flight frequency to meet demand
for our services. However, this increase in our passenger services was negatively affected by deteriorated
market conditions to the entire airline industry primarily caused by political upheavals in Thailand and
Vietnam and multiple flight accidents involving other airlines in the first half of 2014. Our average flights
per week increased to 513 flights for the five months ended May 31, 2014 from 420 average flights per
week for the five months ended May 31, 2013. For the five months ended May 31, 2013 and 2014, our
total number of flights amounted to 9,053 and 11,072 respectively. The increase in ASKs was also caused
by the increase in seats available on our scheduled flights as a result of introduction of wide-body aircraft.
The total number of seats on our scheduled flights amounted to 1.98 million for the five months ended May
31, 2013 and 2.65 million for the five months ended May 31, 2014.
227
Passenger traffic in RPKs increased by 637 million RPKs, or 28.2%, to 2,899 million RPKs for the
five months ended May 31, 2014 from 2,262 million RPKs for the five months ended May 31, 2013. The
increase in RPKs was primarily due to increase in our flights and increase in the number of seats available
on our scheduled flights.
Passenger load factor remained at 76% for the five months ended May 31, 2013 and 2014.
Passenger yield decreased to HK$0.89 per RPK for the five months ended May 31, 2014 from
HK$0.93 per RPK for the five months ended May 31, 2013, primarily because we offered discounts to our
customers as part of our marketing efforts to improve sales of new flights that we opened in 2014.
Cargo Revenue
Cargo revenue increased by HK$283.5 million, or 45.5%, to HK$905.9 million for the five months
ended May 31, 2014 from HK$622.4 million for the five months ended May 31, 2013. The increase was
primarily due to an increase in cargo flights. However, the increase in our cargo flights was negatively
affected by deteriorated market conditions of the airline industry primarily caused by political upheavals
in Thailand and Vietnam and multiple flight accidents involving other airlines in 2014.
Cargo yield decreased to HK$4.04 per RFTK for the five months ended May 31, 2014 from HK$4.71
per RFTK for the five months ended May 31, 2013, primarily because we offered discounts to our
customers as part of our marketing efforts to increase sales of our cargo flights that we opened in 2014.
Cargo capacity in AFTKs increased by 200 million AFTKs, or 70.7%, to 483 million AFTKs for the
five months ended May 31, 2014 from 283 million AFTKs for the five months ended May 31, 2013. The
increase in AFTKs was primarily due to increase in our cargo flights in 2014. In 2014, we opened new
cargo flights to Seoul and Dhaka. The increase in our AFTKs also contributed to the increase in the total
number tonnes of capacity available for the carriage of cargo mainly as a result of the addition of a cargo
freighter in 2014.
Cargo traffic in RFTKs increased by 92 million RFTKs, or 69.7%, to 224 million RFTKs for the five
months ended May 31, 2014 from 132 million RFTKs for the five months ended May 31, 2013. Cargo load
factor remained relatively stable at 46% for the five months ended May 31, 2014 and 47% for the five
Rental Income from aircraft under operating lease
Rental income from aircraft under operating leases decreased by HK$107.0 million, or 18.9%, to
HK$458.3 million for the five months ended May 31, 2014 from HK$565.3 million for the five months
ended May 31, 2013. The decrease was primarily due to the decrease in the average number of aircraft
leased to related parties after we took back three Airbus 330-200 aircraft for our own operations in 2013
and 2014, when the relevant leasing agreements with Hainan Airlines expired.
Other Revenue
Other revenue increased by HK$4.4 million, or 51.8%, to HK$12.9 million for the five months ended
May 31, 2014 from HK$8.5 million for the five months ended May 31, 2013. The increase was primarily
due to an increase in in-flight sales commission as a result of an increased number of passengers we
carried for the five months ended May 31, 2014.
228
Operating Expenses
Operating expenses increased by HK$764.8 million, or 26.5%, to HK$3,649.5 million for the five
months ended May 31, 2014 from HK$2,884.7 million for the five months ended May 31, 2013, as a result
of the increases in all of the components of our operating expenses.
Aircraft fuel expenses
Aircraft fuel expenses increased by HK$331.8 million, or 38.2%, to HK$1,200.0 million for the five
months ended May 31, 2014 from HK$868.2 million for the five months ended May 31, 2013. The increase
was primarily due to the increased consumption of aircraft fuel resulting from a 21.6% increase in block
hours, to 28,317 block hours for the five months ended May 31, 2014 from 23,287 block hours for the five
months ended May 31, 2013, the effect of which was partially offset by a decrease of our average fuel cost
per barrel for the five months ended May 31, 2013. Our average fuel cost per barrel decreased to
HK$1,030.7 per barrel for the five months ended May 31, 2014 from HK$1,033.0 per barrel for the five
Landing, parking and route expenses increased by HK$171.5 million, or 35.8%, to HK$650.6 million
for the five months ended May 31, 2014 from HK$479.1 million for the five months ended May 31, 2013.
The increase was related to the increased number of flights operated.
Aircraft and other depreciation increased by HK$17.4 million, or 4.8%, to HK$378.2 million for the
five months ended May 31, 2014 from HK$360.8 million for the five months ended May 31, 2013. The
increase was primarily due to the increase in the aircraft related equipment and engines owned or operated
under finance lease.
Aircraft operating lease rentals increased by HK$76.0 million, or 20.2%, to HK$451.8 million for
the five months ended May 31, 2014 from HK$375.8 million for the five months ended May 31, 2013. The
increase was primarily due to the increase in the average number of aircraft we held under operating leases
to 15 for the five months ended May 31, 2014 from 13 for the five months ended May 31, 2013.
Aircraft maintenance expenses
Aircraft maintenance expenses increased by HK$8.1 million, or 5.8%, to HK$147.8 million for the
increase was primarily due to increased line maintenance and heavy maintenance requirements as a result
of increased block hours and increased number of flights.
229
Wages, salaries and benefits increased by HK$50.6 million, or 14.2%, to HK$407.6 million for the
increase was primarily due to the increase in the number of our employees as a result of the expansion of
our operations.
Food and beverages expenses
Food and beverages expenses increased by HK$33.6 million, or 35.4%, to HK$128.5 million for the
increase resulted from an increase of in-flight catering expenses as a result of an increase in the number
of passengers carried for the five months ended May 31, 2014 compared to that for the five months ended
May 31, 2013.
Selling and marketing expenses increased by HK$63.7 million, or 53.4%, to HK$183.0 million for
the five months ended May 31, 2014 from HK$119.3 million for the five months ended May 31, 2013. The
increase was primarily due to increases in sales commissions generated by increased sales of passenger
and cargo services, as well as increases in sales office expenses, sales incentives and advertising and
promotional expenses as a result of the expansion of our operations.
Other expenses
Other expenses increased by HK$12.2 million, or 13.6%, to HK$102.1 million for the five months
ended May 31, 2014 from HK$89.9 million for the five months ended May 31, 2013. The increase was
due to increases in a variety of expenses, such as office and warehouse rental expenses, training costs,
delay compensation expenses, aircraft and engine insurance premiums and general and administrative
expenses as a result of the expansion of our operations.
Other income
Other income increased significantly to HK$88.9 million for the five months ended May 31, 2014
from HK$28.7 million for the five months ended May 31, 2013. The increase was primarily due to
increases in flight route subsidies, provision of services (e.g. cargo handling and management, ground
operation and other administrative support) to a related company and other income.
Other gains net
For the five months ended May 31, 2013 and 2014, our other gains net were both nil.
Finance income
Finance income increased to HK$32.9 million for the five months ended May 31, 2014 from HK$8.2
million for the five months ended May 31, 2013. The increase was primarily due to an increase in
exchange gain we recognized as a result of the appreciation of Hong Kong dollars against US dollars in
the five months ended May 31, 2014, which was partially offset by a decrease in interest income on
230
available-for-sale financial assets mainly because we disposed of the bonds issued by Hainan Airlines
(Hong Kong) in 2013 through public trading. As of May 31, 2014, the carrying amount of our borrowings
denominated is US dollars amounted to HK$7,499.4 million.
Finance costs
Finance costs decreased to HK$239.7 million for the five months ended May 31, 2014 from
HK$268.6 million for the five months ended May 31, 2013. The decrease was primarily due to a decrease
in interest expense on obligations under finance leases as a result of repayment of principal of obligations
under finance leases.
Share of profit of an associate decreased by HK$2.5 million, or 65.8%, to HK$1.3 million for the
decrease was primarily due to a decline in the revenue and profits generated by HNA Tianjin for the five
Profit before income tax
As a result of the foregoing, our profit before income tax increased by HK$6.3 million, or 3.4%, to
ended May 31, 2013.
Income tax expenses
We had income tax expenses of HK$26.5 million for the five months ended May 31, 2014 primarily
arising from income tax calculated at statutory rate of 16.5%. We had tax credits of HK$42.4 million for
the year ended December 31, 2013 arising from recognition of previously unrecognized tax losses.
Profit for the period
As a result of the foregoing, our profit for the period decreased by HK$20.2 million, or 10.9%, to
ended May 31, 2013. Our profit margin decreased to 4.2% for the five months ended May 31, 2014 from
5.6% for the five months ended May 31, 2013.
Year ended December 31, 2013 compared to Year ended December 31, 2012
Revenue
Our revenue increased by HK$2,296.7 million, or 36.7%, to HK$8,546.8 million for the year ended
December 31, 2013 from HK$6,250.1 million for the year ended December 31, 2012, primarily due to
increases in revenue from traffic revenue, rental income from aircraft under operating leases and other
revenue.
Passenger Revenue
Passenger revenue increased by HK$1,682.3 million, or 44.7%, to HK$5,447.6 million for the year
ended December 31, 2013 from HK$3,765.3 million for the year ended December 31, 2012. The increase
was primarily due to increases in passenger capacity in ASKs and passenger traffic in RPKs.
231
Passenger capacity in ASKs increased by 2,332 million ASKs, or 40.0%, to 8,163 million ASKs for
the year ended December 31, 2013 from 5,831 million ASKs for the year ended December 31, 2012. The
net addition of four new passenger aircraft in 2013 resulted in an increase in the average number of
passenger aircraft to 16.5 in 2013 from 13.3 in 2012 which led to the increase in ASKs.
Passenger traffic in RPKs increased by 2,070 million RPKs, or 49.7%, to 6,238 million RPKs for the
year ended December 31, 2013 from 4,168 million RPKs for the year ended December 31, 2012. The
increase in RPKs was primarily due to increased demand on a number of routes we serviced during 2013
such as Bangkok and Okinawa.
Passenger load factor increased to 76.4% for the year ended December 31, 2013 from 71.5% for the
year ended December 31, 2012. We benefitted from increased demand on a number of routes we serviced
during 2013 such as Bangkok and Okinawa, which positively impacted our passenger load factor.
Passenger yield decreased to HK$0.87 per RPK for the year ended December 31, 2013 from
HK$0.90 per RPK for the year ended December 31, 2012, primarily because we focused on increasing
passenger load factor in 2013 by implementing competitive pricing to do so.
Cargo Revenue
Cargo revenue increased by HK$64.7 million, or 3.8%, to HK$1,762.8 million for the year ended
December 31, 2013 from HK$1,698.1 million for the year ended December 31, 2012. The increase was
primarily due to an increase in cargo freight rates, offset by an decrease in cargo traffic in RFTKs.
Cargo yield increased to HK$4.59 per RFTK for the year ended December 31, 2013 from HK$4.22
per RFTK for the year ended December 31, 2012, primarily due to the increased cargo freight rates in 2013
as a result of focusing on short-haul routes. The increase was also driven by higher percentages of our
cargo volume carried by our cargo freighters. We generally achieved better pricing from cargo carried on
our cargo freighters versus bellyhold transport.
year ended December 31, 2013 from 723 million AFTKs for the year ended December 31, 2012. The
increase in AFTKs was primarily due to an increase in bellyhold space of passenger aircraft as a result of
the net addition of four new passenger aircraft in 2013.
Cargo traffic in RFTKs decreased by 19 million RFTKs, or 4.7%, to 384 million RFTKs for the year
ended December 31, 2013 from 403 million RFTKs for the year ended December 31, 2012. Cargo load
factor decreased to 46.2% for the year ended December 31, 2013 from 55.7% for the year ended December
31, 2012. The decrease in RFTKs and cargo load factor was primarily due to a decrease in cargo carried
in 2013 as a result of decreased demand for our cargo services.
Rental income from aircraft under operating leases increased by HK$543.1 million, or 70.8%, to
HK$1,310.5 million for the year ended December 31, 2013 from HK$767.4 million for the year ended
December 31, 2012. The increase was primarily due to the average number of aircraft leased to related
parties increasing to 16.6 aircraft for the year ended December 31, 2013 from 9.3 aircraft for the year
ended December 31, 2012.
232
Other Revenue
Other revenue increased by HK$6.6 million, or 34.2%, to HK$25.9 million for the year ended
December 31, 2013 from HK$19.3 million for the year ended December 31, 2012. The increase was
primarily due to an increase in in-flight sales commission as a result of an increased number of passengers
carried for the year ended December 31, 2013.
Operating Expenses
Operating expenses increased by HK$1,775.3 million, or 30.4%, to HK$7,606.2 million for the year
ended December 31, 2013 from HK$5,830.9 million for the year ended December 31, 2012, due to
increases in all of the components of our operating expenses.
Aircraft fuel expenses increased by HK$421.8 million, or 21.3%, to HK$2,400.4 million for the year
hours, to 73,903 block hours in 2013 from 60,900 block hours in 2012. This was partially offset by a small
decrease of our average fuel cost per barrel in 2013. Our average fuel cost per barrel decreased to
HK$1,013.9 in 2013 from HK$1,032.8 in 2012.
Landing, parking and route expenses increased by HK$188.5 million, or 18.0%, to HK$1,236.7
million for the year ended December 31, 2013 from HK$1,048.2 million for the year ended December 31,
2012. The increase was related to the increased number of flights operated and changes in our destinations
and routes.
Aircraft and other depreciation increased by HK$179.5 million, or 26.6%, to HK$853.8 million for
the year ended December 31, 2013 from HK$674.3 million for the year ended December 31, 2012. The
increase was primarily due to the increase in the number of passenger aircraft and cargo freighters owned
or operated under finance leases. We took delivery of a number of aircraft in late 2012, which were only
depreciated from their date of delivery and did not impact our depreciation for 2012. We recorded
depreciation on these aircraft throughout 2013, and also further increased the size of our operating fleet,
with our average number of aircraft increasing from 18.5 in 2012 to 20.5 in 2013.
increase was primarily due to the increase in the average number of aircraft we held under operating leases
to 15.7 in 2013 from 10.3 in 2012.
233
Aircraft maintenance expenses increased by HK$106.5 million, or 38.2%, to HK$385.3 million for
year ended December 31, 2013 from HK$760.4 million for the year ended December 31, 2012. The
our operations.
increase resulted from an increase of in-flight catering expenses as a result of an increase in the number
of passengers carried to 4.1 million in 2013 from 2.5 million in 2012.
increase was primarily due to increases in sales commissions paid to travel agents and cargo agents, as
well as increases in sales office expenses, sales incentives and advertising and promotional expenses as
a result of the expansion of our operations.
Other expenses
Other expenses increased by HK$15.8 million, or 6.6%, to HK$254.6 million for the year ended
December 31, 2013 from HK$238.8 million for the year ended December 31, 2012. The increase was due
to increases in a variety of expenses, such as office and warehouse rental expenses, training costs, delay
compensation expenses, aircraft and engine insurance premiums and general and administrative expenses
as a result of the expansion of our operations.
Other income
Other income increased by HK$54.5 million, or 109.2%, to HK$104.4 million for the year ended
primarily due to increases in flight route subsidies granted by governmental authorities at certain
destinations in the PRC, rebates of landing charges under the NDIA scheme and the fees we charged
passengers from changes of itinerary and cancellations.
234
Other gains net
Other gains net decreased by 99.8%, to HK$0.6 million for the year ended December 31, 2013 from
HK$271.2 million for the year ended December 31, 2012. The decrease was primarily due to recording
virtually no gains on disposal of subsidiaries, and no gains on disposal of property, plant and equipment
for the year ended December 31, 2013. The only gains net recorded in 2013 related to our disposal of
debt securities issued by Hainan Airlines (Hong Kong) in January 2013.
Finance income
Finance income decreased by HK$7.8 million, or 20.4%, to HK$30.4 million for the year ended
December 31, 2013 from HK$38.2 million for the year ended December 31, 2012. The decrease was
primarily due to a decrease in interest income on available-for-sale financial assets as a result of our
disposal of debt securities issued by Hainan Airlines (Hong Kong) in January 2013, partially offset by an
increase in interest income on bank deposits as a result of our increased average bank deposits balance.
Finance costs
Finance costs increased by HK$120.3 million, or 23.6%, to HK$629.2 million for the year ended
primarily due to an increase in interest expenses on bank borrowings from our increased average bank
borrowing balance, as a result of the acquisition of aircraft and our working capital needs, and increased
foreign exchange loss. These increases were partially offset by a decrease in interest expense under finance
leases primarily due to repayment of principal of obligations under finance leases.
year ended December 31, 2013 from HK$5.0 million for the year ended December 31, 2012. The decrease
was primarily due to a small decline in the revenue and profits generated by HNA Tianjin in 2013.
As a result of the foregoing, our profit before income tax increased by HK$176.2 million, or 64.1%,
to HK$450.9 million for the year ended December 31, 2013 from HK$274.7 million for the year ended
December 31, 2012.
Income tax expense
We had income tax credit of HK$42.4 million for the year ended December 31, 2013 as compared
with income tax expense of HK$0.06 million for the year ended December 31, 2012. The income tax credit
arose from the recognition of previously unrecognized tax losses.
For the years ended December 31, 2011 and 2012, we recognized deferred income tax assets in
respect of the tax losses and deductible temporary differences to the extent of the deferred income tax
liabilities available, but did not further recognize the deferred income tax assets for tax losses as of
December 31, 2011 and 2012 respectively, as our Directors considered that there were still uncertainties
around our future operation results, such as our historical losses, volatilities of fuel prices and market
235
demand and other factors. For the year ended December 31, 2013, we experienced a significant growth in
profit. Based on the latest assessment, our Directors estimated that we would continue to deliver a
sustainable profit growth and be able to generate sufficient profit to realize the tax losses brought forward
in the foreseeable future. Accordingly, as of December 31, 2013, we recognized deferred income tax
benefit for the entire unrecognized tax losses brought-forward from previous years.
Profit for the year
As a result of the foregoing, our profit for the year increased by HK$218.6 million, or 79.6%, to
HK$493.3 million for the year ended December 31, 2013 from HK$274.7 million for the year ended
December 31, 2012. Our profit margin increased to 5.8% for the year ended December 31, 2013 from 4.4%
for the year ended December 31, 2012.
Year ended December 31, 2012 compared to Year ended December 31, 2011
Revenue
Our revenue increased by HK$1,574.6 million, or 33.7%, to HK$6,250.1 million for the year ended
December 31, 2012 from HK$4,675.5 million for the year ended December 31, 2011, primarily due to
increase in revenue from traffic revenue, rental income from aircraft under operating lease and other
revenue.
Passenger Revenue
Passenger revenue increased by HK$848.8 million, or 29.1%, to HK$3,765.3 million for the year
was primarily due to increases in passenger capacity in ASKs and passenger traffic in RPKs.
Passenger capacity in ASKs increased by 1,002 million ASKs, or 20.7%, to 5,831 million ASKs for
the year ended December 31, 2012 from 4,829 million ASKs for the year ended December 31, 2011. The
increase in ASKs was primarily due to the net addition of four new passenger aircraft in 2012 resulting
in an increase in the average number of passenger aircraft to 13.3 in 2012 from 9.1 in 2011 and an increase
in flights per week to 314 flights for the year ended December 31, 2012 from 207 flights for the year ended
December 31, 2011.
Passenger traffic in RPKs increased by 722 million RPKs, or 21.0%, to 4,168 million RPKs for the
year ended December 31, 2012 from 3,446 million RPKs for the year ended December 31, 2011. The
increase in RPKs was primarily due to the increased demand for our passenger flights in 2012.
Passenger load factor was 71.5% for the year ended December 31, 2012 which was stable compared
with passenger load factor of 71.3% for the year ended December 31, 2011.
Passenger yield increased to HK$0.90 per RPK for the year ended December 31, 2012 from HK$0.85
per RPK for the year ended December 31, 2011, primarily due to the increase in flights of short-haul routes
and the decrease in flights of long-haul routes.
Cargo Revenue
Cargo revenue increased by HK$495.7 million, or 41.2%, to HK$1,698.1 million for the year ended
December 31, 2012 from HK$1,202.4 million for the year ended December 31, 2011. The increase was
primarily due to increases in cargo traffic in RFTKs and cargo freight rates.
236
Cargo yield increased to HK$4.22 per RFTK for the year ended December 31, 2012 from HK$4.06
per RFTK for the year ended December 31, 2011, primarily due to the increased cargo freight rates in 2012
as a result of focusing on short-haul routes.
year ended December 31, 2012 from 615 million AFTKs for the year ended December 31, 2011. The
increase in AFTKs was primarily due to addition of one new cargo freighter and an increase in bellyhold
space of passenger aircraft as a result of the net addition of four passenger aircraft in 2012.
Cargo traffic in RFTKs increased by 107 million RFTKs, or 36.2%, to 403 million RFTKs for the
year ended December 31, 2012 from 296 million RFTKs for the year ended December 31, 2011. Cargo
load factor increased to 55.7% for the year ended December 31, 2012 from 48.0% for the year ended
December 31, 2011. The increase in RFTKs and load factor was primarily due to increasing demand for
our cargo services, and a corresponding increase in cargo carried, in 2012.
Rental income from aircraft under operating leases increased by HK$225.8 million, or 41.7%, to
December 31, 2011. The increase was primarily due to the average number of aircraft leased to related
parties increasing to 9.3 aircraft for the year ended December 31, 2012 from 4.3 aircraft for the year ended
December 31, 2011.
Other Revenue
Other revenue increased by HK$4.2 million, or 27.8%, to HK$19.3 million for the year ended
primarily due to an increase in in-flight sales commission as a result of an increased number of passengers
carried for the year ended December 31, 2012.
Operating Expenses
Operating expenses increased by HK$1,589.8 million, or 37.5%, to HK$5,830.9 million for the year
ended December 31, 2012 from HK$4,241.1 million for the year ended December 31, 2011, due to
increases in all of the components of our operating expenses.
Aircraft fuel expenses increased by HK$455.1 million, or 29.9%, to HK$1,978.6 million for the year
hours, to 60,900 block hours in 2012 from 46,914 block hours in 2011. The increase was partially due to
a slight increase in our average fuel cost per barrel in 2012. Our average fuel cost per barrel increased to
HK$1,032.8 in 2012 from HK$1,032.4 in 2011.
Landing, parking and route expenses increased by HK$191.0 million, or 22.3%, to HK$1,048.2
million for the year ended December 31, 2012 from HK$857.2 million for the year ended December 31,
2011. The increase was related to the increased number of flights operated and changes in our destinations
and routes.
237
Aircraft depreciation increased by HK$186.4 million, or 38.2%, to HK$674.3 million for the year
ended December 31, 2012 from HK$487.9 million for the year ended December 31, 2011. The increase
was primarily due to the increase in the number of passenger aircraft and cargo freighters owned or
operated under finance leases, with our average number of aircraft increasing to 18.5 in 2012 from 13.1
in 2011.
increase was primarily due to the increase in the average number of aircraft we leased under operating
leases to 10.3 in 2012 from 6.6 in 2011.
Aircraft maintenance expenses increased by HK$105.8 million, or 61.2%, to HK$278.8 million for
our operations. In addition, we established our own line maintenance services team for our A330 aircraft
at HKIA during the year ended December 31, 2012, which contributed to the increase.
increase resulted from an increase in in-flight catering expenses as a result of an increase in the number
of passengers carried to 2.5 million in 2012 from 1.8 million in 2011.
increase was primarily due to increases in sales commissions generated by increased sales of passenger
and cargo services, sales office expenses, sales incentives and advertising and promotional expenses as a
result of the expansion of our operations.
Other expenses
Other expenses increased by HK$74.3 million, or 45.2%, to HK$238.8 million for the year ended
primarily due to increases in a variety of our other expenses as a result of the expansion of our operations.
238
Other income
Other income decreased by HK$10.4 million, or 17.2%, to HK$49.9 million for the year ended
December 31, 2012 from HK$60.3 million for the year ended December 31, 2011. The decrease was
primarily due to the decrease in fees charged from change of itinerary and cancellation, partially offset by
the increase in flight route subsidies granted by governmental authorities at certain destinations and rebate
of landing charges under the NDIA scheme.
Other gains net
Other gains net increased to HK$271.2 million for the year ended December 31, 2012 from HK$5.4
million for the year ended December 31, 2011. The increase was primarily due to a gain of HK$233.0
million on disposal of our entire equity interest in Unique Ocean to Baota Petrochemical (HK) Co.,
Limited, an Independent Third Party, for consideration of RMB534.0 million (equivalent to HK$654.8
million). Unique Ocean held a 100% equity interest in Haihaoda (Beijing) Property Co., Ltd. which in turn
held a residential property in Beijing, China. We acquired 100% of Unique Ocean from HKA Consultation
for consideration of issuing 213,553,212 ordinary shares in December 2010. At the time of the disposal
in 2012, Unique Oceans net assets were RMB322.9 million (equivalent to HK$424.2 million) and the gain
arising from this disposal amounted to HK$233.0 million after netting of tax. Baota Petrochemical (HK)
Co., Limited paid the consideration of RMB534.0 million to HNA Tourism. We used receivables of
HK$654.8 million due from HNA Tourism to settle part of the consideration due for our acquisition of
Sure Idea Limited. Please see the subsection headed Prepayment for equity investments included in
other Non-current assets for further details on our acquisition of Sure Idea in 2012.
The increase of other gains net was also due to a gain of HK$38.2 million on the disposal of
property, plant and equipment as a result of the disposal of an aircraft engine. We and Celestial Aviation
Trading 100 Limited, an Independent Third Party, entered into an engine purchase agreement and an
engine lease agreement in October 2012, pursuant to which we sold an aircraft engine to Celestial Aviation
Trading 100 Limited and leased back such engine from Celestial Aviation Trading 100 Limited under an
operating lease.
Finance income
Finance income increased by more than eight fold, to HK$38.2 million for the year ended December
31, 2012 from HK$4.0 million for the year ended December 31, 2011. The increase was primarily due to
increases in interest income on bank deposits as a result of increased average bank deposits balances,
interest income on available-for-sale financial assets and foreign exchange gains.
Finance costs
Finance costs increased by HK$105.2 million, or 26.1%, to HK$508.9 million for the year ended
primarily due to an increase in interest expense on bank borrowings as a result of increased average bank
borrowing balances for acquisition of aircraft and working capital needs, partially offset by decrease in
interest expense under finance leases primarily due to repayment of principal of obligations under finance
leases.
239
year ended December 31, 2012 from HK$47.6 million for the year ended December 31, 2011. The decrease
was primarily due to the significant profit of HNA Tianjin as a result of the significant evaluation gain
related to the properties owned by HNA Tianjin in 2011 which did not recur in 2012.
As a result of the foregoing, our profit before income tax increased by HK$126.8 million, or 85.7%,
to HK$274.7 million for the year ended December 31, 2012 from HK$147.9 million for the year ended
December 31, 2011.
Income tax expense
Income tax expense increased to HK$0.06 million for the year ended December 31, 2012 from nil
for the year ended December 31, 2011. The increase was primarily due to tax charged to 13 subsidiaries
for the service rendered to Hong Kong Airlines in connection with the purchase of 13 aircraft in 2011. The
effective tax rate increased to 0.02% for the year ended December 31, 2012 from nil for the year ended
December 31, 2011.
Profit for the year
As a result of the foregoing, our profit for the year increased by HK$126.8 million, or 85.7%, to
December 31, 2011. Our profit margin increased to 4.4% for the year ended December 31, 2012 from 3.2%
for the year ended December 31, 2011.
240
NET CURRENT LIABILITIES
The following table sets forth details of our current assets and current liabilities as of the dates
indicated:
As of
May 31,
As of December 31,
Current assets
Expendable spare parts . . .
Trade receivables . . . . . . .
Prepayments, deposits and
other receivables . . . . . .
Restricted cash . . . . . . . . .
Cash and cash equivalents .
As of
June 30,
2011
2012
2013
2014
2014
HK$000
HK$000
HK$000
HK$000
HK$000
unaudited
..
..
36,034
667,394
47,311
766,696
60,618
556,869
76,629
479,952
59,942
559,945
..
..
..
455,300
840,081
693,619
616,036
391,810
270,770
477,250
409,972
1,464,399
479,183
405,755
1,921,342
460,973
383,694
1,068,727
Total current assets . . . . . . .
2,692,428
2,092,623
2,969,108
3,362,861
2,533,281
.
.
.
.
692,750
817,205
185,968
822,409
738,731
212,463
764,747
804,463
1,227,894
378,480
743,779
1,057,666
1,230,769
461,391
778,882
1,298,000
541,447
.
.
770,943
5,814
1,196,787
5,814
1,780,527
5,814
1,884,595
5,814
1,617,084
5,814
696,963
696,774
755,956
718,466
752,280
Total current liabilities . . . .
3,169,643
3,672,978
5,717,881
6,102,480
4,993,507
(1,580,355)
(2,748,773)
(2,739,619)
(2,460,226)
Current liabilities
Notes payables . . . . . . . . . .
Trade payables . . . . . . . . . .
Accruals and other payables
Sales in advance of carriage
Current portion of
borrowings . . . . . . . . . . .
Deferred income . . . . . . . . .
Current portion of
obligations under finance
leases . . . . . . . . . . . . . . .
Net current liabilities . . . . .
(477,215)
241
As of December 31, 2011, 2012 and 2013 and May 31, 2014, we incurred net current liabilities of
approximately HK$477.2 million, HK$1,580.4 million, HK$2,748.8 million and HK$2,739.6 million,
respectively.
Our net current liabilities increased to HK$1,580.4 million as of December 31, 2012 from HK$477.2
million as of December 31, 2011. The increase was primarily due to (i) an increase of HK$425.8 million
in borrowings in order to fund working capital needs and acquisition of spare parts, primarily due to
increased number of aircraft of our operating fleet; and (ii) an increase of HK$129.6 million in trade
payables, primarily due to increases in flight frequency and number of aircraft of our operating fleet.
These were partially offset by an increase of HK$99.3 million in trade receivables, resulting from an
increase in sales of passenger and cargo services.
Our net current liabilities further increased to HK$2,748.8 million as of December 31, 2013 from
HK$1,580.4 million as of December 31, 2012. The increase was primarily due to (i) notes payable of
HK$764.7 million being reclassified as current liabilities because such notes matured in June 2014; (ii)
an increase of HK$583.7 million in borrowings in order to fund working capital, primarily due to the
increased number of aircraft of our operating fleet; (iii) an increase of HK$489.2 million in accruals and
other payables, primarily due to the increase in landing, parking and route expenses as a result of the
increase in flight frequency and the size of our operating fleet; and (iv) an increase of HK$166.0 million
in sales in advance of carriage, primarily due to an increase in sold but unused tickets as a result of our
increased promotional effort. These were partially offset by an increase of HK$1,193.6 million in cash and
cash equivalents, generated from the provision of passenger and cargo services, the proceeds generated
from our disposal of debt securities and the sale of 4.3% equity interest in HKIAL.
Our net current liabilities slightly decreased to HK$2,739.6 million as of May 31, 2014 from
HK$2,748.8 million as of December 31, 2013.
We have implemented measures we believe will be helpful to address the net working capital deficit
mentioned above, and have sought new financing channels and obtained additional financing resources
with banks and financial institutions to improve our liquidity position. As of June 30, 2014, being the latest
practicable date for determining our indebtedness, we had total credit facilities of approximately
HK$7,763.6 million, of which, HK$7,647.0 million had been utilized. In addition, we obtained a
commitment letter of RMB4.0 billion, according to which, we could draw down multiple loans from the
relevant bank with an aggregate amount of no more than RMB4.0 billion. As of the Latest Practicable
Date, we have not drawn down any amount under the commitment letter. In addition, we obtained a
commitment for finance lease in the amount of RMB1,500 million on August 26, 2014 and a commitment
letter on August 27, 2014 in relation to bank facilities for a maximum amount of RMB2,000 million for
the purpose of aircraft financing working capital needs, acquisition loan and letter of credit financing, etc.
In light of these financing arrangements and our capital raising history, our Directors believe that we will
have access to adequate financing resources to fund our ongoing operations, repayment of debt upon
maturity and capital expenditures.
DISCUSSION OF CERTAIN ITEMS OF COMBINED BALANCE SHEETS
Available-for-sale financial assets
Available-for-sale financial assets during the Track Record Period represented our equity investment
in HKIAL and HNA Group International and acquisition of guaranteed bonds issued by Hainan Airlines
(Hong Kong). As of December 31, 2011, 2012 and 2013 and May 31 2014, available-for-sale financial
242
assets amounted to HK$175.3 million, HK$465.8 million, HK$2,526.3 million and HK$2,558.4 million,
respectively. As of December 31, 2011, 2012, 2013 and May 31, 2014, the financial assets that were
classified as Level 1 investments under HKFRS 13 amounted to HK$175.3 million, HK$114.8 million, nil
and nil, respectively, and the financial assets that were classified as Level 3 investments under HKFRS 13,
amounted to nil, HK$351.0 million, HK$2,526.3 million and HK$2,558.4 million, respectively.
Investment in HNA Group International
In 2013, Hong Kong Airlines entered into an agreement with HNA Group International whereby
Hong Kong Airlines subscribed for 1,805,997,080 newly issued shares, equal to 11.1% of total issued
shares of HNA Group International for consideration of HK$2,221,376,000. The consideration was settled
in full by cash. As of December 31, 2013 and May 31, 2014, there was an increase in fair value of
HK$31,394,000 and HK$27,354,000 relating to these shares, respectively, which we recognized as a gain
in other comprehensive income.
HNA Group International is an investment holding company with an investment portfolio in aircraft
leasing, equipment leasing, sea shipping, hospitality and securities investment services. Our investment in
HNA Group International is expected to provide good returns to us and opportunities to capitalize on its
synergy with our businesses. As of the Latest Practicable Date, HNA Group International is 8.9% owned
by our Company and 91.1% owned by HNA Group.
Investment in HKIAL
In 2012, Hong Kong Airlines entered into a stock sale and purchase agreement with HNA Group
International to acquire 351,000,000 ordinary shares, equal to 18% of the issued shares of HKIAL for
consideration of HK$351,000,000. We fully paid the consideration in 2012. HKIAL is engaged in the
aircraft leasing business and is controlled by HNA Group.
In September 2013, Hong Kong Airlines entered into a stock sale and purchase agreement with HNA
Investment pursuant to which Hong Kong Airlines agreed to sell 100,000,000 ordinary shares of HKIAL
with no gain and loss for cash consideration of HK$100,000,000 to HNA Investment, reducing our
ownership to 11%. As of Latest Practicable Date, our Company owned 7.1% equity interest in HKIAL. As
of December 31, 2013 and May 31, 2014, there was an increase in fair value of the 251,000,000 shares
of HK$22,542,000 and HK$4,763,000, respectively, which we recognized as a gain in other
comprehensive income.
Debt securities
In 2011, Hong Kong Airlines acquired guaranteed bonds issued by Hainan Airlines (Hong Kong) at
par value in the principal amount of RMB150,000,000 (equivalent to HK$185,100,000). The bonds bear
interest at 6.00% per annum, payable semi-annually, and mature on September 16, 2014 at the principal
amount. The bonds are listed and quoted on Singapore Exchange Securities Trading Limited. Hong Kong
Airlines subsequently sold the bonds through public trading at fair value for proceeds of HK$70,257,000
and HK$114,843,000 in 2012 and 2013, respectively.
243
Expendable spare parts
Our expendable spare parts represent consumable aircraft spare parts. As of December 31, 2011,
2012 and 2013 and May 31, 2014, we had expendable spare parts in the amount of HK$36.0 million,
HK$47.3 million, HK$60.6 million and HK$76.6 million, respectively. The increases in each year were
primarily due to an increase in the number of aircraft we operated.
Trade receivables
Our trade receivables primarily consist of trade receivables from third parties for the sale of
passenger and cargo services, trade receivables from HNA Tourism and HNA Aviation under block seat
arrangements and block space arrangements and rental income from subleasing aircraft to Hong Kong
Express, Hainan Airlines and Yangtze River Express. The following table below sets forth our trade
receivables as of the dates indicated:
As of December 31,
As of May 31,
2011
2012
2013
2014
HK$000
HK$000
HK$000
HK$000
Trade receivables third parties . . . .

Less: provision for impairment of
receivables . . . . . . . . . . . . . . . . . .
249,982
Trade receivables third parties net . . .

Trade receivables from related
parties. . . . . . . . . . . . . . . . . . . . . .
248,768
253,049
348,732
371,176
418,626
513,647
208,137
108,776
Trade receivables total . . . . . . . . . . .
667,394
766,696
556,869
479,952
(1,214)
254,260
(1,211)
352,472
(3,740)
374,851
(3,675)
Our trade receivables decreased by HK$76.9 million, or 13.8%, to HK$480.0 million as of May 31,
2014 from HK$556.9 million as of December 31, 2013, primarily due to our improved internal control
management on trade receivables and increased efforts in bill collection from related parties. In particular,
we focused on reducing and were able to reduce our receivables from related parties associated with
passenger and cargo revenue, and rental payments under operating leases. This was offset in part by our
growth in trade receivables from third parties, which was consistent with our overall business growth.
Our trade receivables decreased by HK$209.8 million, or 27.4%, to HK$556.9 million as of
December 31, 2013 from HK$766.7 million as of December 31, 2012, primarily due to our improved
internal control management on trade receivables and increased efforts in bill collection from related
parties. In particular, we focused on reducing and were able to reduce our receivables from related parties
associated with passenger and cargo revenue, and rental payments under operating leases. This was offset
in part by our growth in trade receivables from third parties, which was consistent with our overall
business growth.
Our trade receivables increased by HK$99.3 million, or 14.9%, to HK$766.7 million as of December
31, 2012 from HK$667.4 million as of December 31, 2011, primarily due to increased sales of passenger
and cargo sales through third parties and related parties.
244
We generally grant to our customers a credit period of 15 days to 45 days. The following table sets
forth an aging analysis of our outstanding trade receivables as of the dates indicated:
As of December 31,
1 to 30 days . . .
Between 31 and
Between 61 and
Over 90 days . .
.......
60 days .
90 days .
.......
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Less: provision for impairment of

receivables . . . . . . . . . . . . . . . . . .
As of May 31,
2011
2012
2013
2014
HK$000
HK$000
HK$000
HK$000
253,045
164,047
96,960
154,556
303,551
40,164
33,737
390,455
406,236
20,952
57,700
75,721
444,194
27,203
7,349
4,881
668,608
767,907
560,609
483,627
(1,214)
667,394
(1,211)
766,696
(3,740)
556,869
(3,675)
479,952
As of December 31, 2011, 2012, 2013 and May 31, 2014, trade receivables of HK$36.8 million,
HK$24.0 million, HK$45.2 million and HK$45.9 million were past due but not impaired related to a
number of sales agents which have good credit records with us. Based on past experience, we believe that
no impairment allowance is necessary in respect of these trade receivables as such trade receivables will
be fully recoverable. The following table below sets forth an aging analysis of our trade receivables which
were not impaired as of the dates indicated:
As of December 31,
Overdue
Overdue
Overdue
Overdue
no more than 30 days . .

between 31 and 60 days
over 90 days . . . . . . . . .
.
.
.
.
.
.
.
.
As of May 31,
2011
2012
2013
2014
HK$000
HK$000
HK$000
HK$000
.
.
.
.
32,081
835
3,516
383
10,243
12,082
717
928
32,272
5,540
4,302
3,095
27,532
9,328
5,479
3,557
Total . . . . . . . . . . . . . . . . . . . . . . . .
36,815
23,970
45,209
45,896
As of June 30, 2014, we had subsequently received HK$299.7 million from third parties to settle our
trade receivables outstanding as of May 31, 2014, the total of which represented 62.4% of the outstanding
trade receivables as of May 31, 2014.
As of December 31, 2011, 2012 and 2013 and May 31, 2014, trade receivables of HK$1.2 million,
HK$1.2 million, HK$3.7 million and HK$3.7 million were considered impaired and provided for. These
impaired trade receivables related to customers that were in financial difficulties and only a portion of the
receivables was expected to be recovered.
245
The following table below sets forth our trade receivables turnover days for the periods indicated:
For the five
months ended
May 31,

2011
Trade receivables turnover days
(1)
..
2012
28.4
41.9
2013
28.3
2014
19.6
Note:
(1)
Trade receivables turnover days are equal to average trade receivables (trade receivables at the beginning of the year
plus trade receivables at the end of the year divided by two) divided by total revenue for the year or period and
multiplied by 365 for each of the three years ended December 31, 2011, 2012 and 2013 and 150 for the five months
ended May 31, 2014.
Our trade receivables turnover days decreased to 19.6 days for the five months ended May 31, 2014
from 28.3 days for the year ended December 31, 2013, primarily as a result of our continuous efforts to
improve the collection of trade receivables and bill receivables.
Our trade receivables turnover days decreased to 28.3 days for the year ended December 31, 2013
from 41.9 days for the year ended December 31, 2012, primarily due to our improved internal control on
management of trade receivables and an increased effort in bill collection.
Our trade receivables turnover days increased to 41.9 days for the year ended December 31, 2012
from 28.4 days for the year ended December 31, 2011, primarily due to the longer payment arrangement
granted to related parties and increase in sales of cargo service as a result of addition of cargo routes to
Nanning, Chongqing, Taipei and Chennai. Trade receivables turnover days for cargo services are typically
higher than trade receivables turnover days for passenger services.
Prepayments, deposits and other receivables
Our prepayments, deposits and other receivables consist of prepaid rentals for aircraft under
operating lease, amounts due from related parties, deposits, prepayments, power-by-hour rebate, flight
route subsidies receivables and other receivables. The following table below sets forth our prepayments,
deposits and other receivables as of the dates indicated:
As at December 31,
Prepaid rentals for aircraft under

operating leases. . . . . . . . . . . .
Amounts due from related parties
Deposits. . . . . . . . . . . . . . . . . . .
Prepayments . . . . . . . . . . . . . . . .
Power-By-Hour rebate. . . . . . . . .
Flight route subsidies receivables
Others . . . . . . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
As at May 31,
2011
2012
2013
2014
HK$000
HK$000
HK$000
HK$000
.
.
.
.
.
.
.
214,491
61,293
16,579
51,025
58,140
6,056
47,716
249,909
250,289
20,458
28,456
19,217
9,442
38,265
247,475
21,939
30,106
81,389
46,615
49,726
222,331
25,788
38,231
58,980
45,864
87,989
Total . . . . . . . . . . . . . . . . . . . . . . . .
455,300
616,036
477,250
479,183
246
Prepaid rentals for aircraft under operating leases
Prepaid rentals for aircraft under operating leases represent prepaid rental payments to lessors under
operating leases. Our prepaid rentals for aircraft under operating leases decreased by HK$25.2 million, or
10.2%, to HK$222.3 million as of May 31, 2014 from HK$247.5 million as of December 31, 2013,
primarily because we took delivery of two aircraft that we obtained through operating lease, as a result
of which, the amount of relevant prepaid rentals was recognized as other non-current assets. Our rentals
for aircraft under operating lease were relatively stable, at HK$247.5 million as of December 31, 2013
versus HK$249.9 million as of December 31, 2012.
Our prepaid rentals for aircraft under operating leases increased by HK$35.4 million, or 16.5%, to
HK$249.9 million as of December 31, 2012 from HK$214.5 million as of December 31, 2011, primarily
due to an increase in number of aircraft under operating leases in 2012.
Amounts due from related parties are unsecured, non-interest bearing and with no fixed terms of
repayment. Please see the section headed Related Party Transactions below for details.
Deposits
Deposits consist primarily of fuel deposits, rental deposits for office space and other deposits. Our
deposits increased by HK$8.1 million, or 26.9%, to HK$38.2 million as of May 31, 2014 from HK$30.1
million as of December 31, 2013, primarily due to increase in deposits we paid for maintenance work for
our VIP lounge room in HKIA. Our deposits increased by HK$9.6 million, or 46.8%, to HK$30.1 million
as of December 31, 2013 from HK$20.5 million as of December 31, 2012, primarily due to the deposit
of HK$7.8 million with one of our fuel suppliers in connection with the renewal of a fuel contract in 2013.
Our deposits increased by HK$3.9 million, or 23.5%, to HK$20.5 million as of December 31, 2012
from HK$16.6 million as of December 31, 2011, primarily due to the deposit of HK$2.0 million paid to
a cabin cleaning service provider and the increase in rental deposit for office space as a result of expansion
of our operations in 2012.
Prepayments
Prepayments primarily consist of aircraft maintenance prepayments and fuel prepayments. Our
prepayments decreased by HK$22.4 million, or 27.5%, to HK$59.0 million as of May 31, 2014 from
HK$81.4 million as of December 31, 2013, primarily because we settled accumulated payables due to our
maintenance service providers. Our prepayments increased by HK$52.9 million, or 185.6%, to HK$81.4
million as of December 31, 2013 from HK$28.5 million as of December 31, 2012, primarily due to
increased aircraft maintenance and fuel prepayments as a result of the increased number of aircraft in our
operating fleet.
Our prepayments decreased by HK$22.5 million, or 44.1%, to HK$28.5 million as of December 31,
2012 from HK$51.0 million as of December 31, 2011, primarily due to a decrease in fuel prepayments to
fuel suppliers.
Power-By-Hour rebate
Our power-by-hour rebate consists primarily of credit given by our engine suppliers in 2010 which
we could use to offset engine maintenance costs in the future. As of May 31, 2014 and December 31, 2013,
our power-by-hour rebate was nil, because we have used up all such credit.
247
Our power-by-hour rebate decreased by HK$38.9 million, or 66.9%, to HK$19.2 million as of
December 31, 2012 from HK$58.1 million as of December 31, 2011, as we used the credits in 2012.
Flight route subsidies receivables
Our flight routes subsidies receivables consist primarily of subsidies receivables granted by the PRC
local government authorities of the destinations of our flights and subsidies receivables under the NDIA.
Our flight routes subsidies receivables slightly decreased by HK$0.7 million, or 1.5%, to HK$45.9 million
as of May 31, 2014 from HK$46.6 million as of December 31, 2013, primarily due to receipt of part of
subsidies receivable in 2013.
Our flight routes subsidies receivables increased by HK$37.2 million, or 393.7%, to HK$46.6
million as of December 31, 2013 from HK$9.4 million as of December 31, 2012, primarily due to
introduction of three new destinations in the PRC in 2013.
Our flight routes subsidies receivables increased by HK$3.3 million, or 54.1%, to HK$9.4 million
as of December 31, 2012 from HK$6.1 million as of December 31, 2011, primarily due to an increase in
number of flights to the PRC.
Other receivables
Our other receivables primarily consist of prepaid interests under finance leases where we are the
leasee, tax refundable and refundable management fee from HKIAL. Our other receivables increased by
HK$38.3 million, or 76.9%, to HK$88.0 million as of May 31, 2014 from HK$49.7 million as of December
31, 2013, primarily as a result of the payment of refundable management fee to HKIAL in relation to two
A330-300 aircraft that we leased from HKIAL.
Our other receivables increased by HK$11.4 million, or 29.8%, to HK$49.7 million as of December
31, 2013 from HK$38.3 million as of December 31, 2012, primarily due to an increase in prepaid interests
under finance leases as we started to have such prepayment arrangements in 2013 and an increase in tax
refundable as we submitted claims for tax refundable to tax authorities in 2013 and we had not yet received
such amount.
Our other receivables decreased by HK$9.4 million, or 19.7%, to HK$38.3 million as of December
31, 2012 from HK$47.7 million as of December 31, 2011, primarily due to exclusion of the receivables
of a subsidiary we disposed of in 2012.
248
Restricted cash
Restricted cash represents bank deposits pledged to secure bank borrowings. Our restricted cash
slightly decreased from HK$410.0 million as of December 31, 2013 to HK$405.8 million as of May 31,
2014, primarily because of repayment of certain bank borrowings secured by bank deposits. Our restricted
cash increased by HK$18.2 million, or 4.6%, to HK$410.0 million as of December 31, 2013 from
HK$391.8 million as of December 31, 2012, primarily due to an increase in bank borrowings.
Our restricted cash decreased by HK$448.3 million, or 53.4%, to HK$391.8 million as of December
31, 2012 from HK$840.1 million as of December 31, 2011, primarily due to repayment of certain bank
borrowings secured by bank deposits.
Prepayment for equity investments included in other Non-current assets
As of December 31,
As of May 31,
2011
2012
2013
2014
HK$000
HK$000
HK$000
HK$000
Prepayment for equity investments

Aigl Azur Transports Aeriens
SAS . . . . . . . . . . . . . . . . . . . . .
Hosea International . . . . . . . . . .
Sure Idea . . . . . . . . . . . . . . . . .
401,204
250,000
953,383
Total . . . . . . . . . . . . . . . . . . . . . .
1,604,587
Pursuant to an agreement entered into between Hong Kong Airlines and HNA Aviation HK on
December 18, 2012, Hong Kong Airlines agreed to acquire 398,963 ordinary shares, representing 48% of
the outstanding shares, of Aigl Azur Transports Aeriens SAS, an airline with its head office in
Tremblay-en-France, for consideration of EUR51,484,000 (equivalent to HK$514,364,000 based on the
IATA rates of exchange as of December 31, 2012 issued by IATA). On December 31, 2012, Hong Kong
Airlines assigned HK$205,005,000 and HK$196,199,000 due from HNA Group and HNA Aviation,
respectively, to HNA Aviation HK as payment of HK$401,204,000, representing 78% of the total
consideration for this acquisition. In 2013, the payment was refunded to Hong Kong Airlines in cash
pursuant to the cancellation agreement entered into between Hong Kong Airlines and HNA Aviation HK
which effectively unwound this transaction.
Pursuant to an agreement entered into between Hong Kong Airlines and Hong Kong HNA Property
Holding on December 27, 2012, Hong Kong Airlines agreed to acquire a 100% equity interest in Bright
Innovation and Hosea International, companies registered in Australia which were engaged in property
investment, for consideration of AUD37,700,000 (equivalent to HK$304,878,000 based on the IATA rates
of exchange as of December 31, 2012 issued by IATA) from HNA Property Holding. On December 31,
2012, Hong Kong Airlines assigned HK$12,551,000 due from HNA Aviation, representing 4.1% of the
total consideration, to Hong Kong HNA Property Holding as prepayment for this acquisition. In 2013, the
prepayment was refunded to Hong Kong Airlines in cash pursuant to the cancellation agreement entered
into between Hong Kong Airlines and HNA Property Holding which effectively unwound this transaction.
249
Pursuant to an agreement entered into between Hong Kong Airlines and Hong Kong HNA Property
Holding on December 27, 2012, Hong Kong Airlines agreed to acquire a 100% equity interest in Sure Idea
a company registered in United States which engaged in property investment, for consideration of
US$123,000,000 (equivalent to HK$953,380,000 based on the IATA rates of exchange as of December 31,
2012 issued by IATA) from Hong Kong HNA Property Holding. On December 31, 2012, Hong Kong
Airlines assigned HK$16,347,000 and HK$937,036,000 due from HNA Aviation and HNA Tourism,
respectively, to Hong Kong HNA Property Holding as prepayment of HK$953,383,000 for this acquisition.
In 2013, Hong Kong Airlines assigned the right of acquiring a 100% equity interest in Sure Idea to HNA
Group International at cash consideration.
The offsetting of trade receivables, which primarily consist of revenue generated from block seat
arrangements and block space arrangements we entered into with HNA Tourism and HNA Aviation and
receivables due from HNA Group, for prepayment under the above three transactions was accounted for
as a non-cash transaction amounting to HK$1,367.1 million in our combined statement of cash flows for
the year ended December 31, 2012.
Trade payables
Our trade payables primarily consist of operating expenses payable to third parties and related
parties.
The following table below sets forth our trade payables as of the dates indicated:
As of December 31,
As of May 31,
2011
2012
2013
2014
HK$000
HK$000
HK$000
HK$000
Trade payables third parties . . . . . .

