Cathay Pacific Airways Limited. Continuing Connected Transactions Aircraft Maintenance

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1 THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION If you are in any doubt as to any aspect of this circular, or as to the action to be taken, you should consult a licensed securities dealer, bank manager, solicitor, professional accountant or other professional adviser. If you have sold or transferred all your shares in Cathay Pacific Airways Limited, you should at once hand this circular to the purchaser or transferee or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee. Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular. Cathay Pacific Airways Limited (Incorporated in Hong Kong with limited liability) (Stock Code: 293) Continuing Connected Transactions Aircraft Maintenance Independent financial adviser: CLSA Equity Capital Markets Limited A letter from the Independent Board Committee containing its recommendation to the Independent Shareholders is set out on page 11 of this circular. A letter from CLSA Equity Capital Markets Limited, the independent financial adviser, containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 12 to 23 of this circular. A notice convening the EGM to be held on Tuesday, 31st December 2013 at 10:00 a.m. at the Conference Room, Level 7, Conrad Hong Kong, Pacific Place, 88 Queensway, Hong Kong is set out on pages 27 to 28 of this circular. Whether or not you are able to attend the EGM, please complete the enclosed form of proxy in accordance with the instructions printed thereon and return it to the share registrar of the Company, Computershare Hong Kong Investor Services Limited, 17M Floor, Hopewell Centre, 183 Queen's Road East, Hong Kong as soon as possible and in any event not later than 48 hours before the time appointed for the holding of the EGM or any adjourned meeting thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjourned meeting thereof and, in such event, the relevant form of proxy shall be deemed to be revoked. 3rd December 2013

2 DEFINITIONS In this circular the following expressions have the following meanings unless the context requires otherwise: 2007 Framework Agreement AHK BM Services CAO Services Cathay Pacific or the Company Cathay Pacific Group or the Group Directors Dragonair EGM Engineering Services Framework Agreement The framework agreement dated 21st May 2007 between Cathay Pacific and HAECO for the provision of services by the HAECO Group to the Cathay Pacific Group under the agreements referred to in that agreement. AHK Air Hong Kong Limited, a non-wholly owned subsidiary of Cathay Pacific, the principal activity of which is the operation of cargo airline services. Base maintenance services, comprising a comprehensive range of scheduled maintenance services, for example airframe heavy checks, major structural and avionics modifications, refurbishment, painting and freighter conversions. Component and avionics overhaul services for a range of aircraft components and avionics equipment, including mechanical and hydraulic equipment. Cathay Pacific Airways Limited, a company incorporated in Hong Kong and whose shares are listed on the Stock Exchange, the principal activity of which is the operation of scheduled airline services. Cathay Pacific and its subsidiaries, including AHK and Dragonair. The directors of the Company. Hong Kong Dragon Airlines Limited, a wholly owned subsidiary of Cathay Pacific, the principal activity of which is the operation of scheduled airline services. extraordinary general meeting. Services in support of LM Services, BM Services and CAO Services, including aircraft documentation, technical data exchanges, interior product maintenance and other support services agreed between the Cathay Pacific Group and the HAECO Group. The framework agreement dated 13th November 2013 between Cathay Pacific, HAECO and HXITM for the provision of the Services by the HAECO Group to the Cathay Pacific Group and vice versa and by HXITM to the HAECO Group and vice versa. HAECO Hong Kong Aircraft Engineering Company Limited, a company incorporated in Hong Kong and whose shares are listed on the Stock Exchange, the principal activity of which is the provision of overhaul and maintenance services for commercial aircraft

3 DEFINITIONS HAECO Group HKIA HXITM Independent Board Committee Independent Financial Adviser Independent Shareholders Latest Practicable Date ITM Services Listing Rules LM Services Model Code PRC Relevant Agreements Services HAECO and its subsidiaries, including TAECO and HXITM. Hong Kong International Airport. HAECO ITM Limited, a company incorporated in Hong Kong and owned as to 70% by HAECO and 30% by Cathay Pacific, the principal activity of which is the provision of ITM Services (including, where relevant, any subsidiaries of HXITM). An independent committee of the Board of Directors comprising Irene Lee, Jack So, Tung Chee Chen and Peter Wong, all of whom are independent non-executive Directors. CLSA Equity Capital Markets Limited, the independent financial adviser to the Independent Board Committee and is licensed to conduct Type 4 (advising on securities) and Type 6 (advising on corporate finance) regulated activities under the SFO. Shareholders of Cathay Pacific apart from Swire Pacific and its associates. 27th November 2013, being the last practicable date prior to the printing of this circular for ascertaining certain information referred to in this circular. Inventory technical management services provided in connection with the maintenance and management of aircraft components. The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. Line maintenance services, including transit and overnight servicing, progressive maintenance checks (up to A checks), defect rectification and non-technical services such as aircraft towing, provision of water, servicing of toilets, washing and waxing the exterior of aircraft, cabin cleaning and ground equipment support. Model Code for Securities Transactions by Directors of Listed Companies, being Appendix 10 of the Listing Rules. The People s Republic of China. The agreements described under the heading The Services in this circular. Maintenance and related services in respect of aircraft, aircraft engines and aircraft parts and components and including ITM Services and the secondment of personnel

