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)

中國國際航空股份有限公司 (short name: 中國國航) (English name: Air China Limited, short name: Air China) is the only national flag carrier of China.

As the old saying goes, "Phoenix, a bird symbolizing benevolence" and "The whole world will be at peace once a phoenix reveals itself". The corporate logo of Air China is composed of an artistic phoenix figure, the Chinese characters of "中國國際航空公司" in calligraphy written by Mr. Deng Xiaoping, by whom the China's reform and opening-up blueprint was designed, and the characters of "AIR CHINA" in English. Signifying good auspices in the ancient Chinese legends, phoenix is the king of all birds. It "flies from the eastern Happy Land and travels over mountains and seas and bestows luck and happiness upon all parts of the world". At the core of the "Phoenix Spirit" advocated by Air China is the will to "serve the world, to lead and move forward to higher goals". By virtue of the immense historical heritage, Air China strives to create perfect travel experience and help passengers to stay safe by upholding the spirit of phoenix of being a practitioner, promoter and leader for the development of the Chinese civil aviation industry. The Company is also committed to leading the industrial development by establishing itself as a "National Brand", at the same time pursuing outstanding performance through innovative and excelling efforts.

Air China was listed on The Stock Exchange of Hong Kong Limited (stock code: 00753) and the London Stock Exchange (stock code: AIRC) on 15 December 2004, and was listed on the Shanghai Stock Exchange (stock code: 601111) on 18 August 2006.

Headquartered in Beijing, Air China has set up branches in Southwest China, Zhejiang, Chongqing, Tianjin, Shanghai, Hubei, Guizhou, Tibet and Wenzhou, and a base in Southern China. As of the end of the Reporting Period, the major subsidiaries of Air China include 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., Aircraft Maintenance and Engineering Corporation, Air China Import and Export Co., Ltd., Chengdu Falcon Aircraft Engineering Service Co., Ltd., and Air China Shantou Industrial Development Company. Its joint ventures mainly include GA Innovation China Co., Ltd. and Sichuan Services Aero-Engine Maintenance Co., Ltd. The associates of Air China include Tibet Airlines Co., Ltd., Cathay Pacific Airways Limited and Shandong Airlines Co., Ltd. Air China is also the largest shareholder of Shandong Aviation Group Co., Ltd.

With the goal of becoming "the world's leading airline", Air China is actively implementing the strategic objectives of "globally leading competitive advantages, constantly enhanced development capability, excellent and unique customer experience, and steadily improved interests and benefits". Air China is dedicated to serving passengers with credibility, convenience, comfort and choice. "Air China Miles" is the oldest frequent flier programme in China, under which all members of the frequent flier programmes under various brands of its subsidiaries and associates have been consolidated into the brand of "Phoenix Miles". As of the end of the Reporting Period, the total number of "Phoenix Miles" members amounted to 65.56 million.

As of the end of the Reporting Period, the Group operated a fleet of 700 aircraft with an average age of 7.40 years, of which the Company operated a fleet of 428 aircraft with an average age of 7.68 years.

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 House

12 Tung Fai Road

Hong Kong International Airport

Hong Kong

WEBSITE:

www.airchina.com.cn

DIRECTORS1:

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

Mr. Li Dajin

SUPERVISORS:

Mr. Zhao Xiaohang

Mr. He Chaofan

Ms. Xiao Yanjun

Ms. Li Guixia

LEGAL REPRESENTATIVE OF THE COMPANY:

Mr. Cai Jianjiang

COMPANY SECRETARY:

Mr. Zhou Feng

AUTHORISED REPRESENTATIVES:

Mr. Cai Jianjiang

Mr. Zhou Feng

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 TohmatsuRegistered Public Interest Entity Auditors

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. Feng Gang was appointed as a non-executive Director of the Company and Mr. Duan Hongyi was appointed as an independent non-executive Director of the Company at the 2019 annual general meeting of the Company.

CHAIRMAN'S STATEMENT

The first half of 2020 was extremely exceptional. The grave situation, huge challenges and the hardship in obtaining the current results during the half year were all unprecedented. The Group resolutely carried out the messages of the notable speeches and the important instructions of General Secretary Xi Jinping and the decisions and deployment plans of the Central Committee of the Party. The Group managed the complicated and ever-changing environment carefully and well organized and coordinated the "three strong fights" of containing the pandemic, safe operation and achieving operating performance. With its strenuous efforts, the Group has obtained certain significant results, surmounting all risks and challenges.

