Cathay Pacific 2014 Annual Report Download - page 37

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ANNUAL REPORT 2014
35Directors’ Report
Agreement for services
The Company has an agreement for services with
John Swire & Sons (H.K.) Limited (“JSSHK”), the particulars
of which are set out in the section on continuing
connected transactions.
As directors and/or employees of the John Swire & Sons
Limited (“Swire”) group, John Slosar, W.E. James Barrington,
Ivan Chu, Martin Cubbon, Rupert Hogg, Martin Murray, Ian
Shiu, Merlin Swire and Samuel Swire are interested in the
JSSHK Services Agreement (as defined below). Merlin Swire
and Samuel Swire are also so interested as shareholders of
Swire. Christopher Pratt, James W.J. Hughes-Hallett and
Peter Kilgour were so interested as directors and employees
of the Swire group until their resignations with effect from
14th March 2014, 1st January 2015 and 1st January 2015
respectively.
Particulars of the fees paid and the expenses reimbursed for
the year ended 31st December 2014 are set out below and
also given in note 29 to the financial statements.
Significant contracts
Contracts between the Group and Hong Kong Aircraft
Engineering Company Limited (“HAECO”) and its subsidiary,
Taikoo (Xiamen) Aircraft Engineering Company Limited
(“TAECO”), for the maintenance and overhaul of aircraft and
related equipment accounted for approximately 3% of the
Group’s operating expenses in 2014. HAECO is a subsidiary
of Swire Pacific; all contracts have been concluded on
normal commercial terms in the ordinary course of the
business of both parties.
Continuing connected transactions
During the year ended 31st December 2014, the Group had
the following continuing connected transactions, details of
which are set out below:
(a) Pursuant to an agreement (“JSSHK Services Agreement”)
dated 1st December 2004, as amended and restated on
18th September 2008, with JSSHK, JSSHK provides
services to the Company and its subsidiaries. The
services comprise advice and expertise of the directors
and senior officers of the Swire group including (but not
limited to) assistance in negotiating with regulatory and
other governmental or official bodies, full or part time
services of members of the staff of the Swire group, other
administrative and similar services and such other
services as may be agreed from time to time, and
procuring for the Company and its subsidiary, joint
venture and associated companies the use of relevant
trademarks owned by the Swire group. No fee is payable
in consideration of such procuration obligation or
such use.
In return for these services, JSSHK receives annual
service fees calculated as 2.5% of the Company’s
consolidated profit before taxation and non-controlling
interests after certain adjustments. The fees for each
year are payable in cash in arrear in two instalments, an
interim payment by the end of October and a final
payment by the end of April of the following year, adjusted
to take account of the interim payment. The Company
also reimburses the Swire group at cost for all the
expenses incurred in the provision of the services.
The current term of the JSSHK Services Agreement is
from 1st January 2014 to 31st December 2016 and it is
renewable for successive periods of three years
thereafter unless either party to it gives to the other
notice of termination of not less than three months
expiring on any 31st December.
Swire is the holding company of Swire Pacific which owns
approximately 45% of the issued capital of the Company
and JSSHK, a wholly owned subsidiary of Swire, is
therefore a connected person of the Company under the
Listing Rules. The transactions under the JSSHK
Services Agreement are continuing connected
transactions in respect of which announcements dated
1st December 2004, 1st October 2007, 1st October 2010
and 14th November 2013 were published.
For the year ended 31st December 2014, the fees payable
by the Company to JSSHK under the JSSHK Services
Agreement totalled HK$81 million and expenses of
HK$214 million were reimbursed at cost.
(b) Pursuant to a framework agreement dated 13th
November 2013 (“HAECO Framework Agreement”) with
HAECO and HAECO ITM Limited (“HXITM”), services
(being maintenance and related services in respect of
aircraft, aircraft engines and aircraft parts and
components and including inventory technical
management services and the secondment of personnel)
are provided by HAECO and its subsidiaries (“HAECO
group”) to the Group and vice versa and by HXITM to the
HAECO group and vice versa. Payment is made in cash
within 30 days of receipt invoices. The term of the HAECO
Framework Agreement is for 10 years ending on 31st
December 2022.