Amounts due to related parties . . . . .
474,005
218,745
610,977
211,432
717,159
87,304
1,022,487
35,179
Total . . . . . . . . . . . . . . . . . . . . . . . .
692,750
822,409
804,463
1,057,666
Our trade payables increased by HK$253.2 million, or 31.5%, to HK$1,057.7 million as of May 31,
2014 from HK$804.5 million as of December 31, 2013, primarily due to increases in trade payables in
relation to third parties as a result of an increase in operating expenses in line with our business expansion.
Our trade payables decreased by HK$17.9 million, or 2.2%, to HK$804.5 million as of December 31,
2013 from HK$822.4 million as of December 31, 2012, primarily due to a decrease in amounts due to
related parties as a result of increased effort to settle trade payables due to related parties.
Our trade payables increased by HK$129.6 million, or 18.7%, to HK$822.4 million as of December
31, 2012 from HK$692.8 million as of December 31, 2011, primarily due to increases in operating
expenses as a result of an increase in number of flights and our operating fleet expansion in 2012.
The credit period of our trade payables is 30 days to 60 days.
250
The following table below sets forth an aging analysis of our trade payables as of the dates indicated:
As of December 31,
Less than 1 year . . . . .

Between 1 and 2 years
Between 2 and 3 years
Over 3 years . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
As of May 31,
2011
2012
2013
2014
HK$000
HK$000
HK$000
HK$000
.
.
.
.
475,830
138,002
45,456
33,462
447,526
205,854
115,603
53,426
418,342
200,260
112,646
73,215
851,399
118,838
66,088
21,341
Total . . . . . . . . . . . . . . . . . . . . . . . .
692,750
822,409
804,463
1,057,666
The following table below sets forth our trade payables turnover days for the periods indicated:
For the five
months ended
May 31,

2011
Trade payables turnover days
(1)
....
2012
48.3
47.4
2013
39.0
2014
38.3
Note:
(1)
The trade payables turnover days are equal to average trade payables (trade payables at the beginning of the year plus
trade payables at the end of the year divided by two) divided by total operating expenses for the year or period and
multiplied by 365 for each of the three years ended December 31, 2011, 2012 and 2013 and 150 for the five months
ended May 31, 2014.
Our trade payables turnover days remained relatively stable at 38.3 days for the five months ended
May 31, 2014 from 39.0 days for the year ended December 31, 2013.
Our trade payables turnover days decreased to 39.0 days for the year ended December 31, 2013 from
47.4 days for the year ended December 31, 2012, primarily due to our increased effort to settle invoices
with trade creditors in parallel with our efforts to control operating expenses.
Our trade payables turnover days decreased to 47.4 days for the year ended December 31, 2012 from
48.3 days for the year ended December 31, 2011, primarily due to our increased effort to settle invoices
with trade creditors in parallel with our efforts to control operating expenses.
As of June 30, 2014, we had subsequently paid HK$665.7 million to our trade creditors to settle our
trade payables outstanding as of May 31, 2014, the total of which represented 62.9% of the outstanding
trade payables as of May 31, 2014.
251
Sales in advance of carriage represents the value of sold but unused tickets. Our sales in advance of
carriage increased by HK$82.9 million, or 21.9%, to HK$461.4 million for the year ended May 31, 2014
from HK$378.5 million for the year ended December 31, 2013, primarily as a result of our increased
promotional efforts. Our sales in advance of carriage increased by HK$166.0 million, or 78.1%, to
December 31, 2012, primarily as a result of our increased promotional efforts.
Our sales in advance of carriage increased by HK$26.5 million, or 14.2%, to HK$212.5 million for
the year ended December 31, 2012 from HK$186.0 million for the year ended December 31, 2011,
consistent with our business growth.
Our accruals and other payables primarily consist of amounts due to related parties, landing, parking
and route expenses, aircraft maintenance expense, finance cost, selling and marketing expense, salaries,
wages and benefits, aircraft operating lease rentals, food and beverages, deposit and other accrued
expenses. The following table below sets forth our accruals and other payables as of the dates indicated:
As at December 31,
Amounts due to related parties . . . .

Accrued expenses:
expenses. . . . . . . . . . . . . . . .
Aircraft maintenance. . . . . . . . .
Finance costs . . . . . . . . . . . . . .
Selling and marketing expenses.
Wages, salaries and benefits . . .
Aircraft operating lease rentals .
Food and beverages . . . . . . . . .
Security deposits . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . . .
As at May 31,
2011
2012
2013
2014
HK$000
HK$000
HK$000
HK$000
289,892
26,913
.
.
.
.
.
.
.
.
.
253,202
102,475
75,381
56,507
4,310
2,683
29,178
3,577
254,539
194,493
86,755
74,550
19,765
14,088
1,354
26,216
40,058
486,807
295,049
58,149
85,602
54,839
98,337
19,537
64,856
64,718
524,106
360,119
104,866
57,482
12,508
31,796
36,470
37,722
65,700
Total . . . . . . . . . . . . . . . . . . . . . . . .
817,205
738,731
1,227,894
1,230,769
Amounts due to related parties

Amounts due to related parties are unsecured, non-interest bearing and with no fixed terms of
repayments. Please see the section headed Related Party Transactions below for details.
Accrued expenses
Our accrued expenses slightly increased by HK$29.0 million, or 2.6%, to HK$1,127.3 million as of
May 31, 2014 from HK$1,098.3 million as of December 31, 2013.
252
Our accrued expenses increased by HK$452.8 million, or 70.1%, to HK$1,098.3 million as of
December 31, 2013 from HK$645.5 million as of December 31, 2012, primarily due to increases in
landing, parking and route expenses, aircraft maintenance expenses, aircraft operating lease rentals and
other accrued expenses as a result of expansion of our operations. The increase in accrued expenses in
2013 was also partially due to delayed receipt of invoices from vendors, which resulted in the expense
being accrued, rather than recorded as trade payables.
Our accrued expenses increased by HK$150.9 million, or 30.5%, to HK$645.5 million as of
December 31, 2012 from HK$494.6 million as of December 31, 2011, primarily due to the increases in
aircraft maintenance expenses, salaries, wages and benefits, aircraft operating lease rentals and other
accrued expenses as a result of expansion of our operations.
Security deposits
Our security deposits primarily consist of deposits received from travel agents and cargo agents. Our
security deposits decreased by HK$27.2 million, or 41.9%, to HK$37.7 million as of May 31, 2014 from
HK$64.9 million as of December 31, 2013, primarily due to recognition of part of deposits to revenue as
we had provided corresponding services.
Our security deposits increased by HK$38.7 million, or 147.7%, to HK$64.9 million as of December
31, 2013 from HK$26.2 million as of December 31, 2012, primarily due to an increase in deposits received
from travel agents and cargo agents as we offered more services in line with our expansion in 2013.
Our security deposits decreased by HK$3.0 million, or 10.3%, to HK$26.2 million as of December
31, 2012 from HK$29.2 million as of December 31, 2011, primarily because we refunded part of deposits
to cargo agents due to termination of business and recognition of part of deposits to revenue as we had
provided corresponding services.
253
Obligations under finance leases
As of December 31, 2011, 2012 and 2013 and May 31, 2014, we had 12, 12, 12 and 12 aircraft,
respectively, under finance leases. Under the terms of the leases, we had the option to purchase, at or near
the end of the lease terms, certain aircraft at either fair market value or a percentage of the respective
lessors defined cost of the aircraft. The finance leases liabilities were principally denominated in U.S.
dollars.
The future minimum lease payments (including interest), and the present value of the minimum lease
payments under finance leases are as follows:
As of December 31,
As of May 31,
2011
2012
2013
2014
HK$000
HK$000
HK$000
HK$000
Gross finance lease liabilities minimum

lease payments
No later than 1 year . . . . . . . . . . . . . . . . .
Later than 1 year and no later than 5 years . . .
Later than 5 year. . . . . . . . . . . . . . . . . . .
996,637
3,726,243
4,810,361
969,192
3,618,996
3,933,694
972,328
3,180,139
1,974,543
916,353
2,805,831
1,987,283
Future finance charges on finance leases . . . . .
9,533,241
(1,792,314)
8,521,882
(1,489,805)
6,127,010
(971,265)
5,709,467
(912,362)
Present value of finance lease liabilities . . . .
7,740,927
7,032,077
5,155,745
4,797,105
The present value of finance lease liabilities

No later than 1 year . . . . . . . . . . . . . . . . .
Later than 5 year. . . . . . . . . . . . . . . . . . .
696,963
2,791,158
4,252,806
696,774
2,794,299
3,541,004
755,956
2,610,327
1,789,462
718,446
2,287,733
1,790,906
Total . . . . . . . . . . . . . . . . . . . . . . . . .
7,740,927
7,032,077
5,155,745
4,797,105
The carrying amounts and fair value of the non-current obligations under finance leases as follows:
As of December 31,
Carrying amount . . . . . . . . . . . . . . . . . . .
Fair value . . . . . . . . . . . . . . . . . . . . . . .
As of May 31,
2011
2012
2013
2014
HK$000
HK$000
HK$000
HK$000
7,043,964
7,029,180
254
6,335,303
6,329,803
4,399,789
4,389,670
4,078,639
3,912,084
RELATED PARTY TRANSACTIONS
During the Track Record Period, we had certain related party transactions in the normal course of
business. These transactions were conducted in accordance with terms as agreed between us and the
respective related parties.
The following table sets forth our amounts due from and due to related parties as of the dates
indicated:
As of December 31,
As of May 31,
2011
2012
2013
2014
HK$000
HK$000
HK$000
HK$000
Cash and cash equivalent

HNA Finance . . . . . . . . . . . . . . . .
933,371
933,711
130,525
259,564
28,537
62,537
402,417
48,693
49,824
13,285
61,702
83,326
19,998
88,778
418,626
513,647
208,137
108,776
.
.
.
20,819
30
20,779
22,353
126,276
9,370
13,955
.
.
.
27,258
13,186
58,550
19,874
2,457
12,569
11,833
61,293
250,289
21,939
25,788

Trade receivables:
Hainan Airlines . . . . .
HNA Aviation . . . . . .
HNA Tourism . . . . . .
Hong Kong Express . .
Yangtze River Express
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Prepayments, deposits and other

receivables:
China Xinhua Airlines . . . . . . .
Hainan Airlines . . . . . . . . . . . .
HNA Investment . . . . . . . . . . .
Hong Kong Airlines Corporate
Jet Management . . . . . . . . . .
Yangtze River Express . . . . . . .
Others . . . . . . . . . . . . . . . . . . .
.
.
.
.
.
255
As of December 31,
As of May 31,
2011
2012
2013
2014
HK$000
HK$000
HK$000
HK$000
Prepayment for equity

investment
Hong Kong HNA Property
Holding . . . . . . . . . . . . . . . . .
HNA Aviation (Hong Kong)
Holdings . . . . . . . . . . . . . . . .
1,203,383
401,204
1,604,587
93,499
93,469
11,534
11,698
8,545
149,734
7,014
24,370
21,529
8,785
11,366
47,362
25,541
3,035
30,149
2,245
2,785
218,745
211,432
87,304
35,179
25,866
15,576
63,945
16,626
150,668
17,211
19,493
7,420
289,892
26,913
7,525,040
6,825,690
4,590,176
4,267,336

Trade payables:
Grand China Air . . . . .
Hainan Airlines . . . . . .
HNA Aviation Technik .
Hong Kong Express . . .
Sanya Airport . . . . . . .
Others . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Accruals and other payables:

Beijing Capital Airlines . . . . .
HNA Group International . . . .
HNA Tourism . . . . . . . . . . . .
Technology . . . . . . . . . . . .
HNA Yisheng Holding . . . . . .
Hong Kong Express . . . . . . . .
Others . . . . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
..
..
..
.
.
.
.
.
.
.
.
Obligation under finance leasing

agreements with HKIAL. . . . . .
Cash deposit with related party
As of May 31, 2014, we had cash deposit of US$120.0 million (equivalent to HK$933.4 million) with
HNA Finance. We entered into a financial services agreement with HNA Finance on August 6, 2013 for
a term of three years, pursuant to which HNA Finance will provide a variety of financial services to us,
such as deposits, loans, entrustment loans, settlement services, financial leasing, credit certification, bond
underwriting and related consultancy and agency financial services. Please see the section headed
Continuing Transactions in this [REDACTED] for more information.
256
As of December 31, 2011, 2012 and 2013 and May 31, 2014, amounts due from related parties were
HK$479.9 million HK$2,368.5 million, HK$230.1 million and HK$134.6 million, respectively. Amounts
due from related parties during the Track Record Period primarily consisted of trade receivables, other
receivables due from related parties and prepayments for equity investment.
As of December 31, 2011, 2012 and 2013 and May 31, 2014, trade receivables due from related
parties were HK$418.6 million, HK$513.6 million, HK$208.1 million and HK$108.8 million,
respectively. Trade receivables due from related parties during the Track Record Period primarily
consisted of (i) trade receivables due from HNA Tourism under block seat arrangements; (ii) trade
receivables due from HNA Aviation under block space arrangements; (iii) rental income from aircraft
under operating leases sub-leased to Hong Kong Express, Hainan Airlines and Yangtze River Express; and
(iv) interline sales from Hong Kong Express.
As of December 31, 2011, 2012 and 2013 and May 31, 2014, other receivables due from related
parties were HK$61.3 million, HK$250.3 million, HK$21.9 million and HK$25.8 million, respectively.
Other receivables due from related parties during the Track Record Period primarily consisted of (i)
advance payment of rental income on behalf of Hong Kong Airline Corporate Jet Management Limited to
its lessors; (ii) payment of reconfiguration fees on behalf of Yangtze River Express to the lessors; and (iii)
payment of aircraft maintenance fee we made through HNA Investment, which have been fully repaid to
us by HNA Investment in 2013.
As of December 31, 2011, 2012 and 2013 and May 31, 2014, prepayments for equity investment were
nil, HK$1,604.6 million, nil and nil, respectively. The prepayment for equity investment in 2012
represented payment to Hong Kong HNA Property Holding and HNA Aviation HK for the acquisition of
equity interests in Aigl Azur Transports Aeriens SAS, Bright Innovation, Hosea International and Sure
Idea. For details on these prepayments, please see the subsection headed Prepayment for equity
investments included in other Non-current assets.
As of December 31, 2011, 2012 and 2013 and May 31, 2014, amounts due to related parties were
HK$508.6 million, HK$238.3 million, HK$87.3 million and HK$35.2 million, respectively. Amounts due
to related parties during the Track Record Period primarily consisted of trade payables and other payables
due to related parties.
As of December 31, 2011, 2012 and 2013 and May 31, 2014, trade payables due to related parties
were HK$218.7 million, HK$211.4 million, HK$87.3 million and HK$35.2 million, respectively. Trade
payables due to related parties during the Track Record Period primarily consisted of (i) trade payables
due to Grand China Air for maintenance reserves, which were paid by Grand China Air on behalf us to
the lessors; (ii) trade payables due to Hainan Airlines for advance payment of rental income under
operating leases; and (iii) trade payables of landing, parking and ground handling fees due to Sanya
Airport.
257
As of December 31, 2011, 2012 and 2013 and May 31, 2014, accruals and other payables due to
related parties were HK$289.9 million and HK$26.9 million, nil and nil, respectively. Accruals and other
payables due to related parties during the Track Record Period primarily consisted of (i) the debt owed by
Unique Ocean to HNA Tourism and HNA Yisheng Holding Co., Ltd. and (ii) maintenance cost payables
to Hong Kong Express. The debt owed by Unique Ocean was transferred to Baota Petrochemical (HK) Co.,
Limited when we disposed of our entire interest in Unique Ocean to Baota Petrochemical (HK) Co.,
Limited in 2012.
As of December 31, 2011, 2012 and 2013 and May 31, 2014, our obligations under the finance
leasing agreements amounted to HK$7,525.0 million, HK$6,825.7 million, HK$4,590.2 million and
HK$4,267.3 million. The decrease of our obligations under the finance leasing agreements during the
Track Record Period was mainly caused by our repayment of principal and interest in accordance with the
relevant finance leasing agreements. For details on the finance leasing agreements, please also see the
sections headed Business Our Fleet Aircraft Purchasing and Leasing Arrangements and Continuing
Transactions.
Our Directors have confirmed that all related party transactions during the Track Record Period were
conducted on normal commercial terms and on arms length basis that were reasonable and in the interest
of the Group as a whole. Our Directors have further confirmed that these related party transactions would
not distort our results of operations for the Track Record Period or make our historical results not
reflective of our future performance.
Save for the amounts arising from the continuing transactions as disclosed in the section headed
Continuing Transactions and the amount due to the HKIAL under the finance leasing agreements, all the
amounts due from and to related parties will be settled prior to the [REDACTED]. For details on the
finance leasing agreements with HKIAL, please also see the sections headed Business Our Fleet
Aircraft Purchasing and Leasing Arrangements and Continuing Transactions.
For more information on our related party transactions, see the section headed Continuing
Transactions and Note 34 to our consolidated financial statements included in Accountants Report as set
out in Appendix I to this [REDACTED].
LIQUIDITY AND CAPITAL RESOURCES
Our primary use of cash is to pay for purchases of new aircraft, spare parts and aircraft-related
equipment, and to fund our working capital and other operating expenses. Historically, we have financed
our operations primarily through a combination of cash flow generated from our operating activities,
issuance of debt securities and bank borrowings. We have historically repaid or rolled over our bank
borrowings when they became due. During the Track Record Period, we did not experience any difficulties
in rolling over our bank borrowings.
We are undergoing a period of rapid expansion. One of the most important aspects of our expansion
strategy is the significant increase of the number of aircraft of our operating fleet. To this end, we have
incurred significant borrowings primarily to fund the purchase of aircraft and working capital needs,
which contributed to our net cash outflow from operating activities as of December 31, 2012. As a result,
we incurred net current liabilities during the Track Record Period. For details, please see the section
headed Net Current Liabilities. Our borrowings also contributed to relatively high gearing ratios and net
debt to equity ratios as of December 31, 2011, 2012 and 2013, respectively. Please see the section headed
Key Financial Ratios in this [REDACTED] for more information.
258
Despite the foregoing, however, we are able to manage liquidity risks by maintaining adequate
reserves and credit facilities, continuously monitoring forecast and actual cash flows, and matching the
maturity profiles of assets and liabilities. In the event that additional capital is required for business
expansion, we may approach other banks to obtain additional banking facilities and/or negotiate with our
existing lenders for an increase in banking facilities.
Cash Flows
The following table sets forth a summary of our cash flows information for the periods indicated:
Cash generated from

operating activities . . . . . .
Net cash used in investing
activities . . . . . . . . . . . . . .
Net cash generated
from/(used in) financing
activities . . . . . . . . . . . . . .
Net increase/(decrease) in
cash and cash equivalents .
Cash and cash equivalents at
beginning of the
year/period . . . . . . . . . . . .
Cash and cash equivalents at
end of the year/period . . . .
For the five months

ended May 31,
2011
2012
2013
2013
2014
HK$000
HK$000
HK$000
HK$000
unaudited
HK$000
960,720
465,958
2,921,535
956,154
910,046
(3,514,331)
(3,821,627)
(808,996)
(36,702)
(71,102)
3,041,457
2,932,820
(918,910)
(1,078,853)
(382,001)
487,846
(422,849)
1,193,629
(159,401)
456,943
205,773
693,619
270,770
270,770
1,464,399
693,619
270,770
1,464,399
111,369
1,921,342
Cash Generated From Operating Activities

Our primary source of cash generated from operating activities consists of revenue generated from
passenger and cargo services, rental income from aircraft subleasing and other revenue. Our primary uses
of cash in operating activities are daily operations, acquisition and upgrades of aircraft, engines and flight
equipment, and repayment of borrowings.
For the five months ended May 31, 2014, our net cash generated from operating activities was
HK$910.0 million, which was attributed to profit before income tax of HK$192.4 million adjusted by (i)
a decrease of trade and other payables and accrual of HK$48.4 million, primarily due to increased
operating activities as a result of increased scale of operations, and in particular, our increased number of
flights, (ii) a decrease of trade and other receivable, prepayment and deposit of HK$81.6 million primarily
due to a decrease in receivables from third parties in line with our business expansion, and (iii) a decrease
of sales in advance of carriage of HK$82.9 million, primarily due to an increase in sold but unused tickets,
mainly as a result of our efforts to promote advanced ticket sales. These items were partially offset by an
increase of other non-current assets of HK$79.3 million mainly as a result of increased payment for
security deposits in relation to aircraft maintenance, and an increase of expendable spare parts of HK$16.0
million, primarily due to the increased number of aircraft we operated.
259
For the year ended December 31, 2013, our net cash generated from operating activities was
HK$2,921.5 million, which was attributable to profit before income tax of HK$450.9 million adjusted by
(i) a decrease of trade and other payables and accrual of HK$439.6 million, primarily due to increased
operating activities as a result of increased scale of operations, and in particular, our increased number of
flights, (ii) a decrease of trade and other receivable, prepayment and deposit of HK$349.2 million
primarily due to a decrease of receivables from third parties due to our increased scale of operations, and
(iii) a decrease of sales in advance of carriage of HK$166.0 million, primarily due to increase in sold but
unused tickets in 2013, as we promoted more advanced ticket sales during the year. These items were
partially offset by an increase of expendable spare parts of HK$13.3 million, primarily due to the increased
number of aircraft we operated in 2013.
HK$466.0 million, which was attributable to profit before income tax of HK$274.7 million adjusted by
a decrease of trade and other payables and accrual of HK$249.2 million primarily due to increased
operating activities, and in particular, the number of flights we operated in 2012. This effect was partially
offset by an increase of trade and other receivable, prepayment and deposit of HK$990.8 million, mainly
as a result of the effect that we used our trade receivables due from relevant related parties to settle
consideration in relation to our acquisition of equity interests in Aigle Azur Transports Aeriens SAS,
Bright Innovation Group Limited, Hosea International Limited and Sure Idea Limited. Please see the
section headed Discussion of Certain Items of Combined Balance Sheets Prepayment for equity
investments included in other Non-current assets for more information on these transactions.
HK$960.7 million which was attributable to profit before income tax of HK$147.9 million adjusted by (i)
a decrease of trade payables and accruals and other payables and accrual of HK$485.6 million, primarily
due to increased operating activities as a result of increased number of flights we operated in 2011, (ii)
a decrease of sales in advance of carriage of HK$162.5 million, primarily due to increased sold but unused
tickets and (iii) a decrease of other non-current liabilities of HK$98.6 million, primarily due to increased
provision for aircraft return checks as a result of increased aircraft operated under operating leases. These
adjustments were partially offset by (i) an increase of trade and other receivable, prepayment and deposit
of HK$459.7 million, primarily due to we granted longer credit periods to our clients in 2011 to promote
our business development and (ii) an increase of other non-current assets of HK$278.0 million, primarily
due to increased maintenance reserve and commitment fees paid to the lessors as a result of increased
number of aircraft under operating leases and engines under finance leases in 2011.
Net Cash Used In Investing Activities
Our cash used in investing activities mainly consists of purchases of property, plant and equipment
and purchases of available-for-sale financial assets which include bonds issued by Hainan Airlines (Hong
Kong) and equity securities of HKIAL and HNA Group International. Our cash generated from investing
activities mainly represents proceeds from disposal of available-for-sale financial assets, proceeds from
disposal of property, plant and equipment, proceeds from transfer of advanced payments on acquisition of
aircraft and proceeds from the disposal of subsidiaries.
For the five months ended May 31, 2014, our net cash used in investing activities was HK$71.1
million, which primarily consisted of (i) the purchase of property, plant and equipment of HK$83.7 million
as a result of our purchase of spare parts used for aircraft maintenance; and (ii) the restricted cash deposits
of HK$19.4 million, the effect of which was partially offset by receipts of restricted cash of HK$23.6
million and interest received of HK$8.4 million.
260
For the year ended December 31, 2013, net cash used in investing activities was HK$809.0 million,
which primarily consisted of (i) the purchase of available-for-sale financial assets of HK$2,221.4 million,
representing our acquisition of a 11.1% equity interest in HNA Group International, (ii) the purchase of
property, plant and equipment of HK$419.3 million and (iii) deposit of restricted cash in the amount of
HK$410.0 million, partially offset by (i) proceeds from the disposal of available-for-sale financial assets
of HK$214.8 million, representing our sale of a 4.3% equity interest of HKIAL, and proceeds from
disposal of bonds issued by Hainan Airlines (Hong Kong) of HK$114.8 million through public trading, (ii)
receipt of the HK$1,604.6 million related to cancellation of our acquisition of equity interests in Aigle
Azur Transports Aeriens SAS, Bright Innovation Group Limited and Hosea International Limited and (iii)
receipt of restricted cash of 391.8 million.
For the year ended December 31, 2012, net cash used in investing activities was HK$3,821.6 million,
which primarily consisted of (i) the purchase of property, plant and equipment of HK$3,475.7 million,
primarily due to the increased number of our aircraft owned and operated through finance leases, (ii)
advance payment on acquisition of aircraft of HK$990.4 million, and (iii) deposit of restricted cash in the
amount of HK$391.8 million, partially offset by (i) proceeds from transfer of advanced payments on
acquisition of aircraft of HK$636.3 million to Hainan Airlines as a result of novation of our aircraft orders
with Airbus, (ii) receipt of restricted cash of HK$840.1 million as a result of repayment of certain bank
borrowings pledged by bank deposits, (iii) proceeds from the disposal of available for sale financial assets
of HK$70.3 million, representing the disposal of bonds issued by Hainan Airlines (Hong Kong) through
public trading, and (iv) proceeds from the disposal of property, plant and equipment of HK$44.2 million,
representing our disposal of an aircraft engine to Celestial Aviation Trading 100 Limited under sale and
lease back arrangement.
For the year ended December 31, 2011, net cash used in investing activities was HK$3,514.3 million,
which primarily consisted of (i) advance payment on acquisition of aircraft of HK$2,312.8 million, (ii)
restricted cash deposit of HK$840.1 million as a result of increased bank borrowings pledged by bank
deposits, (iii) the purchase of available-for-sale financial assets of HK$185.1 million, representing our
purchase of bonds issued by Hainan Airlines (Hong Kong), and (iv) the purchase of property, plant and
equipment of HK$181.4 million offset by interest received of HK$4.0 million.
Net Cash Generated From (Used In) Financing Activities
Our cash generated from financing activities mainly consists of proceeds from bank borrowings,
proceeds from issuance of ordinary shares to shareholders and proceeds from issuance of notes payable.
Our cash used in financing activities mainly consists of repayments of borrowings, repayments of
obligations under finance lease and interest paid under notes payable and bank borrowings.
For the five months ended May 31, 2014, our net cash used in financing activities was HK$382.0
million, which primarily consisted of (i) repayments of obligation under finance leases of HK$357.2
million, (ii) repayments of borrowings of HK$518.8 million, (iii) interest paid of HK$220.2 million and
(iv) prepayment of share issuance costs of HK$6.7 million. These were offset by proceeds from bank
borrowing of HK$720.9 million, resulting from our increased borrowings for the acquisition of aircraft
and working capital needs.
For the year ended December 31, 2013, net cash used in financing activities was HK$918.9 million,
which primarily consisted of (i) repayments of obligation under finance leases of HK$2,278.0 million, (ii)
repayments of borrowings of HK$1,196.8 million and (iii) interest paid of HK$738.4 million. These were
offset by proceeds from bank borrowing of HK$1,742.1 million, resulting from our increased borrowings
for the acquisition of aircraft and working capital needs, and proceeds from issuance of ordinary shares
of HK$1,552.2 million to Hainan Airlines, HKA Consultation and HKA Holdings.
261
For the year ended December 31, 2012, net cash generated from financing activities was HK$2,932.8
million, which primarily consisted of proceeds from bank borrowing of HK$5,082.8 million, primarily due
to our increased borrowings for acquisition of aircraft and working capital needs, offset by the (i)
repayments of obligations under finance leases of HK$695.4 million, (ii) repayments of borrowings of
HK$770.9 million and (iii) interest paid of HK$683.6 million.
For the year ended December 31, 2011, net cash generated from financing activities was HK$3,041.5
million, which primarily consisted of (i) proceeds from bank borrowing of HK$2,972.4 million, (ii)
proceeds from issuance of ordinary shares of HK$1,033.7 million to Hainan Airlines and (iii) proceeds
from issuance of notes payable of HK$727.6 million by Blue Sky Fliers, our wholly-owned subsidiary,
offset by the repayments of obligation under finance lease of HK$1,233.6 million and interest paid of
HK$458.6 million.
Working Capital
Taking into account the financial resources available to us, including our existing cash and cash
equivalents, anticipated operating cash flow from our operating activities, available facilities and
financing arrangement with banks, and the estimated net proceeds from the [REDACTED], our Directors
are satisfied that, after due and careful inquiry, that we have sufficient working capital available to satisfy
our liquidity requirements for at least next 12 months following the date of this [REDACTED] and the
Sole Sponsor concurs with the Directors.
CAPITAL EXPENDITURE AND COMMITMENTS
Capital Expenditure
Our capital expenditure for the years ended December 31, 2011, 2012 and 2013 primarily comprised
expenditures on the purchase of aircraft and engines, aircraft-related equipment and office equipment and
vehicles. For the years ended December 31, 2011, 2012 and 2013, our total capital expenditures amounted
to HK$3,753.2 million, HK$3,515.2 million and HK$887.1 million, respectively. We financed our capital
expenditures primarily through our cash generated from our operating activities, proceeds from the
issuance of debt securities and borrowings. The following table sets forth our capital expenditures for the
periods indicated:
For the five
months ended
May 31,

2011
2012
2013
2014
HK$000
HK$000
HK$000
HK$000
Aircraft and engines . . . . . . . . . . . . .

Aircraft-related equipment. . . . . . . . .
Leasehold Improvements, Equipment
and Buildings . . . . . . . . . . . . . . . .
3,663,262
68,675
3,371,576
111,391
718,932
154,427
218,012
34,436
21,271
32,268
13,779
11,648
Total . . . . . . . . . . . . . . . . . . . . . . . .
3,753,208
3,515,235
887,138
264,096
For the years ending December 31, 2014 and December 31, 2015, we estimate that our capital
expenditures will amount to approximately HK$483.2 million and HK$1,518.7 million, respectively,
primarily to fund pre-delivery payments on ordered aircraft, as well as purchase of spare parts and
aircraft-related equipment.
262
Our projected capital expenditures are subject to revision based upon any future changes in our
business plan, market conditions, economic and regulatory environment. Please see the section headed
Future Plans and Use of Proceeds in this [REDACTED] for further information.
Capital And Other Commitments
Our capital commitments as of December 31, 2011, 2012 and 2013 and May 31, 2014 were related
to the purchase of aircraft and equity investments in Aigl Azur Transports Aeriens SAS, Bright Innovation
and Hosea International. As of December 31, 2011, 2012 and 2013 and May 31, 2014, we had contracted
but not provided capital expenditure in respect of aircraft of HK$31,648.8 million, HK$26,207.8 million,
HK$25,798.9 million and HK$25,798.9 million, respectively. As of December 31, 2011, 2012 and 2013
and May 31, 2014, we had contracted but not provided capital expenditure in respect of equity investment
of nil, HK$168.0 million, nil and nil, respectively. The following table sets forth our capital commitments
as of the dates indicated:
As of December 31,
Contracted but not provided for

purchase of aircraft . . . . . . . . . . . .
Contracted but not provided for
equity investment . . . . . . . . . . . . .
As of May 31,
2011
2012
2013
2014
HK$000
HK$000
HK$000
HK$000
31,648,843
26,207,826
25,798,925
25,798,925
168,038
31,648,843
26,375,864
25,798,925
25,798,925
We lease certain of our aircraft under operating leases, and also lease office space. The following
table sets forth our aggregated future minimum lease payments in respect of certain aircraft and office
spaces held under non-cancellable operating leases as of the dates indicated:
As of December 31,
As of May 31,
2011
2012
2013
2014
HK$000
HK$000
HK$000
HK$000
Within 1 year . . . . . . . . . . . . . . . . . .
1 to 5 years . . . . . . . . . . . . . . . . . . .
After 5 years . . . . . . . . . . . . . . . . . .
395,583
2,895,847
6,324,155
918,105
4,138,149
7,840,496
1,134,099
5,201,347
8,888,063
1,274,870
5,132,727
8,387,748
Total . . . . . . . . . . . . . . . . . . . . . . . .
9,615,585
12,896,750
15,223,509
14,795,345
263
CONTINGENT LIABILITIES
As of the Latest Practicable Date, we did not have any significant contingent liabilities or guarantees.
We are not currently involved in any material legal proceedings, nor are we aware of any pending or
potential material legal proceedings involving us. If we were involved in such material legal proceedings,
we would record any loss or contingency when, based on information then available, it is likely that a loss
has been incurred and the amount of the loss can be reasonably estimated.
INDEBTEDNESS
As of the latest practicable date for determining our indebtedness, we had outstanding indebtedness
of HK$12,881.7 million. The following table sets forth our bank loans, notes payable and obligations
under finance leases as of the dates indicated:
As of
May 31,
As of December 31,
Current:
Notes . . . . . . . . . . . . . . . . .
Obligations under finance
leases . . . . . . . . . . . . . . . .
Borrowings Secured and
Guaranteed . . . . . . . . . . . .
Non-current:
Notes . . . . . . . . . . . . . . . . .
Obligations under finance
leases . . . . . . . . . . . . . . . .
Borrowings Secured . . . . . .
Total . . . . . . . . . . . . . . . . . .
As of
June 30,
2011
2012
2013
2014
2014
HK$000
HK$000
HK$000
HK$000
HK$000
unaudited
764,747
743,779
696,963
696,774
755,956
718,466
751,891
770,943
1,196,787
1,780,527
1,884,595
1,617,084
1,467,906
1,893,561
3,301,230
3,346,840
2,369,364
729,538
739,300
232,079
7,043,964
2,201,426
6,335,303
6,087,391
4,399,789
6,048,999
4,078,639
6,144,830
4,250,753
6,029,892
9,974,928
13,161,994
10,448,788
10,223,469
10,512,335
11,442,834
15,055,555
13,750,018
13,570,309
12,881,699
264
Borrowings
We obtain borrowings to finance our acquisition of aircraft and working capital needs. As of
December 31, 2011, 2012 and 2013 and May 31, 2014, our total outstanding balance of borrowings was
HK$2,972.4 million, HK$7,284.2 million, HK$7,829.5 million and HK$8,029.4 million, respectively. The
following table sets forth a breakdown of our current and non-current borrowings as of the dates indicated:
As of
May 31,
As of December 31,
As of
June 30,
2011
2012
2013
2014
2014
HK$000
HK$000
HK$000
HK$000
HK$000
unaudited
Current:
Secured and Guaranteed . . . .
770,943
1,196,787
1,780,527
1,884,595
1,617,084
Non-current:
Secured . . . . . . . . . . . . . . . .
2,201,426
6,087,391
6,048,999
6,144,830
6,029,892
Total . . . . . . . . . . . . . . . . . .
2,972,369
7,284,178
7,829,526
8,029,425
7,646,976
The increase in borrowings to HK$8,029.4 million as of May 31, 2014 from HK$7,829.5 million as
of December 31, 2013 was primarily due to our increased capital needs for acquisition of passenger
aircraft and cargo freighters in order to expand our operating fleet. The increase in borrowings to
HK$7,829.5 million as of December 31, 2013 from HK$7,284.2 million as of December 31, 2012 was
primarily due to our increased capital needs for acquisition of passenger aircraft and cargo freighters in
order to expand our operating fleet. Our bank loans increased to HK$7,284.2 million as of December 31,
2012 from HK$2,972.4 million as of December 31, 2011, which was also due to our increased capital
needs for acquisition of passenger aircraft and cargo freighters in order to expand our operating fleet.
Our borrowings are denominated principally in U.S. dollars, as well as in Hong Kong dollars and
Renminbi. As of December 31, 2011, 2012 and 2013 and May 31, 2014, the weighted average effective
interest rates of our bank loans were 4.6%, 4.9%, 5.1% and 4.7%, respectively.
As of June 30, 2014, we had total credit facilities in the amount of approximately HK$7,763.6
million, of which approximately HK$7,647.0 million had been utilized. In addition, we obtained a
commitment letter of RMB4.0 billion, according to which, we could draw down multiple loans from the
relevant bank with an aggregate amount of no more than RMB4.0 billion. As of the Latest Practicable
Date, we have not drawn down any amount under the commitment letter.
265
The following table sets forth the maturity profile of our non-current borrowings outstanding as of
dates indicated:
As of
May 31,
As of December 31,
As of
June 30,
2011
2012
2013
2014
2014
HK$000
HK$000
HK$000
HK$000
HK$000
unaudited
Between 1 and 2 years . . . . .

Between 2 and 5 years . . . . .
Above 5 years . . . . . . . . . . .
434,938
1,357,668
408,820
455,818
2,034,512
3,597,061
1,115,038
1,375,592
3,558,369
1,161,362
1,543,573
3,439,895
1,161,950
1,527,821
3,340,121
Total . . . . . . . . . . . . . . . . . .
2,201,426
6,087,391
6,048,999
6,144,830
6,029,892
Working Capital Loans

As of December 31, 2011, 2012 and 2013 and May 31, 2014, our total outstanding balance of
working capital loans was HK$577.6 million, HK$1,421.6 million, HK$1,983.8 million and HK$2,297.0
million, respectively. Our working capital loans were secured by (i) a charge over a 31.7% equity
ownership in Hong Kong Airlines owned by HKAG; (ii) a charge over a 2.8% equity ownership in HKIAL
owned by Hong Kong Airlines; (iii) the pledge of certain of our bank deposits amounting to HK$370.2
million, HK$390.3 million, HK$409.4 million and HK$405.2 million as of December 31, 2011, 2012 and
2013 and May 31, 2014, respectively; and (iv) the corporate guarantee provided by HNA Group,
amounting to HK$79.4 million, HK$77.5 million, HK$177.9 million and HK$193.2 million as of
December 31, 2011, 2012 and 2013 and May 31, 2014, respectively. The corporate guarantee provided by
HNA Group in favour of us will be released upon the [REDACTED].
The working capital loan agreements contain covenants that impose certain restrictions or
maintenance requirements on Hong Kong Airlines. Some key covenants relating to working capital loans
obtained by us are as follows:
Hong Kong Airlines may not make any acquisition, merger, division or similar arrangements
without the prior consent of the lender;
Hong Kong Airlines ratio of total debt to total assets must not exceed 80%;
Hong Kong Airlines consolidated tangible net worth must not be less than HK$2,500 million;
and
HNA Group or Hainan Airlines remains to be the largest shareholder of Hong Kong Airlines
during the valid period of the relevant loan.
266
In January 2014, we entered into a loan agreement in the principal amount of US$20 million with
China Development Bank, which we repaid in August 2014.
In July 2014, we entered into a loan facility agreement of US$88 million with Far Eastern
International Bank Co., Ltd., Hua Nan Commercial Bank Ltd., Offshore Banking Branch, Taiwan
Cooperative Bank Ltd., Offshore Banking Branch, Land Bank of Taiwan Co., Ltd., Hong Kong Branch,
Luso International Banking Limited and Taichung Commercial Bank Co., Ltd., Offshore Banking Branch.
This loan facility agreement was guaranteed by HNA Investment, HKAG Company, HKAG Holdings and
our Company. According to this agreement, during the availability period of this facility agreement, we
can, subject to certain conditions, draw down two bank loans each amounted to US$44 million. As of the
Latest Practicable Date, we have drawn down one loan of US$44 million. The guarantees provided by
HNA Investment and HKAG Holdings will be released upon the [REDACTED].
Aircraft Financing Loans
We entered into thirteen aircraft financing loan agreements with China Development Bank to
purchase ten A320 aircraft and three A330 aircraft in June 2011. The aircraft financing loans require
repayments to be made on a quarterly basis over 15 years. As of December 31, 2011 and 2012 and 2013
and May 31, 2014, our total outstanding balance of aircraft financing loans was HK$2,394.8 million,
HK$5,862.6 million, HK$5,845.7 million and HK$5,732.4 million, respectively. Our aircraft financing
loans were secured by (i) assignment of rights under contract with Airbus over each aircraft; (ii) pledge
of ownership of each aircraft; (iii) pledge of the entire equity ownership of our wholly-owned subsidiaries
which have the ownership of each aircraft; (iv) assignment of lease rental income for each aircraft; (v)
assignment of insurance of each aircraft; and (vi) assignment of airframe and engine warranties of each
aircraft.
Aircraft financing loan agreements contain covenants that impose certain restrictions or maintenance
requirements on our Company which include:
Hong Kong Airlines may not sell, lease, assign, transfer or otherwise dispose assets amounting
for more than 30% of total assets without the prior consent of the lender, provided that such
disposition is not conducted in the ordinary course of business;
Hong Kong Airlines may not make any single investment of more than HK$1,000 million or
cumulative investment of more than HK$3,000 million in one year, or make a reduction in any
single investment of more than HK$500 million or cumulative reduction in investment of more
than HK$1,500 million in one year without the prior consent of the lender;
Hong Kong Airlines may not make any acquisition, merger, division or similar arrangements
without the prior consent of the lender;
Hong Kong Airlines may not declare any dividend or distribute any dividend prior to repayment
of the obligations under the respective loan agreement in full;
Hong Kong Airlines current ratio (current assets/current liabilities multiplied by 100%) must
not be lower than 30%; and
Hong Kong Airlines total liability to total assets ratio (total liability/total assets multiplied by
100%) must not be higher than 90%.
267
6.50% Guaranteed Notes due 2014 (the 2011 Notes)
On June 20, 2011, Blue Sky Fliers, our wholly-owned subsidiary, issued RMB 600 million of notes
due 2014 at a rate of interest of 6.5% per annum. The notes are guaranteed (the Guarantee) by Hong
Kong Airlines. On June 11, 2014, the 2011 Notes were fully repaid through the proceeds of the issue of
the Notes by Skyliner Company Limited dated June 18, 2014 and our working capital.
Notes Issued by Skyliner Company Limited
Skyliner Company Limited (Issuer) issued US$30,000,000 7 per cent. Notes due June 18, 2016
(Notes) guaranteed by Hong Kong Airlines Limited (Guarantor). A keepwell deed dated June 18,
2014 was provided by Grand China Air. Please see the section headed Relationship with Controlling
Shareholders and Other Existing Shareholders Financial Independence.
Issuer:
Skyliner Company Limited, a company incorporated under the

laws of the British Virgin Islands.
Issue:
US$30,000,000 aggregate principal amount of 7 per cent.