4 DEFINITIONS SFO Shareholders Stock Exchange Swire Pacific TAECO Transactions Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). The shareholders of the Company. The Stock Exchange of Hong Kong Limited. Swire Pacific Limited, an investment holding company incorporated in Hong Kong and whose shares are listed on the Stock Exchange, the subsidiaries, associated companies and jointly controlled entities of which are engaged in property, aviation, beverages, marine services and trading and industrial businesses. Taikoo (Xiamen) Aircraft Engineering Company Limited, a non-wholly owned subsidiary of HAECO incorporated in the PRC, whose principal activity is the provision of overhaul and maintenance services for commercial aircraft. The provision of the Services in accordance with the Framework Agreement and the Relevant Agreements

5 LETTER FROM THE BOARD Cathay Pacific Airways Limited (Incorporated in Hong Kong with limited liability) Executive Directors Christopher Pratt (Chairman) James Barrington Ivan Chu Martin Murray John Slosar Non- Executive Directors Cai Jianjiang Fan Cheng James W.J. Hughes-Hallett Peter Kilgour Ian Shiu Merlin Swire Wang Changshun Zhao Xiaohang Registered Office: 33rd Floor One Pacific Place 88 Queensway Hong Kong Principal Office: 7th Floor, North Tower Cathay Pacific City 8 Scenic Road Hong Kong International Airport Lantau Hong Kong Independent Non-Executive Directors Irene Lee Jack So Tung Chee Chen Peter Wong To the Shareholders 3rd December 2013 Dear Sir or Madam, Continuing Connected Transactions Aircraft Maintenance INTRODUCTION Reference is made to the Company s announcement dated 13th November 2013 regarding the Transactions relating to the Framework Agreement between Cathay Pacific, HAECO and HXITM dated 13th November 2013, pursuant to which the Services are provided by the HAECO Group to the Cathay Pacific Group and vice versa and by HXITM to the HAECO Group and vice versa for a term of 10 years ending on 31st December The purposes of this circular are: (a) (b) (c) to provide you with further information relating to the Framework Agreement and the Transactions and other information required by the Listing Rules; to set out the letter of advice from CLSA Equity Capital Markets Limited to the Independent Board Committee and the Independent Shareholders and the recommendation and opinion of the Independent Board Committee as advised by CLSA Equity Capital Markets Limited; and to give you notice of the EGM of the Company to consider and, if thought fit, to approve the Framework Agreement, its term and the Transactions (including the annual caps)

6 LETTER FROM THE BOARD Framework Agreement dated 13th November 2013 Parties: (1) Cathay Pacific (2) HAECO (3) HXITM Cathay Pacific, HAECO and HXITM entered into the Framework Agreement on 13th November It provides a framework for the performance of the Services for a term of 10 years ending on 31st December The Services (being maintenance and related services in respect of aircraft, aircraft engines and aircraft parts and components and including ITM Services and the secondment of personnel) are provided by the HAECO Group to the Cathay Pacific Group and vice versa and by HXITM to the HAECO Group and vice versa. A duration of 10 years for the Framework Agreement is required in order for the HAECO Group and HXITM to maintain the facilities, components and spare parts necessary for them to provide the Services in a cost effective manner. Since the duration of the Framework Agreement is 10 years, CLSA Equity Capital Markets Limited has been appointed as Independent Financial Adviser to comment on such duration and their comments are set out in the letter from the Independent Financial Adviser contained in this circular. The Framework Agreement covers existing Relevant Agreements between (i) the Cathay Pacific Group and the HAECO Group and (ii) the HAECO Group and HXITM and provides a framework under which Relevant Agreements are entered into, renewed and extended for terms or successive terms expiring on or before 31st December The terms of the Framework Agreement are consistent with normal business practices. The terms of the existing Relevant Agreements covered by the Framework Agreement, including the fact that charges for the Services are determined by reference to the aircraft, aircraft engines, aircraft parts and components concerned and the required technical standards, have been arrived at after negotiations at arm s length on normal commercial terms. Payments are required to be made in cash within 30 days of receipt of invoices. A party to any Relevant Agreement may terminate that Relevant Agreement with immediate effect by notice in the event of material default by another party. If a Relevant Agreement is terminated, all the rights and obligations of the parties under it, except those subsisting at the time of termination, will thereupon cease. The Framework Agreement is conditional upon approval being given at the EGMs of Cathay Pacific and HAECO to be convened for the purpose of approving it. If such condition is satisfied, the Framework Agreement will thereupon come into effect and the 2007 Framework Agreement will thereupon be terminated. As between the parties, the 2007 Framework Agreement will be treated as having been terminated on 1st January 2013 and the Framework Agreement will be treated as having come into effect on 1st January The 2007 Framework Agreement was entered into between Cathay Pacific and HAECO on 21st May Cathay Pacific published an announcement in respect of the 2007 Framework Agreement dated 21st May 2007 and despatched a circular to shareholders in respect of it dated 31st May The Services The Services are or will be provided under Relevant Agreements as follows: - 6 -

