09:29 CATHAY PAC AIR<00293> - Announcement (1) The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this announcement, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement. CATHAY PACIFIC AIRWAYS LIMITED (Incorporated in Hong Kong with limited liability) (Stock Code: 293) Announcement Continuing Connected Transaction On 4th March and 15th April 2005, the Company and DHL have entered into the Nagoya Amendment and Beijing Amendment to extend the term of the Agreements to 24th March 2007 and the Services to cover Nagoya and Beijing. As DHL is a connected person of the Company, the amendments of the Agreements constitute continuing connected transactions under Rule 14 A.14 of the Listing Rules requiring compliance with the reporting and announcement requirements under Rules 14A.45-47. Agreements: Cargo Capacity (Network Block Space) Agreement ("BSA") and Network Cargo Joint Sales Agreement ("JSA") (together the "Agreements") both dated 6th December 1999, as amended by the Amendments Parties: (a) the Company (b) DHL Particulars Pursuant to the BSA, the Company provided cargo capacity for the carriage of DHL's air express materials (the "Services") between Hong Kong and Osaka, Seoul, Singapore and Taipei (the "Old Destinations"). Pursuant to the JSA, the Company acts as the agent for DHL to sell space reserved under the BSA surplus to DHL's requirements, for which the Company is paid a commission by DHL. The term of the Agreements was originally for three years to expire on 6th March 2003, and was extended by the JVA to 6th March 2006. The Services to the Old Destinations were terminated on 9th February 2005. Pursuant to the Amendments, the term of the Agreements is extended to 24th March 2007 and the Services to cover Nagoya and Beijing. The Nagoya Amendment became effective on 29th March 2005. DHL is entitled to terminate the Agreements by giving not less than three months' written notice before the end of an IATA Season. It is envisaged that the Agreements will be further amended to cover additional destinations such as Shanghai. Payment is made in cash by DHL to the Company against invoice presented at the end of each two-week period within 21 days from the date of the invoice. On the basis of the prices negotiated at an arm's length with DHL in respect of the capacity to be provided for the Services, the Directors estimate that the maximum aggregate annual value (the "Annual Cap") of the Agreements, as amended from time to time, excluding fuel or other direct operating costs which may be agreed to be reimbursed separately by DHL will not exceed HK$600 million for each of the three years ending 31st December from 2005 to 2007. In determining the Annual Cap, consideration has been given to the value of cargo services provided by AHK to DHL totalling HK$715 million for the year ended 31st December 2004 for Bangkok, Osaka, Penang, Singapore, Taipei and Tokyo, and the possibility of extending the Services to additional destinations. Reasons for, and benefits of, the Agreements The provision of air cargo capacity to DHL is part of the normal commercial activity of the Company in the ordinary and normal course of its business that makes substantial contribution to the Company's revenue and profitability. It is normal for destinations to be added or deleted in accordance with market conditions. Connection between the parties DHL is a connected person of the Company because of its 40% attributable interest in the Company's subsidiary AHK. DHL first became a connected person of the Company on 17th October 2002 when it acquired an initial 30% attributable interest in AHK pursuant to the JVA; its interest was subsequently increased to 40% on 6th March 2003. Compliance with Listing Rules It is expected that the highest of the relevant percentage ratios as defined under Rule 14.07 of the Listing Rules (other than the profits ratio) in respect of the Agreements will, on an annual basis, be more than 0.1% but less than 2.5%. The amendments of the Agreements constitute continuing connected transactions under the Listing Rules requiring compliance with the reporting and announcement requirements under Rules 14A.45-47.