Formal Notice-Connected Transaction

RNS Number : 7809A

Air China Ld

29 December 2014

 



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

                                                                                Air China Limited

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

(Stock Code: 00753)

CONNECTED TRANSACTIONS: ACQUISITIONS  OF  EQUITY INTERESTS IN CNAF

CAPITAL INJECTION INTO CNAF AND

RELATED PROFIT FORECAST

THE ACQUISITIONS The Board announces that on 24 December 2014, the Company entered into the Equity Transfer Agreements with each of AIE, Shantou Industrial and Phoenix Industrial, pursuant to which, AIE, Shantou Industrial and Phoenix Industrial agreed to transfer to the Company, and the Company agreed to acquire, the AIE Interests, the Shantou Interests and the Phoenix Interests, respectively, at a consideration of RMB28,065,845.88 (equivalent to approximately HK$35,362,966), RMB4,726,113.94 (equivalent to approximately HK$5,954,904) and RMB2,326,702.25 (equivalent to approximately HK$2,931,645), respectively. Upon completion of the Acquisitions, the respective interest of the Company, CNAHC and AMS Global in the registered capital of CNAF will become 24.14%, 75.54% and 0.32%, respectively. THE CAPITAL INJECTION The Board announces that on 24 December 2014, the Company and CNAHC entered into the Capital Injection Agreement, pursuant to which the Company and CNAHC decided to increase the registered capital of CNAF and inject additional capital into CNAF.

According to the Capital Injection Agreement, upon completion of the Capital Injection, each of the Company and CNAHC will have an interest of 51% and 49% in the total enlarged registered capital of CNAF, respectively, and CNAF will become a non-wholly owned subsidiary of the Company. LISTING RULES IMPLICATIONS As at the date of this announcement, CNAHC is a controlling shareholder (as defined under the Listing Rules) of the Company and thus a connected person of the Company. As Phoenix Industrial is a subsidiary of CNAHC, it constitutes an associate of CNAHC and therefore a connected person of the Company under the Listing Rules. In addition, CNAHC, being CNAF's substantial shareholder (as defined under the Listing Rules), is a controller of the Company. Accordingly, the Acquisitions constitute connected transactions of the Company under Chapter 14A of the Listing Rules. Furthermore, as CNAHC is a connected person of the Company, the Capital Injection constitutes a connected transaction of the Company under the Listing Rules. The Company has aggregated the Acquisitions with the Capital Injection for the purpose of calculating the size of the Transactions in accordance with the relevant requirement of the Listing Rules as they both involve acquisition of interests in CNAF. As each of the applicable percentage ratios (as defined under the Listing Rules) calculated after such aggregation is more than 0.1% but less than 5%, the Transactions are subject to the reporting and announcement requirements, but are exempt from the independent shareholders' approval requirement under Chapter 14A of the Listing Rules. RELATED PROFIT FORECAST For each of the Acquisitions and the Capital Injection, China United was appointed as the independent valuer for the appraisal of the shareholders' equity of CNAF as at 31 December 2013. China United has adopted the income approach for the valuation. Therefore, the Valuation Reports constitute profit forecast under Rule 14.61 of the Listing Rules.

BACKGROUND

CNAF is a company incorporated in the PRC and is primarily engaged in providing financial services to CNAHC, its subsidiaries and associates. As at the date of this announcement, CNAF is owned as to

75.54% by CNAHC, 19.31% by the Company,3.86% by AIE, 0.65% by Shantou Industrial, 0.32% by Phoenix Industrial and 0.32%by AMS Global, respectively. The Company proposes to consolidate the financial results of CNAF as its subsidiary by carrying out the following transactions:

(a)    acquiring the equity interests held by each of AIE, Shantou Industrial, Phoenix Industrial and

AMS Global in the registered capital of CNAF; and

(b)    making capital injectioninto CNAF.

Accordingly, the Company has entered into the Equity Transfer Agreements and the Capital Injection Agreement, and plans to enter into an equity transfer agreement with AMS Global in due course to acquire  the  AMS  Interests.  Upon  completion  of  the  acquisitions  of  the  AIE  Interests,  Shantou Interests, Phoenix Interests and AMS Interests, and the Capital Injection, the Company would be interested in 51% of the registered capital of CNAF and CNAFwould become a subsidiary of the Company.