7 LETTER FROM THE BOARD (1) Total Care Package Contract dated 9th September 2004 between AHK and HAECO; (2) Aircraft Line Maintenance Services Agreement dated 26th February 2013 between AHK and TAECO; (3) IATA Standard Ground Handling Agreement dated 1st January 2008 between Cathay Pacific and TAECO; (4) IATA Standard Ground Handling Agreement dated 26th July 2010 between Dragonair and TAECO; (5) Aircraft Maintenance Services Agreement for AHK B BCF aircraft dated 20th May 2011 between AHK and HAECO; (6) TAECO Services Agreement dated 19th July 2012 between Cathay Pacific and TAECO; (7) Joint Venture Agreement dated 24th September 2012 between HAECO, Cathay Pacific and HXITM; (8) Services Agreement dated 24th September 2012 between HAECO and HXITM; (9) Secondment Agreement dated 24th September 2012 between Cathay Pacific and HXITM; (10) Inventory Technical Management Services Agreement dated 24th September 2012 between Cathay Pacific, Dragonair and HXITM; (11) HAECO Services Agreement dated 29th November 2012 between Cathay Pacific and HAECO; (12) Aircraft Line Maintenance (Hong Kong) Services Agreement dated 1st January 2013 between AHK and HAECO; and (13) any further agreements under which maintenance and related services in respect of aircraft, aircraft engines and aircraft parts and components are provided by the HAECO Group to the Cathay Pacific Group and vice versa and by HXITM to the HAECO Group and vice versa. The Services include, but are not limited to, the following: (1) the provision by HAECO to AHK of a total care package for AHK s fleet, including acquisition of an inventory of rotable and repairable spares for leasing to AHK and providing management of and logistics support and maintenance for this inventory; (2) the provision by HAECO of line maintenance services for AHK s fleet at HKIA, including routine maintenance checks, non-routine maintenance, actions to address inbound technical issues, ad-hoc maintenance support, ramp services, material supplies, tooling supplies, aircraft release and certification and aircraft on ground support; (3) the provision by HAECO to the Cathay Pacific Group of LM Services and BM Services at - 7 -

8 LETTER FROM THE BOARD HKIA, stores and logistics support services (comprising receiving and inspection, warehousing, distribution and import export services), supply of materials, CAO Services and Engineering Services; (4) the provision by TAECO to the Cathay Pacific Group of storage facilities, supply of materials, BM Services at Xiamen, Engineering Services and LM Services for aircraft visiting Xiamen and such other airports as the Cathay Pacific Group and TAECO agree; (5) the provision of ITM Services by HXITM to the Cathay Pacific Group; (6) the secondment of personnel from the HAECO Group to HXITM and the provision by the HAECO Group to HXITM of certain repair services (including testing, overhaul, modification and investigation of aircraft parts and components) and certain administrative and other services; and (7) the secondment of personnel from the Cathay Pacific Group to HXITM in order to facilitate the operations of HXITM. The annual caps The annual caps for the Transactions have been determined by reference to the actual amounts of the Services provided in the ten years ended 31st December 2012 (as set out below) and a forecast of payments for the Services to be provided in the 10 years ending 31st December The forecast has been prepared having regard, inter alia, to projections by the Cathay Pacific Group of its fleet size, its annual aircraft utilisation and other operating parameters and take into account the fact that there are (or were in the case of aircraft which have already been delivered) firm orders for the delivery of 89 aircraft from 2013 to Account has also been taken of the fact that, in 2012, HK$1 million was payable by HXITM to Cathay Pacific for the secondment of personnel. Cushions have been added to provide flexibility for possible changes in the level of Services associated with the growth of the Cathay Pacific Group and in the scheduled and possible unscheduled maintenance of its aircraft. The Directors estimate that the amounts payable for the Services in respect of aircraft maintenance for the 10 years ending 31st December 2022 will not exceed the annual caps set out below, which consolidate and replace the annual caps previously set for the Transactions. The annual caps in respect of Services payable by the Cathay Pacific Group to the HAECO Group (including HXITM) (and vice versa) include Services provided under the joint venture agreement entered into between Cathay Pacific, HAECO and HXITM on 24th September 2012, in respect of which Cathay Pacific and HAECO published an announcement dated 24th September The annual caps in respect of Services payable by the Cathay Pacific Group to the HAECO Group for 2013 to 2016 were approved at the Company s EGM held on 29th June 2007 and remain unchanged. Amounts payable by the Cathay Pacific Group to the HAECO Group (including HXITM): (HK$ million) Actual Actual Actual Actual Actual Services 1,227 1,345 1,476 1,627 1, (HK$ million) Actual Actual Actual Actual Actual Services 2,069 1,891 1,818 2,287 2,

9 LETTER FROM THE BOARD (HK$ million) Cap Cap Cap Cap Cap Services 5,315 5,846 6,431 7,075 7, (HK$ million) Cap Cap Cap Cap Cap Services 8,561 9,417 10,359 11,395 12,535 Amounts payable by the HAECO Group (including HXITM) to the Cathay Pacific Group: (HK$ million) Cap Cap Cap Cap Cap Services 2,000 2,000 2,000 2,000 2, (HK$ million) Cap Cap Cap Cap Cap Services 2,000 2,000 2,000 2,000 2,000 Reasons for, and benefits of, the Transactions For over 63 years, Cathay Pacific s fleet has been maintained by HAECO and also by TAECO since The HAECO Group has the necessary expertise and efficiency to provide the Services. This will enable the Cathay Pacific Group to maintain its aircraft fleet in a cost effective manner and so benefit the Cathay Pacific Group s business. Connection between the parties As HAECO and its subsidiary, HXITM, are both associates of Swire Pacific, a substantial shareholder of Cathay Pacific, HAECO and HXITM are both connected persons of Cathay Pacific. Compliance with the Listing Rules As the highest of the relevant percentage ratios as defined under Rule of the Listing Rules (other than the profits ratio) in respect of the Transactions will, on an annual basis, be more than 5%, the Company has to comply with the announcement, reporting and independent shareholders approval requirements in Rule 14A.35 of the Listing Rules. The Independent Board Committee has been constituted to advise the Independent Shareholders in respect of the resolution to approve the Framework Agreement, its term and the Transactions (including the annual caps). CLSA Equity Capital Markets Limited has been appointed as Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders on the Framework Agreement, its term and the Transactions (including the annual caps). The Company will convene an EGM to consider and, if thought fit, to approve the Framework Agreement, its term and the Transactions (including the annual caps). Voting will be by poll and Swire Pacific, being a substantial shareholder of both Cathay Pacific and HAECO, will abstain from voting

