HKIA Annual Report 2009-10

Contents

HKIA Environmental Performance 2Core Values 4HKIA Facts / Performance Highlights 5Chairman’s Statement 6Chief Executive Officer’s Statement 10The Board and Executive Directors 14Financial and Operational Highlights 17Corporate Governance 18Event Highlights 26Passenger Services 28Cargo and Aviation Services 34Airfield and Systems 38Mainland Projects 42Corporate Social Responsibility 46Looking Forward 50Financial Review 54Report of the Members of the Board 62Independent Auditor’s Report 65Financial Statements 66 Five-year Financial and Operational Summary 123Airlines and Destinations 124

Hong Kong International Airport (HKIA) aims to maintain

a leadership position in airport management and aviation-

related businesses to strengthen Hong Kong as a centre

of international and regional aviation by:

• upholding high standards of safety and security• operating effi ciently with care for the environment• applying prudent commercial principles• striving to exceed customer expectations• working in partnership with stakeholders• valuing human resources• fostering a culture of innovation

AIRPORT AUTHORITY HONG KONG (the Airport Authority) is a statutory corporation wholly owned by the Hong Kong SAR Government. The Airport Authority is responsible for the operation and development of HKIA.

Our Green Airport

The theme of this year’s annual report highlights the importance we place on

operating in an environmentally responsible manner. As you will see, a commitment

to green operations runs through everything we do. In addition to reducing, reusing

and recycling, the 1,100 people of Airport Authority Hong Kong are proud to share

their environmental knowledge with business partners, other airports and the

community at large.

Annual Report 2009/10 1

Hong Kong International Airport2

HKIA Environmental Performance

• We recycle a variety of materials, including cardboard, paper, plastics, scrap metals, glass, food waste, tyres, lubricating oil and fluorescent tubes.

• Over 60 recycling bins are available at the airport to collect recyclable waste.

• In the past five years, we recycled more than 4,600 tonnes of waste, including over 240 tonnes of food scraps, which were converted into soil conditioner for the airport’s landscaping. A new compost system, which can process 200 kilogrammes of food waste per day, started operation in April 2010.

• Asphalt waste from pavement refurbishment work is reused in road resurfacing and in the base and sub-base courses of the airfield pavement in the midfield.

• We work with the Environmental Protection Department and our business partners to step up recycling of waste wooden cargo pallets.

• In April 2010, we signed the Conscientious Recycling Charter initiated by Friends of the Earth (HK) to show our commitment to recycling all our used computers, electrical waste and electronic equipment through proper recycling channels verified by the Environmental Protection Department.

• In the past five years, HKIA’s wastewater treatment plant processed 6.4 million cubic metres of wastewater from aircraft catering facilities, aircraft washing bays, passenger terminal restaurants and rest room sinks. A portion of the treated water is used to irrigate the airport’s landscaping.

Recycling: More than 4,600 Tonnes of Waste

Recycled

Emissions Reduction: Over 320 Green Vehicles at HKIA

• To demonstrate our commitment to minimise air pollution, we signed the Hong Kong General Chamber of Commerce’s Clean Air Charter in 2007. In addition, we endorsed the Aviation Industry Commitment to Action on Climate Change in 2008, a global initiative to mitigate our industry’s impact on climate change.

• To reduce greenhouse gases, we promote the use of electric, hybrid and liquefied petroleum gas−powered vehicles at Hong Kong International Airport (HKIA). The airport has one of Hong Kong’s largest fleets of electric vehicles and ground service equipment, and all of the Airport Authority (AA)’s diesel vehicles now use B5 biodiesel, a mixture of 95% conventional diesel and 5% biodiesel made from used cooking oil. Since 2008, the AA has facilitated the collection of used cooking oil at HKIA, and more than 95,000 litres has been recycled as biodiesel.

• With an efficient public transportation system connecting HKIA and the city, 66% of passengers and 96% of airport staff take the Airport Express, buses or coaches to and from the airport.

• Fixed ground power (FGP) and pre-conditioned air (PCA) systems are provided for aircraft at parking stands, eliminating the need for aircraft to use their fuel-combustion auxiliary power generation units onboard. Powered by electricity instead of jet fuel, the FGP and PCA systems significantly reduce air pollutant and carbon emissions. About 70% of passenger flights use our FGP and PCA systems.

• The AA signed the Environmental Protection Department’s Carbon Reduction Charter in 2008. In April 2009, we conducted the first airport-wide carbon audit, and shared our carbon management experience with the airport community through nine workshops. More than 30 of our business partners have completed carbon audits that cover 90% of the buildings and vehicles at HKIA.


• A wide range of measures have been introduced to improve the efficiency of the lighting, ventilation, air-conditioning and hydraulic systems, as well as escalators and travelators at HKIA.

• During the year, we replaced 4,200 lighting fixtures with light-emitting diode (LED) lights.

• All these measures contributed to an annual saving of about 10 million kilowatt hours (kWh) in 2009/10, which is an equivalent to 5,600 tonnes of carbon emissions.

• Great care has been taken in HKIA’s design, construction and operation to protect local wildlife and the natural habitat. To increase the diversity of inter-tidal flora and fauna, 90,000 mangrove seedlings were planted in Tai O in 2005 and 2006.

• We fund the management of the Sha Chau and Lung Kwu Chau Marine Park, and have supported research into Chinese white dolphins, the development of an artificial reef programme in North Lantau waters and a conservation plan for Romer’s tree frog, which is native to Hong Kong.

• To create a green environment for passengers and airport staff, we have grown 700,000 plants over an area of three million square metres on the airport island.

Energy: 10 Million kWh Saved

Local Ecology and Greening

Our Plans• An upgrade to the airport’s chiller systems will be completed in 2011, saving five million kWh and 2,800 tonnes of

carbon emissions per year.

• We plan to install an additional 81,000 LED lights in our passenger terminals by 2013 to save another 13 million kWh and 7,280 tonnes of carbon emissions per year.

• We have begun studying the feasibility of roof greening and the use of solar panels and wind turbines.

• Improvements will be made to the wastewater treatment plant by 2012 to enhance the quality of treated wastewater.

• The efficiency of the fixed ground power system will be improved by 2014, reducing local air pollutant emissions and saving over 1,000 tonnes of carbon emissions annually. A new, chlorine-free refrigerant will be used in the pre-conditioned air system, eliminating over 300 tonnes of carbon emissions a year.

• Before the airport opened, we established a comprehensive baseline for water quality and sediment levels in nearby waters to track HKIA’s impact on the marine environment. We are now conducting our fourth year-long monitoring programme as part of our commitment to minimising our impact on the local environment.

• We are studying the feasibility of expanding the airport’s green area by 130,000 square metres.

• We work with companies operating on the airport island to develop carbon-reduction programmes and set reduction targets for HKIA.

Annual Report 2009/10Hong Kong International Airport 54 Annual Report 2009/10Hong Kong International Airport 54

At Hong Kong International Airport (HKIA), six core values guide our staff and business partners in their day-to-day work and long-term plans. In a rapidly changing business environment, these principles are both constant and non-negotiable.

SafetyThe safety of our passengers, employees and business partners is paramount. Through training, accident reporting and analysis, communications and staff recognition programmes,our goal is to achieve a zero-injury rate at HKIA.

SecurityEffective security is an ongoing process that involves the entire airport community. We work closely with the police and other government departments to protect passengers, staff and business partners.

EnvironmentHKIA is committed to achieving high environmental standards.This includes minimising pollution, using energy and other resources efficiently, recycling and reusing wherever possible, and continually improving our environmental performance.

QualityAn airport-wide passion for customer service helps us maintain international standards of quality and customer satisfaction. As a result, HKIA has been named the world’s best airport about 30 times over the years.

EfficiencyBy efficiently serving our customers and business partners, we reinforce Hong Kong’s position as an aviation centre. That contributes to Hong Kong’s social and economic development and its competitiveness in financial services, trading and logistics, and tourism.

PeopleTop-quality people are the key to our high service standards. We use long-term training and development plans to ensure our staff are prepared to meet future challenges.

CoreValues


10

20

30

40

50

6,000

6,500

7,000

7,500

8,000

8,500

9,000

9,500

09/1008/0907/0806/0705/06

Passenger Trafficmillions of passengers

Turnoverin HK$ million

7,076

9,0158,8868,577

7,738

41.645.1

48.9 47.746.9

1

2

3

4

0

500

1,000

1,500

2,000

2,500

3,000

09/1008/0907/0806/0705/06

Cargo Throughputmillions of tonnes

Profit Attributable to Equity Shareholderin HK$ million

100

150

200

250

300

350

1

2

3

4

5

6

7

8

09/1008/0907/0806/0705/06

Air Traffic Movementsthousands

Return on Equityin percentage

270283 296 280

3.5 3.63.8

3.43.6

300

1,615

4.95.6

6.57.2

7.8

2,8442,588

2,273

1,920

09/1008/0907/0806/0705/06

09/1008/0907/0806/0705/06

09/1008/0907/0806/0705/06

Performance Highlights

HKIA Facts

Airport Site Area 1,255 hectares

Total Terminal Area 750,000 square metres

Airlines about 90

Destinations around 150

Runways 2

Annual Report 2009/10Hong Kong International Airport 76

Chairman’s Statement

Dear Stakeholders,

Fiscal 2009/10, ended 31 March 2010, was an unprecedented year for the global aviation industry and for Hong Kong

International Airport (HKIA).

As the year began, we were in the grip of a severe economic downturn. In April 2009, cargo throughput at HKIA was

down by nearly one-fifth from year-earlier figures. Gradually, the global economy began to rebound. In the first quarter

of 2010, cargo throughput was up 34.0% from the previous year. In this volatile operating environment, HKIA delivered

a satisfactory performance while maintaining our service standards, enhancing our facilities and laying the groundwork

for future growth.

When compared with 2008/09, air traffic movements fell 5.4%, passenger volume dropped 1.7%, while cargo

volume rose 4.4%. Thanks to strict cost controls, productivity gains, increased revenues from retail operations and an

improving economic climate, profit attributable to our equity shareholder rose 9.9%, to HK$2,844 million. Of that

amount, HK$2,300 million will be returned to our sole shareholder, the Hong Kong SAR Government, as an ordinary

dividend. In view of the Airport Authority (AA)’s strong financial position, the Board has also declared a special dividend

of HK$2,200 million out of previous accumulated retained profits. After making these payments, the AA will have paid its

shareholder a total of HK$18,980 million since 2003/04 in the form of dividends and repayment of capital.


Dr the Hon Marvin Cheung Kin-tungChairman

Chairman’s Statement

Relief MeasuresThese results were particularly gratifying in light of

the relief package that we introduced for businesses

operating at HKIA in the wake of the financial crisis,

which had a dramatic impact on the aviation industry

worldwide. Effective from April to December 2009,

the package included a 10% reduction in landing and

parking fees for airlines. It also allowed companies renting

lounges, offices, counters and storage space to defer up

to 50% of their rent for one year and repay the deferred

charges in interest-free instalments. The reduction in

landing and parking fees was later extended until the end

of March 2010. In total, the relief measures reduced

HKIA’s revenues by HK$242 million.

Despite a challenging economic climate, there were

several highlights in 2009/10. For the seventh time since

2002, HKIA was named best airport in the TTG Travel

Awards. And for the fourth consecutive year, Airports

Council International recognised HKIA as the world’s best

airport among facilities serving over 40 million passengers

annually. Our 2008/09 annual report won seven prizes,

including the diamond award in the public sector/

not-for-profit category in the Hong Kong Institute of

Certified Public Accountants’ Best Corporate Governance

Disclosure Awards.

Staying CompetitiveDuring the year, we continued to refine development

plans that will ensure HKIA has the facilities and capacity

to meet future demand and retain its position as a leading

international and regional aviation centre. This year saw

the completion of two important facilities, SkyPier and the

North Satellite Concourse, that will help us meet this goal

and further enhance our service standards.

Our current five-year plan focuses on maximising the

performance and efficiency of existing facilities. We are

now studying the construction of a passenger concourse,

complete with aircraft stands and an automated people

mover link in the midfield, which is located between our

two runways. This project will support a gradual increase

in the runway capacity from the current 59 to 68 air

traffic movements per hour by 2015.

Work continued on HKIA Master Plan 2030, a 20-year

development blueprint that examines the airport’s

traffic forecasts, capacity constraints and ability to

meet long-term demand. This document will include

the outcome of preliminary feasibility studies on the

engineering, financial and environmental aspects of

building a third runway. When HKIA Master Plan 2030

is complete, we will consult the public and stakeholders

in a public engagement process.

In this volatile operating environment, HKIA delivered a satisfactory performance while maintaining our service standards, enhancing our facilities and laying the groundwork for future growth.


Cooperation with the MainlandThrough our joint ventures at Zhuhai Airport and

Hangzhou Xiaoshan International Airport, our consulting

work at Beijing Capital International Airport and other

projects, we are developing local knowledge and

management expertise on the Mainland. In October 2009,

we capitalised on this expertise by forming a joint venture,

Shanghai Hong Kong Airport Management Co., Ltd,

that manages Shanghai Hongqiao International Airport’s

two terminals, east transportation centre and retail

operations. This is an exciting opportunity, one that

allows us to contribute to the growth and development

of one of the world’s most dynamic regions.

A Strong TeamThe AA has an experienced management team and a

motivated staff. The quality of our people was particularly

evident this year, as they maintained consistently high

levels of service, safety and efficiency in the face of rapidly

fluctuating demand. I am grateful for their hard work and

commitment.

The achievements of the past year would have been

impossible without the guidance and insight of our

Board. I would therefore like to thank outgoing member

Mr He Guangbei for his invaluable contributions. I would

also like to welcome the Hon Chan Kam-lam, the Hon

Albert Ho Chun-yan and Dr Allan Wong Chi-yun, who

joined the Board on 1 January 2010.

In addition, I would like to take this opportunity to

recognise retiring Executive Director, Finance &

Investment, Mr Raymond Lai Wing-chueng for his

14 years of loyal and dedicated service to the AA.

Mr Lai retired at the end of May 2010 and I wish

him a long and happy retirement.

Finally, I would like to extend my heartfelt appreciation

to our business partners and the Hong Kong SAR

Government for their continued support during an

extraordinary year.

Dr the Hon Marvin Cheung Kin-tung

Chairman

Hong Kong, 31 May 2010



Chief Executive Officer’s Statement

Mr Stanley Hui Hon-chungChief Executive Officer


Annual Report 2009/10Hong Kong International Airport 1110 Annual Report 2009/10Hong Kong International Airport 1110 Annual Report 2009/10Hong Kong International Airport 1110

Dear Stakeholders,

Fiscal 2009/10, ended 31 March 2010, was a volatile year for Hong Kong International Airport (HKIA). The global

downturn slashed demand for business and leisure travel, as companies and holidaymakers waited for the economic

storm clouds to clear. Cautious shoppers and businesses depleting their inventories caused airfreight volume to fall.

By the final quarter of 2009, signs of a rebound were evident. Corporate and consumer confidence improved. Load

factors recovered on the back of stronger demand and reduced flight frequencies, resulting in better economics to the

airlines. Airlines began reinstating suspended services, albeit in a small and gradual way. Declines in passenger volume

began to moderate and demand for cargo services bounced back strongly.

For the year, passenger traffic at HKIA reached 46.9 million, a decrease of 1.7% from 2008/09. Cargo throughput

increased 4.4%, to 3.6 million tonnes, while air traffic movements declined 5.4%, to 280,000. Revenues were

HK$9,015 million, an increase of 1.5%. Profit attributable to equity shareholder increased 9.9%, to HK$2,844 million.

Return on equity rose to 7.8%.


Sustainability is at the core of both our day-to-day operations and our long-term development plans. We strive to save energy, reduce emissions and recycle and reuse waste throughout the airport.

Chief Executive Officer’s Statement


Service EnhancementsSeveral new facilities that will strengthen our reputation

for excellence entered service in 2009/10. SkyPier, a

permanent cross-boundary ferry terminal that is eight

times the size of the previous temporary facility, was

officially opened on 15 January 2010 by the Hon Donald

Tsang Yam-kuen, Chief Executive of the Hong Kong SAR.

The same day, we launched the North Satellite Concourse,

which offers 10 bridge-served parking stands for narrow-

bodied passenger aircraft. Together with the other air

bridges in Terminal 1, this facility allows 98% of our

passengers to enjoy the comfort and convenience of

embarking and disembarking aircraft through air bridges.

In June 2009, we completed the reconfiguration of the

North Departures Immigration Hall. This change, which

followed a similar upgrade to the South Departures

Immigration Hall in 2008, added new security channels

and increased passenger screening capacity by 50%. As a

result, this year 97.8% of passengers queued for no more

than 4.5 minutes for security check. The North Satellite

Concourse and the improvements to the Departures

Immigration halls were part of a HK$4.5 billion capacity

and service enhancement programme that began in 2006.

In September 2009, the HKIA Precious Metals Depository

—a secure storage and physical settlement facility for

banks, refiners and commodities exchanges—opened.

During the year, we also completed phase 1A of the

Permanent Aviation Fuel Facility, which includes four

tanks, twin submarine pipelines and a dual-berth jetty.

As business conditions improved, Cathay Pacific Services

resumed construction of its new cargo terminal. When

the terminal is completed in 2013, HKIA will have a total

general and express cargo handling capacity of 7.4 million

tonnes per annum.

A Multi-Modal HubHKIA is a multi-modal transport hub that enables the

smooth flow of people, goods, capital and information

between Hong Kong, the Pearl River Delta (PRD) and

the world. During the year, we took several steps to

strengthen our connectivity with the PRD.

SkyPier, our cross-boundary ferry terminal, now offers

seamless transfers for passengers arriving at HKIA by air

and continuing on to ports in the PRD and Macao, as well

as for sea–to–air passengers travelling in the opposite

direction. During the year, ferry services commenced to

Nansha in Guangdong and Taipa in Macao, bringing the

number of ports served from SkyPier to eight.

We also enhanced our road connectivity. Cross-boundary

coach services now link HKIA with 95 cities and towns in

the PRD, up from 90 destinations last year, and 160

limousines make 300 round trips to PRD cities each day.

In the next decade, HKIA’s importance as a multi-modal

hub will increase. We are working with the Hong Kong

SAR Government to ensure that the Tuen Mun – Chek

Lap Kok Link, Hong Kong – Zhuhai – Macao Bridge and

Hong Kong Boundary Crossing Facilities will be effectively

integrated with the airport’s existing and future

infrastructure. And we support ongoing studies on the


proposed Hong Kong – Shenzhen Western Express Line,

one function of which is to connect HKIA with

Shenzhen International Airport. These projects will bring

unprecedented levels of connectivity to HKIA and

residents of the PRD and contribute to the economic

growth and development not only of Hong Kong but of

the region as well.

Our Green AirportSustainability is at the core of both our day-to-day

operations and our long-term development plans. We

strive to save energy, reduce emissions and recycle and

reuse waste throughout the airport. For example, we

facilitate the collection of used cooking oil at HKIA, which

is converted to biodiesel that fuels all our diesel vehicles.

In October 2009, we welcomed the arrival of our first two

MyCars, which are zero-emission electric vehicles.

In addition, we work with our business partners to help

them minimise their environmental impact. In 2009/10,

we held nine carbon-reduction workshops that were open

to all companies operating at HKIA. Since July 2009, over

30 of our business partners have completed carbon audits

that cover 90% of the buildings and vehicles at the

airport. By establishing an emission baseline, these audits

are an essential first step in formulating an effective

carbon-reduction programme.

Through educational programmes for schoolchildren,

tree-planting events and global initiatives like the

International Coastal Cleanup, we share our knowledge

and passion for environmental protection with the

community at large.

AwardsDelivering a positive experience for passengers and other

airport users requires a coordinated effort by the Airport

Authority, airlines and other business partners. This

airport-wide commitment to service was recognised by

several organisations in 2009/10. We received our third

Asia-Pacific airport efficiency excellence award from the

Air Transport Research Society. Among other awards,

we also won the 2009 top service brand award from the

Hong Kong Brand Development Council and the Chinese

Manufacturers’ Association of Hong Kong.

Recognition of SupportI would like to thank the Airport Authority’s Board

and the Hong Kong SAR Government for their guidance

and support during a challenging year.

I would also like to express my gratitude to our 1,100

employees and the 60,000 members of the airport

community. HKIA’s reputation for service, safety, security

and efficiency is a direct result of your efforts.

Stanley Hui Hon-chung

Chief Executive Officer



The Board and Executive Directors

The Board

Dr the Hon Marvin Cheung Kin-tung

Mr Stanley Hui Hon-chung

Professor the Hon K C Chan

The Hon Chan Kam-lam

Mr Benjamin Hung Pi-cheng

Ir Edmund Leung Kwong-ho

The Hon Eva Cheng The Hon Vincent Fang Kang

Mr He Guangbei The Hon Albert Ho Chun-yan

Ir Dr the Hon Raymond Ho Chung-tai

Mr Norman Lo Shung-man

Dr Allan Wong Chi-yun

Mr Wilfred Wong Ying-wai

Dr Lo Ka-shuiMr Andrew Liao Cheung-sing


Dr the Hon Marvin Cheung Kin-tung DBA Hon. GBS OBE JP ChairmanAged 62. Appointed as Chairman of the Board in June 2008. First appointed as Member of the Board in June 2003 and was re-appointed in June 2005. Non-official Member of the Executive Council. Chairman of the Council of the Hong Kong University of Science and Technology. Independent Non-Executive Director of the Hong Kong Exchanges and Clearing Limited, Hang Seng Bank Ltd, HKR International Ltd and HSBC Holdings plc.

Mr Stanley Hui Hon-chung JP Chief Executive Officer*Aged 59. Appointed as Chief Executive Officer in February 2007. Former Chief Executive Officer of Dragonair and Chief Operating Officer of Air Hong Kong. First Vice Chairman of Hangzhou Xiaoshan International Airport Company Limited. Chairman of Hong Kong – Zhuhai Airport Management Company Limited. Member of the Hong Kong Government’s Aviation Development Advisory Committee. Member of the Fourth Shenzhen Committee of the People’s Political Consultative Conference of China. Member of the Greater Pearl River Delta Business Council. Member of the Commission on Strategic Development of the Hong Kong SAR Government. Member of the Vocational Training Council. Chairman of the Chinese Cuisine Training Institute Training Board. Member of the Hong Kong Tourism Board. Member of the Construction Industry Council.

Professor the Hon K C Chan SBS JP Secretary for Financial Services and the Treasury*Aged 53. Became a Board Member in July 2007 upon his appointment as Secretary for Financial Services and the Treasury. Chairman of the Managing Board of Kowloon-Canton Railway Corporation. Member of the Board of Directors of MTR Corporation Limited.

The Hon Chan Kam-lam SBS JPAged 61. Appointed to the Board in January 2010. Member of the Legislative Council representing the constituency of Kowloon East. Chairman of the Panel on Financial Affairs and Member of the Panel on Housing of the Legislative Council. Member of the 11th National Committee of Chinese People’s Political Consultative Conference. Member of the ICAC Advisory Committee on Corruption. Non-Executive Director of Securities and Futures Commission.

The Hon Eva Cheng JP Secretary for Transport and Housing*Aged 50. Became a Board Member in July 2007 upon her appointment as Secretary for Transport and Housing. Member of the Managing Board of Kowloon-Canton Railway Corporation. Member of the Board of Directors of MTR Corporation Limited.

The Hon Vincent Fang Kang SBS JPAged 67. Appointed to the Board in June 2005 and was re-appointed in June 2008. Chief Executive Officer of Toppy International Ltd. Managing Director of Fantastic Garments Ltd. Chairman of Hospital Governing Committee, Princess Margaret Hospital. Chairman of Hospital Governing Committee, Kwai Chung Hospital. Honorary Advisor, Hong Kong Retail Management Association. Director of the Federation of Hong Kong Garment Manufacturers. Chairman of the Garment Advisory Committee of the Hong Kong Trade Development Council. Member of the ICAC Operations Review

Committee. Member of the Fight Crime Committee. Member of the Hong Kong Housing Authority and Member of the Greater Pearl River Delta Business Council.

Mr He Guangbei JPAged 55. Appointed to the Board in June 2003 and was re-appointed in June 2005 and June 2008. Vice Chairman and Chief Executive of BOC Hong Kong (Holdings) Limited. Vice Chairman and Chief Executive of Bank of China (Hong Kong) Limited. Chairman of Chiyu Banking Corporation Limited. Designated Representative of BOCHK to the Hong Kong Association of Banks and served as the Vice Chairman in 2009. Member of the Hong Kong Monetary Authority Exchange Fund Advisory Committee and Banking Advisory Committee. Director of Hong Kong Interbank Clearing Limited. Director of Hong Kong Note Printing Limited. Honorary President of the Hong Kong Chinese Enterprises Association. Member of the Commission on Strategic Development of the Hong Kong SAR Government. Vice Chairman and General Committee Member of The Hong Kong General Chamber of Commerce.

The Hon Albert Ho Chun-yanAged 59. Appointed to the Board in January 2010. Practising Solicitor and Notary Public. Member of the Legislative Council representing the constituency of the New Territories West. Tuen Mun District Council Member. Member of the ICAC Complaints Committee and the Mandatory Provident Fund Schemes Advisory Committee. Board Member of the Society for Community Organization.

Ir Dr The Hon Raymond Ho Chung-tai SBS S.B.St.J. JPAged 71. Appointed to the Board in June 2008. Member of the Legislative Council (Engineering) and the former Provisional Legislative Council since 1996. Hong Kong Deputy to the 10th & 11th National People’s Congress of the People’s Republic of China. Chairman of Hong Kong Trade Development Council Infrastructure Development Advisory Committee. Member of the Commission on Strategic Development of the Hong Kong SAR Government. Chairman of Guangdong Daya Bay Nuclear Plant and Lingao Nuclear Plant Safety Consultative Committee. Former President of the Hong Kong Institution of Engineers.

Mr Benjamin Hung Pi-chengAged 45. Appointed to the Board in June 2008. Executive Director and Chief Executive Officer of Standard Chartered Bank (Hong Kong) Limited. Vice Chairman of the Board of Directors of Bohai Bank. Chairman of the Hong Kong Association of Banks. Board Member of Hospital Authority. Member of the Insurance Advisory Committee, the Exchange Fund Advisory Committee and the Council for Sustainable Development. Council Member of the University of Hong Kong and the Hong Kong Trade Development Council. Chairman of Hong Kong Trade Development Council’s Financial Services Advisory Committee. Board Member of the Community Chest and the Community Business.

Ir Edmund Leung Kwong-ho SBS OBE JPAged 64. Appointed to the Board in June 2005 and was re-appointed in June 2008. A Professional Engineer. Managing Director of Hsin Chong Construction Group Ltd. Chairman of the Energy Advisory Committee. Chairman of the Process Review Panel of the Financial Reporting Council. Former President of the Hong Kong Institution of Engineers and former Chairman of the Hong Kong Branch of the Institution of Mechanical Engineers of the United Kingdom.

Mr Andrew Liao Cheung-sing GBS SC JPAged 60. Appointed to the Board in June 2005 and was re-appointed in June 2008. A Senior Counsel. Chairman of the Land and Development Advisory Committee. Chairman of the Air Transport Licensing Authority. Member of the Commission on Strategic Development of the Hong Kong SAR Government. Member of the 11th National Committee of Chinese People’s Political Consultative Conference.

Dr Lo Ka-shui MD GBS JPAged 63. Appointed to the Board in June 2003 and was re-appointed in June 2005 and June 2008. Chairman and Managing Director of Great Eagle Holdings Limited. Non-executive Chairman of Eagle Asset Management (CP) Limited (Manager of the publicly listed Champion Real Estate Investment Trust). Vice President of the Real Estate Developers Association of Hong Kong. Trustee of the Hong Kong Centre for Economic Research. Chairman of the Chamber of Hong Kong Listed Companies. Non-executive Director of The Hongkong and Shanghai Banking Corporation Limited and Independent Non-executive Director of Shanghai Industrial Holdings Limited, Phoenix Satellite Television Holdings Limited and China Mobile Limited.

Mr Norman Lo Shung-man AE JPDirector-General of Civil Aviation*Aged 53. Became a Board Member in April 2004 upon his appointment as Director-General of Civil Aviation.

Dr Allan Wong Chi-yun GBS MBE JPAged 59. Appointed to the Board in January 2010. Chairman and Group Chief Executive Officer of VTech Holdings Limited. Member of the Commission on Strategic Development of the Hong Kong SAR Government and the Greater Pearl River Delta Business Council. Council Member of the University of Hong Kong. Independent Non-executive Director and Deputy Chairman of The Bank of East Asia, Limited. Independent non-executive Director of China-Hong Kong Photo Products Holdings Limited and Li & Fung Limited.

Mr Wilfred Wong Ying-wai SBS JPAged 57. Appointed to the Board in June 2005 and was re-appointed in June 2008. Executive Chairman, Greater China of Pacific Star Group. Executive Deputy Chairman of Hsin Chong Construction Group Limited and Synergis Holdings Limited. Deputy to The 11th National People’s Congress of the People’s Republic of China. Chairman of the Hong Kong International Film Festival Society Limited. Chairman of the Court and Council of the Hong Kong Baptist University. Member of the Commission on Strategic Development of the Hong Kong SAR Government. Member of the Hong Kong Tourism Board, the Film Development Council and the Family Council. Chairman of the Business and Professionals Federation of Hong Kong.

Secretary to the BoardMr H Y Shu

AuditorsKPMG

* Member by virtue of being holder of the post


The Board and Executive Directors

Mr Howard Eng Kiu-chor Executive Director, Airport OperationsAged 57. Holds Bachelor’s Degrees in Science and in Commerce. Joined the Airport Authority in April 1995 and was appointed Director in December 2000. Before joining the Airport Authority, Mr Eng was Vice President of Operations, Edmonton International Airport, Canada, and has had more than 25 years of experience in the airport business involving project development, planning, retail and operation. He is a Director of Hong Kong – Zhuhai Airport Management Company Limited.

Executive Directors

Mr Raymond W C Lai Executive Director, Finance & Investment Aged 60. Holds a Bachelor’s Degree in Science, an MBA and an Honourary Doctor of Science Degree. Mr Lai was appointed in August 1996. Before joining the Airport Authority, Mr Lai was a veteran banker with over 20 years of experience in capital markets and corporate finance in Hong Kong, Europe and the USA. He is a Member of the Finance Committee of the Housing Authority and Board Vice Chairman of Shanghai Hong Kong Airport Management Co., Limited.

Financial and Operational Highlights

2009/10 2008/09 ±% 1

Financial Results

(in HK$ million)

Turnover 9,015 8,886 +1.5%

Operating profit before depreciation and amortisation 5,613 5,389 +4.2%

Depreciation and amortisation 2,191 2,234 -1.9%

Interest and finance costs 178 233 -23.6%

Profit attributable to equity shareholder 2,844 2,588 +9.9%

Dividend declared 2,300 2,200 +4.5%

Special dividend declared 2,200 -

Financial Position and Ratios

(in HK$ million)

Total assets 51,370 51,864 -1.0%

Total borrowings 8,193 9,377 -12.6%

Total equity 36,689 36,038 +1.8%

Return on equity 7.8% 7.2%

Total debt/capital ratio 18% 21%

Credit Ratings

Standard & Poor’s:

Long-term local currency AA+ AA+

Long-term foreign currency AA+ AA+

Operational Highlights2

Passenger traffic3 (millions of passengers) 46.9 47.7 -1.7%

Cargo throughput4 (millions of tonnes) 3.6 3.4 +4.4%

Air traffic movements (thousands) 280 296 -5.4%

1 Subject to rounding differences.2 “Operational Highlights” is based on the Airport Authority’s traffic data of Hong Kong International Airport only.3 “Passenger traffic” includes originating, terminating, transfer and transit passengers. Transfer and transit passengers are counted twice.4 “Cargo throughput” includes originating, terminating and transshipment cargo. Transshipment cargo is counted twice. Airmail is excluded.



