Form 6-K CHINA SOUTHERN AIRLINES For: Apr 27

April 27, 2022 7:57 AM EDT

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

 

 

FORM 6-K

 

 

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16 of

the Securities Exchange Act of 1934

April 27, 2022

 

 

CHINA SOUTHERN AIRLINES COMPANY LIMITED

 

 

68 Qi Xin Road

Guangzhou, 510403

People’s Republic of China

(Address of principal executive offices)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F  ☒            Form 40-F  ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ☐

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes  ☐            No  ☒

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): N/A

 

 

 


China Southern Airlines Company Limited (the “Company”) published the following announcements on April 25, 2022 on the Hong Kong Stock Exchange’s website at:

https://www1.hkexnews.hk/listedco/listconews/sehk/2022/0425/2022042501459.pdf, in relation to the annual report 2021; and

https://www1.hkexnews.hk/listedco/listconews/sehk/2022/0425/2022042501554.pdf, in relation to the notification letter.

The announcements in English are included as exhibits to this Form 6-K.

Certain statements contained in these announcements may be viewed as “forward-looking statements” within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended, and Section 21E of the U.S. Securities Exchange Act of 1934, as amended. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual performance, financial condition or results of operations of the Company to be materially different from any future performance, financial condition or results of operations implied by such forward-looking statements. Further information regarding these risks, uncertainties and other factors is included in the Company’s filings with the U.S. Securities and Exchange Commission. You should not place undue reliance on these forward-looking statements. All information provided in this announcement is as of the date of this announcement, unless otherwise stated, and we undertake no duty to update such information, except as required under applicable law.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

CHINA SOUTHERN AIRLINES COMPANY LIMITED
By:  

/s/ Xie Bing

Name:   Xie Bing
Title:   Company Secretary

Date: April 27, 2022

Exhibit 99.1

CONTENTS

 

About Us

 

2

Definitions

 

4

Corporate Profile

 

6

Corporate Information

Operating Results

 

9

Principal Accounting Information and Financial Indicators

 

17

Highlights of the Year

 

20

Management Discussion and Analysis

Corporate Governance

 

53

Report of Directors

 

75

Changes in the Share Capital, Shareholders’ Profile and Disclosure of Interests

 

83

Directors, Supervisors, Senior Management and Employees

 

97

Corporate Governance Report

 

111

Environmental and Social Responsibility

 

119

Important Matters

 

136

Related Information of Bonds

 

150

Risk Management and Internal Control

Financial Report

Financial Statements Prepared under International Financial Reporting Standards

 

155

Independent Auditor’s Report

 

160

Consolidated Income Statement

 

161

Consolidated Statement of Comprehensive Income

 

162

Consolidated Statement of Financial Position

 

164

Consolidated Statement of Changes in Equity

 

165

Consolidated Cash Flow Statement

 

166

Notes to the Financial Statements

 

274

Supplementary Financial Information

 

277

Five Year Summary

 

 

1


DEFINITIONS

Unless the context otherwise requires, the following terms should have the following meanings in this report:

 

Company, CSA, China Southern Airlines    China Southern Airlines Company Limited
Group    China Southern Airlines Company Limited and its subsidiaries
CSAH    China Southern Air Holding Company Limited
Xiamen Airlines    Xiamen Airlines Company Limited
Guizhou Airlines    Guizhou Airlines Company Limited
Zhuhai Airlines    Zhuhai Airlines Company Limited
Shantou Airlines    Shantou Airlines Company Limited
Chongqing Airlines    Chongqing Airlines Company Limited
Henan Airlines    China Southern Airlines Henan Airlines Company Limited
CSAGA    China Southern Airlines General Aviation Limited
Hebei Airlines    Hebei Airlines Company Limited
Jiangxi Airlines    Jiangxi Airlines Company Limited
Finance Company    China Southern Airlines Group Finance Company Limited
Logistics Company    China Southern Air Logistics Company Limited
CSAGPMC    China Southern Airlines Group Property Management Company Limited
Nan Lung    Nan Lung Holding Limited
SACC    Shenzhen Air Catering Co., Ltd.
SACM    Southern Airlines Culture and Media Co., Ltd.
SPV    Special Purpose Vehicles exclusively set up by China Southern Airlines and its subsidiaries for leased aircraft
Sichuan Airlines    Sichuan Airlines Co., Ltd.
PRC    The People’s Republic of China
CSRC    China Securities Regulatory Commission
NDRC    National Development and Reform Commission
SASAC    State-owned Assets Supervision and Administration Commission of the State Council
CAAC    Civil Aviation Administration of China
IATA    International Air Transport Association

