This is the full Case Deck from first runner up winner UBC Sauder School of Business.

1. Cathay Pacific Catering Services Cappellacci
Han
Lemanowicz
Ng

2. Half of the world’s population lives within 5 hours of Hong Kong
Seoul
Beijing Tokyo
Shanghai
Delhi Hong Kong Taipei
Manila
Mumbai Bangkok
Ho Chi Minh
Kuala Lumpur
Singapore
2 | Source: HKCBA Forum http://hkcba.com/canhkforum07/speakers.html

3. Airline Catering Industry Trends
What does
How does How is the
it take to
the industry CPCS
win in the
function? performing?
industry?
200 MM/annum 405 MM /annum 21 MM/annum
3|

4. CPCS has 4.4% of the Asia-Pacific Airline Catering Market
Asia-Pacific Aviation Catering by Company
CPCS, 4.4%
SATS, 4.9%
Quantas
Catering, 7.7%
All Others,
33.9% TFK Corp
(Japan
Airlines), 8.6%
Gategroup,
13.9%
LSG Sky
Chefs, 26.6%
Sources: SATS filings, Gategroup, LSG Press Release, Deutsche Bank
• Major competitors have a large market share with
considerable global reach and a desire for expansion
4|

5. Presentation Agenda
Identifying contributing Issues
Issues Analysis
Market and Competitor Analysis
Solution Summary
Joint Ventures
A New Plan for
Growth Acquisitions
Mentorship program
Bringing Workforce
CPCS Ambassadors
on Board
Social Calendar
Communicating Key messages
Communicating the
Vision to Customers Targeting Clients
Timeline
Conclusion
Solution Summary
5|

6. Strategy Alignment Difficulties
Competitors
increasing global
efficiencies by Challenges
consolidating
smaller companies appropriately
Cost pressures
addressing
have developed global market
more demands on
product and
forces is not
service allowing CPCS to
realize growth
Stresses in
transitioning from
opportunities
operations focus to
customer focus
6|

7. 77% of CPCS’ Meals Are Served to Cathay Pacific Flights
Interlines Projected to Constitute Only 23% of
Meals Served in 2010
100.0% • CPCS wants to be more
90.0%
80.0%
30.7% 29.2% 23.3% 21.8% 23.2% than an internal Cathay
70.0% Pacific supplier
60.0%
50.0%
40.0% 78.2%
• Recent trends have shown
76.7% 76.8%
30.0%
69.3% 70.8%
that CPCS is increasingly
20.0%
10.0% reliant on Cathay Pacific
0.0%
2006 2007 2008 2009 2010F
Cathay Pacific Interlines
• Loss of British Airways and other major customers in recent
years to competitors
7|

8. Interlines Are a More Lucrative Market
Average Revenue per Meal by Segment
$90
$80
$70
HK$76
$60
$50 average for Interlines
$40
$30
HK$35
$20
$10
$-
2006 2007 2008 2009 2010F average for Cathay Pacific
Cathay Pacific Interlines Consolidated
• In a low margin industry, having pricing power as CPCS does
over non-Cathay Pacific customers is significant
8|

9. LSG Sky Chefs is the Largest Aviation Catering Services
Company in the Asia-Pacific and Globally
• Serves 405mm meals a year (128mm in Asia-Pacific) in 193
airports
• Vision: “To be the preferred global provider of quality catering and
integrated in-flight services”
1942 1986 2001 2010
American Airlines creates Sky Chefs Onex Corp., a Canadian Lufthansa acquires Sky LSG Sky Chefs is the
catering service private equity firm, Chefs – now a global leading global player
purchases Sky Chefs company with around 30%
market share
Source: LSG Sky Chefs
• A long standing company with a global reach and reputation
for robust business
9|

10. Gategroup is the Leading Independent Company And Looking
to Acquire in the Asia-Pacific
• Serves 200 million meals a year in 100 kitchens
1992 1997 2009
Gate Gourmet formed from Acquisition of Gategroup listed
Swissair Catering British Airways on SIX Swiss
Kitchens Stock Exchange
“It’s a logical step that the suppliers will consolidate and grow together with the airlines, and
Gategroup plans to be a player in this game. It’s a large market, with the biggest
opportunities in the Asia-Pacific. And we have one global, ‘galactic’ competitor in
Lufthansa.”
– Guy Dubois, Gategroup CEO
Source: Gategroup, Bloomberg Business Week (October 13th, 2010)
• Gategroup is a young company with a great deal of potential
and momentum to enter the Asian Market
10 |

11. Cathay Pacific Catering Services is at an impasse
Focus on current
company operations
losing market share
CPCS in 2010 Grow to become
dominant Player in
Asia market
11 |

12. Presenting a solution for CPCS
Competitors
increasing global Align company activities to the
efficiencies by move company toward the top
consolidating position in catering services
smaller companies in Asia
companies Align company
Cost pressures activities to the
have developed move company
more demands on toward a top
Investigate joint ventures and outright
product and position of
acquisitions
service
catering services
company in Asia
Stresses in Engage existing
Focus on core
transitioning from competencies and
workforce into
operations focus to increase existing
growth strategies
customer focus demand
12 |

