Air China Regulatory News (AIRC)

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)

Air China is the only national flag carrier of China and the only Chinese civil aviation enterprise listed in "The World's 500 Most Influential Brands".

Air China is headquartered in Beijing, the capital of China, with three increasingly important international hubs in Chengdu, Shanghai and Shenzhen. With Star Alliance, our network covered 1,317 destinations in 193 countries as at the end of the Reporting Period. The Group operated 676 passenger aircraft (including business jets), and has the largest wide-body aircraft fleet in China.

Air China is dedicated to serve passengers with "credibility, convenience, comfort and choice" with the goal of becoming the world's leading airline. Air China is actively implementing the strategic objectives of "being ahead in the global aviation business, constantly enhancing development capacity, providing excellent and unique customer experience, and striving to increase interests and benefits steadily".

During the Reporting Period, Air China also holds direct or indirect interests in the following airlines: Shenzhen Airlines Company Limited (including Kunming Airlines Company Limited), Air Macau Company Limited, Beijing Airlines Company Limited, Dalian Airlines Company Limited, Air China Inner Mongolia Co., Ltd., Cathay Pacific Airways Limited, Shandong Airlines Co., Ltd., and Tibet Airlines Company Limited.

TABLE OF CONTENTS

CORPORATE INFORMATION

REGISTERED CHINESE NAME:

中國國際航空股份有限公司

ENGLISH NAME:

Air China Limited

REGISTERED OFFICE:

Blue Sky Mansion

28 Tianzhu Road

Airport Industrial Zone

Shunyi District

Beijing

China

PRINCIPAL PLACE OF BUSINESS IN HONG KONG:

5th Floor, CNAC House12 Tung Fai RoadHong Kong International AirportHong Kong

WEBSITE:

www.airchina.com.cn

DIRECTORS1:

Cai Jianjiang

Song Zhiyong

Cao Jianxiong

Xue Yasong

John Robert Slosar

Wang Xiaokang

Liu Deheng

Stanley Hui Hon-chung

Li Dajin

SUPERVISORS:

Wang Zhengang

He Chaofan

Xiao Yanjun

Li Guixia

LEGAL REPRESENTATIVE OF THE COMPANY:

Cai Jianjiang

JOINT COMPANY SECRETARIES:

Zhou Feng

Tam Shuit Mui

AUTHORISED REPRESENTATIVES:

Cai Jianjiang

Tam Shuit Mui

LEGAL ADVISERS TO THE COMPANY:

DeHeng Law Offices (as to PRC Law)

DLA Piper Hong Kong (as to Hong Kong and English Law)

INTERNATIONAL AUDITOR:

Deloitte Touche Tohmatsu

H SHARE REGISTRAR AND TRANSFER OFFICE:

Computershare Hong Kong Investor Services Limited

Rooms 1712-1716, 17th Floor, Hopewell Centre

183 Queen's Road East

Wanchai

Hong Kong

LISTING VENUES:

Hong Kong, London and Shanghai

1 Mr. Cao Jianxiong was elected as a non-executive Director at the 2018 annual general meeting of the Company.

SUMMARY OF FINANCIAL INFORMATION

(1) EBITDA represents earnings before finance income and finance costs, net exchange gain/loss, income tax expense, share of results of associates and joint ventures, depreciation and amortisation as computed under IFRSs.

(2) EBITDAR represents EBITDA before deducting lease expenses on aircraft and engines as well as other lease expenses.

The Group has applied IFRS 16 Leases ("New Lease Standard") since 1 January 2019. Adjustments had been made to the items in the financial statements at the date of initial application (i.e. 1 January 2019), while the comparative information was not restated. The changes of each item in the financial statements in the above table compared with those as of the end of last year include the impact of the application of New Lease Standard at the beginning of the year.

SUMMARY OF OPERATING DATA

The following is the operating data summary of the Company, Shenzhen Airlines (including Kunming Airlines), Air Macau, Beijing Airlines, Dalian Airlines and Air China Inner Mongolia.

Note: As at 28 December 2018, the Company completed the transfer of 51% equity interest in Air China Cargo to China National Aviation Capital Holding Co., Ltd., and since then the Company ceased to hold any equity interest in Air China Cargo. Thus, from January 2019, the periodic reports of the Company would no longer contain fleet information of Air China Cargo and the operating data would only include freight data of the bellyhold space of passenger aircraft. The freight data, yield and unit cost of the previous period would no longer contain Air China Cargo's freight data of all freighters, and shall be adjusted to a comparable basis.

BUSINESS OVERVIEW

During the Reporting Period, the Group's ASKs and RPKs reached 141,728 million and 114,784 million, representing a year-on-year increase of 5.93% and 6.60%, respectively. The passenger load factor was 80.99%, representing a year-on-year increase of 0.51 ppt. The Group's AFTKs reached 5,534 million, representing a year-on-year increase of 3.46%, and RFTKs was 2,333 million, representing a year-on-year decrease of 2.17%. The Group's cargo and mail load factor was 42.16%, representing a year-on-year decrease of 2.43 ppt.

Development of Fleet

During the Reporting Period, the Group introduced 19 aircraft including four A350-900, one A330-300, two B737-8MAX, ten A320NEO and two A321NEO, and phased out 12 aircraft including eight B737-800, one A319 and three A320. As at the end of the Reporting Period, the Group operated a fleet of 676 aircraft with an average age of 6.81 years, of which the Company operated a fleet of 415 aircraft with an average age of 7.02 years. The Company introduced 14 aircraft and phased out 8 aircraft, among which two were sold to Air Macau, one was sold to Dalian Airlines and one was sold to Air China Inner Mongolia.

Details of the fleet of the Group are set out in the table below:

Hub Network

The Company adhered to the strategy of developing our diamond-shaped hub network and devoted balanced efforts to the development of both international and domestic route networks. The Company's principal base is located at Beijing Capital International Airport, also known as "the first gateway to China", which has unique location advantage and has one of the best local government and corporate customer bases. During the Reporting Period, the Company actively promoted the renovation project for Terminal 3 of Beijing Capital International Airport, and completed the planning for relevant route networks and the planning for the operation of "one airport and two terminals", and formulated the plan for the overall renovation of premium lounges. The Company also facilitated the implementation of projects such as the construction of the fourth runway and the construction of landside integrated transportation hub. The Company will continue to concentrate our resources and advantages to develop its principal base in Beijing into a world-class aviation hub with global competitiveness.

In response to the "Belt and Road" Initiative, Beijing Hub launched domestic routes such as Beijing-Kashgar and Beijing-Changzhi and international routes such as Beijing-Phnom Penh and Beijing-Shenzhen-Johannesburg. The Company also optimised the flight schedule and aircraft models for international and domestic routes such as Beijing-London, Beijing-Manila and Beijing-Guangzhou, and optimised flights and interlining services via Beijing Hub. The Company newly opened all entrusted baggage through check services for routes from 24 cities in 11 countries to China via Beijing, covering 96% of total passengers who transit to China from the abroad via Beijing. The number of passengers who used interlining services in Beijing Hub recorded a year-on-year increase of 11%. The size of flights increased continually, and the commercial value of Beijing Hub improved steadily.