 

2


Daxing Airport    Beijing Daxing International Airport
SSE    Shanghai Stock Exchange
Stock Exchange    The Stock Exchange of Hong Kong Limited
Articles of Association    Articles of Association of China Southern Airlines Company Limited
Listing Rules    The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited
Model Code    The Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited
Corporate Governance Code    Corporate Governance Code as set out in Appendix 14 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited
SFO    Securities and Futures Ordinance (Chapter 571 of the laws of Hong Kong)
Available Seat Kilometers or “ASK”    the number of seats available for sale multiplied by the kilometers flown
Available Tonne Kilometers or “ATK”    the number of tonnes of capacity available for the transportation multiplied by the kilometers flown
Available Tonne Kilometers – passenger    the number of tonnes of capacity available for the carriage of passenger multiplied by the kilometers flown
Available Tonne Kilometers – cargo    the number of tonnes of capacity available for the carriage of cargo and mail multiplied by the kilometers flown
Revenue Passenger Kilometers or “RPK”    i.e. passenger traffic volume, the number of passengers carried multiplied by the kilometers flown
Revenue Tonne Kilometers or “RTK”    i.e. total traffic volume, the load (passenger and cargo) in tonnes multiplied by the kilometers flown
Revenue Tonne Kilometers – cargo or “RFTK”    i.e. cargo and mail traffic volume, the load for cargo and mail in tonnes multiplied by the kilometers flown
Revenue Tonne Kilometers – passenger    the load for passenger in tonnes multiplied by the kilometers flown
Aircraft Utilization Rate    Flight hours that aircraft can service during specified time
Passenger Load Factor    RPK expressed as a percentage of ASK
Overall Load Factor    RTK expressed as a percentage of ATK
Yield per RPK    revenue from passenger operations divided by RPK
Yield per RTK    revenue divided by RTK
Yield per RFTK    revenue from cargo and mail operations divided by RFTK

 

3


CORPORATE PROFILE

Guangzhou and Beijing

Two comprehensive international hubs

The Group’s fleet size ranked first in Asia and at the forefront of the world.

The Company’s headquarters is located in Guangzhou. It has 18 branches in Beijing, Shenzhen, and other cities and 8 holding aviation subsidiaries including Xiamen Airlines. The Company has set up CSAGA in Zhuhai, and has set up 21 domestic offices in Hangzhou, Qingdao and other places, and 53 overseas offices in Sydney, New York and other places. By the end of the reporting period, the Group has operated a total of 878 passenger and cargo transport aircraft including Boeing 787, 777, 737 series, Airbus 380, 350, 330, 320 series and ARJ21. The Group’s fleet size ranked first in Asia and at the forefront of the world. The Company was awarded “Two-Star Diamond Award for Flight Safety”, the top award for flight safety from the CAAC, in June 2018.

 

4


In recent years, the Company has striven to construct two comprehensive international hubs in Guangzhou and Beijing, and a network-based airline has gradually taken shape. In 2021, the Company continued to drive the high quality development of Beijing hub and developed six express routes including the Guangzhou-Shenzhen-Chengdu route. The market share of Daxing Airport reached 45.9%. Meanwhile, the Company continued to strengthen the integrated construction of the Guangdong-Hong Kong-Macao Greater Bay Area, consolidate and intensify market control in the Guangdong-Hong Kong-Macao Greater Bay Area. The market share of domestic departure capacity in Guangzhou, Shenzhen, Zhuhai and Huizhou reached 38%. The Company actively developed the Pearl River Delta hub airport. The Company accelerated the strategy in Hainan Free Trade Port, consolidated and intensified market control in the major cities in Hainan, and promoted the landing of the industrial projects.