Appointment

Report Accountability

Annual Audit

Information

Approval ofResources &Audit Plan

Audit

AppointmentSupervisionGuidanceAppraisal

Report

Report Advice

Report Accountability

Appointment

SupervisionGuidance

AppointmentTerms of Reference Delegation

Board(Page 18)

Board Committees

Executive Management(Page 21)

Internal Audit(Pages 21-22)

External Auditor(Page 21) Report

Report

Shareholder(Hong Kong SAR Government)

Capital WorksCommittee

(Page 19)

Infrastructural Planning Committee

(Page 20)

Executive Committee

(Page 20)

Audit Committee& Finance Committee

(Page 19)

China Committee(Pages 19-20)

Remuneration Committee

(Page 20)

Report

We believe good corporate governance provides the foundation for good corporate performance and is essential to attaining long-term, sustainable growth. While recognising that corporate governance may hinge on a number of factors, we have adopted accountability, transparency, fairness and ethics as the cornerstones of our corporate governance framework.

Our Commitment We are committed to high standards of corporate governance and strive to achieve this commitment by institutionalising a clear and comprehensive governance framework and fostering an ethical and responsible culture at all levels of the organisation. Key features of our corporate governance framework are described below:

Corporate Governance Structure

The BoardThe Board has overall responsibility for the leadership, control and performance of the Airport Authority (AA). In line with the principles set out in the Non-statutory Guidelines on Directors’ Duties issued by the Companies Registry, each member of the Board has a duty to act in good faith and in the best interests of the AA.

Board CompositionThe Airport Authority Ordinance (Cap. 483) (the Ordinance) provides that the Board shall comprise a Chairman, a Chief Executive Officer (ex-officio) and between 8 and 15 other members, provided that the number of members who are public officers shall not exceed the number of members who are not public officers. This requirement effectively ensures that the Board will comprise of a majority of independent members, thereby promoting the fair and objective review of the performance of the executive management.

The Board currently has 16 members, whose details are set out on pages 14-16. With the exception of the Chief Executive Officer, all Board members are non-executives, the majority of whom are also considered independent1.

Appointment and RemunerationPursuant to the Ordinance, the appointment and remuneration of Board members, including the Chairman, are determined by the Chief Executive of the Hong Kong SAR. With the exception of Mr He Guangbei and Dr Lo Ka-shui whose current terms of appointment are for two years and the Chief Executive Officer who is an ex-officio member, the Chairman and all other members of the Board were appointed for a term of three years. The remuneration of Board members for the year under review is disclosed on page 88.

Board ProceedingsThe proceedings of the Board are designed to align to the extent applicable to the AA with the Code on Corporate Governance Practices issued by the Stock Exchange of Hong Kong Limited under Appendix 14 to the Main Board Listing Rules. A set of modus operandi of the Board was formalised in June 2008, the key elements of which include:

1 Any member who is not a public officer or an executive of the AA and is not related to any member of the Board or executive management is considered to be independent.

Corporate Governance


• TheBoardshallmeetatleastfourtimesayear,

• TheannualscheduleforregularBoardmeetingsshallbemade available to members before the start of each year,

• TheagendasofBoardmeetingsshallbeapprovedby the Chairman. Members may propose matters to be included in the agendas,

• MeetingagendasandpapersshallbesenttoMembersat least three clear days (excluding the day on which they were despatched and the day of the meeting) before a meeting,

• TheBoardshallreceivereportsfromtheChairmenofthe Board committees at each meeting. Members of the Board shall also receive the minutes of all committee meetings,

• MeetingminutesshallbesenttoallMembersforcomment and record within a reasonable time after a meeting, and

• Membersshallsafeguardconfidentialinformationandobserve the procedures on declaration of interests.

Meetings In the year under review, the Board met four times, with an average attendance rate of 91%. Attendance records of individual members are on page 20.

Board CommitteesPursuant to the Ordinance, the AA may establish committees to consider matters relating to specialised areas upon which they advise the Board and/or, where appropriate, decide on matters within their ambits.

The structure and terms of reference of Board committees were approved by the Board and are reviewed from time to time in light of the AA’s evolving operational, business and development needs. The last review was conducted in June 2008. The current terms of reference of the Board committees are available on Hong Kong International Airport’s website, www.hongkongairport.com.

Under the current modus operandi of the Board committees, agendas of committee meetings are sent to all members of the Board who may choose to attend any meeting as observers, even if they are not a member of that committee. All members of the Board may obtain papers of any Board committee meetings from the Secretary to the Board.

Details of current Board committees and their principal duties are as follows:

Audit Committee and Finance Committee (ACFC) – Its principal duties include reviewing the AA’s financial statements; making recommendations on the appointment of external auditors and approving their remuneration and terms of engagement; reviewing the AA’s accounting policies, annual budget, 5-year financial plan and charging policies; and overseeing the AA’s internal

controls, financial controls, risk management system and internal audit function.

The ACFC is chaired by Mr He Guangbei. It currently has six members including its chairman, most of whom are independent non-executives. The ACFC met three times during the year, with an average attendance rate of 87%. Attendance records of individual members are set out on page 20.

In the year under review, the ACFC performed the following key functions:

• reviewedtheAA’sinterimfinancialreportsandauditedannual financial statements;

• reviewedtheAA’sannualbudget,financingplan,5-year financial plan and financial risk management policy;

• reviewedtheAA’sdividendpolicyanddividendpayment for the year;

• reviewedtheexternalauditor’sindependence;

• reviewedtheexternalauditor’sAuditReportandManagement Letter and management’s responses thereto, and met with the external auditors without the presence of executive management;

• reviewedtheobjectivityandeffectivenessofthe audit process and recommended to the Board the appointment of external auditors and approved their audit fee;

• reviewedtheannualCorporateGovernanceandInternal Control Review Reports and the adequacy of the resources, qualifications and experience of staff of the accounting and financial reporting function, and their training and budget; and

• approvedtheannualinternalauditprogrammeandreviewed the quarterly internal audit reports and the adequacy of the resources and the effectiveness of the internal audit function.

Capital Works Committee (CWC) – It is a specialist committee responsible for reviewing the AA’s policy and strategy on the procurement of capital works; making recommendations to the Board on annual capital works budget; and considering the award and monitoring the progress of major capital projects.

The CWC is chaired by Ir Edmund Leung Kwong-ho and currently has five members, including its chairman. The CWC met five times during the year under review, with an average attendance rate of 84%. Attendance records of individual members are set out on page 20.

China Committee (CC) – It is primarily responsible for advising the Board on the AA’s China development strategy; monitoring the AA’s investments in Mainland airports; and advising the executive management and the Board on business and co-operation opportunities on the Chinese Mainland.


The CC is chaired by Mr Wilfred Wong Ying-wai and currently has 15 members, including its chairman. The CC met three times during the year under review, with an average attendance rate of 79%. Attendance records of individual members are set out below.

Executive Committee (EC) – It was established for the purpose of exercising the functions and responsibilities of the Board between regular Board meetings. It also serves as a sounding board for the Chairman of the Board in the leadership and oversight of the business and affairs of the AA and helps coordinate the activities of Board committees.

The EC is chaired by Dr the Hon Marvin Cheung Kin-tung and currently has four members, including its chairman. The EC met eight times during the year under review, with an average attendance rate of 97%. Attendance records of individual members are set out below.

Infrastructural Planning Committee (IPC) – It was established for the purposes of reviewing and advising the Board on major infrastructural developments at HKIA and its long-term master planning and associated issues. The IPC is chaired by Dr Lo Ka-shui and currently has 12 members, including its chairman. It met three times during the year under review, with an average attendance rate of 87%. Attendance records of individual members are set out below.

Remuneration Committee (RC) – It is responsible for reviewing the AA’s staffing, remuneration and

employment policies and strategies, and considering remuneration matters including salaries, compensation generally, and terms and conditions of service of employees. It also advises the Board on other staff-related issues including annual corporate goals and performance measures, variable compensation and retirement schemes.

The RC is chaired by the Hon Vincent Fang Kang and currently has nine members, including its chairman. With the exception of the Chief Executive Officer, all of its members are non-executives, most of whom are also considered to be independent. It met twice in 2009/10, with an average attendance rate of 83%. Attendance records of individual members are set out below.

In the year under review, the RC performed the following key functions:

• conductedanannualreviewofstaffremuneration;

• reviewedtheAA’stermsandconditionsofemployment;

• reviewedtheannualawardofvariablecompensationfor staff;

• reviewedtheperformanceoftheChiefExecutiveOfficer and executive directors and their variable compensation;

• maderecommendationstotheBoardontheappointment of senior management positions; and

• reviewedandrecommendedtotheBoardthecorporateperformance targets and measurements for the following year.

Meeting Attendance (1 April 2009 to 31 March 2010)

Members Board EC CWC CC IPC RC ACFC

Non-executiveSecretary for Transport and Housing 4/4 8/8 3/3 3/3 2/2Secretary for Financial Services and the Treasury 4/4 1/3 2/3 3/3Director-General of Civil Aviation 4/4 3/3 3/3 2/2

Independent non-executiveDr the Hon Marvin Cheung Kin-tung 4/4 8/8 * 3/5 1/3 3/3 (Chairman of the Board) The Hon Chan Kam-lam# 1/1 0/0 † 0/0 † 0/0 † The Hon Vincent Fang Kang 4/4 3/3 2/2 * 3/3Mr He Guangbei^ 2/4 1/3 3/3 *The Hon Albert Ho Chun-yan# 1/1 0/0 † 0/0 † 0/0 †

Ir Dr the Hon Raymond Ho Chung-tai 2/4 4/5 0/0 † 3/3 0/2 Mr Benjamin Hung Pi-cheng 4/4 2/2 3/3Ir Edmund Leung Kwong-ho 4/4 5/5 * 3/3 3/3 Mr Andrew Liao Cheung-sing 4/4 4/5 3/3 2/3 Dr Lo Ka-shui 3/4 7/8 2/3 3/3 * Dr Allan Wong Chi-yun# 1/1 0/0 † 0/0 † 0/0 † Mr Wilfred Wong Ying-wai 4/4 3/3 * 1/3 1/3

ExecutiveMr Stanley Hui Hon-chung (Chief Executive Officer) 4/4 8/8 5/5 3/3 3/3 2/2

*Chairman of the committee #Appointed to the Board of the AA on 1 January 2010 † Appointed to the committee on 22 February 2010 ^Retired on 31 May 2010

ACFC: Audit Committee and Finance Committee CWC: Capital Works Committee CC: China Committee EC: Executive Committee IPC: Infrastructural Planning Committee RC: Remuneration Committee



Executive ManagementThe executive management team, led by the Chief Executive Officer, is responsible for managing the AA’s day-to-day operation and assisting the Board in formulating and implementing corporate strategies. Since June 2008, the AA has implemented a management structure under which the former business and service units were re-organised into functional departments, some of which were further grouped under divisions. This new structure facilitates a renewed focus on corporate performance, thereby fostering closer departmental cooperation without diminishing the accountability of individual departments.

The appointment and compensation of the Chief Executive Officer and the executive directors are reviewed and recommended by the Remuneration Committee and approved by the Board. The appointment of the Chief Executive Officer is also subject to the approval of the Chief Executive of the Hong Kong SAR. Details of the executive directors and their remuneration for the year under review are on page 16 and page 88 respectively.

Balance of ResponsibilityThe AA’s organisational structure is designed to maintain an appropriate balance of responsibility between the Board and the executive management. In essence, the Board is primarily responsible for overseeing the strategic direction and overall performance of the AA, while the executive management team is responsible for managing the AA’s day-to-day operations and implementing the strategies laid down by the Board.

To enable the Board to maintain effective oversight and control, clear guidelines have been established specifying issues that are reserved for Board decisions. These include decisions relating to major corporate strategies and policies, substantial investments and capital projects, material acquisitions and disposals of assets, corporate business and financial plans and budgets, senior executives’ appointment, compensation and succession planning, as well as the review of corporate and senior management performances.

At the AA, the posts of Chairman and Chief Executive Officer are separate. The Chairman is generally responsible for managing the Board, while the Chief Executive Officer is responsible for managing the business and operations of the AA.

Internal ControlsInternal controls form an integral part of the AA’s management system and are embodied in the operational procedures of functional departments. The AA’s internal controls are designed to give reasonable assurance that its operations are safe and secure and free from serious interruptions, that its assets have been prudently safeguarded, that maximum value for money is obtained from its expenditures, that its business activities are conducted in a fair and responsible manner, and that its

(in HK$ million) 2009/10 2008/09

Audit fee 4 4Fees for non-audit services 0 2

financial reporting is accurate, transparent, timely and complete. The underlying principle of the AA’s internal controls is to manage and mitigate, rather than to eliminate risks.

The Board is overall responsible for ensuring that the AA has effective internal controls and is assisted by the Audit Committee and Finance Committee in discharging this responsibility. Key components of the AA’s internal control framework include:

Audit Committee and Finance Committee Pursuant to its terms of reference, the Audit Committee and Finance Committee is responsible for reviewing the AA’s internal controls and risk management systems, and ensuring that management has discharged its duty to put in place an effective internal control system. It has full and independent access to the internal auditors as well as the senior management and, in the furtherance of its duty, may obtain external legal or other professional advice at the expense of the AA. It receives reports from both the external and internal auditors and considers any control issues arising from these reports. It reviews the AA’s internal control system and the adequacy of the AA’s accounting and financial reporting function, and meets at least once a year with the external auditors in the absence of executive management.

External AuditThe main purpose of the external audit is to provide independent assurance to the Board and shareholder that the annual financial statements of the AA are fairly stated. The appointment of the AA’s external auditor is subject to the approval of the Chief Executive of the Hong Kong SAR, on the recommendation of the Board and Audit Committee and Finance Committee. The external auditor for the year under review was KPMG.

To ensure the independence and objectivity of the external auditor, the AA has implemented policies which restrict the non-audit services to be provided by the external auditor and require its lead engagement partner responsible for the AA to be rotated every seven years (the last rotation took place in 2006). The following is a breakdown of the fees paid by the AA to the external auditor in the past two years for audit and non-audit services:

Internal AuditThe Internal Audit is primarily responsible for reviewing the adequacy and effectiveness of internal control procedures and monitoring compliance with them. The annual internal audit programme is drawn up using a risk-based approach and is approved by the Audit


Committee and Finance Committee before implementation. According to the AA’s Internal Audit Charter, internal auditors have unrestricted access to information and complete freedom to draw independent conclusions in their audits. The Chief Internal Auditor reports to the Chief Executive Officer on an administrative basis but has direct access to the Audit Committee and Finance Committee and its Chairman, thereby ensuring that independence is maintained.

Annual Review of Internal Control SystemAssessing risks and reviewing the effectiveness of internal controls is a continuing process at the AA. In addition to the internal and external audits and other review and assurance processes, the executive management, assisted by a cross-departmental Internal Control Review Task Force, conducts annually a comprehensive review of the AA’s internal control system in accordance with the COSO (the Committee of Sponsoring Organisations of the Treadway Commission) framework recommended by the Hong Kong Institute of Certified Public Accountants.

The annual internal control review evaluates all major operations and processes of the AA based upon the five main components of the COSO framework, namely: control environment, risk assessment, control activities, information and communication, and monitoring. As part of the annual review, all AA departments and major subsidiaries are required to assess the risks associated with their key processes and the effectiveness of the controls in place to mitigate such risks. Independent verification of the effectiveness of controls for those high risk areas is also carried out.

During the year under review, the executive management has reviewed the AA’s internal control system and concluded that it is effective and adequate. A consolidated internal control review report was compiled and submitted to the Audit Committee and Finance Committee for review. The Board then reviewed the effectiveness of the AA’s system of internal control based on the consolidated report assessed by the Audit Committee and Finance Committee.

Operational Risk ManagementMaintaining Hong Kong as a centre of international and regional aviation is a statutory mandate of the AA. Given the myriad of potential risks that may affect the operations of the airport, the AA has recently introduced a new process for the Audit Committee and Finance Committee and the Board to review the risk and business continuity management processes pertaining to operational areas that are critical to sustaining the continuous operation of the airport.

The key elements of the AA’s integrated and multi-layered risk and business continuity management process include the establishment of an Operational Risks Register to track

and document identified risks, the development and continuous updating of preventive and responsive procedures, and the testing and drilling of action plans and procedures to ensure their effectiveness.

Delegation of AuthorityThe AA has a comprehensive system of delegation of authorities under which the authorities of the Board, Board committees and different levels of the executive management are clearly delineated. Such delegation of authority is reviewed from time to time to ensure it meets the AA’s evolving business and operational needs. The last review was conducted by the Board in June 2008.

Under current delegations, the Executive Committee has been given the power to exercise the functions of the Board between Board meetings, save for certain statutory restrictions. The Capital Works Committee is delegated the power to make financial commitments of up to HK$500 million. The Chief Executive Officer has been delegated the full power to make commitments of an operational nature and up to HK$50 million for capital expenditures. To complement these delegations, a reporting mechanism has been instituted to keep the Board informed when these powers have been exercised.

On the operational level, the Chief Executive Officer has established a Revenue and Expenditure Committee to assist him in exercising his delegated authority. The executive management has a structured system of sub-delegation under which staff members of different levels are given appropriate authority to enable them to effectively discharge their duties. The system of sub-delegation is subject to review and approval from time to time by the Chief Executive Officer.

Financial Planning, Control and ReportingThe AA has a three-tier corporate planning process under which a master plan with a long-term planning horizon of 20 years is compiled every five years. The preparation of HKIA Master Plan 2030 is currently underway. For medium-term planning, each year the AA prepares a rolling five-year business plan and financial plan. For short-term planning and control purposes, annual budgets are prepared and submitted to the Audit Committee and Finance Committee and the Board for approval.

Within the AA’s financial control system, there are defined procedures for the appraisal, review and approval of different levels of capital and operating expenditures. Stringent control and approval procedures are in place to govern expenditures beyond approved budgets. Results of operation against budget are reported to the Audit Committee and Finance Committee and to the Board at least on a quarterly basis. Financial control on major capital projects is reported to and monitored by the Capital Works Committee.



The Board is overall responsible for the preparation of financial statements that give a true and fair view of the AA’s affairs and financial results. The Board is assisted by the Audit Committee and Finance Committee in discharging this responsibility. In preparing this year’s financial statements, the Board has adopted suitable accounting policies and applied them consistently; made judgements that are prudent and reasonable; and prepared the financial statements on a going concern basis. AccountabilityThe AA considers accountability one of the fundamental pillars of corporate governance and has built its corporate structure and management culture based on this notion. Under the current structure, the Board is overall accountable for the performance of the AA. The executive management is responsible for managing the AA’s day-to-day business and is accountable to the Board for its performance.

In order to strengthen the accountability mindset at all levels of the organisation, the AA has adopted a cost and contribution centres’ operating model. As relevant and appropriate, operating parameters are set for individual departments for which they are accountable. Disclosure of InterestThe AA has clear and comprehensive procedures for disclosure of interests which is considered an important safeguard against potential conflicts of interests. Under the current procedures, members of the Board and senior management are each required to make a general declaration upon their appointment and thereafter on an annual basis. They are also required to report any change to their declaration as and when it occurs or as soon as they become aware that conflicting interests may arise. In addition, written procedures are in place requiring staff to disclose their interests under specific circumstances, for instance, acting as a member of a tender assessment panel. Board or staff members with potential conflicts of interests will normally be excluded from the relevant deliberation and decision-making process. A register of declarations made by members of the Board is maintained by the Corporate Secretariat and is available for public inspection.

Ethical CultureEthics is a core value of the AA. To foster an ethical culture, the AA uses both the ”structural” and ”people” approaches.

The structural approach aims to attain ethical behaviour by institutionalising policies and procedures with which staff members are required to comply. Such policies and procedures also serve as constant reminders to staff of the minimum ethical standards the AA expected of them.

LegalCompliance

Policies & Procedureseg. Code of Conduct

General Conduct & Behaviour “Mindset“

The Code of Conduct is a key component of that structure. This Code provides specific guidelines to help staff make ethical decisions in the course of discharging their duties. Compliance with this Code is part of the terms of employment of all staff, who are reminded at least once a year of their responsibilities under the Code. The Code of Conduct is reviewed and updated regularly to ensure that it is consistent with current best practices (The last update was done in September 2008). As part of the ethics structure, a high-level Ethics Panel will be convened as needed to review serious ethical issues. The Ethics Panel may take independent advice and reports to the Chief Executive Officer and/or the Audit Committee and Finance Committee, as appropriate. The AA also has a formal Whistle Blowing Policy to encourage and guide its staff to raise serious concerns internally in a responsible manner, without fear of retribution.

The people approach aims to inculcate an ethical mindset among all staff and enhance their awareness of good ethics through continuing education. In this regard, workshops and sharing sessions conducted by internal and external parties are held from time to time. At these sessions, information on desirable ethical behaviours are promulgated and often supplemented by case studies to help staff gain a better understanding of the underlying principles and how they can be applied in different situations.

Recognising that ethics management is a complex subject which goes beyond simply complying with laws and regulations, to promote a better understanding of different levels of ethical responsibility, the AA has defined various ethics-related issues and presented them in an ethics pyramid. Staff members are regularly reminded of their obligations under each level of the pyramid.


Financial ReportingThe AA fully complies with the financial reporting requirements set out in Section 32 of the Ordinance. Although not required under the Ordinance, the AA voluntarily complies with the disclosure provisions of the Hong Kong Companies Ordinance (Cap. 32). Starting in 2005/06, the AA’s financial statements are prepared in compliance to the extent applicable with the relevant disclosure provisions in the Listing Rules issued by the Stock Exchange of Hong Kong Limited. Since 2006/07, the AA began voluntarily announcing its interim financial results.

Corporate Governance PracticesAlthough the AA is not required to comply with the Code on Corporate Governance Practices (the Code) issued by the Stock Exchange of Hong Kong Limited under Appendix 14 to the Main Board Listing Rules, the AA has applied its principles and voluntarily complied with the code provisions therein except for those as set out below, most of which are not applicable to the AA.

Code Provision Reason for Deviation

A.1.8 This provision is not applicable to the AA which has only one shareholder - the Hong Kong SAR Government. The procedure for dealing with any conflict of interest affecting a Board member is governed by Section 13 of the AA Ordinance.

A.4.1 This provision is not applicable to the AA because the terms of office of Board Members are governed by Section 11 of the AA Ordinance.

A.4.2 This provision is not applicable to the AA. Pursuant to Section 3 of the AA Ordinance, Board members are appointed by the Chief Executive of the Hong Kong SAR. Terms of office of members are governed by Section 11 of the AA Ordinance.

A.5.4 This provision is not applicable because all of the AA’s shares are held by the Hong Kong SAR Government and are not publicly traded.

A.6.1 The AA has self-imposed a guideline to issue papers to members at least three ”clear” days (excluding the day the papers were despatched and the day of the meeting) before a meeting. But due to occasional urgent business or last minute developments, this guideline is not always met. For the year under review, about 56% of a total of 96 papers met this guideline. The AA will continue to strive to comply with this guideline to the extent practicable.

If a substantial shareholder or a director has a conflict of interest, the matter should be dealt with through a formal board meeting and not by way of circulation or by a committee.

Non-executive directors should be appointed for a specific term, subject to re-election.

Directors appointed to fill a casual vacancy should be elected by shareholders at the next annual general meeting. Directors should be subject to retirement by rotation at least once every three years.

Directors must comply with obligations under the Model Code for Securities Transactions and the Board should establish guidelines for employees dealing in the securities of the company.

An agenda and Board papers should be sent to all directors at least three days before a meeting.

Quality of StaffThe effectiveness of internal controls relies to a large extent on the integrity and performance of staff. The AA believes that a fair and competitive reward system is a key driver of staff performance and behaviour. In 2002, we implemented a variable compensation scheme under which a part of staff remuneration is directly linked to corporate and individual performance, and payable only when agreed corporate goals and targets are met. This scheme was reviewed and finetuned in 2008.

ComplianceSection 6(1) of the Ordinance provides, inter alia, that the AA shall conduct its business according to prudent commercial principles. Having regard to this statutory mandate, the AA endeavours to follow, to the extent applicable to the AA, the compliance standards of major commercial organisations in Hong Kong.



Code Provision Reason for Deviation

B.1.3 The provision on the power to determine Board members’ remuneration is not applicable because Section 11(4) of the AA Ordinance provides that the remuneration of Board members shall be determined by the Chief Executive of the Hong Kong SAR.

C.3.3 To make the terms of reference of the Audit Committee and Finance Committee (ACFC) more concise and tailored to the AA’s needs, some of the requirements in Code Provision C.3.3 have been condensed before being incorporated into the terms of reference of the ACFC. Regarding the requirement to ensure the adequacy of resources, qualifications and experience of staff of the accounting and financial reporting function,and their training programmes and budget, which came into effect on 1 January 2009, the ACFC has in fact performed such function, which will be incorporated into its terms of reference in the next round of revision.

E.1.1, E.1.2, These provisions are not applicable because the AA has E.1.3, E.2.1 only one shareholder and is not required to hold annual general meetings.

Terms of reference of the Remuneration Committee

Terms of reference of the Audit Committee

These code provisions deal with the proceedings for annual general meetings

TransparencyThe AA considers transparency an important attribute of good corporate governance and has taken an open approach of disclosing information relating to its performance and operations, save for certain information relating to aviation security and matters of commercial sensitivity. To promote transparency and openness, the AA has voluntarily undertaken to disclose the individual attendance records of Board and committee meetings and the full details of the remuneration of its Board members and executive directors. This year’s remuneration details are set out in note 6 to the financial statements.

CommunicationThe AA adopts an open and proactive communication policy. To promote effective communication with the public at large, the AA maintains a website where comprehensive information about the AA, HKIA and its services is provided. In addition, the AA keeps the public abreast of HKIA’s new service offerings, growth and development through the mass media by organising press conferences and briefings, giving interviews and issuing press releases and statements. Meetings, sharing sessions and forums are held to foster two-way communication with business partners, the aviation industry and other stakeholders. A newsletter, hkia News, is published to share news with AA staff, the airport community at large and other pertinent stakeholders. The Legislative Council and neighbouring District Councils are also kept updated on major developments at HKIA. Moreover, the AA values customer feedback. A wide array of channels such as the website, quantitative and qualitative opinion surveys,

emails, feedback forms, hotlines and more are used to solicit views of passengers, customers and other stakeholders. The AA’s annual reports and interim financial reports are published on its website.

Corporate CitizenshipThe AA is committed to being a caring and responsible corporate citizen. Throughout the year under review, the AA participated in and provided support for a number of initiatives that promoted environmentally friendly practices, people development and community well-being. Major programmes and events undertaken during the year are set out on pages 2, 3, 46 to 49 of the annual report in the ”HKIA Environmental Performance” and ”Corporate Social Responsibility” sections. The AA has established a Corporate Environmental Policy that focuses on adopting and encouraging practices at the airport that prevent or minimise pollution and maximise energy and natural resource use efficiency. Apart from following such policy as far as practicable in our own activities and operations, we encourage our business partners to adopt the same responsible approach in conducting their business at HKIA.

RecognitionThe AA’s 2008/09 annual report won seven local and international prizes, including a Diamond Award in the public sector/not-for-profit category of the 2009 Best Corporate Governance Disclosure Awards organised by the Hong Kong Institute of Certified Public Accountants, and a Bronze Award in the General Category of the Hong Kong Management Association’s Best Annual Reports Awards 2009.


The AA declares a HK$2,200 million final dividend to its shareholder, the Hong Kong SAR Government. The dividend is 10% higher than that in 2007/08.

A HK$90 million reconfiguration of the Departures Immigration halls is completed, increasing security screening capacity by 50%.

On World Environment Day, 100 volunteers from the AA and other organisations clean the Tung Chung mangrove swamp near HKIA.

June

Reacting quickly to an emerging threat, the AA introduces a series of precautionary measures to counter H1N1 influenza.

China Aircraft Services Limited (CASL) opens its first aircraft maintenance hangar at Hong Kong International Airport (HKIA).

Upstream check-in service is extended to Shenzhen Kingkey Banner Centre.

May

The Airport Authority (AA) offers a HK$450 million relief package to airlines and other companies operating at HKIA that are affected by the economic downturn.

April

Event Highlights

2

4

6

1

3

5

The 340-square-metre HKIA Precious Metals Depository opens. The new facility provides secure storage and physical settlement services for banks, commodity exchanges and refiners.

Hong Kong Aircraft Engineering Co. Ltd. (HAECO) opens its third hangar at HKIA.

The Asian Aerospace International Expo and Congress 2009 attracts more than 350 businesses and 12,000 delegates to Hong Kong.

September

The AA hosts the Airport Community Environmental Forum to share its experience with the airport community in conducting carbon audits. The AA is committed to carbon emissions reduction to create an environmentally friendly airport.

August

HKIA welcomes its first regularly scheduled Airbus A380 flight.

HKIA adds eight automated people mover cars to its fleet, bringing the total to 28.

A new ferry service between SkyPier and Nansha in Guangzhou begins, increasing the number of ports served to seven.

HKIA wins its third consecutive Asia-Pacific airport efficiency excellence award from the Air Transport Research Society.

In an event organised by the Islands District Office to celebrate the 12th anniversary of the establishment of the Hong Kong Special Administrative Region, AA volunteers plant trees on the waterfront promenade in Tung Chung.

July

1

3

4

5

6

7

2


Phase 1A of the Permanent Aviation Fuel Facility opens, enhancing the reliability of HKIA’s fuel supply.

The AA entertains over 2,100 elderly residents at spring dinners in Tung Chung and Tuen Mun.

March

SkyPier and the North Satellite Concourse officially open.

HKIA wins the 2009 top service brand award from the Hong Kong Brand Development Council and the Chinese Manufacturers’ Association of Hong Kong.

January

HKIA is awarded a “Class of Excellence” Energywi$e Label by the Environmental Campaign Committee for the second year. HKIA also wins a bronze award in the public sector category.

For the fourth consecutive year, Airports Council International recognises HKIA as the world’s best airport among facilities serving over 40 million passengers annually.

February

The AA signs a cooperation agreement with Shanghai Airport (Group) Co., Ltd. to manage Shanghai Hongqiao International Airport’s two terminals, east transportation centre and retail operations.

For the seventh time since 2002, HKIA is named best airport in the TTG Travel Awards.

October

The AA announces that the Hon Chan Kam-lam, the Hon Albert Ho Chun-yan and Dr Allan Wong Chi-yun will join the Board on 1 January 2010.

The foundation stone is laid for the new Civil Aviation Department headquarters, which is scheduled for completion by the end of 2012.

The first self check-in kiosk outside HKIA is installed at the Grand Hyatt Hotel in Wan Chai.

November

The AA extends the 10% reduction in aircraft landing and parking fees until 31 March 2010.

A roving exhibition showcasing the airport’s environmental initiatives and programmes takes place at six locations across Hong Kong, including HKIA.

For the eighth time, the AA’s annual report wins a diamond award in the public sector/not-for-profit category of the Hong Kong Institute of Certified Public Accountants’ Best Corporate Governance Disclosure Awards.

Ferry services commence between SkyPier and Taipa in Macao, raising the number of ports served to eight.

December

7

9

8

11

12

10

8

9

10

12

11


Passenger Services

In 2009/10, Hong Kong International Airport (HKIA)

continued to enhance and refine its award-winning

passenger services. We also completed several facility

upgrades and made improvements to some behind-

the-scenes systems that are essential to the airport’s

efficient operation.

SecurityDuring the year, the North Departures Immigration Hall

was reconfigured, so passengers pass through security

screening before completing immigration formalities.