Guaranteed Notes due June 18, 2016.
Guarantor:
Hong Kong Airlines Limited, a limited liability company

incorporated and registered in Hong Kong.
Guarantee:
The due payment of all sums expressed to be payable by the Issuer

under the Notes will be unconditionally and irrevocably guaranteed
by the Guarantor under a guarantee to be dated on June 18, 2014
and executed by the Guarantor.
Issue Price:
US$30,000,000
Interest:
The Notes will bear interest on their outstanding principal amount

from and including June 18, 2014 at the rate of 7 per cent. per
annum, payable semi-annually in arrears on June 18 and December
18 in each year, commencing on December 18, 2014.
Issue Date:
June 18, 2014
Maturity Date:
June 18, 2016
Closed Period:
(i) 15 days ending on (and including) the due date for redemption
of the Note, (ii) after the exercise of the noteholders option to
require the Issuer to redeem all but not some only of the
noteholders Notes following the occurrence of a change of
ownership, or (iii) seven days ending on (and including) the 15th
day before the due date for each payment.
268
Status:
The Notes will constitute direct, unconditional, unsubordinated

and unsecured obligations of the Issuer and shall at all times rank
pari passu and without any preference among themselves. The
payment obligations of the Issuer under the Notes shall, save for
such exceptions as may be provided by applicable legislation, at all
times rank at least equally with all the Issuers other present and
future unsecured and unsubordinated obligations.
Negative Pledge:
So long as any Note remains outstanding, neither the Issuer nor the
Guarantor will, and the Guarantor will ensure that none of its
subsidiaries will, create or have outstanding any mortgage, charge,
pledge, lien or other form of encumbrance or security interest upon
the whole or any part of its present or future business, undertaking,
assets or revenue (including any uncalled capital) to secure any
relevant indebtedness unless, at the same time or prior thereto, it
takes any and all action necessary to ensure that (a) all amounts
payable by it under the Notes or, as the case may be, the Guarantee
are secured by the security interest equally and rateably with the
relevant indebtedness or (b) such other security interest or other
arrangement (whether or not it includes the giving of a security
interest) is provided as is approved by an extraordinary resolution
of the holders of the note (Noteholders).
Financial Covenant:
For so long as any Note remains outstanding, the Issuer and the
Guarantor shall not, and the Guarantor shall not permit any other
member of the Group to, incur any indebtedness (other than
permitted indebtedness), provided that the Guarantor or any other
member of the Group may incur indebtedness, in each case, if, as
at the date of determination and after giving effect to the
incurrence of such indebtedness and the receipt of the application
of the proceeds therefrom (a) no Event of Default has occurred and
is continuing and (b) the consolidated tangible net worth is more
than HK$4,000,000,000 or the consolidated interest coverage ratio
is more than 2.25 to 1.0.
Events of Default:
If any of the following events occurs and if so requested by holders

of at least 25 per cent. of the aggregate principal amount of the
Notes then outstanding or if so directed by an extraordinary
resolution shall give written notice to the Issuer and the Guarantor
declaring that the Notes are, and they shall immediately become,
due and payable at their principal amount together (if applicable)
with accrued interest:
(a)
if default is made in the payment of any principal due in

respect of the Notes or any of them;
269
(b)
if default is made in the payment of any interest due in

respect of the Notes or any of them and the default continues
for a period of 21 days;
(c)
if the Issuer, the Guarantor or Grand China Air fails to

perform or observe any of its other obligations, the Guarantee
and (except in any case where the failure is incapable of
remedy, when no continuation or notice as is hereinafter
mentioned will be required) the failure continues for the
period of 30 days following the service by any Noteholder on
the Issuer, or the Guarantor (as the case may be);
(d)
if (i) any indebtedness for borrowed money of the Issuer, the

Guarantor, Grand China Air or any of the Guarantors other
subsidiaries becomes (or becomes capable of being declared)
due and repayable prematurely by reason of an Event of
Default (however described); (ii) the Issuer, the Guarantor,
Grand China Air or any of the Guarantors other subsidiaries
fails to make any payment in respect of any indebtedness for
borrowed money on the due date for payment as extended by
any originally applicable grace period; (iii) any security
given by the Issuer, the Guarantor, Grand China Air or any of
the Guarantors other subsidiaries for any indebtedness for
borrowed money becomes enforceable; or (iv) default is
made by the Issuer, the Guarantor, Grand China Air or any of
the Guarantors other subsidiaries in making any payment
due under any guarantee and/or indemnity given by it in
relation to any indebtedness for borrowed money of any other
person, provided that no event described in this paragraph (d)
shall constitute an Event of Default unless the aggregate
amount of the relevant indebtedness for borrowed money,
guarantee and indemnities in respect of which one or more of
the events mentioned above in this paragraph (d) has
occurred amounts to at least five per cent. of the Guarantors
consolidated net assets;
270
(e)
if any order is made by any competent court or effective

resolution is passed for the winding up or dissolution of the
Issuer, the Guarantor, Grand China Air or any of the
Guarantors other subsidiaries; or if the Issuer, the Guarantor,
Grand China Air or any of the Guarantors other subsidiaries
ceases or threatens to cease to carry on the whole or a
substantial part of its business, save in any case for the
purposes of and followed by a reconstruction, amalgamation,
reorganization, merger or consolidation (i) on terms approved
by an extraordinary resolution of the Noteholders, or (ii) in
the case of a subsidiary, by way of a voluntary winding up or
dissolution where there are surplus assets and undertakings in
such subsidiary and such surplus assets and undertakings are
transferred, distributed or otherwise vested to or in the
Guarantor and/or another of the Guarantors subsidiaries;
(f)
the Issuer, the Guarantor, Grand China Air or any of the

Guarantors other subsidiaries stops or threatens to stop
payment (other than in respect of any debt being contested in
good faith and for which adequate reserves have been made)
of, or admits inability to pay, all or a material part of the
debts of the Group as they fall due, or the Issuer, the
Guarantor, Grand China Air or any of the Guarantors other
subsidiaries is deemed by law or a court of competent
jurisdiction unable to pay all or a material part of the debts of
the Group pursuant to or for the purposes of any applicable
law, or is adjudicated or found by a court of competent
jurisdiction to be bankrupt or insolvent;
(g)
if the Issuer, the Guarantor, Grand China Air or any of the

Guarantors other subsidiaries (or their respective directors
or shareholders) initiates or consents to judicial proceedings
relating to itself under any applicable liquidation, insolvency,
bankruptcy, composition, reorganization or other similar laws
(including the obtaining of a moratorium) or makes a general
assignment for the benefit of, or enters into any composition
or other arrangement with, its creditors generally;
(h)
if the Guarantee ceases to be, or is claimed by the Guarantor

or Grand China Air, as applicable, not to be, in full force and
effect;
(i)
if the Issuer ceases to be a subsidiary wholly-owned and

controlled, directly or indirectly, by the Guarantor;
271
(j)
if the validity of the Notes or the Guarantee is contested by

the Issuer, the Guarantor or Grand China Air, as applicable,
or the Issuer, the Guarantor or Grand China Air, as
applicable, denies any of the Issuers, the Guarantors or
Grand China Airs obligations under the Notes or the
Guarantee or it is or will become unlawful for the Issuer, the
Guarantor or Grand China Air to perform or comply with any
of its obligations under or in respect of the Notes or the
Guarantee or any of such obligations are or become
unenforceable or invalid;
(k)
if any action, condition or thing (including the obtaining,

effecting or renewing of any necessary consent, approval,
authorization, exemption, filing, license, order, recording or
registration) at any time required to be taken, fulfilled or
done by the Issuer, the Guarantor or Grand China Air in order
to (i) enable the Issuer, the Guarantor or Grand China Air, as
applicable, to perform its obligations under the Notes or the
Guarantee; or (ii) ensure that those obligations are and
remain legally binding and enforceable, is not taken, fulfilled
or done by the Issuer, the Guarantor or Grand China Air, as
applicable; or
(l)
any event occurs which, under the laws of any relevant

jurisdiction, has an analogous effect to any of the events
referred to in paragraphs (e), (f), (g) and (h) above.
Purchases:
The Issuer, the Guarantor, Grand China Air and their respective
subsidiaries may at any time purchase Notes in the open market or
otherwise at any price.
Redemption at Maturity:
Unless previously redeemed or purchased and canceled, the Notes

will be redeemed at their principal amount on the Maturity Date.
Taxation:
All payments of principal, premium (if any) and interest in respect

of the Notes by or on behalf of the Issuer or the Guarantor will be
made free and clear, and without withholding or deduction for or
on account, of any present or future taxes, duties, assessments or
governmental charges of whatever nature imposed, levied,
collected, withheld or assessed by or on behalf of or within any of
the relevant jurisdictions, unless such withholding or deduction is
required by law.
272
Redemption for Taxation
Reasons:
Redemption for Change of

Ownership:
The Notes may be redeemed at the option of the Issuer in whole,

but not in part, at any time, on giving not less than 30 nor more
than 60 days notice to the Noteholders (which notice shall be
irrevocable), at their principal amount, (together with interest
accrued up to but excluding the date fixed for redemption), if
(i)
the Issuer (or, the Guarantor, as the case may be) satisfies the
trustee immediately prior to the giving of such notice that it
(or, the Guarantor, as the case may be) has or will become
obliged to pay additional tax amounts as a result of any
change in, or amendment to, the laws or regulations of the
British Virgin Islands, Hong Kong or the PRC or any political
subdivision or any authority thereof or therein having power
to tax, or any change in the application or official
interpretation of such laws or regulations, which change or
amendment becomes effective on or after June 12, 2014, and
(ii)
such obligation cannot be avoided by the Issuer (or the

Guarantor, as the case may be) taking reasonable measures
available to it, provided that no such notice of redemption
shall be given earlier than 90 days prior to the earliest date on
which the Issuer (or the Guarantor, as the case may be) would
be obliged to pay such additional tax amounts were a
payment in respect of the Notes (or the Guarantee, as the case
may be) then due.
If (i) the HNA Group and Hainan Airlines Co., Ltd., together, cease
to have ownership of the Guarantor; or (ii) the Guarantor
consolidates with or merges into or sells or transfers all or
substantially all of the Guarantors assets to any person or persons
other than the HNA Group, unless the consolidation, merger, sale
or transfer will not result in the other person or persons acquiring
more than 50 per cent. of the issued share capital of the Guarantor
or the successor entity, the holder of any Note will have the right,
at such holders option, to require the Issuer to redeem all but not
some only of that holders Notes at 101 per cent. of their principal
amount, together with accrued interest.
Date, we were still evaluating market conditions to determine details of the issuance of the notes.
Directors Confirmation
Our Directors confirm that (i) they are not aware of any material default in payment of our trade and
non-trade payables and bank borrowings and (ii) our Group did not breach any material finance covenant
during the Track Record Period and up to the Latest Practicable Date.
273
Statement of Indebtedness
As of June 30, 2014, being the latest practicable date for the purpose of this indebtedness statement,
except as disclosed in this section, we did not have any outstanding mortgages, charges, debentures, loan
capital, bank overdrafts, loans, debt securities or other similar indebtedness, finance leases or hire
purchase commitments, liabilities under acceptances or acceptance credits or any guarantees. Save as
being disclosed in this [REDACTED], since June 30, 2014, there has been no material and adverse change
in our indebtedness.
KEY FINANCIAL RATIOS
The following table sets forth certain financial ratios as of the dates or for the periods indicated:
As of or for the year ended December 31,

2011
EBITDAR margin (1) . . . .

Operating profit margin (2)
Current ratio (3) . . . . . . . . .
Gearing ratio(4) . . . . . . . . .
Net debt to equity ratio (5) .
Return on equity (6) . . . . . .
Return on assets (7) . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
25.6%
10.7%
0.8
272.4%
235.9%
4.1%
1.1%
2012
24.6%
11.8%
0.6
337.7%
322.8%
6.3%
1.4%
2013
33.0%
12.2%
0.5
209.4%
180.9%
8.9%
2.2%
As of or for
the five
months ended
May 31,
2014
31.0%
10.1%
0.6
200.9%
166.4%
N/A
N/A
Notes:
(1)
EBITDAR margin is calculated by dividing EBITDAR for the year/period by revenue for the relevant year/period.
(2)
Operating profit margin is calculated by dividing operating profit for the year/period by revenue for the relevant
year/period.
(3)
Current ratio is calculated by dividing total current assets by total current liabilities.
(4)
Gearing ratio is calculated by dividing total debt (including total bank borrowings, notes payable and obligation under
finance leases) by total equity and multiplying the resulting value by 100%.
(5)
Net debt to equity ratio is calculated by dividing net debt by total equity. Net debt is calculated as total debt (including
total bank borrowings, notes payable and obligation under finance leases) less cash and cash equivalents and restricted
cash deposits pledged for borrowings.
(6)
Return on equity is calculated by dividing profit attributable to equity holders of our Company for the year by average
balance of total equity and multiplying the resulting value by 100%.
(7)
Return on assets is calculated by dividing profit attributable to equity holders of our Company for the year by average
balance of total assets and multiplying the resulting value by 100%.
EBITDAR Margin
Our EBITDAR margin increased from 24.6% in 2012 to 33.0% in 2013, primarily due to the increase
in our net profit in 2013 mainly because of the increase in our traffic revenue as we expanded our
operations to meet the increased market demand.
274
Our EBITDAR margin decreased from 25.6% in 2011 to 24.6% in 2012, primarily because of the
increase in our other gains-net in 2012, which was deducted from earnings for purpose of calculating
EBITDAR for 2012. For details, please see the section headed Results of Operations Year ended
December 31, 2012 compared to Year ended December 31, 2011.
Operating Profit Margin
Our operating profit margin increased from 11.8% in 2012 to 12.2% in 2013, primarily due to the
increase in our net profit in 2013 mainly because of the increase in our traffic revenue as we expanded
our operations to meet the increased market demand.
Our operating profit margin increased from 10.7% in 2011 to 11.8% in 2012, primarily due to the
increase in traffic revenue as we expanded our operations to meet the increased market demand and the
increase in rental income from aircraft under operating leases. The increase in our operating profit in 2012
was also attributed to the increase in our other gains-net in 2012. For details, please see the section headed
Results of Operations Year ended December 31, 2012 compared to Year ended December 31, 2011.
Current Ratio
Our current ratio remained stable as of May 31, 2014, as of December 31, 2013 and as of
December 31, 2012.
Our current ratio decreased to 0.6 as of December 31, 2012 from 0.8 as of December 31, 2011,
primarily due to the comparatively higher percentage increase in current liabilities as compared with the
percentage increase in current assets. Our total current liabilities increased to HK$3,673.0 million as of
December 31, 2012 from HK$3,169.6 million as of December 31, 2011, primarily due to increases in
borrowings, sales in advance of carriage and accruals and other payables as a result of our increased
capital needs and increased operating activities.
Gearing Ratio
Our gearing ratio decreased to 200.9% as of May 31, 2014 from 209.4% as of December 31, 2013,
primarily due to the comparatively higher percentage increase in total equity as compared with the
percentage increase in total debt. Our total equity increase to HK$6,755.0 million as of May 31, 2014 from
HK$6,565.2 million as of December 31, 2013, primarily due to the decrease in accumulated loss as a result
of the increase in our revenue.
Our gearing ratio decreased to 209.4% as of December 31, 2013 from 337.7% as of December 31,
2012, primarily due to the comparatively higher percentage increase in total equity as compared with the
percentage increase in total debt. Our total equity increased to HK$6,565.2 million as of December 31,
2013 from HK$4,458.2 million as of December 31, 2012, primarily due to the issuance of 994,994,000
ordinary shares by Hong Kong Airlines to Hainan Airlines, Hong Kong Airlines Holding and HKA
Consultation for the consideration of US$200 million.
Our gearing ratio increased significantly to 337.7% as of December 31, 2012 from 272.4% as of
December 31, 2011, primarily due to comparatively higher percentage increase in total debt as compared
with the percentage increase in total equity. Our total debt increased to HK$14,396.6 million as of
borrowings as a result of acquisition of 10 aircraft and increased working capital needs.
275
Net Debt to Equity Ratio
Our net debt to equity ratio decreased to 166.4% as of May 31, 2014 from 180.9% as of December
31, 2013, primarily due to the comparatively higher percentage increase in total equity as compared with
the percentage increase in total debt. Our total equity increase to HK$6,755.0 million as of May 31, 2014
from HK$6,565.2 million as of December 31 2013, primarily due to the decrease in accumulated loss as
a result of the increase in our revenue.
Our net debt to equity ratio decreased to 180.9% as of December 31, 2013 from 322.8% as of
December 31, 2012, primarily due to comparatively higher percentage increase in total equity compared
with the percentage increase in net debt. Our total equity increased to HK$6,565.2 million as of December
31, 2013 from HK$4,458.2 million as of December 31, 2012, primarily due to the issuance of 994,994,000
ordinary shares by Hong Kong Airlines to Hainan Airlines, Hong Kong Airlines Holding and HKA
Consultation for the consideration of US$200 million.
Our net debt to equity ratio significantly increased to 322.8% as of December 31, 2012 from 235.9%
as of December 31, 2011, primarily due to comparatively higher percentage increase in net debt compared
with the percentage increase in total equity. Our net debt increased to HK$14,393.0 million as of
borrowings as a result of acquisition of 10 aircraft and increased working capital needs.
Return on Equity
Our return on equity increased to 8.9% as of December 31, 2013 from 6.3% for the year ended
December 31, 2012, primarily due to the increase in profit attributable to equity holders of our Company
in 2013 as a result of increased revenue of our passenger and cargo businesses, partially offset by an
increase in our total equity in 2013.
Our return on equity increased to 6.3% for the year ended December 31, 2012 from 4.1% for the year
ended December 31, 2011, primarily due to the increase in profit attributable to equity holders of our
Company in 2012 as a result of increased revenue of our passenger and cargo businesses, partially offset
by an increase in our total equity in 2012.
Return on Assets
Our return on assets increased to 2.2% as of December 31, 2013 from 1.4% for the year ended
December 31, 2012, primarily due to the increase in the profit attributable to equity holders of our
by an increase in our total assets in 2013 primarily due to increase in property, plant and equipment and
increase in cash and cash equivalents.
Our return on assets increased to 1.4% for the year ended December 31, 2012 from 1.1% for the year
ended December 31, 2011, primarily due to the increase in profit attributable to equity holders of our
by an increase in our total assets in 2012 as a result of increase in property, plant and equipment.
276
FINANCIAL RISK MANAGEMENT
We face a variety of financial risks in the ordinary course of business, including market risk (such
as foreign exchange risk, interest rate risk and fuel price risk), credit risk and liquidity risk. Our overall
risk management program focuses on the unpredictability of financial markets and seeks to minimize
potential adverse effects on our financial performance.
Foreign Exchange Risk
Our foreign exchange risk arises from both operating and financing activities. We operate
internationally and are exposed to foreign exchange risk arising from various currency exposures,
primarily with respect to US dollars, Renminbi and Japanese yen. In addition, our purchases of aircraft,
aircraft related equipment and aircraft fuel are mainly denominated in US dollars. Our financing activities
were also exposed to foreign exchange risk arising from borrowings and obligations under finance leases
primarily denominated in US dollars and Renminbi. Whilst US dollars are pegged to Hong Kong dollars,
transactions and balances denominated in US dollars are significant to us and our Directors consider
foreign exchange risk arisen from US dollars remains considerably significant to our financial
performance.
The following table sets forth the amounts of our post-tax profit higher or lower mainly as a result
of foreign exchange gains or losses if Hong Kong dollar had strengthened by 5% against the relevant
foreign currencies, with all other variables held constant:
Post-tax profit increase/(decrease)

US dollars . . . . . . . . . . . . . . .
Renminbi . . . . . . . . . . . . . . . .
Japanese yen . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
For the five

months ended
May 31,
2011
2012
2013
2014
HK$000
HK$000
HK$000
HK$000
436,667
(14,590)
2,804
3,247
590,922
20,849
2,794
2,064
473,062
31,623
3,450
1,879
492,362
(16,187)
(397)
(1,196)
428,128
616,629
510,014
474,582
The sensitivity analysis above was determined assuming that the change in foreign exchange rates
had occurred of the balance sheet date and had been applied to each of our Group entities exposure to
currency risk for the financial instruments in existence at that date, and that all other variables, in
particular interest rates, remained constant.
277
Fuel Price Risk
Our results of operation may be significantly affected by fluctuations in fuel price which constitutes
a significant portion of our operating expenses. For the years ended December 31, 2011, 2012 and 2013
and the five months ended May 31, 2013 and 2014, fuel expense accounted for approximately 35.9%,
33.9%, 31.6%, 30.1% and 32.9%, respectively, of our operating expenses. The fuel prices have been
historically, and will in the future continue to be, subject to price volatility and fluctuations in supply and
demand. For the year ended December 31, 2011, 2012 and 2013 and the five months ended May 31, 2013
and 2014, our average fuel costs were approximately HK$1,032.4 per barrel, HK$1,032.8 per barrel,
HK$1,013.9 per barrel, HK$1,033.0 per barrel and HK$1,030.7 per barrel, respectively. We have
historically procured approximately 89%, and 11%, respectively, of our fuel requirements from
international and PRC suppliers.
During the Track Record Period, we had not entered into any fuel derivative or forward contracts to
hedge against fluctuations in fuel prices. Given that the scale of our operations is relatively small at
present, our Directors believe the benefits of hedging are not significant for us relative to its cost. As we
continue to grow, we may consider adopting fuel cost hedging in the future when its benefits are more
evident. Currently, our Directors believe that we are able to pass on significant increases in fuel prices to
passengers through fuel surcharges. However, in the event that our ability to pass on fuel surcharge costs
was disallowed by the relevant governmental authorities, increases in fuel prices may materially and
adversely impact our profitability.
For the years ended December 31, 2011, 2012 and 2013 and the five months ended May 31, 2013
and 2014, a hypothetical increase or decrease of 5% in the price of fuel through the respective periods,
with all other variables constant, our fuel cost would have been approximately HK$76.2 million, HK$98.9
million, HK$120.0 million, HK$43.4 million and HK$60.0 million higher or lower, respectively.
Interest Rate Risk
Other than bank balances with variable interest rates, we have no other significant interest-bearing
assets. Our Directors do not anticipate significant impacts to interest-bearing assets resulting from the
changes in interest rates, because the interest rates of bank balances are not expected to change
significantly. Our exposure to changes in interest rates is mainly attributable to our borrowings.
Borrowings at variable rates expose us to cash flow interest rate risk. Borrowings at fixed rates expose us
to fair value interest rate risk. We have not hedged our cash flow or fair value interest rate risk. The
effective interest rates and terms of repayments of borrowings are disclosed in Note 25 to the Accountants
Report as set out in Appendix I to this [REDACTED].
The following table sets forth the post-tax profit and capitalized interest for the years ended
December 31, 2011, 2012 and 2013 if interest rates on borrowings at floating rates had been 50 basis
points higher or lower with all other variables held constant:

50 basis points higher . . . . . . . . . . . .
50 basis points lower . . . . . . . . . . . .
For the five

months ended
May 31,
2011
2012
2013
2014
HK$000
HK$000
HK$000
HK$000
(11,145)
11,145
278
(23,674)
23,674
(32,628)
32,628
(16,728)
16,728
For the five
months ended
May 31,
Capitalized interest increase/(decrease)

50 basis points higher . . . . . . . . . . . . .
50 basis points lower . . . . . . . . . . . . . .
2011
2012
2013
2014
HK$000
HK$000
HK$000
HK$000
3,715
(3,715)
12,747
(12,747)
5,312
(5,312)
2,341
(2,341)
Credit Risk
Our credit risk is primarily attributable to bank deposits, restricted cash and trade and other
receivables.
During the Track Record Period, our bank deposits and restricted cash are deposited with major
financial institutions, which our Directors believe are of high credit quality. As of December 31, 2013,
parts of our deposits are placed with HNA Finance. HNA Finance is a non-bank financial institution in the
PRC subject to the Administrative Measure on Finance Companies within Group Enterprises and other
relevant regulations promulgated by the PRC authorities. Our Directors do not expect that we are exposed
to any significant credit risks and would suffer any significant losses from non-performance by HNA
Finance.
Trade receivables mainly represent passenger and cargo sales due from sales agents and rental
income receivables under operating leases due from related parties. The majority of the sales agents are
connected to the settlement systems operated by the IATA which is responsible for checking the credit
worthiness of such sales agents and collecting bank guarantees or other monetary collateral according to
local industry practice. The credit risk with regard to individual sales agents is relatively low. Rental
income receivables under operating leases due from related companies are carried out in ordinary course
of business. We closely monitor these receivables to ensure actions are taken to recover these balances in
the case of any risk of default.
Other receivables mainly comprise receivables from related parties, deposits and prepayments in the
ordinary course of business. We closely monitors these other receivables to ensure actions are taken to
recover these balances in the case of any risk of default.
Liquidity Risk
Our primary cash requirements have been for day-to-day operations, additions of and upgrades to
aircraft, engines and flight equipment and payments on related borrowings. We finance our working capital
requirements through a combination of funds generated from operations and borrowings. We generally
finance the acquisition of aircraft through long-term finance leases or borrowings.
Our Directors believe that cash from operations and borrowings will be sufficient to meet our
operating cash flow. Due to the dynamic nature of our businesses, our treasury policy aims at maintaining
flexibility in funding by keeping credit lines available. Our Directors believe that we have obtained
sufficient financing resources and arrangements with banks for financing future capital commitments and
for working capital purposes.
279
OFF-BALANCE SHEET COMMITMENTS AND ARRANGEMENTS
As of the Latest Practicable Date, we had not entered into any off-balance sheet transactions.
DIVIDENDS AND DIVIDEND POLICY
During the Track Record Period, we did not declare any dividends to our shareholders. We have no
plan to pay or declare any dividends prior to the [REDACTED].
After completion of the [REDACTED], our Shareholders will be entitled to receive dividends that
we declare. The payment and the amount of any dividends will be at the discretion of our Directors and
will depend upon our future operations and earnings, capital requirements and surplus, general financial
condition, contractual restrictions and other factors that our Directors deem relevant. We cannot assure you
that we will be able to distribute dividends of any amount, or at all, in any year. Our Board will decide
at its sole discretion whether the dividends will be paid solely in HKD or [REDACTED], or in HKD for
our [REDACTED] while in [REDACTED] for our [REDACTED], which will be announced when we
declare dividends. Shareholders will receive any dividend payable by the Company in the currency in
which it is declared, but may be given the option to elect to receive such dividend in the alternative
currency. Any such option, if given, will be given to all Shareholders, and Shareholders who will have
validly made an election will receive the dividend in the currency they elect.
In addition, the terms of certain of our outstanding loans prohibit the relevant subsidiaries from
distributing any dividends in any form before full repayment of the relevant loans. These loans consist of
working capital loans and aircraft financing loans. We may in the future enter into new loans with similar
provisions. Please also see the section headed Risk Factors Our ability to distribute dividends may be
restricted by the terms of our outstanding loans.
DISTRIBUTABLE RESERVES
As of the Latest Practicable Date, we had no distributable reserves which were available for
distribution to our Shareholders.
[REDACTED] EXPENSES
Our [REDACTED] expenses mainly consist of underwriting commission in addition to professional
fees paid to legal advisers and the reporting accountant for their services rendered in relation to the
[REDACTED] and [REDACTED]. The total amount of [REDACTED] expenses and commissions,
together with [REDACTED] and [REDACTED] that will be borne by us in connection with the
[REDACTED] and excluding the costs in relation to the [REDACTED] is estimated to be approximately
HK$[REDACTED] (based on the mid-point of our indicative [REDACTED] for the [REDACTED]). As
of May 31, 2014 we incurred [REDACTED] fees and expenses in the Track Record Period in the amount
of approximately HK$[REDACTED], of which HK$[REDACTED] was recognized as prepayments and
HK$[REDACTED] was charged to our combined income statements. We expect that in respect of the
remaining HK$[REDACTED] fees and expenses to be incurred, an amount of approximately
HK$[REDACTED] will be charged to our combined income statements for the year ending December 31,
2014, and an amount of approximately HK$[REDACTED] will be capitalized as reserves after the
[REDACTED] under the relevant accounting standards.
280
[REDACTED]
281
NO MATERIAL AND ADVERSE CHANGE
After performing sufficient due diligence work which our Directors consider appropriate and after
due and careful consideration, our Directors confirm that, up to the date of this [REDACTED] and except
as otherwise disclosed in Recent Developments below and elsewhere in this [REDACTED], there has
been no material and adverse change in our financial or trading position since May 31, 2014, being the
date on which our latest audited consolidated financial statements were prepared, and there has been no
event since May 31, 2014 which would materially affect the information as set out in the Accountants
Report in Appendix I to this [REDACTED]. Our Directors consider that all information necessary for the
public to make an informed assessment of the activities and financial position of our Group has been
included in this [REDACTED].
DISCLOSURE REQUIRED UNDER RULES 13.13 TO 13.19 OF THE LISTING RULES
Our Directors have confirmed that, except as otherwise disclosed in this [REDACTED], as of the
Latest Practicable Date, there were no circumstances that would give rise to a disclosure requirement
under Rules 13.13 to 13.19 of the Listing Rules if the [REDACTED] had been listed on the Stock
Exchange as of that date.
RECENT DEVELOPMENTS
Our revenue, gross profit and gross margin for the six months ended June 30, 2014 decreased
compared to those for the six months ended June 30, 2013 primarily because decrease in demand for air
transportation in general mainly as a result of political upheavals in Thailand and Vietnam, as well as
multiple incidents involving other airlines in 2014. Our Directors confirm that, after having performed
reasonable due diligence on our Group, there has been no material and adverse change in our Groups
financial or trading position or prospects since May 31, 2014 (being the date to which our latest audited
consolidated financial information was prepared) to the Latest Practicable Date.
Date, we were still evaluating market conditions to determine details of the issuance of the notes. If we
proceed with this issue of notes, we intend to appoint J.P. Morgan Securities plc as the lead manager for
the [REDACTED] of the notes. It is currently intended that this issue of notes will be completed before
the [REDACTED]. If the notes are undersubscribed, an affiliate of J.P Morgan Securities plc may take
up the shortfall up to an agreed maximum amount. J.P. Morgan Securities plc is taking on this appointment
in its usual and ordinary course of business and the amount of fee and commission that will be payable
by our Company to J.P. Morgan Securities plc represents market terms that have been negotiated on an
arms length basis. J.P. Morgan Securities plc is an International Underwriter and an affiliate of the Sole
Sponsor as it and the Sole Sponsor are subsidiaries of the same ultimate holding company.
As far as our Directors are aware, there have been no changes in the general economic or market
conditions or in the aviation industry of the Asia Pacific region as a whole, or in the markets where we
have operations, which would have a material and adverse impact on our business operations or financial
condition since May 31, 2014 (being the date to which our latest audited consolidated financial
information was prepared) to the Latest Practicable Date.
282
FUTURE PLANS AND USE OF PROCEEDS

FUTURE PLANS
See the section headed Business Our Strategies for a detailed description of our future plans.
USE OF PROCEEDS
The [REDACTED] will be a [REDACTED], with the Hong Kong [REDACTED] under the
[REDACTED] being concurrently [REDACTED] in both HKD and [REDACTED].
We estimate the aggregate net proceeds of the [REDACTED] from both the HKD [REDACTED]
and the [REDACTED], assuming a HKD [REDACTED] of HK$[REDACTED] per [REDACTED]
under the HKD [REDACTED] (being the mid-point of the HKD [REDACTED] stated in this
[REDACTED]) and a [REDACTED] of [REDACTED] per [REDACTED] under the [REDACTED]
(being the mid-point of the [REDACTED] stated in this [REDACTED]), respectively, and based on the
exchange rate of [REDACTED] to HK$[], being the exchange rate set forth by PBOC on [], 2014, will
be approximately HK$[REDACTED], after deduction of underwriting fees and commissions and
estimated expenses payable in connection with the [REDACTED] and assuming the Over-allotment
Option is not exercised.
Use of Proceeds
approximately [REDACTED]%, or HK$[REDACTED], will be used for expansion of our

fleet through acquisition or leasing arrangement. In particular, we intend to allocate (i)
approximately [REDACTED], or HK$[REDACTED] for partial payment in relation to our
acquisition of 15 A350 aircraft and related equipment, which we intend to add into our
operating fleet starting from 2017 and (ii) approximately [REDACTED]%, or
HK$[REDACTED] for partial payment in relation to addition of six A330 aircraft that we
intend to add into our operating fleet and related equipment; and (iii) approximately
[REDACTED]%, HK$[REDACTED] for partial payment in relation to for addition of thirteen
A320 aircraft that we intend to add into our operating fleet and related equipment;
approximately [REDACTED]%, or HK$[REDACTED], allocated to payment of our

obligations under our existing aircraft and spare parts lease agreements;
approximately [REDACTED]%, or HK$[REDACTED], will be used for repayment of a

US$85 million bank loan we borrowed from China Development Bank in October 2012, with
an interest rate at 3 Months LIBOR plus 400 BPs. This loan will become due in October 2015;
approximately [REDACTED]%, or HK$[REDACTED], will be used for development of our

capacities in relation to ancillary operations through organic growth or acquiring suitable target
where appropriate, including cargo handling and passenger ground handling services, aircraft
maintenance, in-flight catering service, simulation training centre for pilots and cabin crew
and/or in-flight entertainment services. As of the Latest Practicable Date, we were still in the
process of searching for suitable targets and have not entered into any definitive, legally
binding agreement in this respect; and
approximately [REDACTED]%, or HK$[REDACTED], allocated to our general working

capital needs, including expenses in relation to opening new flight routes in the PRC.
The above allocation of the net proceeds will be adjusted on a pro rata basis in the event that the
HKD [REDACTED] and [REDACTED] are fixed at a lower level compared to the midpoint of the HKD
[REDACTED] and [REDACTED], respectively.
283
FUTURE PLANS AND USE OF PROCEEDS

In the event that the HKD [REDACTED] and [REDACTED] is fixed at a higher level compared to
the mid-point of the HKD [REDACTED] and [REDACTED], respectively, we will still use
HK$[REDACTED] for repayment of an US$85 million bank loan we borrowed from China Development
Bank in October 2012, while the amount to be used for (i) acquisition of aircraft, (ii) payment of
obligations under finance lease agreements, (iii) development of our capacities in relation to ancillary
operations and (iv) general working capital needs shall be adjusted on a pro rata basis.
If the HKD [REDACTED] and [REDACTED] is fixed at the high-end of the HKD [REDACTED]
and [REDACTED], respectively, being HK$[REDACTED] per [REDACTED] under the HKD
[REDACTED] and [REDACTED] per [REDACTED] under the [REDACTED], respectively, the
aggregate net proceeds of the [REDACTED] which we will receive from both HKD [REDACTED] and
[REDACTED], will increase by approximately HK$[REDACTED], based on the exchange rate of
[REDACTED] to HK$[].
If the HKD [REDACTED] and [REDACTED] is fixed at the low-end of the HKD [REDACTED]
and [REDACTED], respectively, being HK$[REDACTED] per [REDACTED] under the HKD
[REDACTED] and [REDACTED] per [REDACTED] under the [REDACTED], respectively, the
aggregate net proceeds of the [REDACTED] which we will receive from both HKD [REDACTED] and
[REDACTED], will decrease by approximately HK$[REDACTED], based on the exchange rate of
[REDACTED] to HK$[].
If the Over-allotment Option is exercised in full, the aggregate net proceeds of the [REDACTED],
assuming an HKD [REDACTED] of HK$[REDACTED] per [REDACTED] under the HKD
[REDACTED] (being the mid-point of the HKD [REDACTED]) and [REDACTED] per [REDACTED]
under the [REDACTED] (being the mid-point of the [REDACTED]) will increase by approximately
HK$[REDACTED], based on the exchange rate of [REDACTED] to HK$[].
To the extent that the net proceeds are not immediately applied to the above purposes and to the
extent permitted by applicable laws and regulations, we intend to deposit the net proceeds into
interest-bearing bank accounts with licensed banks or financial institutions.
284
UNDERWRITING
HONG KONG UNDERWRITERS
[REDACTED]
UNDERWRITING ARRANGEMENTS AND EXPENSES
[REDACTED]
Hong Kong Underwriting Agreement
The Hong Kong Underwriting Agreement was entered into on [REDACTED] among our Company,
[the Controlling Shareholders,] the Sole Sponsor, the Sole Global Coordinator and the Hong Kong
Underwriters. Pursuant to the Hong Kong Underwriting Agreement, we are [REDACTED] the HKD
[REDACTED] and the [REDACTED] for subscription by the public in Hong Kong on the terms and
subject to the conditions in this [REDACTED] and the [REDACTED] at the HKD [REDACTED] and
the [REDACTED] respectively. Subject to the Listing Committee granting [REDACTED] of, and
permission to deal in, our [REDACTED] in issue and to be issued pursuant to the [REDACTED] as
mentioned herein, and to certain other conditions set out in the Hong Kong Underwriting Agreement, the
Hong Kong Underwriters have agreed severally and not jointly to subscribe or procure subscribers for the
[REDACTED] which are being offered but are not taken up under the [REDACTED] on the terms and
subject to the conditions in this [REDACTED], the [REDACTED] and the Hong Kong Underwriting
Agreement.
The Hong Kong Underwriting Agreement is conditional upon and subject to the International
Underwriting Agreement having been signed and becoming unconditional.
Grounds for Termination
[REDACTED]
285
UNDERWRITING
[REDACTED]
286
UNDERWRITING
[REDACTED]
287
UNDERWRITING
[REDACTED]
288
UNDERWRITING
[REDACTED]
289
UNDERWRITING
[REDACTED]
290
UNDERWRITING
[REDACTED]
291
UNDERWRITING
[REDACTED]
292
UNDERWRITING
[REDACTED]
Commission and Expenses and Sole Sponsors Fee

According to the terms and conditions of the Hong Kong Underwriting Agreement, the
[REDACTED] will receive an underwriting commission of [REDACTED] of the aggregate
[REDACTED] payable for the [REDACTED] initially offered under the [REDACTED]. For
unsubscribed [REDACTED] reallocated to the [REDACTED], an underwriting commission at the rate
applicable to the [REDACTED] will be paid to the relevant International Underwriters (but not the Hong
Kong Underwriters). In addition, we may pay, in our discretion, an incentive fee to any or all of the
Underwriters of up to an aggregate of no more than []% of the [REDACTED] for each [REDACTED].
Assuming the Over-allotment Option is not exercised at all and based on (i) a HKD [REDACTED]
of HK$[] per [REDACTED] under the HKD [REDACTED] (being the mid-point of the indicative HKD
[REDACTED] stated in this [REDACTED]), and (ii) a [REDACTED] of [REDACTED] []
per-[REDACTED] under the [REDACTED] (being the mid-point of the indicative [REDACTED] stated
in this [REDACTED]), and (iii) based on the exchange rate of [REDACTED][] to HKD[], being the
exchange rate set forth by PBOC on [], 2014, the aggregate commissions and the maximum incentive fee
(if any), together with the Hong Kong Stock Exchange [REDACTED] fees, SFC transaction levy, the
Hong Kong Stock Exchange trading fee and other expenses relating to the [REDACTED] to be borne by
our Company are estimated to amount to approximately HK$[] million in aggregate.
An aggregate amount of USD500,000 is payable by our Company as sponsor fees to the Sole
Sponsor.
SPONSORS INDEPENDENCE
J.P. Morgan Securities (Far East) Limited satisfies the independence criteria applicable to sponsors
set out in Rule 3A.07 of the Listing Rules.
[REDACTED]
293-A
UNDERWRITING
[REDACTED]
293-B
UNDERWRITING
[REDACTED]
294
STRUCTURE OF THE [REDACTED]
[REDACTED]
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HOW TO APPLY FOR [REDACTED]
[REDACTED]
320
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339
APPENDIX I
ACCOUNTANTS REPORT
The following is the text of a report received from the Companys reporting accountant,
PricewaterhouseCoopers, Certified Public Accountants, Hong Kong, for the purpose of incorporation in
this [REDACTED]. It is prepared and addressed to the directors of the Company and to the Sole Sponsor
pursuant to the requirements of Auditing Guideline 3.340 [REDACTED] and the Reporting Accountant
issued by the Hong Kong Institute of Certified Public Accountants.
[To insert the firms letterhead]
[DRAFT]
[Date]
Dear Sirs,
We report on the financial information of Hong Kong Airlines International Holdings Limited (the
Company) and its subsidiaries (together, the Group) which comprises the combined balance sheets of
the Group as at 31 December 2011, 2012, 2013 and 31 May 2014, the combined income statements, the
combined statements of comprehensive income, the combined statements of changes in equity and the
combined statements of cash flows for each of the years ended 31 December 2011, 2012, 2013 and the five
months ended 31 May 2014 (the Relevant Periods), and a summary of significant accounting policies
and other explanatory information. The financial information has been prepared by the directors of the
Company and is set out in Sections I to IV below for inclusion in Appendix I to the [REDACTED] of the
Company dated [] (the [REDACTED]) in connection with the initial [REDACTED] of
[REDACTED] of the Company on the Main Board of The Stock Exchange of Hong Kong Limited.
The Company was incorporated in the Cayman Islands on 30 January 2014 as an exempted company
with limited liability under the Companies Law of the Cayman Islands. Pursuant to a group reorganisation
as described in Note 1(b) of Section II headed Group Reorganisation below, which was completed on
[], the Company became the holding company of the subsidiaries now comprising the Group (the
Reorganisation).
As at the date of this report, the Company has direct and indirect interests in the subsidiaries and an
associate as set out in Note 35 and Note 11, respectively, of Section II below. All of these companies are
private companies or, if incorporated or established outside Hong Kong, have substantially the same
characteristics as a Hong Kong incorporated private company.
No audited financial statements have been prepared by the Company as it is newly incorporated and
has not involved in any significant business transactions since its date of incorporation, other than the
Reorganisation.
I-1
APPENDIX I
ACCOUNTANTS REPORT
The audited financial statements of the other companies now comprising the Group as at the date of
this report for which there are statutory audit requirements have been prepared in accordance with the
relevant accounting principles generally accepted in their places of incorporation. The details of the
statutory auditors of the principle subsidiaries are set out in Note 35 of Section II.
The directors of the Company have prepared the combined financial statements of the Group for the
Relevant Periods, in accordance with Hong Kong Financial Reporting Standards (HKFRSs) issued by
the Hong Kong Institute of Certified Public Accountants (the HKICPA) (the Underlying Financial
Statements). The directors of the Company are responsible for the preparation of the Underlying
Financial Statements that gives a true and fair view in accordance with HKFRSs. We have audited the
Underlying Financial Statements in accordance with Hong Kong Standards on Auditing (HKSAs) issued
by the HKICPA pursuant to separate terms of engagement with the Company.
The financial information has been prepared based on the Underlying Financial Statements, with no
adjustment made thereon, and on the basis set out in Note 1(c) of Section II below.
DIRECTORS RESPONSIBILITY FOR THE FINANCIAL INFORMATION
The directors of the Company are responsible for the preparation of the financial information that
gives a true and fair view in accordance with the basis of presentation set out in Note 1(c) of Section II
below and in accordance with HKFRSs, and for such internal control as the directors determine is
necessary to enable the preparation of the financial information that is free from material misstatement,
whether due to fraud or error.
REPORTING ACCOUNTANTS RESPONSIBILITY
Our responsibility is to express an opinion on the financial information and to report our opinion to
you. We carried out our procedures in accordance with the Auditing Guideline 3.340 [REDACTED] and
the Reporting Accountant issued by the HKICPA.
OPINION
In our opinion, the financial information gives, for the purpose of this report and presented on the
basis set out in Note 1(c) of Section II below, a true and fair view of the combined state of affairs of the
Group as at 31 December 2011, 2012, 2013 and 31 May 2014, and of the Groups combined results and
combined cash flows for the Relevant Periods then ended.
REVIEW OF STUB PERIOD COMPARATIVE FINANCIAL INFORMATION
We have reviewed the stub period comparative financial information set out in sections I to II below
included in Appendix I to the [REDACTED] which comprises the combined income statements, the
combined statements of comprehensive income, the combined statements of changes in equity and the
combined statements of cash flows for the five months ended 31 May 2013 and a summary of significant
accounting policies and other explanatory information (the Stub Period Comparative Financial
Information).
I-2
APPENDIX I
ACCOUNTANTS REPORT
The directors of the Company are responsible for the preparation and presentation of the Stub Period
Comparative Financial Information in accordance with the basis of presentation set out in Note 1(c) of
Section II below and the accounting policies set out in Note 2 of Section II below.
Our responsibility is to express a conclusion on the Stub Period Comparative Financial Information
based on our review. We conducted our review in accordance with Hong Kong Standard on Review
Engagements 2410, Review of Interim Financial Information Performed by the Independent Auditor of
the Entity issued by the HKICPA. A review of the Stub Period Comparative Financial Information
consists of making inquiries, primarily of persons responsible for financial and accounting matters, and
applying analytical and other review procedures. A review is substantially less in scope than an audit
conducted in accordance with HKSAs and consequently does not enable us to obtain assurance that we
would become aware of all significant matters that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Based on our review, nothing has come to our attention that causes us to believe that the Stub Period
Comparative Financial Information, for the purpose of this report and presented on the basis set out in
Note 1(c) of Section II below is not prepared, in all material respects, in accordance with the accounting
policies set out in Note 2 of Section II below.
I-3
APPENDIX I
I
ACCOUNTANTS REPORT
FINANCIAL INFORMATION OF THE GROUP
The following is the financial information of the Group prepared by the directors of the Company
as at 31 December 2011, 2012, 2013 and 31 May 2014, and for each of the years ended 31 December 2011,
2012, 2013 and the five months ended 31 May 2014 (the Financial Information), presented on the basis
set out in Note 1(c) of section II below.
(a)
Combined Income Statements

Year ended 31 December
Note
Revenues . . . . . . . . . . . . .
Operating expenses
Aircraft fuel . . . . . . . . . . .
expenses . . . . . . . . . . . .
Aircraft maintenance . . . . . .
Wages, salaries and benefits . .
Food and beverages . . . . . . .
Other expenses. . . . . . . . . .
..
..
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Total operating expenses . . . . .

Other income. . . . . . . . . . . . .
Other gains net . . . . . . . . . .
7
8
Operating profit . . . . . . . . . .
Finance income . . . . . . . . . . .
Finance costs. . . . . . . . . . . . .
10
10
Finance costs net . . . . . . . . .

Share of profit of an associate . . .
11
Profit before income tax . . . . .