 

5


CORPORATE INFORMATION

 

Chinese Name:    中國南方航空股份有限公司
Chinese Short Name:    南方航空
English Name:    China Southern Airlines Company Limited
English Short Name:    CSN
Legal Representative:    Ma Xu Lun
Registered Address:    Unit 301, 3/F, Office Tower Guanhao Science Park Phase I, 12 Yuyan Street, Huangpu District, Guangzhou, Guangdong Province, PRC
Contact Address:    China Southern Air Building, 68 Qixin Road, Baiyun District, Guangzhou, Guangdong Province, PRC
Place of Business in Hong Kong:    Unit B1, 9th Floor, United Centre, 95 Queensway, Hong Kong
Website of the Company:    www.csair.com
Telephone:    +86-20-86112480
Fax:    +86-20-86659040
E-mail:    [email protected]
APP:    China Southern Airlines
WeChat Official Account:    China Southern Airlines
Sina Weibo:    http://weibo.com/csair
WeChat QR Code:    LOGO
Place of Listing of A Shares:    SSE
Short Name of A Shares:    南方航空
Stock Code of A Shares:    600029
A Share Registrar:   

China Securities Depository and Clearing Corporation Limited, Shanghai Branch

Floor 36, China Insurance Building, 166 Lu Jia Zui East Road, Shanghai, PRC

Place of Listing of H Shares:    The Stock Exchange
Short Name of H Shares:    China South Air

 

6


Stock Code of H Shares:    01055
H Share Registrar:   

Hong Kong Registrars Limited

17M Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong

Place of Listing of ADR:    The New York Stock Exchange
Short Name of ADR:    China Southern Air
Stock Code of ADR:    ZNH
ADR Registrar:   

BNY Mellon Shareowner Services

P.O.Box 505000

Louisville, KY40233-5000, USA

Domestic Legal Adviser:    Dentons Law Offices, LLP (Guangzhou)
Overseas Legal Adviser:    Jingtian & Gongcheng LLP
Domestic Auditors:    KPMG Huazhen LLP
Overseas Auditors:    KPMG (Public Interest Entity Auditor registered in accordance with the Financial Reporting Council Ordinance)
Controlling Shareholder:    China Southern Air Holding Company Limited
Principal Bankers:   

China Development Bank

The Export-Import Bank of China

Bank of China

Agricultural Bank of China

China Construction Bank

Designated Website for Information Disclosure (H Shares):    www.hkexnews.hk
Place Where Annual Report is Made Available for Inspection:    The Board Office of the Company

As at 30 March 2022

  

Directors

Ma Xu Lun

Han Wen Sheng

Liu Chang Le

Gu Hui Zhong

Guo Wei

Yan Andrew Y

  

Supervisors

Ren Ji Dong

Lin Xiao Chun

Yang Bin

Authorized Representatives under the Listing Rules:

  

Ma Xu Lun

Xie Bing

Secretary to the Board and Company Secretary:

   Xie Bing

Securities Affairs Representative:

   Xu Yang

 

7


SAFETY

Enhance System, Intensify Working Practices, Control Risks

 

8


PRINCIPAL ACCOUNTING INFORMATION AND FINANCIAL INDICATORS

I. PRINCIPAL ACCOUNTING INFORMATION AND FINANCIAL INDICATORS OF THE GROUP AS AT THE END OF THE REPORTING PERIOD

 

(I)

Principal Accounting Information

 