Facing the sudden outbreak of Covid-19 Pandemic that would be hardly seen in a hundred years, the Group despatched the pandemic control materials and medical teams promptly, pursuing the concept of an "unconditional and most priority" relief and rushing to the forefront for fighting the pandemic. Furthermore, it designated the aviation green way for rescue and relief freight against pandemic to demonstrate the vision and commitment of the national flag carrier persistently. At the most difficult time during the outbreak in China, we spared no effort in safeguarding the provision of transportation services for the guidance team appointed by the Central Government and the national medical teams to Wuhan timely against all odds, which involved a total of 166 charter flights, 11,306 pandemic fighting personnel and 1,158 tonnes of aid materials transported. Similarly, at the increasingly severe moments of the outbreak overseas, we despatched flights again to carry fellow nationals and students back from abroad where high risks existed, and delivered experts and prevention materials to assist various foreign countries in fighting the pandemic. A total of 16 flights for the mission of offshore aids were secured, carrying 144 members of medical teams and 156 tonnes of materials. When the industrial chain and supply chains were hard hit by the pandemic, we were at the forefront of the industry and launched the air cargo services with passenger aircraft. We transformed four B777-300 aircraft and two A330-200 aircraft to operate more than 5,800 air-cargo flights with these passenger aircraft. Our efforts ensured the international key manufacturers not to suffer from suspending production and safeguarded the core position of China among the global industrial chain and supply chains. To facilitate the resumption of work and production, we rapidly resumed flights again up to a number of nearly 2,000, carried out 67 domestic customized flights and international charter passenger flights, carrying a total of 7,788 passengers. By procuring pandemic relief, key flight routes, global supply chains and resumption of work and production without disruption with our best endeavors, we have faithfully fulfilled our political and social responsibilities as a central enterprise.

Always adhering to the principle of safety first as the lifeline of an aviation company, the Group insisted on the unwavering safety benchmark and strengthened risk management and control, and thus achieved a total of 0.617 million safe flight hours. We have strengthened our operation by persisting in the dynamic analysis of "one flight, one policy" so as to identify, assess, prevent and control the operation risks of flights. Further, we made serious inspections and investigations on any problems and hidden hazards, thereby enhancing the preparatory efforts for flight operation and the control on key working procedures. The Group strictly adhered to the flight operation standards, consolidated the allocation and rotation of flight crew members and arranged the technological enclosure and storage and daily maintenance of parked aircraft reasonably, ensuring the crew members and aircraft were always in good conditions for operation. We carefully implemented the operation and organization for international flight diversion to assure the safe operation of 242 diversion flights. We have built the protection model for "air-cargo flight with passenger aircraft" and formulated various risk prevention and control measures. With the orderly efforts such as the related training programs and maintenance for ARJ21 aircraft introduced, the first ARJ21 has been safely and successfully put into operation.

Amidst the Covid-19 pandemic outbreak, the Company has adjusted its operation strategies swiftly, seized the market opportunities precisely and prevented various operation risks stringently, striving to minimize the impacts of the pandemic. The operation quality of our main transportation business and competitive edge among the industry have been maintained accordingly. During the first half year, the Group completed the traffic measured by RTK of 5,355 million tonne kilometres. The Group's revenue amounted to RMB29,646 million, while loss attributable to equity shareholders of the Company amounted to RMB9,440 million. With prudent responsive measures for the market change such as timely adjustment on the operation model and rapid formulation of exceptional production and operation strategies, we managed to ensure maximization of the marginal total profit contribution. By unleashing the management effectiveness of optimizing the operation of the entire fleet, we timely captured the market opportunities, organized sources of customers effectively and refined the yield management, striving to increase the revenue. We have changed the offshore sales model swiftly and organized the international passenger freight according to the practice of "one route, one policy" and "one flight, one policy". With our arduous efforts, the general downside trend of the operating performance of the Group has been curbed effectively.

Bearing the concept of preparing for going through hard times, we put the strictest cost control measures into practice. The Group adjusted the introduction and retirement plan of aircraft, refined management and control on significant cost items, relocated the cost structures and systems and aligned operation with costs in a scientific manner. The Group strictly avoided capital risk, enhanced the management and control on cash flow forecast and improved efficiency in capital use. Moreover, the Group issued corporate bonds to replace bank borrowings so as to reduce financing cost and guarantee a secured and stable liquidity. We proactively prevented the contract performance risks by reviewing the performance of various contracts and timely identifying and following up on any extraordinary cases.