The Company continuously expanded route network and developed its hubs. The newly launched or resumed routes included domestic routes such as Shanghai-Hohhot-Xilinhot, Chengdu-Zhengzhou-Changchun and Chengdu-Bazhong-Shanghai and international routes such as Hangzhou-Rome, Hangzhou-Osaka and Tianjin-Osaka. We also increased flight frequencies to Chengdu-Harbin, Shanghai-Xi'an, Shanghai-Paris and other domestic and international routes. With the joint venture cooperation, Shanghai International Gateway has built up more domestic and international route network connection. Leveraging the upcoming completion of Chengdu Tianfu International Airport, Chengdu International Hub is expected to deploy more extensive route network. Shenzhen International Gateway launched the "Belt and Road" routes and supported the development of Guangdong-Hong Kong-Macau Greater Bay Area.

As at the end of the Reporting Period, the Company, Shenzhen Airlines (including Kunming Airlines), Air Macau, Beijing Airlines, Dalian Airlines and Air China Inner Mongolia newly launched or adjusted 28 domestic and international routes, and operated a total of 766 passenger routes, including 605 domestic routes, 132 international routes and 29 regional routes. The Company's passenger routes reached 41 countries and regions and 190 cities, including 120 domestic cities, 67 international cities and 3 regions. The Company proactively carried out international cooperation and 36 global partners offered 15,436 code sharing flights per week. Through cooperation with members of Star Alliance, our service covered 1,317 destinations in 193 countries.

Brand and Marketing

During the Reporting Period, the Company optimised the operation of the entire fleet and improved capacity allocation, and increased the daily utilisation of aircraft by 0.15 hour. The improvement of efficiency and capacity allocation contributed gains of about RMB400 million. We conducted accurate marketing to achieve better alignment between capacity and demand, matching of products and customers, and recorded a year-on-year growth of 0.51 ppt in average passenger load factor. Wealso refined the policies for premium services on different routes and saw a year-on-year growth of 4.3% in revenue from premium cabins. By introducing products such as the A350 Premium Economy Class, the accumulated sales revenue of our ancillary services and products has increased year-on-year by 73% to RMB160 million. We also stepped up the transformation of business model and further exploited innovative marketing. We improved the sales function and user experience of our mobile platform, and the number of registered users of our application has reached 9.37 million, contributing sales revenue of RMB3,590 million. We enriched ecosystem of our application by launching a payment method by which mileage credits can be used for payment with cash and be spent in various traveling-related scenarios, which has increased the loyalty of our customers. Our program "Phoenix Miles" has a total of 60.09 million members, and its contributed revenue has increased by 6.3% as compared with the corresponding period of last year.

Our brand construction continued to proceed while our brand value steadily increased. We conducted comprehensive, systematic and multi-dimensional brand communication in major European markets, thereby significantly improving brand recognition. Furthermore, we endeavoured to maximise our brand value through the exhibition hall featuring "Wings of Dream (夢之翼)" of Beijing International Horticultural Exhibition, and the "Beijing Cross-Country Skiing Competition (北京越野滑雪大獎賽)" of Beijing 2022 Winter Olympic Games. Our brand communication had won numerous awards, such as the nomination of the "Best Enterprise Brand Communication on the Global Award List" by the PR Week (《公關週刊》全球榜單最佳企業品牌傳播獎), representing the first airline in the world to be nominated with such honor. We also won awards such as the "Best VR/AR" of 2019 Asia Pacific PR Award (亞太公關大獎「最佳VR/AR」獎項) and the "Excellent Chinese Global Brand Award (中國出海品牌卓越獎)".

Products and Services

Through upholding the doctrine of offering sincere service, we effectively enhanced our passengers' experience. We also implemented the "three-all" strategy of service to promote the high-quality development of our products and services. We kept abreast of global standards and strived to improve the competitiveness of services and products. We also continued to promote the benchmarking of service standard system with that of the Star Alliance and the implementation of digital system, "Move under One Roof" programme, Luggage Hub Center and other projects proposed by Star Alliance. Products such as aircraft seats, entertainment systems, compartments on narrow-body aircraft, cabin lightings and other products are continued to be optimised and upgraded. We created innovative aircraft tableware, toiletries and other products, and launched new eco-friendly tableware of economy class, and created a catering brand for the Belt and Road routes. We implemented the whole process management to improve the design ability of service standards. We established the whole process product and service standard system. By the end of the Reporting Period, a total of 75 product and service standards were released. We opened the information flow for the whole process of service. In the first half of the year, 10 aircraft including A320 and B777 were revamped with in-flight wifi. We made great efforts to improve the traveling experience of passengers in an all-round way. We fully promoted self-service check-in, self-service baggage check-in, face recognition and self-boarding, and other convenient travel products. We enriched transit products, expanded transit guidance services and transit lounge booking channels. We created aircraft cultural entertainment scenarios, providing more than 1,031 hours of aircraft entertainment in 28 languages for passengers in the first half of the year.

Coordination and Cooperation

The Company continued to strengthen the multi-brand strategic cooperation with its member airlines and improved the security audit and management system to cope with the large-scale and multi-brand operation model. We also planned our bases and market layouts as a whole to improve the strategic objective management system to promote the sharing of time slot resources, deploy capacity with market demand and deepen maintenance cost linkage. Furthermore, we constantly convert our strategic advantages into operational advantages by enhancing joint purchasing and implementing data assets consolidation.

We deepened the cooperation with Deutsche Lufthansa AG by strengthening our partnership in secondary markets, lounges and high-end services. We carried out collaboration with Air Canada and made progress in improving yield level of common flight routes, integrating channels and customers, and implementing code sharing, the synergistic effects of which have begun to appear. We continued to enhance the joint, bilateral and multilateral cooperation with airlines companies such as United Airlines, Air New Zealand, Singapore Airlines, and conducted code sharing cooperation with 19 enterprises in Star Alliance with a total of 36 aviation enterprises.

Safe Operation

The Company further promoted the implementation of 30 measures aimed at the sustainable and safe development of the Group by firmly establishing the concept of safe development, holding the bottom line of safety, strictly implementing safety responsibilities and strengthening the whole production process control. We enhanced our ability to handle emergency under irregular conditions such as the prompt launch of consultation mechanism and emergency security. We always maintained high sensitivity to safety and actively responded to situations such as the grounding of B737MAX and technical problems of the aircraft engine of B787, so as to ensure the safe operation of flights. We continued to reinforce the safety foundation by promoting the development of a three-level risk management system and developing a new risk source database. We applied a new flight quality monitoring system which improved the timeliness of data monitoring. We also fully utilised the flight training system and improved the utilisation of training resources. Furthermore, we adopted the new Flight Standard Operating Procedure Manual (SOP) to unify flight procedures of our fleet. We promoted the integration of quality control system. AMECO was awarded the first maintenance license issued by the Civil Aviation Administration of China after the reform of "integrating certificates into one". During the Reporting Period, the Company recorded 1.1292 million safe flight hours and conducted safe take-offs and landings for nearly 410 thousand times.