     Unit: RMB million  
     2021      2020      Increase/
(decrease) %
 

Operating revenue

     101,644        92,561        9.81  

Net loss attributable to equity shareholders of the Company

     (12,106      (10,847      11.61  

 

     As of 31 December      Decrease %  
     2021      2020  

Equity attributable to equity shareholders of the Company

     67,851        69,584        (2.49

Total assets

     323,211        326,383        (0.97

 

(II)

Principal Financial Indicators

 

     2021      2020      Decrease %  

Basic losses per share (RMB/share)

     (0.75      (0.77      (2.60

Diluted losses per share (RMB/share)

     (0.75      (0.77      (2.60

 

9


II. SUMMARY OF OPERATING DATA

 

     For the year ended 31 December      Increase/
 
     2021      2020      (decrease) %  

Traffic

        

Revenue passenger kilometers (RPK) (million)

        

Domestic

     148,223.63        140,135.20        5.77  

Hong Kong, Macau and Taiwan

     152.48        239.14        (36.24

International

     4,050.18        13,065.78        (69.00

Total:

     152,426.29        153,440.11        (0.66
  

 

 

    

 

 

    

 

 

 

Revenue tonne kilometers (RTK) (million)

        

Domestic

     14,389.54        13,720.92        4.87  

Hong Kong, Macau and Taiwan

     25.48        30.19        (15.60

International

     6,793.68        7,053.76        (3.69

Total:

     21,208.71        20,804.88        1.94  
  

 

 

    

 

 

    

 

 

 

RTK – passenger (million)

        

Domestic

     13,124.43        12,390.86        5.92  

Hong Kong, Macau and Taiwan

     13.48        20.91        (35.54

International

     359.50        1,138.30        (68.42

Total:

     13,497.41        13,550.07        (0.39
  

 

 

    

 

 

    

 

 

 

 

10


     For the year ended 31 December      Increase/  
     2021      2020      (decrease) %  

RTK – cargo (million)

        

Domestic

     1,265.11        1,330.06        (4.88

Hong Kong, Macau and Taiwan

     12.01        9.29        29.30  

International

     6,434.18        5,915.47        8.77  

Total:

     7,711.30        7,254.81        6.29  
  

 

 

    

 

 

    

 

 

 

Passengers carried (thousand)

        

Domestic

     97,717.02        93,911.34        4.05  

Hong Kong, Macau and Taiwan

     147.75        213.22        (30.71

International

     639.89        2,731.48        (76.57

Total:

     98,504.66        96,856.04        1.70  
  

 

 

    

 

 

    

 

 

 

Cargo and mail carried (thousand tonnes)

        

Domestic

     765.34        817.51        (6.38

Hong Kong, Macau and Taiwan

     12.19        9.12        33.66  

International

     664.42        634.19        4.77  

Total:

     1,441.95        1,460.83        (1.29
  

 

 

    

 

 

    

 

 

 

 

11


     For the year ended 31 December      Increase/  
     2021      2020      (decrease) %  

Capacity

        

Available seat kilometres (ASK) (million)

        

Domestic

     205,437.17        193,935.93        5.93  

Hong Kong, Macau and Taiwan

     463.01        550.91        (15.96

International

     8,021.64        20,235.13        (60.36

Total:

     213,921.82        214,721.97        (0.37
  

 

 

    

 

 

    

 

 

 

Available tonne kilometres (ATK) (million)

        

Domestic

     23,431.06        22,182.70        5.63  

Hong Kong, Macau and Taiwan

     61.20        70.71        (13.46

International

     10,025.45        11,638.87        (13.86

Total:

     33,517.70        33,892.28        (1.11
  

 

 

    

 

 

    

 

 

 

Available tonne kilometres (ATK) – passenger (million)

        

Domestic

     18,489.35        17,454.23        5.93  

Hong Kong, Macau and Taiwan

     41.67        49.58        (15.96

International

     721.95        1,821.16        (60.36

Total:

     19,252.96        19,324.98        (0.37
  

 

 

    

 

 

    

 

 

 