We actively implemented the required prevention and control measures against the pandemic to provide protection in our services for passengers in full swing. With increased awareness on offering active services and promptly adjusted service procedures, our employees of all levels have regarded the routes as if the front of cross-fire, the cabin as if the "Fangcang" mobile-cabin hospital, and the airport as if the battle field. We made all efforts to curtail the pandemic impacts on the travel of passengers with courage regardless of any dangers or risks. We adjusted the aircraft air-conditioning operation protocols, reduced the use of airport bridge-borne air conditioners, increased the frequency of daily clean ups and repair and maintenance of recirculating air conditioning units, strengthened the hygiene cleaning and ventilated disinfection of cabins and cockpits, strictly containing the spread of virus from passageways. Further, we promptly adjusted the on-board catering and provision of amenities in order to ensure safety of the food and on-board supplies. Meanwhile, we were sufficiently equipped with various pandemic fighting materials and sanitary utilities on aircraft, formulated and strictly implemented the operating rules and procedures on cleaning and sanitization with the facilities or equipment thereon. In view of the changes in travel demand of passengers and timely in response to the industrial demand, we made adjustment on flight planning, ticketing rules and service procedures, and 8.88 million tickets were returned and duly processed for free. We optimised products for transit, enhanced synergy among various channels, organized resources of services, strengthened delivery of information and properly handled the problems such as conflicts over the demand for and supply of international passenger tickets and provision of transit connection. In addition, we optimized online service capability and increased the use efficiency of self-service equipment in airports and expanded the "no-contact" service coverage. We have actively protected the rights of our frequent flyers and become the pioneer of the industry offering policy of extending the validity period of frequent flyers miles. With assured protection on international flight diversion services, we also improved the passenger service procedures during transit or landing of flights and orderly organized and provided protection for the subsequent flight journey of passengers.

Currently, the pandemic and economic conditions remain very sophisticated. Under the new pattern of accelerated construction of the dual circulation development, the economy of the PRC is moving forward steadily on the track of high-quality development with continuous upgrades. For the second half of 2020, we will focus on implementing the regularized pandemic prevention and control measures and adhering to the unwavering principles as follows: considering the health and safety of our passengers and employees as the top priority as always; insisting on the mission of responsibility in safety as significant as Mount Taishan and sticking to the "safety first" benchmark as always; putting huge efforts to pursue the fundamental strategies such as operating performance, precise and effective cost management and control, balanced development of domestic and global businesses as well as passenger and cargo freight, development of hub network and cost-oriented concept vigorously as always; persisting in the strategic directions such as innovation-driven mode, expedited upgrade of service quality and transformation of the business model and commitment to enhancing our services as always; being committed to the poverty-relief efforts in all our hearts, all our passions, all our might and all our minds, insisting on fighting the critical battle in respect of poverty-alleviation comprehensively as always.

New opportunities would arise from a crisis, while a new chapter would be turned from changes. By sustaining our strategic resilience, we insist on seeking growth in a steady manner, seizing the opportunities arising from crisis with confidence and recovering the loss arising from the pandemic with our best endeavors. We will procure a safe operation and strive to restore the operating performance to its normal level. We aspire to win the "three strong fights" of containing the pandemic, safe operation and achieving operating performance and as such, we look forward to making contributions to the successful achievement of the final year of the "13th five-year plan" and the accomplishment of completing the building of a moderately prosperous society in all respects, and make unremitting efforts to establish as a top-tier global aviation transportation group.

Chairman

Beijing, the PRC

28 August 2020

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.

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.

BUSINESS OVERVIEW

Development of Fleet

During the Reporting Period, the Group introduced three aircraft including two A320NEO and one ARJ21-700, and phased out two aircraft including one B737-800 and one A319. As at the end of the Reporting Period, the Group operated a fleet of 700 aircraft with an average age of 7.40 years, of which the Company operated a total of 428 aircraft with an average age of 7.68 years. During the first half of the year, the Company introduced three aircraft and phased out one aircraft.

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

Please refer to the actual operation for the introduction and phase-out of the Group's fleet in the future.

MAJOR SUBSIDIARIES AND ASSOCIATES AND THEIR OPERATING RESULTS

Notes: 1. CNACG is a wholly-owned subsidiary of CNAHC. Accordingly, CNAHC is directly and indirectly interested in 51.70% of the shares of the Company.

2. 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.

During the Reporting Period, the operating results of the major subsidiaries and associates of the Company were as follows:

The fleet information and operating data of the major subsidiaries and associates of the Company were as follows:

*Note: 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 7.90 years. During the Reporting Period, in terms of business charter service, Beijing Airlines completed 155 flights, representing a year-on-year increase of 6.16%; it completed 495 flying hours, representing a year-on-year decrease of 4.62%; it carried a total of 773 passengers, representing a year-on-year decrease of 22.85%.

PARTICULARS OF EMPLOYEES

As at the end of the Reporting Period, the Company had a total of 46,856 employees, and the subsidiaries of the Company had a total of 42,253 employees.

REMUNERATION POLICY

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 deepen the reform of its remuneration and welfare system. It optimized the market-oriented remuneration benchmarking, established a sound and scientific mechanism on wage decision and growth that reflects the labour market standards. In addition, the Company promoted the pilot market-oriented remuneration reform of the Information Management Department, implemented the remuneration adjustments for flight, cabin crew and ground personnel, improved the remuneration management mechanism for corporate leaders, and implemented the differentiated salary adjustment for employees with continuous outstanding performance.

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 report so as to better understand the financial conditions and results of operations of the Group as a whole.

