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.

D M Turnbull
Chairman

Hong Kong, 8th August 2000

Consolidated profit and loss account - unaudited
for the six months ended 30th June 2000

Consolidated balance sheet - unaudited
at 30th June 2000

Consolidated cash flow statement - unaudited
for the six months ended 30th June 2000

Statement of recognised gains and losses - unaudited
for the six months ended 30th June 2000

Notes to the Accounts

1. Basis of preparation

These interim financial statements have been prepared in accordance with the principal accounting policies set out in the Company's 1999 Annual Report and comply with Statement of Standard Accounting Practice 25 issued by the Hong Kong Society of Accountants and the disclosure requirements set out in Appendix 16 of the Listing Rules of The Stock Exchange of Hong Kong Limited.

2. Profit on sale of staff residential housing units

In the period ended 30th June 2000, the Company disposed of nine out of twelve residential housing units at Twin Bay Villas, Clearwater Bay Road, Sai Kung, New Territories. These properties were originally acquired in 1970 for the accommodation of expatriate staff. Three units remained unsold at the end of the period.

3. Profit on sale of shares in jointly controlled companies

Net profits of HK$25.2 million and HK$21.1 million respectively arose from the sales of a 5% shareholding in Hong Kong Aero Engine Services Limited (HAESL) to SIA Engineering Company Pte Limited and of the Company's entire shareholding in Bridgestone Aircraft Tire Company (Asia) Limited (BATASIA) to Bridgestone Corporation.

4. Net finance income

5. Taxation credit/(charge)

The tax credit is due to the partial release of a provision for deferred tax liability on prior year profits.

Hong Kong profits tax is calculated at 16.0% (1999 : 16.0%) on the estimated profits for the period. Overseas taxation is calculated at tax rates prevailing in the respective jurisdictions.

6. Earnings per share

Earnings per share are calculated by reference to the profit attributable to shareholders for the period ended 30th June 2000 of HK$267.3 million (1999 : HK$63.2 million) and to the weighted average number of 184,920,258 (1999 : 185,089,750) ordinary shares in issue during the period.

7. Fixed assets

8. Jointly controlled companies

In March 2000 the Company disposed of a 5% shareholding in HAESL and its entire shareholding in BATASIA. The Company's shareholding in HAESL after sale of the above stake is 45%. On 19th June 2000 the Company completed the purchase of a further 3.64% interest in Taikoo (Xiamen) Aircraft Engineering Company Limited (TAECO), thereby increasing the Company's stake to 45.46%.

For the period ended 30th June 2000, the financial results of material jointly controlled companies are as follows:

9. Debtors and creditors - Financial/credit risks and ageing analysis

The Group's income and expenditure streams are mainly denominated in Hong Kong and United States Dollars. Forward foreign exchange contracts are used as required to manage risk associated with movements in exchange rates.

Payment terms with customers are largely on credit. Credit evaluations of debtors are performed periodically to minimise any credit risk associated with receivables. In addition, cash payments from customers are sometimes required as a precondition for aircraft redelivery.

As at 30th June 2000, 96% of debtors (99% as at 31st December 1999) and 100% of creditors (84% as at 31st December 1999) were aged under six months.

10. Share capital

During the period ended 30th June 2000 the Company purchased on the Hong Kong Stock Exchange a total of 1,378,400 shares at an aggregate consideration of HK$17.6 million. All the shares purchased were subsequently cancelled. An amount equal to the nominal value of the shares cancelled was transferred from revenue reserve to the capital redemption reserve as disclosed in note 11.

11. Reserves

12. Long-term loan

The loan is provided by Troon Limited, a subsidiary of Cathay Pacific Airways Limited, to the Company for the construction of storage areas for aircraft parts. The terms of the loan are as disclosed in the 1999 annual report of the Company. During the period, the interest incurred was HK$4.9 million (1999 : HK$4.9 million).

13. Notes to consolidated cash flow statement

14. Contingent liabilities

The Company has given guarantees in respect of loan facilities granted to jointly controlled companies to the extent of HK$90.0 million as at 30th June 2000 (HK$107.0 million as at 31st December 1999) of which HK$90.0 million (1999 : HK$100.0 million) was utilised as at end of period/year.

15. Related Party Transactions

In addition to those disclosed elsewhere in the interim report, material transactions between the Group and related parties which were conducted on normal commercial terms in the ordinary and usual course of business are listed below:

(a) Revenue from the provision of services to jointly controlled companies comprised mainly services to HAESL and TAECO. Services provided to HAESL included engine component repairs charged at normal commercial rates and the provision of certain administrative services charged at cost based on the agreement with Rolls-Royce concerning the formation of HAESL. Services provided to TAECO related principally to charges at commercial rates covering the stationing of a working team of approximately 152 people in TAECO and management services.

(b) Revenue from the provision of services to other related parties comprised maintenance charges for the Cathay Pacific Airways fleet, the Dragonair and Air Hong Kong fleets as well as logistic support and storage charges for Cathay Pacific Airways.

Interim Dividend

An interim dividend of HK$0.23 (1999 HK$0.14) per share has today been declared and will be paid on 25th September 2000 to shareholders registered at the close of business on 15th September 2000. The share register will be closed from 11th September 2000 to 15th September 2000, both dates inclusive.

Share Capital

During the period under review, the Company made the following purchases of its shares on the Hong Kong Stock Exchange:

Other than as stated above, no purchase, sale or redemption of the shares of the Company has been effected by the Company or its subsidiary company.

For further information, please contact:

Mr. Andy Herdman       2840 8092

Mrs. Maisie Shun Wah       2840 8097

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