Air China Regulatory News (AIRC)

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

Neither this announcement nor any copy thereof may be released into or distributed directly or indirectly in the United States or any other jurisdiction where such release or distribution might be unlawful.

This announcement does not constitute or form a part of any offer or solicitation to purchase or subscribe for securities in the United States. The securities mentioned herein have not been, and will not be, registered under the US Securities Act of 1933 (the "US Securities Act"), and may not be offered or sold in the United States unless registered under the US Securities Act or pursuant to an exemption from, or in a transaction not subject to, registration under the US Securities Act. No portion of the proposal and no securities referred to herein will be registered under the US Securities Act and there will be no public offering of securities in the United States.

中國國際航空股份有限公司

AIR CHINA LIMITED

(a joint stock limited company incorporated in the People's Republic of China with limited liability)

(Stock Code: 00753)

CONNECTED TRANSACTION

UNDERTAKING TO TAKE UP CATHAY PACIFIC RIGHTS SHARES AND

RESUMPTION OF TRADING

This announcement is made by the Company pursuant to Rule 13.09 of the Hong Kong Listing Rules and the Inside Information Provisions under Part XIVA of the SFO and Chapter 14A of the Hong Kong Listing Rules.

BACKGROUND

On 9 June 2020, Cathay Pacific announced that it proposed to implement, among other things, the Cathay Pacific Rights Issue to raise aggregate proceeds of approximately HK$11.7 billion.

The Cathay Pacific Rights Issue will be conducted on the basis of seven (7) Cathay Pacific Rights Shares for every eleven (11) existing Cathay Pacific Shares at the Subscription Price of HK$4.68 per Cathay Pacific Rights Share, which is determined by the directors of Cathay Pacific with reference to the market price of the Cathay Pacific Shares under the prevailing market conditions preceding and including the date of the Cathay Pacific's Announcement.

The Cathay Pacific Rights Issue will be conditional on (i) the approval of the Cathay Pacific Rights Issue by the independent shareholders of Cathay Pacific (i.e. shareholders of Cathay Pacific other than Cathay Pacific's controlling shareholder Swire Pacific and its associates) at the general meeting of Cathay Pacific; and (ii) the Rights Issue Underwriting Agreement having become unconditional and not having been terminated by the underwriters in accordance with its terms. In the event that the Rights Issue Underwriting Agreement does not become unconditional or is terminated in accordance with its terms, the Cathay Pacific Rights Issue will not proceed. In addition, the obligations of the underwriters under the Rights Issue Underwriting Agreement are subject to the satisfaction of certain conditions. If any of such conditions of the Rights Issue Underwriting Agreement is not fulfilled or waived in accordance with the terms of the Rights Issue Underwriting Agreement by the designated time and date, or where there are no times or dates specified by 31 August 2020, the Rights Issue Underwriting Agreement shall terminate (save for certain provisions thereof and without prejudice to the rights of the parties thereto in respect of any breach of Rights Issue Underwriting Agreement occurring before such termination) and the Cathay Pacific Rights Issue will not proceed.

IRREVOCABLE UNDERTAKING

As at the date of this announcement, the number of total issued shares of Cathay Pacific is 3,933,844,572 shares, among which the Company holds a total of 1,179,759,987 shares through the Relevant Subsidiaries, representing 29.99% of the total issued shares of Cathay Pacific. The Company is the indirect beneficial owner of these shares.

The Company issued the Irrevocable Undertaking to Cathay Pacific on 9 June 2020, pursuant to which the Company has irrevocably undertaken to (i) remain the indirect beneficial owner of the Cathay Pacific Shares the Relevant Subsidiaries hold as at the date of the Irrevocable Undertaking, and will procure that each of the Relevant Subsidiaries shall remain the sole legal owner and the registered holder of such Cathay Pacific Shares or the beneficial owner of such Cathay Pacific Shares, as the case may be, at 5:00 p.m. on the record date of the Cathay Pacific Rights Issue, and (ii) procure each of the Relevant Subsidiaries to take up in full at the Subscription Price of HK$4.68 per Cathay Pacific Rights Share its respective entitlement to Cathay Pacific Rights Shares pursuant to the Cathay Pacific Rights Issue, provided that such undertaking shall not oblige the Relevant Subsidiaries to take up the Cathay Pacific Rights Shares to the extent that (a) it results in the Company being required to make a mandatory take-over offer of the Cathay Pacific Shares under the Takeovers Code; or (b) it results in Cathay Pacific being in breach of its public float requirements under the Hong Kong Listing Rules upon completion of the Cathay Pacific Rights Issue. If Cathay Pacific Rights Issue is materialized, the Relevant Subsidiaries of the Company are expected to take up a total of 750,756,342 Cathay Pacific Rights Shares at a total consideration of approximately HK$3.514 billion, expected to be funded by internal sources of the Group. Such subscription amount shall be paid upon formal acceptance of the Cathay Pacific Rights Shares.

The Company has also undertaken that none of the Relevant Subsidiaries will apply for further additional Cathay Pacific Rights Shares, by way of excess application under the Cathay Pacific Rights Issue.