OPERATION ANALYSIS

During the first half of 2020, the Group's available seat kilometres for air passenger amounted to 65,566 million, representing a year-on-year decrease of 53.74%; the total air passenger traffic amounted to 44,222 million RPK, representing a year-on-year decrease of 61.47%; passenger load factor was 67.45%, representing a year-on-year decrease of 13.54 percentage points. The available freight tonne kilometres for freight amounted to 4,035 million, representing a year-on-year decrease of 27.09%; the total cargo and mail traffic amounted to 1,459 million tonne kilometres, representing a year-on-year decrease of 37.47%; cargo and mail load factor was 36.16%, representing a year-on-year decrease of 6.00 percentage points. During the Reporting Period, the Group recorded a loss attributable to equity shareholders of the Company of RMB9,440 million compared to a profit attributable to equity shareholders of the Company of RMB3,144 million in the same period last year.

Revenue

During the Reporting Period, the Group's revenue was RMB29,646 million, representing a year-on-year decrease of RMB35,667 million or 54.61%. Among the revenues, air traffic revenue was RMB27,139 million, representing a year-on-year decrease of RMB35,542 million or 56.70%. Other operating revenue was RMB2,507 million, representing a year-on-year decrease of RMB125 million or 4.75%.

Revenue Contributed by Geographical Segments

Air Passenger Revenue

During the Reporting Period, the Group recorded an air passenger revenue of RMB22,948 million, representing a decrease of RMB36,903 million or 61.66% from that of the same period of 2019. Among the air passenger revenue, the decrease of capacity resulted in a decrease in revenue of RMB32,163 million, the decrease of passenger load factor resulted in a decrease in revenue of RMB4,630 million, while the decrease of passenger yield resulted in a decrease in revenue of RMB110 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

Air Cargo and Mail Revenue

During the Reporting Period, the Group's air cargo and mail revenue was RMB4,191 million, representing an increase of RMB1,361 million as compared with that of the same period of 2019. Among the air cargo and mail revenue, the decrease of capacity resulted in a decrease in revenue of RMB766 million, while the decrease of cargo and mail load factor resulted in a decrease in revenue of RMB294 million, and the increase of yield of cargo and mail contributed an increase in revenue of RMB2,421 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:

Air Cargo and Mail Revenue Contributed by Geographical Segments

Operating Expenses

During the Reporting Period, the Group's operating expenses were RMB38,196 million, representing a decrease of 36.87% from RMB60,502 million in the same period of the previous year. The breakdown of the operating expenses is set out below:

• Jet fuel costs decreased by RMB10,803 million on a year-year basis, mainly due to the combined effect of the decrease in the consumption and prices of jet fuel.

• Take-off, landing and depot charges decreased by RMB4,161 million on a year-on-year basis, mainly due to a decrease in the number of take-offs and landings.

• Depreciation and amortisation decreased by RMB338 million on a year-on-year basis, mainly due to the change of depreciation method of the Group's overhaul components of engine from straight-line method to the units-of-production method (see Note 3 to the condensed consolidated financial statements for details).

• Employee compensation costs decreased by RMB1,669 million on a year-on-year basis, mainly due to the decrease in the number of flights, the adjustment of compensation standards and the 50% reduction in social insurance.

• Air catering charges decreased by RMB1,303 million on a year-on-year basis, mainly due to the decrease in the number of passengers.

• Selling and marketing expenses decreased by RMB1,283 million on a year-on-year basis, mainly due to the decrease in handling fees and booking fees resulting from the decrease in the sales volumes and the number of passengers.

• General and administrative expenses decreased by RMB132 million on a year-on-year basis, mainly due to the decrease in bank handling fees and other expenses.

• Other operating expenses mainly included civil aviation development fund and non-above-mentioned ordinary expenses arising from the core air traffic business, which decreased by 52.70% on a year-on-year basis, mainly due to the decrease in transport and the exemption of civil aviation development fund.

Net Exchange Loss and Finance Costs

During the Reporting Period, the Group recorded a net exchange loss of RMB1,019 million, representing a year-on-year increase of RMB900 million. The Group incurred finance costs of RMB2,548 million (excluding those capitalised) during the Reporting Period, representing a year-on-year increase of RMB109 million.

Share of Results of Associates and Joint Ventures

During the Reporting Period, the Group's share of losses of its associates was RMB3,011 million, as compared with the share of profits of RMB146 million for the same period of the previous year. Among them, the Group recorded a loss on investment of Cathay Pacific of RMB2,373 million during the Reporting Period, as compared with the profit on investment of RMB199 million for the same period of the previous year.

During the Reporting Period, the Group's share of profits of its joint ventures was RMB107 million, representing a year-on-year decrease of RMB5 million.

Assets Structure Analysis

As at the end of the Reporting Period, the total assets of the Group were RMB293,591 million, representing a decrease of 0.21% from that as at 31 December 2019. Among them, the current assets accounted for RMB28,470 million or 9.70% of the total assets, while the non-current assets accounted for RMB265,121 million or 90.30% of the total assets.

Among the current assets, cash and cash equivalents were RMB13,443 million, representing an increase of 50.44% from that as at 31 December 2019.