13. Investigate joint ventures and outright
acquisitions
Focus on core
Engage existing
competencies and
workforce into
increase existing
growth strategies
demand
INVESTIGATE JOINT VENTURES
AND OUTRIGHT ACQUISITIONS
13 |

14. Using partnerships as an efficient means of expansion
Criteria
Airport Volume
Existing Airline partnership
Airline Market Share
Culture Compatibility
• Using synergies of supply in the Asia area focuses on the vision of the
company and ensures that there is a strong network of support in the
region à Strong service for customers going forward.
14 |

15. Chinese Airport Developments
Shenzhen Chengdu Kunming
Airport Volume 24,486,406 22,637,762 15,877,814
Existing Airline
Shenzhen Airlines Air China Air China
partnership
Hainan Others China
Airline Market Airlines
2%
11%
Sichuan
Southern
15%
China
Share Shenzhen Southern
Airlines
28%
China
Airlines
4%
Others
17%
29% Southern
Air China
13% Air
China
37%
Other 8%
14% Air China China China
12% Eastern Eastern
Hainan China 13% Lucky
air
47%
Airlines Eastern Sichuan 9%
8% 9% Airlines
24%
Culture Chinese and close Similar region in China Furthest away from
proximity to Hong Kong to Shenzhen Hong Kong
Compatibility
15 |

16. Malaysia and Thailand Developments
Kuala Lumpur Suvarnabhumi
Airport Volume 14,732,876 40,499,409
Existing Airline Malaysia Airlines + Thai Airways +
partnership Cathay Pacific Cathay Pacific
Airline Market
Share Cathay
AirAsia
Other
20%
Other
36%
Thai
Airways
Malaysia 40%
Pacific
0% Airlines
2% China
38%
Airlines
3%
Indonesia Air Asia
AirAsia 37% CathayBangkok
Pacific Airways Thai
3%
Airasia
4% 6% 11%
Culture Malaysian requirements Thailand is close to
for Halal is compatible Vietnam though culturally
Compatibility
different
16 |

17. Engaging partnership programs
Negotiate
Determine Engage in Determine Initiate Change
Individual
Assets and conversations Needs and Management
Terms and
Resources with partners priorities Strategy
contracts
Establish a partnership Certain partners will be Partners may be Protecting CPCS Ensuring that the strategic
team from within the more ready than others to interested in redeveloping intellectual and advantage of the
Detail
Commercial Department work together and most existing facilities, revising investment property are company is shared.
to determine company therefore relationships staff or even building new important parts of the Deployment of CPCS
priorities must be built facilities process Change Management
Ambassadors
• A plan that the • A clear idea of which • Legal protection and • Ensures there is
Key outcomes
• An idea of the financial
company is capable of partners are ready to and development an agreement that will consistency of practice
handling develop partnerships commitment going benefit both parties in amongst areas
• Determining if capital forward the long term • Includes Hong Kong
and human resources staff in development
are adequate process
• The partner development cycle will take approximately two years to see the first
results of a collaboration
• The greatest amount of time will be in developing and negotiating terms of the
business partnership
17 |

18. Sample Cost Model for Partnership
Cost Item Detail Amount
Partnership Building Annual Expenses for travel, $240,000
entertainment and administration
Purchase of partnership Based on a 40% stake at a 23,000 $266,000,000 to
meal evaluation
stake $399,000,000
Legal Fees Legal fees associated with high $15,000,0000
level partnerships
Change Management Ambassadors and administration $8,000,000
costs
• Costs are estimate based on expected valuations and
researched expenses for specific operations
18 |

19. Why Acquire Other Companies?
• The industry has changed – consolidation trend
appears to continue with LSG Sky Chefs and
Gategroup gaining market share
• Airlines divesting of in-house catering businesses
• CPCS needs to establish stronger foothold in Asia-
Pacific region now – otherwise more kitchens will
be bought out
• Very difficult to grow organically until international
scale is achieved – LSG and Gategroup both took
nearly 20 years to get to where they are today,
much of their growth was also driven by acquisition
• The time is right to seek rapid and considerable growth
19 |

20. Criteria for Acquisitions
1. Focus on core aviation hubs within Asia-Pacific
2. Financial feasibility
3. Pure play catering business
4. Potential synergies with existing Cathay Pacific routes
5. Favourable competitive environment
6. Ease of cultural alignment
7. Likelihood of successful acquisition
1. Singapore Airline Terminal Services
There are four companies that are 2. Q Catering – Quantas Airways
currently targets for acquisitions 3. LSG Sky Chefs
4. TFK Corporation – Japan Airlines
20 |

21. Reviewing competitors current offerings
LSG Sky Chefs TFK Corporation – Singapore Airline Q Catering –
• The company will Japan Airlines Terminal Services Quantas Airways
consider its options for • JAL plans to sell • Dominant market • Largest flight caterer in
the latter as it grows] “to catering business, TFK position in Changi the Southern
see whether we are the Corporation as of Jul Airport (80% market Hemisphere, with
right parent” – Stephen 2010 share) Australian focus
Gemkow, CFO • JAL has 50.7% stake in • Only 23% of • Quantas is the largest
• 405mm meals in 2009 TFK Corp. Other consolidated revenues customer, but Cathay
globally (128mm in Asia- shareholders: Tokyo from airline catering Pacific is also a
Pacific – the market Airport Service, Air after recent customer
leader by far) France diversification efforts
21 |

