Cathay Pacific 2009 Annual Report Download - page 16

2009 in Review
The Group’s share of Air China’s profit is based on
accounts drawn up three months in arrears and
consequently the 2009 annual results include Air
China’s results for the 12 months ended 30th
September 2009. This excludes the Group’s share of
Air China’s fuel hedging losses of HK$1 billion
(incurred in the fourth quarter of 2008) which were
included in the Group’s 2008 results.
In February 2010, the Group announced that we had
entered into a conditional framework and other
agreements with Air China and others under which
the parties have agreed to establish a jointly owned
cargo airline using Air China’s wholly owned
subsidiary, Air China Cargo, as a platform. The joint
venture plans to commence operations in the
summer, with Beijing and Shanghai as its principal
operating bases.
Hong Kong Aircraft Engineering Company
Limited (“HAECO”)
Cathay Pacific holds a 15.0% interest in HAECO and
has direct interests in HAECO’s subsidiary and
jointly controlled companies, including a 9.1%
interest in Taikoo (Xiamen) Aircraft Engineering
Company Limited (“TAECO”), an 8.0% interest in
Taikoo (Xiamen) Landing Gear Services Limited, a
5.5% interest in Taikoo Spirit AeroSystems (Jinjiang)
Composite Company Limited (“Taikoo Spirit”) and a
10.0% interest in Taikoo Engine Services (Xiamen)
Company Limited (“TEXL”). The HAECO group
provides a range of aviation maintenance and repair
services. Its most substantial operations are aircraft
maintenance and modification work in Hong Kong
and Xiamen, and Rolls-Royce engine overhaul work
performed by Hong Kong Aero Engine Services
Limited (“HAESL”).
The Group has one representative on the Board of
Directors of HAECO and equity accounts for its
share of HAECO’s profit.
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HAECO recorded a profit of HK$688 million in 2009,
a reduction of 39.5% compared with 2008. The
decrease in profit primarily reflected the reduced
demand for heavy airframe and line maintenance
services following the deterioration in aviation
market conditions.
Business activity weakened substantially,
particularly in the second half of 2009, as airlines
continued to reduce expenditure and ground aircraft.
The heavy airframe maintenance facilities in both
Hong Kong and Xiamen had (and continue to have)
significant unsold capacity for the first time in
several years. Line maintenance operations
recorded a decline linked with the level of aircraft
movements at HKIA, although there were signs of
improving traffic in the last few months. TAECO
reported a significant reduction in profitability
despite reducing costs. HAESL recorded a 9% profit
decline, due mainly to reduced engine throughput.
Despite the downturn in demand, the HAECO group
continued to invest in both Hong Kong and Mainland
China in order to expand its facilities and the range
of services it can offer to customers. In Hong Kong,
HAECO opened its third hangar in September.
Taikoo Spirit opened its specialist composite repair
facility and Dunlop Taikoo (Jinjiang) Aircraft Tyres
Company Limited opened its tyre retreading facility
at Jinjiang in Fujian Province, Mainland China in
November 2009. Taikoo (Shandong) Aircraft
Engineering Company Limited opened its fifth
hangar in Jinan in May 2009. TAECO has deferred
the opening of its sixth hangar to 2011 in view of
market conditions. TEXL is upgrading its engine
overhaul facilities in Xiamen, with operations
expected in the second quarter of 2010. Taikoo
Sichuan Aircraft Engineering Services Company
Limited is constructing its first hangar in Chengdu
and opening is scheduled for the second half of
2010. HAESL’s additional component repair
extension is expected to commence operation in
the first quarter of 2011.
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