Income tax (expense)/credit . . . .
12
Profit for the year/period

attributable to the equity
holders of the Company . . . .
Dividends. . . . . . . . . . . . . . .
31
Five months ended 31 May
2011
2012
2013
2013
2014
HK$000
HK$000
HK$000
HK$000
Unaudited
HK$000
4,675,498
6,250,108
8,546,835
3,298,639
3,958,496
(1,523,467)
(1,978,607)
(2,400,439)
(868,181)
(1,200,023)
(857,223)
(487,911)
(214,560)
(172,954)
(476,291)
(160,425)
(183,806)
(164,456)
(1,048,157)
(674,298)
(395,583)
(278,752)
(760,389)
(207,988)
(248,309)
(238,804)
(1,236,718)
(853,823)
(918,105)
(385,336)
(925,955)
(282,886)
(348,305)
(254,615)
(479,108)
(360,809)
(375,751)
(139,718)
(356,985)
(94,949)
(119,289)
(89,912)
(650,566)
(378,192)
(451,788)
(147,771)
(407,636)
(128,469)
(183,015)
(102,058)
(4,241,093)
(5,830,887)
(7,606,182)
(2,884,702)
(3,649,518)
60,305
5,366
49,912
271,235
104,352
564
28,668
88,886
500,076
740,368
1,045,569
442,605
397,864
3,977
(403,743)
38,237
(508,917)
30,422
(629,169)
8,219
(268,556)
32,900
(239,665)
(399,766)
(470,680)
(598,747)
(260,337)
(206,765)
47,575
5,034
4,056
3,836
1,273
147,885
274,722
450,878
186,104
192,372
(64)
42,384
(26,450)
147,885
274,658
493,262
186,104
165,922
I-4
APPENDIX I
(b)
ACCOUNTANTS REPORT
Combined Statements of Comprehensive Income

Note
Profit for the year/period . . . . .
2011
2012
2013
2013
2014
HK$000
HK$000
HK$000
HK$000
Unaudited
HK$000
147,885
274,658
493,262
186,104
165,922
(9,751)
38,069
9,751
(26,254)
53,936
7,568
2,838
32,117
(8,248)
Other comprehensive income for

the year/period, net of tax . . .
28,318
(16,503)
61,504
2,838
23,869
Total comprehensive income for

the year/period attributable to
equity holders of the
Company . . . . . . . . . . . . .
176,203
258,155
554,766
188,942
189,791
Other comprehensive income:

Items that may be reclassified
subsequently to profit or loss
Change in fair value of
available-for-sale financial
assets . . . . . . . . . . . . . .
Currency translation differences
16
22
I-5
APPENDIX I
(c)
ACCOUNTANTS REPORT
Combined Balance Sheets
2011
2012
2013
As at
31 May
2014
HK$000
HK$000
HK$000
HK$000
As at 31 December
Note
ASSETS
Non-current assets
Property, plant and equipment . . . . .
Advance payments on acquisition of
aircraft . . . . . . . . . . . . . . . . . . .
Investment in an associate . . . . . . .
Available-for-sale financial assets . .
Other non-current assets . . . . . . . .
Deferred income tax assets . . . . . . .
Current assets
Expendable spare parts . . . . . .
Trade receivables . . . . . . . . . . .
receivables. . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . .
Cash and cash equivalents. . . . .
14
9,469,354
13,971,238
14,760,404
14,619,853
15
11
16
17
30
4,524,355
256,451
175,349
367,963
2,711,010
263,542
465,843
1,950,454
2,057,540
275,166
2,526,312
316,978
42,384
2,094,471
268,191
2,558,429
393,544
15,934
14,793,472
19,362,087
19,978,784
19,950,422
47,311
766,696
60,618
556,869
76,629
479,952
...
...
18
36,034
667,394
...
...
...
19
21
20
455,300
840,081
693,619
616,036
391,810
270,770
477,250
409,972
1,464,399
479,183
405,755
1,921,342
2,692,428
2,092,623
2,969,108
3,362,861
17,485,900
21,454,710
22,947,892
23,313,283
5,600,836
(1,400,747)
5,584,333
(1,126,089)
7,197,988
(632,827)
7,221,857
(466,905)
4,200,089
4,458,244
6,565,161
6,754,952
Total assets . . . . . . . . . . . . . . . . . . .
EQUITY
Capital and reserves attributable
to equity holders of the
Company
Reserves . . . . . . . . . . . . . . . . . . . .
Accumulated losses . . . . . . . . . . . .
Total equity. . . . . . . . . . . . . . . . . . .
22
23
I-6
APPENDIX I
ACCOUNTANTS REPORT
2011
2012
2013
As at
31 May
2014
HK$000
HK$000
HK$000
HK$000
729,538
2,201,426
42,636
7,043,964
739,300
6,087,391
36,822
6,335,303
6,048,999
32,259
4,399,789
6,144,830
29,837
4,078,639
30,590
68,014
70,262
54,410
142,995
40,808
167,404
35,141
10,116,168
13,323,488
10,664,850
10,455,851
25
26
692,750
817,205
185,968
770,943
5,814
822,409
738,731
212,463
1,196,787
5,814
764,747
804,463
1,227,894
378,480
1,780,527
5,814
743,779
1,057,666
1,230,769
461,391
1,884,595
5,814
27
696,963
696,774
755,956
718,466
3,169,643
3,672,978
5,717,881
6,102,480
Total liabilities . . . . . . . . . . . . . . .
13,285,811
16,996,466
16,382,731
16,558,331
Total equity and liabilities . . . . . .
17,485,900
21,454,710
22,947,892
23,313,283
(1,580,355)
(2,748,773)
(2,739,619)
17,781,732
17,230,011
17,210,803
As at 31 December
Note
LIABILITIES
Non-current liabilities
Notes payable . . . . . . . . . . . . . . . .
Borrowings . . . . . . . . . . . . . . . . . .
Deferred income . . . . . . . . . . . . . .
Obligations under finance leases . . .
Provision for return condition
checks for aircraft under operating
leases . . . . . . . . . . . . . . . . . . . .
Other non-current liabilities . . . . . .
Current liabilities
Notes payable . . . . . . . . . . . . . . . .
Trade payables . . . . . . . . . . . . . . .
Accruals and other payables . . . . . .
Sales in advance of carriage . . . . . .
Current portion of borrowings . . . . .
Deferred income . . . . . . . . . . . . . .
Current portion of obligations under
finance leases. . . . . . . . . . . . . . .
Net current liabilities . . . . . . . . . .
Total assets less current liabilities .
24
25
26
27
24
28
29
(477,215)
14,316,257
I-7
APPENDIX I
(d)
ACCOUNTANTS REPORT
Combined Statements of Changes in Equity

Attributable to equity holders of
the Company
Note
Balance at 1 January 2011 . . . . . . . .

Comprehensive income
Profit for the year . . . . . . . . . . .
Other comprehensive income
Change in fair value of available-forsale financial assets . . . . . . . . . .
Currency translation differences . . .
Reserves
Accumulated
losses
HK$000
(Note 22)
HK$000
(Note 23)
Sub-total
Noncontrolling
interests
Total equity
HK$000
HK$000
HK$000
4,538,843
(1,548,632)
2,990,211
(152)
2,990,059
147,885
147,885
147,885
(9,751)
38,069
(9,751)
38,069
(9,751)
38,069

the year . . . . . . . . . . . . . . . . . . .
28,318
147,885
176,203
176,203
Contributions from shareholders . . . . . . .

Disposal of a subsidiary . . . . . . . . . . .
1,033,675
1,033,675
152
1,033,675
152
Balance at 31 December 2011 . . . . . . .
5,600,836
(1,400,747)
4,200,089
4,200,089

5,600,836
(1,400,747)
4,200,089
4,200,089
274,658
274,658
274,658
9,751
(26,254)
9,751
(26,254)
9,751
(26,254)

the year . . . . . . . . . . . . . . . . . . .
(16,503)
274,658
258,155
258,155
5,584,333
(1,126,089)
4,458,244
4,458,244

Other comprehensive income. . . . . . .
5,584,333
(1,126,089)
4,458,244
4,458,244
.
.
493,262
493,262
493,262
53,936
7,568
53,936
7,568
53,936
7,568
Total comprehensive income for the

year . . . . . . . . . . . . . . . . . . . . .
61,504
493,262
554,766
554,766
Contributions from shareholders . . . . . . .
1,552,151
1,552,151
1,552,151
7,197,988
(632,827)
6,565,161
6,565,161
.
.
.
.
.
.
16
22
16
22
16
22
I-8
APPENDIX I
ACCOUNTANTS REPORT
Attributable to equity holders of
the Company
Note
Balance at 1 January 2014 . . . . . . .

Profit for the period . . . . . . . . . .
Reserves
Accumulated
losses
HK$000
(Note 22)
HK$000
(Note 23)
Sub-total
Noncontrolling
interests
Total equity
HK$000
HK$000
HK$000
7,197,988
(632,827)
6,565,161
6,565,161
165,922
165,922
165,922
32,117
(8,248)
32,117
(8,248)
32,117
(8,248)

period . . . . . . . . . . . . . . . . . . . .
23,869
165,922
189,791
189,791
Balance at 31 May 2014 . . . . . . . . . .
7,221,857
(466,905)
6,754,952
6,754,952
5,584,333
(1,126,089)
4,458,244
4,458,244
186,104
186,104
186,104
2,838
2,838
2,838

period . . . . . . . . . . . . . . . . . . . .
2,838
186,104
188,942
188,942
Balance at 31 May 2013 . . . . . . . . . .
5,587,171
(939,985)
4,647,186
4,647,186
Unaudited
Balance at 1 January 2013 . . . . . . .
Profit for the period . . . . . . . . . .
.
.
.
.
16
22
22
I-9
APPENDIX I
(e)
ACCOUNTANTS REPORT
Combined Statements of Cash Flows

Five months
ended 31 May

Note
Operating activities
Net cash generated from operations. . . . . .
Income tax paid . . . . . . . . . . . . . . . . .
2011
2012
2013
2013
2014
HK$000
HK$000
HK$000
HK$000
Unaudited
HK$000
960,720
466,022
(64)
2,921,535
956,154
910,046
960,720
465,958
2,921,535
956,154
910,046
(181,374)
(3,475,701)
(419,310)
(34,319)
(83,721)
(2,312,796)
(990,437)
(185,100)
1,043
(351,000)
(237,449)
840,081
(2,221,376)
391,810
23,579
70,257
214,843
636,283
(840,081)
44,188
(391,810)
(409,972)
(10,602)
(19,362)
3,977
33,961
1,604,587
30,422
8,219
8,402
(3,514,331)
(3,821,627)
(808,996)
(36,702)
(71,102)
2,972,369
727,634
5,082,752
(770,943)
1,742,135
(1,196,787)
(116,280)
720,877
(518,836)
.
.
.
.
(1,233,613)
1,033,675
(458,608)
(695,353)
(683,636)
(2,278,039)
1,552,151
(738,370)
(672,846)
(289,727)
(357,230)
(220,154)
(6,658)
Net cash generated from/(used in)

financing activities . . . . . . . . . . . . .
3,041,457
2,932,820
(918,910)
(1,078,853)
(382,001)
487,846
(422,849)
1,193,629
(159,401)
456,943
205,773
693,619
270,770
270,770
1,464,399
693,619
270,770
1,464,399
111,369
1,921,342
Cash generated from operating activities .

Investing activities
Purchase of property, plant and equipment. .
Advance payments on acquisition of
aircraft . . . . . . . . . . . . . . . . . . . . .
Purchase of available-for-sale financial
assets. . . . . . . . . . . . . . . . . . . . . .
Prepayment for equity investments . . . . . .
Receipts of restricted cash . . . . . . . . . . .
Proceeds from disposal of available-for-sale
financial assets . . . . . . . . . . . . . . . .
Proceeds from transfer of advance payments on
acquisition of aircraft to a related company .
Proceeds from disposal of property, plant and
equipment . . . . . . . . . . . . . . . . . . .
Restricted cash deposit . . . . . . . . . . . . . .
Receipt of prepayments for equity investments
refunded . . . . . . . . . . . . . . . . . . . .
Interest received . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . .
Financing activities
Proceeds from borrowings . . . . . . . . .
Proceeds from issuance of notes payable .
Repayments of borrowings. . . . . . . . .
Repayment of obligations under finance
leases. . . . . . . . . . . . . . . . . . .
Contribution from shareholders . . . . .
Interest paid . . . . . . . . . . . . . . . .
Prepayment of share issuance costs . .
...
...
...
.
.
.
.
.
.
.
.
Net increase/(decrease) in cash and cash

equivalents . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of
the year . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of
the year/period. . . . . . . . . . . . . . . .
32
15
17
I-10
APPENDIX I
ACCOUNTANTS REPORT
II
NOTES TO THE FINANCIAL INFORMATION OF THE GROUP
GENERAL INFORMATION, GROUP REORGANISATION AND BASIS OF PRESENTATION
(a)
General information
Hong Kong Airlines International Holdings Limited (the Company) was incorporated in the Cayman Islands on 30 January
2014 as an exempted company with limited liability under the Companies Law of the Cayman Islands. The address of its registered
office is [PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands].
The Company is an investment holding company and its subsidiaries as set out in Note 35 (collectively referred to as the
Group) are principally engaged in full-service network carrier which provides services including air passenger transport, air cargo
transport and other airline-related services with its base in Hong Kong (the [REDACTED] Business).
The Financial Information is presented in Hong Kong dollar (HK$) unless otherwise stated.
(b)
Group Reorganisation
The [REDACTED] Business was conducted by Hong Kong Airlines Limited (Hong Kong Airlines) and its subsidiaries
throughout the Relevant Periods.
HKA Group Company Limited (HKAG Company) was incorporated on 28 November 2011, and has become the investment
holding company of Hong Kong Airlines since then. HKAG Company also acted as an investment holding company of Hong Kong
Express Airways Limited (Hong Kong Express) since April 2012. Hong Kong Express is a low-cost carrier, the business of which
generally entails point-to-point services for leisure travellers at much lower fares than full-service airlines, which is not strategically
complementary to the Groups operations and different from the [REDACTED] Business (the Excluded Business).
Before completion of Reorganisation as described below, HKAG Company was a wholly owned subsidiary of HKA Group
Holdings Company Limited (HKAG Holdings). In the preparation for the [REDACTED] of the Companys [REDACTED] on the
Main Board of the Stock Exchange of Hong Kong Limited (the [REDACTED]), HKAG Company had been transferred to the
Company as a part of reorganisation. The Group Reorganisation involved the followings.
(i)
On 30 January 2014, the Company was incorporated in Cayman Islands with an initial authorised share capital of
HK$350,000 divided into 350,000 shares of HK$1.00 each. One share of HK$1.00 was allotted and issued to a third
party company on the date of incorporation. On the same date of the incorporation of the Company, the third party
company transferred its share in the Company to HKAG Holdings at the consideration of HK$1.00.
(ii)
[On [] 2014, HKAG Company distributed its entire equity interest in Hong Kong Express as a dividend to HKAG
Holdings.]
(iii)
[On [] 2014, the Company subdivided its shares from every 1 share of HK$1.00 each to 10 shares of HK$0.10 each
and increase its authorised share capital to [10,000,000,000] shares of HK$0.10 each.
(iv)
[On [] 2014, HKAG Holdings transferred its entire equity interest in HKAG Company to the Company in exchange
for the allotment and issuance of [2,662,383,744] share in the Company. Thereafter, the Company has become the
holding company of the subsidiaries now comprising the Group conducting the [REDACTED] Business.]
(v)
[On [] 2014, HKAG Holdings distributed its entire equity interest in the Company as dividends to its shareholders.
In the same proportion to their respective interests in shares of HKAG Holdings.]
[Subsequent to the Group Reorganisation but before the [REDACTED], certain shares of the Company were transferred
among the shareholders of the Company. There was no change in the shareholders of the Company immediate before and after the
share transfer.]
(c)
Basis of presentation
Immediately prior to and after the Group Reorganisation, the [REDACTED] Business was carried out by Hong Kong Airlines
and its subsidiaries. Pursuant to the Group Reorganisation, the [REDACTED] Business was transferred to the Company. The
Company had not been involved in any other business prior to the Group Reorganisation and did not meet the definition of a business.
The Group Reorganisation is merely a recapitalisation of the [REDACTED] Business with no change in management of such
business and the shareholderes of the [REDACTED] Business remain the same. Accordingly, the Financial Information of the
companies now comprising the Group is presented using the carrying values of the [REDACTED] Business for all periods presented.
Inter-company transactions, balances and unrealised gains/losses on transactions between group companies are eliminated on
combination.
The Financial Information has not included the assets, liabilities and results of operations of the Excluded Business (as
described in Notes 1(b) above) throughout the Relevant Periods , on the basis below:
the Excluded Business is separable from the [REDACTED] Business;
I-11
APPENDIX I
ACCOUNTANTS REPORT
the Excluded Business has been separately managed and financed independently; and
The [REDACTED] Business and the Excluded Business have separate historical books and records.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of the Financial Information are set out below. These policies have
been consistently applied to all the Relevant Periods presented, unless otherwise stated.
2.1
Basis of preparation
The Financial Information has been prepared in accordance with the Hong Kong Financial Reporting Standards (the
HKFRSs). The Financial Information has been prepared under the historical cost convention, as modified by the revaluation of
available-for-sale financial assets and investment properties which are carried at fair value.
The preparation of the Financial Information in conformity with the HKFRSs requires the use of certain critical accounting
estimates. It also requires management to exercise its judgement in the process of applying the Groups accounting policies. The areas
involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the Financial
Information are disclosed in Note 4.
(a)
Going concern
As at 31 December 2011, 2012 and 2013, and 31 May 2014, the current liabilities of the Group exceeded its current
assets by approximately HK$477 million, HK$1,580 million, HK$2,749 million, and HK$2,740 million respectively. In
preparing the Financial Information, management has thoroughly assessed the going concern ability of the Group in
association with the Groups current financial situation.
The Group has taken actions in dealing with the net working capital deficit mentioned above. It has been seeking new
financing channels continuously and gaining adequate financing resources with banks and financial institutions to improve
the Groups liquidity position. In light of the financing arrangements with certain commercial banks and the Groups fund
raising history, management believes that the Group can continuously gain access to adequate financing resources for
operation, payments of matured debts and capital expenditure. Accordingly, management believes that it is appropriate to
prepare the Financial Information on a going concern basis.
(b)
New standards, amendments and interpretations to existing standards have been issued but not yet effective for the
financial year beginning 1 January 2014 and have not been early adopted by the Group:
Annual improvements 2012 (effective from 1 July 2014).
These amendments include changes from the 2010-2012 cycle of the annual improvements project that affect
7 standards including HKFRS 2, HKFRS 3, HKFRS 8, HKFRS 13, HKAS 16, HKAS 24 and HKAS 38.
Annual improvements 2013 (effective from 1 July 2014).
These amendments include changes from the 2011-2013 cycle of the annual improvements project that affect
4 standards including HKFRS 1, HKFRS 3, HKFRS 13 and HKAS 40.
HKAS 19 (Amendment) (effective from 1 July 2014).
This narrow scope amendment applies to contributions from employees or third parties to defined benefit plans.
The amendment distinguishes between contributions that are linked to service only in the period in which they arise
and those linked to service in more than one period. The amendment allows contributions that are linked to service,
and do not vary with the length of employee service, to be deducted from the cost of benefits earned in the period that
the service is provided. Contributions that are linked to service, and vary according to the length of employee service,
must be spread over the service period using the same attribution method that is applied to the benefits.
HKFRS 14 (effective from 1 January 2016).
HKFRS 14 describes regulatory deferral account balances as amounts of expense or income that would not be
recognised as assets or liabilities in accordance with other standards, but that qualify to be deferred in accordance with
this standard because the amount is included, or is expected to be included, by the rate regulator in establishing the
prices that an entity can charge to customers for rate-regulated goods or services.
I-12
APPENDIX I
ACCOUNTANTS REPORT
HKFRS 9 (To be determined).

HKFRS 9 is the first standard issued as part of a wider project to replace HKAS 39. HKFRS 9 retains but
simplifies the mixed measurement model and establishes two primary measurement categories for financial assets:
amortised cost and fair value. The basis of classification depends on the entitys business model and the contractual
cash flow characteristics of the financial asset. The guidance in HKAS 39 on impairment of financial assets and hedge
accounting continues to apply.
HKFRS 7 and HKFRS 9 (Amendments) (To be determined).
Mandatory effective date and transition disclosures delay the effective date to annual periods beginning on
or after 1 January 2015, and also modify the relief from restating prior periods. As part of this relief, additional
disclosures on transition from HKAS 39 to HKFRS 9 are required.
Amendment to HKFRS 11 on accounting for acquisitions of interests in joint operation (effective from 1 January 2016).
The amendment requires an investor to apply the principles of business combination accounting when it
acquires an interest in a joint operation that constitutes a business (as defined in HKFRS 3. The amendment is
applicable to both the acquisition of the initial interest and a further interest in a joint operation. The previously held
interest is not remeasured when the acquisition of an additional interest in the same joint operation with joint control
maintained.
HKFRS 15 Revenue from Contracts with Customers (effective from 1 January 2017).
HKFRS 15 establishes a comprehensive framework for determining when to recognise revenue and how much
revenue to recognize. The core principle is that a company should recognise revenue to depict the transfer of promised
goods or services to the customer in an amount that reflects the consideration to which the company expects to be
entitled in exchange for those goods or services. It moves away from a revenue recognition model based on an earnings
processes to an asset-liability approach based on transfer of control.
HKFRS 15 provides specific guidance on capitalisation of contract cost and licence arrangements. It also
includes a cohesive set of disclosure requirements about the nature, amount, timing and uncertainty of revenue and cash
flows arising from the entitys contracts with customers.
Amendment to HKAS 16 and HKAS 38 on clarification of acceptable methods of depreciation and amortization
(effective from 1 January 2016).
The amendments clarify when a method of depreciation or amortisation based on revenue may be appropriate.
The amendment to HKAS 16 clarifies that depreciation of an item of property, plant and equipment based on revenue
generated by using the asset is not appropriate.
The amendment to HKAS 38 establishes a rebuttable presumption that amortisation of an intangible asset based
on revenue generated by using the asset is inappropriate.
The management is in the process of assessing the impact of these standards and amendments on the Financial
Information of the Group. The adoption of the above is currently not expected to have a material impact on the
Financial Information of the Group other than disclosure changes.
2.2
Subsidiaries
The Financial Information incorporated the assets and liabilities of all subsidiaries of the Company as at 31 December 2011,
2012 and 2013, and 31 May 2014 and the results of all subsidiaries for the Relevant Periods then ended, presented on the basis of
presentation as described in Note 1(c).
A subsidiary is an entity (including structured entities) over which the Group has control. The Group controls an entity when
the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those
returns through its power over the entity. Subsidiaries are consolidated from the date on which control is transferred to the Group.
They are deconsolidated from the date that control ceases.
(a)
Business combinations
The Group applies the acquisition method to account for business combinations. The consideration transferred for the
acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the
Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration
arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities
assumed in a business combination are measured initially at their fair values at the acquisition date.
I-13
APPENDIX I
ACCOUNTANTS REPORT
The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis either at fair value
or at the non-controlling interests proportionate share of the acquirees net assets.
The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date
fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as
goodwill. If the total of consideration transferred, non-controlling interest recognised and previously held interest measured is less
than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly
in the combined income statement.
Intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised
losses are also eliminated. When necessary, amounts reported by subsidiaries have been adjusted to conform with the Groups
accounting policies.
(b)
Changes in ownership interests in subsidiaries without change of control
Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions that
is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the
relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to
non-controlling interests are also recorded in equity.
(c)
Disposal of subsidiaries
When the Group ceases to have control, any retained interest in the entity is re-measured to its fair value at the date when
control is lost, with the change in carrying amount recognised in combined income statement. The fair value is the initial carrying
amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In
addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group
had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive
income are reclassified to combined income statement.
2.3
Separate financial statements
Investments in subsidiaries are accounted for at cost less impairment. Cost includes direct attributable costs of investment.
The results of subsidiaries are accounted for by the company on the basis of dividend received and receivable.
Impairment testing of the investments in subsidiaries is required upon receiving a dividend from these investments if the
dividend exceeds the total comprehensive income of the subsidiary in the period the dividend is declared or if the carrying amount
of the investment in the separate financial statements exceeds the carrying amount in the consolidated financial statements of the
investees net assets including goodwill.
2.4
Associates
An associate is an entity over which the Group has significant influence but not control, generally accompanying a shareholding
of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting.
Under the equity method, the investment is initially recognised at cost, and the carrying amount is increased or decreased to
recognise the investors share of the profit and loss of the investee after the date of acquisition. The Groups investment in associates
includes goodwill identified on acquisition.
If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the
amounts previously recognised in profit and loss is reclassified to combined income statement where appropriate.
The Groups share of post-acquisition profit and loss is recognised in the combined income statement, and its share of
post-acquisition movements in other comprehensive income is recognised in other comprehensive income with a corresponding
adjustment to the carrying amount of the investment. When the Groups share of losses in an associate equals or exceeds its interest
in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred legal
or constructive obligations or made payments on behalf of the associate.
The Group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired.
If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and
its carrying value and recognises the amount adjacent to share of profit/(loss) of an associate in the combined income statement.
Profits and losses resulting from upstream and downstream transactions between the Group and its associate are recognised
in the Groups financial statements only to the extent of unrelated investors interests in the associates. Unrealised losses are
eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have
been changed where necessary to ensure consistency with the policies adopted by the Group.
I-14
APPENDIX I
ACCOUNTANTS REPORT
Gains and losses on dilution of equity interest are recognised in profit and loss.
2.5
Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
decision-maker (the CODM). The CODM, who is responsible for allocating resources and assessing performance of the operating
segments, has been identified as the chief executive officer and the vice presidents.
2.6
Foreign currency translation
(a)
Functional and presentation currency
Items included in the Financial Information of each of the Groups entities are measured using the currency of the primary
economic environment in which the entity operates (the functional currency). Since the majority of the assets and operations of
the Group are located in the Hong Kong, the Financial Information is presented in HK dollars (HK$), which is the functional and
presentation currency of the Company and the major companies now comprising the Group.
(b)
Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of
the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such
transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies
are recognised in the combined income statement, except when deferred in equity as qualifying cash flow hedges and qualifying net
investment hedges.
Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the combined
income statement within finance income or costs.
Translation differences on non-monetary financial assets and liabilities such as investment properties at fair value through
combined income statement are recognised in combined income statement as part of the fair value gain or loss. Translation
differences on non-monetary financial assets, such as equities classified as available for sale, are included in other comprehensive
income.
(c)
Group companies
The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy)
that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
(i)
assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
(ii)
income and expenses for each income statement are translated at average exchange rates (unless this average is not a
reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income
and expenses are translated at the rate on the dates of the transactions); and
(iii)
all resulting exchange differences are recognised in other comprehensive income.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the
foreign entity and translated at the closing rate. Exchange differences arising are recognised in other comprehensive income.
2.7
Property, plant and equipment
Property, plant and equipment are stated at historical cost less accumulated depreciation and any impairment losses. Historical
cost includes expenditure that is directly attributable to the acquisition of the items.
Subsequent costs, including major aircraft overhaul costs, are included in the assets carrying amount or recognised as a
separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group
and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and
maintenance are charged to the combined income statement during the financial period in which they are incurred.
I-15
APPENDIX I
ACCOUNTANTS REPORT
Depreciation of property, plant and equipment is calculated using the straight-line method to allocate their costs to their
residual values over their estimated useful lives, as follows:
Mainframe and core parts . . . .
Replaceable components relating
Aircraft related equipment. . . . . . .
Buildings . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . .
Equipment and vehicles . . . . . . . .
. . . . . . . .
to overhauls .
. . . . . . . .
. . . . . . . .
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15-20 years
6 years
4-15 years
40 years
Shorter of 10 years or leasing period
5 years
The assets residual value and useful life are reviewed, and adjusted if appropriate, at the end of each reporting period.
An assets carrying amount is written down immediately to its recoverable amount if the assets carrying amount is greater
than its estimated recoverable amount (Note 2.9).
Gains and losses on disposals are determined by comparing proceeds with carrying amount and are recognised as other
gains net in the combined income statement.
2.8
Advance payments on acquisition of aircraft
Advance payments on acquisition of aircraft represent payments to aircraft manufacturers to secure deliveries of aircraft in
future years, including attributable finance costs, and are included in non-current assets. The balance is transferred to property, plant
and equipment upon delivery of the aircraft.
2.9
Impairment of non-financial assets
Assets that have an indefinite useful life for example, goodwill are not subject to amortisation and are tested annually for
impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the assets
carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an assets fair value less costs to sell and
value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately
identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed
for possible reversal of the impairment at each reporting date.
2.10
Financial assets
(a)
Classification
The Group has financial assets classified as loans and receivables and available for sale during the Relevant Periods. The
classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its
financial assets at initial recognition.
(i)
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in
an active market. They are included in current assets, except for those with maturities greater than 12 months after the end
of reporting period, which are classified as non-current assets. The Groups loans and receivables comprise certain items in
trade receivables and prepayments, deposits and other receivables, and bank deposits included in cash and cash
equivalents and restricted cash in the combined balance sheet.
(ii)
Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any
of the other categories. They are included in non-current assets unless the investment matures or management intends to
dispose of it within 12 months of the end of the reporting period.
(b)
Recognition and measurement
Regular way purchases and sales of financial assets are recognised on the trade-date the date on which the Group commits
to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs. Financial assets are derecognised
when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred
substantially all risks and rewards of ownership. Available-for-sale financial assets are subsequently carried at fair value. Loans and
receivables are subsequently carried at amortised cost using the effective interest method.
I-16
APPENDIX I
ACCOUNTANTS REPORT
Changes in the fair value of monetary and non-monetary securities classified as available for sale are recognised in other
comprehensive income.
When securities classified as available for sale are sold or impaired, the accumulated fair value adjustments recognised in
equity are included in the combined income statement as Other gains net.
Interest on available-for-sale securities calculated using the effective interest method is recognised in the combined income
statement as part of finance income. Dividends on available-for-sale equity instruments are recognised in the combined income
statement as part of other income when the Groups right to receive payments is established.
Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been
transferred and the Group has transferred substantially all risks and rewards of ownership.
(c)
Impairment of financial assets
(i)
Assets carried at amortised cost
The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of
financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if
there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a
loss event) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of
financial assets that can be reliably estimated.
Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial
difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial
reorganisation, and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as
changes in arrears or economic conditions that correlate with defaults.
For loans and receivables category, the amount of the loss is measured as the difference between the assets carrying amount
and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the
financial assets original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised
in the combined income statement. If a loan or held-to-maturity investment has a variable interest rate, the discount rate for
measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Group
may measure impairment on the basis of an instruments fair value using an observable market price.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event
occurring after the impairment was recognised (such as an improvement in the debtors credit rating), the reversal of the previously
recognised impairment loss is recognised in the combined income statement.
(ii)
Assets classified as available for sale
The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group
of financial assets is impaired. For debt securities, the Group uses the criteria referred to in (i) above. In the case of equity
investments classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is also
evidence that the assets are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss
measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset
previously recognised in the combined income statement is removed from equity and recognised in the combined income statement.
Impairment losses recognised in the combined income statement on equity instruments are not reversed through the combined income
statement. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase
can be objectively related to an event occurring after the impairment loss was recognised in the combined income statement, the
impairment loss is reversed through the combined income statement.
2.11
Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in combined balance sheet when there is a legally
enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the
liability simultaneously.
I-17
APPENDIX I
2.12
ACCOUNTANTS REPORT
Expendable spare parts
Expendable spare parts are stated at the lower of cost and net realisable value. Cost is determined using the first in, first out
method. The cost of expendable spare parts comprises purchase price (net of discounts), freight charges and other miscellaneous
charges. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling
expenses.
2.13
Trade receivables
Trade receivables are amounts due from sales agents or customers performed in the ordinary course of business. If collection
of trade receivables is expected in one year or less, they are classified as current assets. If not, they are presented as non-current
assets.
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest
method, less provision for impairment.
2.14
Cash and cash equivalents
In the statement of cash flows, cash and cash equivalents include cash in hand, deposits held at call with banks, other
short-term highly liquid investments with original maturities of three months or less. Restricted cash is excluded from cash and cash
equivalents.
2.15
Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown
in equity as a deduction, net of tax, from the proceeds.
2.16
Trade payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from
suppliers. Trade payables are classified as current liabilities if payment is due within twelve months after the reporting period (or
in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest
method.
2.17
Borrowings and borrowing costs
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at
amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the combined
income statement over the period of the borrowings using the effective interest method.
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable
that some or all of the facility will be drawn down. In this case, the fees are deferred until the draw-down occurs. To the extent there
is no evidence that it is probable that some or all of the facility will be drawn down, the fees are capitalised as a pre-payment for
liquidity services and amortised over the period of the facility to which it relates.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability
for at least 12 months after the end of the reporting period.
General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying assets
(e.g. acquisition of aircraft), which are assets that necessarily take a substantial period of time to get ready for their intended use
or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is
deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in combined income statement
in the period in which they are incurred.
I-18
APPENDIX I
2.18
ACCOUNTANTS REPORT
Current and deferred income tax
Tax expense comprises current and deferred tax. Tax is recognised in the combined income statement, except to the extent
that it relates to items recognised in other comprehensive income or directly in equity. In this case the tax is also recognised in other
comprehensive income or directly in equity, respectively.
(a)
Current income tax
Current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date
in the countries where the Companys subsidiaries operate and generate taxable income. Management periodically evaluates positions
taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions
where appropriate on the basis of amounts expected to be paid to the tax authorities.
(b)
Deferred income tax

Inside basis differences
Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases
of assets and liabilities and their carrying amounts in the financial statements. However, deferred tax liabilities are not
recognised if they arise from the initial recognition of goodwill, and the deferred income tax is not accounted for if it arises
from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the
transaction affects neither accounting nor taxable combined income statement. Deferred income tax is determined using tax
rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when
the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be
available against which the temporary differences can be utilised.
Outside basis differences
Deferred income tax is provided on temporary differences arising on investments in subsidiaries, except for deferred
income tax liability where the timing of the reversal of the temporary difference is controlled by the Group and it is probable
that the temporary difference will not reverse in the foreseeable future.
(c)
Offsetting
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against
current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation
authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
2.19
Employee benefits
(a)
Employee leave entitlements
Employee entitlements to annual leave are recognised when they accrue to employees. A provision is made for the estimated
liability for annual leave as a result of services rendered by employees up to the end of the reporting period.
Employee entitlements to sick leave and maternity leave are not recognised until the time of leave.
(b)
Retirement benefits
The Group operates defined contribution plans and pays contributions to publicly or privately administered pension insurance
plans on a mandatory, contractual or voluntary basis. The Group has no further payment obligations once the contributions have been
paid. The contributions are recognised as employee benefit expenses when they are due. Prepaid contributions are recognised as an
asset to the extent that a cash refund or a reduction in the future payments is available.
(c)
Bonus plans
The Group recognises a liability and an expense for bonuses when the Group has a present legal or constructive obligation
as a result of services rendered by employees and a reliable estimate of such obligation can be made.
I-19
APPENDIX I
2.20
ACCOUNTANTS REPORT
Provisions and contingent liabilities
Provisions are recognised when: the Group has a present legal or constructive obligation as a result of past events; it is more
likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated.
Provisions are not recognised for future operating losses.
Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined
by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any
one item included in the same class of obligations may be small.
Provisions are measured at the present value of the expenditure expected to be required to settle the obligation using a pre-tax
rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the
provision due to passage of time is recognised as interest expense.
A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the
occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. It can also be a
present obligation arising from past events that is not recognised because it is not probable that outflow of economic resources will
be required or the amount of obligation cannot be measured reliably.
A contingent liability is not recognised but is disclosed in the notes to the Financial Information. When a change in the
probability of an outflow occurs so that outflow is probable, it will then be recognised as a provision.
2.21
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable. The Group recognises revenue when the
amount of revenue can be reliably measured; when it is probable that future economic benefits will flow to the entity; and when
specific criteria have been met for each of the Groups activities, as described below.
(a)
Traffic revenues
Passenger and cargo revenues are recognised as traffic revenues when the transportation services are provided rather than
when the tickets are sold. The value of sold but unused tickets is included in liability as sales in advance of carriage (SIAC).
The Group participates in a frequent flyer program named Fortune Wings Club, operated by Hainan Airlines Co., Ltd.
(Hainan Airlines), a related company of the Group, which provides travel awards to program members based on an accumulated
mileages. The charges from Hainan Airlines for the mileages earned with flights of Hong Kong Airlines are recognised as cost of
the Group. The charges to Hainan Airlines for the mileages redeemed for tickets of Hong Kong Airlines are recognised as revenue
of the Group.
(b)
Rental income
Rental income from aircraft operating lease is recognised in the combined income statement on a straight-line basis over the
term of the lease.
(c)
Other revenue
Revenue from other operating businesses, comprising primarily of in-flight sales commission, are recognised when the
services are rendered.
2.22
Subsidy income
Subsidy income comprising of primarily subsidies granted by various local governments or airport authorities to encourage
the Group to operate certain routes to cities where these governments are located are recognised when the pre-determined conditions
are fulfilled.
2.23
Interest income
Interest income is recognised on a time-proportion basis using the effective interest method. When a receivable is impaired,
the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flows discounted at the original
effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans
and receivables is recognised using the original effective interest rate.
2.24
Dividend income
Dividend income is recognised when the right to receive payment is established.
I-20
APPENDIX I
2.25
ACCOUNTANTS REPORT
Maintenance and overhaul costs

Routine repairs and maintenance costs are charged to the combined income statement as and when incurred.
For aircraft and engines owned or held under finance leases by the Group, overhaul costs which meet the definition of
property, plant and equipment are capitalised as a component of property, plant and equipment and depreciated over the overhaul
cycles (Note 2.7). In respect of aircraft and engines under operating leases, the Group has obligations to fulfill certain return
conditions upon expiration of the leases. Provisions for the estimated costs of the overhauls and checks for the return conditions are
based on the actual usages (e.g. flying hours or flying cycles) over the estimated periods between overhauls.
2.26
Leases
(a)
A group company is the lessee

(i)
Finance leases
The Group leases certain property, plant and equipment. Leases of property, plant and equipment where the Group has
acquired substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised
at the leases commencement at the lower of the fair value of the leased property and the present value of the minimum lease
payments.
Each lease payment is allocated between the liability and finance charges. The corresponding rental obligations, net
of finance charges, are included in other short-term and other long-term payables. The interest element of the finance cost is
charged to the combined income statement over the lease period so as to produce a constant periodic rate of interest on the
remaining balance of the liability for each period. Leased assets are depreciated using a straight-line basis over their expected
useful lives to residual values.
For sale and leaseback transactions resulting in a finance lease, differences between sales proceeds and net book values
are deferred and amortised over the minimum lease terms.
(ii)
Operating leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified
as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the
combined income statement on a straight-line basis over the period of the lease.
For sale and leaseback transactions resulting in an operating lease, differences between sales proceeds and net book
values are recognised immediately in the combined income statement, except to the extent that any of the differences is
compensated for by future lease payments at above or below market value, then the difference is deferred and amortised over
the period for which the asset is expected to be used.
(b)
A group company is the lessor
Assets leased out under operating leases are included in property, plant and equipment in the combined balance sheet. They
are depreciated over their expected useful lives on a basis consistent with similar property, plant and equipment. Rental income is
recognised on a straight-line basis over the lease term.
2.27
Dividend distribution
Dividend distribution to the Companys shareholders is recognised as a liability in the Groups and the Companys financial
statements in the period in which the dividends are approved by the Companys shareholders or directors, where appropriate.
2.28
Related parties
(a)
A person, or a close member of that persons family, is related to the Group if that person:
(i)
has control or joint control over the Group;
(ii)
has significant influence over the Group; or
(iii)
is a member of the key management personnel of the Group or the Groups parent.
Close members of the family of a person are those family members who may be expected to influence, or be influenced by
that person in their dealings with the entity.
I-21
APPENDIX I
(b)
ACCOUNTANTS REPORT
An entity is related to the Group if any of the following conditions applies:

(i)
The entity and the Group are members of the same Group (which means that each parent, subsidiary and fellow
subsidiary is related to the others).
(ii)
One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of
a group of which the other entity is a member).
(iii)
Both entities are joint ventures of the same third party.
(iv)
One entity is a joint venture of a third entity and the other entity is an associate of the third entity.
(v)
The entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related
to the Group.
(vi)
The entity is controlled or jointly controlled by a person identified in (a).
(vii)
A person identified in (a)(i) has significant influence over the entity or is a member of the key management
personnel of the entity (or of a parent of the entity).
FINANCIAL RISK MANAGEMENT
The Groups activities expose it to a variety of financial risks: market risk (including currency risk, interest rate risk, fuel price
risk, cash flow and fair value interest rate risk), credit risk, and liquidity risk. The Groups overall risk management programme
focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Groups financial
performance.
The Groups management reviews and agrees policies for managing each of these risks and they are summarised below.
3.1
Market risk
(a)
Foreign exchange risk

Foreign exchange risk arises from both operating and financing activities.
The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily
with respect to US dollars, Renminbi and Japanese Yen. Purchases of aircraft, aircraft related equipment and aviation fuel are mainly
denominated in US dollars.
The Groups financing activities are also exposed to foreign exchange risk arising from borrowings and obligations under
finance leases primarily denominated in US dollars and Renminbi.
Whilst Hong Kong dollars are pegged to US dollars, transactions and balances denominated in US dollars are significant to
the Group and the directors of the Company consider foreign exchange risk arisen from US dollars remains considerably significant
to the Groups financial performance.
I-22
APPENDIX I
ACCOUNTANTS REPORT
As at 31 December 2011, 2012, 2013 and 31 May 2014, the carrying amounts in Hong Kong dollar equivalent to the Groups
assets and liabilities denominated in foreign currencies are summarised as below:
As at 31 December 2011
Assets
Trade receivables. . . . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . .
Cash and cash equivalents . . . . . . . . . .
Other non-current assets. . . . . . . . . . . .
Liabilities
Notes payable. . . . . . . . . . . . . . . . . .
Borrowings . . . . . . . . . . . . . . . . . . .
Trade payables . . . . . . . . . . . . . . . . .
Accruals and other payables . . . . . . . . .
Obligations under finance leases . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
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.
.
.
.
.
.
.
.
.
.
.
.
.
.
Net Amount . . . . . . . . . . . . . . . . . . . . . .
US dollars
Renminbi
Japanese
yen
Others
Total
HK$000
HK$000
HK$000
HK$000
HK$000
41,312
175,837
297,533
159,096
128,665
209,507
839,149
314,170
17,151
972
14,945
25,922
30,851
25,428
213,050
417,167
839,149
652,076
159,096
(2,914,879)
(460,087)
(16,986)
(7,740,927)
(729,538)
(86,605)
(325,875)
(100,218)
(59,422)
(100,568)
(729,538)
(2,914,879)
(606,114)
(543,647)
(7,740,927)
(10,459,101)
349,473
(67,150)
(77,789)
(10,254,567)
Assets
Restricted cash . . . . . . . . . . . . . . . . .
Liabilities
Notes payable. . . . . . . . . . . . . . . . . .
Borrowings . . . . . . . . . . . . . . . . . . .
Trade payables . . . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Net Amount . . . . . . . . . . . . . . . . . . . . . .
US dollars
Renminbi
Japanese
yen
Others
Total
HK$000
HK$000
HK$000
HK$000
HK$000
136,771
217,317
11,627
158,738
297,282
196,991
290,272
373,103
37,553
5,821
15,523
31,522
18,541
19,575
(7,134,948)
(457,725)
(350,796)
(7,032,077)
(739,300)
(149,230)
(317,313)
(191,447)
(5,058)
(83,210)
(41,658)
(77,429)
(739,300)
(7,284,178)
(821,754)
(702,882)
(7,032,077)
(14,153,811)
(499,371)
(66,924)
(49,449)
(14,769,555)
I-23
371,105
526,130
384,730
231,389
297,282
APPENDIX I
ACCOUNTANTS REPORT
Assets
Restricted cash . . . . . . . . . . . . . . . . .
Liabilities
Notes payable. . . . . . . . . . . . . . . . . .
Borrowings . . . . . . . . . . . . . . . . . . .
Trade payables . . . . . . . . . . . . . . . . .
US dollars
Renminbi
Japanese
yen
Others
Total
HK$000
HK$000
HK$000
HK$000
HK$000
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
136,929
135,847
11,632
1,158,690
214,735
168,327
234,047
397,738
209,736
6,316
15,744
6,720
128,881
19,020
2
65,200
440,453
404,658
409,372
1,440,346
214,735
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
(7,264,526)
(502,441)
(67,042)
(5,154,662)
(764,747)
(111,619)
(890,922)
(27,471)
(83,943)
(110,723)
(147,367)
(764,747)
(7,264,526)
(752,254)
(1,189,274)
(5,154,662)
Net Amount . . . . . . . . . . . . . . . . . . . . . .
(11,330,838)
(757,440)
(82,634)
(44,987)
(12,215,899)
As at 31 May 2014
Assets
Trade receivables . . . . . . . . .
receivables . . . . . . . . . . .
Restricted cash . . . . . . . . . .
Cash and cash equivalents. . . .
Other non-current assets . . . . .
Liabilities
Notes payable . . . . . . . . . . .
Borrowings . . . . . . . . . . . .
Trade payables . . . . . . . . . .
Accruals and other payables . .
US dollars
Renminbi
Japanese
yen
Others
Total
HK$000
HK$000
HK$000
HK$000
HK$000
. . . . . . .
15,085
154,249
1,852
73,269
244,455
124,589
42,778
950,031
267,076
250,370
362,372
915,251
33,976
8,786
24,188
24,505
433,123
405,150
1,898,573
267,076
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
(7,499,425)
(792,185)
(104,866)
(4,796,191)
(739,387)
(31,035)
(524,106)
(25,365)
(9,733)
(15,086)
(78,252)
(739,387)
(7,499,425)
(863,671)
(716,957)
(4,796,191)
Net amount . . . . . . . . . . . . . . . . . . .
(11,793,108)
387,714
9,516
28,624
(11,367,254)
At 31 December 2011, 2012, 2013 and 31 May 2014, if Hong Kong dollar had strengthened by 5% against the following
currencies with all other variables held constant, post-tax profit for the year would have been higher/(lower) by the amounts shown
below, mainly as a result of foreign exchange gains/losses.
2011
2012
2013
Five months
ended 31 May
2014
HK$000
HK$000
HK$000
HK$000

US dollars . . . . . . . . . . . .
Renminbi . . . . . . . . . . . . .
Japanese yen . . . . . . . . . . .
Others . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
436,667
(14,590)
2,804
3,247
590,922
20,849
2,794
2,064
473,062
31,623
3,450
1,879
492,362
(16,187)
(397)
(1,196)
428,128
616,629
510,014
474,582
The sensitivity analysis above determined assuming that the change in foreign exchange rates had occurred as of the balance
sheet date and had been applied to each of the Group entities exposure to currency risk for the financial instruments in existence
at that date, and that all other variables, in particular interest rates, remained constant.
I-24
APPENDIX I
(b)
ACCOUNTANTS REPORT
Fuel price risk
The Groups results of operation may be significantly affected by fluctuations in fuel prices which is a significant expense
for the Group. Aircraft fuel accounts for approximately 36%, 34%, 32% and 33% of the Groups operating expenses for the year
ended 31 December 2011, 2012, 2013 and for the five months ended 31 May 2014.
The Group did not enter into any crude oil option contracts during the Relevant Periods.
For the year ended 31 December 2011, 2012 and 2013 and for the five months ended 31 May 2014, if fuel price had been
5% higher/lower with all other variables held constant, the Groups fuel cost would have been approximately HK$76,173,000,
HK$98,930,000, HK$120,022,000 and HK$60,001,000 higher/lower, respectively.
(c)
Cash flow and fair value interest rate risk
Other than bank balances with variable interest rate, the Group has no significant interest- bearing assets. Management does
not anticipate any significant impact to interest-bearing assets resulted from the changes in interest rates, because the interest rate
of bank balances are not expected to change significantly.
The Groups exposure to changes in interest rates is mainly attributable to its borrowings. Borrowings at variable rates expose
the Group to cash flow interest rate risk. Borrowings at fixed rates expose the Group to fair value interest rate risk. The Group has
not hedged its cash flow or fair value interest rate risk. The interest rate and terms of repayments of borrowings are disclosed in Note
25.
As at 31 December 2011, 2012, 2013 and 31 May 2014, if interest rates on borrowings at floating rates had been 50 basis
points higher/lower with all other variables held constant, the post-tax profit and capitalised interest for the years ended 31 December
2011, 2012 and 2013 and for the five months ended 31 May 2014 would have changed as follows:
2011
2012
2013
Five months
ended 31 May
2014
HK$000
HK$000
HK$000
HK$000

50 basis points lower . . . . . . . . . . . . .
(11,145)
(23,674)
(32,628)
(16,728)
11,145
23,674
32,628
16,728
2011
2012
2013
Five months
ended 31 May
2014
HK$000
HK$000
HK$000
HK$000
Capitalised interest increase/(decrease)