Available tonne kilometres (ATK) – cargo (million)

        

Domestic

     4,941.71        4,728.46        4.51  

Hong Kong, Macau and Taiwan

     19.53        21.13        (7.59

International

     9,303.50        9,817.71        (5.24

Total:

     14,264.74        14,567.30        (2.08
  

 

 

    

 

 

    

 

 

 

 

12


     For the year ended 31 December         
     2021      2020         

Load Factor

                 Increase/
(decrease)
percentage
points
 

Passenger load factor (RPK/ASK) (%)

        

Domestic

     72.15        72.26        (0.11

Hong Kong, Macau and Taiwan

     32.93        43.41        (10.47

International

     50.49        64.57        (14.08

Average:

     71.25        71.46        (0.21
  

 

 

    

 

 

    

 

 

 

Overall load factor (RTK/ATK) (%)

        

Domestic

     61.41        61.85        (0.44

Hong Kong, Macau and Taiwan

     41.64        42.70        (1.06

International

     67.76        60.61        7.16  

Average:

     63.28        61.39        1.89  
  

 

 

    

 

 

    

 

 

 

Yield

                 Increase/
(decrease) %
 

Yield per RPK (RMB)

        

Domestic

     0.46        0.41        12.20  

Hong Kong, Macau and Taiwan

     1.46        1.05        39.05  

International

     1.61        0.96        67.71  

Average:

     0.49        0.46        6.52  
  

 

 

    

 

 

    

 

 

 

Yield per RFTK (RMB)

        

Domestic

     1.18        1.36        (13.24

Hong Kong, Macau and Taiwan

     13.74        8.93        53.86  

International

     2.83        2.47        14.57  

Average:

     2.58        2.27        13.66  
  

 

 

    

 

 

    

 

 

 

Yield per RTK (RMB)

        

Domestic

     4.88        4.34        12.44  

Hong Kong, Macau and Taiwan

     15.23        11.06        37.70  

International

     3.64        3.84        (5.21

Average:

     4.49        4.18        7.42  
  

 

 

    

 

 

    

 

 

 

 

13


     For the year ended 31 December     

Increase/

 
     2021      2020      (decrease) %  

Cost

        

Main business cost per ATK (RMB)

     3.47        3.22        7.76  

Flight Volume

        

Kilometers flown (million)

     1,317.85        1,304.67        1.01  

Hours flown (thousand)

        

Domestic

     1,935.98        1,835.82        5.46  

Hong Kong, Macau and Taiwan

     3.78        4.88        (22.58

International

     170.60        236.51        (27.87

Total:

     2,110.36        2,077.21        1.60  
  

 

 

    

 

 

    

 

 

 

Number of flights (thousand)

        

Domestic

     822.25        786.17        4.59  

Hong Kong, Macau and Taiwan

     2.27        2.71        (16.17

International

     18.80        33.58        (44.00

Total:

     843.32        822.46        2.54  
  

 

 

    

 

 

    

 

 

 

 

Note:

Discrepancies between the column sum are due to rounding of percentage numbers.

 

14


III. SUMMARY OF FLEET DATA

As at 31 December 2021, the scale and structure of fleet and the delivery and disposal of aircraft of the Group were as follows:

 

    Unit: number of aircraft  

Aircraft Models

  Number of
aircraft
purchased
    Number of
aircraft
under
finance
lease
    Number of
aircraft
under
operating
lease
    Delivery
during the
reporting
period
    Disposal
during the
reporting
period
    Total
number of
aircraft at
the end
of the
reporting
period
 

Passenger Aircraft

           

A380 Series

    4       1       0       0       0       5  

A350 Series

    6       6       0       4       0       12  

A330 Series

    4       29       7       0       5       40  

A320 Series

    116       95       123       10       1       334  

B787 Series

    4       25       10       2       0       39  

B777 Series

    1       14       0       0       0       15  

B737 Series

    161       72       166       0       2       399  

EMB190

    6       0       0       0       3       6  

ARJ21

    6       6       0       6       0       12  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Freighter