22. Potential Targets Would Cost Between
HK$2.4 – 11.4 Billion to Acquire
LSG Sky
2009 Data CPCS SATS Q Catering Chefs TFK Corp.
Meals Served ('000) 20,919 23,470 37,000 405,000 41,344
Revenue per meal $ 44.41 $ 89.91 $ 93.74 $ 42.52 $ 64.23
Revenue (HK$mm) 929 2,110 3,468 17,222 2,655
Profit (HK$mm) 82 169 277 813 212
Valuation (14x P/E) 1,145 2,364 3,884 11,380 2,974
Sources: CPCS, SATS, Q Catering, LSG Sky Chefs, TFK Corp., Deutsche Bank
• The four businesses considered are worth between HKD $2.4 – 11.4
billion, based on our estimates
• 14x P/E is the higher range of comparable multiples – necessary for an
acquisition
All four have higher meals served and SATS / Q Catering have significantly higher
revenue per meal, indicating premium pricing position
22 |

23. Cathay Pacific’s Robust Balance Sheet Makes a
Transformational Acquisition Possible
Cathay Pacific's Net Leverage is Only 1.5x - Significantly Stronger Balance
Sheet Compared With Rivals
14.00x
11.66x
12.00x
Net Debt / LTM EBITDA
10.00x
7.71x
8.00x 6.24x
5.33x
6.00x 4.53x
3.55x 3.84x
4.00x
1.32x 1.47x
2.00x
-1.66x
0.00x
-2.00x Air China China Singapore China China Korean Air China Thai Airways Eva Airways Cathay
COSCO Airlines Eastern Southern Lines Airlines International Pacific
-4.00x Holdings Airlines Airlines Airways Ltd.
• Cathay Pacific generated HK$13.4 bln in EBITDA in the past 12 months
• Even LSG Sky Chefs, which we value at HK$11.4 bln, would only take Net Debt/EBITDA to 2.3x
• Cathay Pacific would still be significantly less levered than the median airline competitor (median
= 4.4x)
23 |

24. Our Top Recommendation is to Purchase TFK Corp.
Asia-Pacific Financial Pure Play Existing Cathay Favourable Competitive Cultural Likelihood of
Focus Feasibility Catering Routes Environment Alignment Acquisition
SATS Yes Yes No Yes Yes Yes No
Q Catering Yes Yes Yes Yes Yes Maybe Maybe
LSG Sky Chefs No Maybe Yes Yes Maybe Maybe Yes
TFK Corp. Yes Yes Yes Yes Yes Yes Yes
TFK Corp. meets all of our criteria for an acquisition
Alternatives
• They have explicitly stated that they want to sell – not the
• Q Catering is the second best choice:
case with SATS or Q Catering still a catering focused company, but
• They are a pure play catering company – SATS is now very cultural alignment may be difficult
diversified and only 1/3rd of revenues are from airline • SATS is unlikely to sell to CPCS due to
catering 44% holding by Temasek
(Singaporean sovereign wealth fund)
• Impact on Cathay Pacific’s balance sheet will not be • LSG Sky Chefs is too large for CPCS
significant - $3 billion acquisition when they have $21 to integrate, and it does not have an
billion in cash on hand Asia-Pacific focus
• JAL bankruptcy makes them an eager seller
24 |

25. Projected IRR of 11 – 14% is Significantly Above
Existing 5-10% ROI for CPCS
• Acquisition multiple: Between
10-14x P/E
TFK Acquisition High Case Low Case
• Terminal Growth Rate: 3.5% per
Initial Investment (HK$mm) 2,124 2,974 annum - conservative estimate for
annual air traffic growth
2011E Profit (HK$mm) 220 220
• IRR of 10.91 – 13.88% for TFK
Growth Rate 3.50% 3.50% acquisition
• CPCS’ ROI has been 5-10% from
IRR 13.88% 10.91%
2006 – 2010, so this acquisition
would increase consolidated ROI
• TFK would make a significant addition to the profitability and
product offering of the company
25 |

26. Implementation Timeline
Launch
Finalize Send CPCS customer service
Begin acquisition, set Ambassadors to campaign to
negotiations with market share Narita and build Review targets
TFK Corp. and targets and Haneda airports relationships for quality and
other potential maintain existing to begin change with TFK market share
airlines quality management customers and
standards process re-align them to
the CPCS brand
Risks
• Regulatory approval – present with any international acquisition, but less likely with TFK given
JAL’s financial troubles
• Cultural integration issues – mitigated by shared commitment to quality (ISO 9000) and
experiences with making Asian cuisine
26 |