10 LETTER FROM THE BOARD The Company will comply with its continuing obligations under Rules 14A of the Listing Rules and will re-comply with the relevant Listing Rules after 31st December 2022 or if the annual caps are exceeded or when there is a material change to the terms of the Framework Agreement. Christopher Pratt and Merlin Swire, being directors of HAECO, are interested in the Transactions and have abstained from voting on the relevant board resolutions of Cathay Pacific in respect of the Transactions. EGM There is set out on pages 27 to 28 a notice convening the EGM to be held on Tuesday, 31st December 2013 at 10:00 a.m. at the Conference Room, Level 7, Conrad Hong Kong, Pacific Place, 88 Queensway, Hong Kong, at which a resolution will be proposed to the Independent Shareholders to approve the Framework Agreement, its term and the Transactions (including the annual caps). The vote of the Independent Shareholders at the EGM will be taken by poll. As at the Latest Practicable Date, Swire Pacific held a 45.00% shareholding in Cathay Pacific and a 74.99% shareholding in HAECO. In accordance with the Listing Rules, Swire Pacific and its associates will abstain from voting on the resolution to approve the Framework Agreement, its term and the Transactions (including annual caps) at the EGM. A form of proxy for use at the EGM is enclosed. Whether or not you are able to attend the EGM in person, you are requested to complete and return the form of proxy in accordance with the instructions printed thereon as soon as possible and in any event not later than 48 hours before the time appointed for the holding of the EGM or any adjourned meeting thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjourned meeting thereof and, in such event, the relevant form of proxy shall be deemed to be revoked. Recommendation Your attention is drawn to (i) the letter from the Independent Board Committee set out on page 11 of this circular which contains its recommendation to the Independent Shareholders concerning the Transactions; and (ii) the letter from CLSA Equity Capital Markets Limited set out on pages 12 to 23 of this circular which contains their advice to the Independent Board Committee and the Independent Shareholders and the principal factors and reasons considered by them in formulating their advice. Additional information Your attention is also drawn to the information set out in the appendix to this circular and the notice of the EGM set out in this circular. By order of the Board Cathay Pacific Airways Limited Christopher Pratt Chairman

11 LETTER FROM THE INDEPENDENT BOARD COMMITTEE 3rd December 2013 To the Independent Shareholders Dear Sir or Madam, Continuing Connected Transactions Aircraft Maintenance We refer to the circular dated 3rd December 2013 of the Company (the Circular ) of which this letter forms part. Terms defined in the Circular bear the same meanings herein unless the context otherwise requires. We have been appointed to form the Independent Board Committee to consider the terms of the Framework Agreement, its term and the Transactions (including the annual caps) and to advise the Independent Shareholders whether, in our opinion, such terms are fair and reasonable and in the interests of the Company and the Shareholders as a whole. CLSA Equity Capital Markets Limited has been appointed to advise the Independent Board Committee and the Independent Shareholders. We wish to draw your attention to the letter from the Board set out on pages 5 to 10 of the Circular which contains, inter alia, information on the Framework Agreement, its term and the Transactions (including the annual caps), and the letter of advice from CLSA Equity Capital Markets Limited set out on pages 12 to 23 of the Circular. Having taken into account the advice of CLSA Equity Capital Markets Limited, we consider that the terms of the Framework Agreement, its term and the Transactions (including the annual caps) are fair and reasonable and are in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the EGM. Yours faithfully, The Independent Board Committee Irene Lee Jack So Tung Chee Chen Peter Wong Independent Non-Executive Directors

12 LETTER FROM CLSA EQUITY CAPITAL MARKETS LIMITED The following is the text of a letter received from CLSA Equity Capital Markets Limited setting out its advice to the Independent Board Committee and the Independent Shareholders in respect of the Transactions for inclusion in this Circular. 3 December 2013 The Independent Board Committee and the Independent Shareholders of Cathay Pacific Airways Limited 33rd Floor, One Pacific Place 88 Queensway Hong Kong Dear Sirs, INTRODUCTION Continuing Connected Transactions Aircraft Maintenance We refer to our engagement as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders on the terms of the Framework Agreement, its term and the Transactions (including the annual caps) (i) as to whether they are on normal commercial terms, in the ordinary and usual course of business of the Company, fair and reasonable and in the interests of the Company and the Shareholders as a whole; and (ii) as to whether the Independent Shareholders should vote in favour of the ordinary resolution to be proposed at the EGM to approve the Framework Agreement, its term and the Transactions (including the annual caps). This letter has been prepared for inclusion in the circular dated 3 December 2013 despatched by the Company in relation to the Framework Agreement and the Transactions (the Circular ). Capitalised terms used in this letter shall have the same meanings as defined in the Circular unless the context otherwise requires. BASIS OF OUR OPINION In formulating our recommendation, we have relied on the information, opinions and facts supplied and representations made to us by the Directors and representatives of the Company (including those contained or referred to in the Circular and in the announcement issued by the Company on 13 November 2013 in relation to the Framework Agreement and the Transactions (the Announcement ). We have assumed that all such information, opinions, facts and representations which have been provided to us by the Directors and representatives of the Company, and which they are wholly responsible for, are true and accurate in all material respects. We have also relied on certain information available to the public and we have assumed such information to be accurate and reliable, and we have not independently verified the accuracy of such information. Furthermore, we have relied on the representations of the Directors that they have made all