Together with a similar realignment to the South

Departures Immigration Hall in 2008 and the installation

of additional X-ray machines, this change streamlined

passenger flow and increased screening capacity by 50%.

Transfer passengers also benefited from an increase in

screening capabilities. The six transfer points in Terminal 1

(T1) now have a total of 22 screening channels, increasing

capacity by more than 45%.

SafetyWe strive to be the world’s safest airport and to

continually improve our safety performance. In 2009/10,

the Airport Composite Safety Index, which measures the

injury rate among passengers and staff, dropped from

7.98 to 7.55 injuries per million passengers. This is a

record low for HKIA.

The passenger injury rate dropped 54% during the year,

from 0.50 to 0.23 per million passengers. This improvement

was due in part to the launch of the Airport Safety

Ambassador Programme, which we organised with Hong

Kong Sheng Kung Hui Tung Chung Integrated Services,

a local social welfare group. Safety Ambassadors are

strategically deployed near automated people movers,

escalators and travelators during peak holiday seasons to

enhance passenger safety.

Enhancing Our Passenger Services



New Fixtures Get a Green LightLighting represents one of the key portions of HKIA’s electricity bill. It is also an

area where energy savings must be carefully balanced with operational, safety

and security considerations and with the need to maintain airport operation and

a pleasant ambience for passengers.

After extensive testing and evaluation, in 2009/10 we replaced approximately

4,200 lighting fixtures with light-emitting diode (LED) lights. Fixtures in exit

signs, spotlights and other applications were changed, resulting in an annual

electricity saving of 580,000 kilowatt hours (kWh), which is equivalent to about

325 tonnes of greenhouse gas emissions. We plan to replace another 81,000

fixtures in Terminal 1 with LED lights, saving an additional 13 million kWh and

7,280 tonnes of greenhouse gas emissions each year.

t



Joining hands with airlines, we introduced safety

inspections of aircraft cabin and cargo hold operations.

Baggage hall and ramp safety was strengthened with an

awareness campaign that focused on stretching and

lifting techniques as well as safe driving practices.

Our efforts were recognised with an award from Hong

Kong’s Occupational Safety and Health Council for

maintaining a low staff injury rate for three consecutive

years. We also won a silver prize in the council’s new

Work Safe Behaviour Promotion Awards.

Bird strikes are a safety concern for all airports. In addition

to devising and implementing habitat management and

environmental hygiene policies, our Bird Hazard Reduction

Committee and Bird Control Unit obtain expert advice

from ornithologists, and use special tools to repel birds

from the airport. Through sighting reports, records of

flock activities and careful analysis of bird strikes, we

formulate effective bird control measures.

EfficiencyHKIA maintains operational resilience through more than

90 seminars and drills each year, including an annual

crash and rescue exercise. More than 1,200 participants

from the Airport Authority (AA), airlines, government

departments and other organisations took part in the

2009 exercise, which simulated an accident during a

landing on the North Runway. Air, land and sea rescue

operations were included in this year’s exercise.

In April 2009, we staged our largest-ever typhoon

preparedness drill. Involving more than 600 participants

from 20 organisations, the exercise tested our ability to

manage service disruptions, including flight rescheduling,

caring for and communicating with stranded passengers,

and managing the resulting baggage backlog.

As fiscal 2009/10 began, it appeared that our business

continuity plans would be tested by an outbreak of

H1N1 influenza. Working with the Department of

Health, the World Health Organization, airlines and

the airport community, we created an integrated,

comprehensive action plan. The programme included

regular communications with travellers and staff, inflight

announcements, health declarations and enhanced

medical assistance for arriving passengers, and extra

cleaning and disinfection of public facilities.

Japan

Others

USA & Canada

Australasia

South East Asia

Chinese Mainland

Europe

Taiwan

10%

21%

6%

9%

7%

7%

24%

16%

Total46.9 million

Passenger by Marketyear ended 31 March 2010

The new SkyPier lets passengers make fast, convenient connections to the Pearl River Delta and Macao.

Passenger Traffic and Injury Rate millions of passengers injuries per million passengers

0

20

40

60

05/06 06/07 07/08 08/09 09/10

Injury Rate

Number of Passengers

0

1

2

3

Passenger Services


Facility UpgradesOn 15 January 2010, we officially opened the 20,000-

square-metre North Satellite Concourse. The HK$1 billion

facility, which has an initial annual capacity of five million

passengers, was built to accommodate the growing

number of narrow-bodied aircraft serving HKIA. The new

concourse’s 10 bridge-served stands minimise the need

for aircraft to park at remote stands, enabling more

passengers to embark and disembark using air bridges.

Built as part of a HK$4.5 billion enhancement programme

that was announced in 2006, the new concourse includes

shops and other amenities.

As part of the same enhancement programme, in

2009/10 the transfer areas were expanded and the

number of airline transfer counters was increased from

38 to 55. We added four ferry transfer counters, bringing

the total to 12. In 2011, our two Arrivals Immigration

halls will be combined into a single space to facilitate

passenger flow, and 12 additional immigration counters

will be added to provide passengers with greater

convenience. T1 has been reconfigured to accommodate

more airline lounges. In 2009, we added 1,600 square

metres of lounge space in the East Hall and North

Concourse. Work has also begun in the West Hall and

Northwest Concourse to create an additional 3,600

square metres of lounge space, which will be completed

in 2012.

During the year, all of the airport’s plasma flight

information display systems were replaced with liquid

crystal display (LCD) monitors. Over 450 LCD monitors,

Service Performance in 2009/10percent

50 60 70 80 90 100

Baggage Delivery (First Bag) first bag delivered to baggage reclaim within 20 minutes

Baggage Delivery (Last Bag)last bag delivered to baggage reclaim within 40 minutes

Passenger Embarkation and Disembarkation passengers embarking and disembarking by air bridge

Departures Security Screening Under Normal Circumstancespassengers whose queuing time at the screening channels is 4.5 minutes or less

Transfer Security Screening Under Normal Circumstancespassengers whose queuing time at the screening channels is 4.5 minutes or less

97.0

95.8

95.3

97.8

94.7

ranging in size from 107 centimetres to 165 centimetres,

were installed. The new monitors are easier to read and

display more data than their predecessors.

Service EnhancementsBy the end of March 2010, more than 83,100 people had

joined the HKIA Frequent Visitor Channel Programme,

which enables self-service immigration clearance through

10 e-channels at HKIA. During the year, the Immigration

Department expanded eligibility for this programme to

include frequent travellers on 30 airlines.

Since 2007, 65 self check-in kiosks have been installed

at HKIA. Passengers can now use the kiosks to check in

and obtain a boarding pass for flights on Air Canada,

Air France, Cathay Pacific Airways, China Airlines,

Delta Airlines, Dragonair, Finnair, KLM Royal Dutch

Airport Ambassadors create a positive impression of Hong Kong and HKIA.


Airlines and United Airlines. In November 2009, the first

self check-in kiosk outside the airport was installed at the

Grand Hyatt Hotel, and two more hotels will soon provide

the same service. Preparations are now under way to

install four kiosks at Hong Kong Station on the Airport

Express Line.

Our free public WiFi service, which covers all of T1

and Terminal 2 (T2), is also available in the departures

areas of SkyPier and the North Satellite Concourse.

Business travellers also appreciate the more than 210

complimentary charging stations that are now available

in over 40 locations in T1. The stations are perfect for

recharging mobile phones, laptops and other personal

electronics.

Enhancing Connectivity with the PRDOne of the highlights of 2009/10 was the opening of a

permanent SkyPier for ferries sailing to and from eight

ports in the Pearl River Delta (PRD) and Macao. SkyPier is

an innovative complex that facilitates sea-to-air and

air-to-sea traffic, strengthening HKIA’s position as a

multi-modal transportation hub. During the year, Nansha

in Guangzhou and Taipa in Macao were added to the list

of destinations served from SkyPier. Other ports include

Zhongshan, Zhuhai Jiuzhou, Dongguan Humen, Shenzhen

Shekou, Shenzhen Fuyong and the Macao Maritime Ferry

Terminal. Since its launch in 2003, SkyPier has served over

10 million passengers. Currently, its high-speed ferries

shuttle around 6,000 passengers daily between HKIA

and the PRD.

People using SkyPier do not have to complete

customs and immigration at HKIA, making it a fast,

convenient way for PRD residents to travel abroad

and for international passengers to reach the PRD.

It takes only a few minutes to travel from SkyPier to T1

on HKIA’s automated people mover (APM). To support

SkyPier’s launch, eight new APM cars were added to the

airport’s fleet, bringing the total to 28.

With a maximum annual capacity of eight million

passengers, SkyPier has four ferry berths, five security

screening channels and 20 airline check-in desks. The

16,500-square-metre facility, which replaced a temporary

pier, has been designed to accommodate future growth,

including the addition of four more ferry berths.

SkyPier’s convenience is enhanced by HKIA’s upstream

check-in service, which began in 2005. Today, people

travelling on 10 airlines can obtain a boarding pass

and check their bags at Dongguan Humen, Shenzhen

Shekou, Shenzhen Fuyong and the Macao Maritime

Ferry Terminal.

Upstream check-in is also available to passengers

travelling to HKIA by limousine or coach from Shenzhen

International Airport and Shenzhen Kingkey Banner

Centre, which joined this programme in May 2009.Free WiFi service is available at HKIA.

Passengers Using HKIA’s Cross-boundary Land and Sea Transportmillions of passengers

05/06 06/07 07/08 08/09 09/10

2.7

3.1

3.4 3.3

0

1

2

3

4

3.2

Passenger Services


Airport Service Quality (ASQ) SurveyOverall Satisfaction Scorepercent

2008 67.6 30.8

2009 77.3 21.3

0.12007 60.3 37.6

2.0

0.1

1.3

1.6

0 10050

FairExcellent GoodVery Good

Source: Airports Council International - Airport Service Quality Survey -

Airport Customer Satisfaction Programme 2007-2009

Opened in 2007, T2 includes a cross-boundary

transportation centre where travellers can make enquiries,

buy tickets and board Mainland-bound coaches and

limousines. Every day, 360 round-trip coach services link

HKIA with 95 cities and towns in the PRD, up from 90

destinations last year. Some 160 limousines make 300

round trips to and from the PRD each day.

Customer ServiceWe continue to raise service quality with our Customer

Service Excellence Programme. During the year, we

launched a series of airport-wide campaigns to boost

staff’s awareness of service excellence, and organised

different festive events, magic shows and handicraft

workshops for passengers. A popular customer service

initiative at HKIA is the Airport Ambassador Programme,

which recruits young people, students and retirees to

welcome and provide assistance to travellers. Organised

with the Hong Kong Federation of Youth Groups, the

Hong Kong Young Women’s Christian Association

and the Labour Department, the programme provides

valuable work experience for youths and gives retirees an

opportunity to act as mentors and meet passengers from

different cultures.

During the year, 60 young people became Airport

Ambassadors. More than 750 ambassadors have

participated in this programme since it was launched

in 2002.

To enrich travellers’ time at HKIA, in January 2010 the

AA teamed up with the Leisure and Cultural Services

Department to launch ”Discovering Hong Kong’s Cultural

Traditions”. Comprising a series of colourful displays that

explain our city’s history and heritage, the year-long

exhibition showcases Cantonese opera, as well as the Tin

Hau, Mid-Autumn and Dragon Boat festivals.

In December 2009, over 3,000 athletes converged on

Hong Kong for the East Asian Games. Reprising our

role during the equestrian events in the 2008 Olympic

Games, we welcomed athletes, delegates and spectators

with an accreditation centre as well as hospitality and

transportation desks.

As a platinum sponsor for Hong Kong’s participation in

Expo 2010 Shanghai China, we showed our support by

decorating T1 and T2 with Expo-related messages and

images. In addition, a miniature Hong Kong Pavilion was

on display in the atrium of T2 from 1 May to 30 June

2010. The AA also hosted an exhibition highlighting

HKIA’s global connectivity and world-class services in the

Hong Kong Pavilion in Shanghai.

AwardsWe received several honours in 2009/10. For the seventh

time, HKIA was named best airport in the TTG Travel

Awards and for the fourth consecutive year, we were

recognised by Airports Council International as the

world’s best airport serving more than 40 million

passengers annually. We also received the 2009 top

service brand award from the Hong Kong Brand

Development Council and the Chinese Manufacturers’

Association of Hong Kong.

A miniature Hong Kong Pavilion at Expo 2010 Shanghai China was displayed in Terminal 2 in May and June 2010.


Cargo and Aviation Services

The World’s Busiest International Cargo Airport



The global economic downturn caused a sharp drop

in demand for airfreight in the early part of 2009/10.

However, the economy began to recover in the final

quarter of the year, and annual throughput at Hong

Kong International Airport (HKIA) reached 3.6 million

tonnes, an increase of 4.4% from 2008/09. Despite

volatile market conditions, HKIA retained its position as

the world’s busiest international cargo airport in 2009

and has held this title since 1996.

During the year, we continued to develop our cargo

and aviation services infrastructure, while several of

our business partners expanded their operations at

the airport.

In September 2009, Hong Kong hosted the Asian

Aerospace International Expo and Congress, which

attracted more than 12,000 delegates from all over the

world. In cooperation with government departments,

industry associations and our business partners, we used

this event to showcase Hong Kong’s advantages as an

international and regional aviation centre and air cargo

and logistics hub.

Greener Airport VehiclesThe Airport Authority (AA) and its partners use a growing number of

environmentally friendly vehicles. For example, HKIA has one of Hong Kong’s

largest fleets of electric vehicles and ground service equipment. Over 200

electric vehicles and pieces of ground service equipment, including baggage

tractors, conveyor-belt loaders and marshalling vehicles, are now in operation

at the airport.

To power these vehicles, the AA set up charging stations on the apron

and Hong Kong Aircraft Engineering Co. Ltd. (HAECO) installed more than 20

quick-charging terminals in its aircraft maintenance area.

In addition, the Hong Kong Police use hybrid patrol cars at the airport.

The AA operates hybrid passenger cars and all of its diesel vehicles run on B5

biodiesel, a mixture of 95% conventional diesel and 5% diesel made from

used cooking oil.



Cargo ServicesDuring the year, Cathay Pacific Services resumed work on

a new HK$5.5 billion cargo terminal, which is scheduled

to enter service in 2013. When the terminal opens, it will

add an annual cargo handling capacity of 2.6 million

tonnes, bringing the total design handling capacity of

HKIA to 7.4 million tonnes a year.

In September 2009, the HKIA Precious Metals Depository

opened for business. A secure storage and physical

settlement facility, the 340-square-metre depository

enhances Hong Kong’s position as a trading and logistics

hub for gold and other precious metals.

For the fourth consecutive year, our cargo service was

recognised with an air cargo excellence award from

Air Cargo World. In the publication’s annual survey, HKIA

achieved a superior overall score among airports in Asia

HKIA has been the world’s busiest international cargo airport since 1996.

Cargo Throughput by Marketyear ended 31 March 2010

Japan

Others

USA & Canada

Australasia

South East Asia

Chinese Mainland

Europe

Taiwan

16%

11%

3%

9%

15%

12%

16%

18%

Total 3.6 million

tonnes

Cargo and Aviation Services


and the Middle East with an annual capacity of over one

million tonnes of cargo.

Aviation ServicesIn May 2009, China Aircraft Services Ltd. opened a

10,000-square-metre hangar at HKIA, adding base

maintenance to its existing line maintenance service.

In September 2009, Hong Kong Aircraft Engineering

Co. Ltd. opened a third hangar at HKIA. The new

16,460-square-metre building was built at a

cost of HK$850 million and can simultaneously

accommodate two fully docked wide-bodied aircraft

and one nose-in aircraft.

A dependable fuel supply underpins HKIA’s reputation

for efficiency and reliability. In March 2010, we opened

phase 1A of the Permanent Aviation Fuel Facility (PAFF),

which includes four tanks with a total storage capacity of

140,000 cubic metres, a jetty and twin submarine

pipelines. Phase 1B will be commissioned by the end of

2010, adding four tanks and 124,000 cubic metres of

storage capacity. When the facility is complete, it will

have 12 tanks with a total capacity of 388,000 cubic

metres. PAFF is operated by ECO Aviation Fuel Services

Limited, a subsidiary of The Hong Kong and China Gas

Company Limited.

In May 2009, China Aircraft Services Limited opened its first maintenance hangar at HKIA.

Ten Busiest Airports in 2009 – International Freight Throughput*millions of tonnes

0

4

3

2

1

Hong Kong(HKG)

Incheon(ICN)

Dubai(DXB)

Narita(NRT)

Pudong(PVG)

Rhein/Main(FRA)

Changi(SIN)

Taoyuan(TPE)

Miami(MIA)

Anchorage(ANC)

* International freight throughput includes imports, exports and transshipment (counted twice) freight carried between the designated airport and an airport in another country. Airmail is not included.Source: Preliminary figures from Airports Council International in March 2010


Airfield and Systems

Hong Kong International Airport (HKIA) has one of the world’s most efficient airfields. By maintaining and upgrading

our facilities, we ensure our ability to operate safely, securely and reliably.

Baggage HandlingDuring the year, we continued to optimise our baggage handling and sorting systems. When a HK$750 million upgrade

is completed in 2010/11, total system capacity will grow from 8,000 bags to 16,000 bags per hour and eight kilometres

of new conveyor belts will be installed.

Operating Safely, Securely and Reliably



Cleaner Power on the GroundWhen an aircraft is waiting at the gate, its auxiliary power unit (APU) generates

electricity to run the on-board air-conditioning, lights and other essential

systems. APUs use jet fuel to produce electricity, and emit more air pollutants

and greenhouse gases per unit of electricity than land-based generating

systems.

At HKIA, we encourage airlines to turn off their APUs and use our fixed ground

power and pre-conditioned air systems, which are powered by Hong Kong’s

electrical grid.

About 70% of passenger flights now use our fixed ground power and pre-

conditioned air systems. In mid-2010, we will start a renewal and upgrade

programme to improve system efficiency and reduce carbon emissions, which

will be completed by 2013/14.

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Airfield EnhancementsAn Airbus A380 touched down for the first time at HKIA in November 2006, and the first scheduled A380 passenger

flight operated by Singapore Airlines to and from Hong Kong began service in July 2009. HKIA has a total of two parking

stands and four air bridges that can accommodate the A380 and offer direct access to the superjumbo’s upper deck.

During the year, we started upgrading a third stand. When work is completed in mid-2010, this stand will have three air

bridges.

In March 2010, we finished relocating a taxilane on the cargo apron to accommodate the extended wingspan of the new

Boeing 747-8. As part of our regular maintenance programme, in October 2009 we began resurfacing four taxiways.

The resurfacing work was completed in April 2010.

By 2015, the capacity of HKIA’s two runways is expected to reach 68 aircraft movements per hour. To accommodate this

increase, we have started preparing the design of a midfield concourse, which will include 20 aircraft stands, apron

facilities and an automated people mover link to Terminal 1.

The North Satellite Concourse was officially opened in January 2010.

Airfield and Systems


System UpgradesWorking with Cathay Pacific Airways, we began in March 2010 a three-month trial of a system that transmits data from

an onboard computer of a specially modified aircraft to Cathay Pacific’s ground computer system through our wireless

network. By providing airlines and ground handling staff with more rapid access to data, this technology could facilitate

faster aircraft turnarounds. HKIA is the first airport in Asia to conduct a trial of this system and the results will help drive

the development of related industry standards.

During the year, HKIA’s access control system was enhanced with the addition of new contactless smart card and

biometric technologies. Security was also strengthened with the adoption of a new ”smart” closed-circuit television

system that automatically alerts security personnel to unusual activities.

Ten Busiest Airports in 2009 - International Passenger Throughput* millions of passengers

Heathrow(LHR)

Charles deGaulle(CDG)

Hong Kong(HKG)

Schiphol(AMS)

Rhein/Main(FRA)

Changi(SIN)

Narita(NRT)

Dubai(DXB)

Bangkok(BKK)

Madrid(MAD)

0

25

50

75

* International passenger throughput includes originating, terminating and transfer (counted twice) passengers travelling between the designated airport and an airport in another country. Transit passengers are not included. Source: Preliminary figures from Airports Council International in March 2010

Upgraded parking stands provide direct access to the upper deck of the Airbus A380. Improvements to HKIA’s baggage handling system will double its capacity from 8,000 bags to 16,000 bags per hour.


Mainland Projects

The Mainland is an important source of passenger and cargo growth for Hong Kong International Airport (HKIA),

and presents enormous market potential to drive HKIA’s future development. By capitalising on these opportunities,

we will continue to contribute to Hong Kong’s long-term competitiveness and its role as an international and regional

aviation centre.

Connecting with the Chinese Mainland


Annual Report 2009/10 43 Annual Report 2009/10 43

Saving Energy at Zhuhai AirportWe work closely with our joint venture partner to improve Zhuhai Airport’s

environmental performance. In addition to instituting energy-saving measures

that have proven effective at HKIA, we modified the layout of Zhuhai Airport’s

lighting fixtures. This maintained illumination standards and achieved an annual

electricity saving of 182,000 kilowatt hours (kWh), the equivalent of 127 tonnes

of greenhouse gas emission.

We installed 17 split-type air conditioners that allow us to maintain a

comfortable environment for passengers during off-peak hours without using

the terminal’s main chiller plant. The operating cost for the air conditioners is

about 10% of that of the chiller, saving some 205,000 kWh, or about 144

tonnes of greenhouse gas emission, annually. And we are installing film on the

terminal’s glass curtain wall to screen out ultraviolet light and reduce the need

for air-conditioning.


During the year, work continued on the expansion of the domestic terminal at Hangzhou Xiaoshan International Airport, shown here in an artist’s rendering.

Zhuhai AirportSince October 2006, Zhuhai Airport has been managed

by a joint venture between the Zhuhai Municipal People’s

Government and the Airport Authority (AA).

Calendar 2009 saw further improvement at Zhuhai

Airport. Passenger volume grew 24% from 2008, to 1.4

million. Cargo throughput increased 24%, to 13,800

tonnes, while air traffic movements fell 23%, to 23,347.

The decline in air traffic movements was largely due to

cutbacks in training flights caused by the economic

downturn.

With the recent economic recovery, we expect that the

number of training flights at Zhuhai Airport will increase.

The Zhuhai Aviation Industry Park, a new industrial park

focusing on general aviation-related manufacturing,

maintenance, repairs and logistics, will also have a

positive impact on Zhuhai Airport’s operations when

manufacturing commences by the end of 2010.

Hangzhou Xiaoshan International AirportThe AA acquired a 35% interest in Hangzhou Xiaoshan

International Airport (HXIA) in December 2006. In

calendar 2009, passenger volume at HXIA grew 18%, to

14.9 million, while cargo throughput increased 7.4%, to

226,307 tonnes. Air traffic movements rose 13% from

2008, to 134,058.

In 2009, work continued on the second phase of a

RMB 7 billion expansion project at HXIA. A new

96,000-square-metre international passenger terminal is

scheduled to open in mid-2010. Expansion of the

Mainland Projects


The Airport Authority’s new joint venture with Shanghai Airport (Group) Co., Ltd, operates several facilities at Shanghai Hongqiao International Airport.

Throughput at Hangzhou Xiaoshan International Airportpassengers in millions cargo in thousands of tonnes

0

5

10

15

2006 2007 2008 20090

100

200

300

186211

226

Source: Civil Aviation Administration of China (CAAC)

Passenger Cargo

11.712.7

14.9

9.9

196

domestic terminal and construction of a second runway

and related airfield facilities are now under way and

expected to be completed by early 2012. Feasibility

studies on new supporting infrastructure, including a

multi-storey car park, cargo terminal and transportation

centre, are in progress.

Shanghai Hongqiao International AirportIn October 2009, the AA signed an agreement with

Shanghai Airport (Group) Co., Ltd. to establish a joint

venture, the Shanghai Hong Kong Airport Management

Co., Ltd. The new company manages Shanghai Hongqiao

International Airport’s two terminals, east transportation

centre and retail operations.

Since October 2009, AA staff have assisted in the

commissioning of Hongqiao airport’s new facilities,

including the new Terminal 2 and the east transportation

centre. We have also shared with Hongqiao airport’s

staff our experience in terminal operations, retail and

commercial management, and ambience enhancement.

Throughput at Zhuhai Airportpassengers in millions cargo in thousands of tonnes

0

0.5

1.0

1.5

2006 2007 2008 20090

10

20

30


Passenger Cargo

1.0

10.78.9

13.811.1

0.8

1.4

1.1


Corporate Social Responsibility

At Hong Kong International Airport (HKIA), corporate

social responsibility is a core value that is incorporated

into everything from day-to-day operations to long-term

planning.

EmissionsWe share the community’s concerns about air quality

and are committed to monitoring and minimising the

environmental impact of our business.

The Airport Authority (AA) operates three air-quality

monitoring stations: on the north and south sides of the

airport and on Lung Kwu Chau, an island north of HKIA.

Data from the stations provides useful insights into

regional air quality and is analysed by scientists at the

Hong Kong University of Science and Technology.

Reducing emissions at the source is usually the best

way to improve air quality. In keeping with this belief,

the AA licenses new airside vehicles only if they meet

strict environmental standards. Since June 2008,

we have banned idling engines on the airside, except

for some vehicles and equipment due to safety and

operational considerations.

Caring for the Community


We are also minimising our environmental impact by

increasing the number of electric, liquefied petroleum gas

(LPG) and hybrid vehicles in our fleet. To facilitate the use

of environmentally friendly vehicles, we have installed an

LPG filling station and electric-vehicle charging stations on

the apron.

Today, over 200 electric vehicles and pieces of ground

service equipment are in operation at HKIA. We are now

investigating the feasibility of using electric vehicles for

the bulk of the airside fleet.

Since October 2009, all the AA’s diesel vehicles have run

on B5 biodiesel – a mixture of 95% conventional diesel

and 5% biodiesel made from used cooking oil. B5 biodiesel

reduces exhaust smoke by up to 50% in trials. About

4,000 litres of used cooking oil is collected at the airport

each month and recycled into biodiesel to power our fleet.

Energy SavingsOur energy conservation programme is built around a

system that continuously monitors the airport’s electricity

consumption. This data allows us to fine-tune our

operations for maximum efficiency.


Recycling More WasteRecovering more recyclables at the source is a key environmental goal at HKIA.

In the airport’s public areas, we provide more than 60 highly visible bins that

make it easy for passengers to sort their trash. We encourage our tenants and

business partners to sort their waste and provide coloured bags for sorting

recyclable from non-recyclable waste. We also introduced incentives for our

waste collection contractor to increase the proportion of recyclables that are

diverted from landfills.


During the year, the lighting schedule and photocell

settings in the Terminal 1 (T1) Departures Concourse were

adjusted to reduce the use of gantry lighting, while

maintaining a suitable illumination level. The set-point for

the air-conditioning system in the passenger terminals

was increased to 25.5 degrees Celsius and the system’s

operating schedule was adjusted. About 10% of HKIA’s

escalators and travelators were shut down during the day

and nearly all were turned off from midnight to 5:00 AM.

These changes resulted in an estimated annual saving

of 4.6 million kilowatt hours (kWh) of electricity, which

is equivalent to about 2,576 tonnes of greenhouse

gas emissions.

Our energy saving efforts were recognised at the

Hong Kong Awards for Environmental Excellence,

where we received a ”Class of Excellence” Energywi$e

Label for the second consecutive year and a bronze

award in the public sector category. In addition, we were

the second runner-up in the biggest unit saver (company)

category in a competition organised by Friends of the

Earth, a local environmental group.


Amount of Waste Recycled by the Airport Authority in 2009/10in tonnes

Cardboard

Metals

Glass Bottles

Plastics

Vehicle Tyres, Lubricating Oil, Aluminium, Fluorescent TubesFood Waste

Paper

36.5

456.4

535.6

98.9

13.7

2.8

10.3

Total 1154.2 tonnes

Water and Solid WasteWe recycle a great variety of materials such as cardboard,

paper, plastics, scrap metals, glass bottles, food waste,

vehicle tyres, lubricating oil, and fluorescent tubes. During

the year, the volume of solid waste recycled by the AA

exceeded 1,100 tonnes. We also encourage waste

separation and recycling among business partners. At

HKIA, construction contractors are required to sort and

reuse waste materials wherever possible. Compliance is

monitored through compulsory waste disposal logs.

HKIA recovers and treats wastewater from restaurants,

aircraft catering and cleaning, as well as toilet sinks. In

2009/10, our wastewater treatment plant processed 1.1

million cubic metres of greywater, a portion of which was

used for landscape irrigation at HKIA.

We buy environmentally friendly products wherever

possible. The AA was a founding member of the Hong

Kong Green Purchasing Charter in 2007. The following

year, we established a green purchasing policy for items

ranging from printing paper, LED lights, hybrid and

electric vehicles to detergents used to clean the airport

apron. This year, we conducted a survey to review the

applicability of the Hong Kong Green Label Scheme, a

local product-certification programme, to our operations.

We also plan to organise a green purchasing training

programme for our staff.

Carbon ReductionRunning a green airport requires teamwork, and the

AA proactively encourages and facilitates a low-carbon

operation among its business partners. Our programmes

to minimise emissions, recycle and reuse waste, and use

energy efficiently work in concert with an airport-wide

carbon-reduction initiative.

In 2008, we signed the Aviation Industry Commitment to

Action on Climate Change. Since then, we have actively

pursued its goal of reducing our industry’s environmental

impact. In April 2009, the AA completed the first

airport-wide carbon audit, and during the year held nine

carbon reduction workshops for its business partners.

Since July 2009, carbon audits have been conducted on

90% of the buildings and vehicles at HKIA. More than 30

of our partners have participated in carbon-management

workshops, and we continue to use our expertise to help

airport businesses create effective carbon-reduction plans.

During the year, we joined the Climate Change Business

Forum to facilitate collaboration and experience sharing

with other Hong Kong business leaders to reduce carbon

emissions.

Community OutreachWe are proud to share our commitment to the

environment with the community at large. During the

year, the AA partnered with the Green Council, WWF-

Hong Kong, Green Power, Friends of the Earth (HK),

The Conservancy Association and other environmental

organisations to support a host of green activities

including the International Coastal Cleanup, Walk for

Nature @ Mai Po, Green Power Hike, Earth Partner

Programme and Walk for the Environment, etc.

We believe environmental awareness should start at

an early age, and support several green educational

initiatives. We promote environmental awareness

All of the Airport Authority’s diesel vehicles now run on B5 biodiesel.

Corporate Social Responsibility


Carbon Reduction Achieved by the Airport Authority in 2009/10

36.2%

57.2%

4.1%1.9% 0.3%

0.3%

Optimisation of Lighting System

Temperature Adjustmentin Terminals

Lift and Escalator Usage Optimisation

Others

Waste Recycling and Reduction

Use of Clean Fuel

Total 5,875 tonnes of

CO2 equivalent


through the Business Environment Council’s Corporate

Sustainability For Schools (CS4Schools) programme,

and the annual roof-greening and organic farming

competition that is organised by the Hong Chi Association

to teach children about climate change and the importance

of nature conservation. During the year, we also staged

environmental exhibitions at HKIA and other high-traffic

locations in Hong Kong. These initiatives encourage

young people to love the earth and understand the need

for environmental protection.

In addition to environmental programmes, the AA and

its employees contribute to Hong Kong in many other

ways. In April 2009, along with a team from the Airport

Police, AA staff climbed more than 900 stairs at Jardine

House in Central and raised HK$60,000 for youth mental

health promotion programmes. In early 2010, the AA

entertained more than 2,100 elderly guests at spring

Low-emission Vehicles at HKIAas at March 2010

Hybrid BiodieselElectric LPG

233 11 10

Total 325 vehicles

71

A visit to the wastewater treatment plant helps students understand the many environmental protection measures in place at HKIA.

dinners in Tung Chung and Tuen Mun. In August 2009,

Typhoon Morakot, a massive and deadly storm, lashed

Taiwan. To assist with the rebuilding efforts, AA staff held

a fund-raising event that generated HK$100,000. In

May 2010, about HK$350,000 was raised to help the

earthquake victims in Yushu county, Qinghai.