THE ACQUISITIONS Introduction

The Board announces that on 24 December 2014,the Company entered into the Equity Transfer Agreements with each of AIE, Shantou Industrial and Phoenix Industrial, pursuant to which, AIE, Shantou  Industrial  and  Phoenix  Industrial  agreed  to  transfer  to  the  Company,  and  the  Company agreed to acquire, the AIE Interests, the Shantou Interests and the Phoenix Interests, respectively, at a consideration of RMB28,065,845.88 (equivalent to approximately HK$35,362,966), RMB4,726,113.94  (equivalent  to  approximately  HK$5,954,904)  and  RMB2,326,702.25  (equivalent to approximately HK$2,931,645), respectively.

Equity Transfer Agreements

The principal terms of the Equity Transfer Agreements are summarized as follows:

Date:                       24 December 2014

Purchaser:             the Company

Vendors:                 AIE, in respect of the AIE Interests;

Shantou Industrial,in respect of the Shantou Interests; and

Phoenix Industrial,in respect of the Phoenix Interests

Target to be Acquired

(a)    the AIE Interests;

(b)     the Shantou Interests;and (c)   the Phoenix Interests Consideration

The consideration for the acquisition of the AIE Interests, the Shantou Interests and the Phoenix Interests is RMB28,065,845.88 (equivalent to approximately HK$35,362,966), RMB4,726,113.94 (equivalent to approximately  HK$5,954,904)  and  RMB2,326,702.25  (equivalent  to  approximately

HK$2,931,645),  respectively,  which  was  determined  after  arm's  length  negotiation  between  the relevant parties, 
taking  into  account  the  appraisal  value  of  the  shareholders'  equity  of  CNAF(excluding the dividend to be paid 
by CNAF for the year 2014) as at 31 December 2013 as set out in the Equity Transfer Valuation Report.

According to the Equity Transfer ValuationReport, the book valueof the net assets of CNAF was RMB966,654,700 
(equivalent to approximately HK$1,217,984,922) as at 31 December 2013, and the appraisal   value   of   the   net   assets  of   CNAF   amounted   to   RMB981,620,700   (equivalent   to approximately HK$1,236,842,082) as at 31 
December 2013.

The consideration shall be paid by the Company with its internal resources in one lump sum to each of AIE, Shantou 
Industrial andPhoenix Industrial within 180 days afterthe relevant Equity Transfer Agreement becomes effective.

Condition to the Equity Transfer Agreements Becoming Effective

The Equity Transfer Agreements will becomeeffective upon obtainingof the approval by relevant authorities, including the 
China Banking Regulatory Commission or its local counterparts.

Interests in the Registered Capital of CNAF upon Completion of the Acquisitions

Upon  completion  of  the  Acquisitions,  each  of  the  Company,  CNAHC  and  AMS  Global  will  be interested in 24.14%, 75.54% and 0.32%, respectively, in the registered capital of CNAF.

THE CAPITAL INJECTION Introduction

The Board announces that on 24 December 2014, theCompany and CNAHC entered into the Capital Injection Agreement, pursuant to which the Company and CNAHC conditionally agreed to increase the registered capital of CNAF and inject additionalcapital into CNAF.

Capital Injection Agreement

The principal terms of the Capital Injection Agreement are summarized as follows:

Date:                       24 December 2014

Parties:                   the Company and CNAHC

Capital Injection

Pursuant to the Capital Injection Agreement, the Company and CNAHC have agreed to:

(a)    increase the registered capital of CNAF from RMB505,269,500 (equivalent to approximately

HK$636,639,570) to RMB1,127,961,864 (equivalent to approximately HK$1,421,231,949); and

(b)     inject  additional  capital  in  CNAF  in  the  amount  of  RMB571,819,449.68  (equivalent  to approximately HK$720,492,507) and RMB171,020,919.65 (equivalent to approximately HK$215,486,359),  respectively,  and  the  portion  in  excess  of  the  proposed  increment  of registered capital of CNAF pursuant to subparagraph (a) above will be contributedto the capital reserve of CNAF.

The Capital Injection Agreement may only become effective after the Company and AMS Global enter into an equity transfer agreement for the Company to acquire the AMS Interests andthe Capital Injection will not be made in proportion to the respective interest of the Company and CNAHCin the registered capital of CNAF. According to the Capital Injection Agreement, upon completion of the Capital Injection, each of the Company and CNAHC will havean interest of 51% and 49%in the enlarged registeredcapital of CNAF, respectively.