Prospects

In the second half of the year, the Group will continuously adhere to the important instructions of General Secretary Xi Jinping on civil aviation, stay committed to the underlying principle of pursuing progress while ensuring stability and adhere to the philosophy of high-quality development, so as to unswervingly develop Air China into a top-tier aviation group in the world. The Group will further enhance the management on flight safety, improve risk prevention and control capabilities, improve profitability, optimise the hub network and production organization, as well as improve service quality and passenger experience, so as to greet the 70th anniversary of the founding of the PRC with extraordinary achievements.

MAJOR SUBSIDIARIES AND ASSOCIATES AND THEIR OPERATING RESULTS

Notes: 1. The Company no longer held the 51% equity interest in Air China Cargo since 28 December 2018.

2. CNACG is a wholly-owned subsidiary of CNAHC. Accordingly, CNAHC is directly and indirectly interested in 51.70% of the shares of the Company.

3. Shandong Aviation Group Corporation is owned as to 49.4% by the Company, while Shandong Airlines is owned as to 42% by Shandong Aviation Group Corporation. Accordingly, Shandong Airlines is directly and indirectly owned as to 43.548% by the Company.

Shenzhen Airlines

Shenzhen Airlines was established in 1992, with its principal operating base located in Shenzhen. Its principal business is the operation of passenger and cargo transportation. The registered capital of Shenzhen Airlines is RMB5,360,000,000. Air China holds 51% of its equity interest.

As at the end of the Reporting Period, Shenzhen Airlines (including Kunming Airlines) operated a fleet of 209 aircraft with an average age of 6.36 years. During the Reporting Period, 2 aircraft were introduced and 7 aircraft were phased out.

During the Reporting Period, the ASKs of Shenzhen Airlines (including Kunming Airlines) reached 35,028 million, representing a year-on-year increase of 9.47%. Its RPKs reached 28,416 million, representing a year-on-year increase of 8.33%. Shenzhen Airlines (including Kunming Airlines) carried 18.4575 million passengers, representing a year-on-year increase of 6.36%. The average passenger load factor was 81.12%, representing a year-on-year decrease of 0.86 ppt.

In terms of air cargo, the AFTKs of Shenzhen Airlines (including Kunming Airlines) reached 644 million, representing a year-on-year increase of 11.09%. Its RFTKs reached 316 million, representing a year-on-year increase of 9.10%. The volume of cargo and mail carried by Shenzhen Airlines (including Kunming Airlines) was 0.1879 million tonnes, representing a year-on-year increase of 7.21%, while the cargo and mail load factor was 49.10%, representing a year-on-year decrease of 0.90 ppt.

During the Reporting Period, Shenzhen Airlines recorded a consolidated revenue of RMB15,610 million, representing a year-on-year increase of 3.70%, of which, air traffic revenue amounted to RMB15,145 million, representing a year-on-year increase of 3.19%. The profit attributable to equity shareholders of Shenzhen Airlines was RMB466 million, representing a year-on-year decrease of 11.57%.

Air Macau

Air Macau was established in 1994 and is an airline based in Macau with a registered capital of MOP442,042,000. Air China holds 66.8995% of its equity interest.

As at the end of the Reporting Period, Air Macau operated a fleet of 22 aircraft with an average age of 7.10 years. In the first half of 2019, 5 aircraft were introduced and 1 aircraft was phased out.

During the Reporting Period, the ASKs of Air Macau reached 3,682 million, representing a year-on-year increase of 16.07%. Its RPKs reached 2,998 million, representing a year-on-year increase of 15.82%. It carried a total of 1.7994 million passengers, representing a year-on-year increase of 17.90%, with an average passenger load factor of 81.42%, representing a year-on-year decrease of 0.17 ppt.

In terms of air cargo, the AFTKs of Air Macau reached 57.6694 million, representing a year-on-year increase of 14.41%. Its RFTKs reached 12.2869 million, representing a year-on-year decrease of 21.83%. 7,442.21 tonnes of cargo and mail were carried, representing a year-on-year decrease of 23.34%; the cargo and mail load factor was 21.31%, representing a year-on-year decrease of 9.87 ppt.

During the Reporting Period, Air Macau recorded a revenue of RMB1,853 million, representing a year-on-year increase of 12.85%, of which, air traffic revenue amounted to RMB1,839 million, representing a year-on-year increase of 12.96%. The profit after taxation was RMB71 million, representing a year-on-year decrease of RMB45 million.

Beijing Airlines

Beijing Airlines was established in 2011 with a registered capital of RMB1 billion. Air China holds 51% of its equity interest. Since 22 November 2018, Beijing Airlines has officially been approved to carry out public air transportation business in addition to its business charter service.

As at the end of the Reporting Period, Beijing Airlines operated a fleet of four entrusted business jets and one self-owned business jet with an average age of 6.90 years. During the Reporting Period, Beijing Airlines completed 146 flights for business charter service, representing a year-on-year decrease of 35.9%. It completed 519 flying hours, representing a year-on-year decrease of 33.5%. It carried a total of 1,002 passengers during the Reporting Period, representing a year-on-year decrease of 19.6%.

As at the end of the Reporting Period, Beijing Airlines operated a fleet of three aircraft with an average age of 9.58 years. During the Reporting Period, the ASKs of Beijing Airlines reached 393 million. Its RPKs reached 328 million and it carried a total of 0.3661 million passengers during the Reporting Period, with an average passenger load factor of 83.45%. In terms of air cargo, the AFTKs of Beijing Airlines reached 4.7426 million. Its RFTKs reached 1.8863 million. It carried a total of 2,286.58 tonnes of cargo and mail during the Reporting Period, and the cargo and mail load factor was 39.77%.

During the Reporting Period, Beijing Airlines recorded a revenue of RMB367 million, representing a year-on-year increase of RMB312 million, of which, air traffic revenue amounted to RMB349 million, representing a year-on-year increase of RMB316 million. The profit after taxation was RMB48 million, as compared to the loss after taxation of RMB17 million in the same period last year.

Dalian Airlines

Dalian Airlines was established in 2011 and completed capital contribution by shareholders at the end of April 2019, with its registered capital increased from RMB1 billion to RMB3 billion. Air China holds 80% of its equity interest.

As at the end of the Reporting Period, Dalian Airlines operated a fleet of 12 aircraft with an average age of 5.65 years. One aircraft was introduced during the first half of 2019.

During the Reporting Period, the ASKs of Dalian Airlines reached 1,674 million, representing a year-on-year increase of 7.58%. Its RPKs reached 1,420 million, representing a year-on-year increase of 8.04%. It carried a total of 1.2336 million passengers, representing a year-on-year increase of 4.94%, with an average passenger load factor of 84.82%, representing a year-on-year increase of 0.37 ppt.

In terms of air cargo, the AFTKs of Dalian Airlines reached 19.9291 million, representing a year-on-year increase of 3.13%. Its RFTKs reached 8.2704 million, representing a year-on-year increase of 12.06%. It carried a total of 6,989.72 tonnes of cargo and mail, representing a year-on-year increase of 2.42%. Its cargo and mail load factor was 41.50%, representing a year-on-year increase of 3.31 ppt.