These efforts were recognised with a Caring Organization

award from the Hong Kong Council of Social Service. This

was the fifth consecutive year that we have received this

award.


Looking Forward

Hong Kong International Airport (HKIA) plays a central role in supporting major pillars of Hong Kong’s economy:

financial services, trading and logistics, and tourism. As a multi-modal transportation hub, HKIA supports the economic

growth and prosperity of the Pearl River Delta (PRD) region.

If HKIA is to continue making these contributions and retain its position as a leading international and regional aviation

centre, it must have the right mix of facilities, resources and people. That means creating and refining long-term plans that

look beyond temporary market fluctuations and anticipate the region’s future needs.

Planning for Tomorrow’s Needs


Annual Report 2009/10 51 Annual Report 2009/10 51

An Airport OasisPlants play an important role in absorbing carbon dioxide. A single tree is capable of

absorbing 23 kilogrammes of carbon dioxide* each year.

To help offset our environmental impact, we have grown 700,000 plants,

including 88,000 trees, over three million square metres at the airport. We planted

350,000 seedlings in nearby Tung Chung, and more than 10,000 trees from

20 species now grace the Airport Trail.

Our planting activities have the added benefit of reducing soil erosion and

maintaining an attractive environment for our passengers, staff and business

partners.

*Source: Environmental Protection Department and Electrical and Mechanical Services Department


Top 20 Airports in the Chinese Mainland in 2009 - Passenger Throughput millions of passengers


Beijing,Capital

Guangzhou Shanghai,Pudong

Shanghai,Hongqiao

Shenzhen Chengdu Kunming Xian Hangzhou Chongqing Xiamen Wuhan Changsha Nanjing Qingdao Dalian,Zhoushuizi

Haikou Sanya Shenyang Zhengzhou0

40

60

80

20

Midfield DevelopmentIn 2010, the Airport Authority (AA) will complete a

detailed plan for the midfield, which is the only large-scale

undeveloped area on the airport island. The first phase of

the midfield plan includes a new passenger concourse, 20

aircraft stands with associated apron facilities and an

automated people mover link.

Building new facilities in the midfield, which is adjacent

to our two runways, will help us take advantage of a

capacity increase that will see the number of air traffic

movements grow from 59 to 68 per hour by 2015.

HKIA Master Plan 2030We are now finalising HKIA Master Plan 2030, a strategic

plan for the airport’s long-term development. HKIA

Master Plan 2030 examines all aspects of the airport and

its operations, from demand forecasts and facility

requirements to mid- and long-term expansion

programmes. When HKIA Master Plan 2030 is complete,

we will consult the public and stakeholders through a

public engagement process.

New InfrastructureAir, road, rail and sea transportation meet seamlessly at

HKIA. In the years ahead, our multi-modal connectivity

will increase as the Tuen Mun – Chek Lap Kok Link, Hong

Kong – Zhuhai – Macao Bridge and Hong Kong Boundary

Crossing Facilities enter service. We are working closely

with the Hong Kong SAR Government to ensure that

these new facilities integrate smoothly with the existing

infrastructure on the airport island.

We also support ongoing studies on the proposed

Hong Kong – Shenzhen Western Express Line, one

function of which is to connect HKIA with Shenzhen

International Airport. Taken together, these projects will

make the airport island a crossroads for people and goods

travelling between Hong Kong, the PRD and Macao.

Airlines and DestinationsAs of 31 March 2010, around 90 airlines operated from

HKIA. These carriers serve nearly 150 destinations,

including around 40 cities on the Mainland.

Fourteen carriers began service to HKIA in 2009/10. Seven

new destinations were added to the network.

Looking Forward


Developing Our PeopleThe AA implements a range of initiatives to enhance employees’ professional standard and the organisation’s overall

talent pool.

For example, personalised development and assessment programmes support employees’ career progression. Job rotation

plans broaden individuals’ experience and ensure that the organisation has people ready to fill critical positions when the

need arises.

The AA also operates a management trainee programme that cultivates home-grown talent. Through this scheme, new

recruits are guided through a systematic learning and development regime that familiarises them with HKIA’s operations

and businesses.

In addition to classroom and on-the-job training, employees use e-learning to master new skills, whenever and wherever

they are needed. Today, over 60 e-learning courses are available, covering a wide spectrum of technical skills and airport

management competencies.

The Airport Authority encourages staff to participate in a range of charitable and environmental events.


Financial Summaryfor the year ended 31 March

(in HK$ million) 2009/10 2008/09 ±%1

Turnover 9,015 8,886 +1.5%Operating expenses before depreciation and amortisation 3,402 3,497 -2.7%Operating profit before depreciation and amortisation 5,613 5,389 +4.2%Depreciation and amortisation 2,191 2,234 -1.9%Interest and finance costs 178 233 -23.6% Share of profits less losses of jointly controlled entities 177 193 -8.3%Profit before taxation 3,421 3,115 +9.8%Income tax 580 532 +9.0% Profit for the year 2,841 2,583 +10.0%Profit attributable to equity shareholder 2,844 2,588 +9.9%Dividend declared 2,300 2,200 +4.5% Special dividend declared 2,200 -

Key Financial Ratios Return on equity 7.8% 7.2% Total debt/capital ratio 18% 21%

Key Traffic Summary2 Passenger traffic3 (millions of passengers) 46.9 47.7 -1.7%Cargo throughput4 (millions of tonnes) 3.6 3.4 +4.4%Air traffic movements (thousands) 280 296 -5.4%

1 Subject to rounding differences.

2 “Key Traffic Summary” is based on the Airport Authority’s traffic data of Hong Kong International Airport only.

3 “Passenger traffic” includes originating, terminating, transfer and transit passengers. Transfer and transit passengers are counted twice.

4 “Cargo throughput” includes originating, terminating and transshipment cargo. Transshipment cargo is counted twice. Airmail is excluded.

Net ProfitFiscal 2009/10 was a volatile year. While the Airport

Authority experienced some difficult moments in the first

half, the global economy showed signs of improvement in

the second half with a rebound in international trade and

renewed consumer and business confidence. As a result,

declines in passenger volumes and air traffic movements

began to moderate and demand for cargo services

bounced back strongly. Passenger traffic at Hong Kong

International Airport (HKIA) reached 46.9 million, a 1.7%

decline from 2008/09, while air traffic movements slid

5.4%, to 280,000. Cargo throughput rose 4.4%, to 3.6

million tonnes.

In this challenging environment, the Airport Authority and

its subsidiaries (the group) delivered a solid financial

performance. Turnover increased slightly. As a result of

stronger non-aeronautical revenues and strict cost

management, the group’s operating profit before

depreciation and amortisation rose 4.2%, to HK$5,613

million (2008/09: HK$5,389 million). With lower

depreciation, interest and finance costs, the group’s profit

attributable to equity shareholder reached HK$2,844

million, an increase of 9.9% from last year (2008/09:

HK$2,588 million).

Financial Review



Return on equity (ROE) improved from 7.2% to 7.8% in

2009/10, underpinned by the increase in net profit.

Financial Resultsin HK$ million

Turnover Operating Profit before Depreciation and Amortisation

Profit Attributable to Equity Shareholder

0

2,000

4,000

6,000

8,000

10,000

09/1008/0907/0806/0705/06

7,0767,738

8,577 8,886 9,015

4,2564,653

5,285 5,389 5,613

1,615 1,9202,273 2,588 2,844

1

2

3

4

5

6

7

8

09/1008/0907/0806/0705/06

Return on Equityin percentage

4.95.6

6.57.2

7.8

Turnover by Sourcefor the year ended 31 March 2010

Retail Licences and Advertising Revenue

Other Income

Other Terminal Commercial Revenue

Real Estate Revenue

Airport Charges

Security Charges

Airside Support Services Franchises

Aviation Security Services

2%1%

30%

8%

16%

9%

32%

2%

Total turnover

HK$9,015million


TurnoverTurnover increased 1.5%, to HK$9,015 million (2008/09:

HK$8,886 million), largely as a result of higher retail

licenses and advertising revenue in Terminal 1 (T1), both

of which benefited from a rebound in consumer

confidence. A relief package granted to our airlines and

business partners from April 2009 to March 2010 caused

a HK$242 million reduction in revenue.

Lower passenger volumes and fewer air traffic movements

— coupled with a 10% reduction in aircraft landing and

parking charges offered to airlines as part of the relief

package — resulted in a 10.1% drop in airport and

security charges revenue, to HK$3,429 million (2008/09:

HK$3,813 million).

Revenue from airside support services franchises increased

4.2%, to HK$1,432 million (2008/09: HK$1,374 million).

This growth was mainly attributable to higher air cargo

throughput and the increase in facility payments of our

aviation fuel supply system.

The decrease in passenger volume did not hurt retail

licenses and advertising revenue, which jumped 12.8%

from last year, to HK$2,918 million (2008/09: HK$2,587

million), and represented 32.4% of total turnover. With

the stronger economy, higher spending was recorded in

key retail categories including liquor and tobacco and

perfumes and cosmetics. Additional revenue was

generated from new retail space in the North Satellite

Concourse, the T1 Arrivals Immigration Hall and SkyPier.


Financial Review

Operating ExpensesThe Airport Authority continues to exercise stringent

financial discipline to control its operating expenses, while

maintaining the highest standards of safety, security and

service. Total operating expenses before depreciation and

amortisation fell 2.7%, to HK$3,402 million (2008/09:

HK$3,497 million), and were 4.5% lower than budget.

A significant portion of our operating expenses is related

to depreciation, government rent and rates, and

government services over which the group has limited

control. Nevertheless, through cost control measures

and productivity gains, the Airport Authority reduced

its operating expenses in 2009/10. This reduction is

particularly noteworthy given the increase in costs

associated with the opening of the North Satellite

Concourse and SkyPier.

Turnover/Operating Expenses per Employeein HK$ million

Turnover per Employee

Operating Expenses per Employee

Notes:1. Excludes employees of subsidiaries.2. Operating expenses includes depreciation and amortisation, but excludes interest and finance costs.

05/06 06/07 07/08 08/09 09/104.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

6.9

4.6

6.7

7.68.0

8.3

4.4

5.0 5.1 5.1


Group staff costs and related expenses increased

marginally by 0.8%, to HK$1,158 million (2008/09:

HK$1,149 million), notwithstanding additional resources

required to enforce health check during the outbreak of

H1N1 influenza and to cope with additional activities with

the opening of new facilities.

Repairs and maintenance expenses increased 6.8%, to

HK$442 million (2008/09: HK$414 million). This resulted

primarily from a refurbishment and overhaul programme

for T1 and the airfield, which have now been in service for

more than a decade. The inclusion of maintenance costs

for the North Satellite Concourse and SkyPier also

contributed to the increase.

Operational contracted services expenses grew 2.4%, to

HK$340 million (2008/09: HK$332 million), largely due to

the opening of the North Satellite Concourse and SkyPier.

Government rent and rates increased 20.3%, to HK$154

million (2008/09: HK$128 million), because the 2008/09

figure included a one-time rent refund resulting from an

appeal to the Rating and Valuation Department.

Other operating expenses decreased 32.5%, to HK$378

million (2008/09: HK$560 million). The reduction was

mainly attributable to the tightening of controllable costs

and lower provisions for doubtful debts in the improving

economy. Included in other operating expenses was an

impairment charge against the Airport Authority’s

investment in IEC Holdings Limited, which was triggered

by a gloomy outlook at AsiaWorld-Expo.

Depreciation and amortisation decreased 1.9%, to

HK$2,191 million (2008/09: HK$2,234 million), as

certain assets were fully depreciated during the previous

financial year.


Operating Expenses by Categoryfor the year ended 31 March 2010

Other Operating Expenses

Occupancy Expenses

Depreciation and Amortisation

Staff Costs and Related Expenses

Repairs and Maintenance

Operational Contracted Services

Government Services

Government Rent and Rates

21%

8%

6%

13%

3%3%

39%

7%

Total operating expenses

HK$5,593million


Mainland Airports A robust local economy helped our joint venture

Hangzhou Xiaoshan International Airport Co. Ltd. (HXIA)

achieve double-digit growth in passenger throughput

and air traffic movements. Our 35% share of HXIA’s

profits was HK$177 million (2008/09: HK$193 million).

The decrease was largely due to the lower airport

construction subsidies that HXIA received from the

Mainland government during the year and higher

operating costs in an inflationary environment.

Our joint venture with the Zhuhai Municipal People’s

Government that manages Zhuhai Airport reduced its net

loss significantly in 2009/10. The Airport Authority’s share

of the loss was HK$6 million (2008/09: HK$11 million).

In October 2009, the Airport Authority formed a joint

venture with Shanghai Airport (Group) Company Limited

to manage Shanghai Hongqiao International Airport’s

two terminals, east transportation centre and retail

operations.

Balance Sheet and Capital ExpenditureThe group’s balance sheet is strong and well capitalised.

Total assets were HK$51,370 million (2008/09:

HK$51,864 million), a decrease of 1.0% from last year.

Fixed assets represent a large part of our assets, at

HK$46,079 million (2008/09: HK$47,128 million). Capital

expenditure fell 39.1%, to HK$1,300 million (2008/09:

HK$2,136 million), as the Airport Authority continues to

exercise restraint and reschedule works programmes.

Intangible asset was HK$259 million (2008/09: HK$273

million), representing the amortised cost of the

management rights to Zhuhai Airport and its operating

assets for a period of 20 years, starting in 2006.

Interests in jointly controlled entities of HK$2,808 million

(2008/09: HK$2,606 million) represented the group’s

effective interest in the net assets of HXIA and the joint

venture with Shanghai Airport (Group) Company Limited,

plus associated goodwill.

05/06 06/07 07/08 08/09 09/10

2,136

2,526

2,2022,319

1,300

0

1,000

2,000

3,000

Capital Expenditurein HK$ million


Trade and other receivables were HK$1,180 million

(2008/09: HK$1,010 million), an increase of 16.8%. This

is mainly related to delayed payments arranged under the

relief package, which allowed companies renting lounges,

offices, counters and storage space to defer up to 50% of

their rent for one year and repay the deferred charges in

interest-free instalments. Full recovery of the deferrals in

the amount of HK$259 million (2008/09: HK$ nil) is

expected in 2010/11.

Total trade and other payables fell 18.8%, to HK$1,791

million (2008/09: HK$2,207 million), reflecting a decrease

in contract costs payable following the completion of the

North Satellite Concourse and SkyPier during the year.

DividendA dividend of HK$2,300 million (2008/09: HK$2,200

million), payable to the Hong Kong SAR Government, was

declared by the Board subsequent to the financial

year-end. Our seventh such payment, the dividend

represents 85.9% of the Airport Authority’s distributable

profit for the year. In addition, a special dividend of

HK$2,200 million was declared out of the Airport

Authority’s retained profits.

Cash FlowNet cash generated from operating activities decreased

from HK$5,711 million in 2008/09 to HK$5,477 million

this year, due primarily to higher receivables associated

with the payment deferrals extended to our business

partners in the relief package.

FinancingThe Airport Authority’s total borrowings amounted

to HK$8,193 million (2008/09: HK$9,377 million) at

31 March 2010. Our borrowings comprised unsecured

bank loans, medium to long-term fixed-rate notes and

bonds, and money market lines.

During the year, the Airport Authority issued a total

of HK$900 million in debt through private placements

of Hong Kong dollar fixed-rate notes with maturities

of 3 to 10 years. Proceeds from these issues were

used to refinance maturing debt and meet working

capital requirements.

Financial Review


Loan Facilities and Programmesas at 31 March 2010

Eurobond Fixed Rate Notes Bank Loans

* After unamortised finance costs of HK$16 million.

34%

38%

28%

Total borrowings

HK$8,193million*


Following the 2003 acquisition of the aviation fuel supply

system, which generates revenue in United States dollars,

the Airport Authority hedged its currency exposure with

the appropriate amount of US dollar borrowings, thereby

neutralising the risk of exchange rate fluctuations on the

revenue stream. In addition, we have executed forward

contracts to fix the exchange rate for the conversion of

Hong Kong dollars into US dollars to control the risk of

exchange rate fluctuations on a portion of the US dollar

borrowings. Since the latter part of 2006, the Airport

Authority has also been exposed to Chinese renminbi

movements as a result of its investment in Mainland

airports. This exposure has resulted in significant

exchange gains on the balance sheet owing to the

strengthening renminbi. Apart from the above, the

Airport Authority has minimal currency exposure because

revenue and costs at HKIA are largely denominated in

Hong Kong dollars.

The Airport Authority continues to be one of the highest-

rated corporations in Hong Kong. Its AA+ ratings for

long-term local and foreign currency debt are identical to

those of the Hong Kong SAR Government.

Financial Risk ManagementThe Airport Authority manages its financial risks with a

variety of instruments and techniques, including natural

hedges achieved by spreading its loan portfolio over

different roll-over and maturity dates. Financial

instruments such as interest rate swaps and forward

contracts are also used to hedge the Airport Authority’s

financial risks. In accordance with approved policy, we

have adopted measures to fix the interest rate of a

portion of total borrowings in order to minimise the

impact of interest rate fluctuations on earnings.

Loan Maturity Profileas at 31 March 2010

Within One Year or on Demand

After One Year but Within Two Years

After Two Years but Within Five Years

After Five Years

14%

30%

6%

50%

Total borrowings

HK$8,193million*

* After unamortised finance costs of HK$16 million.

Capital Structurein HK$ million

0 10,000 20,000 30,000 40,000 50,000

Total Debt Total Equity

06/07

07/08

08/09

9,954

11,058

10,325

9,377

09/10 8,193

33,687

34,500

35,393

36,038

36,689

05/06


OutlookThe new year started well for HKIA. Passenger traffic,

cargo throughput and air traffic movements all recorded

positive growth in the first quarter. This encouraging

performance was driven by a steady recovery of the global

economy and strong growth in China. In this improved

business environment, the Airport Authority will capture

new opportunities, maximise revenues and continue to

diligently control costs, while maintaining the highest

standards of safety, security, reliability and service.

The completion of the North Satellite Concourse, SkyPier

and the Permanent Aviation Fuel Facility late in the fiscal

year will bring in additional revenue. With the end of the

financial relief programme in March 2010, a further

improvement in our financial performance is expected in

2010/11, despite higher operating costs arising from the

recently opened facilities.

In the medium term, we will continue to increase our

commercial revenue by enlarging the airport’s retail space,

building new facilities and supporting our business

partners as they expand and add new services.

To enhance the airport’s competitiveness and support

long-term growth, we will start developing a concourse,

20 aircraft stands and an automated people mover link in

the midfield. We will continue work on HKIA Master Plan

2030, which assesses the airport’s infrastructure

requirements, including the engineering, environmental

and financial feasibility of building a third runway.

Through continuous cooperation with the Hong Kong

SAR Government on key infrastructure projects, including

the Hong Kong–Zhuhai–Macao Bridge, Tuen Mun–Chep

Lap Kok Link, Hong Kong Boundary Crossing Facilities

and the study of a high-speed rail link connecting HKIA,

Shenzhen municipality and Shenzhen International

Airport, we believe the accessibility of HKIA will be

greatly improved and its role as a premier international

and regional aviation centre will be enhanced.

With financial discipline, innovation and timely

development, HKIA will continue to bring value to its

stakeholders and generate economic benefits for Hong

Kong and the entire Pearl River Delta region.

Financial Review

Table of Contents

Report of the Members of the Board 62

Independent Auditor’s Report 65

Financial Statements

Income Statement 66

Statement of Comprehensive Income 67

Balance Sheet 68

Consolidated Statement of Changes in Equity 69

Statement of Changes in Equity 70

Consolidated Cash Flow Statement 71

Notes to the Financial Statements1. Establishment of the Authority 73

2. Principal Activities of the Authority 73

3. Summary of Significant Accounting Policies 73

4. Segmental Information 86

5. Operating Profit before Interest and Finance Costs 87

6. Remuneration of the Members of the Board and Executive Directors and Individuals

with the Highest Emoluments 88

7. Staff Costs and Related Expenses 90

8. Finance Costs 91

9. Taxation 92

10. Fixed Assets 94

11. Intangible Asset 97

12. Investments in Subsidiaries 98

13. Interests in Jointly Controlled Entities 99

14. Other Investments 101

15. Employee Retirement Benefits 102

16. Financial Risk Management and Fair Values 104

17. Trade and Other Receivables 111

18. Cash and Bank Balances 113

19. Interest-bearing Borrowings 113

20. Trade and Other Payables 115

21. Deferred Income 115

22. Capital, Reserves and Dividends 116

23. Outstanding Commitments 118

24. Contingent Liabilities 118

25. Material Related Party Transactions 119

26. Immediate and Ultimate Controlling Party 120

27. Accounting Judgements and Estimates 120

28. Non-Adjusting Post Balance Sheet Events 122

29. Comparative figures 122

30. Possible Impact of Amendments, New Standards and Interpretations Issued but Not Yet Effective

for the Year Ended 31 March 2010 122

Five-year Financial and Operational Summary 123

Report of the Members of the BoardFinancial year ended 31 March 2010


The Members of the Board have pleasure in submitting the annual report of the Airport Authority (“AA”) together with the

audited financial statements for the year ended 31 March 2010.

Principal ActivitiesPursuant to the Airport Authority Ordinance (Cap. 483) (“the Ordinance”) and the objective of maintaining Hong Kong’s status as

a centre of international and regional aviation, the AA is responsible for the provision, operation, development and maintenance

of the Hong Kong International Airport (“HKIA”) situated at Chek Lap Kok, Lantau, Hong Kong and the provision of facilities,

amenities and services at, as regards or in relation to the HKIA. The AA may also engage in airport-related activities in trade,

commerce and industry at or from any places in the airport island, and the airport-related activities as permitted by the Airport

Authority (Permitted Airport-related Activities) Order (Cap. 483E). The AA is required under the Ordinance to conduct its business

according to prudent commercial principles.

The principal activities and other particulars of the AA’s subsidiaries are set out in note 12 to the financial statements.

Financial StatementsThe profit of the group and the AA for the year ended 31 March 2010 and the state of the group’s and the AA’s affairs as at that

date are set out in the financial statements on pages 66 to 122.

DividendThe Ordinance provides that the AA may pay dividends on its shares and that the Financial Secretary may, after taking into

account the financial position of the AA and its subsidiaries, direct the AA to pay dividends out of the distributable profits of the

AA. A dividend of HK$2,200 million or HK$7,178.28 per share was declared and paid for the year 2008/09. The Board now

recommends the payment of a final dividend of HK$2,300 million or HK$7,504.57 per share and a special dividend of HK$2,200

million or HK$7,178.28 per share for the year ended 31 March 2010.

Transfer to ReservesThe group’s profit attributable to equity shareholder of HK$2,844 million (2008/09: HK$2,588 million) has been transferred to

reserves. Other movements in reserves are set out in the Consolidated Statement of Changes in Equity.

Fixed AssetsMovements in fixed assets during the year are set out in note 10 to the financial statements.

Capitalised InterestInterest amounting to HK$59 million (2008/09: HK$59 million) was capitalised by the group during the year as set out in note 8

to the financial statements.

Bank Loans and Other BorrowingsParticulars of bank loans and other borrowings of the group and the AA as at 31 March 2010 are set out in note 19 to the

financial statements.

Financial SummaryA summary of the financial results and the assets and liabilities of the group for the last five financial years is set out on page 123

of the annual report.


Share CapitalUnder the terms of the Ordinance, the AA may only issue shares to the Government of the Hong Kong Special Administrative

Region of the People’s Republic of China (“the Hong Kong SAR Government”) on behalf of which all shares are held by the

Financial Secretary Incorporated. No shares were issued or cancelled during the year ended 31 March 2010.

DonationsDonations made during the year amounted to HK$820,000 (2008/09: HK$1,288,000) which were funded partly from the sales

of “lost & found” items at the airport.

Major Customers and SuppliersThe information in respect of the group’s sales and purchases attributable to the major customers and suppliers respectively

during the financial year is as follows:

Percentage of the group’s total

Sales Purchases

The largest customer 25%Top five customers 48%The largest supplier 45%Top five suppliers 54%

The largest supplier is the Hong Kong SAR Government which is the sole shareholder of the AA.

Purchases are exclusive of supplies of capital nature.

Going ConcernThe financial statements on pages 66 to 122 have been prepared on a going concern basis. The Board has approved the AA’s

budget for 2010/11 and the business plan and financial plan for 2010/11 to 2014/15 and is satisfied that the AA has sufficient

resources to continue as a going concern for the foreseeable future.

Retirement SchemesDetails with regard to the AA’s retirement schemes are set out in note 15 to the financial statements. The administration of the

retirement schemes and the AA’s contributions thereto are reviewed periodically with reference to reports of the investment

manager of the schemes and independent actuaries.

Corporate GovernancePrincipal corporate governance practices adopted by the AA are set out in the Corporate Governance section on pages 18 to 25

of the annual report.

EmployeesAs of 31 March 2010, the AA, excluding its subsidiaries, had a staff force of 1,088 (31 March 2009: 1,116). The AA has

developed human resources policies to ensure that the pay level of its employees are competitive and that employees are

rewarded according to their performance within the framework of the AA’s salary and performance awards system. To further

strengthen the underlying principle of pay-for-performance, a Variable Compensation Scheme was introduced in April 2002. The

Scheme was finetuned in 2008.


Report of the Members of the Board

Members of the Board and Executive DirectorsMembers of the Board and Executive Directors at the date of this report are set out on pages 14 to 16 of the annual report.

The Hon Chan Kam-lam, the Hon Albert Ho Chun-yan, Dr Allan Wong Chi-yun were appointed to the Board on 1 January 2010

for a term of three years. Dr Lo Ka-shui was re-appointed to the Board for a term of one year from 1 June 2010 to 31 May 2011.

Ms Anita Fung will join the Board on 1 June 2010. Her term of appointment is three years. Mr He Guangbei, who has been a

member of the Board since 27 June 2003, retired on 31 May 2010.

Mr Raymond W C Lai, Executive Director, Finance and Investment, retired on 31 May 2010. Mr William Lo has been appointed as

Executive Director, Finance with effect from 9 July 2010. Mr Wilson Fung has been appointed as Executive Director, Corporate

Development. Mr Fung will join the AA in the third quarter of 2010.

Interest of Members of the Board and Executive Directors in ContractsNo contracts of significance to which the AA or any of its subsidiaries was a party and in which a Member of the Board or an

Executive Director had a material interest subsisted at the end of the year or at any time during the year. At no time during the

year was the AA or any of its subsidiaries a party to any arrangements to enable any Member of the Board or Executive Director

to acquire benefits by means of acquisition of shares of the AA or of any body corporate.

Related Party TransactionsDetails of material related party transactions entered into or were ongoing during the year are set out in note 25 to the financial

statements.

Members’ Responsibilities for the Financial StatementsThe Members of the Board are responsible for the preparation of financial statements for each financial year which give a true

and fair view of the state of affairs of the group and of the results and cash flows for the period. In preparing the financial

statements for the year ended 31 March 2010, the Members of the Board have selected suitable accounting policies and applied

them consistently; made judgements and estimates that are prudent and reasonable; and have prepared the financial statements

on a going-concern basis. The Members of the Board are responsible for keeping proper accounting records which disclose with

reasonable accuracy at any time the financial position of the group.

AuditorsIn accordance with Section 32 of the Ordinance, the Chief Executive of the HKSAR approved the appointment of KPMG as

auditors and they remain in office.

By order of the Board

H Y Shu

Secretary to the Board


Independent Auditor’s Report

65Annual Report 2009/10

To The Airport Authority(Incorporated in Hong Kong under the Airport Authority Ordinance)We have audited the financial statements of the Airport Authority (“the Authority”) set out on pages 66 to 122 which comprise

the consolidated and Authority balance sheets as at 31 March 2010, the consolidated and Authority income statements, the

consolidated and Authority statements of comprehensive income, the consolidated and Authority statements of changes in

equity and the consolidated cash flow statement for the year then ended and a summary of significant accounting policies and

other explanatory notes.

Board members’ responsibility for the financial statementsThe Board members of the Authority are responsible for the preparation and the true and fair presentation of these financial

statements in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public

Accountants and the disclosure requirements of the Hong Kong Companies Ordinance. This responsibility includes designing,

implementing and maintaining internal control relevant to the preparation and the true and fair presentation of financial

statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate

accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditor’s responsibilityOur responsibility is to express an opinion on these financial statements based on our audit. This report is made solely to you,

as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the

contents of this report.

We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified

Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain

reasonable assurance as to whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.

The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of

the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control

relevant to the entity’s preparation and true and fair presentation of the financial statements in order to design audit procedures

that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s

internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of

accounting estimates made by the Board members, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OpinionIn our opinion, the financial statements give a true and fair view of the state of affairs of the Authority and of the group as at

31 March 2010 and of the Authority’s and the group’s profit and the group’s cash flows for the year then ended in accordance

with Hong Kong Financial Reporting Standards and have been properly prepared in accordance with the applicable disclosure

requirements of the Hong Kong Companies Ordinance.

KPMG

Certified Public Accountants

8th Floor, Prince’s Building

10 Chater Road

Central, Hong Kong

31 May 2010

Income StatementFor the year ended 31 March 2010 (Expressed in Hong Kong dollars)

66 Hong Kong International Airport

The group The Authority

$ million Note 2010 2009 2010 2009

Airport charges 2,671 3,048 2,652 3,026Security charges 758 765 758 765Aviation security services 149 135 – –Airside support services franchises 1,432 1,374 1,383 1,334Retail licences and advertising revenue 2,918 2,587 2,912 2,582Other terminal commercial revenue 830 738 839 744Real estate revenue 182 170 190 179Other income 75 69 59 98

Turnover 9,015 8,886 8,793 8,728

Staff costs and related expenses 7 (1,158) (1,149) (629) (643)Repairs and maintenance 25(b) (442) (414) (435) (408)Operational contracted services (340) (332) (737) (715)Government services 25(a) (735) (722) (734) (722)Government rent and rates (154) (128) (151) (128)Occupancy expenses (195) (192) (184) (181)Other operating expenses (378) (560) (332) (514)

Operating Expenses before Depreciation and Amortisation (3,402) (3,497) (3,202) (3,311)

Operating Profit before Depreciation and Amortisation 5,613 5,389 5,591 5,417

Depreciation and amortisation (2,191) (2,234) (2,157) (2,201)

Operating Profit before Interest and Finance Costs 5 3,422 3,155 3,434 3,216

Interest and finance costs:Finance costs 8 (196) (252) (193) (249)Interest income 18 19 16 15

(178) (233) (177) (234)Share of profits less losses of

jointly controlled entities 13 177 193 – –

Profit before Taxation 3,421 3,115 3,257 2,982Income tax 9(a) (580) (532) (578) (530)

Profit for the Year 2,841 2,583 2,679 2,452

Attributable to:Equity shareholder of the Authority 2,844 2,588 2,679 2,452Minority interests (3) (5) – –


The notes on pages 73 to 122 form part of these financial statements. Details of dividend payable to equity shareholder of the

Authority attributable to the profit for the year are set out in note 22(b).