13 LETTER FROM CLSA EQUITY CAPITAL MARKETS LIMITED reasonable inquiries, and that, to the best of their knowledge and belief, there are no other facts, the omission of which would make any statement contained in the Circular and the Announcement untrue or misleading. We have also assumed that statements and representations made or referred to in the Circular and the Announcement were accurate at the time they were made and continue to be accurate at the date of despatch of this document. Should there be any subsequent major changes which occur up to the date of the EGM that would affect or alter our opinion, we will notify the Independent Board Committee and the Independent Shareholders accordingly as soon as possible. We consider that we have reviewed sufficient information to enable us to reach an informed view regarding the Framework Agreement and the Transactions to justify our recommendation, relying on the accuracy of the information provided in the Circular and the Announcement to provide a reasonable basis for our advice. As the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, we have not been involved in the negotiations in respect of the terms and conditions of the Framework Agreement, the Relevant Agreements and the Transactions. Further, we have no reason to suspect that any material facts or information have been omitted or withheld from the information supplied or opinions expressed to us nor to doubt the truth, accuracy and completeness of the information, facts and representations provided, or the reasonableness of the opinions expressed, to us by the Company, the Directors and the other representatives of the Company. In line with normal practice, we have not, however, made any independent verification of the information and facts provided, representations made or opinions expressed by the Company, the Directors and the other representatives of the Company, nor have we conducted any form of independent investigation into the business affairs or assets and liabilities of the Cathay Pacific Group. Accordingly, we do not warrant the accuracy or completeness of any such information. Our opinion is necessarily based upon market, economic and other conditions as they existed and could be evaluated on, and on the information publicly available to us as of, the date of this letter. As a result, circumstances could develop prior to the EGM that, if known to us at the time we rendered our opinion, would have altered our opinion. This letter is for the information of the Independent Board Committee and the Independent Shareholders solely in connection with their consideration of the Framework Agreement, its term and the Transactions (including the annual caps) and, except for its inclusion in the Circular and for references thereto in the letter from the Independent Board Committee as set out in the Circular, is not to be quoted or referred to, in whole or in part, nor shall this letter be used for any other purpose without our prior written consent. CLSA is a licensed securities adviser and corporate finance adviser under the SFO and we, together with our affiliates, provide a full range of investment banking and brokerage services, which, in the course of normal trading activities, may from time to time effect transactions and hold securities, including derivative securities, of the Company, its subsidiaries or its substantial shareholder(s) (as defined in the Listing Rules) or those of the other parties to the Transactions for the accounts of our customers. CLSA will receive a fee from the Company for rendering this opinion. The Company has also agreed to indemnify CLSA and certain related persons against liabilities and expenses in connection with this engagement. PRINCIPAL FACTORS AND REASONS CONSIDERED In formulating our opinion in relation to the Transactions and in giving our independent financial advice to the Independent Board Committee and the Independent Shareholders, we have considered the following principal factors and reasons: Information on the Cathay Pacific Group and the HAECO Group The principal activity of the Cathay Pacific Group is the operation of scheduled airline services which are principally to and from Hong Kong. The Cathay Pacific Group is also engaged in other related services, including airline catering, aircraft handling and aircraft engineering. The Cathay Pacific Group operates its fleet through Cathay Pacific, Dragonair (which became a