27. New CPCS Will Have 16% Market Share, Surpassing
Gategroup
The New CPCS Will Have 16% Market
Share in the Asia-Pacific
CPCS, 4.4% New CPCS,
SATS, 4.9% 15.5%
Quantas
Catering,
7.7%
SATS, 4.9%
All Others, TFK Corp All Others,
33.9% (Japan 31.4%
Airlines),
Gategroup, 8.6%
Quantas
13.9%
Catering, 7.7%
LSG Sky Gategroup,
Chefs, LSG Sky 13.9%
26.6% Chefs, 26.6%
27 |

28. Investigate joint ventures and outright
acquisitions
Focus on core
Engage existing
competencies and
workforce into
increase existing
growth strategies
demand
ENGAGE EXISTING WORKFORCE
INTO GROWTH STRATEGIES
28 |

29. CPCS needs the right workforce for the job
• CPCS will be growing considerably
over the next few years.
• As companies are acquired and
new kitchens are built, there is an
inherent risk of company
fragmentation leading to reduced
quality and increased operational
complexity
• Establishing a open-minded yet consistent company culture
across all kitchens will be crucial to maintain an effective
workforce that focuses on quality, safety and creativity
29 |

30. Preparing the Company for Growth
Current State Ideal State
Employees are routine Employees are proactive
and function-oriented. and customer oriented
Excellent problem Anticipate problems and
solvers, but are reactive find new opportunities
Authoritative and permission- Innovative, out-of-the-box
based power structure thinkers taking initiative
“To be the most valued catering services partner in Asia; we focus on
quality and creativity to support our customers in their ultimate
goals”
30 |

31. Soaring higher with new HR practices
Land Change Soar
Aligns employees with the new vision, mission and
Mentorship Program
values.
Ambassador Team Develops a proactive and consistent company culture.
Community Calendar Creates organic employee engagement.
31 |

32. Mentorship aligns employees with new vision,
mission and values
Mentoring creates relationships between Improves teamwork skills
people of varying backgrounds,
experiences and positions of influence. Facilitates two-way communication
Mentors and mentees will hold each other Improves employee satisfaction
accountable for personal and professional
goals. Promotes goal setting and planning
Monthly $200 pair budget will Encourages skill development
institutionalize Philip Cocks’ caring family
culture. Reinforces vision core values
Mentorship ensures that company HR goals of retention and
development are institutionalized and helps reduce parental
management mindsets through a collaborative improvement process
32 |

33. Mentorship program is a small investment with a big
return
Item Cost
Mentorship Activity Budget $1,920,000
Admin Costs $80,000
Total Yearly Cost $2,000,000
Action Items Q 3 - 2010 Q 4 - 2010 Q1 - 2011 Q 2 - 2011
Creating initial buy-in from key stakeholders
Forming mentorship program test group
Modifying program based on early feedback
Communicating new program company-wide
Matching employees and setting up
meetings
Full program roll-out
“Engage and develop our people to excel”
- CPCS Mission Statement
33 |

34. Creating CPCS Ambassadors to develop a more proactive and
consistent company culture during high growth in the future
Ambassadors create opportunity to share Sharing of best practices
best practices across kitchens and reward
proactive employees
Fosters innovative thinking
Deployed across CPCS’ international
operations to teach and instil vision and Professional development
culture
Increases plant efficiency
Helps achieve highest quality and safety
standards throughout supply chain Exposure to different cultures
34 |

35. Implementing Ambassador Team
Item Cost
Training Employees $75,000
Transportation Expenses $48,000
Accommodation Costs $640,000
Opportunity Cost $640,000
Total Project Cost $1,403,000
Action Item Q 3 - 2010 Q 4 -2010 Q 1 -2011 Q 2 – 2011
Ambassador Training and
Selection
Site Visits and Feedback
“Strive for the highest quality and safety standards throughout the
supply chain”
- CPCS Mission Statement
35 |

36. Creating organic employee engagement with an events calendar
Action Item Q 3 - 2010 Q 4 - 2010 Q 1 - 2011 Q 2 - 2011
Determine appropriate system
Communicate calendar through
company channels
Update and check calendar
Create an event and activity
calendar that is shared with all Events can range from
employees. Contains volunteer opportunities to $0 cost,
information about what is concerts to community implementable today
going on in the community and organized sports
who is attending from work.
36 |

37. Soaring higher with new HR practices
Land Change Soar
Coaching
Mentorship Program Goal Setting
MBO
Involvement
Ambassador Team Education Evidence Stream
MBO
Community Calendar Socializing
• 3 program approach ensures creation of momentum and
solidification of new company culture
37 |

38. Need to address issues and concerns on all
levels
Department Heads Why am I getting more work?
Will this change affect my employee’s
Managers productivity and therefore my
performance?
Will I have the right skills?
Supervisors
Will I lose my job?
General Staff What is going on?
Will I lose my job?
38 |

39. Communicating Plan
Main Message Communicated
Top-level buy-in is critical because you are
role model for the rest of the company. Department Heads
Change assistance through mentorship will
be provided and your buy-in is necessary Managers
as supervisors look up to you.
This is a one-time change with the
purpose of improve job performance – Supervisors
and maintain job stability. It is an
expansion strategy and not downsizing. In
the end it will provide more opportunities General Staff
for employees of CPCS.
39 |