During the Reporting Period, Dalian Airlines recorded a revenue of RMB864 million, representing a year-on-year increase of 7.73%, of which, air traffic revenue amounted to RMB863 million, representing a year-on-year increase of 8.01%. Profit after taxation was RMB68 million, representing a year-on-year decrease of 15.00%.

Air China Inner Mongolia

Air China Inner Mongolia was established in 2013 with a registered capital of RMB1 billion. Air China holds 80% of its equity interest.

As at the end of the Reporting Period, Air China Inner Mongolia operated a fleet of 10 aircraft with an average age of 7.45 years. One aircraft was introduced during the first half of 2019.

During the Reporting Period, the ASKs of Air China Inner Mongolia reached 1,382 million, representing a year-on-year increase of 38.54%. Its RPKs reached 1,118 million, representing a year-on-year increase of 38.61%. It carried a total of 1.0240 million passengers, representing a year-on-year increase of 24.11%, with an average passenger load factor of 80.91%, representing a year-on-year increase of 0.04 ppt.

In terms of air cargo, the AFTKs of Air China Inner Mongolia reached 16.9117 million, representing a year-on-year increase of 12.32%. Its RFTKs reached 5.6517 million, representing a year-on-year increase of 4.08%. The amount of cargo and mail carried by Air China Inner Mongolia was 5,396.68 tonnes, representing a year-on-year increase of 3.56%, with a cargo and mail load factor of 33.42%, representing a year-on-year decrease of 2.65 ppt.

During the Reporting Period, Air China Inner Mongolia recorded a revenue of RMB814 million, representing a year-on-year increase of 33.22%, of which, air traffic revenue amounted to RMB806 million, representing a year-on-year increase of 33.44%. Profit after taxation was RMB106 million, representing a year-on-year increase of 58.21%.

AMECO

AMECO was established in 1989 and principally engaged in maintenance, repair and overhaul of aircraft, engines and components. The registered capital of AMECO is USD300,052,800, and Air China holds 75% of its equity interest.

During the Reporting Period, AMECO recorded a revenue of RMB3,912 million, representing a year-on-year increase of 11.17%. Profit after taxation amounted to RMB97 million, representing a year-on-year increase of 36.62%.

CNAF

CNAF was established in 1994 and principally engaged in the provision of financial services to CNAHC Group and the Group. The registered capital of CNAF is RMB1,127,961,864, with Air China holding 51% of its equity interest.

During the Reporting Period, CNAF recorded a revenue of RMB140 million, representing a year-on-year increase of 50.54%, and recorded profit after taxation of RMB53 million, remaining stable as compared to the corresponding period of last year.

Cathay Pacific

Cathay Pacific was established in 1946 in Hong Kong and is listed on the Hong Kong Stock Exchange. Air China holds 29.99% of its equity interest.

As at the end of the Reporting Period, Cathay Pacific operated a fleet of 216 aircraft.

During the Reporting Period, the ASKs of Cathay Pacific reached 80,814 million, representing a year-on-year increase of 6.7%. Its RPKs reached 68,078 million, representing a year-on-year increase of 6.7%. A total of 18.261 million passengers were carried, representing a year-on-year increase of 4.4%, with an average passenger load factor of 84.2%, remaining stable as compared to the corresponding period of last year.

In terms of air cargo, the AFTKs of Cathay Pacific reached 8,635 million, representing a year-on-year increase of 1.1%. Its RFTKs reached 5,477 million, representing a year-on-year decrease of 6.1%. It carried a total of 0.979 million tonnes of cargo and mail, representing a year-on year decrease of 5.7%. The cargo and mail load factor was 63.4%, representing a year-on-year decrease of 4.9 ppt.

During the Reporting Period, Cathay Pacific recorded a consolidated revenue of RMB47,011 million, representing a year-on-year increase of 5.50%, of which, air traffic revenue amounted to RMB42,972 million, representing a year-on-year increase of 5.71%. The profit attributable to equity shareholders of Cathay Pacific was RMB1,183 million, as compared with loss of RMB221 million attributable to equity shareholders of Cathay Pacific for the corresponding period of last year.

Shandong Airlines

Shandong Airlines was established in 1999 with a registered capital of RMB400 million. Air China directly holds 22.8% of its equity interest.

As at the end of the Reporting Period, Shandong Airlines operated a fleet of 124 aircraft with an average age of 5.80 years. 2 aircraft were introduced during the first half of 2019.

During the Reporting Period, the ASKs of Shandong Airlines reached 21,869 million, representing a year-on-year increase of 3.28%. Its RPKs reached 18,368 million, representing a year-on-year increase of 3.48%. It carried a total of 12.3910 million passengers, representing a year-on-year increase of 1.66%, with an average passenger load factor of 83.99%, representing a year-on-year increase of 0.16 ppt.

In terms of air cargo, the AFTKs of Shandong Airlines reached 390 million, representing a year-on-year increase of 11.01%. Its RFTKs reached 146 million, representing a year-on-year increase of 3.59%. It carried a total of 0.0858 million tonnes of cargo and mail, representing a year-on-year increase of 1.58%. The cargo and mail load factor was 37.49%, representing a year-on-year decrease of 2.69 ppt.

During the Reporting Period, Shandong Airlines recorded a consolidated revenue of RMB8,989 million, representing a year-on-year increase of 2.98%, of which air traffic revenue amounted to RMB8,630 million, representing a year-on-year increase of 2.52%. The loss attributable to equity shareholders of Shandong Airlines was RMB27 million, as compared with profit of RMB204 million attributable to equity shareholders of Shandong Airlines for the corresponding period of last year.

PARTICULARS OF EMPLOYEES

As at the end of the Reporting Period, the Company had a total of 28,261 employees, and the subsidiaries of the Company had a total of 57,341 employees.

Upholding the concept of "paying salary with reference to the value of job, personal ability as well as performance appraisal" and focusing on enhancing enterprises vitality and improving benefit and efficiency, the Company has continually established and improved a linkage mechanism combining salary distribution with performance, and implemented differentiated management on gross payroll and budget. During the Reporting Period, the Company continued to develop its market benchmark system for position compensation and promote the pilot reform of talent mechanism for market-oriented remuneration, and has fully mobilised the enthusiasm and creativity of our employees.

MANAGEMENT DISCUSSION AND ANALYSIS

The following discussion and analysis are based on the Group's interim condensed consolidated financial statements and notes thereto prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as well as with the applicable disclosure requirements of Appendix 16 to the Listing Rules and are designed to assist the readers in further understanding the information provided in this announcement so as to better understand the financial conditions and results of operations of the Group as a whole.

Profit Analysis

During the Reporting Period, the Group's profit from operations increased year-on-year by 1.52% to RMB6,742 million. In the first half of 2019, the air transport market of the PRC showed a general balance between supply and demand where there was a strong need for domestic travel and a modest need for international/regional travel. However, the relatively fast-growing transport capacity has surpassed the growing demand. The Group acted in accordance with the market condition and further strengthened the advantages of economies of scale of our core air transport business by adopting measures including optimising operational arrangement, stabilising the yield level and refining cost control. For the Reporting Period, the Group has achieved relatively satisfactory results despite the impact factors such as oil price, exchange rate fluctuation.