14 LETTER FROM CLSA EQUITY CAPITAL MARKETS LIMITED wholly owned subsidiary of Cathay Pacific in September 2006), and AHK which is held 60% by Cathay Pacific. The principal activity of Cathay Pacific and Dragonair is the operation of scheduled passenger airline services; whilst that of AHK is the operation of cargo airline services. Background of the Transactions On 13 November 2013, Cathay Pacific, HAECO and HXITM entered into the Framework Agreement to provide a framework for the performance of the Services for a term of 10 years ending on 31 December Under the Framework Agreement and the Relevant Agreements thereunder, the HAECO Group will provide the Services, being maintenance and related services in respect of aircraft, aircraft engines and aircraft parts and components including the ITM Services, to the Cathay Pacific Group, and the Cathay Pacific Group will provide aircraft components and second its own personnel to HXITM. As discussed with the Company, the Services being provided under the Framework Agreement and the Relevant Agreements are as follows: 1. Total Care Package Contract dated 9 September 2004 between AHK and HAECO for the provision by HAECO to AHK of a total care package for AHK s fleet, including acquisition of an inventory of rotable and repairable spares for leasing to AHK and providing management of and logistics support and maintenance for this inventory; 2. Aircraft Line Maintenance Services Agreement dated 26 February 2013 between AHK and TAECO for the provision by TAECO to AHK of storage facilities, supply of materials, Engineering Services and LM Services for aircrafts visiting Xiamen and such other airports as the Cathay Pacific Group and TAECO may agree; 3. IATA Standard Ground Handling Agreement dated 1 January 2008 between Cathay Pacific and TAECO for the provision by TAECO to Cathay Pacific of storage facilities, supply of materials, Engineering Services and LM Services for aircrafts visiting Xiamen and such other airports as Cathay Pacific and TAECO may agree; 4. IATA Standard Ground Handling Agreement dated 26 July 2010 between Dragonair and TAECO for the provision by TAECO to Dragonair of storage facilities, supply of materials, Engineering Services and LM Services for aircrafts visiting Xiamen and such other airports as Dragonair and TAECO may agree; 5. Aircraft Maintenance Services Agreement for AHK B BCF aircraft dated 20 May 2011 between AHK and HAECO for the provision by HAECO of LM Services for AHK s B BCF aircrafts at the HKIA, including routine maintenance checks, non-routine maintenance, actions to address inbound technical issues, ad-hoc maintenance support, ramp services, material supplies, tooling supplies, aircraft release and certification and aircraft on ground support; 6. TAECO Services Agreement dated 19 July 2012 between Cathay Pacific and TAECO for the provision by TAECO to the Cathay Pacific Group of storage facilities, supply of materials, BM Services at Xiamen and Engineering Services for aircrafts visiting Xiamen and such other airports as the Cathay Pacific Group and TAECO may agree; 7. Joint Venture Agreement dated 24 September 2012 between HAECO, Cathay Pacific and HXITM for the establishment of HXITM as a joint venture between Cathay Pacific and HAECO to engage in the provision of ITM Services (the Joint Venture Agreement ); 8. Services Agreement dated 24 September 2012 between HAECO and HXITM for the secondment of personnel from the HAECO Group to HXITM and the provision by the HAECO Group to HXITM of certain repair services (including testing, overhaul, modification and investigation of aircraft parts and components) and certain administrative and other services;

15 LETTER FROM CLSA EQUITY CAPITAL MARKETS LIMITED 9. Secondment Agreement dated 24 September 2012 between Cathay Pacific and HXITM for the secondment of personnel from the Cathay Pacific Group to HXITM in order to facilitate the operations of HXITM; 10. Inventory Technical Management Services Agreement dated 24 September 2012 between Cathay Pacific, Dragonair and HXITM for the provision of ITM Services by HXITM to the Cathay Pacific Group (the ITM Services Agreement ); 11. HAECO Services Agreement dated 29 November 2012 between Cathay Pacific and HAECO for the provision by HAECO to the Cathay Pacific Group of LM Services and BM Services at the HKIA, stores and logistics support services (comprising receiving and inspection, warehousing, distribution and import export services), supply of materials, CAO Services and Engineering Services; 12. Aircraft Line Maintenance (Hong Kong) Services Agreement dated 1 January 2013 between AHK and HAECO for the provision by HAECO of LM Services for AHK s fleet at the HKIA, including routine maintenance checks, non-routine maintenance, actions to address inbound technical issues, ad-hoc maintenance support, ramp services, material supplies, tooling supplies, aircraft release and certification and aircraft on ground support; and 13. any further agreements under which maintenance and related services in respect of aircraft, aircraft engines and aircraft parts and components are provided by the HAECO Group to the Cathay Pacific Group and vice versa and by HXITM to the HAECO Group and vice versa. Reasons for, and benefits of, entering into the Transactions (i) Provision of the Services by the HAECO Group Given that the Cathay Pacific Group is principally engaged in the operation of scheduled airline services, it is paramount for it to ensure the airworthiness and safety of its aircraft by carrying out all necessary maintenance works to its fleet. Based on information published by the Hong Kong Airport Authority, there are currently three aircraft maintenance franchisees at the HKIA, namely, HAECO, China Aircraft Services Limited ( China Aircraft Services ) and Pan Asia Pacific Aviation Services Ltd. ( Pan Asia Pacific Aviation Services ). Out of these three service providers, only HAECO and China Aircraft Services provide both line and base maintenance services; whilst Pan Asia Pacific Aviation Services specializes solely in line maintenance. Based on information published by HAECO and as further confirmed with the Company, we understand that HAECO is the only full service provider at the HKIA offering comprehensive line to heavy maintenance packages including aircraft component overhaul support and AOG (aircraft on ground) / aircraft recovery service. In addition, we note that HAECO has been providing comprehensive aeronautical engineering and maintenance services to airlines and operators since 1950; whilst China Aircraft Services was established in The Cathay Pacific Group was one of the first customers of the HAECO Group. For over 63 years, Cathay Pacific s fleet has been maintained by HAECO and also by TAECO since We also note that HAECO operates two hangars at the HKIA, as compared to the other two service providers each of whom only operates one hangar at the HKIA. Furthermore, we note that the HAECO Group was ranked second in the Top 10 Airframe Maintenance Repair and Overhaul companies published by Aviation Week & Space Technology, an independent airline industry database, in June this year, and was the only one out of the three aircraft maintenance franchisees to be ranked in the top 10. TAECO was founded in Xiamen in 1993 and opened its first hangar in TAECO, a nonwholly owned subsidiary of HAECO, offers a complete range of airframe and line maintenance services for Airbus and Boeing aircraft, airframe maintenance, major modifications, cabin modifications and line maintenance. It conducted the world s first BCF freighter conversion, and remains the sole independent facility licensed by Boeing to carry them out

