HAECO - Chairman’s Letter

The HAECO Group reported an attributable profit of HK$425 million for the first six months of 2011. This compares with a profit of HK$338 million for the first six months of 2010. Earnings per share were up 25.7% to HK$2.56. Turnover rose by 24.2% to HK$2,544 million.

The Directors have declared an interim dividend of HK$0.70 per share (2010: HK$0.45 per share) for the period ended 30th June 2011, an increase of 55.6% over the interim dividend paid in 2010. Shareholders should note that the significant increase in the interim dividend, as compared with the increase in the profit for the period, is intended to align interim and final dividends to an approximate ratio of one-third to two-thirds of dividends for the year. It should be recognised therefore that the final dividend will not increase at the same rate and may well be lower than that of the previous year.

The interim dividend, which totals HK$116 million (2010: HK$75 million), will be paid on 20th September 2011 to shareholders registered at the close of business on the record date, being Friday, 2nd September 2011. Shares of the Company will be traded ex-dividend as from Wednesday, 31st August 2011. The register of members will be closed on Friday, 2nd September 2011, during which day no transfer of shares will be effected. In order to qualify for entitlement to the interim dividend, all transfer forms accompanied by the relevant share certificates must be lodged with the Company?s share registrars, Computershare Hong Kong Investor Services Limited, 17th Floor, Hopewell Centre, 183 Queen?s Road East, Hong Kong, for registration not later than 4:30 p.m. on Thursday, 1st September 2011.

Demand for HAECO?s airframe heavy maintenance and line maintenance services in Hong Kong remained strong during the first half of 2011, reflecting continued strength in the aviation industry generally. Taikoo (Xiamen) Aircraft Engineering Company Limited (“TAECO”) experienced a recovery in demand for its airframe heavy maintenance services, although demand for passenger to freighter conversions of Boeing 747 aircraft remained weak. Results from Hong Kong Aero Engine Services Limited (“HAESL”), the Company?s joint venture engine overhaul facility in Hong Kong, improved slightly. This reflected increased work scope per engine. The Group?s new joint ventures in Mainland China continued to report start up losses as expected.

The Group continued to invest in Hong Kong and Mainland China in order to expand its facilities and technical capabilities and to improve and widen the range of services it can offer to customers. Total capital expenditure during the first half of 2011 was HK$211 million. Capital expenditure committed at the end of June was HK$836 million.

In June, TAECO opened its sixth hangar in Xiamen, Taikoo Engine Services (Xiamen) Company Limited (“TEXL”) completed the expansion of its engine overhaul facilities and HAESL?s component repair extension was completed. This extension will commence full operations in the last quarter of 2011.

The outlook for the second half of 2011 is mixed. Assuming continued growth in the aviation industry, demand for HAECO?s airframe heavy maintenance and line maintenance services in Hong Kong is expected to remain strong. Forward bookings for TAECO?s airframe heavy maintenance in the second half are weak and TAECO?s capacity utilisation is likely to fall following the opening of its sixth hangar. HAESL?s performance is expected to be adversely affected by continued delays in the supply of spare parts. The joint ventures in Mainland China are expected to continue to be adversely affected by weak demand.