           

B777 Series

    7       7       0       0       0       14  

B747 Series

    2       0       0       0       0       2  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    317       255       306       22       11       878  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Aircraft Model

  Number of
aircraft
purchased
    Number of
aircraft
under
finance
lease
    Number of
aircraft
under
operating
lease
    Number of
aircraft
under
bailment
    Total
number of
aircraft at
the end
of the
reporting
period
 

Civil Helicopter

    16       0       7       5       28  

 

15


From 2022 to 2024, the delivery and disposal plan of aircraft of the Group will be as follows:

 

     Unit: number of aircraft  
     2021      2022      2023      2024  

Aircraft Models

   Number of
aircraft at
the end of
the period
     Delivery      Disposal      Estimated
number at
the end of
the period
     Delivery      Disposal      Estimated
number at
the end of
the period
     Delivery      Disposal      Estimated
number at
the end of
the period
 

Passenger Aircraft

                             

Airbus

                             

A380 Series

     5        0        5        0        0        0        0        0        0        0  

A350 Series

     12        4        0        16        4        0        20        0        0        20  

A330 Series

     40        0        0        40        0        2        38        0        2        36  

A320 Series

     334        12        0        346        13        5        354        0        10        344  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Boeing

                             

B787 Series

     39        3        0        42        7        0        49        0        0        49  

B777 Series

     15        1        0        16        0        0        16        0        0        16  

B737 Series

     399        39        2        436        37        0        473        27        5        495  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other

                             

EMB190

     6        0        0        6        0        0        6        0        0        6  

ARJ21

     12        8        0        20        10        0        30        10        0        40  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Passenger Aircraft Sub-total

     862        67        7        922        71        7        986        37        17        1,006  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Freighter

                             

B777 Series

     14        1        0        15        2        0        17        2        0        19  

B747 Series

     2        0        2        0        0        0        0        0        0        0  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Freighter Sub-total

     16        1        2        15        2        0        17        2        0        19  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     878        68        9        937        73        7        1,003        39        17        1,025  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The delivery and disposal plan of civil helicopters will be as follows:

 

     2021      2022      2023      2024  

Aircraft Type

   Number of
aircraft at
the end of
the period
     Delivery      Disposal      Estimated
number at
the end of
the period
     Delivery      Disposal      Estimated
number at
the end of
the period
     Delivery      Disposal      Estimated
number at
the end of
the period
 

Civil helicopter

     28        1        3        26        0        0        26        0        0        26  

 

Note:

The introduction and disposal plan of the fleet of the Company may be subject to adjustment based on future agreements and delivery of aircraft.

 

16


January

The “Green Flight” project of China Southern Airlines was awarded the first “Golden Key – SDG Solutions” Champion by the Ministry of Commerce, and the on-demand dining service of “Green Flight” has reduced over 2,000 tonnes airline meals wastage.

March

China Southern Airlines flights carried nearly 1.5 million doses of Sinovac COVID-19 Vaccine from Daxing Airport to Phnom Penh, Cambodia, successfully completing the first flight of international vaccine transportation support task of Daxing Airport.

April

China Southern Airlines opened “Beijing-Guangzhou Shuttle” and “Beijing-Shenzhen Shuttle”, and built the Company’s “Sky Shuttle” regarding core business of Beijing hub.

April

A 7-year-old boy got his arm twisted and has been in critical condition. China Southern Airlines swiftly decided to “open the door” for second time, which gained the golden time for the boy, as well as praise from all walks of life.

May

China Southern Airlines, as the “designated air carrier” of China International Consumer Products Expo, provided “affinity and refinement” services to the Expo.

June

China Southern Airlines, based on HUAWEI Harmony OS, was the first domestic airline company to launch atomized service cards, constantly improving the convenience of passengers’ travel.