16 LETTER FROM CLSA EQUITY CAPITAL MARKETS LIMITED TAECO is also home to the HAECO Group s VIP Cabin Completion Centre - Asia s first and only facility approved by both Airbus and Boeing. As a one-stop MRO (maintenance, repair and operations), TAECO operates its own certified parts manufacturing and testing facilities and also runs a public training and license examination centre, catering to both technical and nontechnical training needs. TAECO provides airframe maintenance services including multiple C checks, D Checks, major modifications, cabin reconfigurations / modifications across a wide range of aircraft types with approvals from multiple authorities for all major Boeing and Airbus commercial aircraft. With six double bay wide-body hangars, TAECO is able to accommodate 12 wide-body and 5 narrow-body aircraft simultaneously. (ii) Secondment of personnel from the Cathay Pacific Group to HXITM and the provision of aircraft components from the Cathay Pacific Group to HXITM On 24 September 2012, Cathay Pacific announced the establishment of HXITM, a joint venture between Cathay Pacific and HAECO, to engage in the provision of the ITM Services. Prior to the establishment of HXITM, such ITM services had been provided either by Cathay Pacific inhouse or by HAECO. As a result, Cathay Pacific has a team of staff that are highly experienced in the provision of such ITM Services. Given that HXITM provides the ITM Services to the Cathay Pacific Group and given Cathay Pacific s 30% equity interest in HXITM, we are of the view that it benefits the Cathay Pacific Group to support the business operations of HXITM, including the secondment of experienced personnel to HXITM, which would benefit HXITM and which in turn would benefit the Cathay Pacific Group. In addition, with the establishment of HXITM, pursuant to the Joint Venture Agreement, HAECO had sold a pool of aircraft components to HXITM as its initial inventory pool and transferred its existing ITM Services contracts with its customers to HXITM. At the same time, pursuant to the Joint Venture Agreement, HXITM entered into the ITM Services Agreement with Cathay Pacific and Dragonair on 24 September 2012, pursuant to which (i) Cathay Pacific and Dragonair have granted to HXITM the right to access and use their existing aircraft components for the provision of the ITM Services to Cathay Pacific, Dragonair and other customers of HXITM (the Access Right ); and (ii) Cathay Pacific has granted HXITM a surplus component right which grants HXITM with the right to purchase any additional component from Cathay Pacific s retiring aircraft (the Surplus Component Right ). These arrangements allow HAECO and Cathay Pacific to enjoy improved economies of scale through giving HXITM access to and use of the aircraft components of HAECO and those of Cathay Pacific and Dragonair. The combined strengths of HAECO, being a leading provider of overhaul and maintenance services and commercial aircraft, and Cathay Pacific, being a leading international airline, are expected to put HXITM in a strong position to manage its relationships with suppliers and to secure potential customers in the Asia Pacific region. By pooling the resources of Cathay Pacific and HAECO together, not only will HXITM be in a strong position to service the Cathay Pacific Group, HXITM will also be better equipped to win contracts from other customers, which in turn will benefit the Cathay Pacific Group by virtue of Cathay Pacific s shareholding in HXITM. Terms of the Transactions (i) Duration of the Framework Agreement The Framework Agreement is for a term of 10 years. As the Framework Agreement mainly involves the provision of aircraft maintenance services and ancillary services such as the secondment of personnel from the Cathay Pacific Group to HXITM and the provision of aircraft components from the Cathay Pacific Group to HXITM, in order to assess whether it is normal business practice for contracts of this type to be of such duration, we have reviewed information relating to other aircraft maintenance services contracts provided by other major aircraft maintenance companies for similar services. In our research, we have identified (i) an agreement entered into between Air Tahiti Nui and Lufthansa Technik in December 2012 for engine repairs and overhaul services for a term of 8 years; (ii) an agreement entered into between SIA Engineering Company Limited and Cebu Pacific in January 2008 for line, airframe and fleet management services, line maintenance, light checks and heavy maintenance checks for a term of 10 years; (iii) an agreement entered into between Singapore Technologies