Consideration

Pursuant to the Capital Injection Agreement, both the Company and CNAHC shallsettle their capital injection commitment 
within three months after the Capital Injection Agreement becomes effective. The Company will satisfy its capital injection commitment with the dividend it would have received from CNAF in the amount of RMB43,717,420.68 (equivalent to approximately HK$55,083,950) and cash  payment  in the amount  of RMB528,102,029  (equivalent  to approximately 
HK$665,408,557), which will be financed by the Company's internal resources.CNAHC will satisfy its capital injection commitment with the dividend it would have received from CNAF in the amount of RMB171,020,919.65 
(equivalent to approximately HK$215,486,359).

The amount to be injected by each of the Company and CNAHC in CNAF under the Capital Injection was determined 
after arm's length negotiation between the parties, taking into account the appraisal value of the shareholders' equity of 
CNAF (excluding the dividend to be paid by CNAF for the year2014) as at 31 December 2013 as set out in the Capital 
Injection Valuation Report.

According to the Capital Injection Valuation Report, the book value of the net assets of CNAF was RMB966,654,700 
(equivalent to approximately HK$1,217,984,922) as at 31 December 2013, and the appraisal   value   of   the   net   assets  of   CNAF   amounted   to   RMB981,620,700   (equivalent   to approximately HK$1,236,842,082) as at 31 
December 2013.

Condition to the Capital Injection Agreement Becoming Effective

The  Capital  Injection  Agreement  will  become  effective  upon  obtaining  approval  of  the  Capital Injection from the Beijing Bureau of China Banking Regulatory Commission after the Company and AMS Global enter into an equity transfer agreement for the Company to acquire the AMS Interests.

Board Composition of CNAF

According to the Capital Injection Agreement, following the completion of the Capital Injection, the board of directorsof CNAF shall consist of seven directors and each of the Company and CNAHC shall be entitled to recommend four and two directors,respectively, and the last one director shall be electedby CNAF's employees.

Completion

According to the Capital Injection Agreement, the required documents will be filed with the relevant authorities to change the registration record of the registeredcapital of CNAF within 20 business days aftermaking the Capital Injection.

Interests in the Registered Capital of CNAF upon Completion of the Capital Injection

According to the Capital Injection Agreement, upon completion of the Capital Injection, each of the Companyand CNAHC will havean interest in the amount of RMB575,260,550.64 (equivalent to approximately HK$724,828,294) and RMB552,701,313.36 (equivalent to approximately HK$696,403,655), respectively, representing an interest of 51%and 49% in theenlarged registered capital of CNAF, respectively.

The table below sets out each of the Company and CNAHC's interestin the registered capital of

CNAF immediately before and after the completion of the Capital Injection.

	Before completion of the Capital Injection		After completion of the Capital Injection
	Interest in the registered capital of CNAF	Percentage	Interest in the registered capital of CNAF	Percentage
	(in RMB)		(in RMB)
The Company	123,602,411	24.46%	575,260,550.64	51%
CNAHC	381,667,089	75.54%	552,701,313.36	49%
Total	505,269,500	100%	1,127,961,864	100%

Upon the completion of the Transactions, CNAF will become a non-wholly owned subsidiary of the Company and the financial results of CNAF will be consolidated into the consolidated financial statements of the Group.

REASONS FOR AND BENEFITS OF THE TRANSACTIONS

Upon the completion of the Transactions, CNAF will become a non-wholly owned subsidiary of the Company. This will enable the Company and its controlled subsidiaries to obtain tailored financial services from CNAF according to their needs and to optimise and improve their financial resources. In addition, CNAF would benefit from the increase in its registered capital which may enable it to explore new businesses.The earnings of CNAF would also be shared among the Company and its controlled subsidiaries.

The  Transactions  comply  with  the  relevant  requirements  of  business  combination  under  common control.  On the  date  of  consolidation,  the  Company  will  state  the share  of  the  carrying  value  of owner's equity of CNAF in the consolidated financial statementsof CNAHC as the initial investment costs of the long-term equity investments. The capital reserve of the Company shall be adjusted in accordance to the difference between the initial investment costs of the long-term equity investments and the consideration to be paid. It is expected that there will be no material impact on the overall financial position and operation results of the Company after consolidating CNAF into the Company.