40. Investigate joint ventures and outright
acquisitions
Focus on core
Engage existing
competencies and
workforce into
increase existing
growth strategies
demand
FOCUS ON CORE COMPETENCIES
AND INCREASE EXISTING DEMAND
40 |

41. How can CPCS get customers on board with the new vision?
Determine
customers’ possible
values and goals
Collect information from
current customers
Drive unique Value
proposition via marketing
campaign
Develop a consistent yet
tailored sales strategy
Solidify a unique selling proposition to dominate in Asia
41 |

42. Marketing & Sales Plan Overview
1. 2.
Authentic, high
Asia’s most quality cuisine. Only
trusted from Cathay Pacific
Catering Services.
airline caterer.
With non-stop
Primary service from Secondary 14 Chefs
Message home, whatever
your destination.
Message
Hong Kong’s most
reliable airline “Meet the
caterer is now
serving you in Team”
(Japan, Korea, Campaign
Malaysia, etc.)
Regionalization Strategy
Strategy is highly customized, targeted to convey continental scope.
Key Messages: trust and quality authenticity cuisine
42 |

43. Marketing Campaign: Leverage unique competitive
advantage of being located in Asia
• Image: Local landmark background,
passenger on plane enjoying cuisine of
destination country.
• Ad Copy: Asia’s most trusted airline
caterer.
Hong Kong’s most reliable airline caterer is
now serving you in (Japan, Korea, Malaysia,
etc.)
Source: Travel Magazines http://www.itravelnet.com/publications/inflightmagazines.html
43 |

44. Sales Strategy: sell on element of guaranteed high quality cuisine
Action Item Q 3 - 2010 Q 4 - 2010 Q 1 - 2011 Q 2 - 2011
Identify Customer Goals
Assess the Situation
Sell on Benefits
Invite for Sampling
Next Steps
Continuous Feedback
44 |

45. A 5 Year Action Prospectus
Action Item Year 1 Year 2 Year 3 Year 4 Year 5
Develop Partnerships
Expand Partnerships
Purchase TFK
Transition TFK
Mentorship Program
Ambassador Program
Staff Calendar
Develop Marketing Plan
Execute Marketing Plan
45 |

46. Solutions Summary and Business
Implications
Business Partnership • Selecting 5 cities and airlines Ensures robust penetration in
Development • Develop shareholder stakes Asian Market
• An eager sale for struggling company Capitalize on sale opportunity
Acquire TFK Corp • Primarily air catering in Asia to increase capacity and
reduce competition
Communicate to • Develop sales strategy to communicate Ensures key stakeholders and
the changes to customers potential customers are
Customers aware of CPCS efforts
Company Culture • Mentorship program for innovation
Ensures workforce is ready
Changes • Ambassador project to promote growth for growth and change
46 |

47. Now You’re Really Flying
By pursing these strategies and
implementing a plant to exploit the
current opportunities, Cathay Pacific
Catering Services is set to soar above
the rest.

48. EXHIBITS
Additional Information
48 |

49. Strategy alignment difficulties
Competitors
Cost pressures have Executing the
increasing global
developed more company’s vision puts
efficiencies by
demands on product pressure on Human
consolidating smaller
and service Resource Culture
companies
Inability to appropriately address global market forces is
not allowing CPCs to realize growth opportunities
49 |

50. EXHIBITS – THE STATE OF THE
AIRLINE INDUSTRY
50 |

51. Passenger Traffic Growth Has Rebounded
Significantly from the Recession

52. 26% of Global Air Traffic Occurs in the Asia-Pacific
Region
World Air Passenger Traffic, 2004 - 2009
1,600,000
1,400,000
1,200,000
Millions of passenger km
1,000,000
North America
800,000 Europe
Asia-Pacific
600,000
Other
400,000
200,000
-
2004 2005 2006 2007 2008 2009
Source: Euromonitor

53. Global Airports by Passenger Volume in 2009

54. Passenger Numbers by Carrier in the Asia-Pacific
Source: Travel Catering Research Centre, Annual Catering Research Report

55. Air Passengers by Continent in 2009
Source: Airports Council International

56. Cathay Pacific and Its Competitors

57. TFK Corp. Letter From the President
Message from the President
• We Tiefuke, founded in 1959 as the company's first meal in Japan, since then, we have played a role in the leadership
role of local catering company. With the motto to provide reliable service and safe, high quality meals now at Narita
and Haneda Airport JAL airline companies won contracts with several companies including the 30
international groups, and various food safety We receive high levels of confidence in the airline product development
capabilities by developing the menu.
We are operating principle of the "food safety" in order to run reliably, and international health standards and
compliance with HACCP standards, international standards for quality management system ISO9001:
2008 certification continues to , and strive to strengthen quality control of branch office Haneda Narita, conducting
campaign business efficiency, we are committed to improving service quality levels.
In addition, the renewal Headquarters Narita 2004, also in terms of facilities, established a system of production can
be prepared from food to 70,000 per day, gradually thereafter, and to update facilities and equipment, improvement of
fulfillment both hard surfaces soft side aim, we have grown to be recognized as one of the companies in the world's
leading Ketara.
Utilizing the expertise gained in the food of this meal, and make hotel and restaurant management and business
development and contract services to major airlines in the terminal lounge at Narita Airport, we are also challenging new
business .
We walked along the history of domestic meals, celebrated its 50th anniversary in 2009, thank you.And to
contribute to society through the meal will continue to strive to further improve service quality and strict hygiene and
food safety.
President Hukada Makoto
Source: TFK Corp. website, translated from Japanese using Google Translate

