Agreement for capital increase subscription signed in major strategic alliance

(HONG KONG, 15 April 2005) - Shareholders of Hangzhou Xiaoshan International Airport Co Ltd (HXIA) and Airport Authority Hong Kong (AA) today signed in Hangzhou the Agreement for a Capital Increase Subscription of Hangzhou Xiaoshan International Airport Co Ltd (the Agreement).

Under the Agreement, HXIA will become a joint venture through capital increase and invite AA to become a strategic investor for the management of Hangzhou Airport. Zhejiang parties will hold 65% equity interest by contributing its net appraised assets confirmed by State-owned Assets Supervision and Administration Commission, while AA will hold 35% equity interest by making an investment of RMB1.99 billion (HK$1.9 billion).

The Agreement was concluded after HXIA and AA reached a consensus on jointly operating and managing Hangzhou Xiaoshan International Airport (Hangzhou Airport) by setting up a Chinese-foreign joint venture company via capital increase subscription.

HXIA will be changed from a state-owned limited company to a limited liability joint venture company. The two parties will jointly operate and manage Hangzhou Airport, and strive to enhance operation efficiency, improve service quality and management standards of Hangzhou Airport to bring it to par with top, world-class standards.

The Agreement was signed by Mr Chen Haimei, Chairman of HXIA, and Dr David Pang, Chief Executive Officer of AA. Mainland officials and representatives from Hong Kong Special Administrative Region (HKSAR) witnessed the signing. Standing Committee member of Zhejiang Provincial Committee and Executive Vice-Governor of Zhejiang Province, Mr Zhang Mengjin, HKSAR Secretary for Economic Development & Labour, Mr Stephen Ip, and Chairman of AA, Dr Victor Fung also attended the ceremony.

At the signing ceremony, Mr Zhang Mengjin, Standing Committee member of Zhejiang Provincial Committee and Executive Vice-Governor of Zhejiang Province, said: "Successful launch of the joint venture project is an important step for Zhejiang towards the implementation of CEPA. The project is a major step for civilian airports on the Mainland to engage in joint ventures, and is a reform for diversifying asset ownership of state-owned enterprises of Zhejiang Province."

Chairman of State-owned Assets Supervision and Administration Commission Mr Chen Zhengxing said: "The joint venture between Hangzhou Airport and AA serves to further promote the reform in the diversification of asset ownership of state-owned enterprises in Zhejiang. This project will enhance the corporate governance, management and operation of Hangzhou Airport, aligning its development with the international aviation business. It is also strategically significant in fully realizing the economic potential and enhancing competitiveness of state-owned enterprises of Zhejiang Province."

AA Chairman Dr Victor Fung said: "The project is a major milestone for both airports. Zhejiang Province has the largest number of private enterprises on the Mainland. Hangzhou and Hong Kong are the major economic engines for their respective regions. This strategic alliance will allow the two airports to further develop and enhance business cooperation of the two regions."

HXIA Chairman Mr Chen Haimei said: "After rapidly growing at 29% per annum for several years, Hangzhou Airport is facing the challenge to quickly improve its operation efficiency to support sustainable growth. It will grow faster and better with the joint venture. Hangzhou Airport will focus on the implementation of the joint venture project and carry out the construction of Phase 2 facilities and the Hangzhou International Airport Logistics Centre. The joint venture is a strategic cooperation encompassing areas including capital, management, skills and human resources. This is a win-win agreement for both parties."

AA Chief Executive Officer Dr David Pang said: "We will continue to extend our Mainland market to fully realize HKIA's role as the country’s gateway and hub airport. The concept of building air bridges between HKIA and Mainland airports comes to fruition through this first strategic alliance. Through direct investment and participation in their management, we will establish an airport system with our Mainland counterparts.  This will enhance the economic development of the member airports and their respective economic regions."

Today's signing of the agreement follows a letter of intent signed between the two airports on 17 January 2005.

(From left to right) Mr Chen Zhengxing, Chairman of State-owned Assets Supervision and Administration Commission, Mr Chen Haimei, Chairman of HXIA, Dr David Pang, Chief Executive Officer of AA and Mr Wilson Fung, Deputy Secretary for Economic Development and Labour of HKSAR signed the agreement in Hangzhou. Mainland officials and representatives from HKSAR witnessed the signing.

Mr Chen Haimei (right), Chairman of HXIA, and Dr David Pang (middle), AA CEO answered questions from the floor in a press conference after the signing ceremony.

AA Chairman Dr Victor Fung thanked Zhejiang and Hong Kong parties for their concerted efforts in achieving a major milestone in Hangzhou and Hong Kong airports’ development

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