The Board (including the independentnon-executive Directors) considers that theEquity Transfer Agreements and Capital Injection Agreementare on normal commercia lterms or better, and the terms and conditions contained therein are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

LISTING RULES IMPLICATIONS

As  at  the date  of  this  announcement, CNAHC  is  a  controlling  shareholder  (as  defined  under  the Listing Rules) 
of the Company and thus a connected person of the Company. As Phoenix Industrial is a subsidiary of CNAHC, 
it constitutes an associate of CNAHC and therefore a connected person of the Company under the Listing Rules. 
In addition, CNAHC, being CNAF's substantial shareholder (as defined under the Listing Rules), is a controller of theCompany. Accordingly, the Acquisitions constitute connected transactions of the Company  under  Chapter  14A  of  the  Listing  Rules. Furthermore, as CNAHC is a connected person of theCompany, the Capital Injection constitutes a connected transaction of the Company under the Listing Rules.

The  Company  has  aggregated  the  Acquisitions  with  the  Capital  Injection  for  the  purpose  of calculating the size 
of the Transactions in accordance with the relevant requirement of the Listing Rules as they both involve acquisition of interests in CNAF. As each of the applicable percentage ratios (as defined under the Listing Rules) calculated after such aggregation is more than 0.1% but less than 5%, the Transactions are subject to the reporting and announcement requirements, but are exempt from the independent shareholders' approval requirement under Chapter 14A of theListing Rules.

Mr. Cai Jianjiang, Ms. Wang Yinxiang, Mr. Cao Jianxiong and Mr. Feng Gang are considered to have a material interest in the Transactions and therefore have abstained from voting on the relevant Board resolution. Save as mentioned above, none of the other Directorshas a material interest in the Transactions.

PROFIT FORECAST IN RELATION TO THE VALUATION REPORTS

The consideration for each of the Acquisitions and the Capital Injection was determined after arm's length negotiation 
between the relevant parties, taking into account, among others, the appraisal value ofthe shareholders' equity of CNAF as at 31 December 2013as set out in the Valuation Reports. The Valuation Reports were prepared based on the income approach, which has taken into account the discounted cash flow forecast of CNAF, and therefore constitute profit 
forecast under Rule 14.61 of the Listing Rules (the "Profit Forecast").

Pursuant to Rule 14.62(1) of the Listing Rules, the principal assumptions upon which the Valuation

Reports were based are set out below:

(a)     the appraisedassets are being traded in the market; (b)         the market for the appraised assets is open;

(c)     CNAF will operate as a going concern and its operations will be consistent with its current practice;

(d)     there will be no material change in the current policies in the PRC affectingthe macro-economy and tax;

(e)     there will be no material change in the socio-economic environment in which CNAF currently operates, and the policies affectingthe tax bases and tax rates applicable to CNAF;

(f)      the future management personnel of CNAF will exercise due diligence and continue to operate in accordance with the current managementmodel;

(g)     without consideringany new businesses which may be developed by CNAF in the future, the income of CNAF will mainly derive from interest,fees and net commission;

(h)    the  appraisal  is  based  on  the  operational  strategy,  ability  and  practice  of  CNAF  as  at  31

December 2013 without considering any changes which may occur as a result of the change of the management staff in the future;

(i)     the parameters used for the appraisal does not take into account the effect of inflation; and

(j)      there will not be any material change in the central bank's interest rate and the exchange rate during the period of the Profit Forecast after thedate on which theProfit Forecast has been prepared.

KPMG, the auditors of the Company, have reviewed calculations of the discounted future estimated cash flows used in the ValuationReports. The Board has reviewed the principal assumptions upon which the Profit Forecast is based and are of the view that the Profit Forecast has been made after dueand careful enquiry. A letter from KPMG anda letter from the Board are set out respectively in AppendixI and II to this announcement in compliance with Rule 14.62 of the Listing Rules.

Each of the experts, namely China United and KPMG, has given and has not withdrawn its written consent to the issue of this announcement with the inclusion herein of its letter and/or references to its name in the form and context in which they appear.

The following is the qualification of each expert whohas provided its conclusion or advice, which is contained in this announcement:

Name                                              Qualification

China United                                  Professional Valuer

KPMG                                             Certified Public Accountants

To the best of the Directors' knowledge, information and belief having made all reasonable enquiries, each of China United and KPMG is a third party independent of the Group and its connected persons.