Statement of Comprehensive IncomeFor the year ended 31 March 2010 (Expressed in Hong Kong dollars)



$ million 2010 2009 2010 2009


Other Comprehensive Income for the YearExchange difference on translation

of financial statements of:– a subsidiary in the People’s Republic of China (“PRC”) 1 10 – –– jointly controlled entities in the PRC 8 51 – –

9 61 – –

Cash flow hedge: effective portion of changes in fair value 11 32 11 32Less: Deferred tax 2 2 2 2

13 34 13 34

Cash flow hedge: transfer from equity to profit or loss (10) (31) (10) (31)Less: Deferred tax (2) (2) (2) (2)

(12) (33) (12) (33)

10 62 1 1

Total Comprehensive Income for the Year 2,851 2,645 2,680 2,453

Attributable to:Equity shareholder of the Authority 2,854 2,646 2,680 2,453Minority interests (3) (1) – –

Total Comprehensive Income for the Year 2,851 2,645 2,680 2,453

The notes on pages 73 to 122 form part of these financial statements.

Balance SheetAt 31 March 2010 (Expressed in Hong Kong dollars)



$ million Note 2010 2009 2010 2009

Non-current AssetsFixed assets

– Investment properties 10 268 279 349 364– Interest in leasehold land 10 8,638 9,032 8,638 9,032– Other property, plant and equipment 10 37,173 37,817 37,020 37,652

46,079 47,128 46,007 47,048Intangible asset 11 259 273 – –Investments in subsidiaries 12 – – 5 5Interests in jointly controlled entities 13 2,808 2,606 1,994 1,977Other investments 14 136 191 136 191Net defined benefit retirement plan asset 15 73 63 73 63Derivative financial assets 16(e) 76 95 76 95

49,431 50,356 48,291 49,379

Current AssetsStores and spares 48 51 46 50Trade and other receivables 17 1,180 1,010 1,339 1,170Derivative financial assets 16(e) 53 37 53 37Cash and bank balances 18 658 410 470 230

1,939 1,508 1,908 1,487

Current LiabilitiesInterest-bearing borrowings 19 (2,480) (1,453) (2,480) (1,453)Trade and other payables 20 (1,534) (1,970) (1,438) (1,876)Deferred income 21 (121) (113) (121) (113)Derivative financial liabilities 16(e) (3) (5) (3) (5)

(4,138) (3,541) (4,042) (3,447)

Net Current Liabilities (2,199) (2,033) (2,134) (1,960)

Total Assets Less Current Liabilities 47,232 48,323 46,157 47,419

Non-current LiabilitiesInterest-bearing borrowings 19 (5,713) (7,924) (5,713) (7,924)Trade and other payables 20 (257) (237) (228) (208)Deferred income 21 (1,422) (1,544) (1,422) (1,544)Derivative financial liabilities 16(e) (5) (12) (5) (12)Deferred tax liabilities 9(d) (3,146) (2,568) (3,146) (2,568)

(10,543) (12,285) (10,514) (12,256)

Net Assets 36,689 36,038 35,643 35,163

Capital and Reserves 22Share capital 30,648 30,648 30,648 30,648Reserves 5,839 5,185 4,995 4,515

Total equity attributable to equity shareholder of the Authority 36,487 35,833 35,643 35,163

Minority interests 202 205 – –

Total Equity 36,689 36,038 35,643 35,163

Approved and authorised for issue on behalf of the Members of the Board on 31 May 2010.

Dr the Hon Marvin Cheung Kin-tung Mr Stanley Hui Hon-chung Mr Raymond W C LaiChairman Chief Executive Officer Executive Director, Finance and Investment


Consolidated Statement of Changes in EquityFor the year ended 31 March 2010 (Expressed in Hong Kong dollars)



Attributable to Equity Shareholder of the Authority

$ million NoteShare

capitalExchange

reserveCapital reserve

Hedging reserve

Retained profits Total

Minority interests

Total equity

At 1 April 2008 30,648 274 41 (5) 4,229 35,187 206 35,393Changes in equity for the year:Dividend approved in respect of

the previous year 22(b) – – – – (2,000) (2,000) – (2,000)Transfer from retained profits

to capital reserve 22(d)(ii) – – 109 – (109) – – –Total comprehensive income

for the year – 57 – 1 2,588 2,646 (1) 2,645

At 31 March 2009 and 1 April 2009 30,648 331 150 (4) 4,708 35,833 205 36,038

Changes in equity for the year:Dividend approved in respect of

the previous year 22(b) – – – – (2,200) (2,200) – (2,200)Transfer from retained profits

to capital reserve 22(d)(ii) – – 83 – (83) – – –Total comprehensive income

for the year – 9 – 1 2,844 2,854 (3) 2,851

At 31 March 2010 30,648 340 233 (3) 5,269 36,487 202 36,689

Statement of Changes in EquityFor the year ended 31 March 2010 (Expressed in Hong Kong dollars)



$ million NoteShare

capitalHedging

reserveRetained

profits Total

At 1 April 2008 30,648 (5) 4,067 34,710Changes in equity for the year:Dividend approved in respect of the previous year 22(b) – – (2,000) (2,000)Total comprehensive income for the year – 1 2,452 2,453

At 31 March 2009 and 1 April 2009 30,648 (4) 4,519 35,163Changes in equity for the year:Dividend approved in respect of the previous year 22(b) – – (2,200) (2,200)Total comprehensive income for the year – 1 2,679 2,680

At 31 March 2010 30,648 (3) 4,998 35,643

Consolidated Cash Flow StatementFor the year ended 31 March 2010 (Expressed in Hong Kong dollars)


$ million Note 2010 2009

Operating ActivitiesProfit before taxation 3,421 3,115Adjustments for:Depreciation 1,943 1,986Amortisation of interest in leasehold land 232 232Amortisation of intangible asset 16 16Interest on notes and bank loans 243 300Other borrowing costs and interest expense 19 17Interest income (18) (19)Cash flow hedges:

– net gain on forward foreign exchange contracts, reclassified from equity (23) (36)– net loss on interest rate swaps, reclassified from equity 13 5

Fair value hedges:– net gain on fair value hedging instruments (interest rate swaps) (42) (99)– net (gain)/loss on underlying hedged interest-bearing borrowings (19) 76

Share of profits less losses of jointly controlled entities (177) (193)Impairment loss on trade and other receivables 4 38Impairment loss on other investments 55 70Net loss on disposal of other property, plant and equipment 9 19Loss in respect of the early termination of a lease arrangement – 5Net foreign exchange loss/(gain) 5 (11)Amortisation of deferred income (114) (109)Expenses recognised in respect of defined benefit retirement plan 37 36

Operating Profit before Changes in Working Capital 5,604 5,448Decrease in stores and spares 3 10(Increase)/decrease in trade and other receivables (168) 115Increase in trade and other payables 41 138

Cash Generated from Operations 5,480 5,711Hong Kong Profits tax paid (3) –

Net Cash Generated from Operating Activities 5,477 5,711

Investing ActivitiesReceipts on maturity/(placement) of term deposits 40 (67)Interest received 18 19Payment for the purchase of other property, plant and equipment (1,572) (2,050)Payment for the purchase of interest in leasehold land – (162)Receipts from disposal of other property, plant and equipment 3 2Payment of annual franchise fee for a PRC subsidiary (3) (3)Payment to acquire interest in a jointly controlled entity (17) –

Net Cash Used in Investing Activities (1,531) (2,261)


For the year ended 31 March 2010 (Expressed in Hong Kong dollars)

Consolidated Cash Flow Statement (continued)

$ million Note 2010 2009

Financing ActivitiesInterest paid on notes and bank loans (314) (358)Other borrowing costs and interest expenses paid (25) (19)Receipts from new bank loans 80 200Repayment of bank loans (1,500) (2,020)Receipts from issue of notes 900 800Repayment of notes (653) –Net interest income received on interest rate swaps 54 19Net payment in respect of the early termination of a lease arrangement – (64)Dividend paid (2,200) (2,000)

Net Cash Used in Financing Activities (3,658) (3,442)

Net Increase in Cash and Cash Equivalents 288 8Cash and Cash Equivalents at Beginning of Year 343 331Effect of foreign exchange rate changes – 4

Cash and Cash Equivalents at End of Year 18 631 343


Notes to the Financial Statements(Expressed in Hong Kong dollars)


1. Establishment of the AuthorityThe Airport Authority (“the Authority”) is a statutory corporation wholly owned by the Hong Kong SAR Government (“the

Government”). It was formally established on 1 December 1995 when the Airport Authority Ordinance (“the Ordinance”)

was brought into effect as a continuation of the Provisional Airport Authority which had been set up in 1990.

The Authority’s statutory purpose is to provide, operate, develop and maintain Hong Kong’s airport at Chek Lap Kok, in

order to maintain Hong Kong’s status as a centre of international and regional aviation. Pursuant to these purposes, the

Authority may also engage in airport-related activities in trade, commerce or industry at Chek Lap Kok and is permitted to

engage in or carry out airport-related activities at any place in or outside Hong Kong. The Authority is required under the

Ordinance to conduct its business according to prudent commercial principles.

2. Principal Activities of the AuthorityThe Authority’s principal activities are the management, operation, planning and development of the Hong Kong

International Airport (“HKIA”) at Chek Lap Kok. It also engages in airport-related commercial and industrial activities at the

above airport.

The Authority’s principal subsidiaries and their principal activities are set out in note 12.

3. Summary of Significant Accounting Policies(a) Statement of compliance

These financial statements have been prepared in accordance with all applicable Hong Kong Financial Reporting

Standards (“HKFRSs”), which collective term includes all applicable individual Hong Kong Financial Reporting

Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations issued by the Hong Kong Institute of

Certified Public Accountants (“HKICPA”), accounting principles generally accepted in Hong Kong and the disclosure

requirements of the Hong Kong Companies Ordinance. These financial statements also comply with the applicable

disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited

with the exception of disclosure on Earnings Per Share which is not relevant to the Authority as the Authority’s shares

are not publicly traded. A summary of the significant accounting policies adopted by the Authority and its subsidiaries

(together referred to as the “group”) is set out below.

The HKICPA has issued certain new and revised HKFRSs that are first effective or available for early adoption for

the current accounting period of the group and the Authority. Note 3(c) provides information on any changes in

accounting policies and note 3(d) to (y) summarises the accounting policies of the group after the adoption of these

developments to the extent that they are relevant to the group for the current and prior accounting periods reflected

in these financial statements. The adoption of these amendments does not have a significant impact on the group’s

results of operations and financial position for the financial years 2009 and 2010.

The group has not applied any new standard or interpretation that is not yet effective for the current accounting

period (note 30).

(b) Basis of preparation of the financial statements

The group’s financial statements include the financial statements of the group as well as the group’s interests in

jointly controlled entities.

The measurement basis used in the preparation of the financial statements is the historical cost basis except for

certain derivative financial instruments which are stated at their fair values as explained in the accounting policies set

out below (notes 3(h) and (p) respectively).

The preparation of financial statements in conformity with HKFRSs requires management to make judgements,

estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income

and expenses. The estimates and associated assumptions are based on historical experience and various other factors

that are believed to be reasonable under the circumstances, the results of which form the basis of making the

judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual

results may differ from these estimates.


Notes to the Financial Statements

3. Summary of Significant Accounting Policies (continued)

(b) Basis of preparation of the financial statements (continued)

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are

recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the

revision and future periods if the revision affects both current and future periods.

Judgements made by management in the application of HKFRSs that have significant effect on the financial

statements and major sources of estimation uncertainty are discussed in note 27.

(c) Changes in accounting policies

The HKICPA has issued one new HKFRS, a number of amendments to HKFRSs and new Interpretations that are first

effective for the current accounting period of the group and the Authority. Of these, the following developments are

relevant to the group’s financial statements:

• HKFRS 8, “Operating segments”

• HKAS 23 (revised 2007), “Borrowing costs”

• HKAS 1 (revised 2007), “Presentation of financial statements”

• Amendments to HKAS 27, “Consolidated and separate financial statements – cost of an investment in a

subsidiary, jointly controlled entity or associate”

• Amendments to HKFRS 7, “Financial instruments: Disclosures – improving disclosures about financial instruments”

• Improvements to HKFRSs (2008)

The group early adopted the provisions of HKFRS 8 which is effective for annual periods beginning on or after

1 April 2009 in the 2008/09 annual financial statements of the group. Management considers there to be only one

operating segment under the requirements of HKFRS 8. The amendment to HKAS 23 has no material impact on the

group’s financial statements as the amendment is consistent with policy already adopted by the group. The impact of

the remainder of these developments on the group’s financial statements is as follows:

• As a result of the adoption of HKAS 1 (revised 2007), details of changes in equity during the period arising from

transactions with the equity shareholder in its capacity as such have been presented separately from all other

income and expenses in a revised consolidated statement of changes in equity. All other items of income and

expense are presented in the consolidated income statement, if they are recognised as part of profit or loss for

the period, or otherwise in a new primary statement, the consolidated statement of comprehensive income.

The new format for the consolidated statement of comprehensive income and the consolidated statement of

changes in equity has been adopted in these financial statements and corresponding amounts have been restated

to conform to the new presentation. This change in presentation has no effect on reported profit or loss, total

income and expense or net assets for any period presented.

• The amendments to HKAS 27 have removed the requirement that dividends out of pre-acquisition profits should

be recognised as a reduction in the carrying amount of the investment in the investee, rather than as income. As

a result, as from 1 April 2009, all dividends receivable from subsidiaries and jointly controlled entities, whether

out of pre- or post-acquisition profits, will be recognised in the Authority’s profit or loss and the carrying amount

of the investment in the investee will not be reduced unless that carrying amount is assessed to be impaired as a

result of the investee declaring the dividend. In such cases, in addition to recognising dividend income in profit

or loss, the Authority would recognise an impairment loss. In accordance with the transitional provisions in the

amendment, this new policy will be applied prospectively to any dividends receivable in the current or future

periods and previous periods have not been restated. This change in requirement has no impact on reported

profit or loss, total income and expense or net assets for the current year.



(c) Changes in accounting policies (continued)

• As a result of the adoption of the amendments to HKFRS 7, the financial statements include expanded disclosures

in note 16(e) about the fair value measurement of the group’s financial instruments, categorising these fair

value measurements into a three-level fair value hierarchy according to the extent to which they are based on

observable market data. The group has taken advantage of the transitional provisions set out in the amendments

to HKFRS 7, under which comparative information for the newly required disclosures about the fair value

measurements of financial instruments has not been provided.

• The “Improvements to HKFRSs (2008)” comprise a number of minor and non-urgent amendments to a range of

HKFRSs which the HKICPA has issued as an omnibus batch of amendments. Of these, the following amendment

has resulted in changes to the group’s accounting policies:

As a result of amendments to HKAS 28, “Investments in associates”, impairment losses recognised in respect

of the associates and jointly controlled entities carried under the equity method are no longer allocated to the

goodwill inherent in that carrying value. As a result, when there has been a favourable change in the estimates

used to determine the recoverable amount, the impairment loss will be reversed. Previously, the group allocated

impairment losses to goodwill and, in accordance with the accounting policy for goodwill, did not consider such

losses to be reversible. In accordance with the transitional provisions in the amendment, this new policy will be

applied prospectively to any impairment losses that arise in the current or future periods and previous periods

have not been restated.

(d) Subsidiaries and minority interests

Subsidiaries are entities controlled by the group. Control exists when the group has the power to govern the financial

and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting

rights that presently are exercisable are taken into account.

An investment in a subsidiary is consolidated into the consolidated financial statements from the date that control

commences until the date that control ceases. Intra-group balances and transactions and any unrealised profits

arising from intra-group transactions are eliminated in full in preparing the consolidated financial statements.

Unrealised losses resulting from intra-group transactions are eliminated in the same way as unrealised gains, but only

to the extent that there is no evidence of impairment.

Minority interests represent the portion of the net assets of subsidiaries attributable to interests that are not owned by the Authority, whether directly or indirectly through subsidiaries, and in respect of which the group has not agreed any additional terms with the holders of those interests which would result in the group as a whole having a contractual obligation in respect of those interests that meets the definition of a financial liability. Minority interests are presented in the consolidated balance sheet within equity, separately from equity attributable to the equity shareholder of the Authority. Minority interests in the results of the group are presented on the face of the consolidated income statement and the consolidated statement of comprehensive income as an allocation of the total profit or loss and total comprehensive income for the year between minority interests and the equity shareholder of the Authority.

Where losses applicable to the minority exceed the minority’s interest in the equity of a subsidiary, the excess, and any further losses attributable to the minority, are charged against the group’s interest except to the extent that the minority has a binding obligation to, and is able to, make additional investment to cover the losses. All subsequent profits of the subsidiary are allocated to the group until the minority’s share of losses previously absorbed by the group has been recovered.

Loans from holders of minority interests and other contractual obligations towards these holders are presented as financial liabilities in the consolidated balance sheet in accordance with note 3(p) or (q) depending on the nature of the liability.

In the Authority’s balance sheet, an investment in a subsidiary is stated at cost less impairment losses (note 3(m)), unless the investment is classified as held for sale (or included in a disposal group that is classified as held for sale).




(e) Jointly controlled entitiesA jointly controlled entity is an entity which operates under a contractual arrangement between the group or the Authority and other parties, where the contractual arrangement establishes that the group or the Authority and one or more of the other parties share joint control over the economic activity of the entity.

An investment in a jointly controlled entity is accounted for in the group’s financial statements under the equity method, unless it is classified as held for sale (or included in a disposal group that is classified as held for sale). Under the equity method, the investment is initially recorded at cost and adjusted thereafter for the post acquisition change in the group’s share of the jointly controlled entity’s net assets and any impairment loss relating to the investment (notes 3(f) and (m)). The group’s share of the post-acquisition, post-tax results of the jointly controlled entity and any impairment losses for the year are recognised in the consolidated income statement, whereas the group’s share of the post-acquisition post-tax items of the jointly controlled entity’s other comprehensive income is recognised in the consolidated statement of comprehensive income.

When the group’s share of losses exceeds its interest in the jointly controlled entity, the group’s interest is reduced to nil and recognition of further losses is discontinued except to the extent that the group has incurred legal or constructive obligations or made payments on behalf of the jointly controlled entity. For this purpose, the group’s interest is the carrying amount of the investment under the equity method together with the group’s long-term interest that in substance form part of the group’s net investment in the jointly controlled entity.

Unrealised profits and losses resulting from transactions between the group and its jointly controlled entity are eliminated to the extent of the group’s interests in the jointly controlled entity, except where the unrealised losses provide evidence of an impairment of the asset transferred, in which case they are recognised immediately in profit or loss.

In the Authority’s balance sheet, its investments in jointly controlled entities are stated at cost less impairment losses (note 3(m)), unless classified as held for sale (or included in a disposal group that is classified as held for sale).

(f) Goodwill

Goodwill represents the excess of the cost of an investment in a jointly controlled entity over the group’s interest

in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities. In respect of investment

in jointly controlled entity, the carrying amount of goodwill is included in the carrying amount of the interest in the

joint controlled entity and the investment as a whole is tested for impairment whenever there is objective evidence of

impairment (note 3(m)).

Any excess of the group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent

liabilities over the cost of an investment in a jointly controlled entity is recognised immediately in profit or loss.

On disposal of a jointly controlled entity during the year, any attributable amount of goodwill is included in the

calculation of the profit or loss on disposal.

(g) Other investments

Investments in equity securities that do not have a quoted market price in an active market and whose fair value

cannot be reliably measured are classified as other investments and recognised in the balance sheet at cost (which

includes the transaction price and attributable transaction costs) less impairment losses at each balance sheet date.

Impairment losses are measured as the difference between the carrying amount of the financial asset and the estimated

future cash flows, discounted at the current market rate of return for a similar financial asset where the effect of

discounting is material. Impairment losses for equity securities carried at cost are not reversed.



(h) Derivative financial instruments

Derivative financial instruments are recognised initially at fair value. At each balance sheet date the fair value is

remeasured. The gain or loss on remeasurement to fair value is recognised immediately in profit or loss, except where

the derivatives qualify for cash flow hedge accounting (note 3(i)).

(i) Accounting for derivative financial instruments and hedging activities

The group designates certain derivatives as either: (1) hedges of the fair value of recognised assets or liabilities or

a firm commitment (fair value hedges) or (2) hedges of the variability in cash flows of a recognised asset or liability

or a highly probable forecast transaction or the foreign currency risk of a committed future transaction (cash flow

hedges).

(i) Fair value hedges

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in

profit or loss, together with any changes in the fair value of the hedged asset or liability that are attributable to

the hedged risk.

(ii) Cash flow hedges

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow

hedges is recognised directly in other comprehensive income and accumulated separately in equity in the

hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss.

Amounts accumulated in equity are reclassified from equity to profit or loss in the periods when the hedged

forecast item affects profit or loss.

If a hedge of a forecast transaction subsequently results in the recognition of a non-financial asset or non-

financial liability, the associated gain or loss is reclassified from equity to be included in the initial cost or other

carrying amount of the non-financial asset or liability.

If a hedge of a forecast transaction subsequently results in the recognition of a financial asset or a financial

liability, the associated gain or loss is reclassified from equity to profit or loss in the same period or periods

during which the asset acquired or liability assumed affects profit or loss (such as when interest income or

expense is recognised).

When a hedging instrument expires or is sold, terminated or exercised, or no longer meets the criteria for

hedge accounting; or the group revokes designation of the hedge relationship but the hedged forecast

transaction is still expected to occur, the cumulative gain or loss at that point remains in equity until the

transactions occurs and it is recognised in accordance with the above policy. If the hedged forecast transaction

is no longer expected to take place, the cumulative unrealised gain or loss is reclassified from equity to profit or

loss immediately.

(iii) Derivatives that do not qualify for hedge accounting

Changes in the fair value of any derivative financial instruments that do not qualify for hedge accounting are

recognised immediately in profit or loss.

(j) Fixed assets

(i) The Authority was responsible for all of the costs of the formation of the airport site. The land formation cost

and the land premium have been classified as interest in leasehold land under fixed assets. Interest in leasehold

land is stated in the balance sheet at cost less accumulated amortisation and impairment losses (note 3(m)).




(j) Fixed assets (continued)

(ii) Investment property

Investment properties include leasehold land and its related improvements, and/or buildings held to earn rental

income. These include land held for a currently undetermined future use and property that is being constructed

or developed for future use as investment property.

Investment properties are stated in the balance sheet at cost net of accumulated depreciation and impairment

losses (note 3(m)). Investment properties are depreciated over their estimated useful lives or unexpired term of

the lease, whichever is shorter. Rental income from investment properties is accounted for as described in note

3(vi).

(iii) The following items of other property, plant and equipment are stated in the balance sheet at cost less

accumulated depreciation and impairment losses (note 3(m)):

• buildings held for own use which are situated on leasehold land, where the fair value of the building could

be measured separately from the fair value of the leasehold land at the inception of the lease (note 3(j)(vii));

and

• other items of plant and equipment.

(iv) Repairs and maintenance expenditure in respect of fixed assets is charged to profit or loss as and when

incurred.

(v) Gains or losses arising from the retirement or disposal of an item of other property, plant and equipment are

determined as the difference between the net disposal proceeds and the carrying amount of the item and are

recognised in profit or loss on the date of retirement or disposal.

(vi) Construction in progress

Assets under construction and capital works are stated at cost. Costs comprise direct costs of construction, such

as materials, direct staff costs, an appropriate proportion of production overheads, the initial estimate, where

relevant, of the costs of dismantling and removing the items and restoring the site on which they are located,

and net borrowing costs (note 3(p)) capitalised during the period of construction or installation and testing.

Capitalisation of these costs ceases and the asset concerned is transferred to fixed assets when substantially all

the activities necessary to prepare the asset for its intended use are completed, at which time it commences to

be depreciated in accordance with the policy detailed in note 3(k).

(vii) Leased assets

An arrangement, comprising a transaction or a series of transactions, is or contains a lease if the group

determines that the arrangement conveys a right to use a specific asset or assets for an agreed period of time

in return for a payment or a series of payments. Such a determination is made based on an evaluation of the

substance of the arrangement and is regardless of whether the arrangement takes the legal form of a lease.

Leases of assets under which the group assumes substantially all the risks and rewards of ownership are

classified as being held under finance leases and treated as if the group owned the assets outright. Leases of

assets under which the group has not been transferred substantially all the risks and rewards of ownership are

classified as operating leases.

Where the group has the use of assets held under operating leases, payments made under the leases are

charged to profit or loss in equal instalments over the accounting periods covered by the lease term, except

where an alternative basis is more representative of the pattern of benefits to be derived from the leased asset.

Lease incentives received are recognised in profit or loss as an integral part of the aggregate net lease payments

made. Contingent rentals are charged to profit or loss in the accounting period in which they are incurred.



(j) Fixed assets (continued)

(vii) Leased assets (continued)

The cost of acquiring land held under an operating lease is amortised on a straight-line basis over the period of

the lease term.

When the group leases out assets under operating leases, the assets are included in the balance sheet

according to their nature and are depreciated in accordance with the group’s depreciation policies set out in

note 3(k) below. Revenue arising from operating leases is recognised in accordance with the group’s revenue

recognition policies set out in note 3(vi) below.

When the group leases out its interest in leasehold land up to substantially the full period of the underlying

Land Grant and the related risks and rewards are substantially transferred to the lessees, such leases are

accounted for as finance leases. The interest in leasehold land is derecognised and the differences between

the carrying amount of the interest in leasehold land and net proceeds received for such arrangements are

recognised in profit or loss from the commencement dates of such finance leases.

(k) Depreciation

Depreciation is calculated to write off the cost of items of fixed assets less their estimated residual value, if any, using

the straight-line method over their estimated useful lives.

The estimated useful lives are:Interest in leasehold land Unexpired term of leaseAirfields: Runway base courses, taxiways and road non-asphalt layers, aprons and tunnels 15 years to unexpired term of lease Runway wearing courses, taxiways and road asphalt layers, lighting and other airfield facilities 5 to 25 yearsTerminal complexes and ground transportation centre: Building structure and road non-asphalt layers Unexpired term of lease Road asphalt layers, building services and fit-outs 7 to 25 yearsAccess, utilities, other buildings and support facilities: Road and bridge non-asphalt layers 20 years to unexpired term of lease Road and bridge asphalt layers, other building and support facilities 5 to unexpired term of lease Utility supply equipment 5 to 25 yearsSystems, installations, plant and equipment 3 to 30 yearsFurniture, fixtures and equipment 3 to 15 yearsInvestment properties: Building structure Unexpired term of lease Building services and fit-outs 7 to 25 years Furniture, fixtures and equipment 5 to 15 years

Where parts of an item of other property, plant and equipment have different useful lives, the cost of the item is

allocated on a reasonable basis between the parts and each part is depreciated separately. Both the useful life of an

asset and its residual value, if any, are reviewed annually.




(l) Intangible assets (other than goodwill)

Intangible assets that are acquired by the group are stated in the balance sheet at cost less accumulated amortisation

(where the estimated useful life is finite) and impairment losses (note 3(m)). Expenditure on internally generated

goodwill and brands is recognised as an expense in the period in which it is incurred.

Amortisation of intangible assets with finite useful lives is charged to profit or loss on a straight-line basis over the assets’

estimated useful lives. The group’s intangible asset, which is a franchise with a finite useful life, is amortised from the

date it became available for use over the franchise period of 20 years.

Both the period and method of amortisation are reviewed annually.

(m) Impairment of assets

(i) Internal and external sources of information are reviewed at each balance sheet date to identify indications that

the following assets may be impaired, or an impairment loss previously recognised no longer exists or may have

decreased:

• interest in leasehold land;

• investment properties;

• other property, plant and equipment;

• intangible assets; and

• investments in subsidiaries and jointly controlled entities.

The recoverable amount of an asset is the greater of its fair value less costs to sell and value in use. In assessing

value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate

that reflects current market assessments of the time value of money and the risks specific to the asset. Where

an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is

determined for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating

unit).

An impairment loss is recognised in profit or loss if the carrying amount of an asset, or the cash-generating

unit to which it belongs, exceeds its recoverable amount. An impairment loss is reversed if there has been a

favourable change in the estimates used to determine the recoverable amount. A reversal of an impairment

loss is limited to the asset’s carrying amount that would have been determined had no impairment loss been

recognised in prior years. Reversals of impairment losses are credited to profit or loss in the year in which the

reversals are recognised.

(ii) Interim financial reporting and impairment

To comply with the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited, the

group prepares an interim financial report in compliance with HKAS 34, “Interim financial reporting”, in respect

of the first six months of the financial year. At the end of the interim period, the group applies the same

impairment testing, recognition, and reversal criteria as it would at the end of the financial year. Impairment

losses recognised in an interim period in respect of unquoted equity securities carried at cost are not reversed in

a subsequent period.



(n) Stores and spares

Stores and spares are carried at the lower of cost and net realisable value. Stores and spares are stated at cost and

comprise all costs of purchase and costs incurred in bringing the stores and spares to their present location and

condition and is computed on a weighted average cost basis, less provision for obsolescence. When stores and spares

are consumed, the carrying amount of these stores and spares is recognised as an expense in the year in which the

consumption occurs. The amount of any write-down of stores and spares to their net realisable value and provision

for obsolescence are recognised as an expense in the period the write-down or provision occurs. Any obsolete and

damaged stores and spares are written off to the profit or loss.

(o) Trade and other receivables

Trade and other receivables are initially recognised at fair value and thereafter stated at amortised cost less allowance

for impairment of doubtful debts, except where the receivables are interest-free loans made to related parties

without any fixed repayment terms or the effect of discounting would be immaterial. In such cases, the receivables

are stated at cost less allowance for impairment of doubtful debts.

Impairment losses for bad and doubtful debts are recognised when there is objective evidence of impairment and are

measured as the difference between the carrying amount of the financial asset and the estimated future cash flows,

discounted at the asset’s original effective interest rate where the effect of discounting is material. Objective evidence

of impairment includes observable data that comes to the attention of the group about events that have an impact

on the asset’s estimated future cash flows such as significant financial difficulty of the debtor.

Impairment losses for trade debtors included within trade and other receivables whose recovery is considered

doubtful but not remote are recorded using an allowance account. When the group is satisfied that recovery is

remote, the amount considered irrecoverable is written off against trade debtors directly and any amounts held in

the allowance account relating to that debt are reversed. Subsequent recoveries of amounts previously charged to

the allowance account are reversed against the allowance account. Other changes in the allowance account and

subsequent recoveries of amounts previously written off directly are recognised in profit or loss.

(p) Interest-bearing borrowings and borrowing costs

Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent

to initial recognition, the unhedged portion of interest-bearing borrowings is stated at amortised cost with any

difference between the amount initially recognised and redemption value being recognised in profit or loss over

the period of the borrowings, together with any interest and fees payable, using the effective interest rate method.

Subsequent to initial recognition, the carrying amount of the portion of interest-bearing borrowings, which is the

subject of a fair value hedge, is remeasured and the change in fair value attributable to the risk being hedged is

recognised in profit or loss to offset the effect of the gain or loss on the related hedging instrument.

Borrowing costs that are directly attributable to the acquisition, construction or production of an asset which

necessarily takes a substantial period of time to get ready for its intended use are capitalised as part of the cost of the

asset. Other borrowing costs are expensed in the period in which they are incurred.

The capitalisation of borrowing costs as part of the cost of a qualifying asset commences when expenditure for the

asset is being incurred, borrowing costs are being incurred and activities that are necessary to prepare the asset for

its intended use are in progress. Capitalisation of borrowing costs is suspended or ceases when substantially all the

activities necessary to prepare the qualifying asset for its intended use are interrupted or complete.

(q) Trade and other payables

Trade and other payables are initially recognised at fair value and thereafter stated at amortised cost unless the effect

of discounting would be immaterial, in which case they are stated at cost.




(r) Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and in hand, demand deposits with banks and other financial

institutions, and short-term, highly liquid investments that are readily convertible into known amounts of cash

and which are subject to an insignificant risk of changes in value, having been within three months of maturity

at acquisition. Bank overdrafts that are repayable on demand and form an integral part of the group’s cash

management are also included as a component of cash and cash equivalents for the purpose of the consolidated

cash flow statement.