50 basis points lower . . . . . . . . . . . . .
3.2
3,715
12,747
5,312
2,341
(3,715)
(12,747)
(5,312)
(2,341)
Credit risk
The Groups credit risk is primarily attributable to bank deposits, restricted cash, trade and other receivables.
During the Relevant Periods, majority of the Groups bank deposits and restricted cash are deposited with major financial
institutions, which management believes are of high credit quality. As at 31 December 2013, and 31 May 2014, part of the Groups
cash and cash equivalents are placed with HNA Group Finance Co., Ltd. (HNA Finance), a related company of the Group. HNA
Finance is a non-bank financial institution in the PRC subject to the Administrative Measure on Finance Companies within Group
Enterprises and other relevant regulations promulgated by the PRC authorities. Management does not expect that the Group exposes
to any significant credit risks and would suffer any significant losses from non-performance by the banks and financial institutions.
I-25
APPENDIX I
ACCOUNTANTS REPORT
Trade receivables mainly represent passenger and freight sales due from agents and rental income receivables due from related
parties. The majority of the agents are connected to the settlement systems operated by the International Air Transport Association
which is responsible for checking the credit worthiness of such agents and collecting bank guarantees or other monetary collateral
according to local industry practice. The credit risk with regard to individual agents is relatively low. Rental income receivables due
from related companies are carried out in ordinary course of business. The Group closely monitors these receivables to ensure actions
are taken to recover these balances in the case of any risk of default.
Other receivables mainly comprise receivables from related parties, deposits and prepayments in the ordinary course of
business. The Group closely monitors these other receivables to ensure actions are taken to recover these balances in the case of any
risk of default.
3.3
Liquidity risk
The Groups primary cash requirements have been for day-to-day operations, additions of and upgrades to aircraft, engines
and flight equipment and payments on related borrowings. The Group finances its working capital requirements through a
combination of funds generated from operations and borrowings. The Group generally finances the acquisition of aircraft through
long-term finance leases or borrowings.
The table below analyses the Groups financial liabilities into relevant maturity groupings based on the remaining period at
the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash
flows.
Notes payable . . . . . . . . . . .
Borrowings . . . . . . . . . . . .
Trade payables . . . . . . . . . .
Notes payable . . . . . . . . . . .
Borrowings . . . . . . . . . . . .
Trade payables . . . . . . . . . .
Notes payable . . . . . . . . . . .
Borrowings . . . . . . . . . . . .
Trade payables . . . . . . . . . .
As at 31 May 2014
Notes payables . . . . . . . . . .
Borrowings . . . . . . . . . . . .
Trade payables . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Within
1 year
Between
1 and 2
years
Between
2 and 5
years
Over
5 years
Total
HK$000
HK$000
HK$000
HK$000
HK$000
48,750
914,162
692,750
817,205
996,637
48,750
721,635
969,543
774,375
1,743,498
2,756,700
415,474
4,810,360
871,875
3,794,769
692,750
817,205
9,533,240
3,469,504
1,739,928
5,274,573
5,225,834
15,709,839
48,750
1,365,709
822,409
738,731
969,192
774,375
723,166
941,662
2,798,736
2,677,334
4,428,619
3,933,694
823,125
9,316,230
822,409
738,731
8,521,882
3,944,791
2,439,203
5,476,070
8,362,313
20,222,377
774,375
2,048,078
804,463
1,227,894
972,328
1,394,133
945,457
1,960,861
2,234,683
4,201,465
1,974,543
774,375
9,604,537
804,463
1,227,894
6,127,011
5,827,138
2,339,590
4,195,544
6,176,008
18,538,280
749,141
2,202,899
1,057,666
1,230,769
916,353
1,423,077
888,213
2,156,103
1,917,618
4,042,531
1,987,283
749,141
9,824,610
1,057,666
1,230,769
5,709,467
6,156,828
2,311,290
4,073,721
6,029,814
18,571,653
I-26
APPENDIX I
ACCOUNTANTS REPORT
The Directors of the Company believe that cash from operations and borrowings will be sufficient to meet the Groups
operating cash flow. Due to the dynamic nature of the underlying businesses, the Groups treasury policy aims at maintaining
flexibility in funding by keeping credit lines available. The Directors of the Company believe that the Group has obtained sufficient
financing resources and arrangements from banks for financing future capital commitments and working capital purposes.
3.4
Capital risk management
The Groups objectives when managing capital are to safeguard the Groups ability to continue as a going concern in order
to provide returns for shareholders and to maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, issue
new shares or sell assets to reduce debt.
The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net
debt is calculated as total borrowings less cash and cash equivalents and restricted cash deposits pledged for borrowings. Total capital
is calculated as total equity, as shown in the combined balance sheet, plus net debt.
The gearing ratios at 31 December 2011, 2012, 2013 and 31 May 2014 were as follows:
As at 31 December
3.5
2011
2012
2013
As at 31 May
2014
HK$000
HK$000
HK$000
HK$000
Borrowings . . . . . . . . . . . . . . . . . . . . .
Less: Cash and cash equivalents . . . . . . . . .
Restricted cash deposits pledged for
borrowings . . . . . . . . . . . . . . . .
2,972,369
(693,619)
7,284,178
(270,770)
7,829,526
(1,464,399)
8,029,425
(1,921,342)
(840,081)
(391,810)
(409,972)
(405,755)
Net debt . . . . . . . . . . . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . . . . . .
1,438,669
4,200,089
6,621,598
4,458,244
5,955,155
6,565,161
5,702,328
6,754,952
Total capital . . . . . . . . . . . . . . . . . . . . .
5,638,758
11,079,842
12,520,316
12,457,280
Gearing ratio (%) . . . . . . . . . . . . . . . . . .
26%
60%
48%
46%
Fair value estimation
The table below analyses financial instruments carried at fair value by valuation method. The different levels have been
defined as follows:
Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).
Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that
is, as prices) or indirectly (that is, derived from prices) (level 2).
Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).
The following table presents the Groups assets and liabilities that are measured at fair value at 31 December 2011, 2012, 2013
and 31 May 2014 respectively:
Level 1
Level 2
Level 3
Total
HK000
HK000
HK000
HK000
31 December 2011 . . . . . . . . . . . . . . . . .
175,349
175,349
31 December 2012 . . . . . . . . . . . . . . . . .
114,843
351,000
465,843
31 December 2013 . . . . . . . . . . . . . . . . .
2,526,312
2,526,312
31 May 2014 . . . . . . . . . . . . . . . . . . . .
2,558,429
2,558,429
I-27
APPENDIX I
(a)
ACCOUNTANTS REPORT
Financial instruments in level 1
The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date.
A market is regarded as active if quoted prices are readily and regularly available from an exchange and the price represents actual
and regularly occurring market transactions on an arms length basis. The quoted market price used for financial assets held by Hong
Kong Airlines is the current bid price. These instruments are included in level 1.
(b)
The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is
determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is
available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are
observable, the instrument is included in level 2.
If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.
Specific valuation techniques used to value financial instruments include:
(c)
Quoted market prices or dealer quotes for similar instruments;
Other techniques, such as discounted cash flow analysis, are used to determine fair value for the remaining financial
instruments.
The following table presents the changes in level 3 instruments for the year ended 31 December 2011, 2012 and 2013 and
for the five months ended 31 May 2014.
Available-for-sale at fair value through other comprehensive
income
At 1 January .
Additions . . .
Changes in fair
Disposal . . . .
. . . .
. . . .
value
. . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2011
2012
2013
2014
HK$000
HK$000
HK$000
HK$000
.
.
.
.
351,000
351,000
2,221,376
53,936
(100,000)
2,526,312
32,117
At 31 December/31 May . . . . . . . . . . . . .
351,000
2,526,312
2,558,429
53,936
32,117
Total gains or losses for the year/period

included in Combined Income Statements . .
Changes in unrealised gains or losses for the
year/period included in Other
Comprehensive Income . . . . . . . . . . . . .
The Groups available-for-sale financial assets included in level 3 mainly represented investment in a related private
investment company with investment portfolio in transportation and logistics companies (note 16(c)) and were valued by independent
valuer using asset-based approach. This approach is based on underlying financial data of investees to determine the fair value of
the assets and liabilities of the investees, adjusted by market multiples where appropriate. Different judgements on estimates of the
market multiples could significantly affect the fair value movement as recorded in the Combined Statements of Comprehensive
Income.
Details of available-for-sale financial assets are listed out in Note 16.
There were no significant transfers of financial assets among level 1, level 2 and level 3 fair value hierarchy classifications
during the Relevant Periods.
4
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Estimates and judgements are continually evaluated and are based on historical experience and other factors including
expectation of future events that are believed to be reasonable under the circumstances.
The management makes estimates and assumptions concerning the future. The resulting accounting estimates will, by
definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within the next financial year are outlined below.
I-28
APPENDIX I
4.1
ACCOUNTANTS REPORT
Revenue recognition
The Group recognises traffic revenues in accordance with the accounting policy stated in Note 2.21 to the financial
information. Unused tickets are recognised in traffic revenues based on current estimates. Management annually evaluates the
balance in the SIAC and records any adjustments, which can be material, in the period the evaluation is completed. These adjustments
result from differences between the estimates of certain revenue transactions and the timing of recognising revenue for any unused
air tickets and the related sales price, and are impacted by various factors, including a complex pricing structure and interline
agreements throughout the industry, which affect the timing of revenue recognition.
4.2
Depreciation of property, plant and equipment
Depreciation of components related to airframe and engine overhaul costs are based on the Groups historical experience with
similar airframe and engine models and taking into account anticipated overhauls costs, timeframe between each overhaul, ratio of
actual flying hours and estimated flying hours between overhauls. Different judgments or estimates could significantly affect the
estimated depreciation charge and the results of operations.
Property, plant and equipment are depreciated on a straight-line basis over the estimated useful lives, after taking into account
the estimated residual value. The useful lives are based on the Groups historical experience with similar assets and taking into
account anticipated technological changes. The Group reviews the estimated useful lives of assets regularly in order to determine
the amount of depreciation expense to be recorded during any reporting period. The depreciation expense for future periods is
adjusted if there are significant changes from previous estimates.
4.3
Provision for return conditions for aircraft and engines under operating leases
Provision for checks and overhauls to be conducted to fulfil the return conditions for aircraft and engines under operating
leases is made based on the estimated costs of checks and overhaul to be required at the end of the leases. Such estimates need to
take into account anticipated aircraft and engines flying hours, flying cycles, overhaul interval and overhaul costs to be incurred at
the end of the lease. These judgments or estimates are based on historical experience on returning similar airframe and engine
models, actual costs incurred and aircraft and engines status. Different judgments or estimates would affect the estimated provision
for the costs of return condition checks and overhauls.
4.4
Valuation of available-for-sale financial assets
The Group has a significant amount of available-for-sale financial assets that are classified as level 3 investments under
HKFRS 13. As the unlisted investments held by the Group are not traded in an active market, their fair values have been determined
using asset-based approach. This approach is based on underlying financial data of investees to determine the fair value of the assets
and liabilities of the investees, adjusted by market multiples where appropriate. Different judgements on estimates of the market
multiples could significantly affect the fair value movement as recorded in the Combined Statements of Comprehensive Income.
At 31 December 2011, 2012, 2013 and 31 May 2014, the financial assets that are classified as level 3 investments under
HKFRS 13, amounted to nil, HK$351,000,000, HK$2,526,312,000 and HK$2,558,429,000 respectively (Note 3.5).
4.5
Current and deferred income tax
The Company and the Group companies incorporated in Hong Kong are subject to enterprise income tax in Hong Kong. Significant
judgement is required in determining the provision for corporate income tax. There are transactions and calculations for which the ultimate
determination is uncertain. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes
will be due. Where the final tax outcome of these matters is different from the amounts that we initially recorded, such difference will
impact the current income tax and deferred tax provision in the period in which such determination is made.
Deferred tax assets relating to certain temporary differences and tax losses are recognised when management considers to be
probable that future taxable profit will be available against which the temporary differences or tax losses can be utilised. The outcome
of their actual utilisation may be different.
5
SEGMENT INFORMATION
(a)
Segment results
Management has determined the operating segments based on the information reviewed by the CODM for the purposes of
allocating resources and assessing performance. A business segment is a group of assets and operations engaged in providing
products or services that are subject to risks and returns that are different from those of other business segments.
The Group engages in full-service network carrier which provides services including air passenger transport, air cargo
transport and other airline-related services, with base in Hong Kong. The Group operates and manages its business as a single
segment. The Companys CODM has been identified as the Chief Executive Officer and vice presidents, who review operating results
to make decisions about allocating resources and assesses performance for the entire Group. Since the Group operates one reportable
segment, no segment information is presented.
I-29
APPENDIX I
(b)
ACCOUNTANTS REPORT
Geographical information
The Groups traffic revenues by geographical segment are analysed based on flights between countries or regions to or from
Hong Kong.
2011
2012
2013
HK$000
HK$000
HK$000
2013
2014
HK$000
HK$000
Unaudited
Mainland China . . . . .
Southeast Asia (Note) .
Taiwan . . . . . . . . . .
Japan and South Korea
Europe . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
1,549,765
1,646,547
468,893
453,680
2,228,002
2,043,324
366,646
484,409
340,973
3,275,464
2,975,557
629,891
329,517
1,286,234
1,120,236
249,010
69,398
1,714,764
1,304,241
287,292
180,993
4,118,885
5,463,354
7,210,429
2,724,878
3,487,290
Note: Southeast Asia includes Thailand, Indonesia, Vietnam, Singapore, Bangladesh, Malaysia, Maldives, India and
Myanmar.
The major revenue earning assets of the Group are the aircraft fleet which is registered in Hong Kong and is deployed across
its worldwide route network. The CODM considers that there is no suitable basis for allocating such assets and related
liabilities to geographical locations. Accordingly, geographical segment assets and liabilities are not disclosed.
6
REVENUES
2011
2012
2013
2013
2014
HK$000
HK$000
HK$000
HK$000
HK$000
Unaudited
Traffic revenues
Passenger revenue . . . . . . . . .
Cargo revenue . . . . . . . . . . .
Total traffic revenues . . . . . . . . .
Rental income from aircraft under
operating leases . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . .
2,916,496
1,202,389
3,765,285
1,698,069
5,447,640
1,762,789
2,102,490
622,388
2,581,394
905,896
4,118,885
5,463,354
7,210,429
2,724,878
3,487,290
541,556
15,057
767,410
19,344
1,310,474
25,932
565,308
8,453
458,293
12,913
4,675,498
6,250,108
8,546,835
3,298,639
3,958,496
OTHER INCOME
2011
2012
2013
2013
2014
HK$000
HK$000
HK$000
HK$000
HK$000
Unaudited
Flight route subsidies (a) . . . .
Provision of supporting services
related company (b) . . . . . .
Others . . . . . . . . . . . . . . .
. . .
to a
. . .
. . .
20,706
32,246
70,398
23,549
30,579
39,599
17,666
15,744
18,210
5,119
46,345
11,962
60,305
49,912
104,352
28,668
88,886
Notes:
(a)
Flight route subsidies mainly represent refunds of landing and parking charges by certain airports to encourage the
Group to operate new routes. There are no unfulfilled conditions nor other contingencies related to the subsidies that
have been recognised.
(b)
From October 2013, the Group started to provide supporting services (eg. cargo handling and management, ground
operation and other administrative support etc.) related to aircraft operation to Hong Kong Express, a related party of
the Company (Note 34(b)).
I-30
APPENDIX I
8
ACCOUNTANTS REPORT
OTHER GAINS NET

2011
2012
2013
2013
2014
HK$000
HK$000
HK$000
HK$000
HK$000
Unaudited
Gains on disposal of subsidiaries
(Note) . . . . . . . . . . . . . . . . .
Gains on disposal of property, plant
and equipment, net . . . . . . . . .
Others . . . . . . . . . . . . . . . . . .
5,366
233,019
38,216
564
5,366
271,235
564
Note: The gain on disposal of subsidiaries for the year ended 31 December 2012 represents the gain from the disposal of
entire equity interest in Unique Ocean Limited (Unique Ocean), a wholly owned subsidiary of Hong Kong Airlines,
which was engaged in property holding in Beijing, PRC. In 2012, Hong Kong Airlines disposed Unique Ocean to an
independent third party for a consideration of RMB534,000,000 (equivalent to HK$654,814,000). Upon disposal,
Unique Oceans net assets were RMB322,860,000 (equivalent to HK$424,215,000). At the same time, the currency
translation difference of HK$28,311,000 recorded in the reserve was reclassified to the gain on disposal of subsidiary.
The total gain arising from this disposal amounted to HK$233,019,000, net of tax. The receivable of the sales proceed
was assigned to HNA Tourism Group Company Limited (HNA Tourism) to settle part of the consideration due for
the acquisition of Sure Idea Limited (Note 32(b)).
9
WAGES, SALARIES AND BENEFITS

2011
2012
2013
2013
2014
HK$000
HK$000
HK$000
HK$000
HK$000
Unaudited
Wages, salaries and allowances . . . .
Pension cost . . . . . . . . . . . . . . .
(a)
468,464
7,827
746,165
14,224
906,145
19,810
348,413
8,572
397,775
9,861
476,291
760,389
925,955
356,985
407,636
Directors and chief executives emoluments
The emoluments of the Companys directors and chief executives paid/payable by the companies comprising the Group are
set out below:
Year ended 31 December 2011
Name of director
Fees
Salaries
and
allowances
Discretionary
bonus
Retirement
scheme
contributions
Total
HK$000
HK$000
HK$000
HK$000
HK$000
Executive directors
Zhang Kui . . . . . . . . . . . . . . . .
Sun Jianfeng . . . . . . . . . . . . . .
1,860
140
12
2,012
Non-executive directors
Re Qiongba . . . . . . . . . . . . . . .
141
141
2,001
140
12
2,153
I-31
APPENDIX I
ACCOUNTANTS REPORT
Name of director
Fees
Salaries and
allowances
Discretionary
bonus
Retirement
scheme
contributions
Total
HK$000
HK$000
HK$000
HK$000
HK$000
Executive directors
Zhang Kui . . . . . . . . . . . . . . . .
Sun Jianfeng . . . . . . . . . . . . . .
Re Qiongba . . . . . . . . . . . . . . .
540
541
2,260
50
15
2,325
1,720
50
14
1,784
Name of director
Fees
Salaries and
allowances
Discretionary
bonus
Retirement
scheme
contributions
Total
HK$000
HK$000
HK$000
HK$000
HK$000
Executive directors
Zhang Kui . . . . . . . . . . . . . . . .
Sun Jianfeng . . . . . . . . . . . . . .
1,484
1,963
16
178
15
1,500
2,156
Re Qiongba . . . . . . . . . . . . . . .
540
15
555
3,987
194
30
4,211
Five months ended 31 May 2014
Name of director
Fees
Salaries
and other
allowances
Discretionary
bonus
Retirement
Scheme
contributions
Total
HK$000
HK$000
HK$000
HK$000
HK$000
Executive directors
Zhang Kui . . . . . . . . . . . . . . . .
Sun Jianfeng . . . . . . . . . . . . . .
950
865
190
165
1,140
1,036
Nonexecutive directors
Re Qiongba . . . . . . . . . . . . . . .
225
231
2,040
355
12
2,407
Unaudited
Name of director
Fees
Salaries
and other
allowances
Discretionary
bonus
Retirement
Scheme
contributions
Total
HK$000
HK$000
HK$000
HK$000
HK$000
Executive directors
Zhang Kui . . . . . . . . . . . . . . . .
Sun Jianfeng . . . . . . . . . . . . . .
154
808
16
78
170
892
Nonexecutive directors
Re Qiongba . . . . . . . . . . . . . . .
225
231
1,187
94
12
1,293
I-32
APPENDIX I
ACCOUNTANTS REPORT
Notes: The Company was incorporated on 30 January 2014.

Mr. Zhang Kui joined Hong Kong Airlines as Chairman in May 2013. Mr. Zhang Kui, Mr. Sun Jianfeng, and Mr. Re
Qiongba, were chief executives of Hong Kong Airlines during the Relevant Periods. Mr. Zhang Kui and Mr. Sun
Jianfeng were appointed as executive director of the Company on 30 January 2014 and 5 August 2014 respectively,
and Mr. Re Qiongba was appointed as non-executive director on 5 August 2014. The emoluments presented in the
above tables represent the emoluments they received from Hong Kong Airlines as chief executives of the Group during
the Relevant Periods.
Mr. Mung Kin Keung, Mr. Cui Yengxu and Mr. Mung Bun Man were appointed as non-executive directors of the
Company on 5 August 2014. Mr. Liu Changle, Mr. Lam Kin-Fung and Mr. Wong Tak Ming were appointed as
Independent non-executive directors of the Company on []. None of them had received or entitled to receive any
directors emoluments from the Company during the Relevant Periods.
(b)
Five highest paid individuals
During each of the years ended 31 December 2011, 2012 and 2013 and of the five months ended 31 May 2013 and 2014, the
five individuals whose emoluments were the highest in the Group for the year/period include one director for the year ended 31
December 2011, nil director for the year ended 31 December 2012, nil director for the year ended 31 December 2013, nil director
for the five months ended 31 May 2013 and two directors for the five months ended 31 May 2014, whose emoluments are reflected
in the analysis presented above. The emoluments payable to the remaining four, five, five, five and three individuals during the
relevant periods are as follows:
2011
2012
2013
2013
2014
HK$000
HK$000
HK$000
HK$000
HK$000
Unaudited
Basic salaries and allowances and
pension cost . . . . . . . . . . . . .
Bonuses . . . . . . . . . . . . . . . . .
7,738
289
10,865
250
10,695
860
4,407
420
3,005
440
8,027
11,115
11,555
4,827
3,445
The emoluments fell within the following bands:

2011
2012
2013
HK$000
HK$000
HK$000
2013
2014
HK$000
HK$000
Unaudited
Emoluments bands
HK$500,000 to HK$1,000,000 .
HK$1,000,001 to HK$1,500,000
HK$1,500,001 to HK$2,000,000
HK$2,000,001 to HK$2,500,000
(c)
.
.
.
.
.
.
.
.
.
.
.
.
2
2
4
1
During the Relevant Periods, no director or the chief executive or any of the five highest paid individuals received any
emolument from the Group as an inducement to join, upon joining the Group, leave the Group or waived or has agreed to
waive any emoluments as compensation for loss of office.
I-33
APPENDIX I
10
ACCOUNTANTS REPORT
FINANCE (COSTS)/INCOME NET

2011
2012
2013
2013
2014
HK$000
HK$000
HK$000
HK$000
HK$000
Unaudited
Interest expense:
Obligations under
leases . . . . . . .
Bank borrowings
Notes payable . .
Exchange loss . . . . .
finance
. . . . .
. . . . .
. . . . .
. . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
(365,228)
(113,552)
(26,297)
(30,154)
(299,028)
(334,896)
(54,498)
(265,545)
(383,738)
(53,005)
(29,262)
(119,084)
(159,643)
(20,558)
(12,964)
(93,894)
(162,029)
(20,673)
(535,231)
(688,422)
(731,550)
(312,249)
(276,596)
Less: interest capitalised into

advance payment on acquisition of
aircraft (Note) . . . . . . . . . . . .
131,488
179,505
102,381
43,693
36,931
Total finance costs . . . . . . . . . . .
(403,743)
(508,917)
(629,169)
(268,556)
(239,665)
156
17,238
28,578
6,375
8,402
3,821
11,147
9,852
1,844
1,844
24,498
3,977
38,237
30,422
8,219
32,900
(470,680)
(598,747)
Finance income:
Interest income on bank deposits
Interest income on available-forsale financial assets . . . . . . . .
Exchange gain . . . . . . . . . . .
Net finance costs . . . . . . . . . . . .
Note:
11
(399,766)
(260,337)
(206,765)
The weighted average interest rate used for interest capitalisation was 4.6%, 4.9%, 5.1%, 4.6% and 4.7%, respectively,
for the years ended 31 December 2011, 2012, 2013 and five months ended 31 May 2013 and 2014.
INVESTMENT IN AN ASSOCIATE
2011
2012
2013
2013
2014
HK$000
HK$000
HK$000
HK$000
HK$000
Unaudited
At 1 January . . . . . . . . . . . . . .
Share of profit . . . . . . . . . . . . .
199,118
47,575
9,758
256,451
5,034
2,057
263,542
4,056
7,568
263,542
3,836
2,838
275,166
1,273
(8,248)
At 31 December . . . . . . . . . . . .
256,451
263,542
275,166
270,216
268,191
The particulars of the associate, which is unlisted, are set out as follows:
% interests held during
the Relevant Periods
Company name
Country/date of
establishment
Paid-in
capital
As at 31 December
2011
2012
2013
As at
31 May
2014
Principle activities
RMB000
HNA Tianjin
PRC,
Center
15 November
Development
2005
Co., Ltd.
(Note) . . . . . .
240,000
25%
Note: English name for translation purpose only.
I-34
25%
25%
25% Operation of investment

properties, hotel and
retail
APPENDIX I
ACCOUNTANTS REPORT
Summarised financial information of the associate

Set out below are the summarised financial information of the associate which are accounted for using the equity
method.
Summarised balance sheets
As at 31 December
As at 31 May
2011
2012
2013
2014
HK$000
HK$000
HK$000
HK$000
Current
Cash and cash equivalents. . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . .
14,632
527,594
9,476
367,572
39,096
420,388
23,419
436,057
Total current assets . . . . . . . . . . . . . . . . .
542,226
377,048
459,484
459,476
Current liabilities . . . . . . . . . . . . . . . . . .
(892,988)
(794,002)
(906,830)
(881,533)
Non-current
Assets . . . . . . . . . . . . . . . . . . . . . . . .
2,384,180
2,468,328
2,552,692
2,469,693
Financial liabilities . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . .
(784,224)
(223,392)
(761,920)
(235,288)
(754,548)
(250,136)
(732,190)
(242,684)
Total non-current liabilities . . . . . . . . . . . .
(1,007,616)
(997,208)
(1,004,684)
(974,874)
Net assets . . . . . . . . . . . . . . . . . . . . . .
1,025,802
1,054,166
1,100,662
1,072,762
Summarised income statements

2011
2012
2013
HK$000
HK$000
HK$000
2013
2014
HK$000
HK$000
Unaudited
Revenue . . . . . . . . . . . . . . . . .
150,392
160,400
150,872
68,700
53,513
190,298
20,136
16,224
15,344
5,092
Reconciliation of summarised financial information

Reconciliation of the summarised financial information presented to the carrying amount of its investment in the
associate is set out below.
2011
2012
2013
2013
2014
HK$000
HK$000
HK$000
HK$000
HK$000
Unaudited
Opening net assets . . . . . .
Profit for the year/period . . .
Currency translation
differences . . . . . . . . . .
796,472
190,298
1,025,802
20,136
1,054,166
16,224
39,032
8,228
30,272
11,356
Closing net assets . . . . . . .
1,025,802
1,054,166
1,100,662
1,080,866
1,072,762
Groups share of net assets .
256,451
263,542
275,166
270,216
268,191
Carrying amount of
investment in the
associate . . . . . . . . . . .
256,451
263,542
275,166
270,216
268,191
There are no contingent liabilities relating to the Groups interest in the associate.
I-35
1,054,166
15,344
1,100,662
5,092
(32,992)
APPENDIX I
12
ACCOUNTANTS REPORT
INCOME TAX EXPENSE/(CREDIT)
Companies incorporated in Hong Kong are subject to the Hong Kong profits tax at a rate of 16.5% during the Relevant
Periods.
2011
2012
2013
2013
2014
HK$000
HK$000
HK$000
HK$000
HK$000
Unaudited
Current income tax
Hong Kong profits tax . . . . . . .
64
Deferred income tax (Note 30) . . . .
Income tax expense/(credit) . . . . . .
64
(42,384)
26,450
(42,384)
26,450
The income tax on the Groups profit before income tax differs from the theoretical amount that would arise using the enacted
tax rate of the home country of the companies within the Group as follows:
2011
2012
2013
2013
2014
HK$000
HK$000
HK$000
HK$000
HK$000
Unaudited
Profit before tax . . . . . . . . . . . .
Income tax calculated at statutory

rate of 16.5% . . . . . . . . . . . .
Associates results reported net of
tax . . . . . . . . . . . . . . . . . . .
Income not subject to tax . . . . . . .
Effect of expenses not deductible for
income tax purposes . . . . . . . . .
Utilisation of previously
unrecognised tax losses . . . . . . .
Recognition of deferred tax assets
for previously unrecognised tax
losses (Note 30) . . . . . . . . . . .
Total income tax expense/(credit) . .
13
147,885
274,722
450,878
186,104
192,372
24,401
45,329
74,395
30,707
31,742
(7,850)
(1,397)
(831)
(47,995)
(669)
(2,149)
4,031
3,742
6,111
(19,185)
(181)
(77,688)
(633)
(895)
2,546
(31,725)
(210)
(6,429)
1,347
(42,384)
64
(42,384)
26,450
EARNINGS PER SHARE
No earnings per share information is presented as its inclusion, for purpose of this report, is not considered meaningful due
to the presentation of the results for the Relevant Periods on a combined basis as disclosed in Note 1(c).
I-36
APPENDIX I
14
ACCOUNTANTS REPORT
PROPERTY, PLANT AND EQUIPMENT

Owned
Finance
lease
Aircraft
related
equipment
HK$000
HK$000
HK$000
Buildings
Leasehold
improvements
Equipment
and
vehicles
HK$000
HK$000
HK$000
Total
At 1 January 2011
Cost . . . . . . . . . . . . . . . . . .
Accumulated depreciation . . . . . . . . .
5,528,538
(77,505)
37,611
(1,519)
667,630
4,648
(2,998)
27,369
(8,028)
6,265,796
(90,050)
Net book value . . . . . . . . . . . . . .
5,451,033
36,092
667,630
1,650
19,341
6,175,746

Opening net book value . . . .
Additions . . . . . . . . . .
Depreciation charge . . . . . .
.
.
.
.
5,451,033
3,663,262
(460,655)
36,092
68,675
(3,930)
667,630
(15,856)
28,311
1,650
7,468
(657)
19,341
13,803
(6,813)
6,175,746
3,753,208
(487,911)
28,311
Closing net book value . . . . . . . . . .
8,653,640
100,837
680,085
8,461
26,331
9,469,354
At 31 December 2011
Cost . . . . . . . . . . . . . . . . . .
9,191,800
(538,160)
106,286
(5,449)
695,941
(15,856)
12,116
(3,655)
41,172
(14,841)
10,047,315
(577,961)
Net book value . . . . . . . . . . . . . .
8,653,640
100,837
680,085
8,461
26,331
9,469,354
. . .
. . .
3,294,538
8,653,640
77,038
100,837
111,391
680,085
8,461
13,019
26,331
19,249
9,469,354
3,515,235
. . .
. . .
. . .
2,347,004
(179,722)
(470,738)
(12,435)
(680,085)
(1,372)
(1,511)
(4,600)
(9,892)
2,347,004
(686,057)
(674,298)
5,461,820
8,259,940
199,793
18,597
31,088
13,971,238
At 31 December 2012
Cost . . . . . . . . . . . . . . . . . .
5,641,542
(179,722)
9,268,838
(1,008,898)
217,677
(17,884)
23,763
(5,166)
55,821
(24,733)
15,207,641
(1,236,403)
Net book value . . . . . . . . . . . . . .
5,461,820
8,259,940
199,793
18,597
31,088
13,971,238
. . .
. . .
5,461,820
426,358
8,259,940
292,574
199,793
154,427
18,597
2,741
31,088
11,038
13,971,238
887,138
. . .
. . .
755,851
(349,862)
(472,098)
(16,597)
(3,502)
(11,764)
755,851
(853,823)
6,294,167
8,080,416
337,623
17,836
30,362
14,760,404
At 31 December 2013
Cost . . . . . . . . . . . . . . . . . .
6,823,751
(529,584)
9,561,412
(1,480,996)
372,104
(34,481)
26,504
(8,668)
66,859
(36,497)
16,850,630
(2,090,226)
Net book value . . . . . . . . . . . . . .
6,294,167
8,080,416
337,623
17,836
30,362
14,760,404

Opening net book amount . . . .
Additions . . . . . . . . . . .
Disposals . . . . . . . . . . .
Depreciation charge . . . . . . .
.
.
.
.
6,294,167
20,211
(149,870)
8,080,416
197,801
(213,848)
337,623
34,436
(26,455)
(8,255)
17,836
8,657
(1,128)
30,362
2,991
(5,091)
14,760,404
264,096
(26,455)
(378,192)
Closing net book amount . . . . . . . . .
6,164,508
8,064,369
337,349
25,365
28,262
14,619,853
At 31 May 2014
Cost . . . . . . . . . . . . . . . . . .
6,843,962
(679,454)
9,759,213
(1,694,844)
380,085
(42,736)
35,161
(9,796)
69,850
(41,588)
17,088,271
(2,468,418)
Net book value . . . . . . . . . . . . . .
6,164,508
8,064,369
337,349
25,365
28,262
14,619,853
.
.
.
.
.
.
.
.
.
.
.
.

Opening net book value . . . . . . .
Additions . . . . . . . . . . . . .
Transferred from advance payments on
acquisition of aircraft (Note 15) . .
Disposals . . . . . . . . . . . . .
Depreciation charge . . . . . . . . .

Opening net book value . . . . . . .
Additions . . . . . . . . . . . . .
Transferred from advance payments on
acquisition of aircraft (Note 15) . .
Depreciation charge . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
I-37
APPENDIX I
ACCOUNTANTS REPORT
Owned
Finance
lease
Aircraft
related
equipment
HK$000
HK$000
HK$000
Buildings
Leasehold
improvements
Equipment
and
vehicles
HK$000
HK$000
HK$000
Total
Unaudited
Opening net book amount . . . . . . . . .
Additions . . . . . . . . . . . . . . . .
Depreciation charge . . . . . . . . . . . .
5,461,820
741,831
(140,390)
8,259,940
(208,043)
199,793
27,367
(6,015)
18,597
1,204
(1,459)
31,088
5,748
(4,902)
13,971,238
776,150
(360,809)
Closing net book amount . . . . . . . . .
6,063,261
8,051,897
221,145
18,342
31,934
14,386,579
At 31 May 2013
Cost . . . . . . . . . . . . . . . . . .
6,383,373
(320,112)
9,268,838
(1,216,941)
245,044
(23,899)
24,967
(6,625)
61,569
(29,635)
15,983,791
(1,597,212)
Net book value . . . . . . . . . . . . . .
6,063,261
8,051,897
221,145
18,342
31,934
14,386,579
As at 31 December 2011, 2012, 2013 and 31 May 2013 and 2014, all owned aircraft were pledged as collateral for borrowings
(Note 25).
15
ADVANCE PAYMENTS ON ACQUISITION OF AIRCRAFT

As at 31 December
At 1 January . . . . . . . . . . . . . . . . .
Payment during the year . . . . . . . . . .
Interest capitalised (Note 10) . . . . . . . .
Transfer to property, plant and equipment
(Note 14) . . . . . . . . . . . . . . . . . .
Transfer to a related company (Note) . . .
2011
2012
2013
As at 31 May
2014
HK$000
HK$000
HK$000
HK$000
. . .
. . .
. . .
2,080,071
2,312,796
131,488
. . .
. . .
At 31 December/31 May . . . . . . . . . . . . .
4,524,355
4,524,355
990,437
179,505
(2,347,004)
(636,283)
2,711,010
2,711,010
102,381
2,057,540
36,931
(755,851)
2,057,540
2,094,471
Note: In 2012, Hong Kong Airlines entered into an arrangement with Hainan Airlines, a related company of the Group, to
novate the purchase right of 8 aircraft to Hainan Airlines and consequently the related advance payments on
acquisition of these aircraft of HK$636,283,000 were transferred out at carrying amount for cash.
16
AVAILABLE-FOR-SALE FINANCIAL ASSETS

As at 31 December
At 1 January . . . . . . . . . . .
Additions ((a), (b), (c)) . . . . .
Change in fair value ((b) & (c))
Disposals ((a) & (b)). . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2011
2012
2013
As at 31 May
2014
HK$000
HK$000
HK$000
HK$000
.
.
.
.
At 31 December . . . . . . . . . . . . . . . . . .
185,100
(9,751)
175,349
351,000
9,751
(70,257)
465,843
2,221,376
53,936
(214,843)
2,526,312
32,117
175,349
465,843
2,526,312
2,558,429
Available-for-sale financial assets include the following:

As at 31 December
Unlisted securities:
Equity securities . . . . . . . . . . . . . . . .
Listed securities:
6% Debt securities . . . . . . . . . . . . . .
2011
2012
2013
As at 31 May
2014
HK$000
HK$000
HK$000
HK$000
351,000
2,526,312
2,558,429
175,349
114,843
175,349
465,843
2,526,312
2,558,429
I-38
APPENDIX I
ACCOUNTANTS REPORT
Available-for-sale financial assets are denominated in the following currencies:

As at 31 December
HK$ . . . . . . . . . . . . . . . . . . . . . . . . .
Renminbi . . . . . . . . . . . . . . . . . . . . . .
2011
2012
2013
As at 31 May
2014
HK$000
HK$000
HK$000
HK$000
175,349
351,000
114,843
2,526,312
2,558,429
175,349
465,843
2,526,312
2,558,429
Notes:
(a)
In 2011, Hong Kong Airlines acquired guaranteed bonds issued by Hainan Airlines (Hong Kong) Co., Limited (Hainan
Airlines (Hong Kong)), a related company, at par value of the principal amount of RMB150,000,000 (equivalent to
HK$185,100,000). The bonds bear interest at 6.00% per annum, payable semi-annually and mature on 16 September
2014 at the principal amount. The bonds are listed on Singapore Exchange Securities Trading Limited. Hong Kong
Airlines subsequently disposed the bonds at fair value of HK$70,257,000 and HK$114,843,000 in 2012 and 2013,
respectively.
(b)
In 2012, Hong Kong Airlines entered into an agreement with HNA Group (International) Co., Ltd. (HNA Group
International), a related company which is engaged in investment and with substantial investment portfolio in
transportation and logistics companies, to acquire 18% of the issued shares of Hong Kong International Aviation
Leasing Company Limited (HKIAL), at a consideration of HK$351,000,000 (Note 34(b)(xvi)). HKIAL is a private
company incorporated in Hong Kong and is engaged in aircraft leasing business. The acquisition was completed on 17
December 2012 and as at 31 December 2012, the fair value of the investment approximated its cost. In 2013, Hong
Kong Airlines disposed certain equity interests in HKIAL at fair value to HNA Group International, a related company,
for a cash consideration of HK$100,000,000 with no gain and loss. After the disposal, Hong Kong Airlines holds 11%
equity interest in HKIAL. At 31 December 2013 and 31 May 2014, there was an increase in fair value of the investment
by HK$22,542,000 and HK$4,763,000 respectively, which was recognised in other comprehensive income.
(c)
In 2013, Hong Kong Airlines entered into an agreement with HNA Group International to subscribe for 1,805,997,080
shares, representing approximately 11.12% of total issued shares of HNA Group International, at a consideration of
HK$2,221,376,000. The transaction was completed on 27 September 2013 and the consideration was settled in full by
cash (Note 34(b)(xvi)). At 31 December 2013 and 31 May 2014, there was an increase in fair value of HK$31,394,000
and HK$27,354,000 respectively, which was recognised in other comprehensive income.
The maximum exposure to credit risk at the reporting date is the carrying value of the debt securities classified as
available-for-sale financial assets.
None of these financial assets is either past due or impaired.
17
OTHER NON-CURRENT ASSETS

As at 31 December
Prepayments for equity investments (a) . . . .

Deposits for:
Aircraft maintenance (b) . . . . . . . . . .
Purchases of property, plant and
equipment . . . . . . . . . . . . . . . . . .
Aircraft under operating leases . . . . . .
Commitment fees for aircraft under operating
leases (c) . . . . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . . . .
2011
2012
2013
As at 31 May
2014
HK$000
HK$000
HK$000
HK$000
1,604,587
123,946
257,379
136,474
160,973
.
.
155,335
35,150
33,315
73,869
102,627
.
.
53,532
48,585
6,588
102,243
4,392
126,468
3,476
367,963
1,950,454
316,978
393,544
I-39
APPENDIX I
ACCOUNTANTS REPORT
Notes:
(a)
Prepayment for equity investments

As at 31 December
2011
2012
2013
As at 31 May
2014
HK$000
HK$000
HK$000
HK$000
Aigl Azur Transports Aeriens

SAS (i) . . . . . . . . . . . . . . . . . .
Hosea International Limited (ii) . . . .
Sure Idea Limited (iii) . . . . . . . . .
401,204
250,000
953,383
1,604,587
(i)
Pursuant to an agreement entered into between Hong Kong Airlines and HNA Aviation (Hong Kong) Holdings
Co., Limited (HNA Aviation (Hong Kong) Holdings), a related company, on 18 December 2012, Hong Kong
Airlines would acquire 398,963 ordinary shares, representing 48% of all the issued shares, of Aigl Azur
Transports Aeriens SAS, an airline with its head office in Tremblay-en-France, at a consideration of
EUR51,484,000 (equivalent to HK$514,364,000). On 31 December 2012, Hong Kong Airlines assigned
HK$205,005,000 and HK$196,199,000 due from Hong Kong Express and HNA Aviation Group Co., Limited
(HNA Aviation) respectively, totalling HK$401,204,000, to HNA Aviation (Hong Kong) Holdings as
prepayment for the acquisition. In 2013, Hong Kong Airlines and HNA Aviation (Hong Kong) Holdings entered
into a cancellation agreement for the acquisition, and the prepayment was refunded to Hong Kong Airlines in
cash.
(ii)
Pursuant to an agreement entered into between Hong Kong Airlines and Hong Kong HNA Property Holding
(Group) Co., Limited (HNA Property Holding), a related company, on 27 December 2012, Hong Kong
Airlines would acquire 100% equity interests in Bright Innovation Group Limited and Hosea International
Limited, companies registered in Australia which were engaged in property investment, at a consideration of
AUD37,700,000 (equivalent to HK$304,878,000) from HNA Property Holding. On 31 December 2012, Hong
Kong Airlines assigned HK$12,551,000 due from HNA Aviation to HNA Property Holding, and paid
HK$237,449,000 in cash as prepayment for this acquisition. In 2013, Hong Kong Airlines and HNA Property
Holding entered into a cancellation agreement for the acquisition, and the prepayment was refunded to Hong
Kong Airlines in cash.
(iii)
Pursuant to an agreement entered into between Hong Kong Airlines and HNA Property Holding on 27 December
2012, Hong Kong Airlines would acquire 100% equity interest in Sure Idea Limited, a company registered in
United States of America which is engaged in property investment, at a consideration of USD123,000,000
(equivalent to HK$953,380,000) from HNA Property Holding. On 31 December 2012, Hong Kong Airlines
assigned HK$16,347,000 due from HNA Aviation and HK$937,036,000 due from HNA Tourism totalling
HK$953,383,000 to HNA property Holding as prepayment for this acquisition. In 2013, Hong Kong Airlines
assigned the right of the acquisition to HNA Group International, and the prepayment was refunded to Hong
Kong Airlines in cash by HNA Group International.
The assignments of receivables for prepayment of the above three transactions were accounted for as non-cash
transaction amounted to HK$1,367,138,000 in the combined statement of cash flows for the year ended 31 December
2012 (Note 32(b)).
(b)
These represent the security deposits for aircraft maintenance services paid by the Group to the lessors for aircraft
under operating leases.
(c)
These represent the commitment fees paid to lessors for aircraft under operating leases. These fees are non-refundable
and amortised over the operating lease periods.
I-40
APPENDIX I
18
ACCOUNTANTS REPORT
TRADE RECEIVABLES
As at 31 December
2011
2012
2013
As at 31 May
2014
HK$000
HK$000
HK$000
HK$000
Trade receivables third parties . . . . . . . . .