58. TFK Corp. History
1951.10 Preparation of the first meal
1959.12 "Flight Kitchen Ltd. Tokyo" founding
1960.9 Open from (Tokyo Airport Service (Inc.) and inherited the business from the meal)
1978.5 Headquarters in New Tokyo International Airport (Narita, Chiba Prefecture)
1996.4 Bill Curry in the New Tokyo International Airport Terminal 2 & Cafe "Ra Tokku" opened
1999.7 Casual restaurant in the New Tokyo International Airport Terminal 2, "La Vista" opened
1999.12 The division headquarters meal ISO9002 certification
2003.1 The division headquarters meal ISO9001: 2000 certification
2004.6 Headquarters Renewal
2006.3 Certified Food Safety voluntary certification schemes have branches in Tokyo Haneda
2007.11 Haneda Branch also ISO9001: 2000 certification
Source: TFK Corp. website, translated from Japanese using Google Translate

59. SATS Historical Forward P/E

60. SATS and Aviation Service Comparables
Source: DBS Vickers

61. EXHIBITS – CPCS VISION
AND VALUES
61 |

62. CPCS: Vision, Mission and Values
Source: Food For Thought June 2010, http://www.cpcs.com.hk/press/issue%2026.pdf
62 |

63. CPCS Current Customers
Source: CPCS http://www.cpcs.com.hk/
63 |

64. Vision Statements of Major Airline Caterers
• Cathay Pacific Catering Services
– To be the most valued catering services partner in Asia; we focus on quality and
creativity to support customers in achieving their ultimate goals.
• Gate Gourmet
– Great food… and so much more.
– “We offer you:
- Airline catering and last mile provisioning
- Onboard retail solutions, a major driver of ancillary revenue
- The same catering and provisioning services for non-airline customers: railway
companies, lounges and business aviation”
• LSG Sky Chefs
– To be the preferred global provider of quality catering and integrated in-flight
services.
– “As a logical extension of its capacities, LSG Sky Chefs has also begun a
successful incursion into adjacent markets, such as train, school and healthcare
catering as well as retail.”
Source: CPCS http://www.cpcs.com.hk/
64 |

65. Addressing the Relationship with CX
Major customer and shareholder
Owns 100% of CPCS
1. Underline long term alignment
of values
2. Emphasize value addition of
CPCS
3. Demonstrate independence in
operation and continue to focus
on deliver results for CX
65 |

66. Preparing for Future Success
Questions to consider:
1. Quality
– Strive for the highest quality and safety standards throughout the supply chain.
Do these changes reflect the values of CPCS’s focus on quality? If not, can something be done to meet
the quality standards?
2. Safety
– Occupational health and safety is our prime concern. In order to maintain a safe and healthy
working environment so as to minimize the occurrence of injuries and occupational illnesses, we
are committed to implementing this Occupational Health and Safety (OH&S) Policy
Will implementation of this new plan or process jeopardize the safety of CPCS’s work environment?
3. Environmental Awareness
– The company realizes, that its operations do affect the environment. In order to minimise the
impacts on the environment, we have established an Environmental Policy so as to
manufacture, deliver products and services in a manner that is not detrimental to the
environment.
Is this strategy going to comply with CPCS, Cathay Pacific and Swire Group’s dedication to
environmental sustainability and long term growth?
66 |

67. EXHIBITS – CPCS’
FINANCIAL PERFORMANCE
67 |

68. Average Daily Meals Served to Cathay Pacific and
Interlines

69. Average Daily Flights Served by CPCS for Cathay
Pacific and Interlines

70. CPCS Meals per Average Flight

71. CPCS Revenue by Segment

72. CPCS Revenue per Meal by Segment, CM and PAT per
Meal

73. CPCS Profitability Metrics

74. EXHIBITS – RECENT ARTICLES ON THE
AIRLINE CATERING INDUSTRY
74 |

75. Gategroup Weighs Takeover of Asian Catering Companies,
CEO Says (Bloomberg News – Oct 13, 2010)
Gategroup Holding AG, the world’s second-largest in-flight caterer, is interested in acquiring
the food units of carriers including Japan Airlines Corp. and Cathay Pacific Airways Ltd., its
chief executive officer [Guy Dubois] said.
“It’s a logical step that the suppliers will consolidate and grow together with the airlines, and
Gategroup plans to be a player in this game,” Dubois said. “It’s a large market, with the
biggest opportunities in the Asia-Pacific. And we have one global, ‘galactic’ competitor in
Lufthansa.”
“These airlines still have their own kitchens and I expect that over time many of them will
outsource,” Dubois said.