(s) Employee benefits

(i) Short term employee benefits and contributions to defined contribution retirement plans

Salaries, performance annual bonuses, paid annual leave, contributions to defined contribution retirement plans

and the cost of non-monetary benefits are accrued in the year in which the associated services are rendered

by employees. Where payment or settlement is deferred and the effect would be material, these amounts are

stated at their present values.

The Authority and its subsidiaries in Hong Kong are required to make contributions to Mandatory Provident

Funds under the Hong Kong Mandatory Provident Fund Schemes Ordinance. Such contributions are recognised

as an expense in profit or loss as incurred.

The employees of the subsidiary in the PRC participate in a defined contribution retirement plan managed by

the local governmental authorities whereby the subsidiary is required to contribute to the plan at fixed rates of

the employees’ salary costs.

(ii) Defined benefit retirement plan obligations

The group’s defined benefit retirement cost and the present value of defined benefit obligations in respect of

the group’s defined benefit retirement plan is calculated annually by the plan’s actuary using the projected unit

credit method.

The net charge to profit or loss mainly comprises the current service cost, plus the unwinding of the discount

on the present value of the plan liabilities less the expected return on plan assets, and is presented in staff costs

and related expenses.

The amount recognised in the balance sheet represents the group’s net exposure to the plan. It is calculated

as the present value of defined benefit obligations less the fair value of the plan assets adjusted to exclude

any cumulative unrecognised actuarial gains and losses. Where the fair value of the plan assets exceeds the

present value of the defined benefit obligations, the asset recognised by the group is limited to the total of any

cumulative unrecognised net actuarial losses and past service costs and the present value of any future refunds

from the plan or reductions in future contributions to the plan.

The present value of the defined benefit obligations and the cumulative unrecognised actuarial gains and losses

are computed as follows:

The group’s present value of defined benefit obligations is determined by estimating the amount of future

benefit that employees have earned in return for their service in the current and prior periods allowing for

future salary increases until the date of termination of employment and that benefit is discounted to determine

the present value of the obligation. The discount rate is the yield at the balance sheet date on high quality

corporate bonds that have maturity dates approximating the terms of the group’s obligations. If there is no

sufficiently deep market in such bonds, the market yield in government bonds is used.

When the benefits of a plan are improved, the portion of the increased benefits relating to past service by

employees is recognised as an expense in profit or loss on a straight-line basis over the average period until the

benefits become vested. If the benefits vest immediately, the expense is recognised immediately in profit or

loss.



(s) Employee benefits (continued)

(ii) Defined benefit retirement plan obligations (continued)

Actuarial gains and losses comprise experience adjustments (i.e. the effects of differences between the previous

actuarial assumptions and what has actually occurred), as well as the effects of changes in actuarial assumptions.

Actuarial gains or losses are generally not recognised if they are at or below a threshold amount. This threshold is

set at ten percent of the greater of (i) the present value of the defined benefit obligations and (ii) the fair value

of plan assets. To the extent that the net cumulative actuarial gains or losses exceed that threshold calculated at

the end of the previous reporting period, that portion is recognised in profit or loss over the expected average

remaining working lives of the employees participating in the plan.

(t) Income tax

(i) Income tax for the year comprises current tax and movements in deferred tax assets and liabilities. Current tax

and movements in deferred tax assets and liabilities are recognised in profit or loss except to the extent that

they relate to items recognised in other comprehensive income or directly in equity, in which case the relevant

amounts of tax are recognised in other comprehensive income or directly in equity respectively.

(ii) Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or

substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

(iii) Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being

the differences between the carrying amounts of assets and liabilities for financial reporting purposes and their

tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits.

Apart from certain limited exceptions, all deferred tax liabilities and all deferred tax assets, to the extent that it

is probable that future taxable profits will be available against which that asset can be utilised, are recognised.

Future taxable profits that may support the recognition of deferred tax assets arising from deductible temporary

differences include those that will arise from the reversal of existing taxable temporary differences, provided

those differences relate to the same taxation authority and the same taxable entity, and are expected to

reverse either in the same period as the expected reversal of the deductible temporary difference or in periods

into which a tax loss arising from the deferred tax asset can be carried back or forward. The same criteria are

adopted when determining whether existing taxable temporary differences support the recognition of deferred

tax assets arising from unused tax losses and credits, that is, those differences are taken into account if they

relate to the same taxation authority and the same taxable entity, and are expected to reverse in a period, or

periods, in which the tax loss or credit can be utilised.

The limited exceptions to recognition of deferred tax assets and liabilities are those temporary differences

arising from goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect

neither accounting nor taxable profit (provided they are not part of a business combination), and temporary

differences relating to investments in subsidiaries to the extent that, in case of taxable differences, the group

controls the timing of the reversal and it is probable that the differences will not reverse in the foreseeable

future, or in the case of deductible differences, unless it is probable that they will reverse in the future.

The amount of deferred tax recognised is measured based on the expected manner of realisation or settlement

of the carrying amount of the assets and liabilities, using tax rates enacted or substantively enacted at the

balance sheet date. Deferred tax assets and liabilities are not discounted.

The carrying amount of a deferred tax asset is reviewed at each balance sheet date and is reduced to the extent

that it is no longer probable that sufficient taxable profits will be available to allow the related tax benefit to be

utilised. Any such reduction is reversed to the extent that it becomes probable that sufficient taxable profits will

be available.

Additional income taxes that arise from the distribution of dividends are recognised when the liability to pay

the related dividends is recognised.




(t) Income tax (continued)

(iii) Current tax balances and deferred tax balances, and movements therein, are presented separately from each

other and are not offset. Current tax assets are offset against current tax liabilities, and deferred tax assets

against deferred tax liabilities, if the Authority or the group has the legally enforceable right to set off current

tax assets against current tax liabilities and the following additional conditions are met:

• in the case of current tax assets and liabilities, the group or the Authority intends either to settle on a net

basis, or to realise the asset and settle the liability simultaneously; or

• in the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same taxation

authority on either:

– the same taxable entity; or

– different taxable entities, which, in each future period in which significant amounts of deferred tax

liabilities or assets are expected to be settled or recovered, intend to realise the current tax assets and

settle the current tax liabilities on a net basis or realise and settle simultaneously.

(u) Provisions and contingent liabilities

(i) Contingent liabilities acquired in business combinations

Contingent liabilities acquired as part of a business combination are initially recognised at fair value, provided

the fair value can be reliably measured. After their initial recognition at fair value, such contingent liabilities are

recognised at the higher of the amount initially recognised, less accumulated amortisation where appropriate,

and the amount that would be determined in accordance with note 3(u)(ii). Contingent liabilities acquired in a

business combination that cannot be reliably fair valued are disclosed in accordance with note 3(u)(ii).

(ii) Other provisions and contingent liabilities

Provisions are recognised for other liabilities of uncertain timing or amount when the group or the Authority

has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of

economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time

value of money is material, provisions are stated at the present value of the expenditure expected to settle the

obligation.

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be

estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of

economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or

non-occurrence of one or more future events, are also disclosed as contingent liabilities unless the probability

of outflow of economic benefits is remote.

(v) Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable. Provided it is probable that the

economic benefits will flow to the group and the revenue and costs, if applicable, can be measured reliably, revenue is

recognised in profit or loss as follows:

(i) Airport charges, representing landing charges, parking charges and terminal building charges, are recognised

when the airport facilities are utilised.

(ii) Security charges in respect of aviation security services to passengers are recognised when the airport facilities

are utilised.

(iii) Aviation security services revenue from the provision of security services to airlines, franchisees and licensees is

recognised when the services are rendered.



(v) Revenue recognition (continued)

(iv) Franchise revenue from awarded airside support services, retail revenue from awarded retail licences, advertising

revenue from awarded advertising license, other terminal commercial revenue from leasing of check-in counters

and airline lounges and office rental and other service revenue and recoveries, are recognised on an accrual

basis in accordance with the related agreements.

(v) The consideration received in respect of the sale of a portion of the income from the aviation fuel system is

accounted for as income over the period to which the future income relates and on the basis of the estimated

future quantum of income for each period after allowing for the implicit financing cost therein. The amount

received not recognised as income is included in the balance sheet as deferred income.

(vi) Real estate revenue arising from sub-leases of interest in leasehold land and office buildings is recognised in

profit or loss on a straight-line basis over the periods of the operating leases, except where an alternative basis

is more representative of the pattern of benefits to be derived from the use of the leased asset. Lease incentives

granted are recognised in profit or loss as an integral part of the aggregate net lease payments receivable.

Contingent rentals are recognised as income in the accounting period in which they are earned. Amounts

received in advance in respect of sub-leases of interest in leasehold land granted are accounted for as deferred

income and are recognised in profit or loss on a straight-line basis over the periods of the respective sub-leases.

(vii) Income arising from finance leases of interest in leasehold land is recognised at the inception of such leases,

when substantially all the risks and rewards incidental to ownership are transferred to the lessees.

(viii) Dividend income from unlisted investments is recognised when the shareholder’s right to receive payment is

established.

(ix) Interest income is recognised as it accrues using the effective interest rate method.

(w) Translation of foreign currencies

Foreign currency transactions during the year are translated at the foreign exchange rates ruling at the transaction

dates. Monetary assets and liabilities denominated in foreign currencies are translated at the foreign exchange rates

ruling at the balance sheet date. Exchange gains and losses are recognised in profit or loss, except those arising from

foreign currency borrowings used to hedge a net investment in a foreign operation which are recognised in other

comprehensive income.

Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated

using the foreign exchange rates ruling at the transaction dates. Non-monetary assets and liabilities denominated in

foreign currencies that are stated at fair value are translated using the foreign exchange rates ruling at the dates the

fair value was determined.

The results of foreign operations are translated into Hong Kong dollars at the exchange rates approximating the

foreign exchange rates ruling at the dates of the transactions. Balance sheet items, including goodwill arising on

consolidation of foreign operations, are translated into Hong Kong dollars at the closing foreign exchange rates

at the balance sheet date. The resulting exchange differences are recognised in other comprehensive income and

accumulated separately in equity in the exchange reserve.

On disposal of a foreign operation, the cumulative amount of the exchange differences relating to that foreign

operation is reclassified from equity to profit or loss when the profit or loss on disposal is recognised.




(x) Related parties

For the purposes of these financial statements, a party is considered to be related to the group if:

(i) the party has the ability, directly or indirectly through one or more intermediaries, to control the group or

exercise significant influence over the group in making financial and operating decisions, or has joint control

over the group;

(ii) the group and the party are subject to common control;

(iii) the party is an associate of the group or a joint venture in which the group is a venturer;

(iv) the party is a member of key management personnel of the group or the group’s parent, or a close family

member of such an individual, or is an entity under the control, joint control or significant influence of such

individuals;

(v) the party is a close family member of a party referred to in (i) or is an entity under the control, joint control or

significant influence of such individuals; or

(vi) the party is a post-employment benefit plan which is for the benefit of employees of the group or of any entity

that is a related party of the group.

Close family members of an individual are those family members who may be expected to influence, or be influenced

by, that individual in their dealings with the entity.

(y) Segment reporting

Operating segments, and the amounts of each segment item reported in the financial statements, are identified from

the financial information provided regularly to the group’s most senior executive management for the purposes of

allocating resources to, and assessing the performance of, the group’s various lines of business and geographical

locations.

Individually material operating segments are not aggregated for financial reporting purposes unless the segments

have similar economic characteristics and are similar in respect of the nature of products and services, the nature

of production processes, the type or class of customers, the methods used to distribute the products or provide the

services, and the nature of the regulatory environment. Operating segments which are not individually material may

be aggregated if they share a majority of these criteria.

4. Segmental InformationServices from which reportable segments derive their revenue

Information reported to the group’s chief operating decision maker for the purposes of resource allocation and assessment

of performance is more focused on the group as a whole, as all of the group’s activities are considered to be primarily

dependent on the airport traffic and are highly integrated and interdependent on each other. Resources are allocated

based on what is beneficial for the group in enhancing the airport experience as a whole rather than any specific

department. Performance assessment is based on the results of the group as a whole with operating parameters set out for

each department. Consequently, management considers there to be only one operating segment under the requirements

of HKFRS 8 and believes that this presentation provides more relevant information.

Reconciliation of segmental information to the information presented in the financial statements has not been presented, as

the reconciling items net of consolidation adjustments are considered to be immaterial to the group.

Information provided to management in respect of group’s revenue and expenses and assets and liabilities is similar to that

reported in these financial statements.

Revenues from major services

The group’s revenues from its major services are set out in the consolidated income statement.


4. Segmental Information (continued)

Geographical Information

No geographical information is shown as the turnover and operating profit of the group is substantially derived from

activities in Hong Kong, other than its interests in jointly controlled entities in the PRC, details of which are disclosed under

note 13 to the financial statements.

Information about major customers

The group’s customer base is diversified and includes only one customer with whom transactions have exceeded 10% of

the group’s revenues.

Included in the turnover of $9,015 million for the year (2009: $8,886 million) are revenues of approximately $2,117 million

(2009: $2,282 million) which arose from this customer. This includes only revenues arising from those entities which are

known to the group to be under common control of this customer. Details of concentrations of credit risk arising from this

customer are set out in note 16(a).

5. Operating Profit before Interest and Finance CostsOperating profit before interest and finance costs of the group and the Authority are arrived at after charging/(crediting):


$ million 2010 2009 2010 2009

Auditors’ remuneration: – audit services 4 4 3 3 – tax services – 1 – 1 – other services – 1 – 1Stores and spares expensed 70 87 69 86Net loss on disposal of other property, plant and equipment 9 19 9 19Impairment losses on: – trade and other receivables (note 17(b)) 4 38 3 37 – other investments (note 14) 55 70 55 70Depreciation: – assets held for use under operating leases 109 135 112 138 – other assets 1,834 1,851 1,813 1,831Amortisation: – interest in leasehold land 232 232 232 232 – intangible asset 16 16 – –Operating lease charges: minimum lease payments – hire of plant and machinery 4 4 4 4 – hire of other assets (including property rentals) 7 6 2 1Rentals from investment properties less direct outgoings of $8 million (2009: $12 million) for both the group and the Authority (45) (41) (54) (50)Dividends received from a jointly controlled entity – – – (41)



6. Remuneration of the Members of the Board and Executive Directors and Individuals with the Highest Emoluments(a) Remuneration of the Members of the Board and Executive Directors

Members of the Board, the Chief Executive Officer and Executive Directors are considered as key management personnel of the Authority. There are three components of remuneration paid to the Chief Executive Officer and Executive Directors.

Basic compensationBasic compensation consists of base salary, housing and other allowances and benefits in kind.

Performance-related compensationThis represents discretionary payments depending on individual performance and the performance of the group.

Retirement benefitsRetirement benefits relate to the group’s contribution to retirement funds or gratuities in lieu of retirement scheme contributions accrued.

The emoluments of the Members of the Board and Executive Directors of the Authority are as follows:

2010$’000

BoardMember’s

feeBasic

compensation

Performance-related

compensationRetirement

benefits Total

Members of the BoardNon-executive membersMarvin Cheung Kin-tung 220 – – – 220He Guangbei 110 – – – 110Vincent Fang Kang 110 – – – 110Edmund Leung Kwong-ho 110 – – – 110Andrew Liao Cheung-sing 110 – – – 110Lo Ka-shui 110 – – – 110Wilfred Wong Ying-wai 110 – – – 110Raymond Ho Chung-tai 110 – – – 110Benjamin Hung Pi-cheng 110 – – – 110Chan Kam-lam (appointed in January 2010) 28 – – – 28Albert Ho Chun-yan (appointed in January 2010) 28 – – – 28Allan Wong Chi-yun (appointed in January 2010) 28 – – – 28Director-General of Civil Aviation1 110 – – – 110Secretary for Financial Services and the Treasury1 110 – – – 110Secretary for Transport and Housing1 110 – – – 110

Executive memberStanley Hui Hon-chung (Chief Executive Officer) – 4,033 2,000 492 6,525

Executive DirectorsHoward Eng Kiu-chor – 3,073 1,350 586 5,009Raymond W C Lai – 3,063 1,350 586 4,999

1,514 10,169 4,700 1,664 18,047

1 Members who are public officers. Fees payable to the Members who are public officers are received by the Government rather

than by the individuals concerned.


6. Remuneration of the Members of the Board and Executive Directors and Individuals with the Highest Emoluments (continued)

(a) Remuneration of the Members of the Board and Executive Directors (continued)

2009$’000

BoardMember’s

feeBasic

compensation

Performance-related

compensationRetirement

benefits Total

Members of the BoardNon-executive membersVictor Fung Kwok-king (term of office completed on 31 May 2008)1 – – – – –Marvin Cheung Kin-tung2 201 – – – 201He Guangbei 110 – – – 110

Vincent Fang Kang 110 – – – 110Edmund Leung Kwong-ho 110 – – – 110Andrew Liao Cheung-sing 110 – – – 110Lo Ka-shui 110 – – – 110Wilfred Wong Ying-wai 110 – – – 110Jasper Tsang Yok-sing (resigned in October 2008) 57 – – – 57Raymond Ho Chung-tai (appointed in June 2008) 92 – – – 92Benjamin Hung Pi-cheng (appointed in June 2008) 92 – – – 92Director-General of Civil Aviation3 110 – – – 110Secretary for Financial Services and the Treasury3 110 – – – 110Secretary for Transport and Housing3 110 – – – 110

Executive memberStanley Hui Hon-chung (Chief Executive Officer) – 4,039 1,650 492 6,181

Executive DirectorsHoward Eng Kiu-chor – 3,161 987 263 4,411Raymond W C Lai – 3,061 868 263 4,192

1,432 10,261 3,505 1,018 16,216

1 Victor Fung Kwok-king elected to waive any fee payable to him by the Authority.

2 Marvin Cheung Kin-tung was appointed Chairman of the Authority with effect from 1 June 2008.

3 Members who are public officers. Fees payable to the Members who are public officers are received by the Government rather

than by the individuals concerned.



6. Remuneration of the Members of the Board and Executive Directors and Individuals with the Highest Emoluments (continued)

(b) Individuals with the Highest Emoluments

Of the five individuals with the highest emoluments, three (2009: three) comprise the Chief Executive Officer and two

Executive Directors whose emoluments are disclosed under note 6(a). The aggregate of the emoluments in respect of

the other two (2009: two) individuals are as follows:

$’000 2010 2009

Basic compensation1 7,167 6,919Performance-related compensation2 1,126 1,304Retirement benefits 853 381

9,146 8,604

The emoluments of the two (2009: two) individuals with the highest emoluments are within the following bands:

2010 2009

$

Number of

individuals

Number of

individuals

3,000,001 – 3,500,000 1 15,000,001 – 5,500,000 – 15,500,001 – 6,000,000 1 –

2 2

1 The basic compensation includes net payment of PRC Individual Income Tax of $1.7 million (2009: $1.5 million) for one of the

individuals on secondment to the PRC according to the terms of the secondment contract. The emoluments for the individual

after including PRC Individual Income Tax fall within the $5.5 million to $6.0 million band (2009: the $5.0 million to $5.5 million

band).

2 The performance-related compensation relates to 2008/09 which was paid during the year. The performance-related

compensation for 2009/10 was not allocated to the individuals as at the date of the approval of the financial statements and

hence is not disclosed.

7. Staff Costs and Related Expenses


$ million 2010 2009 2010 2009

Contributions to defined contribution retirement plan 42 45 18 22Expenses recognised in respect of defined benefit retirement plan (note 15) 37 36 37 36

Total retirement costs 79 81 55 58Salaries, wages and other benefits 1,079 1,068 574 585

1,158 1,149 629 643


8. Finance Costs


$ million 2010 2009 2010 2009

Interest on bank loans repayable – within five years 21 105 21 105Interest on notes repayable – within five years 156 147 156 147 – after five years 50 49 50 49Other borrowing costs 8 13 8 13Other interest expense 11 4 8 1

Total interest expense on financial liabilities not stated at fair value through profit or loss 246 318 243 315

Interest on notes stated at fair value through profit or loss repayable – within five years 72 58 72 58 – after five years 3 – 3 –Less: Borrowing costs capitalised into assets under construction (59) (59) (59) (59)

262 317 259 314Net foreign exchange loss/(gain) 5 (11) 5 (11)Cash flow hedges: – net gain on forward foreign exchange contracts, reclassified from equity (23) (36) (23) (36) – net loss on interest rate swaps, reclassified from equity 13 5 13 5Fair value hedges: – net gain on fair value hedging instruments (interest rate swaps)* (42) (99) (42) (99) – net (gain)/loss on underlying hedged interest-bearing borrowings (19) 76 (19) 76

196 252 193 249

* Includes interest received of $59 million (2009: $20 million) in respect of interest rate swaps under fair value hedging arrangements.

The borrowing costs have been capitalised at the average cost of funds to the group calculated on a monthly basis. The

average interest rate used for capitalisation for the year was 2.8% per annum (2009: 3.5%).



9. Taxation(a) Taxation in the income statement represents:


$ million 2010 2009 2010 2009

Current tax – Hong Kong Profits tax – Provision for the year 3 1 – –Current tax – Overseas – Provision for the year – 1 – – – Over-provision in respect of prior years (1) – – –Deferred tax (note 9(d)) – Origination and reversal of temporary differences 578 530 578 530

580 532 578 530

No provision for Hong Kong Profits tax has been made in the financial statements in respect of the Authority as the

current year’s taxable income has been offset against carried forward tax losses. The provision for Hong Kong Profits

tax for its Hong Kong subsidiaries for the year ended 31 March 2010 is calculated at 16.5% (2009: 16.5%) of the

estimated assessable profits for the year.

No provision for PRC Corporate Income Tax has been made in the financial statements in respect of the PRC

subsidiaries as there were no estimated assessable profits during the year.

(b) Reconciliation between tax expense and accounting profit at applicable tax rates:


$ million 2010 2009 2010 2009

Profit before taxation 3,421 3,115 3,257 2,982

Notional tax on profit before taxation, calculated at the rates applicable to profits in the countries concerned 565 516 538 492Tax effect of non-deductible expenses 46 49 45 46Tax effect of non-taxable income (33) (36) (5) (8)Tax effect of unused tax losses not recognised 3 3 – –Over-provision in respect of prior years (1) – – –

Actual tax expense 580 532 578 530


9. Taxation (continued)

(c) Current taxation in the balance sheets represents:

The group

$ million 2010 2009

Provision for the year (note 9(a)) – Hong Kong Profits tax 3 1 – Overseas Profits tax – 1Provisional Hong Kong Profits tax paid (2) –

Tax payable (included in “Trade and other payables”) 1 2

(d) Deferred tax assets and liabilities recognised:

The components of deferred tax (assets)/liabilities of the group and the Authority recognised in the balance sheet and

the movements during the year are as follows:

The group and the Authority

$ millionDeferred tax arising from:

Depreciationallowancesin excess ofthe related

depreciationCash flow

hedgesDeferred

incomeEstimatedtax losses Total

At 1 April 2008 3,195 (1) (267) (889) 2,038Charged to profit or loss 77 – 15 438 530

At 31 March 2009 3,272 (1) (252) (451) 2,568

At 1 April 2009 3,272 (1) (252) (451) 2,568Charged to profit or loss 145 – 19 414 578

At 31 March 2010 3,417 (1) (233) (37) 3,146

(e) Deferred tax assets not recognised:

In accordance with the accounting policy set out in note 3(t), the group has not recognised deferred tax assets in

respect of a subsidiary’s cumulative tax losses of RMB59 million ($68 million) (2009: RMB49 million ($55 million)) as it

is not probable that future taxable profits against which the losses can be utilised will be available in the relevant tax

jurisdiction and entity. The tax losses for the subsidiary in the PRC will expire within five years under the current PRC

Corporate Income Tax legislation.



10. Fixed Assets(a) The group

Other property, plant and equipment

$ million Airfields

Terminalcomplexes& ground

transportationcentre

Access,utilities,

otherbuildings

& supportfacilities

Systems,installations,

plant &equipment

Furniture,fixtures &

equipmentConstructionin progress Sub-total

Investmentproperties

Interest inleasehold

land Total

Cost

At 1 April 2008 7,663 22,045 12,916 8,332 1,441 1,746 54,143 302 11,360 65,805

Additions/cost

adjustments* 66 473 54 83 94 1,204 1,974 – 162 2,136

Reclassifications 210 – – – – (210) – – – –

Disposals (73) (256) (10) (689) (42) – (1,070) – – (1,070)

At 31 March 2009 7,866 22,262 12,960 7,726 1,493 2,740 55,047 302 11,522 66,871

At 1 April 2009 7,866 22,262 12,960 7,726 1,493 2,740 55,047 302 11,522 66,871

Additions/cost

adjustments* (15) 84 13 118 51 1,049 1,300 – – 1,300

Reclassifications 85 592 990 837 92 (2,596) – – – –

Disposals (29) (150) (27) (173) (16) – (395) – (162) (557)

At 31 March 2010 7,907 22,788 13,936 8,508 1,620 1,193 55,952 302 11,360 67,614

Accumulated

depreciation and

amortisation

At 1 April 2008 1,795 5,575 3,018 4,877 1,039 – 16,304 12 2,258 18,574

Charge for the year 320 747 417 379 112 – 1,975 11 232 2,218

Written back on

disposals (73) (248) (6) (682) (40) – (1,049) – – (1,049)

At 31 March 2009 2,042 6,074 3,429 4,574 1,111 – 17,230 23 2,490 19,743

At 1 April 2009 2,042 6,074 3,429 4,574 1,111 – 17,230 23 2,490 19,743


Written back on

disposals (26) (144) (26) (171) (16) – (383) – – (383)

At 31 March 2010 2,317 6,576 3,839 4,814 1,233 – 18,779 34 2,722 21,535

Net book value

At 31 March 2010 5,590 16,212 10,097 3,694 387 1,193 37,173 268 8,638 46,079

At 31 March 2009 5,824 16,188 9,531 3,152 382 2,740 37,817 279 9,032 47,128

* Cost adjustments relate to certain fixed assets capitalised at time of commissioning based on contractors’ claimed values. Such

assets’ final values have been adjusted following finalisation of contract claims with contractors at final contract values during

the year.


10. Fixed Assets (continued)

(b) The Authority

Other property, plant and equipment

$ million Airfields

Terminalcomplexes& ground

transportationcentre

Access,utilities,

otherbuildings

& supportfacilities

Systems,installations,

plant &equipment

Furniture,fixtures &

equipmentConstructionin progress Sub-total

Investmentproperties

Interest inleasehold

land Total

Cost

At 1 April 2008 7,663 22,029 12,774 8,302 1,412 1,746 53,926 413 11,360 65,699

Additions/cost

adjustments* 62 467 54 68 89 1,201 1,941 – 162 2,103

Reclassifications 210 – – – – (210) – – – –

Disposals (73) (256) (10) (687) (41) – (1,067) – – (1,067)

At 31 March 2009 7,862 22,240 12,818 7,683 1,460 2,737 54,800 413 11,522 66,735

At 1 April 2009 7,862 22,240 12,818 7,683 1,460 2,737 54,800 413 11,522 66,735

Additions/cost

adjustments* (15) 82 10 112 49 1,050 1,288 – – 1,288

Reclassifications 88 589 990 837 92 (2,596) – – – –

Disposals (29) (149) (26) (170) (16) – (390) (1) (162) (553)

At 31 March 2010 7,906 22,762 13,792 8,462 1,585 1,191 55,698 412 11,360 67,470

Accumulated

depreciation and

amortisation

At 1 April 2008 1,794 5,575 2,986 4,861 1,023 – 16,239 35 2,258 18,532


Written back on

disposals (73) (248) (6) (680) (39) – (1,046) – – (1,046)

At 31 March 2009 2,041 6,072 3,386 4,557 1,092 – 17,148 49 2,490 19,687

At 1 April 2009 2,041 6,072 3,386 4,557 1,092 – 17,148 49 2,490 19,687


Written back on

disposals (26) (144) (26) (169) (16) – (381) – – (381)

At 31 March 2010 2,316 6,572 3,785 4,795 1,210 – 18,678 63 2,722 21,463

Net book value

At 31 March 2010 5,590 16,190 10,007 3,667 375 1,191 37,020 349 8,638 46,007

At 31 March 2009 5,821 16,168 9,432 3,126 368 2,737 37,652 364 9,032 47,048

* Cost adjustments relate to certain fixed assets capitalised at time of commissioning based on contractors’ claimed values. Such

assets’ final values have been adjusted following finalisation of contract claims with contractors at final contract values during

the year.

(c) Under the Private Treaty Land Grant issued by the Government for a period from 1 December 1995 to 30 June 2047

(“the Land Grant”), the Government has granted to the Authority up to the year 2047 the legal rights to the entire

airport site at Chek Lap Kok together with the rights necessary to develop such site for the purposes of its business.

The net land formation cost of $11,360 million and the land premium of $2,000 have been classified as interest in

leasehold land under fixed assets.



10. Fixed Assets (continued)

(d) The group and the Authority engaged an independent firm of surveyors, Knight Frank Petty Limited (“the valuer”),

who have among their staff Fellow members of the Hong Kong Institute of Surveyors with recent experience in the

location and category of properties being valued, to value its investment properties. In order to determine the fair

value of the group’s and the Authority’s investment properties, the valuer has considered the assignment restrictions

on these investment properties in the valuations. The fair value of the group’s and the Authority’s restricted

investment properties as at 31 March 2010 calculated by reference to net rental income allowing for reversionary

income potential amounted to $679 million and $791 million (2009: $553 million and $641 million) respectively.

(e) The Authority has granted sub-leases of its interest in leasehold land for airport related development and the

provision of airside support services under franchise agreements for periods ranging from 5 to 49 years. The group

and the Authority also leases out part of the terminal complexes and related assets under operating leases for periods

generally ranging from two to five years. Where the sub-leases are for substantially the full period of the Land Grant,

they are considered to be in the nature of finance leases and accordingly the carrying value of the related interest in

leasehold land is derecognised. Under the franchise agreements, the franchisees are granted sub-leases of interest in

leasehold land for the periods of the respective franchises. All terms are renegotiated on renewal.

Payments receivable by the Authority under these operating leases and franchise agreements in some instances

are adjusted periodically to reflect prevailing market indices and in some cases contain contingent rentals based on

passenger flow and turnover of tenants and franchisees.

The total future minimum payments (excluding contingent rentals) under non-cancellable operating leases and

franchise agreements receivable by the group and the Authority are as follows:


$ million 2010 2009 2010 2009

Within one year 1,389 1,213 1,384 1,215After one but within five years 3,171 2,824 3,164 2,811After five years 4,540 4,303 4,538 4,300

9,100 8,340 9,086 8,326

During the year, $4,760 million and $4,770 million (2009: $4,310 million and $4,316 million) for the group and the

Authority were recognised as income in profit or loss in respect of the operating leases and franchise agreements.

The above income includes contingent rentals of $3,523 million (2009: $3,192 million) for both the group and the

Authority.

The cost less accumulated amortisation of the interest in leasehold land for airport related development and the

provision of airside support services under franchise agreements sub-leased to third parties under non-cancellable

sub-lease agreements for both the group and the Authority as at 31 March 2010 was $525 million (2009: $525

million) and amortisation for the year amounted to $14 million (2009: $14 million).

The cost less accumulated depreciation of the fixed assets leased to third parties under non-cancellable operating

leases for the group and the Authority as at 31 March 2010 were $2,827 million and $2,908 million (2009: $2,809

million and $2,894 million) and depreciation for the year amounted to $109 million and $112 million (2009: $135

million and $138 million) respectively.