Less: provision for impairment of receivables .
Trade receivables from related parties (Note
34(d)) . . . . . . . . . . . . . . . . . . . . . . .
249,982
(1,214)
254,260
(1,211)
352,472
(3,740)
374,851
(3,675)
248,768
253,049
348,732
371,176
418,626
513,647
208,137
108,776
667,394
766,696
556,869
479,952
The credit terms are determined on an individual basis, with the credit periods granted to third parties generally ranging from
15 days to 45 days. Amounts due from related parties are repayable on demand.
The ageing analysis of trade receivables is as follows:
As at 31 December
1 to 30 days . . . . . . . .
Between 31 and 60 days.
Between 61 and 90 days.
Over 90 days . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Less: provision for impairment of receivables .
2011
2012
2013
As at 31 May
2014
HK$000
HK$000
HK$000
HK$000
253,045
164,047
96,960
154,556
303,551
40,164
33,737
390,455
406,236
20,952
57,700
75,721
444,194
27,203
7,349
4,881
668,608
(1,214)
767,907
(1,211)
560,609
(3,740)
483,627
(3,675)
667,394
766,696
556,869
479,952
As at 31 December 2011, 2012, 2013 and 31 May 2014, trade receivables of HK$36,815,000, HK$23,970,000,
HK$45,209,000 and HK$45,896,000, respectively, past due but not impaired related to a number of sales agents which have good
credit records with the Group. Based on past experience, management believes that no impairment allowance is necessary in respect
of these trade receivables as such receivables will be fully recoverable. The ageing analysis of these trade receivables is as follows:
As at 31 December
Overdue
Overdue
Overdue
Overdue
no more than 30 days . .

over 90 days . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2011
2012
2013
As at 31 May
2014
HK$000
HK$000
HK$000
HK$000
32,081
835
3,516
383
10,243
12,082
717
928
32,272
5,540
4,302
3,095
27,532
9,328
5,479
3,557
36,815
23,970
45,209
45,896
As at 31 December 2011, 2012, 2013 and 31 May 2014, trade receivables of HK$1,214,000, HK$1,211,000, HK$3,740,000
and HK$3,675,000 respectively, were considered impaired and provided for. The impaired trade receivables related to customers that
were in financial difficulties. The ageing of impaired receivables is as follows:
As at 31 December
Overdue over 90 days . . . . . . . . . . . . . . .
2011
2012
2013
As at 31 May
2014
HK$000
HK$000
HK$000
HK$000
1,214
I-41
1,211
3,740
3,675
APPENDIX I
ACCOUNTANTS REPORT
Movements on the provision for impairment of trade receivables are as follows:
2011
2012
2013
Five months
ended 31 May
2014
HK$000
HK$000
HK$000
HK$000
At 1 January . . . . . . . . . . . . . . . . . . . .
Provision for receivables impairment . . . . . .
Exchange difference . . . . . . . . . . . . . . . .
1,214
1,214
(3)
1,211
2,538
(9)
3,740
(65)
At 31 December/31 May . . . . . . . . . . . . .
1,214
1,211
3,740
3,675
The net impact of creation and release of provisions for impaired receivables has been included in other expenses in the
combined income statement. Amounts charged to the allowance account are generally written off when there is no expectation of
recovering additional cash.
As at 31 December 2011, 2012, 2013 and 31 May 2014, the fair value of trade receivables approximates their carrying
amounts.
The carrying amounts of the Groups trade receivables are denominated in the following currencies:
As at 31 December
Currency
HK$ . . . . . . . . . .
Renminbi . . . . . . .
US dollars . . . . . .
New Taiwan dollars .
Thailand Baht . . . .
Singapore dollars . .
Other currencies . . .
19
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2011
2012
2013
As at 31 May
2014
HK$000
HK$000
HK$000
HK$000
454,344
128,665
41,312
13,861
12,009
17,203
395,591
196,991
136,771
8,229
8,020
8,911
12,183
116,416
168,327
136,929
27,124
45,186
36,848
26,039
235,497
154,249
15,085
18,996
15,790
15,657
24,678
667,394
766,696
556,869
479,952
PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

As at 31 December
Prepaid rentals for aircraft under operating

leases . . . . . . . . . . . . . . . . . . . . .
(Note 34(d)) . . . . . . . . . . . . . . . . .
Deposits . . . . . . . . . . . . . . . . . . . . .
Prepayments . . . . . . . . . . . . . . . . . . .
Power-By-Hour rebate . . . . . . . . . . . . .
Flight route subsidies receivables . . . . . .
Others . . . . . . . . . . . . . . . . . . . . . .
. .
.
.
.
.
.
.
.
.
.
.
.
.
2011
2012
2013
As at 31 May
2014
HK$000
HK$000
HK$000
HK$000
214,491
249,909
247,475
222,331
61,293
16,579
51,025
58,140
6,056
47,716
250,289
20,458
28,456
19,217
9,442
38,265
21,939
30,106
81,389
46,615
49,726
25,788
38,231
58,980
45,864
87,989
455,300
616,036
477,250
479,183
I-42
APPENDIX I
20
ACCOUNTANTS REPORT
CASH AND CASH EQUIVALENTS

The carrying amounts of the cash and cash equivalents are denominated in the following currencies:
As at 31 December
Currency
US dollars . . . . . .
Renminbi . . . . . . .
HK$ . . . . . . . . . .
Japanese yen . . . . .
New Taiwan dollars .
Other currencies . .
21
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2011
2012
2013
As at 31 May
2014
HK$000
HK$000
HK$000
HK$000
297,533
314,170
41,543
14,945
25,428
158,738
37,553
39,381
15,523
2,776
16,799
1,158,690
209,736
24,053
6,720
17,020
48,180
950,031
915,251
22,769
8,786
13,305
11,200
693,619
270,770
1,464,399
1,921,342
RESTRICTED CASH
The carrying amounts of the restricted cash are denominated in the following currencies:
As at 31 December
Currency . . . . . .
Renminbi . . . .
US dollars. . . .
Other currencies
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2011
2012
2013
As at 31 May
2014
HK$000
HK$000
HK$000
HK$000
839,149
932
373,103
11,627
7,080
397,738
11,632
602
362,372
42,778
605
840,081
391,810
409,972
405,755
Restricted cash of the Group represents bank deposits pledged for bank borrowings (Note 25). The table below shows the
effective interest rate and average maturity days of the Groups restricted cash:
As at 31 December
2011
2012
As at 31 May
2014
2013
Effective interest rate . . . . . . . . . . . . . . .
0.94%
2.56%
1.86%
1.79%
Average maturity days . . . . . . . . . . . . . . .
365
365
301
139
I-43
APPENDIX I
22
ACCOUNTANTS REPORT
RESERVES AND SHARE CAPITAL OF THE COMPANY

Reserves
As at 1 January 2011 . . . . . . . . . . . . . . . . . . . . .
relating to an associate . . . . . . . . . . . . . . . . .
relating to a subsidiary . . . . . . . . . . . . . . . . .
Change in fair value of available-for-sale financial assets
Contributions from shareholders . . . . . . . . . . . . . . .
Capital
Reserves (Note)
Other
Reserves
Total
HK$000
HK$000
HK$000
. .
4,345,992
.
.
.
.
.
.
.
.
1,033,675
As at 31 December 2011 . . . . . . . . . . . . . . . . . . . . .
5,379,667
221,169
5,600,836
As at 1 January 2012 . . . . . . . . . . . . . . . . . . . . .
relating to an associate . . . . . . . . . . . . . . . . . .
reclassification of currency translation difference of
a subsidiary upon disposal. . . . . . . . . . . . . . .
. .
5,379,667
221,169
5,600,836
. .
2,057
2,057
. .
. .
(28,311)
9,751
(28,311)
9,751
As at 31 December 2012 . . . . . . . . . . . . . . . . . . . . .
5,379,667
204,666
5,584,333
As at 1 January 2013 . . . . . . . . . . . . . . . . . . . . .
Currency translation differences relating to an associate .
Contributions from shareholders . . . . . . . . . . . . . . .
.
.
.
.
5,379,667
1,552,151
204,666
7,568
53,936
5,584,333
7,568
53,936
1,552,151
As at 31 December 2013 . . . . . . . . . . . . . . . . . . . . .
6,931,818
266,170
7,197,988
As at 1 January 2014 . . . . . . . . . . . . . . . . . . . . . . .
Currency translation differences relating to an associate . . .
Change in fair value of available-for-sale financial assets . .
6,931,818
266,170
(8,248)
32,117
7,197,988
(8,248)
32,117
As at 31 May 2014 . . . . . . . . . . . . . . . . . . . . . . . .
6,931,818
290,039
7,221,857
Unaudited
As at 1 January 2013 . . . . . . . . . . . . . . . . . . . . . . .
Currency translation differences relating to an associate . . .
5,379,667
204,666
2,838
5,584,333
2,838
As at 31 May 2013 . . . . . . . . . . . . . . . . . . . . . . . .
5,379,667
207,504
5,587,171
Note:
.
.
.
.
192,851
9,758
28,311
(9,751)
4,538,843
9,758
28,311
(9,751)
1,033,675
Capital reserve represented the combined capital of the companies comprising the [REDACTED] Business.
I-44
APPENDIX I
ACCOUNTANTS REPORT
Share capital of the Company
Number of
ordinary shares
Nominal value of
ordinary shares
HK$
HK$
Authorised:
Ordinary shares of HK$1 each as at 30 January 2014
(date of incorporation), 31 May 2014 . . . . . . . . . . . . . . . . . . . . .
350,000
350,000
Issued and fully paid:

Ordinary shares of HK$1 each as at 30 January 2014
(date of incorporation), 31 May 2014 . . . . . . . . . . . . . . . . . . . . .
The Company was incorporated in the Cayman Islands on 30 January 2014 with an authorised share capital of HK$350,000
divided into 350,000 shares of HK$1 each.
23
ACCUMULATED LOSSES
As at 31 December
As at 31 May
2011
2012
2013
2013
2014
HK$000
HK$000
HK$000
HK$000
HK$000
Unaudited
24
At 1 January . . . . . . . . . . . . . .
(1,548,632)
147,885
(1,400,747)
274,658
(1,126,089)
493,262
(1,126,089)
186,104
(632,827)
165,922
At 31 December/31 May . . . . . . .
(1,400,747)
(1,126,089)
(632,827)
(939,985)
(466,905)
NOTES PAYABLE
At 1 January . . . . . . . . . .
Issue of notes (Note) . . . . . .
Issuance costs . . . . . . . . .
Amortisation of issuance costs
Exchange loss/(gain) . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2011
2012
2013
2014
HK$000
HK$000
HK$000
HK$000
740,400
(12,766)
1,904
729,538
4,014
5,748
739,300
4,255
21,192
764,747
1,772
(22,740)
At 31 December/31 May . . . . . . . . . . . . .
729,538
739,300
764,747
743,779
Less: non-current portion . . . . . . . . . . . . .
(729,538)
(739,300)
764,747
743,779
Current portion . . . . . . . . . . . . . . . . . . .
Note: In June 2011, Blue Sky Fliers Company Limited (Blue Sky Fliers), a wholly-owned subsidiary of Hong Kong
Airlines, issued a three year-guaranteed notes with aggregate principal amount of RMB 600 million (equivalent to
HK$740,400,000). The notes bear interest at a rate of 6.5% per annum, payable semi-annually. The notes are
unconditionally and irrevocably guaranteed by Hong Kong Airlines.
I-45
APPENDIX I
25
ACCOUNTANTS REPORT
BORROWINGS
As at 31 December
Borrowings Secured (a), (b), (c) (d) & (e) . .

Borrowings Guaranteed (f) . . . . . . . . . . .
2011
2012
2013
As at 31 May
2014
HK$000
HK$000
HK$000
HK$000
2,892,929
79,440
7,206,658
77,520
7,651,579
177,947
7,836,192
193,233
2,972,369
7,284,178
7,829,526
8,029,425
Less: current portion classified in current

liabilities . . . . . . . . . . . . . . . . . . . . .
(770,943)
(1,196,787)
(1,780,527)
(1,884,595)
Short-term borrowings . . . . . . . . . . . . . . .
Current portion of long-term borrowings . . . .
(577,551)
(193,392)
(762,675)
(434,112)
(1,324,633)
(455,894)
(1,382,217)
(502,378)
6,048,999
6,144,830
Borrowings classified in non-current

liabilities . . . . . . . . . . . . . . . . . . . . .
2,201,426
6,087,391
As at 31 December
2011
2012
2013
As at 31 May
2014
HK$000
HK$000
HK$000
HK$000
Wholly repayable within 5 years . . . . . . . . .

Wholly repayable after 5 years . . . . . . . . . .
770,943
2,201,426
1,855,707
5,428,471
2,439,747
5,389,779
2,543,579
5,485,846
Total borrowings . . . . . . . . . . . . . . . . . .
2,972,369
7,284,178
7,829,526
8,029,425
The maturity of non-current borrowings at each of the reporting period ends is as follows:
As at 31 December
Between 1 and 2 years. . . . . . . . . . . . . . .

Between 2 and 5 years. . . . . . . . . . . . . . .
Above 5 years . . . . . . . . . . . . . . . . . . .
2011
2012
2013
As at 31 May
2014
HK$000
HK$000
HK$000
HK$000
434,938
1,357,668
408,820
455,818
2,034,512
3,597,061
1,115,038
1,375,592
3,558,369
1,161,362
1,543,573
3,439,895
2,201,426
6,087,391
6,048,999
6,144,830
Note:
(a)
As at 31 May 2014, borrowings of HK$5,732,383,000 were secured by the Groups aircraft with a net book value of
HK$6,164,508,000 (original cost of HK$6,843,962,000).
As at 31 December 2013, borrowings of HK$5,845,680,000 were secured by the Groups aircraft with a net book value
of HK$6,294,167,000 (original cost of HK$6,823,751,000).
As at 31 December 2012, borrowings of HK$5,862,583,000 were secured by the Groups aircraft with a net book value
of HK$5,461,820,000 (original cost of HK$5,641,542,000).
As at 31 December 2011, borrowings of HK$2,394,818,000 were secured by the advance payments on acquisition of
aircraft.
(b)
As at 31 May 2014, borrowings of HK$646,291,000 were secured by the restricted cash of HK$405,150,129.
As at 31 December 2013, borrowings of HK$603,773,000 were secured by the restricted cash of HK$409,372,000.
I-46
APPENDIX I
(c)
ACCOUNTANTS REPORT
As at 31 May 2014, borrowings of HK$814,039,000 were secured by equity interests of Hong Kong Airlines held by
HKAG Company, borrowings of HK$387,638,000 were secured by equity interests of Hong Kong Airlines held by
HKAG Company and HKIALs equity interests held by Hong Kong Airlines.
As at 31 December 2013, borrowings of HK$659,213,000 were secured by equity interests of Hong Kong Airlines held
by HKAG Company, borrowings of HK$387,733,000 were secured by equity interests of Hong Kong Airlines held by
HKAG Company and HKIALs equity interests held by Hong Kong Airlines.
As at 31 December 2012, borrowings of HK$808,150,000 were secured by equity interests of Hong Kong Airlines held
by HKAG Company.
(d)
As at 31 May 2014, borrowings of HK$255,841,000 were secured by aircraft-related equipment of Hong Kong Airlines.
(e)
As at 31 December 2013, borrowings of HK$155,180,000 was secured by account receivable of Hong Kong Airlines.
(f)
As at 31 May 2014, non-secured borrowings of HK$193,233,000 were guaranteed by HNA Group Co., Ltd (HNA
Group).
As at 31 December 2013, non-secured borrowings of HK$177,947,000 were guaranteed by HNA Group.
The weighted average effective interest rates for each of the year ended 31 December 2011, 2012, 2013 and five months ended
31 May 2014 were as follows:
As at 31 December
2011
2012
2013
As at 31 May
2014
HK$000
HK$000
HK$000
HK$000
Bank borrowings . . . . . . . . . . . . . . . . . .
4.58%
4.91%
5.05%
4.66%
The exposure of the Groups borrowings to interest rate changes and the contractual repricing dates or maturity whichever
is the earlier date is as follows:
6 months
or less
6 12
months
15
years
Over 5 years
Total
HK$000
HK$000
HK$000
HK$000
HK$000
Borrowings included in non-current

liabilities:
As at 31 December 2011 . . . . .
As at 31 December 2012 . . . . .
As at 31 December 2013 . . . . .
As at 31 May 2014 . . . . . . . .
.
.
.
.
1,792,606
2,490,330
2,490,630
2,704,935
408,820
3,597,061
3,558,369
3,439,895
2,201,426
6,087,391
6,048,999
6,144,830
Borrowings included in current

liabilities:
As at 31 December 2011 . . .
As at 31 May 2014 . . . . . .
.
.
.
.
272,832
511,632
723,150
1,362,060
498,111
685,155
1,057,377
522,535
770,943
1,196,787
1,780,527
1,884,595
.
.
.
.
.
.
.
.
I-47
APPENDIX I
ACCOUNTANTS REPORT
The carrying amounts and fair value of the non-current borrowings are as follows:
As at 31 December
Carrying amount . . . . . . . . . . . . . . . . . .
Fair value . . . . . . . . . . . . . . . . . . . . . .
2011
2012
2013
As at 31 May
2014
HK$000
HK$000
HK$000
HK$000
2,201,426
2,199,432
6,087,391
6,073,488
6,048,999
6,037,681
6,144,830
6,133,991
The fair value of the non-current borrowings is measured within level 2 of the fair value hierarchy, and is determined using
expected future payments discounted at prevailing market interest rates available to the Group for financial instruments with
substantially the same terms and characteristics at the respective balance sheet dates.
The carrying amounts of the borrowings are denominated in the following currencies:
As at 31 December
Currency
US dollars . . . . . . . . . . . . . . . . . . . .
HK$ . . . . . . . . . . . . . . . . . . . . . . . .
Renminbi . . . . . . . . . . . . . . . . . . . . .
26
2011
2012
2013
As at 31 May
2014
HK$000
HK$000
HK$000
HK$000
2,914,879
57,490
7,134,948
149,230
7,264,526
565,000
7,499,425
530,000
2,972,369
7,284,178
7,829,526
8,029,425
DEFERRED INCOME
As at 31 December
2011
2012
2013
As at 31 May
2014
HK$000
HK$000
HK$000
HK$000
At 1 January . . . . . . . . . . . . . . . . . . . .
Additions . . . . . . . . . . . . . . . . . . . . . .
Credited to combined income statement . . . . .
54,264
(5,814)
48,450
(5,814)
42,636
(4,563)
38,073
(2,422)
At 31 December . . . . . . . . . . . . . . . . . .
Less: non-current portion . . . . . . . . . . . . .
48,450
(42,636)
42,636
(36,822)
38,073
(32,259)
35,651
(29,837)
Current portion . . . . . . . . . . . . . . . . . . .
5,814
5,814
5,814
5,814
Note:
In April 2010, Hong Kong Airlines received a rebate entitlement of US$7.5 million (equivalent to HK$58,140,000) from
an engine supplier for a Power-By-Hour maintenance contract (PBH Contract) entered into by both parties. The rebate
entitlement is to be used to offset the engine maintenance costs to be incurred by Hong Kong Airlines over the terms of
PBH Contract. The rebate entitlement received was recorded as deferred income and amortised over the PBH Contract
period.
I-48
APPENDIX I
27
ACCOUNTANTS REPORT
OBLIGATIONS UNDER FINANCE LEASES
As at 31 December 2011, 2012, 2013 and 31 May 2014, the Group had 12, 12, 12 and 12 aircraft, respectively, under finance
leases. Under the terms of the leases, the Group has the option to purchase, at or near the end of the lease terms, certain aircraft at
either fair market value or a percentage of the respective lessors defined cost of the aircraft.
The finance lease liabilities are principally denominated in US dollar.
The future minimum lease payments (including interest) and the present value of the minimum lease payments under finance
leases are as follows:
Gross finance lease liabilities minimum lease

payments
No later than 1 year . . . . . . . . . . . . . . . .
Later than 5 years . . . . . . . . . . . . . . . . .
2011
2012
2013
As at 31 May
2014
HK$000
HK$000
HK$000
HK$000
996,637
3,726,243
4,810,361
969,192
3,618,996
3,933,694
972,328
3,180,139
1,974,543
916,353
2,805,831
1,987,283
9,533,241
8,521,882
6,127,010
5,709,467
Future finance charges on finance leases . . . .
(1,792,314)
(1,489,805)
Present value of finance lease liabilities. . . . .
7,740,927
7,032,077
(971,265)
5,155,745
(912,362)
4,797,105
The present value of finance lease liabilities is

as follows:
No later than 1 year . . . . . . . . . . . . . . . .
696,963
696,774
755,956
718,466

Later than 5 years . . . . . . . . . . . . . . . . .
2,791,158
4,252,806
2,794,299
3,541,004
2,610,327
1,789,462
2,287,733
1,790,906
7,043,964
6,335,303
4,399,789
4,078,639
7,740,927
7,032,077
5,155,745
4,797,105
The carrying amounts and fair value of the non-current obligations under finance lease are as follows:
As at 31 December
Carrying amount . . . . . . . . . . . . . . . . . .
Fair value . . . . . . . . . . . . . . . . . . . . . .
2011
2012
2013
As at 31 May
2014
HK$000
HK$000
HK$000
HK$000
7,043,964
7,029,180
6,335,303
6,329,803
4,399,789
4,389,670
4,078,639
3,912,084
The fair value of obligations under finance leases is measured within level 2 of the fair value hierarchy, and is determined
using the expected future payments discounted at market interest rates prevailing at the respective balance sheet dates.
I-49
APPENDIX I
28
ACCOUNTANTS REPORT
TRADE PAYABLES
As at 31 December
Trade payables third parties . . . . . . . . . .

Amounts due to related parties (Note 34(d)) . .
2011
2012
2013
As at 31 May
2014
HK$000
HK$000
HK$000
HK$000
474,005
218,745
610,977
211,432
717,159
87,304
1,022,487
35,179
692,750
822,409
804,463
1,057,666
The ageing analysis of trade payables is as follows:

As at 31 December
Less than 1 year

Between 1 and 2
Between 2 and 3
Over 3 years . .
. . . .
years.
years.
. . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2011
2012
2013
As at 31 May
2014
HK$000
HK$000
HK$000
HK$000
475,830
138,002
45,456
33,462
447,526
205,854
115,603
53,426
418,342
200,260
112,646
73,215
851,399
118,838
66,088
21,341
692,750
822,409
804,463
1,057,666
As 31 December 2011, 2012, 2013 and 31 May 2014, the fair value of trade payables approximates their carrying amounts.
29
ACCRUALS AND OTHER PAYABLES

As at 31 December
2011
2012
2013
As at 31 May
2014
HK$000
HK$000
HK$000
HK$000
Amounts due to related parties (Note 34(d)) . .
289,892
26,913
Accrued expenses:
Aircraft maintenance . . . . . . . . .
Finance costs. . . . . . . . . . . . . .
Selling and marketing expenses . . .
Wages, salaries and benefits . . . . .
Aircraft operating lease rentals . . .
Food and beverages . . . . . . . . . .
Security deposits . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . .
253,202
102,475
75,381
56,507
4,310
2,683
29,178
3,577
254,539
194,493
86,755
74,550
19,765
14,088
1,354
26,216
40,058
486,807
295,049
58,149
85,602
54,839
98,337
19,537
64,856
64,718
524,106
360,119
104,866
57,482
12,508
31,796
36,470
37,722
65,700
817,205
738,731
1,227,894
1,230,769
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
I-50
APPENDIX I
30
ACCOUNTANTS REPORT
DEFERRED INCOME TAX

The analysis of deferred income tax assets and deferred income tax liabilities is as follow:
Deferred income tax assets

To be recovered after more than 12 months .
To be recovered within 12 months . . . . . . .
Deferred income tax liabilities

To be recovered after more than 12 months .
To be recovered within 12 months . . . . . . .
2011
2012
2013
2014
HK$000
HK$000
HK$000
HK$000
408,464
113,925
820,514
147,164
1,312,176
177,529
1,304,688
194,606
522,389
967,678
1,489,705
1,499,294
(411,130)
(111,259)
(826,797)
(140,881)
(1,287,666)
(159,655)
(1,322,624)
(160,736)
(522,389)
(967,678)
(1,447,321)
(1,483,360)
Deferred income tax assets (net) . . . . . . . . .
42,384
15,934
The movement in deferred income tax assets and liabilities during each of the years without taking into consideration the
offsetting of balances within the same tax jurisdiction, is as follow:
Deferred income
tax liabilities
Deferred income tax assets

Tax losses
Accruals not tax

deductible
Total
Accelerated tax
depreciation
HK$000
HK$000
HK$000
HK$000
At 1 January 2011. . . . . . . . . . . . . . . . . . . . .
Credited/(changed) to the combined income statement . .
228,158
291,565
2,666
228,158
294,231
(228,158)
(294,231)
At 31 December 2011 . . . . . . . . . . . . . . . . . . .
Credited/(charged) to the combined income statement . . .
519,723
441,672
2,666
3,617
522,389
445,289
(522,389)
(445,289)
At 31 December 2012 . . . . . . . . . . . . . . . . . . .
961,395
510,435
6,283
11,592
967,678
522,027
(967,678)
(479,643)
At 31 December 2013 . . . . . . . . . . . . . . . . . . .
1,471,830
7,195
17,875
2,394
1,489,705
9,589
(1,447,321)
(36,039)
At 31 May 2014. . . . . . . . . . . . . . . . . . . . . .
1,479,025
20,269
1,499,294
(1,483,360)
At 31 December 2012 . . . . . . . . . . . . . . . . . . .
961,395
6,283
967,678
(967,678)
At 31 May 2013. . . . . . . . . . . . . . . . . . . . . .
961,395
6,283
967,678
(967,678)
Unaudited
As at 31 December
Unrecognised deferred income tax assets in

respect of tax losses carried forward . . . . .
2011
2012
2013
As at 31 May
2014
HK$000
HK$000
HK$000
HK$000
120,253
120,072
Deferred income tax assets in respect of tax losses carry-forward are recognised to the extent that the realisation of the related
tax benefit against future taxable profit becomes probable. Management has regularly assessed the Groups future profitability for
the purpose of deferred income tax assets recognition in respect of tax losses carried-forward. For the years ended 31 December 2011
and 2012, the Group recognised deferred income tax assets in respect of the tax losses and deductible temporary differences to the
extent of the deferred income tax liabilities available, but did not further recognised the deferred income tax assets for tax losses
I-51
APPENDIX I
ACCOUNTANTS REPORT
of HK$728,806,000 and HK$727,709,000 as at 31 December 2011 and 2012 respectively, as management considered that there were
still uncertainties around the Groups future operation results, such as the Groups historical losses, volatilities of fuel prices and
market demand etc.. For the year ended 31 December 2013, the Group experienced a significant growth in profit, and has been
continuing to make profit for three years. Based on the latest managements assessment, it is estimated that the Group will continue
to deliver a sustainable profit growth and be able to generate sufficient profit to realise the tax losses brought forward in the
foreseeable future. Accordingly, as at 31 December 2013, the Group recognised deferred income tax asset for the entire unrecognised
tax losses of HK$256,873,000 brought-forward from previous years.
31
DIVIDENDS
Except for the distributions in connection with the Reorganisation as set out in note 1(b), no dividend has been paid or
declared by the companies now comprising the Group to their then respective shareholders during the Relevant Periods.
32
CASH GENERATED FROM OPERATIONS
(a)
Cash generated from operations:

Profit before income tax . . . . . . .

Adjustments for:
Depreciation . . . . . . . . . . .
Share of results of an associate
Gains on disposals of property,
plant and equipment . . . . . .
Gains on disposals of
subsidiaries . . . . . . . . . . .
Net foreign exchange
gains/(loss) . . . . . . . . . . . .
Finance income . . . . . . . . .
Finance costs. . . . . . . . . . .
Others . . . . . . . . . . . . . . .
Changes in working capital
Expendable spare parts . . . .
Trade and other receivable,
prepayment and deposit . . .
Deferred income . . . . . . . .
Trade and other payables and
accrual . . . . . . . . . . . . .
Other non-current assets . . .
Other non-current liabilities .
2011
2012
2013
2013
2014
HK$000
HK$000
HK$000
HK$000
Unaudited
HK$000
147,885
274,722
450,878
186,104
192,372
.
.
487,911
(47,575)
674,298
(5,034)
853,823
(4,056)
360,809
(3,836)
378,192
(1,273)
(38,216)
(5,366)
(233,019)
.
.
.
.
30,154
(3,977)
373,589
(9,852)
(28,385)
508,917
29,262
(30,422)
599,907
(564)
13,172
(8,219)
255,384
(24,498)
(8,402)
239,665
. .
(21,199)
(11,277)
(13,307)
19,593
(16,011)
. .
. .
(459,736)
(9,690)
(990,808)
(5,814)
349,177
(4,563)
(186,556)
(6,255)
81,642
(2,422)
.
.
.
.
485,622
162,519
(278,021)
98,604
249,179
26,495
28,684
26,068
439,559
166,017
26,693
59,131
192,333
139,620
(5,995)
48,403
82,911
(79,275)
18,742
960,720
465,958
2,921,535
956,154
910,046
.
.
.
.
Cash generated from operations . . .
In the combined statement of cash flows, proceeds from sales of property, plant and equipment comprise:
2011
2012
2013
2013
2014
HK$000
HK$000
HK$000
HK$000
Unaudited
HK$000
Net book value (Note 14) . . . . . . .

Gain . . . . . . . . . . . . . . . . . . .
5,972
38,216
Proceeds from disposal of property,

plant and equipment . . . . . . . . .
44,188
I-52
APPENDIX I
(b)
ACCOUNTANTS REPORT
Summary of non-cash transactions accounted for in the combined statement of cash flows is set out below:
Acquisition of property, plant and

equipment through finance leases. .
Assignments of receivables from
related companies for prepayments
for equity investments (Note 17) .
Assignment of sales proceed
receivable arising from disposal of
a subsidiary to a related company
(Note 8) . . . . . . . . . . . . . . . .
2012
2013
2013
2014
HK$000
HK$000
HK$000
HK$000
Unaudited
HK$000
3,503,086
400,527
1,367,138
400,527
(654,814)
3,503,086
33
COMMITMENTS
(a)
Capital commitments
2011
712,324
Capital commitments at each balance sheet date but not yet incurred is as follows:
As at 31 December
Contracted but not

aircraft . . . . .
Contracted but not
investment . . .
(b)
provided for purchase of

. . . . . . . . . . . . . . . . .
provided for equity
. . . . . . . . . . . . . . . . .
2011
2012
2013
As at 31 May
2014
HK$000
HK$000
HK$000
HK$000
31,648,843
26,207,826
25,798,925
25,798,925
168,038
31,648,843
26,375,864
25,798,925
25,798,925
Operating lease commitments
The future aggregated minimum lease payments/receipts at each balance sheet date in respect of certain aircraft and office
spaces held under non-cancellable operating leases are as follows:
As at 31 December
Lease payments
Within 1 year . . . . . . . . . . . . . . . . . . . .
1 to 5 years . . . . . . . . . . . . . . . . . . . . .
After 5 years . . . . . . . . . . . . . . . . . . . .
Lease receipts
Within 1 year . . . . . . . . . . . . . . . . . . . .
1 to 5 years . . . . . . . . . . . . . . . . . . . . .
After 5 years . . . . . . . . . . . . . . . . . . . .
2011
2012
2013
As at 31 May
2014
HK$000
HK$000
HK$000
HK$000
395,583
2,895,847
6,324,155
918,105
4,138,149
7,840,496
1,134,099
5,201,347
8,888,063
1,274,870
5,132,727
8,387,748
9,615,585
12,896,750
15,223,509
14,795,345
767,411
2,672,289
6,783,988
1,310,474
3,056,531
5,611,159
1,347,756
3,259,234
4,418,864
1,377,957
3,071,750
4,199,577
10,223,688
9,978,164
9,025,854
8,649,284
I-53
APPENDIX I
34
RELATED-PARTY TRANSACTIONS
(a)
Name and relationship with related parties

(i)
(ii)
ACCOUNTANTS REPORT
Companies with direct interests in the Company

Name
Relationship with the Group
Hainan Airlines Investment Holding Company Limited

(Hainan Airlines Investment)
HNA Group (HK) Investment Co. Ltd.
(HNA Investment)
Hong Kong Airlines Consultation Service Company
Limited
Hong Kong Airlines Holdings Co., Limited
The Companys shareholder

over the Company
over the Company
over the Company
over the Company
with significant influence

Other related parties

Name
Relationship with the Group
HNA Group
Hainan Airlines
Holding Company of HNA Investment

100% indirect shareholder of Hainan Airlines
Investment
Parent company of Hainan Airlines
Fellow subsidiary of the Company
Significant influence by HNA Group
Grand China Air Co., Ltd. (Grand China Air)

Hong Kong Express
Hainan Meilan International Airport Company Limited
(Meilan Airport)
HNA Aviation Technik Company Limited
(HNA Aviation Technik)
Beijing Capital Airlines Company Limited
(Beijing Capital Airlines)
Beijing Xinhua Air Catering Company Limited
(Beijing Xinhua Catering)
China Xinhua Airlines Group Co., Ltd.
(China Xinhua Airlines)
Hainan Air Catering Company Limited
(Hainan Air Catering)
HNA Group International
HNA Tourism
Hong Thai Travel Services Limited (Hong Thai
Travel)
Sanya Phoenix International Airport Company Limited
(Sanya Airport)
HKIAL
HNA Property Holding
Hainan Airlines (Hong Kong)
HNA Aviation
HNA Finance
Hong Kong Airlines Corporate Jet Management Ltd.
(HKA Corporate Jet)
HNA Aviation (Hong Kong) Holdings
Hainan Xinsheng Information Technology Co., Ltd.
(HNA Xinsheng Information Technology)
HNA Yisheng Holding Co., Ltd. (HNA Yisheng
Holding)
Hainan eKing Technology Company Limited
(HNA eKing)
Lucky Air Co., Ltd. (Lucky Air)
Tianjin Airlines Co., Ltd. (Tianjin Airlines)
Yangtze River Express Airlines Company Limited
(Yangtze River Express)
Hainan HNA Aviation Information System Company
Limited (HNA Information System)
I-54
Significant influence by Hainan Airlines

Controlled by HNA Group
Controlled by Hainan Airlines
Controlled
Controlled
Controlled
Controlled
Controlled
Controlled
by
by
by
by
by
by
HNA Group
HNA Group
Hainan Airlines
HNA Group
HNA Group
HNA Group

Controlled by Hainan Airlines
APPENDIX I
(b)
ACCOUNTANTS REPORT
Transactions with related parties

The directors of the Company were of the view that the following related party transactions were carried out in the normal
course of business of the Group. The prices and terms of the related party transaction were based on the mutually agreements
between the contracted parties.
The Group has the following related party transactions during the Relevant Period:
(i)
HK$000
Unaudited
HK$000
349,830
89,847
18,616
541,556
767,410
1,310,474
565,308
458,293
16,303
649,945
241,523
403,592
3,934,939
284,998
242,218
113,352
79,172
837,926
827,971
225,097
913,222
228,572
405,677
53,768
641,307
131,400
.
.
.
.
579,303
8,402
19
494,434
9,976
47
234,397
5,812
188
111,893
2,151
188
409
11,823
. . . .
. . . .
. . . .
260,405
6,220
265
360,981
3,539
504
307,016
3,477
114,987
1,090
4,032
1,446
Hainan Airlines (revenue) . . . . .

Hainan Airlines (cost) . . . . . . .
830
3,471
297
1,217
2,067
5,340
934
1,886
2,209
2,844
15,744
46,345
5,695
17,818
4,897
4,935
39
Finance lease aircraft
Revenue from passenger block

seats and cargo block space
arrangements
Interline and codeshare

arrangement
Cash received by the Group

behalf of related parties
Hong Kong Express . . . . .
Hainan Airlines . . . . . . .
Tianjin Airlines . . . . . . .
on
Frequent flyer mileages
Provision of supporting services

Hong Kong Express (Note 7(b)) . .
(vii)
HK$000
474,339
72,353
18,616
Cash received by related parties

on behalf of the Group
Hong Kong Express . . . . . . . .
Hainan Airlines . . . . . . . . . .
Lucky Air. . . . . . . . . . . . . .
Tianjin Airlines . . . . . . . . . .
(vi)
2014
HK$000
1,037,991
227,805
44,678
HNA Tourism . . . . . . . . . . . .
HNA Aviation . . . . . . . . . . . .
(v)
2013
HK$000
539,482
207,825
20,103
HKIAL . . . . . . . . . . . . . . . .
(iv)
2013
433,549
89,815
18,192
The Group as a lessee:

HKIAL . . . . . . . . . . . . . . . .
(iii)
2012
Aircraft under operating leases

The Group as a lessor:
Hainan Airlines . . . . . . . . . . .
Hong Kong Express . . . . . . . . .
Yangtze River Express . . . . . . .
(ii)
2011
Interest income
HKIAL . . . . . . . . . . . . . . . .
HNA Finance. . . . . . . . . . . . .
I-55
APPENDIX I
ACCOUNTANTS REPORT
2011
2012
2013
2013
2014
HK$000
HK$000
HK$000
HK$000
Unaudited
HK$000
(viii) Landing and parking services

Meilan Airport . . . . . . . . . . . .
Sanya Airport . . . . . . . . . . . .
(ix)
1,646
1,192
6,144
4,390
4,816
4,338
1,808
1,315
26,241
16,132
19,369
660
7,262
5,743
101
6,915
108
8,240
173
3,222
47
3,958
30
1,296
658
3,461
1,061
1,113
1,080
169
2,785
1,006
4,012
109
415
1,690
2,593
106
636,283
185,100
351,000
2,221,376
100,000
Purchase of In-flight meal

Beijing Xinhua Catering . . . . . .
Hainan Air Catering . . . . . . . .
(xii)
3,029
4,409
Purchase of aircraft maintenance

services
HNA Aviation Technik . . . . . . .
(xi)
2,585
8,278
Ground handling services

HNA Aviation Technik . . . . . . .
(x)
41
8,269
Ticket sales commissions to

related parties
Hong Thai Travel . . . . . . . . . .
(xiii) IT system usage fee

Hainan Airlines . . . . . . . . . . .
HNA eKing. . . . . . . . . . . . . .
HNA Information System. . . . . .
(xiv) Transfer of advance payments on
acquisition of aircraft
Hainan Airlines (Note 15) . . . . .
(xv)
Purchase of guaranteed bond

Hainan Airlines HK . . . . . . . . .
(xvi) Equity transactions

Equity interests acquired from:
HNA Group International. . . . . .
Equity interests disposed to:
HNA Investment . . . . . . . . . . .
I-56
APPENDIX I
ACCOUNTANTS REPORT
2011
2012
2013
2013
2014
HK$000
HK$000
HK$000
HK$000
Unaudited
HK$000
(xvii) Restricted cash deposit provided

by the Group to related parties
Grand China Air . . . . . . . . . . .
468,920
79,440
77,520
177,947
192,276
193,233
(xviii) Guarantees provided by the

related parties to the Group
HNA Group . . . . . . . . . . . . .
A facility of USD40,000,000 (approximately HK$310,000,000) obtained by the Group in November 2011 has been
guaranteed by HNA Group. As at 31 December 2011, 2012, 2013 and 31 May 2014, HK$79,440,000, HK$77,520,000,
HK$177,947,000 and HK$193,233,000 has been drawn down from the facility respectively.
(xix) Certain subsidiaries of the Company entered into loan agreements with a financial institution for financing the purchase
of aircraft. Under the loan agreements, the subsidiaries are the primary lessee, and Beijing Capital Airlines undertook
to be the secondary lessee of all such aircraft purchased in the event that Hong Kong Airlines cannot continue to be
the primary lessee. No fee is charged from Beijing Capital Airline for undertaking to be the secondary lessee. HNA
Group undertook to pay the rental, in the event that primary and secondary lessees cannot perform the lease obligation.
(c)
Key management compensation

Key management includes directors (executive and non-executive), chief operating officer, chief financial officer, vice
presidents and secretary of the board of directors. The compensation paid or payable to key management for employee services
is shown below:
2012
2013
2013
2014
HK$000
HK$000
HK$000
HK$000
Unaudited
HK$000
Wages, salaries and allowances . . . .

Pension cost . . . . . . . . . . . . . . .
(d)
2011
3,441
24
4,233
29
10,029
61
3,439
21
5,865
36
3,465
4,262
10,090
3,460
5,901
Related-party balances
As at 31 December
2011
2012
2013
As at 31 May
2014
HK$000
HK$000
HK$000
HK$000
(i) Cash and cash equivalent

HNA Finance . . . . . . . . . . . . . . . . .
933,371
933,711
As at 31 December 2013 and 31 May 2014, the Group placed a deposit of US$120,000,000 (equivalent to
HKD933,371,000) and US$120,436,000 (equivalent to HKD933,711,000) respectively to HNA Finance.
I-57
APPENDIX I
ACCOUNTANTS REPORT
As at 31 December
2011
2012
2013
As at 31 May
2014
HK$000
HK$000
HK$000
HK$000
(ii) Amounts due from related parties

Trade receivables:
HNA Aviation . . . . . .
HNA Tourism . . . . .
Yangtze River Express .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.

receivables:
China Xinhua Airlines . . . . .
Hainan Airlines . . . . . . . . . .
HNA Investment . . . . . . . . .
HKA Corporate Jet . . . . . . . .
Yangtze River Express . . . . . .
Others . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
130,525
259,564
28,537
62,537
402,417
48,693
49,824
13,285
61,702
83,326
19,998
88,778
418,626
513,647
208,137
108,776
20,819
30
27,258
13,186
20,779
22,353
126,276
58,550
19,874
2,457
9,370
12,569
13,955
11,833
61,293
250,289
21,939
25,788
1,203,383
401,204
1,604,587
Prepayments for equity investments

HNA Property Holding . . . . . . . . . .
HNA Aviation (Hong Kong) Holdings . .
The amount due from related parties arise mainly from ordinary business of the Group. They are unsecured, non-interest
bearing and with no fixed term of repayment. No provision are made against receivables from related parties.
(iii) Amounts due to related parties
Trade payables:
Grand China Air . . . .
HNA Aviation Technik .
Sanya Airport . . . . . .
Others . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.

Beijing Capital Airlines . . . .
HNA Group International . . .
HNA Tourism . . . . . . . . . .
Technology . . . . . . . . . .
HNA Yisheng Holding . . . . .
Hong Kong Express . . . . . .
Others . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
. . . . . .
. . . . . .
. . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Obligation under finance lease

HKIAL. . . . . . . . . . . . . . . . . . . .
93,499
93,469
11,534
11,698
8,545
149,734
7,014
24,370
21,529
8,785
11,366
47,362
25,541
3,035
30,149
2,245
2,785
218,745
211,432
87,304
35,179
25,866
15,576
63,945
16,626
150,668
17,211
19,493
7,420
289,892
26,913
7,525,040
6,825,690
4,590,176
4,267,336
The amount due to related parties are mainly from ordinary business of the Group, unsecured, non-interest bearing and
with no fixed term of repayments.
I-58
I-59
Hong Kong
Hong Kong
Hong Kong
HKA FFM Company Limited
Hong Kong
Hong Kong Airlines Cargo

Co., Ltd.
HKA Holidays Co., Ltd.***
Unique Ocean (Note 8)
B.V.I.
Hong Kong
Hong Kong
Hong Kong Aviation Ground Services

Limited
Skyliner Company Limited

HKA Cabin Media Co., Ltd.
B.V.I.
Hong Kong
Blue Sky Fliers

Hong Kong Aviation Maintenance &
Engineering Corporation Limited
China
12/02/2007
08/10/2007
B.V.I.
Prime Way Management Limited
26/09/2013
09/09/2013
09/09/2013
18/2/2008
02/06/2011
12/04/2011
02/06/2011
02/08/2007
01/12/2009
100,000
50
50
360,000
50
10
10
10
388
10
390
78
5,000,000
3,599,915
1,000
1
1
322,400 100%
100%
100%
100%
100%
100%
78 100%
78 100%
3,599,915 100%
3,599,915 100%
2011
100%
100%
100%
100%
100%
100%
100%
100%
100%
2012
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
2013
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Inactive
Inactive
Inactive
Provision of air
passenger
transport, air
cargo
transport and
other airlinerelated
services
Capital
investment
Capital
investment
Financing
Provision of
aircraft
maintenance
service
Provision of
aviation
ground
service
Airline cargo
transportation
Travel agency
Property
investment
Property
investment
Capital
investment
31 May Principal
2014 activities
2011 and 2012
2011, 2012 and

2013
2013
N/A
2013
2011
2011, 2012 and

2013
N/A
2011
2011, 2012 and

2013
Li, Tang,
Chen & Co.
Li, Tang,
Chen & Co.
N/A
Li, Tang,
Chen & Co.
Tihuasic
(Beijing)
CPA. Co.,
Ltd
N/A
Li, Tang,
Chen & Co.
Li, Tang,
Chen & Co.
N/A
2011, 2012 and
2013
N/A
N/A
N/A
Li, Tang,
Chen & Co.
N/A
N/A
Pricewaterhouse 2013
Coopers
Li, Tang,
Chen & Co.
Li, Tang,
Chen & Co.
Statutory
auditor
Years as
auditor
[Company to
confirm]
APPENDIX I
Unique Ocean Investment Consultant

(Beijing) Limited (Note 8)*
07/12/2007
B.V.I.
Spa II Tianjin Center Limited
28/03/2001
(Previously
named as
CR Airways
Limited)
Hong Kong
Hong Kong Airlines
28/11/2011
B.V.I.
HK$000
HK$000
HKAG Company
Issued and
fully paid
capital
Place of
Date of
Authorised
incorporation/ incorporation/ or registered
establishment establishment
capital
Percentage of
attributable equity
interest as at
31 December
Particulars of the companies comprising of the Group as at 31 December 2011, 2012, 2013 and 31 May 2014 are as follows:
Particulars of companies comprising the Group
Company name
35
ACCOUNTANTS REPORT
I-60
Hong Kong
HK Aircraft Sub 13 Co., Ltd.
23/03/2011
23/03/2011
10
10
10
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Co.
Co.
Co.
Co.
Co.
Co.
Co.
Co.
Co.
Co.
Co.
Co.
Co.
2011, 2012
2013
2011, 2012
2013
2011, 2012
2013
2011, 2012
2013
2011, 2012
2013
2011, 2012
2013
2011, 2012
2013
2011, 2012
2013
2011, 2012
2013
2011, 2012
2013
2011, 2012
2013
2011, 2012
2013
2011, 2012
2013
Li, Tang, Chen 2013

& Co.
N/A
N/A
Li, Tang, Chen 2013

& Co.
Li, Tang, Chen 2013
& Co.
Aircraft leasing Li, Tang,

Chen &
Chen &
Chen &
Chen &
Chen &
Chen &
Chen &
Chen &
Chen &
Chen &
Chen &
Chen &
Chen &
Inactive
Inactive
Inactive
Inactive
and
and
and
and
and
and
and
and
and
and
and
and
and
On 21 May 2013, Hong Kong Airlines disposed HKA Holidays Co., Ltd. for a consideration of HK$500,000. No gain or loss was recognized from this transaction.
Hong Kong
23/03/2011
10
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
***
Hong Kong
23/03/2011
10
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Statutory
auditor
These companies are newly established in 2013 and wholly owned by the Group. No audited financial statements have been issued for these companies as they were newly established
or they are not required to issue audited financial statements under the statutory requirements of their respective places of incorporation.
Hong Kong
23/03/2011
10
100%
100%
100%
100%
100%
100%
100%
2013
**
Hong Kong
23/03/2011
10
10
10
10
10
100%
100%
1,000
1,000
1,000
2012
Years as
auditor
[Company to
confirm]
The English names of the companies and statutory auditors referred to above in this note represent managements best efforts in translating the Chinese names of those companies
as no English names have been registered or available.
Hong Kong
23/03/2011
23/03/2011
23/03/2011
23/03/2011
23/03/2011
10
10
10
100,000
100,000
100,000
2011
31 May Principal
2014 activities
APPENDIX I
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
23/03/2011
Hong Kong
12/11/2013
Hong Kong
23/03/2011
27/09/2013
26/09/2013
Hong Kong
Hong Kong
26/09/2013
Hong Kong
HK$000
HK$000
HKA Tourism Services

Co., Ltd.
Hong Kong Airlines Aviation Training
Centre Limited**
HKA Investment Development Co.,

Ltd.
HKA IT Services Co., Ltd.
Company name
Issued and
fully paid
capital
Place of
Date of
Authorised
incorporation/ incorporation/ or registered
establishment establishment
capital
Percentage of
attributable equity
interest as at
31 December
ACCOUNTANTS REPORT
APPENDIX I
36
ACCOUNTANTS REPORT
EVENTS AFTER THE BALANCE SHEET DATE
Save as disclosed below and elsewhere in the notes to the Financial Information set out above, there is no other material
subsequent event undertaken by the Company or by the Group after 31 May 2014:
In June 2014, Skyliner Company Limited, a wholly-owned subsidiary of Hong Kong Airlines, issued a two-year guaranteed
notes with aggregate principal amount of USD30 million. The notes bear interest at the rate of 7% per annum, payable semi-annually.
The notes are unconditionally and irrevocably guaranteed by Hong Kong Airlines. Grand China Air, a related company, provides a
keepwell deed agreeing to maintain sufficient liquidity of Hong Kong Airlines in connection with the issuance of the notes.
III
FINANCIAL INFORMATION OF THE COMPANY
The Company was incorporated in the Cayman Islands on 30 January 2014. As at 31 May 2014, the
Company had a cash balance of HK$1 representing the issued share capital. Except for this, it had no other
assets, liabilities or distributable reserves as at that date.
IV
SUBSEQUENT FINANCIAL STATEMENTS
[No audited financial statements have been prepared by the Company or any of the companies now
comprising the Group in respect of any period subsequent to 31 May 2014 and up to the date of this report.
Save as disclosed in this report, no dividend or distribution has been declared or made by the Company
or any of the companies comprising the Group in respect of any period subsequent to 31 May 2014.]
Yours faithfully,
[PricewaterhouseCoopers]
Certified Public Accountants
Hong Kong
I-61
APPENDIX II
UNAUDITED PRO FORMA FINANCIAL INFORMATION
[REDACTED]
II-1
APPENDIX II
[REDACTED]
II-2
APPENDIX II
[REDACTED]
II-3
APPENDIX II
[REDACTED]
II-4
APPENDIX III
SUMMARY OF THE CONSTITUTION OF OUR

COMPANY AND CAYMAN COMPANIES LAW
This Appendix contains a summary of the Memorandum and Articles of Association of our Company.
As the information set out below is in summary form, it does not contain all of the information that may
be important to potential investors. As stated in Documents Delivered to the [REDACTED] and
Available for Inspection in Appendix VI, a copy of the Memorandum and Articles of Association is
available for inspection.
Set out below is a summary of certain provisions of the Memorandum and Articles of Association
of the Company and of certain aspects of Cayman Companies Law.
The Company was incorporated in the Cayman Islands as an exempted company with limited
liability on January 30, 2014 under the Cayman Companies Law. The Memorandum of Association and the
Articles comprise its constitution.
1
MEMORANDUM OF ASSOCIATION
The Memorandum of Association of the Company was conditionally adopted on [] and states, inter
alia, that the liability of the members of the Company is limited, that the objects for which the Company
is established are unrestricted and the Company shall have full power and authority to carry out any object
not prohibited by the Cayman Companies Law or any other law of the Cayman Islands.
The Memorandum of Association is available for inspection at the address specified in Appendix
[VI] in the section headed Documents available for inspection.
2
ARTICLES OF ASSOCIATION
The Articles of Association of the Company were conditionally adopted on [] and include
provisions to the following effect:
2.1
Classes of Shares
The share capital of the Company consists of ordinary shares. The capital of the Company at
the date of adoption of the Articles is HK$[1,000,000,000] divided into [10,000,000,000] shares of
HK$[0.10] each.
2.2
Directors
(a)
Power to allot and issue Shares
Subject to the provisions of the Cayman Companies Law and the Memorandum and
Articles of Association, the unissued shares in the Company (whether forming part of its
original or any increased capital) shall be at the disposal of the Directors, who may offer, allot,
grant options over or otherwise dispose of them to such persons, at such times and for such
consideration, and upon such terms, as the Directors shall determine.
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APPENDIX III