Among the non-current assets, the aggregate carrying amount of property, plant and equipment and right-of-use assets as at the end of the Reporting Period was RMB216,370 million, representing a decrease of 2.33% from that as at 31 December 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 RMB78,851 million (approximately RMB81,724 million as at 31 December 2019) and land use rights with net book value of approximately RMB27 million (approximately RMB27 million as at 31 December 2019). In addition, the Group had restricted bank deposits of approximately RMB664 million (approximately RMB728 million as at 31 December 2019), 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 RMB3,907 million, of which the total investment in aircraft and engines was RMB2,556 million. Other capital expenditure investment amounted to RMB1,351 million, mainly including investment in rotables, 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 RMB10,930 million, representing a decrease of 25.38% from that as at 31 December 2019, among which, the balance of the equity investment of the Group in Cathay Pacific, Shandong Aviation Group Corporation and Shandong Airlines amounted to RMB9,371 million, RMB886 million and RMB283 million, respectively. Cathay Pacific, Shandong Aviation Group Corporation and Shandong Airlines recorded a net loss attributable to its shareholders of RMB8,924 million, RMB464 million and RMB1,296 million, respectively, for the Reporting Period.

As at the end of the Reporting Period, the Group's equity investment in its joint ventures was RMB1,650 million, representing an increase of 6.92% from that as at 31 December 2019.

Debt Structure Analysis

As at the end of the Reporting Period, the total liabilities of the Group amounted to RMB204,502 million, representing an increase of 6.03% from those as at 31 December 2019, among which current liabilities were RMB93,390 million and non-current liabilities were RMB111,112 million, accounting for 45.67% and 54.33% of the total liabilities, respectively.

Among the current liabilities, interest-bearing debts (including bank and other loans, corporate bonds and lease liabilities) amounted to RMB64,567 million, representing an increase of 76.45% from that as at 31 December 2019, mainly due to the increase of the Group's financing scale to cope with the impact of Covid-19 pandemic and ensure the liquidity safety.

Among the non-current liabilities, interest-bearing debts (including bank and other loans, corporate bonds and lease liabilities) amounted to RMB99,337 million, representing a decrease of 3.73% from that as at 31 December 2019.

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

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 2.72% from RMB50,007 million as at 31 December 2019 to RMB48,648 million as at the end of the Reporting Period. The Group's investment commitments, which was mainly used for the investment agreements entered into, amounted to RMB3,234 million as at the end of the Reporting Period, as compared to that of RMB24 million as at 31 December 2019, which was mainly attributable to the addition of RMB3,209 million regarding the investment commitment to Cathay Pacific.

Details of the Group's contingent liabilities are set out in note 20 of the condensed consolidated financial statements included in this interim report.

Gearing Ratio

As at the end of the Reporting Period, the Group's gearing ratio (total liabilities divided by total assets) was 69.66%, representing an increase of 4.10 percentage points from the gearing ratio as at 31 December 2019. High gearing ratio is common among aviation enterprises, and the current gearing ratio of the Group is at a reasonable level. 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 RMB64,920 million, representing an increase of RMB11,765 million from that as at 31 December 2019. The Group's current ratio (current assets divided by current liabilities) was 0.30, representing a decrease as compared to that of 0.32 as at 31 December 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 outflow from operating activities was RMB10,256 million, as compared to the net cash inflow of RMB13,075 million for the corresponding period in 2019, which was mainly because the sales fell and the number of ticket refunds rose on a year-on-year basis as affected by the Covid-19 pandemic. Net cash outflow from investing activities was RMB7,397 million, representing an increase of 114.06% from RMB3,456 million for the corresponding period in 2019, mainly due to the year-on-year increase in the cash payment of advances and remaining balances for the purchase of aircraft during the Reporting Period. Net cash inflow from financing activities amounted to RMB22,148 million, as compared with the net cash outflow from financing activities of RMB8,703 million for the same period of the previous year, mainly due to the increase of its financing scale to cope with the impact of Covid-19 pandemic and ensure the liquidity safety.

The Company has obtained bank facilities of up to RMB158,648 million granted by several banks in the PRC, among which approximately RMB30,167 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

In the first half of 2020, the Chinese economy basically remained an overall stable situation with the GDP growth rate turned positive in the second quarter. Major economic indicators have shown restoring growth and the economic operations recovered steadily, symbolizing a good momentum of overall steady growth from market expectations. However, as the Covid-19 pandemic is continuing its spread across the world, it brought severe challenges to the global economy. The external risks and challenges have significantly increased, resulting in continuous geopolitical crisis and complicated tensions among great powers. In the domestic context, the environment is complex and changeable which posed great pressure on economic recovery and the risk of fluctuation in the aviation industries has therefore increased.

Oil Price Fluctuation

Considering the Covid-19 pandemic has adversely impacted the global economy, the demand for crude oil has shrunk and it is expected that oil prices will remain within the current relatively stable range in the second half of 2020, showing a restrained room for price increase. 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 rose or fell by 5%, the Group's jet fuel costs would rise or fall by approximately RMB341 million.