Revenue

During the Reporting Period, the Group's revenue was RMB65,313 million, representing a year-on-year increase of RMB1,071 million or 1.67%. Among which, air traffic revenue was RMB62,681 million, representing a year-on-year increase of RMB712 million or 1.15%. Other operating revenue was RMB2,632 million, representing a year-on-year increase of RMB359 million or 15.79%.

Revenue Contributed by Geographical Segments

Proportion of Revenue Contributed by Geographical Segments in Graph

Air Passenger Revenue

During the Reporting Period, the Group recorded an air passenger revenue of RMB59,851 million, representing an increase of RMB2,957 million or 5.20% over that of the same period of 2018. Among the air passenger revenue, the increase of capacity contributed an increase in revenue of RMB3,371 million, the increase of passenger load factor contributed an increase in revenue of RMB382 million, while the decrease of passenger yield resulted in a decrease in revenue of RMB796 million. The capacity, passenger load factor and yield per RPK of air passenger business during the Reporting Period are as follows:

Air Passenger Revenue Contributed by Geographical Segments

Proportion of Air Passenger Revenue Contributed by Geographical Segments in Graph

Air Cargo and Mail Revenue

During the Reporting Period, the Group's air cargo and mail revenue was RMB2,830 million, representing a decrease of RMB2,245 million as compared with that of the same period of 2018. Excluding the impact of deconsolidation of Air China Cargo, air cargo and mail revenue decreased by RMB67 million year-on-year. Among the air cargo and mail revenue, the increase of capacity contributed an increase in revenue of RMB100 million, while the decrease of cargo and mail load factor resulted in a decrease in revenue of RMB163 million, and the decrease of yield of cargo and mail resulted in a decrease in revenue of RMB4 million. The capacity, cargo and mail load factor and yield per RFTK of air cargo and mail business during the Reporting Period are as follows:

Note: Data of the six months ended 30 June 2018 excluding the freight transportation data of freighters of Air China Cargo.

Air Cargo and Mail Revenue Contributed by Geographical Segments

Proportion of Air Cargo and Mail Revenue Contributed by Geographical Segments in Graph

Operating Expenses

During the Reporting Period, the Group's operating expenses were RMB60,502 million, representing an increase of 1.56% from RMB59,574 million in the same period of previous year. The breakdown of the operating expenses is set out below:

• Jet fuel costs increased by RMB33 million or 0.19% on a year-on-year basis.

• Take-off, landing and depot charges increased by RMB685 million on a year-on-year basis, mainly due to an increase in the number of take-offs and landings.

• Depreciation, amortisation and aircraft and engine lease expenses increased by RMB334 million on a year-on-year basis, mainly due to the increase in the number of self-owned and leased aircraft.

• Aircraft maintenance, repair and overhaul costs decreased by RMB530 million on a year-on-year basis, mainly due to the impact of implementing New Lease Standard during the Reporting Period.

• Employee compensation costs increased by RMB164 million on a year-on-year basis, mainly due to the impact of the expansion of production scale and the increase in number of employees.

• Air catering charges increased by RMB122 million on a year-on-year basis, mainly due to the increase in the number of passengers.

• Selling and marketing expenses increased by RMB251 million on a year-on-year basis, mainly due to the impact of no longer consolidating Air China Cargo into account and the increase in booking fees resulting from the increase in the number of passengers during the Reporting Period.

• Other operating expenses mainly included contributions to the civil aviation development fund and non-above-mentioned ordinary expenses arising from the core air traffic business, which decreased by 4.03% on a year-on-year basis.

Net Exchange Loss and Finance Costs

During the Reporting Period, the Group recorded a net exchange loss of RMB119 million, representing a year-on-year decrease of RMB399 million. The Group incurred finance costs of RMB2,440 million (excluding those capitalised) during the Reporting Period, representing a year-on-year increase of RMB1,070 million, mainly due to the impact of adopting New Lease Standard.

Share of Profits of Associates and Joint Ventures

During the Reporting Period, the Group's share of profits of its associates was RMB146 million, representing a year-on-year increase of RMB69 million. Among which, the Group recorded a gain on investment of Cathay Pacific of RMB199 million during the Reporting Period, as compared with the loss on investment of RMB157 million for the same period of previous year.

During the Reporting Period, the Group's share of profits of its joint ventures was RMB112 million, representing a year-on-year decrease of RMB3 million, mainly due to the slight decrease in the profits of joint ventures during the Reporting Period.

Assets Structure Analysis

Since the adoption of New Lease Standard, the total assets of the Group as at 1 January 2019 was RMB280,374 million, representing an increase of RMB36,717 million from that as at 31 December 2018. As at the end of the Reporting Period, the total assets of the Group was RMB285,454 million, representing an increase of 1.81% from that as at 1 January 2019. Among which, the current assets accounted for RMB25,587 million or 8.96% of the total assets, while the non-current assets accounted for RMB259,867 million or 91.04% of the total assets.

Among the current assets, cash and cash equivalents were RMB7,625 million, representing an increase of 12.74% from that as at 1 January 2019.

Among the non-current assets, the net book value of property, plant and equipment and right-of-use assets as at the end of the Reporting Period was RMB214,787 million, representing an increase of 1.67% from that as at 1 January 2019.

Asset Mortgage

As at the end of the Reporting Period, the Group, pursuant to certain bank loans and finance leasing agreements, had mortgaged certain aircraft and premises with an aggregated net book value of approximately RMB79,577 million (approximately RMB85,514 million as at 31 December 2018) and land use rights with net book value of approximately RMB28 million (approximately RMB28 million as at 31 December 2018). In addition, the Group had restricted bank deposits of approximately RMB750 million (approximately RMB1,044 million as at 31 December 2018), which were mainly reserves deposited in the People's Bank of China.

Capital Expenditure

During the Reporting Period, the Group's capital expenditure amounted to a total of RMB9,667 million, of which the total investment in aircraft and engines was RMB8,965 million. Other capital expenditure investment amounted to RMB702 million, mainly including investment in expensive rotable parts, flight simulators, infrastructure construction, IT system construction, ground equipment procurement and cash component of the long-term investments.

Equity Investment

As at the end of the Reporting Period, the Group's equity investment in its associates amounted to RMB14,369 million, representing an increase of 2.07% from that as at 1 January 2019. Among which, the balance of the equity investment of the Group in Cathay Pacific, Shandong Aviation Group Corporation and Shandong Airlines amounted to RMB12,225 million, RMB1,055 million and RMB522 million, respectively. Cathay Pacific, Shandong Aviation Group Corporation and Shandong Airlines recorded a net profit attributable to the parent of RMB1,183 million, a net profit attributable to the parent of RMB17 million and a net loss attributable to the parent of RMB27 million, respectively, for the Reporting Period.

As at the end of the Reporting Period, the Group's equity investment in its joint ventures was RMB1,408 million, representing a decrease of 1.35% from that as at 1 January 2019.