The Cathay Pacific Rights Issue constitutes part of Cathay Pacific Recapitalization Proposal which also involves the Preference Shares and Warrants Issue and the Bridge Loan (each as defined in the Cathay Pacific's Announcement). Pursuant to the Irrevocable Undertaking, the Company has also irrevocably undertaken to vote in favour of all resolutions required to give effect to the Cathay Pacific Recapitalization Proposal at the general meeting of Cathay Pacific. Immediately after the completion of the Cathay Pacific Rights Issue (assuming all Cathay Pacific Rights Shares are taken up), the Company will become the beneficial owner of 1,930,516,329 shares of Cathay Pacific, and the Company's shareholding percentage in Cathay Pacific will remain unchanged, being 29.99% of the then total issued shares of Cathay Pacific. Assuming all Cathay Pacific Rights Shares are taken up and full exercise of the Warrants (as defined in the Cathay Pacific's Announcement), the shareholding percentage of the Company in Cathay Pacific would reduce to 28.17% immediately after the completion of the Cathay Pacific Recapitalization Proposal.

REASONS FOR AND BENEFITS OF THE COMMITTED SUBSCRIPTION

Since 2020, the COVID-19 pandemic has brought a great impact on the international air transportation industry. As an international financial centre and a significant part of Guangdong- Hong Kong-Macau Greater Bay Area, Hong Kong will continue to maintain its important position as an international air transportation hub. With the gradual mitigation of the pandemic, the global economy will recover which will lead to a return to growth in aviation travel demand, and Cathay Pacific will continue to benefit from the recovery as a long-established and influential airline in Hong Kong. The Cathay Pacific Recapitalization Proposal, participated by the HKSAR government, and led by Swire Pacific and the Company as major shareholders of Cathay Pacific, will help Cathay Pacific cope with the crisis and fully prepare for future growth. This transaction is in line with the Company's long-term development strategy and interests.

The Board (including the independent non-executive Directors) is of the view that the Committed Subscription is entered into on normal commercial terms, and although the transactions contemplated thereunder are not in the ordinary and usual course of business of the Company, the terms of the Committed Subscription are fair and reasonable and in the interests of the Company and its Shareholders as a whole.

GENERAL INFORMATION

The Company

The Company is a company incorporated in the PRC, whose H shares are listed on the Stock Exchange as its primary listing venue and have been admitted to the Official List of the UK Listing Authority as its secondary listing venue, and whose A shares are listed on the Shanghai Stock Exchange. The principal business activity of the Company is air passenger, air cargo and airline- related services. The Company's parent and ultimate holding company is China National Aviation Holding Corporation Limited, a PRC state-owned enterprise under the supervision of the State Council and is mainly engaged in the management of its state-owned assets and its equity holdings in various investment enterprises, aircraft leasing and aviation equipment maintenance.

Cathay Pacific

The Cathay Pacific Group is mainly engaged in the provision of international passenger and cargo air transportation. The Cathay Pacific Group operates business through its four operating segments. The Cathay Pacific and Cathay Dragon segment provides full service international passenger and cargo air transportation under the Cathay Pacific and Cathay Dragon brands. The Air Hong Kong segment provides express cargo air transportation offering scheduled services within Asia. The HK Express segment provides low-cost passenger air transportation offering scheduled services within Asia. The Airline Services segment provides supporting airline operations services include catering, cargo terminal operations, ground handling services and commercial laundry operations. As at the date of this announcement, Swire Pacific holds 45.00% of the total issued shares of Cathay Pacific.

The audited consolidated net assets of Cathay Pacific as at 31 December 2019 were HK$62,776 million. For the year ended 31 December 2019, the audited consolidated profit before and after tax of Cathay Pacific was HK$2,145 million and HK$1,691 million, respectively. For the year ended 31 December 2018, the audited consolidated profit before and after tax of Cathay Pacific was HK$3,243 million and HK$2,777 million, respectively. The closing price of Cathay Pacific Shares on the Stock Exchange on 8 June 2020 (the last trading day prior to the announcement of Cathay Pacific Rights Issue) was HK$8.81 per share.

HONG KONG LISTING RULES IMPLICATIONS

As at the date of this announcement, Cathay Pacific, holding 18.13% of the total issued shares of the Company, is a substantial Shareholder and therefore a connected person of the Company under the Hong Kong Listing Rules. The Committed Subscription constitutes a connected transaction of the Company under Chapter 14A of the Hong Kong Listing Rules.

As the highest applicable percentage ratio (as defined in the Hong Kong Listing Rules) of the Committed Subscription is more than 0.1% but less than 5%, the Committed Subscription is subject to the reporting, announcement and annual review requirements but exempted from the independent Shareholders' approval requirement under Chapter 14A of the Hong Kong Listing Rules.

Mr. Cai Jianjiang, Mr. Song Zhiyong and Mr. Patrick Healy, also directors of Cathay Pacific, are considered to have a material interest in the Committed Subscription and have abstained from voting on the relevant resolutions at the Board meeting. Other than the Directors mentioned above, none of the other Directors has a material interest in the Committed Subscription.

RESUMPTION OF TRADING

At the request of the Company, trading in the H shares of the Company on the Stock Exchange was halted with effect from 9:00 a.m. on 9 June 2020 pending the release of this announcement. An application has been made by the Company to the Stock Exchange for resumption of trading in the H shares of the Company on the Stock Exchange with effect from 9:00 a.m. on 10 June 2020.

Shareholders and investors shall exercise caution when dealings in the securities of the Company.

DEFINITIONS

Unless the context otherwise requires, terms used in this announcement shall have the following respective meanings:

Beijing, the PRC, 9 June 2020

As at the date of this announcement, the Directors of the Company are Mr. Cai Jianjiang, Mr. Song Zhiyong, Mr. Feng Gang, Mr. Patrick Healy, Mr. Xue Yasong, Mr. Wang Xiaokang*, Mr. Duan Hongyi*, Mr. Stanley Hui Hon-chung* and Mr. Li Dajin*.

* Independent non-executive director of the Company