As at the date of this announcement, none of China United and KPMG has any shareholding in any member of the Group or anyright (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

INFORMATION ABOUT THE PARTIES

The Company's principal business activity is air passenger, air cargo and airline-related services. AIE is a wholly owned subsidiary of the Company and its principal activities are import and export trading.

The principal activities of Shantou Industrial include processing plastic packages for food, wholesale of arts and crafts, general merchandise, textile, knitwear, hardware, chemical products and packaged food, and import and export trading.

The  principal  activities  of  Phoenix  Industrial  include  cargo  handling  services,  warehousing  and logistics.

CNAHC is a state-owned company incorporated in the PRC witha registered capital of RMB10,027,830,000.  Its registered  address  is  Air  China  Plaza,  36  Xiaoyun  Road,  Chaoyang District, Beijing, the PRC and the legal representative is Mr. Cai Jianjiang. It is primarily engaged in managing  its  state-owned  assets  and  its  equity  interest  in  investees,  charter  of  aircrafts  and maintenance of aviationequipment.

CNAF  is  a  company  with  limited  liability  incorporated  in  the  PRC.  As  at  the  date  of  this announcement,  it  is  a  non-wholly  owned  subsidiary  of  CNAHC.  CNAF  is  primarily  engaged  in providing financial services to CNAHC, its 
subsidiaries and associates.

The net profits (both before and after taxation and the extraordinary items) of CNAF for the two financial years ended 31 December2013 were as follows:

	For the year ended 31 December 2012	For the year ended 31 December 2013
	(RMB)	(RMB)
Net profit before taxation and extraordinary items	120,863,000	91,305,900
Net profit after taxation and extraordinary items	88,838,800	69,576,800

According to the audited account of CNAF for the year 2013, as at 31 December 2013, the total assets and net assets of CNAF were RMB5,961,269,976.43 (equivalent to approximately HK$7,511,200,170) and RMB966,654,734.40 (equivalent to approximately HK$1,217,984,965), respectively. The total revenue of CNAF for the year ended 31 December 2013 was RMB264,858,359.90 (equivalent to approximately HK$333,721,533).

DEFINITIONS

In this announcement, unless the context otherwise requires, the following expressions shall have the following respectivemeanings:

"Acquisitions"                                   the  acquisitions  of  AIE  Interests,  Shantou  Interests  and  Phoenix Interests   by the Company  from  AIE,  Shantou  Industrial  and Phoenix Industrial pursuant to the terms of theEquity Transfer Agreements

"AIE"                                                Air China Import and Export Co., Ltd. (國航進出口有限公司), a company incorporated  in  the  PRC  with  limited  liability  and  a wholly-owned subsidiary of the Company

"AIE Interests"                                  the 3.86% equity interests in the registered capital of CNAF owned by AIE as at the date of this announcement

"AMS Global"                                  AMS Global Transportation Co., Ltd. (華力環球運輸有限公司), a

company incorporated in the PRC with limited liability

"AMS Interests"                                the 0.32% equity interestsin the registered capital of CNAF owned by AMS Global as at the date of this announcement

"Board"                                            the board of directorsof the Company

"Capital Injection"                              the proposed increase of the registeredcapital of CNAF pursuant to the Capital Injection Agreement

"Capital InjectionAgreement"             the agreement dated 24 December 2014 and entered into between the Company and CNAHC in relation to the Capital Injection

"Capital Injection Valuation Report"   the valuation report for the appraisal of the shareholders' equity of CNAF  as  at  31  December  2013  issued  by  China  United  for  the Capital Injection on 6 November 2014

"China United"                                   China United Assets AppraisalGroup Co., Ltd (中聯資產評估集團

有限公司), an independent valuer

"CNAF"                                           China National Aviation Finance Co., Ltd., a company incorporated in the PRC with limited liability, the equity interests of whichare owned as to 75.54% by CNAHC, 19.31% by the Company, 3.86% by AIE, 0.65% by Shantou Industrial, 0.32% by AMS Global and

0.32%  by  Phoenix  Industrial,  respectively,  as  at  the  date  of  this announcement

"CNAHC"                                        China   National   Aviation   Holding   Company,   a   controlling shareholder of the Company