Debt Structure Analysis

As at the end of the Reporting Period, the total liabilities of the Group amounted to RMB188,487 million, representing an increase of 1.36% from those as at 1 January 2019, among which current liabilities were RMB77,791 million and non-current liabilities were RMB110,696 million, accounting for 41.27% and 58.73% of the total liabilities, respectively.

Among the current liabilities, interest-bearing debts (including bank and other loans, corporate bonds and lease liabilities) amounted to RMB36,894 million, representing a decrease of 6.41% from that as at 1 January 2019, mainly due to the decrease of working capital loans of the Group.

Among the non-current liabilities, interest-bearing debts (including bank and other loans, corporate bonds and lease liabilities) amounted to RMB99,808 million, representing an increase of 2.99% from that as at 1 January 2019.

Details of interest-bearing debts of the Group by currency are set out below:

Proportion of Interest-bearing Debts by Currency in Graph

Commitments and Contingent Liabilities

The Group's capital commitments, which mainly consisted of the payables in the next few years for purchasing certain aircraft and related equipment, decreased by 24.43% from RMB39,269 million as at 31 December 2018 to RMB29,677 million as at the end of the Reporting Period. The Group's investment commitments, which were mainly used in the investment agreements, amounted to RMB59 million as at the end of the Reporting Period, which was basically flat with that as at 31 December 2018.

Details of the Group's contingent liabilities are set out in note 19 of the condensed consolidated financial statements included in this interim report.

Gearing Ratio

The Group implemented New Lease Standard from 1 January 2019, and gearing ratio (total liabilities divided by total assets) at the beginning of the year increased by 7.58 percentage points from that as at 31 December 2018 to 66.33%. As at the end of the Reporting Period, the Group's gearing ratio (total liabilities divided by total assets) was 66.03%, representing a decrease of 0.30 percentage point from the gearing ratio as at 1 January 2019. High gearing ratio is common among aviation enterprises, and the current gearing ratio of the Group is at a reasonable level. Taking into account the Group's profitability and the market environment where it operates, its long-term insolvency risk is within controllable range.

Working Capital and its Sources

As at the end of the Reporting Period, the Group's net current liabilities (current liabilities minus current assets) were RMB52,203 million, representing a decrease of RMB2,269 million from that as at 1 January 2019. The Group's current ratio (current assets divided by current liabilities) was 0.33, representing an increase as compared to that of 0.30 as at 1 January 2019.

The Group meets its working capital needs mainly through its operating activities and external financing activities. During the Reporting Period, the Group's net cash inflow from operating activities was RMB13,075 million, representing an increase of 11.64% from RMB11,712 million for the corresponding period in 2018, which is mainly because operating lease expenses paid during the Reporting Period were included in financing activities as repayment of lease liabilities according to the New Lease Standard. Net cash outflow from investing activities was RMB3,456 million, representing a decrease of 59.11% from RMB8,451 million for the corresponding period in 2018, mainly due to the year-on-year decrease in the cash payment of advances and remaining balances for aircraft during the Reporting Period. Net cash outflow from financing activities amounted to RMB8,703 million, as compared with the net cash inflow from financing activities of RMB120 million for the same period of previous year, mainly due to the improved efficiency of funds use, the optimised debt structure and the impact of implementing New Lease Standard by the Group.

The Company has obtained bank facilities of up to RMB131,216 million granted by several banks in the PRC, among which approximately RMB18,183 million has been utilised. The remaining amount is sufficient to meet our demands on working capital and future capital commitments.

POTENTIAL RISKS

Risks of External Environment

Market Fluctuation

The demand in the air transport market is closely linked to the economic growth and the level of national income. The economic growth rate of China for the year of 2019 is expected to remain at 6.0% to 6.5%. With the continuous deepening of structural adjustment of economy, China's economic growth will continue to stay within a reasonable range. However, due to the interlaced impacts of the structural and cyclical factors and other external uncertainties, the pressure of economic slowdown and risk of market volatility still exist.

Oil Price Fluctuation

At present, the oil price remains at a relatively stable level. In the future, with material uncertainties in respect of factors such as slowdown of global economy, crude oil supply and geopolitics, it is expected that there still exist certain risks of oil price fluctuation. Jet fuel constitutes one of the major components of the Group's operating costs, and the Group's financial performance is substantially subject to the fluctuation of jet fuel price. During the Reporting Period, with the other variables remaining unchanged, if the average price of the jet fuel rises or falls by 5%, the Group's jet fuel costs will rise or fall by approximately RMB881 million.

Exchange Rate Fluctuation

Since the beginning of the year, due to the further slowdown of global economy and the overall downturn of developed countries' economy, the monetary policies of major economies around the world all show a loose trend at present. The general market expects the Federal Reserve to lower the interest rates again in the second half of the year, and the Euro Area and Japan continue to adhere to a loose monetary policy. Since the Chinese economy was still underpinned by strong fundamentals, the progress and stability of its economic development has been ensured, while the sufficient tool and room for policy adjustments established a solid foundation for the RMB exchange rate which is expected to maintain a two-way fluctuation around a reasonable and balanced level.

Certain lease liabilities and bank and other loans of the Group are primarily denominated in US dollar, Euro and Japanese Yen. Some of the revenue and expenses of the Group's international operations are denominated in currencies other than RMB. Assuming that the risk variables other than the exchange rate stay unchanged, the appreciation or depreciation of RMB against US dollar by 1% due to the changes in the exchange rate will result in an increase or decrease in the Group's net profit and shareholders' equity as at the end of the Reporting Period by RMB480 million, respectively; the appreciation or depreciation of RMB against Euro by 1% due to the changes in the exchange rate will result in an increase or decrease in the Group's net profit and shareholders' equity as at the end of the Reporting Period by RMB5.86 million; and the appreciation or depreciation of RMB against Japanese Yen by 1% due to the changes in the exchange rate will result in an increase or decrease in the Group's net profit and shareholders' equity as at the end of the Reporting Period by RMB10.77 million, respectively.

Risks of Competition

Industry competition

Bilateral and multilateral non-equity joint venture arrangements among large network carriers are being constantly strengthened as competition is taking new forms. While China's top three airlines may decelerate their penetration in some global market including the US market due to the impact of international situations, an increasing number of medium-sized domestic airlines are actively applying for flying medium- and long-haul international routes, and as a result, it will be harder to get the international air traffic rights. Due to the previous industry deregulation, competition in the domestic market has further intensified, which may result in reduced yield for the Company.

Alternative competition

China has built up the world's largest high-speed railway network and is extending its reach towards the central and western China. In terms of short- and medium-haul transportation, high-speed railway transportation provides customers with high frequency, low fare, punctuality, high speed, convenience and comfort, and has become the favourite choice of travellers, which put civil aviation in an inferior position. In the short term, high-speed rail carriers will continue to snatch market shares from the airlines after they start network operation, increase the overall speed and the frequency and extend the operating schedule. However, in the long term, as high-speed railway transportation and civil aviation may actually cooperate and compete, the air-rail interline operation can provide strong support for the construction of international hubs. As for the domestic routes, as the Company's medium- and short-haul routes account for the lowest proportion in the industry, the Company may suffer from the competition of high-speed railway transportation, but only to a limited extent.