Exchange Rate Fluctuation

In the first half of 2020, affected by the Covid-19 pandemic, the world economy has encountered a downward pressure and its growth rate continued to slow down significantly. Both major developed countries and emerging economies have generally shown a downside tendency while the monetary policies of the world's major economies gave a clear easing trend. During the Reporting Period, the Federal Reserve has again lowered its interest rates, and most major economies have also initiated interest rate cuts and implemented fiscal stimulation policies to maintain economic stability. China is also impacted by the uncertain economic situation. However, with the effective pandemic control, its impact has gradually weakened. As the major economic indicators are generally stable and the economic fundamentals remain sound, the monetary policies on medium- and long-term liquidity investment have shown signs of returning to normal. In addition, sufficient tool and room for policy adjustments established a solid foundation for the RMB exchange rate in the medium to long run which is expected to maintain a two-way elastic fluctuation within a reasonable range with an upward trend in the second half of the year.

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 RMB433 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 RMB13.967 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 RMB7.998 million, respectively.

Risks of Competition

Industry competition

Bilateral and multilateral non-equity joint venture arrangements among large network carriers are being constantly strengthened as both competition and business models are taking new forms. As China's airlines were accelerating their penetration in the global market in prior periods, it will be harder to acquire the international air traffic rights in the future. While the Company is enjoying the advantages in locations and timeslots in respect of the long-haul routes to Europe and America, it still has much to improve compared with the leading airlines in Europe and America in terms of network, products and services. Regional airlines that spring up during an industry deregulation period promoted the trend of low-cost aviation operations, which will further intensify the competition in the domestic market and may result in reduced yield. The resource supply of China's first-tier airports, particularly the Beijing hub, tends to reach a full capacity. As such, the locations and timeslots have further constrained the development of civil aviation. With the commencement of operation of Beijing Daxing International Airport, customer traffic will be further diverted in the short run, and such diversion may have an impact on the market yield. Affected by the Covid-19 pandemic, global aviation companies have grounded a large number of flights and faced cash flow crisis, and many aviation companies in the United States and Europe went bankrupt. Such integration is expected to alleviate excess capacity and facilitate the integration of civil aviation resources and subsequent development.

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 features high frequency, low fare, punctuality, high speed, convenience and comfort, and has become the favourite choice of travellers, which put air transportation 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, it will change China's geographic pattern of economy as high-speed railway transportation and civil aviation may actually cooperate and compete, and the air-rail interline operation will become a strong support to the building of international hubs. As for the domestic routes, as the proportion of medium- and short-haul routes of the Company was the lowest in the industry, the Company may suffer from the competition of high-speed railway transportation, but only to a limited extent overall.

Operating Risks

De-hubbing

In recent years, 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 above the range of 5,000 kilometres as an example, in 2010, international long-haul routes were only operated in four second-tier cities in China, but as at the end of 2019, the number has increased to 20. In the first half of 2020, affected by the Covid-19 pandemic, many countries around the world imposed traffic bans. China's second-tier cities have basically grounded the international long-haul routes while most international long-haul routes make Beijing, Shanghai and Guangzhou as their origin/destination. Other second-tier cities are only used as diversion points for entry under the "Five-One" policy. Therefore, the long-haul routes of China's second-tier cities may in turn face structural adjustments in the future.

Description on the changes in annual results

As affected by the Covid-19 pandemic across the globe, aviation demand dropped sharply. During this critical period, the Group earnestly performed its social responsibilities and its missions as a national flag carrier by safeguarding the transportation of personnel and materials for the prevention of the pandemic in an effort to maximize the protection for the health and safety of its passengers and employees. The Group grasped the changes in market demand, dynamically optimized the deployment of transport capacity, refined marketing control, optimized yield management, strengthened cost control, and actively sought to increase revenue through flexible adjustment between domestic and international flights, passenger and freight transportation, through resource guarantee mechanisms and other measures, all with an aim to minimize the impact of the pandemic with best efforts. However, in view of the uncertainties of the evolvement of the pandemic and its serious impact on the civil aviation transport industry, it is anticipated that the Group's results from the beginning of the year to the end of next reporting period will be significantly affected.

CHANGES IN THE INFORMATION OF DIRECTORS, SUPERVISORSAND SENIOR MANAGEMENT OF THE COMPANY

Update on Directors, Supervisors and chief executive's information according to Rule 13.51B(1) of the Listing Rules are as follows:

1. On 21 January 2020, due to his age, Mr. Liu Deheng resigned from his positions as an independent non-executive Director of the Company, the chairman and a member of the Audit and Risk Control Committee of the Board and a member of the Strategy and Investment Committee of the Board.