"Company"                                       Air China Limited, a company incorporated in the PRC, whose H shares arelisted on the Stock Exchange as its primary listing venue and on the Official List of the UK Listing  Authority  as  its secondary listing venue, and whose A shares are listed on the Shanghai Stock Exchange

"Director(s)"                                     the director(s)of the Company

"Equity Transfer Agreements"          the equity transfer agreements dated 24 December 2014 and entered into between the Company and each of AIE,Shantou Industrialand Phoenix Industrial in respect of the acquisition of AIEInterests, Shantou Interestsand Phoenix Interests, respectively

"Equity Transfer Valuation Report"    the valuation report for the appraisal of the shareholders' equity of CNAF  as  at  31  December  2013  issued  by  China  United  for  the Acquisitions on 1 December 2014

"Group"                                            the Company and its subsidiaries

"HK$" or "Hong Kong dollars"          Hong Kong dollars, the lawful currency of Hong Kong

"Hong Kong"                                   Hong Kong Special Administrative Region of the PRC

"Listing Rules"                                  the  Rules  Governing  the  Listing  of  Securities  on  The  Stock

Exchange of Hong Kong Limited

"Phoenix Industrial"                          Beijing Phoenix Aviation IndustrialCo (北京鳳凰航空實業公司), a collectively owned enterprise incorporated in the PRC

"Phoenix Interests"                           the 0.32% equity interestsin the registered capital of CNAF owned by Phoenix Industrial as at the date of this announcement

"PRC"                                              the People'sRepublic of China, excluding, for the purpose of this announcement only, Hong Kong, Macau and Taiwan

"RMB"                                             Renminbi,the lawful currency of the PRC

"Shantou Industrial"                          Air China Shantou IndustrialDevelopment Co. (中國國際航空汕頭 實業發展公司), a company incorporated in the PRC

"Shantou Interests"                           the 0.65% equity interestsin the registered capital of CNAF owned by Shantou Industrial as at the date of this announcement

"Shareholders"                                  the shareholders of the Company

"Stock Exchange"                            The Stock Exchange of Hong Kong Limited

"Transactions"                                   the Acquisitions and the Capital Injection

"Valuation Reports"                          the  Equity  Transfer  Valuation  Report  and  the  Capital  Injection

Valuation Report

Amounts denominated in RMB in this announcement have been converted into HK dollars at the rate of RMB1 = HK$1.26 for illustration purpose only.

By order of the Board

Air China Limited

Rao Xinyu         Tam Shuit Mui

Joint Company Secretaries

Beijing, the PRC, 24 December 2014

As at the date of this notice, the directors of the Company areMr. Cai Jianjiang, Ms. Wang Yinxiang, Mr. Cao Jianxiong, Mr. Feng Gang, Mr. John Robert Slosar, Mr. Ian SaiCheung Shiu, Mr. Song Zhiyong, Mr. Fan Cheng, 
Mr. Fu Yang*, Mr. Yang Yuzhong*, Mr. Pan Xiaojiang* and Mr. Simon To Chi Keung*.

*    Independent non-executive Director of the Company

APPENDIX I

The followingis the text of a report received from the Company'sauditor, KPMG, Certified Public

Accountants, Hong Kong, for inclusion in this announcement.

  8th Floor           
            Prince's Building
         10 Chater Road 

Central           
    Hong Kong    

24 December 2014            

REPORT ON THE DISCOUNTED FUTURE CASH FLOWS IN CONNECTION WITH THE BUSINESS VALUATIONS OF CHINA NATIONAL AVIATION FINANCE CO., LTD.

TO THE BOARD OF DIRECTORS OF AIR CHINA LIMITED

We refer to the discounted future cash flows on which:

•        the  business  valuation  of  China  National  Aviation  Finance  Co.,  Ltd.  ("CNAF")  dated  6

November　2014, prepared by China United Assets Appraisal Group (中聯資產評估集團有限

公司)  ("China  United")  for  the  proposed  capital  injection  in  CNAF  by  each  of  Air  China

Limited ("the Company")and China National Aviation Holding Company; and

•        the  business  valuation  of  CNAF  dated  1  December  2014  prepared  by  China  United  in connection  with the Company's  proposed  acquisition  of  3.86%,  0.65%  and  0.32%  equity interests in the CNAF from each of Air China Import and Export Co.,Ltd., Air China Shantou Industrial Development Co. and Beijing 
Phoenix Aviation Industrial Co., respectively.