Operating Risks

De-hubbing

The international reach from the airports of China's second-tier cities has been developing rapidly, with an obvious de-hubbing trend. Taking international long-haul routes to America, Europe, Australia and Africa as an example, in 2009, international long-haul routes were only operated in three second-tier cities in China, but as of June 2019 the number has increased to 24. With the gradual expansion of the coverage of routes, airlines with wide-body aircraft have been actively involved in the development of long-distance routes in the second-tier cities. Such development will have certain impact on the Company's hubbed operations.

SHAREHOLDINGS OF DIRECTORS, SUPERVISORS AND CHIEF EXECUTIVEAND SUBSTANTIAL SHAREHOLDERS OF THE COMPANY

DISCLOSURE OF INTERESTS OF DIRECTORS, SUPERVISORS AND CHIEF EXECUTIVE

As at the end of the Reporting Period, none of the Directors, Supervisors or chief executive of the Company had interests or short positions in shares, underlying shares and/or debentures (as the case may be) of the Company or its associated corporations (within the meaning of Part XV of the SFO) which were required to be recorded in the register kept by the Company pursuant to section 352 of the SFO, or otherwise notified to the Company and the Hong Kong Stock Exchange pursuant to the Model Code.

Mr. John Robert Slosar is a non-executive Director of the Company and is concurrently the chairman and executive director of Cathay Pacific. Cathay Pacific is a substantial shareholder of the Company, holding 2,633,725,455 H Shares of the Company as at the end of the Reporting Period, which shall be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, and it wholly owns Cathay Dragon. Mr. Cai Jianjiang, the chairman and a non-executive Director of the Company, and Mr. Song Zhiyong, the executive Director of the Company, are concurrently non-executive directors of Cathay Pacific. Cathay Pacific and Cathay Dragon compete or are likely to compete either directly or indirectly with some aspects of the business of the Company as they operate airline services to certain destinations which are also served by the Company.

Save as disclosed above, none of the Directors or Supervisors of the Company and their respective associates (as defined in the Listing Rules) has any competing interests which shall be disclosed under Rule 8.10 of the Listing Rules.

SUBSTANTIAL SHAREHOLDERS' INTERESTS IN THE COMPANY

As at the end of the Reporting Period, to the knowledge of the Directors, Supervisors and chief executive of the Company, the following persons (other than the Directors, Supervisors or chief executive of the Company) had interests or short positions in the shares or underlying shares of the Company as recorded in the register required to be kept under section 336 of the SFO:

Notes:

Based on the information available to the Directors, Supervisors and chief executive of the Company (including such information available on the website of the Hong Kong Stock Exchange) and so far as the Directors, Supervisors and chief executive are aware, as at the end of the Reporting Period:

1. By virtue of CNAHC's 100% interest in CNACG, CNAHC was deemed to be interested in the 1,332,482,920 A Shares and 223,852,000 H Shares directly held by CNACG.

2. By virtue of John Swire & Sons Limited's 100% interest in John Swire & Sons (H.K.) Limited and their approximately 55.12% equity interest and 64.12% voting rights in Swire Pacific Limited, and Swire Pacific Limited's approximately 45.00% equity interest in Cathay Pacific as at the end of the Reporting Period, John Swire & Sons Limited, John Swire & Sons (H.K.) Limited and Swire Pacific Limited were deemed to be interested in the 2,633,725,455 H Shares of the Company directly held by Cathay Pacific.

Save as disclosed above, as at the end of the Reporting Period, to the knowledge of the Directors, Supervisors and chief executive of the Company, no other person had any interest or short position in the shares or underlying shares of the Company as recorded in the register required to be kept under section 336 of the SFO.

TOTAL NUMBER OF SHAREHOLDERS

INFORMATION OF SHAREHOLDERS

Unit: Share

Unit: Share

1. HKSCC NOMINEES LIMITED is a subsidiary of The Stock Exchange of Hong Kong Limited and its principal business is acting as nominee for and on behalf of other corporate shareholders or individual shareholders. The 1,688,108,428 H shares held by it in the Company do not include the 166,852,000 shares held by it as nominee of CNACG.

2. According to the "Implementation Measures on Partial Transfer of State-owned Shares to the National Social Security Fund in the Domestic Securities Market" (Cai Qi [2009] No. 94) (《境內證券市場轉持部分國有股充實全國社會保障基金實施辦法》(財企[2009]94號)) and the Notice ([2009] No. 63) jointly issued by the Ministry of Finance, the State-owned Assets Supervision and Administration Commission of the State Council, China Securities Regulatory Commission and the National Council for Social Security Fund, 127,445,536 shares and 36,454,464 shares held by CNAHC, the controlling shareholder of the Company, and CNACG respectively are frozen at present.

Unit: Share

Miscellaneous

COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE

The Company has complied with the code provisions of the Corporate Governance Code as set out in Appendix 14 to the Listing Rules throughout the Reporting Period.

COMPLIANCE WITH THE MODEL CODE

The Company has adopted and formulated a code of conduct on terms no less stringent than the required standards of the Model Code as set out in Appendix 10 to the Listing Rules. After making specific enquiries, the Company confirmed that each Director and each Supervisor have complied with the required standards of the Model Code and the Company's code of conduct throughout the Reporting Period.

ENVIRONMENTAL PROTECTION INFORMATION

The Company attached great importance to energy saving and emission reduction as well as ecological and environmental protection. Hence, it has always combined its development with the construction of social ecological civilisation. In accordance with CNAHC's "Three-Year Action Plan to Win the Battle for a Blue Sky", the Company has conducted comprehensive energy saving and emission reduction programmes from air to ground and has kept on accelerating its progress in green development in order to maintain its leading position in terms of energy saving and emission reduction in the industry and become a resource-saving and environmental-friendly enterprise.

The structure of the fleet has been optimised to enhance the performance and efficiency. During the Reporting Period, the Group continued to introduce new aircraft models with better performance in fuel saving and environmental protection. With the introduction of the 19 aircraft, including the new A350-900 and A320NEO series, the structure and fuel efficiency of the aircraft fleet were constantly improved.

In-depth fuel saving measures are being carried out to reinforce management and control over fuel saving programmes. The Company adopted measures such as deepening redispatch, prompting the monitoring and management of aircraft performance, executing aircraft weight-reduction, enhancing the accuracy in the preloading of flights, furthering the selection and optimising of international air routes, optimising domestic air route structure and implementing EFB (Electronic Flight Bag) paperless operation. During the Reporting Period, we saved fuel of 6,609.9 tonnes and reduced carbon dioxide emissions by 20,821.2 tonnes.

The Company continuously promoted the fuel saving programmes by replacing APU with ground equipment, and completed bridge programmes in various airports in China. During the Reporting Period, the Company's utilisation rate of ground equipment in replace of APU reached over 85% in domestic airports.

