Changes Announced in Cathay Pacific Shareholding

The boards of Air China, Cathay Pacific, CITIC Pacific and Swire Pacific today made a joint announcement relating to two transactions that will collectively realign their shareholdings in Cathay Pacific. The changes will strengthen the existing relationship between Air China and Cathay Pacific and serve to further boost the position of Beijing and Hong Kong as key aviation hubs in the region.

Under the changes announced today, which are subject to the appropriate regulatory approvals, CITIC Pacific will sell a 12.5% shareholding in Cathay Pacific to Air China for an aggregate consideration of approximately HK$6,335 million, representing a price of HK$12.88 per Cathay Pacific share, and a 2% shareholding in Cathay Pacific to Swire Pacific for an aggregate consideration of approximately HK$1,013 million, also representing a price of HK$12.88 per Cathay Pacific share.

This means Air China's stake in Cathay Pacific will increase from approximately 17.49% to approximately 29.99%, while Swire Pacific's stake in Cathay Pacific will increase from approximately 39.97% to approximately 41.97%.

The proposed changes announced to the Hong Kong Stock Exchange today follow on from a major shareholding restructuring announced in June 2006 that saw Air China make a strategic investment in Cathay Pacific; Cathay Pacific increase its strategic investment in Air China; Dragonair become a wholly owned subsidiary of Cathay Pacific; and Air China and Cathay Pacific enter into a strategic relationship that included reciprocal sales representation, the extension of Code-Share arrangements between Hong Kong and Mainland China, the proposed development of a cargo joint venture in Shanghai and the strengthening of business cooperation in a number of other areas.

Commenting on the latest shareholding realignment, the four companies said.

Air China: "By increasing Air China's shareholding in Cathay Pacific, Air China and Cathay Pacific can form a closer cooperative relationship that will serve as a platform for further cooperation between, and generate greater synergy for, Air China and Cathay Pacific. This increase in shareholding will be useful in terms of boosting the international competitive strengths and brand value of Air China."

Cathay Pacific: "Cathay Pacific is looking forward to working even more closely with Air China to leverage the opportunities that will arise from the strengthening of the ties between two of the world's great international airline brands."

CITIC Pacific: "CITIC Pacific has been honoured to be a large shareholder of Cathay Pacific for many years, during which time the companies have enjoyed a very positive relationship. This disposal is in keeping with CITIC Pacific's plan to focus on its major businesses."

Swire Pacific: "Swire Pacific regards its acquisition of additional shares in Cathay Pacific as confirmation of its full support for Cathay Pacific and confidence in its future as one of the world's leading airlines and of its commitment to enhancing Hong Kong as Asia's premier aviation hub. We welcome the increase in Air China's shareholding in Cathay Pacific, and believe it will serve as a platform for further cooperation between the two carriers."