2. On 21 January 2020, due to adjustment of work arrangement, Mr. Feng Gang ceased to act as a vice president of the Company. After being reviewed by the Nomination and Remuneration Committee under the Board, Mr. Feng Gang was nominated as a non-executive Director of the Company at the 18th meeting of the fifth session of the Board. On 26 May 2020, after being considered and approved at the 2019 annual general meeting of the Company, Mr. Feng Gang was elected as a non-executive Director of the Company.

3. Since 9 March 2020, Mr. Zhao Xiaohang ceased to act as the Chairman of Dalian Airlines.

4. Since 30 March 2020, Mr. Zhao Xiaohang ceased to act as director of Shandong Aviation Group Corporation.

5. Since 1 April 2020, Mr. Song Zhiyong ceased to act as the Chairman of Shenzhen Airlines.

6. Since 17 April 2020, Mr. Song Zhiyong ceased to act as the Chairman of AMECO.

7. Since 27 April 2020, Mr. Zhao Xiaohang has been serving as the Chairman of CNACG.

8. On 29 April 2020, after being reviewed by the Nomination and Remuneration Committee under the Board, Mr. Duan Hongyi was nominated as an independent non-executive Director of the Company at the 20th meeting of the fifth session of the Board. On 26 May 2020, after being considered and approved at the 2019 annual general meeting of the Company, Mr. Duan Hongyi was elected as independent non-executive Director of the Company. On 9 June 2020, after being considered and approved at the 21st meeting of the fifth session of the Board of the Company, Mr. Duan Hongyi was appointed as a member of the Audit and Risk Control Committee of the Board and a member of the Strategy and Investment Committee of the Board.

9. Since 19 May 2020, Mr. Feng Gang ceased to act as the Chairman of both China National Aviation Construction and Development Company and China Air Express Co., Ltd..

10. Since 30 June 2020, Mr. Feng Gang ceased to act as the Vice Chairman of Tibet Airlines Co., Ltd.

During the Reporting Period and up to the date of this report, the changes in senior management of the Company are as follows:

1. On 21 January 2020, the resolution of the appointment of Mr. Ni Jiliang as the chief engineer was considered and approved at the 18th meeting of the fifth session of the Board of the Company, and Mr. Ni Jiliang was appointed as the chief engineer of the Company.

2. On 29 April 2020, due to adjustment of work arrangement, Mr. Liu Tiexiang ceased to act as a vice president of the Company.

3. On 29 April 2020, due to personal reasons, Ms. Tam Shuit Mui resigned from her position as a joint company secretary of the Company. On 29 April 2020, the resolution of change of joint company secretary was considered and approved at the 20th meeting of the fifth session of the Board of the Company, and Mr. Huen Ho Yin replaced Ms. Tam Shuit Mui to act as the joint company secretary.

4. On 9 June 2020, the resolution of the appointment of Mr. Zhang Sheng as a vice president of the Company was considered and approved at the 21st meeting of the fifth session of the Board of the Company, and Mr. Zhang Sheng was appointed as a vice president of the Company.

5. On 31 August 2020, as confirmed by the Hong Kong Stock Exchange, Mr. Zhou Feng was qualified to act as the company secretary of the Company under Rule 3.28 of the Listing Rules after the expiry of the waiver period on 30 August 2020. As a result, Mr. Huen Ho Yin resigned as a joint company secretary of the Company.

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. Patrick Healy 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. In addition, Mr. Song Zhiyong (an executive Director of the Company) also served as a director of Air China Cargo. Air China Cargo competes or is likely to compete either directly or indirectly with some aspects of the business of the Company as it operates cargo airline services by cargo aircraft to certain destinations, which are also served by the bellyhold cargo of 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 (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 55.20% equity interest and 64.28% 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 of 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 1,687,472,388 H Shares held by it in the Company do not include the 166,852,000 H 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.

CORPORATE GOVERNANCE

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.

OTHER EVENTS

Mr. Liu Deheng resigned as an independent non-executive Director of the Company, with effect from 21 January 2020. Following the resignation of Mr. Liu Deheng, the Company fails to meet (i) the requirement of at least one of the independent non-executive directors having appropriate professional qualifications or appropriate accounting or related financial management expertise under Rule 3.10(2) of the Listing Rules; and (ii) the composition requirement of the audit committee under Rule 3.21 of the Listing Rules. Pursuant to Rules 3.11 and 3.23 of the Listing Rules, the Company shall appoint successor independent non-executive Director and member of the Audit and Risk Control Committee within three months from the date of its non-compliance with Rules 3.10(2) and 3.21 of the Listing Rules (i.e. before 21 April 2020). The Company has applied to the Stock Exchange and the Stock Exchange has agreed to grant a waiver from strict compliance with Rules 3.10(2) and 3.21 of the Listing Rules, and extend the deadline for filling the vacancy from 21 April 2020 to 21 July 2020. On 26 May 2020, Mr. Duan Hongyi was appointed as an independent non-executive Director of the Company at the 2019 annual general meeting of the Company. On 9 June 2020, Mr. Duan was appointed as the chairman of the Audit and Risk Control Committee of the Board and a member of the Strategy and Investment Committee of the Board. So far, the Company has complied with the requirements of Rules 3.10(2) and 3.21 of the Listing Rules.