17 LETTER FROM CLSA EQUITY CAPITAL MARKETS LIMITED Engineering Ltd and AirAsia Berhad in July 2012 for component repair management for a term of 10 years; and (iv) an agreement entered into between Qatar Airways Company Q.C.S.C. and GE Aviation, a unit of General Electric Company, for maintenance, repair and overhaul of aircraft for a term of 10 years. In addition, we have also discussed with the Company and understand that a long duration for the Framework Agreement is important to both the Cathay Pacific Group and the HAECO Group. On the one hand, a long duration of 10 years is required for the HAECO Group to maintain the necessary facilities, components and spare parts for providing the Services to the Cathay Pacific Group cost effectively. On the other hand, it is in the interests of the Cathay Pacific Group to have a stable long-term aircraft maintenance provider and that the HAECO Group has been servicing the Cathay Pacific Group for over 63 years. Given that it is in the interests of both groups to have a long-term contract and given that the term of the Framework Agreement is in line with the durations of other similar aircraft maintenance agreements, we confirm that it is normal business practice for contracts of this type to be of such duration. (ii) Basis of consideration Provision of the Services by the HAECO Group to the Cathay Pacific Group We have reviewed the Relevant Agreements and note that the Services provided by the HAECO Group to the Cathay Pacific Group are charged based on a number of items, including an access fee for components and parts, repair charges per flying hour, costs for consumables and expendable parts and fixed percentage of the costs of such consumables and expendable parts as handling fees, fixed price per check, fixed labour rates per hour, equipment usage fees per hour of usage, fixed store and logistics fees per month and fixed management fees per month. We have conducted research on the basis of consideration for similar aircraft maintenance services charged by other maintenance service providers, however, we note that such information is not publicly available given the commercial sensitivity of such information. As such, we have reviewed some of the agreements that the Cathay Pacific Group has entered into with other aircraft maintenance service providers and we note that the pricing mechanism of the Relevant Agreements is consistent with these agreements with other aircraft maintenance service providers. We have also reviewed the Cathay Pacific Group s previous maintenance contracts with the HAECO Group and we note that the pricing mechanism of the Relevant Agreements is consistent with these previous maintenance contracts. In addition, the Directors have confirmed to us that the Framework Agreement and the Relevant Agreements were entered into on an arm s length basis, on terms no more favourable to the HAECO Group than those which the Cathay Pacific Group would offer to independent third parties. Given that the terms set out in the Framework Agreement and the Relevant Agreements are consistent with other aircraft maintenance contracts that the Cathay Pacific Group has entered into with other aircraft maintenance service providers and are also consistent with the previous maintenance contracts between the Cathay Pacific Group and the HAECO Group, as well as the Directors confirmation that the Framework Agreement and the Relevant Agreements were entered into on an arm s length basis, on terms no more favourable to the HAECO Group than those which the Cathay Pacific Group would offer to independent third parties, we are of the view that the basis of consideration for the provision of the Services by the HAECO Group to the Cathay Pacific Group is on normal commercial terms and is fair and reasonable. Secondment of personnel from the Cathay Pacific Group to HXITM We have reviewed the Secondment Agreement between Cathay Pacific and HXITM for the secondment of personnel from the Cathay Pacific Group to HXITM and we note that HXITM shall reimburse all costs incurred by the Cathay Pacific Group in relation to the seconded employees, including all out-of-pocket expenses, wages, salaries, bonuses, cost of accommodation, leave pay and passage allowance, all contributions or payments towards any provident fund or retirement benefit scheme. As the primary objective of the secondment is for the Cathay Pacific Group to contribute talents to its joint venture, HXITM, in order to facilitate and further the business operations of HXITM, which services the Cathay Pacific Group and in which the Cathay Pacific Group has a shareholding interest rather than to earn a profit from

18 LETTER FROM CLSA EQUITY CAPITAL MARKETS LIMITED such secondment, we believe that it is fair and reasonable for HXITM to reimburse the Cathay Pacific Group at costs. Given that HXITM is reimbursing the Cathay Pacific Group for the secondment of personnel at costs and in the absence of a deviation in respect to the level of payments and employee benefits for the seconded employees after the secondment as compared to before the secondment, we are of the view that the basis of consideration for the secondment of personnel from the Cathay Pacific Group to HXITM is on normal commercial terms and is fair and reasonable. Provision of aircraft components from the Cathay Pacific Group to HXITM We have reviewed the ITM Services Agreement pursuant to which each of HAECO and Cathay Pacific will contribute their respective aircraft components inventory to HXITM to form a joint pool of aircraft components inventory (the Joint Components Inventory Pool ) in support of the latter s business in servicing the Cathay Pacific Group and other customers. As we have stated earlier in this letter, under the ITM Services Agreement, (i) Cathay Pacific and Dragonair have granted HXITM with the Access Right, whereby HXITM is given the right to access and use Cathay Pacific s and Dragonair s existing aircraft components for the provision of the ITM Services to Cathay Pacific, Dragonair and other customers of HXITM; and (ii) Cathay Pacific has granted HXITM with the Surplus Component Right, whereby HXITM is given the right to purchase any additional component from Cathay Pacific s retiring aircraft. We note from the ITM Services Agreement that for any component contributed by Cathay Pacific towards the Joint Components Inventory Pool that is used on customers other than a member of the Cathay Pacific Group pursuant to the Access Right, HXITM will replace such component to Cathay Pacific by adding back the same component into the Joint Components Inventory Pool. In other words, the components that are being provided from the Cathay Pacific Group to HXITM are ultimately returned to the Cathay Pacific Group, either through being used on an aircraft of the Cathay Pacific Group in the course of HXITM s provision of the ITM Services to the Cathay Pacific Group, or through the replacement by HXITM of the same component into the Joint Components Inventory Pool, thereby resulting in no net gain or loss to the Cathay Pacific Group as effectively the same component is returned to the Cathay Pacific Group in either case. For accounting purposes, such usage and replacement will be accounted for at cost of the relevant components. As for the sale by the Cathay Pacific Group to HXITM of additional components from Cathay Pacific s retiring aircraft, we note from the ITM Services Agreement that such components will be sold at fair market value, which according to the ITM Services Agreement means a price that is applicable to a sale of such components between a willing seller and a willing buyer on an arm s length basis as agreed between HXITM and Cathay Pacific or, where the parties fail to reach a consensus, as determined by a third party appraiser. We are of the view that such mechanism is fair and reasonable. Given that the components being provided by the Cathay Pacific Group to HXITM are either paid back in kind (through being used on aircraft of the Cathay Pacific Group or through replacement of the same component to the Joint Components Inventory Pool) or in cash at fair market value, we are of the view that the basis of consideration for the provision of aircraft components from the Cathay Pacific Group to HXITM is fair and reasonable