Hong Kong Aircraft Engineering Company Limited 2000 Interim Results

CHAIRMAN'S STATEMENT

Results

The Group's profit attributable to shareholders for the first half of 2000 was HK$267.3 million compared to HK$63.2 million for the same period in 1999. Excluding non-recurring profits totalling HK$108.0 million, relating to the disposal of certain shareholding interests and to the sale of nine residential property units, attributable profit increased by 152.1%.

In the first half of 2000 the Company improved its core profitability, largely as a result of the extensive programme of cost reductions implemented in late 1999. Revenues have decreased slightly, as competition throughout the Company's businesses remained intense. Contributions from joint ventures increased with strong performances in the first half of the year from Taikoo (Xiamen) Aircraft Engineering Company Limited (TAECO) and Hong Kong Aero Engine Services Limited (HAESL). Net finance income for the first six months of the year was at a similar level to that for the first half of 1999.

Your directors have declared an interim dividend of HK$0.23 per share, an increase of 64.3% over that declared in 1999.

Operations

The Company, either directly or through its jointly-controlled company in Xiamen, TAECO, has comprehensive maintenance contracts covering the fleets of Boeing and Airbus aircraft operated by Cathay Pacific Airways, Dragonair and Air Hong Kong. These contracts cover the provision of line maintenance and hangar-based maintenance as well as the overhaul of certain components.

The Company remains in a strong competitive position in the provision of line maintenance services at Hong Kong International Airport, where traffic volumes have started to rise as airlines increase capacity. Airframe maintenance activity at the Company's hangar facility has been high. In addition to work carried out for Hong Kong based airlines, maintenance packages of varying size were completed on aircraft for Northwest Airlines, Evergreen International Airlines, Polar Air Cargo, Saudi Arabian Airlines and Air Macau.

TAECO has had a good half-year with both aircraft hangars in Xiamen enjoying high utilisation. Significant work packages were completed on aircraft for Cathay Pacific Airways, Air Hong Kong, Japan Airlines, Singapore Airlines, South African Airways, Kuwait Airways and Air New Zealand. TAECO has announced that construction will commence shortly on a third hangar to be operational in mid-2002, the cost of which is estimated to be approximately US$ 50 million.

HAESL reported higher profits in the first half of 2000 as work volumes continued to be strong. In March, SIA Engineering Company Pte. Limited became a 10% shareholder in HAESL as the Company and Rolls-Royce plc reduced their shareholdings to 45% each.

Prospects

Whilst competitive pressures throughout the Company's businesses are likely to remain high, the improvement in core profitability seen in the first half of the year should prove sustainable. The Company's line maintenance business is well-positioned to benefit from a pick-up in air traffic through Hong Kong International Airport. Both TAECO and HAESL are performing well, and the decision to build a third hangar in Xiamen is evidence of the Company's intention to continue to seek opportunities to further develop its network of maintenance, repair and overhaul joint ventures.