(collectively, referred to as "the Valuations") are based. The Valuations areprepared based on the discounted future cash flows and are regarded as profit forecasts under paragraph 14.61of the Rules Governing the Listing of Securities 
on The Stock Exchange of Hong Kong Limited (the "Listing Rules").

Responsibilities

The  directors  of  Air  China  Limited  (the  "Directors")  are  responsible  for  the  preparation  of  the discounted  future cash  flows  in  accordance  with  the  bases  and  assumptions  determined  by  the Directors and as setout in the Valuations.This responsibility includes carrying outappropriate procedures relevant to the preparation of the discounted future cash flows for the Valuations and applying an appropriate basis of preparation; and making estimatesthat are reasonable in the circumstances.

It is ourresponsibility to report, as required by paragraph14.62(2) of the Listing Rules, on the calculations of the discounted future cash flows used in the Valuations. The discounted future cash flows do not involve the adoption of accountingpolicies.

Basis of opinion

We conductedour work in accordance with the Hong Kong Standard on Assurance Engagements 3000 "Assurance 
Engagements Other Than Audits or Reviews of Historical Financial Information" issued  by  the  Hong  Kong  Institute  of Certified  Public  Accountants  ("HKICPA").  This  standard requires that we plan and perform our work to obtain 
reasonable assurance as to whether, so far as the calculations are concerned,the Directors have properly compiled the discounted future cash flows in accordance with the bases and assumptions as set out in the Valuations. We performed 
procedures on the arithmetical calculations and the compilations of the discounted future cash flows in accordance with 
the bases and assumptions. Our work is substantially lessin scope than an auditconducted in accordance with Hong Kong Standards on Auditing issued by the HKICPA. Accordingly, we do not express an audit opinion.

Opinion

In our opinion, so far as the calculations are concerned,the discounted future cash flows have been properly compiledin all material respects in accordance with the bases and assumptions adopted by the Directors as set out in the Valuations.

Other matters

Without qualifying our opinion, we draw to yourattention that we are not reporting on the appropriateness and validity of the bases and assumptions on which the discounted future cash flows are based and ourwork does not constitute 
any valuations of CNAFor an expression of an audit or reviewopinion on the Valuations.

The discounted future cash flows depend on future events and on a number of assumptions which cannot be confirmed 
and verified in the same way as past results and not all of which may remain valid throughout the period. Our work has been undertaken for the purpose of reporting solely to you under paragraph 14.62(2) of the Listing Rules and for no 
other purpose. We accept no responsibility to any other person in respect of, arising out of or in connection with our work.

KPMG

Certified Public Accountants

Hong Kong

APPENDIX II - LETTER FROM THE BOARD OF DIRECTORSOF AIR CHINA LIMITED

December 24, 2014

The Stock Exchange of Hong Kong Limited

11th Floor, One International Finance Centre

1 Harbour View Street

Central, Hong Kong

Dear Sirs,

CONNECTED TRANSACTIONS OF AIR CHINA LIMITED (THE "COMPANY") ACQUISITIONS  OF  EQUITY  INTERESTS  IN  CHINA  NATIONAL  AVIATION  FINANCE

CO., LTD. ("CNAF")

CAPITAL INJECTION INTO CNAF

We refer to the valuation of the shareholders' equity of CNAF as at 31 December 2013 prepared by

China United Assets AppraisalGroup Co., Ltd (中聯資產評估集團有限公司) (the "Valuer") (the

"Valuation") and set out in the valuation reports (the "Valuation Reports") issued by the Valuer on

6 November 2014 and 1 December 2014, respectively, in connection with the capital injection in

CNAF and the proposed acquisitions of equity interests by the Company.

We understand that in accordance with Rule 14.61 of the Rules Governing the Listing of Securities on The Stock 
Exchange of Hong Kong Limited (the "Listing Rules"), the income approach adopted by the Valuer has rendered the Valuation a profit forecast (the "Profit Forecast") under the Listing Rules.

We hereby confirm that, in compliance with the Listing Rules, we have reviewed the calculations for discounted cash flow forecastin the Valuation Reports.

We hereby confirm that the Profit Forecast has been made after due and careful enquiry.

By order of the board Air China Limited Cai Jianjiang Chairman

 

END

 

 

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