Air China purchase of 20 Airbus 320-series aircraft

The Transaction constitutes a discloseable transaction of the Company under the Listing Rules.

AIRBUS AIRCRAFT PURCHASE AGREEMENT

On 10 February 2010, the Company and AIE entered into the Airbus Aircraft Purchase Agreement with Airbus Company, pursuant to which the Company has agreed to purchase 20 Airbus 320-series aircraft from Airbus Company.

The details of the Transaction are summarized as follows:

Parties to the Transaction:

(i) the Company, as the purchaser, the principal business activity of which is air passenger, air cargo and airline-related services;

(ii) AIE, as the import agent for the Company; and

(iii) Airbus Company, as the vendor, one of whose principal business activity is aircraft manufacturing.

The Company confirms that, to the best of the Directors' knowledge, information and belief having made all reasonable enquiry, Airbus Company and each of the ultimate beneficial owner of Airbus Company are third parties independent of the Company and its connected persons (as defined in the Listing Rules).

Aircraft to be acquired: Airbus Aircraft, i.e. 20 Airbus 320-series aircraft

Consideration:

The aircraft basic price comprises the airframe price, optional features prices and engine price. The aircraft basic price of the Airbus Aircraft in aggregate is approximately US$1,628 million (equivalent to approximately HK$12,649.6 million) (price quoted from open market as at 2010).

The aircraft price is subject to price escalation by applying a formula. Airbus Company has granted to the Company significant price concessions with regard to the Airbus Aircraft. These will take the form of credit memoranda which may be used by the Company towards the final price payment of the Airbus Aircraft or may be used for the purpose of purchasing goods and services from Airbus Company. Such credit memoranda were determined after arm's length negotiations between the parties and as a result, the actual consideration for the Airbus Aircraft is lower than the aircraft basic price mentioned above.

The Transaction was negotiated and entered into in accordance with customary business practice. The Directors confirm that the extent of the price concessions granted to the Company in the Transaction is comparable with the price concessions that the Company had obtained in the previous aircraft purchase entered into between the Company and Airbus Company as set out in the circular of the Company dated 29 July 2008. The Company believes that there is no material impact of the price concessions obtained in the Transaction on the unit operating cost of the Company's fleet.

It is normal business practice of the global airline industry to disclose the aircraft basic price, instead of the actual price, for aircraft acquisitions. Disclosure of the actual consideration will result in the loss of the significant price concessions and hence a significant negative impact on the Company's cost for the Transaction and will therefore not be in the interest of the Company and the Company's shareholders as a whole. The Company has applied to the Stock Exchange for a waiver from strict compliance of Rule 14.58(4) of the Listing Rules in respect of disclosure of the actual consideration of the Airbus Aircraft.

As the relevant percentage ratio under Rule 14.07 of the Listing Rules for the Transaction is above 5% but less than 25%, the Transaction constitutes a discloseable transaction and is therefore not subject to approval by the Company's shareholders under the Listing Rules.

Payment and delivery terms:

The aggregate consideration for the acquisition of Airbus Aircraft is payable by cash in instalments. The Company is expecting to take delivery of the Airbus Aircraft in stages from 2011 to 2014.

Source of funding:

The Transaction will be funded through cash generated from the Company's business operations, commercial bank loans and other financing instruments of the Company.

REASONS FOR AND BENEFITS OF THE TRANSACTION

The Transaction will expand the fleet capacity of the Company. If not taking into account the adjustments that may be made to the fleet based on marketing condition and the aging of the fleet, the Transaction will strengthen the fleet capacity of the Company with an increase of 5% based on available tonne kilometers of the Company as at 31 December 2009. In particular, the Transaction will mainly support hubs-building in Chengdu and expand the fleet capacity of the Company in southwestern China while supplementing, to an appropriate extent, the flights in eastern China.

The Company expects the Airbus Aircraft will deliver more cost-efficient performance and provide more comfortable services to passengers.

The Directors believe that the terms of the Transaction are fair and reasonable and in the interests of the shareholders of the Company as a whole.

Refer to full documentation in attachments box, located at the top left, below the headline.