76. Recent M&A Speculation
• Cathay Pacific has “no intention of disposing of our interest in Cathay Pacific Catering
Services which is a strategic component of our aviation business,” it said in an e-mail to
Bloomberg.
• JAL and All Nippon Airways Co. of Japan, Hong Kong-based Cathay and Australia’s Qantas
Airways Ltd. -- whose Q Catering unit is the southern hemisphere’s largest airline meal
provider -- are among carriers that may favor selling food operations to cut costs and take
non-cash generative assets off their balance sheets, [Gategroup CEO] Dubois said. JAL
plans to sell its TFK catering unit as part of a turnaround plan, Jiji Press reported last
month.
• Qantas’ catering is an integral part of its business, said Olivia Wirth, a spokeswoman.
• Gategroup may itself become a takeover target, said Jon Cox, an analyst at Kepler Capital
Markets SA in Zurich with a “buy” rating. “With consolidation going on in the market
Gategroup could themselves become a target,” Cox said. “It’s certainly affordable if you
are a big institution.”
Source: Bloomberg News, Oct 13, 2010

77. Lufthansa’s BMI, Austrian Purchases Return to
Profit (Business Week – Oct 28, 2010)
• Among the fastest-growing businesses in coming months will be ...the
LSG Sky Chefs in-flight catering division, [CFO Stephen] Gemkow said.
The company will consider its options for the latter as it grows, “to see
whether we are the right parent,” the executive said.
• Gategroup Holding AG, the biggest global rival to Sky Chefs, said this
month that it will use proceeds from a capital increase to fund
purchases and is interested in acquiring the food units of carriers
including Japan Airlines Corp.

78. CPCS’s Share of Meals Produced Including
New Joint Ventures
• Assuming 40% market share, with CPCS holding a 35% stake
• Source: Airports Council International
78 |

79. CPCS’ Future Market Share in the Asia-Pacific
and Globally
79 |

80. EXHIBITS – CPCS’
COMPETITIVE LANDSCAPE
80 |

81. Total Meals Served in Asia, by Catering Services
Company
Sources: SATS filings, Gategroup, LSG Press Release, Deutsche Bank reports

82. Singapore Airline Terminal Services
SATS Revenue Breakdown • Vision: “We aim to be the first choice
provider of gateway services and food
Food solutions by leveraging on our capabilities
Solutions - to delight users and exceed customers'
Airline expectations.”
Catering
23% Food • Dominant market position in Changi
33% Solutions -
Non-Airline
Airport (80% market share)
• Changi – 37mm passengers in 2009, 6th
44%
Airport
Services
busiest in Asia (21st in world) behind
Beijing, Tokyo, Hong Kong, Dubai, and
Suvarnabhumi (Thailand)
• Only 23% of consolidated revenues from
airline catering after recent diversification
efforts
Sources: SATS, DBS Vickers, Airports Council International

83. Q Catering – Quantas Airways
• Largest flight caterer in the Southern Hemisphere, with
Australian focus
• Quantas is the largest customer, but Cathay Pacific is also a
customer
• Halal food capabilities
• Value-added services: newspaper, laundry, VIP meals
• 6 locations: Syndey, Melbourne, Brisbane, Perth, Adelaide,
Cairns
Sources: Q Catering, Deutsche Bank

84. LSG Sky Chefs
• [The company will consider its options for the latter as it grows]
“to see whether we are the right parent” – Stephen Gemkow, CFO
• Largest player in global catering services market is “up for sale”
• 405mm meals in 2009 globally (128mm in Asia-Pacific – the
market leader by far)
• Very successful story of global expansion since 1986
• Value-added services: in-flight equipment, retail products
• LSG is growing in Asia-Pacific, but its dominance is more clear in
Europe, North America
Source: LSG Sky Chefs, Business Week (October 28th, 2010)

85. TFK Corporation – Japan Airlines
• JAL plans to sell catering business, TFK Corporation as of Jul 2010
• JAL has 50.7% stake in TFK Corp. Other shareholders: Tokyo Airport
Service, Air France
• Founded in 1959, provides service at Narita and Haneda airports
• Compliance with ISO:9001:2000 certification (since 2007, both
branches)
• Value-added services: hotel / restaurant management, liquor and
tobacco sales
• JAL filed for bankruptcy in 2009 due to the financial crisis – looking to
divest of non-core assets
• JAL plans to cut 19,133 out of 47,000 jobs by 2015 as part of
significant restructuring
Source: TFK Corp., BusinessWeek (Oct 13, 2010), Jiji Press, Nikkei Business Daily,
Air Transport World

86. Report: JAL to slash more than 19,000 jobs by
March 2015 (Air Transport World – Aug 10, 2010)
• Japan Airlines, undergoing bankruptcy rehabilitation, plans to cut
19,133 jobs from its workforce of 47,000 by the end of March 2015,
according to documents cited by Kyodo News
• JAL filed for bankruptcy under Japan's Corporate Rehabilitation Law in
January and is facing an Aug. 31 deadline for filing its official
reconstruction plan
• Multi-year restructuring - By 2014, JAL hopes to post a ¥106.7 billion
net profit, according to the draft plan