Subject to the provisions of the Articles of Association and to any direction that may be
given by the Company in general meeting and without prejudice to any special rights conferred
on the holders of any existing shares or attaching to any class of shares, any share may be
issued with or have attached thereto such preferred, deferred, qualified or other special rights
or restrictions, whether in regard to dividend, voting, return of capital or otherwise, and to such
persons at such times and for such consideration as the Directors may determine. Subject to the
Cayman Companies Law and to any special rights conferred on any shareholders or attaching
to any class of shares, any share may, with the sanction of a special resolution, be issued on
terms that it is, or at the option of the Company or the holder thereof, liable to be redeemed.
(b)
Power to dispose of the assets of the Company or any subsidiary
The management of the business of the Company shall be vested in the Directors who,
in addition to the powers and authorities by the Articles of Association expressly conferred
upon them, may exercise all such powers and do all such acts and things as may be exercised
or done or approved by the Company and are not by the Articles of Association or the Cayman
Companies Law expressly directed or required to be exercised or done by the Company in
general meeting, but subject nevertheless to the provisions of the Cayman Companies Law and
of the Articles of Association and to any regulation from time to time made by the Company
in general meeting not being inconsistent with such provisions or the Articles of Association,
provided that no regulation so made shall invalidate any prior act of the Directors which would
have been valid if such regulation had not been made.
(c)
Compensation or payment for loss of office
Payment to any Director or past Director of any sum by way of compensation for loss of
office or as consideration for or in connection with his retirement from office (not being a
payment to which the Director is contractually entitled) must first be approved by the Company
in general meeting.
(d)
Loans to Directors
There are provisions in the Articles of Association prohibiting the making of loans to
Directors or their respective close associates which are equivalent to the restrictions imposed
by the Companies Ordinance.
(e)
Financial assistance to purchase Shares
Subject to all applicable laws, the Company may give financial assistance to Directors
and employees of the Company, its subsidiaries or any holding company or any subsidiary of
such holding company in order that they may buy shares in the Company or any such subsidiary
or holding company. Further, subject to all applicable laws, the Company may give financial
assistance to a trustee for the acquisition of shares in the Company or shares in any such
subsidiary or holding company to be held for the benefit of employees of the Company, its
subsidiaries, any holding company of the Company or any subsidiary of any such holding
company (including salaried Directors).
III-2
APPENDIX III
(f)

Disclosure of interest in contracts with the Company or any of its subsidiaries
No Director or proposed Director shall be disqualified by his office from contracting with
the Company either as vendor, purchaser or otherwise nor shall any such contract or any
contract or arrangement entered into by or on behalf of the Company with any person, company
or partnership of or in which any Director shall be a member or otherwise interested be capable
on that account of being avoided, nor shall any Director so contracting or being any member
or so interested be liable to account to the Company for any profit so realised by any such
contract or arrangement by reason only of such Director holding that office or the fiduciary
relationship thereby established, provided that such Director shall, if his interest in such
contract or arrangement is material, declare the nature of his interest at the earliest meeting of
the board of Directors at which it is practicable for him to do so, either specifically or by way
of a general notice stating that, by reason of the facts specified in the notice, he is to be
regarded as interested in any contracts of a specified description which may be made by the
Company.
A Director shall not be entitled to vote on (nor shall be counted in the quorum in relation
to) any resolution of the Directors in respect of any contract or arrangement or any other
proposal in which the Director or any of his close associates has any material interest, and if
he shall do so his vote shall not be counted (nor is he to be counted in the quorum for the
resolution), but this prohibition shall not apply to any of the following matters, namely:
(i)
the giving to such Director or any of his close associates of any security or
indemnity in respect of money lent or obligations incurred or undertaken by him or
any of them at the request of or for the benefit of the Company or any of its
subsidiaries;
(ii)
the giving of any security or indemnity to a third party in respect of a debt or

obligation of the Company or any of its subsidiaries for which the Director or any
of his close associates has himself/themselves assumed responsibility in whole or in
part and whether alone or jointly under a guarantee or indemnity or by the giving
of security;
(iii) any proposal concerning an offer of shares, debentures or other securities of or by

the Company or any other company which the Company may promote or be
interested in for subscription or purchase where the Director or any of his close
associates is/are or is/are to be interested as a participant in the underwriting or
sub-underwriting of the offer;
(iv) any proposal or arrangement concerning the benefit of employees of the Company
or any of its subsidiaries including:
(A) the adoption, modification or operation of any employees share scheme or
any share incentive scheme or share option scheme under which the Director
or any of his close associates may benefit; or
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APPENDIX III

(B)
(v)
(g)
the adoption, modification or operation of a pension or provident fund or

retirement, death or disability benefits scheme which relates both to Directors,
their close associates and employees of the Company or any of its subsidiaries
and does not provide in respect of any Director or any of his close associates,
as such any privilege or advantage not generally accorded to the class of
persons to which such scheme or fund relates; and
any contract or arrangement in which the Director or any of his close associates
is/are interested in the same manner as other holders of shares or debentures or other
securities of the Company by virtue only of his/their interest in shares or debentures
or other securities of the Company.
Remuneration
The Directors shall be entitled to receive by way of remuneration for their services such
sum as shall from time to time be determined by the Directors, or the Company in general
meeting, as the case may be, such sum (unless otherwise directed by the resolution by which
it is determined) to be divided amongst the Directors in such proportions and in such manner
as they may agree, or failing agreement, equally, except that in such event any Director holding
office for less than the whole of the relevant period in respect of which the remuneration is paid
shall only rank in such division in proportion to the time during such period for which he has
held office. Such remuneration shall be in addition to any other remuneration to which a
Director who holds any salaried employment or office in the Company may be entitled by
reason of such employment or office.
The Directors shall also be entitled to be paid all expenses, including travel expenses,
reasonably incurred by them in or in connection with the performance of their duties as
Directors including their expenses of travelling to and from board meetings, committee
meetings or general meetings or otherwise incurred whilst engaged on the business of the
Company or in the discharge of their duties as Directors.
The Directors may grant special remuneration to any Director who shall perform any
special or extra services at the request of the Company. Such special remuneration may be
made payable to such Director in addition to or in substitution for his ordinary remuneration
as a Director, and may be made payable by way of salary, commission or participation in profits
or otherwise as may be agreed.
The remuneration of an executive Director or a Director appointed to any other office in
the management of the Company shall from time to time be fixed by the Directors and may be
by way of salary, commission or participation in profits or otherwise or by all or any of those
modes and with such other benefits (including share option and/or pension and/or gratuity
and/or other benefits on retirement) and allowances as the Directors may from time to time
decide. Such remuneration shall be in addition to such remuneration as the recipient may be
entitled to receive as a Director.
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APPENDIX III
(h)

Retirement, appointment and removal
The Directors shall have power at any time and from time to time to appoint any person
to be a Director, either to fill a casual vacancy or as an addition to the existing Directors. Any
Director so appointed shall hold office only until the next general meeting of the Company and
shall then be eligible for re-election at that meeting.
The Company may by ordinary resolution remove any Director (including a Managing
Director or other executive Director) before the expiration of his period of office
notwithstanding anything in the Articles of Association or in any agreement between the
Company and such Director (but without prejudice to any claim for compensation or damages
payable to him in respect of the termination of his appointment as Director or of any other
appointment of office as a result of the termination of this appointment as Director). The
Company may by ordinary resolution appoint another person in his place. Any Director so
appointed shall hold office during such time only as the Director in whose place he is appointed
would have held the same if he had not been removed. The Company may also by ordinary
resolution elect any person to be a Director, either to fill a casual vacancy or as an addition to
the existing Directors. Any Director so appointed shall hold office only until the next following
general meeting of the Company and shall then be eligible for re-election but shall not be taken
into account in determining the Directors who are to retire by rotation at such meeting. No
person shall, unless recommended by the Directors, be eligible for election to the office of
Director at any general meeting unless, during the period, which shall be at least seven days,
commencing no earlier than the day after the despatch of the notice of the meeting appointed
for such election and ending no later than seven days prior to the date of such meeting, there
has been given to the Secretary of the Company notice in writing by a member of the Company
(not being the person to be proposed) entitled to attend and vote at the meeting for which such
notice is given of his intention to propose such person for election and also notice in writing
signed by the person to be proposed of his willingness to be elected.
There is no shareholding qualification for Directors nor is there any specified age limit
for Directors.
The office of a Director shall be vacated:
(i)
if he resigns his office by notice in writing to the Company at its registered office
or its principal office in Hong Kong;
(ii)
if an order is made by any competent court or official on the grounds that he is or

may be suffering from mental disorder or is otherwise incapable of managing his
affairs and the Directors resolve that his office be vacated;
(iii) if, without leave, he is absent from meetings of the Directors (unless an alternate
Director appointed by him attends) for 12 consecutive months, and the Directors
resolve that his office be vacated;
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APPENDIX III

(iv) if he becomes bankrupt or has a receiving order made against him or suspends
payment or compounds with his creditors generally;
(v)
if he ceases to be or is prohibited from being a Director by law or by virtue of any

provision in the Articles of Association;
(vi) if he is removed from office by notice in writing served upon him signed by not less
than three-fourths in number (or, if that is not a round number, the nearest lower
round number) of the Directors (including himself) for the time being then in office;
or
(vii) if he shall be removed from office by an ordinary resolution of the members of the
Company under the Articles of Association.
At every annual general meeting of the Company one-third of the Directors for the time
being, or, if their number is not three or a multiple of three, then the number nearest to, but not
less than, one-third, shall retire from office by rotation, provided that every Director (including
those appointed for a specific term) shall be subject to retirement by rotation at least once every
three years. A retiring Director shall retain office until the close of the meeting at which he
retires and shall be eligible for re-election thereat. The Company at any annual general meeting
at which any Directors retire may fill the vacated office by electing a like number of persons
to be Directors.
(i)
Borrowing powers
The Directors may from time to time at their discretion exercise all the powers of the
Company to raise or borrow or to secure the payment of any sum or sums of money for the
purposes of the Company and to mortgage or charge its undertaking, property and assets
(present and future) and uncalled capital or any part thereof.
(j)
Proceedings of the Board
The Directors may meet together for the despatch of business, adjourn and otherwise
regulate their meetings and proceedings as they think fit in any part of the world. Questions
arising at any meeting shall be determined by a majority of votes. In the case of an equality
of votes, the chairman of the meeting shall have a second or casting vote.
2.3
Alteration to constitutional documents
No alteration or amendment to the Memorandum or Articles of Association may be made

except by special resolution.
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APPENDIX III
2.4

Variation of rights of existing shares or classes of shares
If at any time the share capital of the Company is divided into different classes of shares, all
or any of the rights attached to any class of shares for the time being issued (unless otherwise
provided for in the terms of issue of the shares of that class) may, subject to the provisions of the
Cayman Companies Law, be varied or abrogated either with the consent in writing of the holders of
not less than three-fourths in nominal value of the issued shares of that class or with the sanction of
a special resolution passed at a separate meeting of the holders of the shares of that class. To every
such separate meeting all the provisions of the Articles of Association relating to general meetings
shall mutatis mutandis apply, but so that the quorum for the purposes of any such separate meeting
and of any adjournment thereof shall be a person or persons together holding (or representing by
proxy or duly authorised representative) at the date of the relevant meeting not less than one-third
in nominal value of the issued shares of that class.
The special rights conferred upon the holders of shares of any class shall not, unless otherwise
expressly provided in the rights attaching to or the terms of issue of such shares, be deemed to be
varied by the creation or issue of further shares ranking pari passu therewith.
2.5
Alteration of capital
The Company in general meeting may, from time to time, whether or not all the shares for the
time being authorised shall have been issued and whether or not all the shares for the time being
issued shall have been fully paid up, by ordinary resolution, increase its share capital by the creation
of new shares, such new capital to be of such amount and to be divided into shares of such respective
amounts as the resolution shall prescribe.
The Company may from time to time by ordinary resolution:
(a)
consolidate and divide all or any of its share capital into shares of a larger amount than
its existing shares. On any consolidation of fully paid shares and division into shares of
larger amount, the Directors may settle any difficulty which may arise as they think
expedient and in particular (but without prejudice to the generality of the foregoing) may
as between the holders of shares to be consolidated determine which particular shares are
to be consolidated into each consolidated share, and if it shall happen that any person
shall become entitled to fractions of a consolidated share or shares, such fractions may
be sold by some person appointed by the Directors for that purpose and the person so
appointed may transfer the shares so sold to the purchaser thereof and the validity of such
transfer shall not be questioned, and so that the net proceeds of such sale (after deduction
of the expenses of such sale) may either be distributed among the persons who would
otherwise be entitled to a fraction or fractions of a consolidated share or shares rateably
in accordance with their rights and interests or may be paid to the Company for the
Companys benefit;
(b)
cancel any shares which at the date of the passing of the resolution have not been taken
or agreed to be taken by any person, and diminish the amount of its share capital by the
amount of the shares so cancelled subject to the provisions of the Cayman Companies
Law; and
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APPENDIX III
(c)

sub-divide its shares or any of them into shares of smaller amount than is fixed by the
Memorandum of Association, subject nevertheless to the provisions of the Cayman
Companies Law, and so that the resolution whereby any share is sub-divided may
determine that, as between the holders of the shares resulting from such sub-division, one
or more of the shares may have any such preferred or other special rights, over, or may
have such deferred rights or be subject to any such restrictions as compared with the
others as the Company has power to attach to unissued or new shares.
The Company may by special resolution reduce its share capital or any capital redemption
reserve in any manner authorised and subject to any conditions prescribed by the Cayman Companies
Law.
2.6
Special resolution majority required
A special resolution is defined in the Articles of Association to have the meaning ascribed
thereto in the Cayman Companies Law, for which purpose, the requisite majority shall be not less
than three-fourths of the votes of such members of the Company as, being entitled to do so, vote in
person or, in the case of corporations, by their duly authorised representatives or, where proxies are
allowed, by proxy at a general meeting of which notice specifying the intention to propose the
resolution as a special resolution has been duly given and includes a special resolution approved in
writing by all of the members of the Company entitled to vote at a general meeting of the Company
in one or more instruments each signed by one or more of such members, and the effective date of
the special resolution so adopted shall be the date on which the instrument or the last of such
instruments (if more than one) is executed.
In contrast, an ordinary resolution is defined in the Articles of Association to mean a
resolution passed by a simple majority of the votes of such members of the Company as, being
entitled to do so, vote in person or, in the case of corporations, by their duly authorised
representatives or, where proxies are allowed, by proxy at a general meeting held in accordance with
the Articles of Association and includes an ordinary resolution approved in writing by all the
members of the Company aforesaid.
2.7
Voting rights
Subject to any special rights, privileges or restrictions as to voting for the time being attached
to any class or classes of shares, at any general meeting on a poll every member present in person
(or, in the case of a member being a corporation, by its duly authorised representative) or by proxy
shall have one vote for each share registered in his name in the register of members of the Company.
Where any member is, under the Listing Rules, required to abstain from voting on any
particular resolution or restricted to voting only for or only against any particular resolution, any
votes cast by or on behalf of such member in contravention of such requirement or restriction shall
not be counted.
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APPENDIX III

In the case of joint registered holders of any share, any one of such persons may vote at any
meeting, either personally or by proxy, in respect of such share as if he were solely entitled thereto;
but if more than one of such joint holders be present at any meeting personally or by proxy, that one
of the said persons so present being the most or, as the case may be, the more senior shall alone be
entitled to vote in respect of the relevant joint holding and, for this purpose, seniority shall be
determined by reference to the order in which the names of the joint holders stand on the register
in respect of the relevant joint holding.
A member of the Company in respect of whom an order has been made by any competent court
or official on the grounds that he is or may be suffering from mental disorder or is otherwise
incapable of managing his affairs may vote by any person authorised in such circumstances to do so
and such person may vote by proxy.
Save as expressly provided in the Articles of Association or as otherwise determined by the
Directors, no person other than a member of the Company duly registered and who shall have paid
all sums for the time being due from him payable to the Company in respect of his shares shall be
entitled to be present or to vote (save as proxy for another member of the Company), or to be
reckoned in a quorum, either personally or by proxy at any general meeting.
At any general meeting a resolution put to the vote of the meeting shall be decided by way of
a poll save that the chairman of the meeting may allow a resolution which relates purely to a
procedural or administrative matter as prescribed under the Listing Rules to be voted on by a show
of hands.
If a recognised clearing house (or its nominee(s)) is a member of the Company it may authorise
such person or persons as it thinks fit to act as its proxy(ies) or representative(s) at any general
meeting of the Company or at any general meeting of any class of members of the Company provided
that, if more than one person is so authorised, the authorisation shall specify the number and class
of shares in respect of which each such person is so authorised. A person authorised pursuant to this
provision shall be entitled to exercise the same rights and powers on behalf of the recognised
clearing house (or its nominee(s)) which he represents as that recognised clearing house (or its
nominee(s)) could exercise as if it were an individual member of the Company holding the number
and class of shares specified in such authorisation, including, where a show of hands is allowed, the
right to vote individually on a show of hands.
2.8
Annual general meetings
The Company shall in each year hold a general meeting as its annual general meeting in
addition to any other general meeting in that year and shall specify the meeting as such in the notice
calling it; and not more than 15 months (or such longer period as the Stock Exchange may authorise)
shall elapse between the date of one annual general meeting of the Company and that of the next.
2.9
Accounts and audit
The Directors shall cause to be kept such books of account as are necessary to give a true and
fair view of the state of the Companys affairs and to show and explain its transactions and otherwise
in accordance with the Cayman Companies Law.
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APPENDIX III

The Directors shall from time to time determine whether, and to what extent, and at what times
and places and under what conditions or regulations, the accounts and books of the Company, or any
of them, shall be open to the inspection of members of the Company (other than officers of the
Company) and no such member shall have any right of inspecting any accounts or books or
documents of the Company except as conferred by the Cayman Companies Law or any other relevant
law or regulation or as authorised by the Directors or by the Company in general meeting.
The Directors shall, commencing with the first annual general meeting, cause to be prepared
and to be laid before the members of the Company at every annual general meeting a profit and loss
account for the period, in the case of the first account, since the incorporation of the Company and,
in any other case, since the preceding account, together with a balance sheet as at the date to which
the profit and loss account is made up and a Directors report with respect to the profit or loss of
the Company for the period covered by the profit and loss account and the state of the Companys
affairs as at the end of such period, an auditors report on such accounts and such other reports and
accounts as may be required by law. Copies of those documents to be laid before the members of the
Company at an annual general meeting shall not less than 21 days before the date of the meeting,
be sent in the manner in which notices may be served by the Company as provided in the Articles
of Association to every member of the Company and every holder of debentures of the Company
provided that the Company shall not be required to send copies of those documents to any person
of whose address the Company is not aware or to more than one of the joint holders of any shares
or debentures.
The Company shall at any annual general meeting appoint an auditor or auditors of the
Company who shall hold office until the next annual general meeting. The remuneration of the
auditors shall be fixed by the Company at the annual general meeting at which they are appointed
provided that in respect of any particular year the Company in general meeting may delegate the
fixing of such remuneration to the Directors.
2.10 Notice of meetings and business to be conducted thereat
An annual general meeting and any extraordinary general meeting called for the passing of a
special resolution shall be called by not less than 21 days notice in writing and any other
extraordinary general meeting shall be called by not less than 14 days notice in writing. The notice
shall be inclusive of the day on which it is served or deemed to be served and of the day for which
it is given, and shall specify the time, place and agenda of the meeting, particulars of the resolutions
to be considered at the meeting and, in the case of special business, the general nature of that
business. The notice convening an annual general meeting shall specify the meeting as such, and the
notice convening a meeting to pass a special resolution shall specify the intention to propose the
resolution as a special resolution. Notice of every general meeting shall be given to the auditors and
all members of the Company (other than those who, under the provisions of the Articles of
Association or the terms of issue of the shares they hold, are not entitled to receive such notice from
the Company).
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APPENDIX III

Notwithstanding that a meeting of the Company is called by shorter notice than that mentioned
above, it shall be deemed to have been duly called if it is so agreed:
(a)
in the case of a meeting called as an annual general meeting, by all members of the
Company entitled to attend and vote thereat or their proxies; and
(b)
in the case of any other meeting, by a majority in number of the members having a right
to attend and vote at the meeting, being a majority together holding not less than 95% in
nominal value of the shares giving that right.
All business shall be deemed special that is transacted at an extraordinary general meeting and
also all business shall be deemed special that is transacted at an annual general meeting with the
exception of the following, which shall be deemed ordinary business:
(a)
the declaration and sanctioning of dividends;
(b)
the consideration and adoption of the accounts and balance sheets and the reports of the
Directors and the auditors and other documents required to be annexed to the balance
sheet;
(c)
the election of Directors in place of those retiring;
(d)
the appointment of auditors;
(e)
the fixing of, or the determining of the method of fixing of, the remuneration of the
Directors and of the auditors;
(f)
the granting of any mandate or authority to the Directors to offer, allot, grant options over
or otherwise dispose of the unissued shares of the Company representing not more than
20% (or such other percentage as may from time to time be specified in the Listing Rules)
in nominal value of its then existing issued share capital and the number of any securities
repurchased pursuant to sub-paragraph (g) below; and
(g)
the granting of any mandate or authority to the Directors to repurchase securities of the
Company.
2.11 Transfer of shares

Transfers of shares may be effected by an instrument of transfer in the usual common form or
in such other form as the Directors may approve which is consistent with the standard form of
transfer as prescribed by the Stock Exchange.
The
Directors
holder of
Company
instrument of transfer shall be executed by or on behalf of the transferor and, unless the
otherwise determine, the transferee, and the transferor shall be deemed to remain the
the share until the name of the transferee is entered in the register of members of the
in respect thereof. All instruments of transfer shall be retained by the Company.
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APPENDIX III

The Directors may refuse to register any transfer of any share which is not fully paid up or on
which the Company has a lien. The Directors may also decline to register any transfer of any shares
unless:
(a)
the instrument of transfer is lodged with the Company accompanied by the certificate for
the shares to which it relates (which shall upon the registration of the transfer be
cancelled) and such other evidence as the Directors may reasonably require to show the
right of the transferor to make the transfer;
(b)
the instrument of transfer is in respect of only one class of shares;
(c)
the instrument of transfer is properly stamped (in circumstances where stamping is

required);
(d)
in the case of a transfer to joint holders, the number of joint holders to whom the share
is to be transferred does not exceed four;
(e)
the shares concerned are free of any lien in favour of the Company; and
(f)
a fee of such maximum as the Stock Exchange may from time to time determine to be
payable (or such lesser sum as the Directors may from time to time require) is paid to the
Company in respect thereof.
If the Directors refuse to register a transfer of any share they shall, within two months after the
date on which the transfer was lodged with the Company, send to each of the transferor and the
transferee notice of such refusal.
The registration of transfers may, on 14 days notice being given by advertisement published
on the Stock Exchanges website, or, subject to the Listing Rules, by electronic communication in
the manner in which notices may be served by the Company by electronic means as provided in the
Articles of Association or by advertisement published in the newspapers, be suspended and the
register of members of the Company closed at such times for such periods as the Directors may from
time to time determine, provided that the registration of transfers shall not be suspended or the
register closed for more than 30 days in any year (or such longer period as the members of the
Company may by ordinary resolution determine provided that such period shall not be extended
beyond 60 days in any year).
2.12 Power of the Company to purchase its own shares
The Company is empowered by the Cayman Companies Law and the Articles of Association
to purchase its own shares subject to certain restrictions and the Directors may only exercise this
power on behalf of the Company subject to the authority of its members in general meeting as to the
manner in which they do so and to any applicable requirements imposed from time to time by the
Stock Exchange and the Securities and Futures Commission of Hong Kong. Shares which have been
repurchased will be treated as cancelled upon the repurchase.
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APPENDIX III

2.13 Power of any subsidiary of the Company to own shares

There are no provisions in the Articles of Association relating to the ownership of shares by a
subsidiary.
2.14 Dividends and other methods of distribution
Subject to the Cayman Companies Law and Articles of Association, the Company in general
meeting may declare dividends in any currency but no dividends shall exceed the amount
recommended by the Directors. No dividend may be declared or paid other than out of profits and
reserves of the Company lawfully available for distribution, including share premium.
Unless and to the extent that the rights attached to any shares or the terms of issue thereof
otherwise provide, all dividends shall (as regards any shares not fully paid throughout the period in
respect of which the dividend is paid) be apportioned and paid pro rata according to the amounts paid
up on the shares during any portion or portions of the period in respect of which the dividend is paid.
For these purposes no amount paid up on a share in advance of calls shall be treated as paid up on
the share.
The Directors may from time to time pay to the members of the Company such interim
dividends as appear to the Directors to be justified by the profits of the Company. The Directors may
also pay half-yearly or at other intervals to be selected by them at a fixed rate if they are of the
opinion that the profits available for distribution justify the payment.
The Directors may retain any dividends or other moneys payable on or in respect of a share
upon which the Company has a lien, and may apply the same in or towards satisfaction of the debts,
liabilities or engagements in respect of which the lien exists. The Directors may also deduct from any
dividend or other moneys payable to any member of the Company all sums of money (if any)
presently payable by him to the Company on account of calls, instalments or otherwise.
No dividend shall carry interest against the Company.
Whenever the Directors or the Company in general meeting have resolved that a dividend be
paid or declared on the share capital of the Company, the Directors may further resolve: (a) that such
dividend be satisfied wholly or in part in the form of an allotment of shares credited as fully paid
up on the basis that the shares so allotted are to be of the same class as the class already held by the
allottee, provided that the members of the Company entitled thereto will be entitled to elect to
receive such dividend (or part thereof) in cash in lieu of such allotment; or (b) that the members of
the Company entitled to such dividend will be entitled to elect to receive an allotment of shares
credited as fully paid up in lieu of the whole or such part of the dividend as the Directors may think
fit on the basis that the shares so allotted are to be of the same class as the class already held by the
allottee. The Company may upon the recommendation of the Directors by ordinary resolution resolve
in respect of any one particular dividend of the Company that notwithstanding the foregoing a
dividend may be satisfied wholly in the form of an allotment of shares credited as fully paid without
offering any right to members of the Company to elect to receive such dividend in cash in lieu of
such allotment.
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APPENDIX III

Any dividend, interest or other sum payable in cash to a holder of shares may be paid by cheque
or warrant sent through the post addressed to the registered address of the member of the Company
entitled, or in the case of joint holders, to the registered address of the person whose name stands
first in the register of members of the Company in respect of the joint holding or to such person and
to such address as the holder or joint holders may in writing direct. Every cheque or warrant so sent
shall be made payable to the order of the holder or, in the case of joint holders, to the order of the
holder whose name stands first on the register of members of the Company in respect of such shares,
and shall be sent at his or their risk and the payment of any such cheque or warrant by the bank on
which it is drawn shall operate as a good discharge to the Company in respect of the dividend and/or
bonus represented thereby, notwithstanding that it may subsequently appear that the same has been
stolen or that any endorsement thereon has been forged. The Company may cease sending such
cheques for dividend entitlements or dividend warrants by post if such cheques or warrants have been
left uncashed on two consecutive occasions. However, the Company may exercise its power to cease
sending cheques for dividend entitlements or dividend warrants after the first occasion on which such
a cheque or warrant is returned undelivered. Any one of two or more joint holders may give effectual
receipts for any dividends or other moneys payable or property distributable in respect of the shares
held by such joint holders.
Any dividend unclaimed for six years from the date of declaration of such dividend may be
forfeited by the Directors and shall revert to the Company.
The Directors may, with the sanction of the members of the Company in general meeting, direct
that any dividend be satisfied wholly or in part by the distribution of specific assets of any kind, and
in particular of paid up shares, debentures or warrants to subscribe securities of any other company,
and where any difficulty arises in regard to such distribution the Directors may settle it as they think
expedient, and in particular may disregard fractional entitlements, round the same up or down or
provide that the same shall accrue to the benefit of the Company, and may fix the value for
distribution of such specific assets and may determine that cash payments shall be made to any
members of the Company upon the footing of the value so fixed in order to adjust the rights of all
parties, and may vest any such specific assets in trustees as may seem expedient to the Directors.
2.15 Proxies
Any member of the Company entitled to attend and vote at a meeting of the Company shall be
entitled to appoint another person who must be an individual as his proxy to attend and vote instead
of him and a proxy so appointed shall have the same right as the member to speak at the meeting.
A proxy need not be a member of the Company.
Instruments of proxy shall be in common form or in such other form as the Directors may from
time to time approve provided that it shall enable a member to instruct his proxy to vote in favour
of or against (or in default of instructions or in the event of conflicting instructions, to exercise his
discretion in respect of) each resolution to be proposed at the meeting to which the form of proxy
relates. The instrument of proxy shall be deemed to confer authority to vote on any amendment of
a resolution put to the meeting for which it is given as the proxy thinks fit. The instrument of proxy
shall, unless the contrary is stated therein, be valid as well for any adjournment of the meeting as
for the meeting to which it relates provided that the meeting was originally held within 12 months
from such date.
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APPENDIX III

The instrument appointing a proxy shall be in writing under the hand of the appointor or his
attorney authorised in writing or if the appointor is a corporation either under its seal or under the
hand of an officer, attorney or other person authorised to sign the same.
The instrument appointing a proxy and (if required by the Directors) the power of attorney or
other authority (if any) under which it is signed, or a notarially certified copy of such power or
authority, shall be delivered at the registered office of the Company (or at such other place as may
be specified in the notice convening the meeting or in any notice of any adjournment or, in either
case, in any document sent therewith) not less than 48 hours before the time appointed for holding
the meeting or adjourned meeting at which the person named in the instrument proposes to vote or,
in the case of a poll taken subsequently to the date of a meeting or adjourned meeting, not less than
48 hours before the time appointed for the taking of the poll and in default the instrument of proxy
shall not be treated as valid. No instrument appointing a proxy shall be valid after the expiration of
12 months from the date named in it as the date of its execution. Delivery of any instrument
appointing a proxy shall not preclude a member of the Company from attending and voting in person
at the meeting or poll concerned and, in such event, the instrument appointing a proxy shall be
deemed to be revoked.
2.16 Calls on shares and forfeiture of shares
The Directors may from time to time make calls upon the members of the Company in respect
of any moneys unpaid on their shares (whether on account of the nominal amount of the shares or
by way of premium or otherwise) and not by the conditions of allotment thereof made payable at
fixed times and each member of the Company shall (subject to the Company serving upon him at
least 14 days notice specifying the time and place of payment and to whom such payment shall be
made) pay to the person at the time and place so specified the amount called on his shares. A call
may be revoked or postponed as the Directors may determine. A person upon whom a call is made
shall remain liable on such call notwithstanding the subsequent transfer of the shares in respect of
which the call was made.
A call may be made payable either in one sum or by instalments and shall be deemed to have
been made at the time when the resolution of the Directors authorising the call was passed. The joint
holders of a share shall be jointly and severally liable to pay all calls and instalments due in respect
of such share or other moneys due in respect thereof.
If a sum called in respect of a share shall not be paid before or on the day appointed for
payment thereof, the person from whom the sum is due shall pay interest on the sum from the day
appointed for payment thereof to the time of actual payment at such rate, not exceeding 15% per
annum, as the Directors may determine, but the Directors shall be at liberty to waive payment of such
interest wholly or in part.
If any call or instalment of a call remains unpaid on any share after the day appointed for
payment thereof, the Directors may at any time during such time as any part thereof remains unpaid
serve a notice on the holder of such shares requiring payment of so much of the call or instalment
as is unpaid together with any interest which may be accrued and which may still accrue up to the
date of actual payment.
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APPENDIX III

The notice shall name a further day (not being less than 14 days from the date of service of the
notice) on or before which, and the place where, the payment required by the notice is to be made,
and shall state that in the event of non-payment at or before the time and at the place appointed, the
shares in respect of which such call was made or instalment is unpaid will be liable to be forfeited.
If the requirements of such notice are not complied with, any share in respect of which such
notice has been given may at any time thereafter, before payment of all calls or instalments and
interest due in respect thereof has been made, be forfeited by a resolution of the Directors to that
effect. Such forfeiture shall include all dividends and bonuses declared in respect of the forfeited
shares and not actually paid before the forfeiture. A forfeited share shall be deemed to be the property
of the Company and may be re-allotted, sold or otherwise disposed of.
A person whose shares have been forfeited shall cease to be a member of the Company in
respect of the forfeited shares but shall, notwithstanding the forfeiture, remain liable to pay to the
Company all moneys which at the date of forfeiture were payable by him to the Company in respect
of the shares, together with (if the Directors shall in their discretion so require) interest thereon at
such rate not exceeding 15% per annum as the Directors may prescribe from the date of forfeiture
until payment, and the Directors may enforce payment thereof without being under any obligation
to make any allowance for the value of the shares forfeited, at the date of forfeiture.
2.17 Inspection of register of members
The register of members of the Company shall be kept in such manner as to show at all times
the members of the Company for the time being and the shares respectively held by them. The
register may, on 14 days notice being given by advertisement published on the Stock Exchanges
website, or, subject to the Listing Rules, by electronic communication in the manner in which notices
may be served by the Company by electronic means as provided in the Articles of Association or by
advertisement published in the newspapers, be closed at such times and for such periods as the
Directors may from time to time determine either generally or in respect of any class of shares,
provided that the register shall not be closed for more than 30 days in any year (or such longer period
as the members of the Company may by ordinary resolution determine provided that such period
shall not be extended beyond 60 days in any year).
Any register of members kept in Hong Kong shall during normal business hours (subject to
such reasonable restrictions as the Directors may impose) be open to inspection by any member of
the Company without charge and by any other person on payment of such fee not exceeding HK$2.50
(or such higher amount as may from time to time be permitted under the Listing Rules) as the
Directors may determine for each inspection.
2.18 Quorum for meetings and separate class meetings
No business shall be transacted at any general meeting unless a quorum is present when the
meeting proceeds to business, but the absence of a quorum shall not preclude the appointment,
choice or election of a chairman which shall not be treated as part of the business of the meeting.
Two members of the Company present in person or by proxy shall be a quorum provided always
that if the Company has only one member of record the quorum shall be that one member present
in person or by proxy.
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APPENDIX III

A corporation being a member of the Company shall be deemed for the purpose of the Articles
of Association to be present in person if represented by its duly authorised representative being the
person appointed by resolution of the directors or other governing body of such corporation or by
power of attorney to act as its representative at the relevant general meeting of the Company or at
any relevant general meeting of any class of members of the Company.
The quorum for a separate general meeting of the holders of a separate class of shares of the
Company is described in paragraph 2.4 above.
2.19 Rights of minorities in relation to fraud or oppression
There are no provisions in the Articles of Association concerning the rights of minority
shareholders in relation to fraud or oppression.
2.20 Procedure on liquidation
If the Company shall be wound up, and the assets available for distribution amongst the
members of the Company as such shall be insufficient to repay the whole of the paid-up capital, such
assets shall be distributed so that, as nearly as may be, the losses shall be borne by the members of
the Company in proportion to the capital paid up, or which ought to have been paid up, at the
commencement of the winding up on the shares held by them respectively. And if in a winding up
the assets available for distribution amongst the members of the Company shall be more than
sufficient to repay the whole of the capital paid up at the commencement of the winding up, the
excess shall be distributed amongst the members of the Company in proportion to the capital paid
up at the commencement of the winding up on the shares held by them respectively. The foregoing
is without prejudice to the rights of the holders of shares issued upon special terms and conditions.
If the Company shall be wound up, the liquidator may with the sanction of a special resolution
of the Company and any other sanction required by the Cayman Companies Law, divide amongst the
members of the Company in specie or kind the whole or any part of the assets of the Company
(whether they shall consist of property of the same kind or not) and may, for such purpose, set such
value as he deems fair upon any property to be divided as aforesaid and may determine how such
division shall be carried out as between the members or different classes of members of the
Company. The liquidator may, with the like sanction, vest the whole or any part of such assets in
trustees upon such trusts for the benefit of the members of the Company as the liquidator, with the
like sanction and subject to the Cayman Companies Law, shall think fit, but so that no member of
the Company shall be compelled to accept any assets, shares or other securities in respect of which
there is a liability.
2.21 Untraceable members
The Company shall be entitled to sell any shares of a member of the Company or the shares
to which a person is entitled by virtue of transmission on death or bankruptcy or operation of law
if: (a) all cheques or warrants, not being less than three in number, for any sums payable in cash to
the holder of such shares have remained uncashed for a period of 12 years; (b) the Company has not
during that time or before the expiry of the three month period referred to in (d) below received any
indication of the whereabouts or existence of the member; (c) during the 12 year period, at least three
III-17
APPENDIX III

dividends in respect of the shares in question have become payable and no dividend during that
period has been claimed by the member; and (d) upon expiry of the 12 year period, the Company has
caused an advertisement to be published in the newspapers or subject to the Listing Rules, by
electronic communication in the manner in which notices may be served by the Company by
electronic means as provided in the Articles of Association, giving notice of its intention to sell such
shares and a period of three months has elapsed since such advertisement and the Stock Exchange
has been notified of such intention. The net proceeds of any such sale shall belong to the Company
and upon receipt by the Company of such net proceeds it shall become indebted to the former
member for an amount equal to such net proceeds.
SUMMARY OF CAYMAN ISLANDS COMPANY LAW AND TAXATION
1
Introduction
The Cayman Companies Law is derived, to a large extent, from the older Companies Acts of
England, although there are significant differences between the Cayman Companies Law and the current
Companies Act of England. Set out below is a summary of certain provisions of the Cayman Companies
Law, although this does not purport to contain all applicable qualifications and exceptions or to be a
complete review of all matters of corporate law and taxation which may differ from equivalent provisions
in jurisdictions with which interested parties may be more familiar.
2
Incorporation
The Company was incorporated in the Cayman Islands as an exempted company with limited
liability on 30 January 2014 under the Cayman Companies Law. As such, its operations must be conducted
mainly outside the Cayman Islands. The Company is required to file an annual return each year with the
Registrar of Companies of the Cayman Islands and pay a fee which is based on the size of its authorised
share capital.
3
Share Capital
The Cayman Companies Law permits a company to issue ordinary shares, preference shares,
redeemable shares or any combination thereof.
The Cayman Companies Law provides that where a company issues shares at a premium, whether
for cash or otherwise, a sum equal to the aggregate amount of the value of the premia on those shares shall
be transferred to an account called the share premium account. At the option of a company, these
provisions may not apply to premia on shares of that company allotted pursuant to any arrangement in
consideration of the acquisition or cancellation of shares in any other company and issued at a premium.
The Cayman Companies Law provides that the share premium account may be applied by a company,
subject to the provisions, if any, of its memorandum and articles of association, in such manner as the
company may from time to time determine including, but without limitation:
(a)
paying distributions or dividends to members;
(b)
paying up unissued shares of the company to be issued to members as fully paid bonus shares;
(c)
in the redemption and repurchase of shares (subject to the provisions of section 37 of the
Cayman Companies Law);
III-18
APPENDIX III

(d)
writing-off the preliminary expenses of the company;
(e)
writing-off the expenses of, or the commission paid or discount allowed on, any issue of shares
or debentures of the company; and
(f)
providing for the premium payable on redemption or purchase of any shares or debentures of
the company.
No distribution or dividend may be paid to members out of the share premium account unless
immediately following the date on which the distribution or dividend is proposed to be paid the company
will be able to pay its debts as they fall due in the ordinary course of business.
The Cayman Companies Law provides that, subject to confirmation by the Grand Court of the
Cayman Islands, a company limited by shares or a company limited by guarantee and having a share
capital may, if so authorised by its articles of association, by special resolution reduce its share capital in
any way.
Subject to the detailed provisions of the Cayman Companies Law, a company limited by shares or
a company limited by guarantee and having a share capital may, if so authorised by its articles of
association, issue shares which are to be redeemed or are liable to be redeemed at the option of the
company or a shareholder. In addition, such a company may, if authorised to do so by its articles of
association, purchase its own shares, including any redeemable shares. The manner of such a purchase
must be authorised either by the articles of association or by an ordinary resolution of the company. The
articles of association may provide that the manner of purchase may be determined by the directors of the
company. At no time may a company redeem or purchase its shares unless they are fully paid. A company
may not redeem or purchase any of its shares if, as a result of the redemption or purchase, there would
no longer be any member of the company holding shares. A payment out of capital by a company for the
redemption or purchase of its own shares is not lawful unless immediately following the date on which
the payment is proposed to be made, the company shall be able to pay its debts as they fall due in the
ordinary course of business.
There is no statutory restriction in the Cayman Islands on the provision of financial assistance by a
company for the purchase of, or subscription for, its own or its holding companys shares. Accordingly,
a company may provide financial assistance if the directors of the company consider, in discharging their
duties of care and to act in good faith, for a proper purpose and in the interests of the company, that such
assistance can properly be given. Such assistance should be on an arms-length basis.
4
Dividends and Distributions
With the exception of section 34 of the Cayman Companies Law, there are no statutory provisions
relating to the payment of dividends. Based upon English case law which is likely to be persuasive in the
Cayman Islands in this area, dividends may be paid only out of profits. In addition, section 34 of the
Cayman Companies Law permits, subject to a solvency test and the provisions, if any, of the companys
memorandum and articles of association, the payment of dividends and distributions out of the share
premium account (see paragraph 3 above for details).
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APPENDIX III

Shareholders Suits
The Cayman Islands courts can be expected to follow English case law precedents. The rule in Foss
v. Harbottle (and the exceptions thereto which permit a minority shareholder to commence a class action
against or derivative actions in the name of the company to challenge (a) an act which is ultra vires the
company or illegal, (b) an act which constitutes a fraud against the minority where the wrongdoers are
themselves in control of the company, and (c) an action which requires a resolution with a qualified (or
special) majority which has not been obtained) has been applied and followed by the courts in the Cayman
Islands.
6
Protection of Minorities
In the case of a company (not being a bank) having a share capital divided into shares, the Grand
Court of the Cayman Islands may, on the application of members holding not less than one-fifth of the
shares of the company in issue, appoint an inspector to examine into the affairs of the company and to
report thereon in such manner as the Grand Court shall direct.
Any shareholder of a company may petition the Grand Court of the Cayman Islands which may make
a winding up order if the court is of the opinion that it is just and equitable that the company should be
wound up.
Claims against a company by its shareholders must, as a general rule, be based on the general laws
of contract or tort applicable in the Cayman Islands or their individual rights as shareholders as established
by the companys memorandum and articles of association.
The English common law rule that the majority will not be permitted to commit a fraud on the
minority has been applied and followed by the courts of the Cayman Islands.
7
Disposal of Assets
The Cayman Companies Law contains no specific restrictions on the powers of directors to dispose
of assets of a company. As a matter of general law, in the exercise of those powers, the directors must
discharge their duties of care and to act in good faith, for a proper purpose and in the interests of the
company.
8
Accounting and Auditing Requirements
The Cayman Companies Law requires that a company shall cause to be kept proper books of account
with respect to:
(a)
all sums of money received and expended by the company and the matters in respect of which
the receipt and expenditure takes place;
(b)
all sales and purchases of goods by the company; and
(c)
the assets and liabilities of the company.
Proper books of account shall not be deemed to be kept if there are not kept such books as are
necessary to give a true and fair view of the state of the companys affairs and to explain its transactions.
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APPENDIX III

Register of Members
An exempted company may, subject to the provisions of its articles of association, maintain its
principal register of members and any branch registers at such locations, whether within or without the
Cayman Islands, as its directors may from time to time think fit. There is no requirement under the
Cayman Companies Law for an exempted company to make any returns of members to the Registrar of
Companies of the Cayman Islands. The names and addresses of the members are, accordingly, not a matter
of public record and are not available for public inspection.
10
Inspection of Books and Records
Members of a company will have no general right under the Cayman Companies Law to inspect or
obtain copies of the register of members or corporate records of the company. They will, however, have
such rights as may be set out in the companys articles of association.
11
Special Resolutions
The Cayman Companies Law provides that a resolution is a special resolution when it has been
passed by a majority of not less than two-thirds (or such greater number as may be specified in the articles
of association of the company) of such members as, being entitled to do so, vote in person or, where
proxies are allowed, by proxy at a general meeting of which notice specifying the intention to propose the
resolution as a special resolution has been duly given. Written resolutions signed by all the members
entitled to vote for the time being of the company may take effect as special resolutions if this is authorised
by the articles of association of the company.
12
Subsidiary Owning Shares in Parent
The Cayman Companies Law does not prohibit a Cayman Islands company acquiring and holding
shares in its parent company provided its objects so permit. The directors of any subsidiary making such
acquisition must discharge their duties of care and to act in good faith, for a proper purpose and in the
interests of the subsidiary.
13
Mergers and Consolidations
The Cayman Companies Law permits mergers and consolidations between Cayman Islands
companies and between Cayman Islands companies and non-Cayman Islands companies. For these
purposes, (a) merger means the merging of two or more constituent companies and the vesting of their
undertaking, property and liabilities in one of such companies as the surviving company, and (b)
consolidation means the combination of two or more constituent companies into a consolidated company
and the vesting of the undertaking, property and liabilities of such companies to the consolidated company.
In order to effect such a merger or consolidation, the directors of each constituent company must approve
a written plan of merger or consolidation, which must then be authorised by (a) a special resolution of each
constituent company and (b) such other authorisation, if any, as may be specified in such constituent
companys articles of association. The written plan of merger or consolidation must be filed with the
Registrar of Companies together with a declaration as to the solvency of the consolidated or surviving
company, a list of the assets and liabilities of each constituent company and an undertaking that a copy
of the certificate of merger or consolidation will be given to the members and creditors of each constituent
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APPENDIX III

company and that notification of the merger or consolidation will be published in the Cayman Islands
Gazette. Dissenting shareholders have the right to be paid the fair value of their shares (which, if not
agreed between the parties, will be determined by the Cayman Islands court) if they follow the required
procedures, subject to certain exceptions. Court approval is not required for a merger or consolidation
which is effected in compliance with these statutory procedures.
14
Reconstructions
There are statutory provisions which facilitate reconstructions and amalgamations approved by a
majority in number representing 75% in value of shareholders or creditors, depending on the
circumstances, as are present at a meeting called for such purpose and thereafter sanctioned by the Grand
Court of the Cayman Islands. Whilst a dissenting shareholder would have the right to express to the Grand
Court his view that the transaction for which approval is sought would not provide the shareholders with
a fair value for their shares, the Grand Court is unlikely to disapprove the transaction on that ground alone
in the absence of evidence of fraud or bad faith on behalf of management and if the transaction were
approved and consummated the dissenting shareholder would have no rights comparable to the appraisal
rights (i.e. the right to receive payment in cash for the judicially determined value of his shares) ordinarily
available, for example, to dissenting shareholders of United States corporations.
15
Take-overs
Where an offer is made by a company for the shares of another company and, within four months
of the offer, the holders of not less than 90% of the shares which are the subject of the offer accept, the
offeror may at any time within two months after the expiration of the said four months, by notice require
the dissenting shareholders to transfer their shares on the terms of the offer. A dissenting shareholder may
apply to the Grand Court of the Cayman Islands within one month of the notice objecting to the transfer.
The burden is on the dissenting shareholder to show that the Grand Court should exercise its discretion,
which it will be unlikely to do unless there is evidence of fraud or bad faith or collusion as between the
offeror and the holders of the shares who have accepted the offer as a means of unfairly forcing out
minority shareholders.
16
Indemnification
Cayman Islands law does not limit the extent to which a companys articles of association may
provide for indemnification of officers and directors, except to the extent any such provision may be held
by the Cayman Islands courts to be contrary to public policy (e.g. for purporting to provide
indemnification against the consequences of committing a crime).
17
Liquidation
A company may be placed in liquidation compulsorily by an order of the court, or voluntarily (a) by
a special resolution of its members if the company is solvent, or (b) by an ordinary resolution of its
members if the company is insolvent. The liquidators duties are to collect the assets of the company
(including the amount (if any) due from the contributories (shareholders)), settle the list of creditors and
discharge the companys liability to them, rateably if insufficient assets exist to discharge the liabilities
in full, and to settle the list of contributories and divide the surplus assets (if any) amongst them in
accordance with the rights attaching to the shares.
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APPENDIX III
18