(f) A review of the useful life of fixed assets is undertaken by the Authority annually. Following a review undertaken

during the year, the estimated useful lives of certain fixed assets were revised with effect from 1 April 2009 resulting

in a net increase in the Authority’s annual depreciation charge of approximately $93 million. A similar review

undertaken during the previous year resulted in a net increase in the Authority’s annual depreciation charge of

approximately $103 million for the previous year.


11. Intangible Asset

The group

$ million 2010 2009

CostAt 1 April 312 305Exchange adjustment 2 7

At 31 March 314 312

Accumulated amortisationAt 1 April 39 22Charge for the year 16 16Exchange adjustment – 1

At 31 March 55 39

Net book valueAt 31 March 259 273

In July 2006, HKIA (China) Limited (“HKIACL”), a wholly-owned subsidiary of the Authority, formed the Hong Kong-

Zhuhai Airport Management Co., Ltd. (“HKZAM”) with Zhuhai Headway Transportation Investment Co., Ltd. (“ZHTICL”).

HKZAM acquired the right to operate and manage Zhuhai Airport (“ZHU”) for 20 years (“the intangible asset”) by paying

an upfront franchise fee of RMB 250 million ($247 million) in addition to an annual franchise fee payable to Zhuhai Airport

Group Limited (“ZHGL”) for 20 years. Over the first three years of the franchise arrangement, the annual franchise fee

was fixed at RMB 3 million ($3 million). Subsequently, it is calculated at the higher of RMB 3 million ($3 million) or a fixed

percentage of the annual turnover of HKZAM. The present value of the minimum annual franchise fees payable and the

upfront franchise fee is recognised as the cost of the intangible asset, and is being amortised over 20 years on a straight-

line basis with effect from 1 October 2006 when HKZAM took over management of ZHU and is included in “Depreciation

and amortisation” in the income statement. The cost and accumulated amortisation of the intangible asset are translated

into Hong Kong dollars at the closing foreign exchange rate at the balance sheet date, and the amortisation charge for

the year at the average foreign exchange rate during the year. The resulting exchange differences are recognised in the

exchange reserve.



12. Investments in Subsidiaries

The Authority

$ million 2010 2009

Unlisted shares, at cost 5 5

The following list contains only the particulars of subsidiaries which principally affected the results, assets or liabilities of the

group. The class of shares held is ordinary unless otherwise stated. Details of principal subsidiaries are as follows:

Name of company

Place of incorporation and operation

Particulars of issued andpaid up capital

Proportion of ownership interest

Principal activity

Group’s effective interest

Held by the

AuthorityHeld by

a subsidiary

Aviation Security Company Limited (“AVSECO”)

Hong Kong 10,000,000 shares of $1 each

51% 51% – Provision of aviation security services

HKIA Precious Metals Depository Limited

Hong Kong 2 shares of $1 each

100% 100% – Provision of storage space and related services

SkyLink Passenger Services Company Limited (“SkyLink”)

Hong Kong 100,000 shares of $1 each

51% 51% – Provision of passenger check-in services at various ports of Pearl River Delta

HKIA (China) Limited Hong Kong 2 shares of $1 each

100% 100% – Investment holding company

Hong Kong – Zhuhai Airport Management Co., Ltd.*

PRC RMB360,000,000 55% – 55% Airport management and provision of transportation and ground services relating to aviation

* a sino-foreign equity joint venture


13. Interests in Jointly Controlled Entities


$ million 2010 2009 2010 2009

Unlisted shares, at cost – – 1,994 1,977Share of net assets 2,590 2,389 – –Goodwill 218 217 – –

2,808 2,606 1,994 1,977

Details of the group’s interests in the jointly controlled entities are as follows:

Proportion of ownership interest

Name of joint venture

Form of business structure

Place of incorporation and operation

Particulars of issued and paid up capital

Group’s effective interest

Held by the

Authority Principal activity

Hangzhou Xiaoshan International Airport Co., Ltd. (“HXIACL”)

Incorporated PRC RMB5,686,000,000 35% 35% Management, operation and development of Hangzhou Xiaoshan International Airport (“HXIA”) and provision of related services

Shanghai Hong Kong Airport Management Co., Ltd. (“SHKAMCL”)

Incorporated PRC RMB30,000,000 49% 49% Management and operation of the existing and new terminals at Hongqiao International Airport, Shanghai (“HIA”)

(a) HXIACL

On 19 September 2006, the Authority signed a joint venture agreement with the original shareholders of HXIACL to

jointly operate and manage HXIA at Hangzhou, China. After the completion of the capital injection on 29 November 2006,

HXIACL was transformed from a State-owned enterprise to a Sino-foreign equity joint venture with a period of

operation of 30 years. Currently, the original shareholders of HXIACL, being Zhejiang Airport Management Company,

Hangzhou Investment Holding Co., Ltd. and Hangzhou Xiaoshan State-owned Assets Management Company, jointly

hold a 65% equity interest of HXIACL whereas the Authority holds the remaining 35% equity interest.

Summary of financial information of the HXIACL – group’s effective interest is as follows:

$ million 2010 2009

Non-current assets 3,560 1,938Current assets 481 1,928Non-current liabilities (801) (766)Current liabilities (667) (711)

Net assets 2,573 2,389



13. Interests in Jointly Controlled Entities (continued)

(a) HXIACL (continued)

$ million 2010 2009

Income 434 384Government subsidies 81 106Expenses (326) (292)

Profit before taxation 189 198Income tax (12) (5)

Profit after taxation 177 193

As at 31 March 2010, the group’s share of net assets of HXIACL includes an amount of $228 million (2009: $147

million) which represents the group’s share of pre-/post-acquisition airport construction fee subsidies (“ACF”) and

other subsidies received from the PRC government, of which $81 million (2009: $106 million) was received during

the year. Such ACF and other subsidies are for restricted use and are not distributable.

HXIACL has 31 December as its financial accounting year end date, which is not coterminous with that of the group.

The Authority has determined that it is more practicable to incorporate its share of HXIACL’s results and net assets

based on HXIACL’s statutory financial year ending 31 December. Accordingly, in these consolidated financial

statements, the results of HXIACL have been accounted for based on its audited financial statements for the year

ended 31 December 2009 and adjusted for significant transactions and events that occurred during the period from

1 January 2010 to 31 March 2010 (2009: based on its audited financial statements for the year ended 31 December 2008

and adjusted for significant transactions and events that occurred during the period from 1 January 2009 to

31 March 2009). The financial information of HXIACL accounted for has been adjusted to comply with the Authority’s

accounting policies.

The outstanding commitments of HXIACL are as follows:

$ million 2010 2009

Commitments outstanding for HXIACL in respect of capital expenditure not provided for in the financial statements are as follows: Contracted for 316 437 Authorised but not contracted for 7,098 4,484

7,414 4,921

It is envisaged that the capital commitments of the jointly controlled entity will be financed independently by the

jointly controlled entity and no commitment has been made by the group to contribute further funds by way of

equity or loans for this purpose. In August 2008, HXIACL arranged loan facilities of RMB 4,700 million ($5,346

million) for the second phase development of the airport facilities and RMB1,128 million ($1,283 million) has been

drawn down from the facilities as at 31 March 2010.

During 2009, HXIACL and a PRC government-owned entity have entered into an agreement, under which HXIACL is

entitled to use a piece of land contributed by the PRC government-owned entity amounting to RMB1,200 million

($1,361 million) initially without any consideration but subject to revision in the future for the second phase of the

airport development.


13. Interests in Jointly Controlled Entities (continued)

(b) SHKAMCLOn 7 September 2009, the Authority signed a joint venture agreement with Shanghai Airport (Group) Company Limited (“SAGCL”) for the establishment of the SHKAMCL, a Sino-foreign equity joint venture. SHKAMCL will manage and operate the existing and new terminals at HIA, under a management contract to be signed for 20 years in return for a management fee to be paid by Shanghai Airport (Group) Co. Ltd. Hongqiao International Airport Company. Pursuant to the joint venture agreement, the Authority and SAGCL will contribute RMB49 million ($55.7 million) and RMB51 million ($58.0 million), in return for a 49% and a 51% equity interest in SHKAMCL respectively. As at 31 March 2010, the Authority and SAGCL have contributed RMB14.7 million ($16.7 million) and RMB15.3 million ($17.4 million) respectively. As at 31 March 2010, the Authority’s outstanding commitment in respect of capital contribution to SHKAMCL not provided for in the financial statements amounts to RMB34.3 million ($39.0 million), which is set out in note 23.

Summary of financial information of the SHKAMCL – group’s effective interest is as follows:

$ million 2010

Current assets 17

Net assets 17

SHKAMCL has 31 December as its financial accounting year end date, which is not coterminous with that of the group. The Authority has determined that it is more practicable to incorporate its share of SHKAMCL’s results and net assets based on SHKAMCL’s statutory financial year ending 31 December. SHKAMCL had no significant results of operation since its incorporation and up to 31 December 2009.

14. Other Investments


$ million 2010 2009

Unlisted shares 261 261Less: impairment loss (125) (70)

136 191

Other investments represent the Authority’s 11.8% (2009: 11.8%) equity interest in IEC Holdings Limited, a company set up by the Authority and the Government, which holds an equity interest of 84.9% (2009: 84.9%) in a joint venture company set up to procure the development of the AsiaWorld-Expo exhibition centre. The remaining 15.1% (2009: 15.1%) of the equity interest in the joint venture company is held by a third party consortium. As consideration for the shares in IEC Holdings Limited, the Authority has granted a sub-lease of land on which the AsiaWorld-Expo exhibition centre is situated, to IEC Holdings Limited to 2047. As the land sub-leased to IEC Holdings Limited is for substantially the full period of the Land Grant, the lease is considered to be in the nature of a finance lease and the related cost of land has been derecognised accordingly.

IEC Holdings Limited has granted an under-lease of the land on which the AsiaWorld-Expo exhibition centre is situated until 2031 to the joint venture company which has constructed and operates the exhibition centre and will continue to operate over the period of the lease, at the end of which the land and the exhibition centre and the related facilities will revert to IEC Holdings Limited at nil consideration.

The investment is stated at cost less impairment loss because the shares do not have a quoted market price in an active market and the fair value cannot be measured reliably due to inherent uncertainty in the estimation process and the underlying assumptions relating to the cash flow projection as discussed in note 27(b)(ii).

During the year, an impairment loss of $55 million (2009: $70 million) was recognised on the basis of a material decline in its estimated future cash flows, discounted to present value using a discount rate of 10.25% (2009: 10.25%) per annum below carrying value. The cash flows have taken into consideration the judgement of the management of the investee and the discount rate has been confirmed by an external consultant. Adverse changes in the market in which the investee operates indicate that the cost of the group’s investment may not be fully recovered. Impairment loss on other investments of $55 million (2009: $70 million) (included in “Other operating expenses”) has been recognised in profit or loss in accordance with the policy set out in note 3(g).



15. Employee Retirement Benefits(a) Defined benefit retirement plan

The Authority makes contributions to a defined benefit retirement plan which covers 12% (2009: 12%) of the group’s employees. The plan is administered by independent trustees with its assets held separately from those of the Authority.

The plan is funded by contributions from the Authority in accordance with an independent actuary’s recommendation based on an annual actuarial valuation. The Authority expects to pay $31 million (2009: $50 million) in contributions to the defined benefit retirement plan in 2011. Based on an independent actuarial valuation of the plan as at 31 March 2010 prepared by qualified staff of HSBC Insurance (Asia-Pacific) Holdings Limited (2009: Watson Wyatt (Hong Kong) Limited) using the projected unit credit method, the Authority’s obligation under the plan is 92% (2009: 71%) covered by the plan assets held by the trustees. The signing actuary is a Fellow member of the Society of Actuaries of the United States.

(i) The amounts recognised in the balance sheet are as follows:


$ million 2010 2009

Present value of wholly funded obligations (588) (549)Fair value of plan assets 539 391Net unrecognised actuarial losses 122 221

Net assets* 73 63

* As a result of first time adoption of Hong Kong Statement of Standard Accounting Practice 34, “Employee benefits”,

in financial year 2002/03 and the transitional provisions prescribed therein, the Authority had recognised a defined benefit

asset of $77 million in the balance sheet and an adjustment to the opening reserve as at 1 April 2002 was made

accordingly.

A portion of the above asset is expected to be utilised after more than one year. However, it is not practicable to segregate this amount from the amounts recoverable in the next twelve months, as future contributions will also relate to future services rendered and future changes in actuarial assumptions and market conditions.

(ii) Plan assets consist of the following:


$ million 2010 2009

Equity securities 278 182Corporate bonds 221 187Cash 40 22

539 391

(iii) Movements in the present value of the defined benefit obligations:


$ million 2010 2009

At 1 April 549 539Benefits paid by the plan (20) (24)Current service cost 45 49Interest cost 12 15Actuarial losses/(gains) 2 (30) – gains due to change in actuarial assumptions (27) (25)

– experience losses/(gains) 29 (5)

At 31 March 588 549


15. Employee Retirement Benefits (continued)

(a) Defined benefit retirement plan (continued)

(iv) Movements in plan assets are as follows:


$ million 2010 2009

At 1 April 391 497Contributions paid to the plan 47 23Benefits paid by the plan (20) (24)Actual return/(losses) on plan assets 121 (105) – changes in actuarial expected return on plan assets 28 34

– actuarial gains/(losses) 93 (139)

At 31 March 539 391

(v) Expense recognised in the income statement is as follows:


$ million 2010 2009

Current service cost 45 49Interest cost 12 15Actuarial expected return on plan assets (28) (34)Net actuarial losses recognised 8 6

37 36

The expense is recognised in the staff costs and related expenses in the income statement (note 7). The actual

return on plan assets, taking into account all changes in the fair value of the plan assets excluding benefit paid

and contribution received, for the year was a net income of $121 million (2009: net loss of $105 million).

(vi) The principal actuarial assumptions used at the balance sheet dates (expressed as weighted averages) are as

follows:


2010 2009

Discount rate 2.80% 2.00%Expected rate of return on plan assets 6.00% 6.00%Future long term salary increases 3.50% 3.50%

The expected long-term rate of return on plan assets for the year ended 31 March 2010 is based on the

portfolio as a whole and market expectations as at 1 April 2009 for returns over the entire life of the obligation

based on historical returns, without adjustments.



15. Employee Retirement Benefits (continued)

(a) Defined benefit retirement plan (continued)

(vii) Historical information


$ million 2010 2009 2008 2007 2006

Present value of the defined benefit obligations (588) (549) (539) (400) (339)Fair value of plan assets 539 391 497 477 422

(Deficit)/surplus in the plan (49) (158) (42) 77 83

Experience (losses)/gains arising on plan liabilities (29) 5 2 (5) (11)Experience gains/(losses) arising on plan assets 93 (139) (14) 27 24

(b) Defined contribution retirement plans(i) The group also operates Mandatory Provident Fund Schemes (“MPF”) under the Hong Kong Mandatory

Provident Fund Schemes Ordinance for employees not covered by the defined benefit retirement plan. The MPF scheme is a defined contribution retirement plan administered by independent trustees. Contributions by the group range from 5% to 15% of employees’ salary and have been charged to profit or loss. Contributions by employees range from 5% to 9%. Voluntary contributions to the plan vest over a period of two to ten years.

(ii) As stipulated by the regulations of the PRC, the subsidiary in the PRC participates in a basic defined contribution

pension plan administered by the Municipal Government under which it is governed. The group has no other material obligation for payment of basic retirement benefits beyond the annual contributions which are calculated at a rate based on the salaries, bonuses and certain allowances of its employees.

16. Financial Risk Management and Fair ValuesThe group’s activities expose it to a variety of financial risks: credit risk, liquidity risk, interest rate risk and foreign currency risk. The group conducts its financial risk management activities in accordance with the policies and practices recommended by the Audit Committee and Finance Committee of the Authority. The group’s exposure to financial risks and the policies and practices used by the group to manage these risks are described below.

(a) Credit riskThe group’s credit risk is primarily attributable to trade and other receivables, over-the-counter derivative financial instruments entered into primarily for hedging purposes and cash and bank balances. Management has credit policies in place and the exposures to these credit risks are monitored on an ongoing basis.

In respect of trade and other receivables, there are procedures in place to closely monitor the payment performance. Individual credit evaluations are performed on customers requiring credit over a certain amount or customers with long over due history. These evaluations focus on the customer’s past history of making payments when due and current ability to pay, and take into account information specific to the customer as well as pertaining to the economic environment in which the customer operates. Trade receivables are generally due within 14 to 30 days from the date of billing. In respect of the group’s rental and franchise income from operating leases and franchise arrangements respectively, sufficient deposits are held to cover any potential exposure to credit risk.

Cash and bank balances are placed with financial institutions with sound credit ratings to minimise credit exposure. Transactions involving derivative financial instruments are with counterparties with sound credit ratings and with whom the group has a signed netting agreement. Given their high credit ratings, management does not expect any investment counterparty to fail to meet its obligations.

The group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer rather than the industry or country in which the customers operate and therefore significant concentrations of credit risk primarily arise when the group has significant exposure to individual customers. At the balance sheet date, the group has a certain concentration of credit risk as 19% (2009: 18%) and 45% (2009: 40%) of the total trade and other receivables was due from the group’s largest customer and the five largest customers respectively.


16. Financial Risk Management and Fair Values (continued)

(a) Credit risk (continued)

The maximum exposure to credit risk is represented by the carrying amount of each financial asset, including derivative financial instruments, in the balance sheet after deducting any impairment allowance. The group does not provide any guarantees which would expose the group or the Authority to credit risk.

Further quantitative disclosures in respect of the group and the Authority’s exposure to credit risk arising from trade and other receivables are set out in note 17.

(b) Liquidity riskAll cash management of the group, including the short term investment of cash surpluses and raising of loans and other borrowings to cover expected cash demands, are managed centrally by the Authority except AVSECO and HKZAM which handle their own cash management. The Authority’s policy is to regularly monitor current and expected liquidity requirements, to ensure that it maintains sufficient reserves of cash and adequate credit facilities from major financial institutions to meet its liquidity requirements in the short and longer term.

The following table details the remaining contractual maturities at the balance sheet date of the group’s and the Authority’s non-derivative financial liabilities and derivative financial liabilities, which are based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on rates current at the balance sheet date) and the earliest date the group and the Authority can be required to pay:

The group

Contractual undiscounted cash flow

$ million

Balance sheet

carrying amount Total

Within 1 year or

on demand 1-2 years 3-5 yearsMore than

5 years

2010Interest-bearing borrowings 8,193 9,316 2,735 740 4,507 1,334Trade and other payables 1,791 1,846 1,540 60 194 52Interest rate swaps (net settled) (105) (233) (63) (56) (97) (17)

9,879 10,929 4,212 744 4,604 1,369

Derivatives settled gross:Forward foreign exchange contracts held as cash flow hedging instruments – outflow 1,909 – – 1,909 – – inflow (1,950) (2) (2) (1,946) –

(41) (2) (2) (37) –

2009Interest-bearing borrowings 9,377 10,552 1,746 3,341 4,255 1,210Trade and other payables 2,207 2,249 1,970 137 92 50Interest rate swaps (net settled) (120) (150) (35) (40) (75) –

11,464 12,651 3,681 3,438 4,272 1,260


(38) (2) (2) (34) –




(b) Liquidity risk (continued)

The Authority

Contractual undiscounted cash flow

$ million

Balance sheet

carrying amount Total

Within 1 year or

on demand 1-2 years 3-5 yearsMore than

5 years

2010Interest-bearing borrowings 8,193 9,316 2,735 740 4,507 1,334Trade and other payables 1,666 1,689 1,438 57 181 13Interest rate swaps (net settled) (105) (233) (63) (56) (97) (17)

9,754 10,772 4,110 741 4,591 1,330


(41) (2) (2) (37) –

2009Interest-bearing borrowings 9,377 10,552 1,746 3,341 4,255 1,210Trade and other payables 2,084 2,126 1,876 129 86 35Interest rate swaps (net settled) (120) (150) (35) (40) (75) –

11,341 12,528 3,587 3,430 4,266 1,245


(38) (2) (2) (34) –

As shown in the above analysis, interest-bearing borrowings of the group and the Authority amounting to $2,735

million are due to be repaid in the upcoming 12 months after 31 March 2010. The short term liquidity risk inherent in

this contractual maturity will be addressed by internal source of funds and new external borrowings.

(c) Interest rate risk

The group’s interest rate risk arises primarily from long term interest-bearing borrowings. Borrowings issued at

variable rates and at fixed rates expose the group to cash flow interest rate risk and fair value interest rate risk

respectively. The group adopts a policy of ensuring that between 40% and 60% of its borrowings are effectively on a

fixed rate basis, either through the contractual terms of the interest-bearing financial assets and liabilities or through

the use of interest rate swaps. The group’s interest rate profile as monitored by management is set out in (ii) below.



(c) Interest rate risk (continued)

(i) Hedging

Interest rate swaps, denominated in Hong Kong and United States (“US”) dollars, have been entered into to

achieve an appropriate mix of fixed and floating interest rate exposure within the group’s policy. As at

31 March 2010, the group and the Authority had Hong Kong and US dollar denominated interest rate swaps

with a notional contract amount of $1,800 million (2009: $2,000 million) and US$100 million (2009: US$100

million) respectively. Out of this, $1,200 million (2009: $800) of the Hong Kong dollar and US$100 million

(2009: US$100 million) of the US dollar interest rate swaps are designated as fair value hedges of the fair value

interest rate risk inherent in the fixed interest rate notes. The remaining $600 million (2009: $1,200 million)

Hong Kong dollar interest rate swaps are designated as cash flow hedges of the cash flow interest rate risk

inherent in its floating interest rate bank borrowings.

The Hong Kong dollar denominated interest rate swaps mature over the next ten years (2009: five years)

matching the maturity of the related Hong Kong dollar borrowings. $1,200 million (2009: $800 million) of the

Hong Kong dollar denominated swaps pay floating interest rates linked to Hong Kong Interbank Offered Rate

(“HIBOR”). The remaining $600 million (2009: $1,200 million) fixed rate swaps have fixed interest rates ranging

from 1.25% to 2.05% (2009: 1.25% to 2.955%). The US dollar denominated swaps mature in approximately

three years’ time (2009: four years) matching the maturity of the related US dollar Eurobond and paying

floating interest rates linked to London Interbank Offered Rate plus.

The group classifies interest rate swaps into either fair value or cash flow hedges and states them at their fair

values in accordance with the policy set out in note 3(i).

Details of the fair values of swaps entered into by the Authority at the balance sheet dates are set out in note

16(e). These amounts are recognised as derivative financial instruments in the balance sheet.

(ii) Interest rate profile

The following table details the interest rate profile of the group’s and the Authority’s debt borrowings at the

balance sheet dates, after taking into account the effect of interest rate swaps designated as cash flow hedging

instruments and fair value hedging instruments ((i) above).


2010 2009

Effective

interest rate % $ million

Effective

interest rate % $ million

Fixed rate borrowingsBank loans* 1.25% – 2.05% 600 1.35% – 3.13% 1,199Fixed rate notes 2.36% – 5.12% 3,830 4.38% – 5.12% 3,527Retail notes – 4.67% 453

4,430 5,179

Variable rate borrowingsBank loans 0.05% – 0.61% 1,680 0.13% – 3.72% 2,497Fixed rate notes** (0.07%) – 0.90% 2,083 0.58% – 2.40% 1,701

3,763 4,198

Total borrowings 8,193 9,377

Fixed rate borrowings as a percentage of total borrowings 54% 55%

* Swapped to fixed rate

** Swapped to floating rate




(c) Interest rate risk (continued)

(iii) Sensitivity analysis

As at 31 March 2010, it is estimated that a general increase/decrease of 50 basis points in interest rates, with

all other variables held constant, would have decreased/increased the group’s and the Authority’s profit after

taxation and retained profits by approximately $11 million (2009: $12 million). Other components of

consolidated equity would have increased/decreased by approximately $1 million (2009: $5 million) in response

to the general increase/decrease in interest rates. The effect of interest-bearing bank deposits is expected to be

not significant and is not taken into account in the analysis.

The sensitivity analysis above indicates the instantaneous change in the group’s and the Authority’s profit after

taxation (and retained profits) and other components of consolidated equity that would arise assuming that the

change in interest rates had occurred at the balance sheet date and had been applied to re-measure those

financial instruments held by the group and the Authority which expose the group and the Authority to fair

value interest rate risk at the balance sheet date. In respect of the exposure to cash flow interest rate risk arising

from floating interest rate non-derivative instruments held by the group and the Authority at the balance sheet

date, the impact on the group’s and the Authority’s profit after taxation (and retained profits) and other

components of consolidated equity is estimated as an annualised impact on interest expense or income of such

a change in interest rates. The analysis has been performed on the same basis for 2009.

(d) Foreign currency risk

(i) Recognised assets and liabilities

The group and the Authority are exposed to foreign currency risk primarily through the issue of notes that are

denominated in a currency other than the functional currency of the operations to which they relate. The

currency giving rise to this risk is primarily US dollars.

It is the Authority’s policy to require all major contracts to be in Hong Kong dollars. The few exceptions to this

have involved small value contracts or contracts that were hedged at the outset.

As at 31 March 2010, the group and the Authority hedged over 70% (2009: over 70%) of its estimated foreign

currency exposure in respect of notes previously issued. The group and the Authority use forward exchange

contracts to hedge its foreign currency risk and have classified these as cash flow hedges. All of the forward

exchange contracts have remaining maturities of less than four years (2009: less than five years) after the

balance sheet date.

As at 31 March 2010, the group and the Authority had forward exchange contracts with notional amount of

US$250 million (2009: US$250 million) to hedge US dollar denominated notes with a net fair value of $16

million recognised as derivative financial assets (2009: $5 million as derivative financial liabilities).

(ii) Exposure to currency risk

As at 31 March 2010, the group and the Authority are mainly exposed to US dollar currency risk arising from

forecast transactions or recognised assets or liabilities in respect of notes issued at US$350 million (2009:

US$350 million), of which US$250 million (2009: US$250 million) has been hedged through the use of forward

exchange contracts, and exposure in respect of trade and other receivables of US$6 million (2009: US$5 million).

The group has not hedged the foreign currency risk in respect of their investments in PRC incorporated entities.

(iii) Sensitivity analysis

As the Hong Kong dollar is pegged to US dollar at a range between 7.75 to 7.85, management considers that

the foreign currency risk associated with the unhedged US dollar exposure is not material to the group and the

Authority. Accordingly, no sensitivity analysis in respect of these unhedged exposures is considered necessary.



(e) Fair values

Financial instruments carried at fair value

The following table presents the carrying value of financial instruments measured at fair value at the balance sheet

date across the three levels of the fair value hierarchy defined in HKFRS 7, “Financial Instruments: Disclosures”, with

the fair value of each financial instrument categorised in its entirety based on the lowest level of input that is

significant to that fair value measurement. The levels are defined as follows:

• Level 1 (highest level): fair values measured using quoted prices (unadjusted) in active markets for identical

financial instruments

• Level 2: fair values measured using quoted prices in active markets for similar financial instruments, or using

valuation techniques in which all significant inputs are directly or indirectly based on observable market data

• Level 3 (lowest level): fair values measured using valuation techniques in which any significant input is not based

on observable market data

As at 31 March 2010, the group’s and Authority’s derivative financial instruments are carried at fair value. These

instruments fall under Level 2 of the fair value hierarchy described above. During the year there were no significant

transfers of instruments in or out of Level 2.

Fair values and notional amounts of derivative financial instruments outstanding at the balance sheet dates are

summarised as follows:


2010 2009

$ millionNotional amount Assets Liabilities

Notional amount Assets Liabilities

Cash flow hedges Forward foreign exchange contracts US$250 21 (5) US$250 6 (11) Interest rate swaps $600 – (3) $1,200 1 (6)Fair value hedges Interest rate swaps US$100 66 – US$100 82 – Interest rate swaps $1,200 42 – $800 43 –

Total 129 (8) 132 (17)

Less: Portion to be recovered/(settled) within one yearCash flow hedges Forward foreign exchange contracts US$250 2 – US$250 2 – Interest rate swaps $600 – (3) $1,200 1 (5)Fair value hedges Interest rate swaps US$100 28 – US$100 19 – Interest rate swaps $1,200 23 – $800 15 –

53 (3) 37 (5)

Portion to be recovered/ (settled) after one year 76 (5) 95 (12)




(e) Fair values (continued)

Financial instruments carried at fair value (continued)

Derivative financial instruments qualifying as cash flow hedges as at 31 March 2010 have a maturity of 0.5 to 3.5

years (2009: 0.5 to 4.5 years) from the balance sheet date.

As at 31 March 2010, the carrying value and fair value of fixed rate notes of notional amount of $5,818 million

(2009: $5,566 million), amounted to $5,913 million and $6,198 million (2009: $5,681 million and $6,244 million)

respectively.

All other financial instruments are carried at amounts not materially different from their fair values at the balance

sheet dates. Intra-group borrowings are unsecured, interest free and have no fixed repayment terms. Given these

terms, it is not meaningful to disclose fair values.

(f) Estimation of fair values

The following summarises the major methods and assumptions used in estimating the fair values of financial

instruments.

(i) Derivatives

Forward exchange contracts are either marked to market using quoted market prices or by discounting the

contractual forward price and deducting the current spot rate. The fair value of interest rate swaps is the

estimated amount that the Authority would receive or pay to terminate the swap at the balance sheet date,

taking into account current interest rates and the current creditworthiness of the swap counterparties.

Where discounted cash flow techniques are used, estimated future cash flows are based on management’s best

estimates and the discount rate is a market related rate for a similar instrument at the balance sheet date.

Where other pricing models are used, inputs are based on market related data at the balance sheet date.

(ii) Interest-bearing borrowings

The fair value is estimated as the present value of future cash flows, discounted at current market interest rates

for similar financial instruments.

(iii) Interest rates used for determining fair value

The group and the Authority use the market yield curve as at balance sheet dates to discount financial

instruments. The interest rates used for discounting borrowings and derivatives are as follows:

2010 2009

Hong Kong dollars 0.10% – 3.26% 0.32% – 2.05%US dollars 0.42% – 2.09% 1.70% – 2.13%


17. Trade and Other Receivables


$ million 2010 2009 2010 2009

Trade debtors 1,175 1,021 1,129 979Less: allowance for doubtful debts (note 17(b)) (56) (57) (54) (56)

1,119 964 1,075 923Other debtors 21 15 20 12Amounts due from subsidiaries – – 223 217

1,140 979 1,318 1,152Prepayments 25 20 12 13Deposits and debentures 15 11 9 5

1,180 1,010 1,339 1,170

All of the trade and other receivables (including amounts due from subsidiaries) are expected to be recovered or recognised

as an expense within one year, except for an amount of $222 million (2009: $215 million) in respect of amounts due from

a subsidiary, which is expected to be recovered or recognised as an expense after more than one year.

As at 31 March 2010, amounts due from subsidiaries are after impairment allowance of $32 million (2009: $32 million).

Amounts due from subsidiaries are unsecured, interest free and have no fixed terms of repayment.

(a) The ageing analysis of trade debtors (net of allowance for doubtful debts) included above is as follows:


$ million 2010 2009 2010 2009

Amounts not yet due 1,061 923 1,037 899Less than one month past due 36 27 26 19One to three months past due 9 7 5 3More than three months past due 13 7 7 2

1,119 964 1,075 923

Trade debtors are generally due within 14 to 30 days from the date of billing. The group’s credit policy is set out in

note 16(a).

Included in the amounts of trade debtors not yet due as at 31 March 2010 is an amount of $259 million (2009: $nil)

which represents the portion of franchise and rental payments due from franchisees and tenants operating at HKIA

and for which payment have been deferred for up to one year, pursuant to the relief packages offered by the

Authority during the year.