87. EXHIBITS – ALTERNATIVES
TO OUR PROPOSED PLAN
87 |

88. Why not organic growth into new markets?
• Setting up new kitchen requires significant capital investment – especially if you want
to be a competitor of size - ~HK$500mm for 20,000 meals per day capacity
• 7 – 10 years break-even based on Hong Kong kitchens
• In the meantime – substantial risk of building a new customer base in markets that
already have established kitchens from current airlines
Sources: CPCS, Airport Authority

89. Beijing Capital International Airport: Potential Organic
Growth Opportunity
• Although we would prefer growth through Joint
Ventures and Acquisitions, organic growth may
be feasible in very high growth markets
• Beijing’s main airport has increased traffic by
5.9mm per year (2007 – 2009)
• This means annual increase in meal production
of about 13,000 meals / day
Sources: Airports Council International, CPCS

90. Why not maintain the status quo?
CPCS’ Market share of non-CX meals is dropping
- Interline meals have fallen 16% since 2006 due to loss of Quantas, British
Airways, HK Express, Siem Reap Airways International, EVA Airways
- LSG is operating at 87% utilization, Gate Gourmet at 92%, while CPCS is only at
77% à this provides further evidence of a shift to the international players
If market share is dropping – status quo is not the option given CPCS’ vision to be a
growth-oriented profit centre
Sources: CPCS

91. EXHIBITS – NON-AVIATION
CATERING INDUSTRY
91 |

92. Institutional Catering – Not the Ideal Solution
CPCS derives only 2.4% of its revenues from Non-Aviation Food
• While an interesting area of expansion, non-aviation food currently does not
constitute a major part of CPCS’ business
• Competitive dynamics of non-aviation industry are not as appealing – fewer
barriers to entry suggests higher competition
• Airline catering in HK has high barriers to entry, airport authority hasn’t
authorized a new caterer since 1998
Most importantly – diversifying the business, while important, does not address the
underlying issue: CPCS is losing market share to global competitors because it
does not currently have the global reach of LSG Sky Chefs or Gategroup
Sources: CPCS

93. Non-Aviation Catering is Not as Appealing an
Industry
• One of the largest public catering company in the United
States
• Services to hospitals, hotels, universities
• Average profit margin over the past 5 years was 3%, whereas
the profit margin for CPCS was 6%
Source: Standard & Poor’s
• The general catering industry is therefore NOT an attractive
nor strategically significant business for CPCS
93 |

94. EXHIBITS – MANAGING
CHANGE WITH HRM
94 |

95. Mentorship Program – Why it Works
• Mentorship will allow employees to develop new skills
and promotes a proactive culture
• Mentees will have a pillar of support to lean on during the
change
• Indirect way of teaching employees Management By
Objective – goal setting is essential in an innovative,
proactive company
• Coaching provides a two way feedback mechanism during
the change management process. Creates ability to
generate more natural buy-in and contain and mitigate
any backlash

96. Ambassador Team – Why it Works
• Ambassador system involves an education component where staff will
learn about the benefits of the new company culture
• Management by objective will force them to break past comfort zones
and take more ownership over the change.
• A constant evidence stream will be flowing as these employees travel
from kitchen to kitchen improving their processes
• General staff may see this team as a threat attempting to replace them
by machines. Contrarily, unemployment rates are going down and
companies may be facing a job labour shortage. Need to communicate
clearly that this team is team is about process improvement – making
their jobs more efficient and more engaging
• Some team members may not be comfortable tackling such a large
scale endeavour. That is why all 4 units (from general staff to
department head) are involved on the team.

97. Community Calendar – Why it Works
• Community calendar reinforces the family-oriented
aspect of CPCS, promoting socializing and
communication
• If people are resistant to using the calendar, leverage
mentor network to promote it internally. Also
prepopulate the calendar with upcoming events
(dinner, sports games) and incentivize people by
giving away event tickets. Also possible to display
calendar on a TV inside the entrance of the building

98. What Motivates People? – Study by The Gallup
Organization

99. Change Management Techniques
Goal Setting
• Using existing goal-setting process to set a goal that requires change. Enables change.
Coaching
• Bringing in a coach to help employees having difficulty managing and adapting to change. Used to create change momentum.
Management by Objectives (MBO)
• Setting formal objectives for people to achieve without explaining how to achieve it. By giving them relatively free reign you can encourage them to think outside
the box. Used to enable change and generate momentum.
Education
• Teaching employees about the need for change and how embracing change is far more effective than resisting or maintaining status quo. Used to to enable
change and generate momentum.
Involvement
• Getting employees involved in the change will make them feel empowered. Used to create change momentum.
Evidence Stream
• Getting employees to accept a change by providing a steady stream of evidence demonstrating that the change has happened and is successful. Used to solidify a
change.
Socializing
• Seal changes by building them into social structures and empowering social leaders. Used to solidify a change.

100. CPCS Ambassador Structure
• 8 person team
– 1 department head
– 2 managers
– 2 supervisors
– 3 general staff