MISCELLANEOUS

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 civilization. In accordance with CNAHC's "Three-Year Action Plan to Win the Battle for a Blue Sky", the Company has enhanced the energy conservation and environmental protection management system and comprehensively conducted key tasks from air to ground in relation to energy saving and environmental protection, accelerating its progress in green development. Focusing on the theme of "I am an Activist in Winning the Battle for a Blue Sky", the Company has integrated the concept of energy conservation and environmental protection into corporate culture by carrying out promotion week activities regarding energy conservation as well as organizing online thematic quiz on such topics with full employee participation, and therefore facilitating energy conservation and ecological environmental protection and achieving "all-people awareness, participation and supervision". Adhering to the principle of "ecological priority, green development", the Company has collaborated with China Environmental Protection Foundation, Chinese Academy of Forestry and Sunite Youqi Government to continue the promotion of ecological restoration and poverty alleviation projects in Sunite Youqi. While realizing the ecological restoration, the project also strived to create new income sources for local people so as to promote high-quality development of both grasslands and the forage industry and at the same time facilitate poverty alleviation.

In 2020, the aviation industry has faced severe challenges due to the Covid-19 outbreak. The Company always maintained its strategic determination on the construction of ecological civilization and firmly established the belief of "Green responsibility is political responsibility" by adhering to the same direction with full force in unwavering manner, and therefore striving to build an industrial system of green low-carbon circulating development. The Company insists on the concept of "continuous yet tight efforts" on energy conservation and environmental protection to reduce unit energy consumption for realising low carbon growth, promote green upgrading by optimising consumption structure, guarantee environmental standards by implementing systematic management and control, and engage in environmental and public welfare activities for demonstrating its undertaking as a central state-owned enterprise. The Company was determined to fight the battle against pollution and the battle for a Blue Sky and thus resolutely marching towards the green low-carbon circulating development.

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 RMB58.0357 million, where the outstanding amount of net proceeds to be invested in the projects was RMB9.1685 million, and the interest income of the net proceeds was RMB48.8672 million.

CORPORATE BONDS

The situation of the Group's corporate bonds is as the followings:

Unit: million Currency: RMB

Interest payments for corporate bonds

On 18 January 2020, the Company paid the interests on 2012 Corporate Bond (First Tranche) for the current period.

On 14 March 2020, Shenzhen Airlines paid the interests on 2018 Corporate Bond (First Tranche) for the current period.

On 24 April 2020, Shenzhen Airlines paid the interests on 2018 Corporate Bond (Second Tranche) for the current period.

On 26 April 2020, Shenzhen Airlines paid the interests on 2019 Corporate Bond (First Tranche) for the current period.

The proceeds from the issuance of "12AC01", "12AC03", "16AC02" and "20AC01" Corporate Bonds were used toward the replenishment of liquidity and repayment of bank loans so as to satisfy the needs of the Company's daily production and operation. The abovementioned proceeds have been fully utilized in accordance with the use of proceeds as set out in the prospectus and the balance of proceeds as at the end of the Reporting Period is zero.

The proceeds from the issuance of "18SA02", "18SA04", "18SA06" and "19SA01" Corporate Bonds were used toward the replenishment of liquidity and repayment of bank loans so as to satisfy the needs of the Company's daily production and operation. The abovementioned proceeds have been fully utilized in accordance with the use of proceeds as set out in the prospectus and the balance of proceeds as at the end of the Reporting Period is zero.

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 2020.

REVIEW BY THE AUDIT AND RISK CONTROL COMMITTEE

The audit and risk control committee of the Company has reviewed the Company's interim report for the six months ended 30 June 2020, 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 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 2019 annual report.

SUBSEQUENT EVENTS

On 9 June 2020, the Company issued an irrevocable undertaking to Cathay Pacific, pursuant to which the Company has irrevocably undertaken to 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 according to the Cathay Pacific Rights Issue. Cathay Pacific Rights Issue was completed on 10 August 2020 and the relevant subsidiaries of the Company have taken up a total of 750,756,347 Cathay Pacific Rights Shares which were allocated to such subsidiaries in the Cathay Pacific Rights Issue. Immediately after the completion of the Cathay Pacific Rights Issue, the Company's shareholding percentage in Cathay Pacific remained unchanged, being 29.99% of the total issued shares of Cathay Pacific.

REPORT ON REVIEW OF CONDENSED CONSOLIDATED 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 30 to 64, which comprise the condensed consolidated statement of financial position as of 30 June 2020 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 2020

CONDENSED CONSOLIDATED STATEMENTOF PROFIT OR LOSS

For the six months ended 30 June 2020

CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For the six months ended 30 June 2020