17. Trade and Other Receivables (continued)

(b) Impairment of trade debtors

Impairment losses in respect of trade debtors are recorded using an allowance account unless the group considers

that recovery of the amount is remote, in which case the impairment loss is written off against trade debtors directly

(note 3(o)).

The movement in the allowance for doubtful debts during the year, including both specific and collective loss

components, is as follows:


$ million 2010 2009 2010 2009

At 1 April 57 19 56 19Impairment loss recognised 4 38 3 37Uncollectible amounts written off (5) – (5) –

At 31 March 56 57 54 56

As at 31 March 2010, both the group’s and the Authority’s trade debtors of $43 million (2009: $54 million) were

individually determined to be impaired. The individually impaired trade debtors related to customers that were in

financial difficulties and management assessed that only a portion of the trade debtors is expected to be recovered.

Consequently, specific allowances for doubtful debts of $38 million (2009: $52 million) for both the group and the

Authority were recognised. The group and the Authority do not hold any collateral (2009: $2 million) over individually

impaired trade debtors of $5 million (2009: $2 million) for which no provision has been made.

If it is determined that no objective evidence of impairment exists for individually assessed trade debtors, whether

significant or not, these trade debtor balances are included in a group of trade debtor balances with similar credit risk

characteristics and that group is collectively assessed for impairment.

(c) Trade debtors that are not impaired

The ageing analysis of trade debtors that are neither individually nor collectively considered to be impaired are as

follows:


$ million 2010 2009 2010 2009

Neither past due nor impaired 808 923 783 899

Less than one month past due 21 20 11 13One to three months past due 4 3 – –More than three months past due 4 4 – –

29 27 11 13

837 950 794 912

Trade debtors that were neither past due nor impaired relate to a wide range of customers for whom there was no

recent history of default.

Trade debtors that were past due but not impaired relate to a number of independent customers that have a good

track record with the group. Based on past experience, management believes that no impairment allowance is

necessary in respect of these balances as there has not been a significant change in credit quality and the balances

are still considered fully recoverable. The group and the Authority hold cash deposits and bank guarantees of

$3 million and $2 million (2009: $2 million and $1 million) as collateral over certain past due but not impaired trade

debtors totalling $29 million and $11 million (2009: $27 million and $13 million) respectively.


18. Cash and Bank Balances


$ million 2010 2009 2010 2009

Deposits with banks within three months of maturity at acquisition 370 96 262 31Cash at bank and in hand 261 247 208 199

Cash and cash equivalents 631 343 470 230Deposits with banks with over three months of maturity at acquisition 27 67 – –

658 410 470 230

As at 31 March 2010, effective interest rate ranges for deposits with banks which are within and over three months of maturity at acquisition are 0.0001% to 0.45% (2009: 0.01% to 0.76%) and 0.63% to 1.0925% (2009: 0.38% to 3.3%) respectively.

As at 31 March 2010, cash and cash equivalents include deposits with banks of $52 million (2009: $47 million) held by a subsidiary that are not freely remittable to the holding company because of currency exchange restrictions in the PRC.

19. Interest-bearing Borrowings


$ million 2010 2009

Notes payableUS dollar Eurobond due 2013 (a) 2,790 2,802HK dollar Retail notes due 2010 (b) – 453HK dollar Fixed rate notes due 2016 (c) 400 400HK dollar Fixed rate notes due 2021 (d) 600 600HK dollar Fixed rate notes due 2010 to 2014 (e) 400 600HK dollar Fixed rate notes due 2010 to 2013 (f) 832 840HK dollar Fixed rate notes due 2012 to 2019 (g) 907 –

5,929 5,695Bank loans (h) to (j) 2,280 3,700

8,209 9,395Less: Unamortised finance costs (16) (18)

8,193 9,377

(a) The Authority issued 5.0% notes due 2013 with a principal amount of US$350 million at an issue price of 99.078 in September 2003. The notes are unsecured and repayable in full on the due date. The notes are listed on the Luxembourg Stock Exchange.

(b) In 2003, the Authority issued three Hong Kong dollar (“HK dollar”) fixed rate retail notes totalling $896 million. Their annual coupons and tenors ranged from 2.3% to 4.5% and two years to seven years respectively. All of the above mentioned retail notes were unsecured. Their issue prices ranged from 98.12 to 99.62.

Out of the three HK dollar fixed rate retail notes, one with principal amount of $304 million and maturity of three years was repaid in March 2006. Another one with principal amount of $139 million and maturity of two years was extended for two years at the option of the Authority in March 2005 and was repaid in full in March 2007.

The remaining HK dollar fixed rate retail note with principal amount of $453 million and maturity of seven years was repaid in full in March 2010.



19. Interest-bearing Borrowings (continued)

(c) In April 2006, the Authority issued HK dollar fixed rate notes with principal amount of $400 million through private placement. These fixed rate notes were issued at par with an annual coupon rate of 5.1% per annum and maturity of 10 years. The notes are unsecured and repayable in full upon maturity.

(d) The Authority issued two tranches of HK dollar fixed rate notes of $300 million each in February and March 2006. Both tranches were issued at par with annual coupons of 4.8% and 4.85% respectively and maturities of 15 years each. The notes are unsecured and repayable in full upon maturity.

(e) Between February and March 2007, the Authority issued three tranches of HK dollar fixed rate notes of $200 million each through private placement. All three tranches were issued at par with quarterly coupon rates ranging from 4.38% to 4.48% per annum and maturity ranging between three to seven years. The notes are unsecured and repayable in full upon maturity. The tranche of $200 million with maturity of three years was repaid in full in February 2010.

(f) In July and August 2008, the Authority issued four HK dollar fixed rate notes totalling $800 million. These fixed rate notes were issued at par with annual coupon rates of between 3.36% and 3.98% per annum and maturity of between two years and five years. The notes are unsecured and repayable in full upon maturity.

(g) Between April and July 2009, the Authority issued three HK dollar fixed rate notes with a total principal amount of $900 million through private placements. These fixed rate notes were issued at par with annual coupon rates ranging from 2.00% to 3.85% per annum and maturity ranging from three to ten years. The notes are unsecured and repayable in full upon maturity.

(h) In October 2004, the Authority signed a credit agreement for a $6,000 million HK dollar unsecured syndicated bank loan. The facility consists of a 3-year revolving credit tranche and a 5-year term/revolving credit tranche of $3,000 million each with repayment commencing from the end of the third anniversary of the credit agreement. Interest is payable on amounts drawn down at a rate relating to HIBOR. In 2008, the 3-year revolving credit tranche was fully repaid and the 5-year term/revolving credit facility was voluntarily reduced to $600 million. The 5-year term/revolving credit facility was repaid in full in October 2009.

(i) In September 2007, the Authority signed a three-year unsecured HK dollar revolving credit facility of $6,000 million. Interest is payable on amounts drawn down at a rate relating to HIBOR. As at 31 March 2010, $2,200 million (2009: $2,900 million) of the revolving credit facility was drawn down.

(j) During the year, the Authority also drew down from uncommitted money market line facilities of $2,688 million (2009: $2,500 million). Interest is payable on amounts drawn down at a rate relating to HIBOR. An amount of$80 million (2009: $200 million) was outstanding as at 31 March 2010.

(k) As at 31 March 2010, the unsecured interest-bearing borrowings were repayable as follows:


2010 2009

$ million Notes payable Bank loans Total Total

Within one year or on demand 200 2,280 2,480 1,453

After one year but within two years 512 – 512 3,100After two years but within five years 4,103 – 4,103 3,826After five years 1,098 – 1,098 998

5,713 – 5,713 7,924

5,913 2,280 8,193 9,377

(l) None of the interest-bearing borrowings is subject to any covenants imposed by the lenders. All of the non-current interest-bearing borrowings are carried at amortised cost except for HK dollar fixed rate notes and US dollar Eurobond with total principal amounts of $1,200 million and US$100 million (2009: $800 million and US$100 million) respectively, which are designated as fair value hedged items and carried at fair value of $2,083 million (2009: $1,701 million). None of the non-current interest-bearing borrowings is expected to be settled within one year. Further details of the group’s management of liquidity risk are set out in note 16(b).


20. Trade and Other Payables


$ million 2010 2009 2010 2009

Creditors and accrued charges 1,236 1,713 1,112 1,589Deposits received 435 375 432 373Contract retentions 120 119 120 119Amounts due to subsidiaries – – 2 3

Financial liabilities measured at amortised cost 1,791 2,207 1,666 2,084

Classified in the balance sheet as: Current liabilities 1,534 1,970 1,438 1,876 Non-current liabilities 257 237 228 208

1,791 2,207 1,666 2,084

As at 31 March 2010, all of the trade and other payables are expected to be settled or recognised as income within one

year except for $257 million and $228 million (2009: $237 million and $208 million) for the group and the Authority

respectively, which are expected to be settled after more than one year. The amounts due after one year mainly relate to

licence deposits received from retail licencees and contract retentions, the majority of which are due to be repaid within

two to five years.

The ageing analysis of creditors and accrued charges included above by due dates is as follows:


$ million 2010 2009 2010 2009

Due within 30 days or on demand 337 397 283 356Due after 30 days but within 60 days 145 235 142 230Due after 60 days but within 90 days 122 189 119 185Due after 90 days 632 892 568 818

Total 1,236 1,713 1,112 1,589

21. Deferred IncomeDeferred income represents consideration received for the sale of a portion of the income from the aviation fuel system for

a period up to 2018 and amounts received in respect of sub-leases of interest in leasehold land of the airport site. They are

accounted for in accordance with the accounting policy detailed in notes 3(v)(v) and 3(v)(vi) respectively.

The amount expected to be recognised as income more than one year after the balance sheet date is included in non-

current liabilities.



22. Capital, Reserves and Dividends(a) Movements in components of equity

The reconciliation between the opening and closing balances of each component of the group’s consolidated and

Authority’s equity is set out in the consolidated and Authority statements of changes in equity on pages 69 and 70

respectively.

(b) Dividends

$ million 2010 2009

Final dividend payable to the equity shareholder of the Authority in respect of the previous financial year, approved and paid during the year of $7,178.28 per ordinary share (2009: $6,525.71 per ordinary share) 2,200 2,000Final dividend proposed by the Authority after the balance sheet date of $7,504.57 per ordinary share (2009: $7,178.28 per ordinary share) 2,300 2,200Special dividend proposed by the Authority after the balance sheet date of $7,178.28 per ordinary share (2009: $nil per ordinary share) 2,200 –

The final and special dividends declared after the balance sheet date have not been recognised as liabilities at the

balance sheet date.

(c) Share Capital

The Authority

$ million 2010 2009

Authorised, issued, allotted and fully paid: 306,480 ordinary shares of $100,000 each (2009: 306,480 shares) 30,648 30,648

30,648 30,648

(d) Nature and purpose of reserves

(i) Exchange reserve

The exchange reserve comprises all foreign exchange differences arising from the translation of the financial

statements of foreign operations. The reserve is dealt with in accordance with the accounting policy set out in

note 3(w).

(ii) Capital reserve

The capital reserve comprises the share of profits of a jointly controlled entity in the PRC which are not

distributable as required by relevant government regulations and the retained profits of AVSECO which

according to its memorandum of association and the shareholders’ agreement cannot be distributed.

(iii) Hedging reserve

The hedging reserve comprises the effective portion of the cumulative net change in the fair value of hedging

instruments used in cash flow hedges pending subsequent recognition of the hedged cash flow dealt with in

accordance with the accounting policy adopted for cash flow hedges set out in note 3(i).


22. Capital, Reserves and Dividends (continued)

(d) Nature and purpose of reserves (continued)

(iv) Distributability of reserves

As at 31 March 2010, the aggregate amount of reserves available for distribution to the equity shareholder of

the Authority was $4,998 million (2009: $4,519 million). After the balance sheet date, the Board proposed a

final dividend and a special dividend of $7,504.57 and $7,178.28 per ordinary share (2009: $7,178.28 and $nil

per ordinary share), amounting to $2,300 million (2009: $2,200 million) and $2,200 million (2009: $nil)

respectively. These dividends have not been recognised as liabilities at the balance sheet date.

(v) Capital management

The primary objectives of the group when managing capital are to safeguard the group’s ability to continue as

a going concern, maintain a strong credit rating and a healthy capital ratio to support the business and to

enhance shareholder value.

The group manages its capital structure by taking into consideration its future capital requirements, capital

efficiency and projected cash flow. To adjust its capital structure, the group may raise or reduce its outstanding

debt and determine the dividend payment on its share capital. The group is also empowered by the Ordinance

to either increase or reduce its share capital under the direction of the Financial Secretary and the Legislative

Council. The Ordinance provides that these directions be made following consultation with the Authority.

The group monitors its capital structure on the basis of a total debt/capital ratio. The total debt/capital ratios of

the group and the Authority at the balance sheet dates are as follows:


$ million Note 2010 2009 2010 2009

Total debt1 19 8,193 9,377 8,193 9,377Total equity 36,689 36,038 35,643 35,163

Total capital2 44,882 45,415 43,836 44,540

Total debt/capital ratio 18% 21% 19% 21%

1 Total debt equals to interest-bearing borrowings.

2 Total capital equals to total debt plus total equity.

Neither the Authority nor any of its subsidiaries are subject to externally imposed capital requirements.



23. Outstanding Commitments


$ million 2010 2009 2010 2009

Commitments outstanding not provided for in the financial statements are as follows:

Capital expenditure Contracted for 214 502 214 499 Authorised but not contracted for 1,849 2,487 1,828 2,474

2,063 2,989 2,042 2,973 Capital contribution in respect of a jointly controlled entity in the PRC, SHKAMCL (note 13(b)) 39 – 39 –

2,102 2,989 2,081 2,973

The outstanding commitments of the group’s jointly controlled entity, HXIACL, which are not included in the above, are

disclosed in note 13(a).

24. Contingent Liabilities(a) The group is currently under discussion with contractors regarding claims relating to several construction and system

upgrade projects. Detailed documentation for these claims is not yet fully available to the Authority. The group has

internally assessed and provided for the likely amount that is required for the settlement of these claims that have

arisen due to time delays, additional costs and other unforeseen circumstances. The claims provision is estimated

based on an assessment of the group’s likely liability by in-house professionally qualified personnel, and may differ

from the actual claims settlement. The amount of the claims received and the likely liability assessed by the group

have not been disclosed as the management is of the view that such information is commercially sensitive and may

prejudice the group’s position during negotiations.

(b) The Inland Revenue Department (“IRD”) has challenged the validity of tax allowances in an amount of $2,391 million

claimed by the Authority in respect of certain fixed assets. The corresponding tax impact would be approximately

$417 million computed at applicable tax rates. The Authority has responded to the IRD and is awaiting their

assessment. The Authority remains confident that its claims are valid and supportable. Accordingly, no provision for

additional taxation has been made in respect of this contingent liability as at 31 March 2009 and 2010.


25. Material Related Party TransactionsThe Authority is wholly owned by the Government. Transactions between the Authority and Government departments,

agencies or Government controlled entities, other than those transactions such as the payment of fees, taxes, leases and

rates, etc. that arise in the normal dealings between the Government and the Authority, are considered to be related party

transactions pursuant to HKAS 24, “Related Party Disclosures” and are identified separately in these financial statements.

Members of the Board and the Executive Directors, and parties related to them, are also considered to be related parties of

the Authority. Material transactions with these parties are separately disclosed. Remuneration paid to Members of the

Board and the Executive Directors is disclosed in note 6.

During the year, the Authority has had the following material related party transactions:

(a) The Authority has entered into service agreements with the Government under which the Government is to provide

aviation meteorological and air traffic control services and aircraft rescue and fire fighting services at the airport. The

amounts incurred for the year amounted to $735 million (2009: $722 million) and the amounts due to the

Government as at 31 March 2010 with respect to the above services amounted to $nil (2009: $6 million).

(b) In addition, the Authority has also entered into agreements with the Government under which the Government

provides electrical and mechanical maintenance services at the airport. The amounts incurred for these services for

the year amounted to $123 million (2009: $109 million). As at 31 March 2010, the amounts due to the Government

with respect to the above services amounted to $60 million (2009: $47 million).

(c) The Authority has entered into an agreement with AVSECO, a subsidiary in which the Government is the other

shareholder, for the provision of airport related security services to the Authority on a cost reimbursement basis. The

amounts incurred by the Authority for these services for the year amounted to $406 million (2009: $393 million). In

addition, the Authority licensed certain areas to AVSECO for a total fee of $20 million (2009: $16 million) during the

year. As at 31 March 2010, the amounts due from AVSECO with respect to rentals and other recoveries amounted to

$1 million (2009: $2 million) and amounts due to AVSECO with respect to security services amounted to $1 million

(2009: $3 million).

(d) Pursuant to a shareholders’ agreement dated 21 August 2003, the Authority and the Government have formed a

company, IEC Holdings Limited, in which the Authority holds an 11.8% (2009: 11.8%) equity interest, to participate

and co-operate with a third party consortium in the development, funding and operation of the AsiaWorld-Expo

exhibition centre. The Authority has sub-leased to IEC Holdings Limited to 2047 the leasehold land on which the

exhibition centre has been built (note 14).

(e) The Authority has entered into an agreement with MTR Corporation Limited (“MTRC”) under which MTRC provides

maintenance services to the Automated People Mover System and Cars in both Terminals 1 and 2. The amount

incurred by the Authority for these services for the year amounted to $45 million (2009: $34 million). As at 31 March

2010, the amounts due to MTRC with respect to the maintenance service amounted to $16 million (2009: $8 million).

(f) The Authority has provided property rental and management services at the airport to MTRC. The aggregate amounts

received for the year amounted to $8 million (2009: $6 million). As at 31 March 2010, the aggregate amounts due

from MTRC amounted to $0.4 million (2009: $nil).

(g) The Authority has provided property management services, fitting-out works and other services at the airport to

various Government departments, agencies and Government controlled entities. The aggregate amounts received for

the year amounted to 18 million (2009: $38 million). As at 31 March 2010, the aggregate amounts due from these

departments, agencies or entities amounted to $1 million (2009: $0.4 million).



25. Material Related Party Transactions (continued)

(h) The Authority has received various administrative, building plan submission and other services from various Government departments, agencies and Government controlled entities. The aggregate amounts paid for the above services, and aerodrome licence and other fees for the year amounted to $12 million (2009: $13 million). As at 31 March 2010, there was no outstanding amount due to these departments, agencies or entities (2009: $nil).

(i) AVSECO has provided security-related services to various Government departments, agencies and Government controlled entities other than the Authority. The aggregate amounts received for the year amounted to $40 million (2009: $24 million). As at 31 March 2010, the aggregate amounts due from these departments, agencies or entities amounted to $3 million (2009: $3 million).

26. Immediate and Ultimate Controlling PartyAs at 31 March 2010, the directors consider the immediate parent and ultimate controlling party of the group to be the Hong Kong SAR Government.

27. Accounting Judgements and Estimates(a) Critical accounting judgements in applying the group’s accounting policies

In applying the group’s accounting policies, management has made the following accounting judgements:

(i) Interest in leasehold landOn 1 December 1995, the Authority was granted the rights to the airport site at Chek Lap Kok for a nominal land premium of $2,000. The Authority was responsible for all of the costs for the formation of the airport site, with respect to which $11,571 million was initially incurred. The land formed is considered to have all the characteristics of land in Hong Kong and will revert to the lessor at the end of the Land Grant. Such cost is considered to have been incurred to obtain the benefits of a leasehold land held under an operating lease. Accordingly, the land premium and the land formation costs have been classified as interest in leasehold land under fixed assets. Upon the granting of finance leases of portions of the land concerned, the cost of leasehold land excluded from the balance sheet is based on an apportionment of the overall land cost.

(ii) Sub-lease of leasehold landThe Authority sub-leases part of its interest in leasehold land to various Government departments, agencies or Government controlled entities at ’nil’ rental for substantially the full period of the Land Grant, to provide services for the sole benefit of the airport and its users. It is considered that as these sub-leases are for the sole benefit of the Authority for enhancing services at the airport, it is in substance held for the full and exclusive benefit of the Authority and accordingly such sub-leases continue to be treated as interest in leasehold land under fixed assets in the financial statements of the Authority and are not derecognised.

(iii) Interests in jointly controlled entitiesOn 29 November 2006, the group acquired a 35% equity interest in HXIACL and accounts for its interest in HXIACL as a jointly controlled entity. HXIACL receives ACF and other subsidies from the PRC government as is the case with most other airports in the PRC. The ACF and other subsidies received cannot be distributed as dividends and are to be used for airport development purposes as specified by the PRC government. Such ACF and other subsidies received are considered to be a capital contribution from the PRC government and are accounted for as a “capital reserve” in HXIACL’s PRC statutory financial statements.

The group is of the view that HXIACL and all its shareholders can enjoy the economic benefits arising from the ACF and other subsidies received for airport development purposes in proportion to their shareholdings and that such ACF and other subsidies are revenue in nature but may only be used for restricted purposes. Further, although certain PRC government documents note that such ACF and other subsidies belong to the PRC government, certain other joint venture documents indicate that the amounts of ACF and other subsidies can be shared by the shareholders of HXIACL in proportion to their equity shareholdings and, accordingly, the group has equity accounted for its share of ACF and other subsidies in the consolidated income statement, with a subsequent transfer to the capital reserve.


27. Accounting Judgements and Estimates (continued)

(b) Major sources of estimation uncertainty

Notes 15 and 16(f) contain information about the assumptions and their risk factors relating to defined benefit

retirement obligations and the fair value of financial instruments. Other major areas of estimation uncertainty are as

follows:

(i) Estimated useful lives and depreciation of property, plant and equipment

In assessing the estimated useful lives of property, plant and equipment, management takes into account

factors such as the expected usage of the asset by the group based on past experience, the expected physical

wear and tear (which depends on operational factors), technical obsolescence arising from changes or

improvements in production or from a change in the market demand for the product or service output of the

asset. The estimation of the useful life is a matter of judgement based on the experience of the group.

Management reviews the useful lives of property, plant and equipment annually, and if expectations are

significantly different from previous estimates of useful lives, the useful lives and, therefore, the depreciation

rate for the future periods is adjusted accordingly.

(ii) Impairment of other investments

In assessing whether there is any impairment in the carrying value of the group’s “other investments”,

management takes into consideration the projected volume and activity level and cash flows of the underlying

business of the investments, discounted to present value. These projections are based on assumptions that take

into consideration management’s knowledge of the business environment and their judgement on future

performance. There is inherent uncertainty in the estimation process and the underlying assumptions relating to

the future and, accordingly actual performance may differ significantly from that projected.

(iii) Project provisions

The group establishes project provisions for the settlement of estimated claims that may arise due to time

delays, additional costs or other unforeseen circumstances common to major construction contracts. The claims

provisions are estimated based on a best assessment of the group’s liabilities under each contract by

professionally qualified personnel, which may differ from the actual claims settlement.

(iv) Income tax and deferred tax assets

Certain treatments adopted by the Authority in the tax returns in the past years are yet to be finalised with the

IRD. In assessing the Authority’s income tax and deferred taxation in the current year financial statements, the

Authority has followed the tax treatments it has adopted in those tax returns, which may be different from the

final outcome in due course.

The group reviews the carrying amount of deferred taxes at each balance sheet date and reduces deferred tax

assets to the extent it is no longer probable that sufficient taxable income will be available to allow all or part of

the deferred tax to be utilised. However, there is no assurance that the group will generate sufficient taxable

income to allow all or part of its deferred tax assets to be utilised.

(v) Valuation of investment properties

The valuation of investment properties requires management’s input of various assumptions and factors relevant

to the valuation. The group appoints independent professionally qualified valuers to conduct annual

revaluations of its investment properties which take into consideration the net income allowing for reversionary

potential and other assumptions which are based on market conditions existing at the balance sheet date,

current market sales prices and the appropriate capitalisation rate.



28. Non-Adjusting Post Balance Sheet EventsAfter the balance sheet date, the Board declared final and special dividends for the year ended 31 March 2010, the details

of which are disclosed in note 22(b).

29. Comparative figuresAs a result of the application of HKAS 1 (revised 2007), “Presentation of financial statements”, certain comparative figures

have been adjusted to conform to current year’s presentation and to provide comparative amounts in respect of items

disclosed for the first time in the current year. Further details of these developments are disclosed in note 3(c).

30. Possible Impact of Amendments, New Standards and Interpretations Issued but Not Yet Effective for the Year Ended 31 March 2010Up to the date of issue of these financial statements, the HKICPA has issued the following amendments, new standards

and interpretations which are not yet effective for the year ended 31 March 2010 and which have not been adopted in

these financial statements.

Effective for annual periodsbeginning on or after

HKFRS 3 (Revised), “Business combinations” 1 July 2009Amendments to HKAS 39, “Financial instruments: Recognition and measurement – Eligible hedged items” 1 July 2009Amendments to HKAS 27, “Consolidated and separate financial statements” 1 July 2009Improvements to HKFRSs 2009 1 July 2009 or 1 January 2010HKAS 24 (revised 2009) “Related party disclosures” and consequential amendments to HKFRS 8, “Operating segments” 1 January 2011HKFRS 9 “Financial Instruments” 1 January 2013

The group is in the process of making an assessment of what the impact of these amendments, new standards and

interpretations is expected to be in the period of initial application. So far it has concluded that the adoption of them is

unlikely to have a significant impact on the Authority’s results of operations and financial position.

Five-year Financial & Operational Summary


(in HK$ million) 05/06 06/07 07/08 08/09 09/10

Income Statement

Turnover 7,076 7,738 8,577 8,886 9,015

Operating expenses before depreciation and amortisation (2,820) (3,085) (3,292) (3,497) (3,402)

Operating profit before depreciation and amortisation 4,256 4,653 5,285 5,389 5,613

Depreciation and amortisation (1,914) (2,014) (2,307) (2,234) (2,191)

Interest and finance costs (334) (378) (425) (233) (178)

Share of profits less losses of jointly controlled entities – 88 89 193 177

Profit before taxation 2,008 2,349 2,642 3,115 3,421

Income tax (390) (430) (374) (532) (580)

Profit for the year 1,618 1,919 2,268 2,583 2,841

Attributable to:

Equity shareholder of the Authority 1,615 1,920 2,273 2,588 2,844

Minority interests 3 (1) (5) (5) (3)

Balance Sheet

Non-current assets 47,345 49,792 50,286 50,356 49,431

Current assets 1,003 1,233 1,531 1,508 1,939

Current liabilities (2,036) (5,629) (2,455) (3,541) (4,138)

Net current liabilities (1,033) (4,396) (924) (2,033) (2,199)

Total assets less current liabilities 46,312 45,396 49,362 48,323 47,232

Non-current liabilities (12,625) (10,896) (13,969) (12,285) (10,543)

Net assets 33,687 34,500 35,393 36,038 36,689

Share capital 30,648 30,648 30,648 30,648 30,648

Reserves 3,006 3,656 4,539 5,185 5,839

Minority interests 33 196 206 205 202

Total Equity 33,687 34,500 35,393 36,038 36,689

Key Financial and Operational Statistics

Dividend declared (HK$ million) 1,300 1,600 2,000 2,200 2,300

Special dividend declared (HK$ million) – – – – 2,200

Return on equity 4.9% 5.6% 6.5% 7.2% 7.8%

Total debt/capital ratio 23% 24% 23% 21% 18%

Passenger traffic1,2 (millions of passengers) 41.6 45.1 48.9 47.7 46.9

Cargo throughput1,3 (millions of tonnes) 3.5 3.6 3.8 3.4 3.6

Air traffic movements1 (thousands) 270 283 300 296 280

1 “Operational Statistics” is based on the Airport Authority’s traffic data of Hong Kong International Airport only.

2 “Passenger traffic” includes originating, terminating, transfer and transit passengers. Transfer and transit passengers are counted twice.

3 “Cargo throughput” includes originating, terminating and transshipment cargo. Transshipment cargo is counted twice, Airmail is excluded.

Annual Report 2009/10Hong Kong International Airport 125124 Hong Kong International Airport124

AeroflotAeroLogic* Air AsiaAir CanadaAir Cargo Germany* Air ChinaAir FranceAir Hong Kong* Air IndiaAir MauritiusAir New ZealandAir NiuginiAir PacificAirBridgeCargo* ANAAsiana AirlinesAtlas Air* Bangkok AirwaysBiman BangladeshBritish AirwaysCargoitalia* Cargolux* Cargolux Italia*

Cathay PacificCebu Pacific AirChina AirlinesChina Cargo Airlines* China EasternChina SouthernContinentalDeccan Cargo & Express* Delta Air LinesDETA Air* Donghai Airlines* DragonairEL AL IsraelEmirates Ethiopian AirlinesEVA AirEvergreen* Federal Express* FinnairGaruda IndonesiaHong Kong Airlines Hong Kong ExpressJade Cargo*

Japan AirlinesJet Airways Jetstar Jett8* Kalitta Air* Kenya Airways Kingfisher AirlinesKLMKorean AirLufthansaLufthansa Cargo* Malaysia AirlinesMandarin AirlinesMartinair Cargo* Nepal AirlinesNippon Cargo Airlines* Orient Thai Pakistan International AirlinesPhilippine Airlines Polar Air Cargo* Qantas AirwaysQatar AirwaysRoyal Brunei

Royal Jordanian Saudi Arabian AirlinesShanghai AirlinesShanghai Airlines Cargo* Shenzhen AirlinesSingapore AirlinesSingapore Airlines Cargo* South AfricanSriLankanSwiss Air LinesThai AirAsia Thai AirwaysTiger AirwaysTNT Airways* Transmile Air Services* Turkish AirlinesUnited AirlinesUPS* Vietnam AirlinesVirgin AtlanticXiamen AirlinesYangtze River Express*

*Freighter services only

Airlines Operating at HKIA as at March 2010

Scheduled Destinations Served from HKIA as at March 2010

North Asia Beijing Busan Changchun Changsha Chengdu Chongqing Dalian Fukuoka Fuzhou Guangzhou Guilin Guiyang Haikou Hangzhou Harbin Hefei Jinan Jinjiang Kaohsiung Kunming Meixian Nagoya Nanchang Nanjing Nanning Ningbo Okinawa Osaka/Kansai QingdaoSanyaSapporo

Seoul/Incheon Shanghai Shantou Shenyang Shenzhen*Taichung/ChingchuankangTaipei Taiyuan TianjinTokyo/Haneda Tokyo/Narita Wenzhou Wuhan Wuxi Xiamen Xian Xuzhou Yancheng Yiwu Zhanjiang Zhengzhou South East Asia B S Begawan Bangkok Cebu Clark Denpasar Hanoi Ho Chi Minh Jakarta Koh Samui

Kota Kinabalu Kuala Lumpur Kuching Manila Penang Phnom Penh Phuket Singapore Subang* Surabaya Middle East/Central Asia/South Asia Almaty*AmmanBahrainBangaloreChennaiColomboDelhiDhakaDohaDubaiIslamabadJeddahKarachiKathmanduLahoreMumbaiRiyadhSharjah*Tel Aviv

Europe Amsterdam Barcelona* Brussels* Budapest Ferihegy* Cologne*Frankfurt Hahn*Helsinki Istanbul Krasnoyarsk*Leipzig*Liege*London/Heathrow London/Stansted*Luxembourg*Manchester*Milan/Malpensa Moscow/Sheremetyevo Munich Paris Rome Stockholm*Zurich

Australasia/Pacific Islands Adelaide Auckland Brisbane Cairns Melbourne Nadi

Perth Port Moresby Sydney Africa Addis Ababa Johannesburg Mauritius Nairobi

North America Anchorage*Atlanta*Chicago/O’hare Cincinnati*Columbus* Dallas*Honolulu Houston*Los Angeles Louisville*Memphis*Miami*New York/John Kennedy Newark Oakland*Ontario* Philadelphia*San Francisco Seattle*Toronto Vancouver

*Freighter services only

Documents

HKIA Annual Report 2009-10