Stamp Duty on Transfers
No stamp duty is payable in the Cayman Islands on transfers of shares of Cayman Islands companies
except those which hold interests in land in the Cayman Islands.
19
Taxation
Pursuant to section 6 of the Tax Concessions Law (2011 Revision) of the Cayman Islands, the
Company may apply for and expect to obtain an undertaking from the Governor in Cabinet:
(a)
that no law which is enacted in the Cayman Islands imposing any tax to be levied on profits,
income, gains or appreciations shall apply to the Company or its operations; and
(b)
in addition, that no tax to be levied on profits, income, gains or appreciations or which is in

the nature of estate duty or inheritance tax shall be payable by the Company:
(i)
on or in respect of the shares, debentures or other obligations of the Company; or
(ii)
by way of the withholding in whole or in part of any relevant payment as defined in

section 6(3) of the Tax Concessions Law (2011 Revision).
The Cayman Islands currently levy no taxes on individuals or corporations based upon profits,
income, gains or appreciations and there is no taxation in the nature of inheritance tax or estate duty. There
are no other taxes likely to be material to the Company levied by the Government of the Cayman Islands
save certain stamp duties which may be applicable, from time to time, on certain instruments executed in
or brought within the jurisdiction of the Cayman Islands. The Cayman Islands are not party to any double
tax treaties that are applicable to any payments made by or to the Company.
20
Exchange Control
There are no exchange control regulations or currency restrictions in the Cayman Islands.
21
General
Maples and Calder, the Companys legal advisers on Cayman Islands law, have sent to the Company
a letter of advice summarising aspects of Cayman Islands company law. This letter, together with a copy
of the Cayman Companies Law, is available for inspection as referred to in the section headed Documents
available for inspection in Appendix [VI]. Any person wishing to have a detailed summary of Cayman
Islands company law or advice on the differences between it and the laws of any jurisdiction with which
he/she is more familiar is recommended to seek independent legal advice.
III-23
APPENDIX IV
STATUTORY AND GENERAL INFORMATION
A.
FURTHER INFORMATION ABOUT THE COMPANY
1.
Incorporation of the Company
The Company was incorporated in the Cayman Islands under the Cayman Companies Law as an
exempted company with limited liability on 30 January 2014.
Our current registered address is at PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman
Islands. The Company has been registered in Hong Kong under Part 16 of the Companies Ordinance as
a non-Hong Kong company and our principal place of business in Hong Kong is at 11th Floor, One
Citygate, 20 Tat Tung Road, Tung Chung, Lantau, Hong Kong. In compliance with the requirements of the
Companies Ordinance, Mr. Chan, Victor Sun Ho has been appointed as our authorised representative for
the acceptance of service of process and any notice required to be served on the Company in Hong Kong.
The address for service of process on the Company in Hong Kong is Flat A, 22/F, Block 2, 8 Oi King
Street, Harbour Place, Hung Hom Bay, Kowloon, Hong Kong.
As the Company was incorporated in the Cayman Islands, its operations are subject to the laws of
the Cayman Islands and to its constitution which comprises the Memorandum of Association and the
Articles of Association. A summary of certain relevant parts of its constitution and certain relevant aspects
of the Cayman Companies Law is set out in Appendix III to this [REDACTED].
2.
Changes in share capital of our Company

(a)
As at the date of incorporation of the Company on 30 January 2014, our authorised share
capital was HK$350,000 divided into 350,000 Shares of HK$1.00 each. On the same date, one
share of HK$1.00 credited as fully paid was allotted and issued to the initial subscriber for a
cash consideration of HK$1, which share was then transferred to HKAG Holdings.
(b)
On [], the Company subdivided its shares such that our authorised share capital then became
HK$350,000 divided into 3,500,000 shares of HK$0.10 each.
(c)
On [], the authorised share capital of the Company was increased to HK$1,000,000,000
divided into 10,000,000,000 Shares of HK$0.10 each by the creation of 9,996,500,000 Shares
of HK$0.10 each pursuant to a resolution passed by HKAG Holdings as the then sole
Shareholder.
(d)
On [], the Company allotted and issued 2,662,383,744 Shares of HK$0.10 each credited as
fully paid to HKAG Holdings in consideration for the transfer of 5,324,767,500 shares in
HKAG Company from HKAG Holdings to the Company. On [], HKAG Holdings distributed
2,662,383,754 Shares by way of distribution in specie representing the then entire issued share
capital of the Company to the then shareholders of HKAG Holdings on a pro rata basis.
(e)
Immediately following completion of the [REDACTED] (excluding any Shares which may be
issued under the Over-allotment Option), the authorised share capital of the Company will be
HK$1,000,000,000 divided into 10,000,000,000 Shares of HK$0.1 each, of which
4,095,975,006 Shares will be issued fully paid or credited as fully paid, and 5,904,024,994
Shares will remain unissued.
IV-1
APPENDIX IV
Other than pursuant to any exercise of the Over-allotment Option, there is no present intention
to issue any of the authorised but unissued share capital of the Company and, without the prior
approval of the Shareholders in general meeting, no issue of Shares will be made which would
effectively alter the control of the Company.
Save as disclosed above and in paragraphs headed Resolutions in writing of the Shareholders
passed on [] and Group reorganization of this Appendix, there has been no alteration in the
share capital of the Company since its incorporation.
3.
Changes in share capital of subsidiaries
The subsidiaries of the Company are listed in the Accountants Report set out in Appendix I to this
[REDACTED].
The following alterations in the share capital of our subsidiaries have taken place within the two
years preceding the date of this [REDACTED].
Hong Kong Airlines
On 19 June 2013, Hong Kong Airlines allotted and issued 994,923,077 shares of HK$1.00 each
credited as fully paid at a premium of HK$0.56 per share to HKAG Company for a cash
consideration of HK$1,552,080,000.12.
HKAG Company
On 19 June 2013, HKAG Company allotted and issued 994,923,077 shares of HK$1.00 each
credited as fully paid at a premium of HK$0.56 per share to HKAG Holdings for a cash consideration
of HK$1,552,080,000.12.
Skyliner Company Limited
On 9 September 2013, Skyliner Company Limited was incorporated under the laws of BVI with
limited liability, and its authorised share capital was USD50,000 divided into 50,000 shares of
USD1.00 each. On 19 September 2013, Skyliner Company Limited allotted and issued one share of
USD1.00 each credited as fully paid at par to Hong Kong Airlines for a cash consideration of USD1.
HKA Cabin Media Company Limited
On 26 September 2013, HKA Cabin Media Company Limited was incorporated under the laws
of Hong Kong with limited liability, and its authorised share capital was HK$100,000,000 divided
into 100,000,000 shares of HK$1.00 each. On the same date, HKA Cabin Media Company Limited
allotted and issued 1,000,000 shares of HK$1.00 each credited as fully paid at par to Hong Kong
Airlines for a cash consideration of HK$1,000,000.
IV-2
APPENDIX IV
HKA FFM Company Limited

On 26 September 2013, HKA FFM Company Limited was incorporated under the laws of Hong
Kong with limited liability, and its authorised share capital was HK$100,000,000 divided into
100,000,000 shares of HK$1.00 each. On the same date, HKA FFM Company Limited allotted and
issued 1,000,000 shares of HK$1.00 each credited as fully paid at par to Hong Kong Airlines for a
cash consideration of HK$1,000,000.
HKA Information Technology Services Company Limited
On 26 September 2013, HKA Information Technology Services Company Limited was
incorporated under the laws of Hong Kong with limited liability, and its authorised share capital was
HK$100,000,000 divided into 100,000,000 shares of HK$1.00 each. On the same date, HKA
Information Technology Services Company Limited allotted and issued 1,000,000 shares of HK$1.00
each credited as fully paid at par to Hong Kong Airlines for a cash consideration of HK$1,000,000.
HKA Investment Development Company Limited
On 26 September 2013, HKA Investment Development Company Limited was incorporated
under the laws of Hong Kong with limited liability, and its authorised share capital was
HK$100,000,000 divided into 100,000,000 shares of HK$1.00 each. On the same date, HKA
Investment Development Company Limited allotted and issued 1,000,000 shares of HK$1.00 each
credited as fully paid at par to Hong Kong Airlines for a cash consideration of HK$1,000,000.
HKA Tourism Services Company Limited
On 27 September 2013, HKA Tourism Services Company Limited was incorporated under the
laws of Hong Kong with limited liability, and its authorised share capital was HK$100,000,000
divided into 100,000,000 shares of HK$1.00 each. On the same date, HKA Tourism Services
Company Limited allotted and issued 1,000,000 shares of HK$1.00 each credited as fully paid at par
to Hong Kong Airlines for a cash consideration of HK$1,000,000.
Hong Kong Airlines Aviation Training Centre Limited
On 12 November 2013, Hong Kong Airlines Aviation Training Centre Limited was
incorporated under the laws of Hong Kong with limited liability, and its authorised share capital was
HK$10,000 divided into 10,000 shares of HK$1.00 each. On the same date, Hong Kong Airlines
Aviation Training Centre Limited allotted and issued one share of HK$1.00 each credited as fully
paid at par to Hong Kong Airlines for a cash consideration of HK$1.
4.
Resolutions in writing of the Shareholders passed on []

Written resolutions were passed by the Shareholders on [] pursuant to which, among other matters:
(a)
conditional upon [REDACTED], the Company approved and adopted the Memorandum of
Association and the Articles of Association;
IV-3
APPENDIX IV
(b)
conditional on (aa) the Listing Committee of the Stock Exchange granting [REDACTED] of,
and permission to deal in, the Shares in issue and to be issued as mentioned in this
[REDACTED]; (bb) the HKD [REDACTED] and [REDACTED] having been determined;
(cc) the execution and delivery of the Underwriting Agreements on or before the date as
mentioned in this [REDACTED]; and (dd) the obligations of the Underwriters under the
Underwriting Agreements becoming unconditional and not being terminated in accordance with
the terms of the Underwriting Agreements or otherwise:
(i)
the [REDACTED] including the Over-allotment Option were approved and the Directors
were authorised to effect the same and to allot and issue the [REDACTED] pursuant to
the [REDACTED] and such number of [REDACTED] as may be required to be allotted
and issued upon any exercise of the Over-allotment Option;
(ii)
a general unconditional mandate was given to the Directors to exercise all powers of the
Company to allot, issue and deal with, otherwise than by way of rights issues, scrip
dividend schemes or similar arrangements providing for allotment of [REDACTED] in
lieu of the whole or in part of any dividend in accordance with the Articles of Association
or a specific authority granted by the Shareholders in general meeting, or under the
[REDACTED] including upon any exercise of the Over-allotment Option,
[REDACTED] with a total number not exceeding 20% of the then enlarged total issued
share capital of the Company immediately following completion of the [REDACTED]
but excluding any [REDACTED] which may be issued pursuant to any exercise of the
Over-allotment Option, which is to remain in effect until (aa) the conclusion of the next
annual general meeting of the Company, or (bb) the date by which the next annual general
meeting of the Company is required by the Articles of Association, the Cayman
Companies Law or any other applicable laws of the Cayman Islands to be held, or (cc)
the passing of an ordinary resolution by the Shareholders revoking, varying or renewing
the authority given to the Directors, whichever occurs first;
(iii) a general unconditional mandate (the Buy-Back Mandate) was given to the Directors
to exercise all powers of the Company to buy back on the Stock Exchange or other stock
exchange on which the securities of the Company may be listed and recognised by the
SFC and the Stock Exchange for this purpose in accordance with all applicable laws and
requirements of the Listing Rules (or of such other stock exchange) Shares with a total
number not exceeding 10% of the then enlarged total issued share capital of the Company
immediately following completion of the [REDACTED] but excluding any Shares which
may be issued pursuant to any exercise of the Over-allotment Option, such authority
given to the Directors to remain in effect until (aa) the conclusion of the next annual
general meeting of the Company, or (bb) the date by which the next annual general
meeting of the Company is required by the Articles of Association or any applicable law
of the Cayman Islands to be held, or (cc) the passing of an ordinary resolution by the
Shareholders revoking, varying or renewing the authority given to the Directors,
whichever occurs first; and
(iv) the extension of the general mandate to allot, issue and deal with Shares pursuant to
paragraph (ii) above to include the number of Shares which may be purchased or bought
back pursuant to paragraph (iii) above;
(c)
conditional upon [REDACTED], the form and substance of each of the service agreements
made between our executive Directors and us, and the form and substance of each of the
appointment letters made between each of our non-executive Directors and independent
non-executive Directors with us were approved.
IV-4
APPENDIX IV
5.
Group reorganization
The companies comprising the Group underwent the Reorganization to rationalise the Groups
structure in preparation for the [REDACTED]. For more details regarding the Reorganization, please refer
to the section headed History and Reorganization Reorganization of this [REDACTED].
6.
Securities buy-back mandate
This paragraph includes information required by the Stock Exchange to be included in this
[REDACTED] concerning the buy-back by the Company of its own securities. Subject to certain
restrictions, the Listing Rules permit companies whose primary [REDACTED] are on the Stock Exchange
to buy back their own securities on the Stock Exchange, the most important of which are summarised
below.
(a)
Shareholders approval
All proposed buy-back of securities (which must be fully paid up in the case of shares) by a
company [REDACTED] on the Stock Exchange must be approved in advance by an ordinary
resolution of the shareholders, either by way of general mandate or by specific approval of a
particular transaction.
Pursuant to a resolution in writing passed by the Shareholders on [], the Buy-back Mandate
was given to the Directors authorising any buy-back by the Company of Shares on the Stock
Exchange or any other stock exchange on which the securities of the Company may be listed and
which is recognised by the SFC and the Stock Exchange for this purpose with a total number of up
to 10% of the then enlarged total issued Share capital of the Company immediately following
completion of the [REDACTED] but excluding any Shares which may be issued pursuant to any
exercise of the Over-allotment Option, such mandate to expire at the conclusion of the next annual
general meeting of the Company, or the date by which the next annual general meeting of the
Company is required by the Articles of Association or applicable Cayman Islands law to be held, or
the passing of an ordinary resolution by Shareholders in general meeting revoking or varying the
authority given to the Directors, whichever occurs first.
(b)
Source of funds
Buy-back must be paid out of funds legally available for the purpose in accordance with the
Articles of Association and the Cayman Companies Law. A listed company may not buy back its own
securities on the Stock Exchange for a consideration other than cash or for settlement otherwise than
in accordance with the trading rules of the Stock Exchange. Under the laws of the Cayman Islands,
the par value of any Share bought back by the Company may be paid out of profits of the Company
or out of the proceeds of a fresh issue of Shares made for the purpose of the buy-back or, if so
authorised by the Articles of Association and subject to the provisions of the Cayman Companies
Law, out of capital.
Any premium payable on a redemption or purchase over the par value of the Shares to be
purchased must be provided for out of the profits of the Company or from sums standing to the credit
of the share premium account of the Company or, if authorised by the Articles of Association and
subject to the provisions of the Cayman Companies Law, out of capital.
(c)
Reasons for buy-backs
The Directors believe that it is in the best interest of the Company and the Shareholders for the
Directors to have general authority from the Shareholders to enable the Company to buy back Shares
in the market. Such buy-backs may, depending on market conditions and funding arrangements at the
IV-5
APPENDIX IV
time, lead to an enhancement of the net asset value per Share and/or earnings per Share and will only
be made if the Directors believe that such buy-backs will benefit the Company and the Shareholders.
(d)
Funding of buy-backs
In repurchasing securities, the Company may only apply funds legally available for such
purpose in accordance with the Memorandum of Association, the Articles of Association, the Listing
Rules and the applicable laws of the Cayman Islands.
On the basis of the current financial position of the Group as disclosed in this [REDACTED]
and taking into account the current working capital position of the Group, the Directors consider that,
if the Buy-Back Mandate were to be exercised in full, it might have a material adverse effect on the
working capital and/or the gearing position of the Group as compared with the position disclosed in
this [REDACTED]. However, the Directors do not propose to exercise the Buy-Back Mandate to
such an extent as would, in the circumstances, have a material adverse effect on the working capital
requirements of the Group or the gearing levels which in the opinion of the Directors are from time
to time appropriate for the Group.
The exercise in full of the Buy-Back Mandate, on the basis of [REDACTED] in issue
immediately after the [REDACTED] (excluding any [REDACTED] which may be issued under the
Over-allotment Option), would result in up to [REDACTED] being bought back by the Company
during the period in which the Buy-Back Mandate remains in force.
(e)
General
None of the Directors nor, to the best of their knowledge having made all reasonable enquiries,
any of their close associates currently intend to sell any Shares to the Company or our subsidiaries.
The Directors have undertaken to the Stock Exchange that, so far as the same may be
applicable, they will exercise the Buy-Back Mandate in accordance with the Listing Rules, the
Articles of Association and the applicable laws of the Cayman Islands.
If, as a result of a securities buy-back, a Shareholders proportionate interest in the voting
rights of our Company is increased, such increase will be treated as an acquisition for the purpose
of the Takeovers Code. Accordingly, a Shareholder or a group of Shareholders acting in concert
could obtain or consolidate control of our Company and become obliged to make a mandatory offer
in accordance with Rule 26 of the Takeovers Code. Save as aforesaid, our Directors are not aware
of any consequences which would arise under the Takeovers Code as a consequence of any
buy-backs pursuant to the Buy-Back Mandate.
The Directors will not exercise the Buy-Back Mandate if the buy-back would result in the
number of Shares which are in the hands of the public falling below 25% of the total number of
Shares in issue (or such other percentage as may be prescribed as the minimum public shareholding
under the Listing Rules).
No core connected person (as defined in the Listing Rules) of the Company has notified the
Company that he/she/it has a present intention to sell Shares to the Company, or has undertaken not
to do so if the Buy-Back Mandate is exercised.
IV-6
APPENDIX IV
B.
FURTHER INFORMATION ABOUT THE BUSINESS OF THE COMPANY
1.
Summary of material contracts
The following contracts (not being contracts entered into in the ordinary course of business of our
Group) have been entered into by members of the Group within the two years preceding the date of this
[REDACTED] and are or may be material:
(1)
a stock sale and purchase agreement dated 17 December 2012 entered into between HNA Group
International as the seller and Hong Kong Airlines as the buyer, pursuant to which HNA Group
International agreed to sell and Hong Kong Airlines agreed to buy 18% of the then issued
shares of HKIAL for a cash consideration of HK$351,000,000;
(2)
bought and sold notes dated 21 May 2013 signed by HKA Consultation as buyer and Hong
Kong Airlines as seller in respect of the transfer of 500,000 shares of HKA Holidays Limited
from Hong Kong Airlines to HKA Consultation for a cash consideration of HK$500,000;
(3)
a stock sale and purchase agreement dated 24 September 2013 entered into between Hong Kong
Airlines as the seller and HNA Investment as the buyer, pursuant to which Hong Kong Airlines
agreed to sell and HNA Investment agreed to buy 100,000,000 issued shares of HKIAL for a
cash consideration of HK$100,000,000;
(4)
a subscription agreement dated 24 September 2013 entered into between HNA Group
International as the issuer and Hong Kong Airlines as the subscriber, pursuant to which HNA
Group International agreed to issue and Hong Kong Airlines agreed to subscribe for
1,805,997,080 shares of HNA Group International, representing approximately 11.12% of the
then enlarged issued shares of HNA Group International for a cash consideration of
HKD2,221,376,408.40;
(5)
a rectification agreement dated 29 September 2013 and together with a stock sale and purchase
agreement dated 27 December 2012, both entered into between HNA Property Holding as seller
and Hong Kong Airlines as buyer, pursuant to which HNA Property Holding agreed to sell and
Hong Kong Airlines agreed to buy all the then issued shares of Sure Idea Ltd. for a cash
consideration of USD123,000,000;
(6)
a rectification agreement dated 30 September 2013 and together with a stock sale and purchase
agreement dated 24 September 2013, both entered into between Hong Kong Airlines as seller
and HNA Group International as buyer, pursuant to which Hong Kong Airlines agreed to sell
and HNA Group International agreed to buy all the then issued shares of Sure Idea Ltd. for a
cash consideration of HKD953,382,840;
(7)
a subscription agreement dated 12 June 2014 entered into between Skyliner Company Limited
as the issuer, Hong Kong Airlines as the guarantor, Guotai Junan Securities (Hong Kong)
Limited and Target Capital Management Limited as the placement agents, and Guotai Junan
Securities (Hong Kong) Limited, Golden Prosperity Development Limited and BOCOM
International Securities Limited as the subscribers, pursuant to which Skyliner Company
Limited agreed to issue and the subscribers agreed to purchase the Notes, details of which are
set out in the section headed Financial Information in the [REDACTED];
IV-7
APPENDIX IV
(8)
a trust deed dated 18 June 2014 entered into between Skyliner Company Limited as issuer,
Hong Kong Airlines as guarantor, Grand China Air, and Bank of New York Mellon acting
through its London branch as the trustee relating to the constitution of the Notes, details of
which are set out in the section headed Financial Information of the [REDACTED];
(9)
a deed of guarantee dated 18 June 2014 entered into between Hong Kong Airlines as guarantor
and Bank of New York Mellon acting through its London branch as trustee pursuant to which,
among other things, Hong Kong Airlines agreed to guarantee to Bank of New York Mellon
acting through its London Branch the due and punctual payment of all amounts payable by
Skyliner Company Limited under the trust deed as described in sub-paragraph (8) above in
connection with the Notes, details of which are set out in the section headed Financial
Information of the [REDACTED];
(10) a keepwell deed dated 18 June 2014 entered into between Skyliner Company Limited as issuer,
Hong Kong Airlines as guarantor, Grand China Air, and Bank of New York Mellon acting
through its London Branch as trustee, details of which are set out in the section headed
Relationship with Controlling Shareholders and Other Existing Shareholders of the
[REDACTED];
(11) an agency agreement dated 18 June 2014 entered into between Skyliner Company Limited as
issuer, Hong Kong Airlines as guarantor and Bank of New York Mellon (Luxembourg) S.A. as
registrar and transfer agent and Bank of New York Mellon acting through its London branch
as principal paying agent and trustee pursuant to which, among other things, Skyliner Company
Limited appointed each of Bank of New York Mellon (Luxembourg) S.A. and Bank of New
York Mellon acting through its London Branch as its agent in relation to the Notes, details of
which are set out in the section headed Financial Information of the [REDACTED];
(12) the Reorganization Deed;
(13) the Deed of Non-Competition dated [] entered into by each of the Controlling Shareholders
as covenantor in favour of our Company, details of which are set out in the section headed
Relationship with Controlling Shareholders and Other Existing Shareholders of this
[REDACTED];
(14) [the Deed of Indemnity dated [] entered into by the Indemnifier in favour of the Company
pursuant to which the Indemnifier will indemnify the Company in respect of estate duty, details
of which are set out in the section headed D. Other information 1. Estate duty of this
Appendix];
(15) [a cornerstone investment agreement dated [] entered into between the Company, [] and [],
details of which are included in the section headed Cornerstone Investor of this
[REDACTED];]
(16) the Hong Kong Underwriting Agreement dated [], details of which are set out in the section
headed Underwriting of the [REDACTED]; and
(17) the International Underwriting Agreement dated [], details of which are set out in the section
headed Underwriting of the [REDACTED].
IV-8
APPENDIX IV
2.
Intellectual property rights of the Group

Set out below are the material intellectual property rights of the Group:
(a)
Trade marks
As of the Latest Practicable Date, the Group was the registered proprietor and beneficial owner
of the following trademarks which are material to the Groups business activities and operations:
Place of
registration
Class
Registration
number
Duration of
validity
Registered
owner
1..
Hong Kong
39
300762732
17 November
2006 up to
16 November
2016
Hong
Kong
Airlines
Limited
2..
Hong Kong
39
300786376
27 December
2006 up to
26 December
2016
Hong
Kong
Airlines
Limited
3..
Hong Kong
39
300776845
11 December
2006 up to 10
December 2016
Hong
Kong
Airlines
Limited
No.
Trademark
Our Group has applied for registration of the following trademark(s) (the application of which
is under examination) as of the Latest Practicable Date in Hong Kong which are material to the
Groups business activities and operations, details of which are as follows:
No.
1...
Trademark
Applicant
Class
Application
number
Date of application
Hong Kong
Airlines
Limited
16, 35, 39
303054852
3 July 2014
IV-9
APPENDIX IV
(b)
Domain Names
As of the Latest Practicable Date, the Group had the following registered domain names which
are material to the Groups business activities and operations:
Domain Name
www.hkairlines.com . . . . . .
www.hongkongairlines.com .
www.hkairlines.net . . . . . . .
www.hxagents.com . . . . . . .
www.hongkongair.net . . . . .
www.hkair.com. . . . . . . . . .
www.hkair.hk.. . . . . . . . . .
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Date of registration
Date of expiry
25 August 2006
29 July 2002
25 August 2006
22 March 2010
3 August 2011
30 November 2010
30 November 2010
25 August 2015
29 July 2022
25 August 2015
22 March 2017
3 August 2023
30 November 2016
30 November 2016
Note: Contents of the above websites do not form part of this [REDACTED].
C.
FURTHER INFORMATION ABOUT DIRECTORS AND SHAREHOLDERS
1.
Directors
(a)
Disclosure of interests of the Directors

[REDACTED]
(b)
Particulars of Directors service contracts
Executive Directors
Each of the executive Directors has entered into a service contract with the Company for a term
of [three] years commencing from the [REDACTED] until terminated by not less than [three]
months notice in writing served by either party on the other. Each of the executive Directors is
entitled to his basic salaries set out below.
The current basic annual salaries of the executive Directors payable under their service
contracts are as follows:
Approximate
annual salary
Name
(HK$)
Zhang Kui . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sun Jianfeng . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
IV-10
[2,500,000]
[2,300,000]
APPENDIX IV
Each of the non-executive Directors has signed an appointment letter with our Company for a
term of [three] years commencing from the [REDACTED]. Either our Company or the nonexecutive Director may give a [three] months prior written notice to the other party for early
termination of appointment.
Under their respective appointment letters, Mr. Re Qiongba, a non-executive Director, is
entitled to a fixed Directors fee and a remuneration of HK$[] per annum, while the other three
non-executive Directors are not entitled to any remuneration.
Each of the independent non-executive Directors has been appointed for an initial term of
[three] years commencing from the [REDACTED] until terminated by either party giving not less
than [three] months written notice to the other or until the expiration of such initial term or any
extended term thereafter. The appointments are subject to the provisions of the Articles of
Association with regard to vacation of office of Directors, removal and retirement by rotation of
Directors. Each of the independent non-executive Directors is entitled to a directors fee of
HK$[240,000] per annum. Save for such directors fees, none of our independent non-executive
Directors is expected to receive any other remuneration for holding his office as an independent
non-executive Director.
Save as aforesaid, none of the Directors has or is proposed to have a service contract with the
Company or any of our subsidiaries other than contracts expiring or determinable by the employer
within one year without the payment of compensation (other than statutory compensation).
(c)
Directors remuneration
(i)
The aggregate emoluments paid and benefits in kind granted by the Group to the
Directors in respect of the three years ended 31 December 2011, 2012 and 2013 and the
five months ended 31 May 2014 were approximately HK$2,153,000, HK$2,325,000,
HK$4,211,000 and HK$2,407,000, respectively.
(ii)
Under the arrangements currently in force, the aggregate emoluments (excluding

discretionary bonus) payable by the Group to and benefits in kind receivable by the
Directors (including the independent non-executive Directors in their respective capacity
as Directors) for the year ending 31 December 2014 are expected to be approximately [].
(iii) Save as disclosed in this [REDACTED], none of the Directors or any past directors of
any member of the Group has been paid any sum of money for the three years ended 31
December 2013 (i) as an inducement to join or upon joining the Group or (ii) for loss of
office as a director of any member of the Group or of any other office in connection with
the management of the affairs of any member of the Group.
(iv) There has been no arrangement under which a Director has waived or agreed to waive any
emoluments for the three years ended 31 December 2013.
IV-11
APPENDIX IV
(d)
Interests and short positions of Directors in the shares, underlying shares or debentures of
the Company and our associated corporations
Immediately following completion of the [REDACTED] and taking no account of any Shares
which may be allotted and issued pursuant to any exercise of the Over-allotment Option, the interests
and short positions of the Directors in the shares, underlying shares or debentures of the Company
and our associated corporations (within the meaning of Part XV of the SFO) which will have to be
notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the
SFO (including interests and short positions in which they are taken or deemed to have under such
provisions of the SFO) or which will be required, pursuant to section 352 of the SFO, to be entered
in the register referred to therein, or which will be required to be notified to the Company and the
Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of
[REDACTED] Issuers contained in the Listing Rules, once the Shares are [REDACTED], will be
as follows:
The Company
Name of Director
Nature of interest
Mr. Mung (1) . . . . . . . . Beneficial owner of our Company

Interest of a controlled corporation
Number of Shares
(Note 1)
Percentage of
interest in the
Company
immediately upon
completion of the
[REDACTED]
(without taking
into account any
exercise of the
Over-allotment
Option)
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
Notes:
1.
a [REDACTED] interest in our Company of which [REDACTED] is held by HKA Holdings and [REDACTED] is
held by China Energy Development Limited.
IV-12
APPENDIX IV
So far as our Directors are aware, immediately following completion of the [REDACTED] (without
taking into account any exercise of the Over-allotment Option), the following persons will have an interest
and/or a short position in the Shares or underlying shares of our Company which would fall to be disclosed
to us and the Stock Exchange pursuant to the provisions of Divisions 2 and 3 of Part XV of the SFO, or
who will, directly or indirectly, be interested in 10% or more of the then enlarged issued share capital of
our Company carrying rights to vote in all circumstances at our general meetings:
Total number of
Shares
Percentage of
interest in our
Company
immediately upon
completion of the
[REDACTED]
(without taking
into account any
exercise of the
Over-allotment
Option)
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
corporation
corporation
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
corporation
[REDACTED]
[REDACTED]
corporation
corporation
corporation
corporation
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
corporation
[REDACTED]
[REDACTED]
corporation
[REDACTED]
[REDACTED]
HKA Holdings . . . . . . Beneficial owner

HKA Consultation (1) . . . Beneficial owner
Mr. Zhong (2) . . . . . . . . . Interest of a controlled
HKA Group (3) . . . . . . . Interest of a controlled
China Energy
Beneficial owner
Development Limited
Mr. Mung (4) . . . . . . . . Beneficial owner
Hainan Airlines
Beneficial owner
Investment . . . . . . . .
Hainan Airlines
(Hong Kong) (5) . . . . .
Hainan Airlines (5) . . . . . Interest of a controlled
Grand China Air (6) . . . . Interest of a controlled
HNA Investment . . . . . . Beneficial owner
HNA Group (7) . . . . . . . Interest of a controlled
Hainan Traffic
Administration
Holding Co. Ltd
(
) (8) . . . . . . .
Tang Dynasty
Development
(Yangpu) Company
Limited
(()
) (8) . . . . . . .
Hainan Province Cihang Interest of a controlled
Foundation
(
) (8) . . . . . . . . .
corporation
corporation
corporation
IV-13
APPENDIX IV

Hainan Airlines Co.,
Ltd. Trade
Community Union
(
) (8) . .
Total number of
Shares
Percentage of
interest in our
Company
immediately upon
completion of the
[REDACTED]
(without taking
into account any
exercise of the
Over-allotment
Option)
[REDACTED]
[REDACTED]
Notes:
(1)
HKA Consultation directly holds an approximate [REDACTED] interest in our Company. HKA Consultation directly
holds an approximate 51.04% interest in HKA Holdings. Accordingly, HKA Consultation will be deemed to have an
approximate [REDACTED] interest in our Company which is held by HKA Holdings.
(2)
Mr. Zhong is the sole beneficial owner of HKA Consultation. Accordingly, Mr. Zhong will be deemed to have an
approximate [REDACTED] interest in our Company which is held directly and indirectly by HKA Consultation.
(3)
HKA Group directly holds an approximate 48.96% interest in HKA Holdings. Accordingly, HKA Group will be deemed
to have an approximate [REDACTED] interest in our Company which is held by HKA Holdings.
(4)
an approximate [REDACTED] interest in our Company of which [REDACTED] is held by HKA Holdings and
[REDACTED] is held by China Energy Development Limited.
(5)
Hainan Airlines is the holding company of Hainan Airlines (Hong Kong) which in turn holds 100% interest in Hainan
Airlines Investment. Accordingly, each of Hainan Airlines (Hong Kong) and Hainan Airlines will be deemed to have
an approximate [REDACTED] interest in our Company which is held by Hainan Airlines Investment.
(6)
Grand China Air is a holding company of Hainan Airlines. Accordingly Grand China Air will be deemed to have an
approximate [REDACTED] interest in our Company which is held by Hainan Airlines Investment.
(7)
HNA Group is the holding company of HNA Investment. Accordingly, HNA Group will be deemed to have an
approximate [REDACTED] interest in our Company which is held by HNA Investment.
(8)
HNA Group is held as to 70% by Hainan Traffic Administration Holding Co., Ltd. (), which is
in turn held as to 50% by Tang Dynasty Development (Yangpu) Company Limited (()). Tang
Dynasty Development (Yangpu) Co., Ltd. is held as to 65% by Hainan Province Cihang Foundation (
). Two-thirds of the committee members of Hainan Province Cihang Foundation are nominated by Hainan
Airlines Co., Ltd. Trade Community Union (). Accordingly, each of Hainan Traffic
Administration Holding Co. Ltd, Tang Dynasty Development (Yangpu) Co., Ltd., Hainan Province Cihang Foundation
and Hainan Airlines Co., Ltd. Trade Community Union will be deemed to have an approximate [REDACTED] interest
in our Company which is held by HNA Investment.
IV-14
APPENDIX IV
Save as disclosed in this [REDACTED], we are not aware of any other person who will, immediately
following completion of the [REDACTED] (without taking into account any exercise of the Overallotment Option), have an interest or short position in our Shares or our underlying shares which would
fall to be disclosed to us and the Stock Exchange pursuant to the provisions of Divisions 2 and 3 of Part
XV of the SFO or, who will, directly or indirectly, be interested in 10% or more of the then enlarged issued
share capital of our Company carrying rights to vote in all circumstances at our general meetings.
All subsidiaries of the Company are wholly-owned by the Company, details of which are set out in
Appendix I to this [REDACTED].
3.
Disclaimers
Save as disclosed in this [REDACTED]:
(a)
and taking no account of any Shares which may be taken up or acquired under the
[REDACTED] or upon any exercise of the Over-allotment Option, the Directors are not aware
of any person (not being a Director or chief executive of the Company) who immediately
following the completion of the [REDACTED] will have an interest or a short position in the
[REDACTED] and underlying [REDACTED] which would fall to be disclosed to the
Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the
SFO or who will, either directly or indirectly, be interested in 10% or more of the nominal value
of any class of share capital carrying rights to vote in all circumstances at general meetings of
any other member of the Group;
(b)
none of the Directors has any interest or short position in any of the shares, underlying shares
or debentures of the Company or our associated corporations within the meaning of Part XV
of the SFO, which will have to be notified to the Company and the Stock Exchange pursuant
to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions in which
any of them is taken or deemed to have under such provisions of the SFO), or which will be
required, pursuant to section 352 of the SFO, to be entered in the register referred to therein,
or which will be required to be notified to the Company and the Stock Exchange pursuant to
the Model Code for Securities Transactions by Directors of [REDACTED] Issuers contained
in the Listing Rules, in each case once the Shares are [REDACTED];
(c)
none of the Directors nor any of the persons listed in the paragraph headed Qualifications of
experts under the section headed Other Information of this Appendix has been interested in
the promotion of, or has any direct or indirect interest in any assets which have been, within
the two years immediately preceding the date of this [REDACTED], acquired or disposed of
by or leased to the Company or any of the subsidiaries of the Company, or are proposed to be
acquired or disposed of by or leased to the Company or any other member of the Group, nor
will any Director apply for the [REDACTED] either in his own name or in the name of a
nominee;
(d)
none of the Directors nor any of the persons listed in the paragraph headed Qualifications of
experts under the section headed Other Information of this Appendix is materially interested
in any contract or arrangement subsisting at the date of this [REDACTED] which is significant
in relation to business of the Group;
IV-15
APPENDIX IV
(e)
none of our Directors nor any of the persons listed in the paragraph headed Qualifications of
experts under the section headed Other Information of this Appendix has received any
agency fee, commissions, discounts, brokerage or other special terms from our Group within
the two years immediately preceding the date of this [REDACTED] in connection with the
issue or sale of any capital of any member of our Group;
(f)
save in connection with the Underwriting Agreements, none of the persons listed in the
paragraph headed Qualifications of Experts under the section headed Other Information of
this Appendix:
(i)
is interested legally or beneficially in any securities of any member of the Group; or
(ii)
has any right (whether legally enforceable or not) to subscribe for or to nominate persons
to subscribe for securities in any member of the Group.
D. OTHER INFORMATION
1.
Estate duty
[Each of the Controlling Shareholders]/[] (the Indemnifier) has entered into a deed of indemnity
(Deed of Indemnity) with and in favour of the Company (for itself and as trustee for each of its present
subsidiaries) (being the material contract numbered (14) referred to in paragraph Summary of Material
Contracts above) to provide indemnities on a joint and several basis, in respect of, among other matters,
any liability for Hong Kong estate duty which might be incurred by any member of the Group by reason
of any transfer of property (within the meaning of sections 35 and 43 of the Estate Duty Ordinance
(Chapter 111 of the Laws of Hong Kong) or the equivalent thereof under the laws of any jurisdiction
outside Hong Kong) to any member of the Group at any time on or before the [REDACTED].
2.
Preliminary expenses
The preliminary expenses of the Company are estimated to be approximately US$5,514.60 and are
payable by the Company.
3.
Promoter
(a)
Our Company does not have any promoter.
(b)
Save as disclosed in this [REDACTED], within the two years preceding the date of this
[REDACTED], no amount or benefit has been paid or given to any promoter in connection
with the [REDACTED] or the related transactions described in this [REDACTED].
IV-16
APPENDIX IV
4.
Financial adviser
Oriental Patron Asia Limited (Oriental Patron) has been appointed by us as our financial adviser
in respect of the [REDACTED]. The appointment of Oriental Patron was not made pursuant to the
requirements of the Listing Rules, and the appointment of Oriental Patron is additional to and separate and
distinct from the appointment of the Sole Sponsor (which is required to be made by us pursuant to the
Listing Rules). The Sole Sponsor is responsible for fulfilling its duties as sponsor to our application for
[REDACTED], and the Sole Sponsor has not relied on any of the work performed by Oriental Patron in
fulfilling those duties. Oriental Patrons role in the [REDACTED] is different from that of the Sole
Sponsor in that Oriental Patron advises and assists our Company on the selection and hiring of working
parties and provides general corporate finance advice to us on matters relating to the [REDACTED] and
the [REDACTED] so that we can have an additional source of advice. Oriental Patron does not act to
fulfill the Sole Sponsors role as prescribed under the Listing Rules.
5.
The Sole Sponsor
The Sole Sponsor, J.P. Morgan Securities (Far East) Limited, has declared its independence pursuant
to Rule 3A.07 of the Listing Rules.
The Sole Sponsor will receive an aggregate of USD500,000 for acting as the sponsor upon
completion of the [REDACTED].
6.
Agency fees or commissions received
[The Underwriters will receive a commission of []% of the aggregate of the HKD [REDACTED]
and the [REDACTED] in respect of all the [REDACTED], out of which they will pay any
sub-underwriting commissions and selling concessions. Such commissions, selling concessions, fees and
expenses, together with the Stock Exchange [REDACTED] fees, legal and other professional fees, and
printing and other expenses relating to the [REDACTED] and excluding the costs in relation to the
[REDACTED], which are estimated to amount in aggregate to approximately HK$[REDACTED] based
on the mid-point of the indicative range of the HKD [REDACTED] of [REDACTED] per [REDACTED]
and the [REDACTED] of [REDACTED] per [REDACTED] (both assuming no exercise of the
Over-allotment Option), will be payable by the Company.]
7.
Application for [REDACTED] of Shares
The Sole Sponsor has made an application on behalf of the Company to the Listing Committee of
the Stock Exchange for the [REDACTED] of, and permission to deal in, the [REDACTED] in issue and
to be issued as mentioned in this [REDACTED] including any [REDACTED] which may be issued upon
any exercise of the Over-allotment Option on the Stock Exchange. All necessary arrangements have been
made to enable the securities to be admitted into CCASS.
IV-17
APPENDIX IV
8.
Qualifications of experts
The qualifications of the experts who have given opinions and/or whose names are included in this
[REDACTED] are as follows:
Name
Qualification
J.P. Morgan Securities (Far East)

Limited . . . . . . . . . . . . . . . . . .
A corporation licensed to conduct type 1 (dealing in

securities), type 4 (advising on securities) and type 6
(advising on corporate finance) regulated activities under
the SFO
Legal advisers to the Company as to Cayman Islands laws
Legal advisers to the Company as to PRC laws
Certified public accountants
Industry consultant
Maples and Calder . . . .

Jun He Law Offices . . .
PricewaterhouseCoopers
ICF International . . . . .
9.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Consents of experts
Each of the Sole Sponsor, Maples and Calder, Jun He Law Offices, PricewaterhouseCoopers and ICF
International has given and has not withdrawn its written consent to the issue of this [REDACTED] with
copies of its report(s) letter(s) or opinion(s) (as the case may be) and the references to its names or
summaries of opinion(s) included herein in the form and context in which they respectively appear.
10.
Binding effect
This [REDACTED] shall have the effect, if an application is made in pursuance of it, of rendering
all persons concerned bound by all of the provisions (other than the penal provisions) of sections 44A and
44B of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Chapter 32 of the Laws of
Hong Kong) so far as applicable.
11.
Bilingual [REDACTED]
The English language and Chinese language versions of this [REDACTED] are being published
separately, in reliance upon the exemption provided under section 4 of the Companies (Exemption of
Companies and [REDACTED] from Compliance with Provisions) Notice (Chapter 32L of the Laws of
Hong Kong).
12.
Taxation of holders of Shares

(a)
Hong Kong
Dealings in Shares registered on the Companys Hong Kong branch register of members will
be subject to Hong Kong stamp duty. The sale, purchase and transfer of Shares are subject to Hong
Kong stamp duty, the current rate of which is 0.2% of the consideration or, if higher, the value of
the Shares being sold or transferred.
Profits from dealings in the Shares arising in or derived from Hong Kong may also be subject
to Hong Kong profits tax.
IV-18
APPENDIX IV
(b)
Cayman Islands
Under the present Cayman Islands law, transfers and other dispositions of Shares are exempt
from Cayman Islands stamp duty.
13.
Miscellaneous
(a)
Save as disclosed in this [REDACTED]:

(i)
within two years preceding the date of this [REDACTED]:

(aa) no share or loan capital of the Company or of any of our subsidiaries has been
issued, agreed to be issued or is proposed to be issued fully or partly paid either for
cash or for a consideration other than cash;
(bb) no commissions, discounts, brokerages or other special terms have been granted in
connection with the issue or sale of any share or loan capital of the Company or any
of our subsidiaries; and
(cc) no commission has been paid or payable for subscribing or agreeing to subscribe,
or procuring or agreeing to procure the subscription, for any shares in or debentures
of the Company or any of our subsidiaries;
(ii)
no share or loan capital of the Company or any of our subsidiaries is under option or is
agreed conditionally or unconditionally to be put under option; and
(iii) no founders or management or deferred shares of or any debentures in our Company or

any of its subsidiaries have been issued or agreed to be issued.
(b)
The Directors confirm that there has been no material adverse change or prospective material
adverse change in the earnings, results of operations, business, business prospects, financial or
trading position, conditions (financial or otherwise) or prospects of any member of our Group
(including any litigation or claim of any third party being threatened or instigated against any
member of our Group) since 31 May 2014 (being the date to which the latest combined
financial statements of the Group were made up).
(c)
There has not been any interruption in the business of the Group which may have or has had
a significant effect on the financial position of the Group in the 12 months preceding the date
of this [REDACTED].
IV-19
APPENDIX V
1.
DOCUMENTS DELIVERED TO THE REGISTRAR OF

COMPANIES AND AVAILABLE FOR INSPECTION
DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIES
The documents attached to a copy of this [REDACTED] and delivered to the Registrar of
Companies in Hong Kong for registration were, amongst other documents, copies of the [REDACTED],
the written consents referred to under the paragraph headed Consents of experts under the section
headed D. Other Information of Appendix IV to this [REDACTED], and certified copies of the material
contracts referred to in the paragraph headed Summary of material contracts under the section headed
B. Further Information about the Business of the Company of Appendix IV to this [REDACTED].
2.
DOCUMENTS AVAILABLE FOR INSPECTION
Copies of the following documents will be available for inspection at the offices of the Company at
11th Floor, One Citygate, 20 Tat Tung Road, Tung Chung, Lantau, Hong Kong, during normal business
hours up to and including the date which is 14 days from the date of this [REDACTED]:
(a)
our Memorandum of Association and the Articles of Association;
(b)
the Accountants Report from PricewaterhouseCoopers, the text of which is set out in Appendix
I to this [REDACTED];
(c)
the report on the unaudited pro forma financial information of the Group from
PricewaterhouseCoopers, the text of which is set out in Appendix II to this [REDACTED];
(d)
the audited financial statements of the companies now comprising the Group under the
statutory requirements for the three years ended 31 December 2013 (or for the period since
their respective dates of incorporation where it is shorter), if any;
(e)
the Cayman Companies Law;
(f)
the material contracts referred to in the paragraph headed Summary of material contracts in
the section headed B. Further Information about the Business of the Company of Appendix
IV to this [REDACTED];
(g)
the written consents referred to in the paragraph headed Consents of experts under the
section headed D. Other Information of Appendix IV to this [REDACTED]; and
(h)
the service contracts referred to in the paragraph headed Directors in the section headed C.
Further Information about Directors and Shareholders of Appendix IV to this [REDACTED].
V-1

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The Stock Exchange of Hong Kong Limited and the Securities and Futures Commission take no responsibility for

the contents of this Application Proof,

Hong Kong Airlines International Holdings Limited

(Incorporated in the Cayman Islands with limited liability)

Hong Kong Airlines International Holdings Limited

(Incorporated in the Cayman Islands with limited liability)

[] Shares (subject to the Over-allotment Option)

[] HKD [REDACTED] and []

HK$[] per [REDACTED] under

Stock code for

[] Shares (subject to adjustment,

Stock code for

Sole Global Coordinator

EXPECTED TIMETABLE (1)

EXPECTED TIMETABLE (1)

EXPECTED TIMETABLE (1)

IMPORTANT NOTICE TO INVESTORS

Waivers from Strict Compliance with the Listing Rules . . . . . . . . . . . . . . . . . . . . . . . . . . .

Information about this [REDACTED] and the [REDACTED] . . . . . . . . . . . . . . . . . . . . . .

Directors and Parties Involved in the [REDACTED] . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

History and Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Relationship with Controlling Shareholders and Other Existing Shareholders . . . . . . . . . .

Directors, Senior Management and Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Future Plans and Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Structure of the [REDACTED] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

How to Apply for [REDACTED] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Unaudited Pro Forma Financial Information . . . . . . . . . . . . . . . . . . .

Summary of the Constitution of Our Company and

Statutory and General Information . . . . . . . . . . . . . . . . . . . . . . . . . .

Documents Delivered to the Registrar of Companies and

We believe China is a highly attractive air travel market.

China is the largest contributor to our traffic revenue.

(iii) We made the majority of our ticket sales in China.

Young, fuel-efficient and homogenous operating fleet.

Experienced management team with proven track record.

Expand our network through

increasing frequency on existing routes;

adding new destinations within the Asia-Pacific region;

(iii) developing long-haul network; and

Expand our fleet.

Build our brand and grow a loyal customer base.

Focus on cost management. In particular, we intend to

operate a fleet of new, single manufacturer and fuel-efficient aircraft;

enhance operating cost efficiency; and

(iii) maintain low sales and distribution costs.

Drive growth in ancillary revenue.

Develop complementary ancillary services organically or through acquisition.

SUMMARY HISTORICAL COMBINED FINANCIAL INFORMATION

For the year ended December 31,

For the five months

Profit for the year/period . . . . . .

For the five months ended May 31,

Rental income from air

Other revenue represents primarily in-flight sales commission.

Summary Combined Balance Sheet Information

Net current liabilities . . . . . . . . . . . . . . .

As of or for the year ended December 31,

EBITDAR margin (1) . . . .

For the year ended December 31,

expansion of our fleet through acquisition or leasing

payment of our obligations under our existing aircraft and

repayment of a bank loan

development of our capacities in relation to ancillary

working capital needs, including expenses in relation to