The Company vigorously promotes the doctrine "fuel to electricity" on a large scale to facilitate the changes in energy consumption on the ground and has become one of the leading domestic airlines in terms of possession of electric vehicles. Most internally-used special vehicles in airports such as aircraft tractors, large shuttle buses, mobile aircraft stairways and baggage tractors are now powered by electricity instead of diesel. The Company also collaborated with various parties to build numerous types of charging equipment for electric vehicles in main operating areas. Meanwhile, the Company actively explores and develops electric taxiing systems that allow aircraft to taxi without requiring the use of aircraft engines which reduce fuel volumes used by aircraft. Also, the method to control aircraft tractors remotely is implemented to digitalise ground equipment further. As a result, the Company reduced greenhouse gas emission during ground operations and optimised flight procedures, increasing its efficiency.

The Company actively promoted the carbon emission reduction works and continued to take part in the trading of carbon emissions with the European Union and Beijing, actively promoted the construction of carbon emission system, and strived to enhance the level of the scientific management of carbon emissions. Meanwhile, the Company took part in the research and discussion on the relevant policies on carbon emissions of the CAAC and the ICAO, the organisation of carbon emission work conferences of the CATA and the IATA for continuously enhancing its handling ability in carbon emissions.

The Company performs its corporate social responsibilities by promoting energy saving and environmental protection. With the themes such as "green development, putting a priority on energy saving" (綠色發展，節能先行) and "I am an activist in winning the Battle for a Blue Sky", the Company performed various promotion activities consecutively through different channels such as the internal and external publications of the Company, social media and themed flights to actively make use of its function as a service window for delivering green environmental protection concept to travelers, promoting "energy saving, consumption reduction and low carbon life" among travelers and practicing the Eco-Environmental Code of Conduct for Citizens (《公民生態環境行為規範》).

In the future, the Company will continue to profoundly explore the concept of "Green mountains and clear water are equal to mountains of gold and silver" to build an industrial system of green low-carbon circulating development. The Company insists on the development concept of "green operation, sustainable development" and follows the development ways featuring "green, low-carbon, circulating, and sustainable" to reduce unit energy consumption for realising growth with low carbon, promote green upgrading by optimising consumption structure, guarantee environmental standards by implementing systematic management and control, and enhance environmental and public welfare for demonstrating its undertakings as a state-owned enterprise.

USE OF THE PROCEEDS RAISED IN THE NON-PUBLIC ISSUANCE OF A SHARES

On 10 March 2017, the Company completed the non-public issuance of 1,440,064,181 A Shares to CNAHC, China Structural Reform Fund Co., Ltd., Zhongyuan Equity Investment Management Co., Ltd., China National Aviation Fuel Group Corporation, Caitong Fund Management Co., Ltd., CIB Asset Management Co., Ltd., Horizon Asset Management Co., Ltd. and E Fund Management Co., Ltd., at an issue price of RMB7.79 per share (the "Non-public Issuance of A Shares"). The net proceeds raised is RMB11,200.4185 million. The table below shows the use of the net proceeds raised by the Non-public Issuance of A Shares:

Unit: RMB (million)

Note: According to the plan on the non-public issuance of A Shares, if the actual proceeds raised by the non-public issuance of A Shares are less than the total amount of proceeds proposed to be invested in the projects, the Company will adjust and determine the specific amount invested in each project based on the net proceeds actually raised and priorities of projects. As the proceeds actually raised are less than the total proposed investment amount of RMB12 billion, the Company has adjusted the specific investment amount in "upgrade of e-commerce direct sale project" and "on-board WIFI (first phase) project" according to the above authorization (that was, RMB800 million and RMB150 million respectively before adjustment). Please refer to the above table for the total investment amount after adjustment. As at the end of the Reporting Period, there is no change in the use of proceeds.

As of the end of the Reporting Period, the balance of the specific raised fund account was RMB131.997 million, where the outstanding amount of net proceeds to be invested in the projects was RMB85.3387 million, and the interest income of the net proceeds was RMB46.6583 million.

Changes in the information of Directors, Supervisors and Chief Executive

On 27 March 2019, Mr. Cao Jianxiong ceased to act as the Vice President of the Company. After being reviewed by the Nomination and Remuneration Committee under the Board, Mr. Cao Jianxiong was nominated as non-executive Director of the Company at the 10th meeting of the fifth session of the Board. On 30 May 2019, after being approved at the 2018 Annual General Meeting of the Company, Mr. Cao Jianxiong was elected as non-executive Director of the Company.

PURCHASE, SALE OR REDEMPTION OF SECURITIES

During the Reporting Period, neither the Company nor any of its subsidiaries has purchased, sold or redeemed any listed securities of the Company (the term "securities" has the meaning ascribed to it under paragraph 1 of Appendix 16 to the Listing Rules).

INTERIM DIVIDEND

No interim dividend will be paid by the Company for the six months ended 30 June 2019.

REVIEW BY THE AUDIT AND RISK CONTROL COMMITTEE

The Audit and Risk Control Committee of the Company had reviewed the Company's interim report for the six months ended 30 June 2019, the Company's unaudited interim condensed consolidated financial statements and the accounting policies and practices adopted by the Group.

OTHER INFORMATION

According to paragraph 40 of Appendix 16 to the Listing Rules, save as disclosed herein, the Company confirms that the current information of the Company in relation to those matters set out in paragraph 32 of Appendix 16 has not changed materially from the information disclosed in the Company's 2018 Annual Report.

SUBSEQUENT EVENTS

On 11 July 2019, the Company and Air China Import and Export Co., Ltd. (國航進出口有限公司) (a wholly-owned subsidiary of the Company) entered into an aircraft purchase agreement with Airbus Company, pursuant to which the Company has agreed to purchase 20 A350-900 aircraft from Airbus Company. For details, please refer to the announcement of the Company dated 11 July 2019.

REPORT ON REVIEW OF CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

TO THE BOARD OF DIRECTORS OF AIR CHINA LIMITED

(中國國際航空股份有限公司)

(Incorporated in the People's Republic of China with limited liability)

INTRODUCTION

We have reviewed the condensed consolidated financial statements of Air China Limited (the "Company") and its subsidiaries (collectively referred to as the "Group") set out on pages 32 to 72, which comprise the condensed consolidated statement of financial position as of 30 June 2019 and the related condensed consolidated statement of profit or loss, statement of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows for the six-month period then ended, and certain explanatory notes. The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited require the preparation of a report on interim financial information to be in compliance with the relevant provisions thereof and International Accounting Standard 34 "Interim Financial Reporting" ("IAS 34") issued by the International Accounting Standards Board. The directors of the Company are responsible for the preparation and presentation of these condensed consolidated financial statements in accordance with IAS 34. Our responsibility is to express a conclusion on these condensed consolidated financial statements based on our review, and to report our conclusion solely to you, as a body, in accordance with our agreed terms of engagement, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

SCOPE OF REVIEW

We conducted our review in accordance with Hong Kong Standard on Review Engagements 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Hong Kong Institute of Certified Public Accountants. A review of these condensed consolidated financial statements consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

CONCLUSION

Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34.

Deloitte Touche Tohmatsu

Certified Public Accountants

Hong Kong

28 August 2019

CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS

For the six months ended 30 June 2019

CONDENSED CONSOLIDATED STATEMENT OF PROFITOR LOSS AND OTHER COMPREHENSIVE INCOME

For the six months ended 30 June 2019

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At 30 June 2019