 

17


July

China Southern Airlines launched the “baggage home” (行李到家) in six domestic trunk airports including Guangzhou and Beijing, offering more efficient and convenient baggage service experience to passengers.

August

CSA Cargo Co., Ltd. (中國南方航空貨運有限公司) was awarded the “Air Carrier Certificate”, becoming the cargo airline with public air transport carrier qualification of China Southern Airlines.

September

China Southern Airlines’ engineering technology branch was established. It aims to be an integrated management entity of maintenance business, providing high-quality aviation maintenance services to customers around the world.

November

China Southern Airlines announced the action plan of emission peak and carbon neutrality, coordinating and considering cost reduction, promoting the Company’s high-quality development and leading the aviation industry to move forward in a low-carbon way.

December

China Southern Airlines Flight CZ3122 from Daxing, Beijing to Guangzhou landed smoothly at Guangzhou Baiyun International Airport, marking the realization of 2021 aviation safety year for China Southern Airlines.

 

18


COST CONTROL

Establish a Long-term

Mechanism for Lean Control of Cost

 

19


MANAGEMENT DISCUSSION AND ANALYSIS

The Group continued to improve pandemic prevention and control mechanism, gave top priority to aviation safety, actively responded to the operation challenges, accumulated new drivers for high quality development.

Ma Xu Lun

Chairman

I. Business Review

(I) Discussion and Analysis of Operations

In 2021, the global economy rebounded significantly from the low base in 2020. According to the World Economic Outlook issued by the International Monetary Fund, the global economy experienced a growth of 5.9% in 2021. China’s economic development and pandemic prevention and control maintained a leading position in the world. Its construction of a new development paradigm moved a new step and high quality development made new progress. The economy of China grew at 8.1% for the whole year, the economy growth rate ranked at the leading position among major economies, and the GDP exceeded RMB110 trillion.

In 2021, the global aviation industry presented a recovery momentum, and travellers were more confident and willing to travel around. However, as affected by COVID-19 pandemic (the “pandemic”), the passenger transportation and cargo transportation of the global aviation continued to differentiate, with passenger transportation maintaining weak recovery and cargo transportation maintaining high growth. Under the repeated impact of the pandemic, China’s aviation industry showed the trend of gradual recovery and improvement. During the year, the total traffic turnover volume, passenger traffic volume, and cargo and mail transportation volume recorded 85.7 billion ton-kilometers, 440 million passengers and 7.32 million tonnes, respectively, representing a year-on-year increase of 7.3, 5.5 and 8.2 percentage points, respectively The Group continued to improve pandemic prevention and control mechanism, gave top priority to aviation safety, actively responded to the operation challenges, accumulated new drivers for high quality development. During the reporting period, with the joint efforts of the management and all staff, the Group achieved 2.11 million hours of safe flight, served approximately 98.50 million passengers, and made a new record in operating results of cargo transportation. The “Green Flight” of the Company was awarded the first “Golden Key” Champion by the Ministry of Commerce, and the Company was awarded the First Brand in Aviation Service Industry by the Ministry of Industry and Information Technology in China Brand Power Research for 11 consecutive years.

 

20


Promoted Full Coverage of Vaccination and

100% Completion of Booster Injection

1. Pandemic Prevention and Control

During the reporting period, the Group resolutely implemented the responsibilities for pandemic prevention and control, and continued to improve the pandemic prevention and control working mechanism. With reference to the national pandemic prevention and control policies, we updated and improved the Company’s pandemic prevention system and measures in a timely manner; we put a premium on the prevention of imported pandemic from overseas, advanced the pandemic prevention check points, ensured the pandemic prevention management and control for inbound tourists, formulated guidelines for the whole-process pandemic prevention for international flight crew; we actively coordinated with national pandemic prevention and control measures, promoted full coverage of vaccination and 100% completion of booster injection for international flight crew and personnel in high-risk positions. During the reporting period, the Group actively coped with the pandemic challenge, protected and quarantined approximately 50,000 crew members, organized the pandemic prevention training to all staff and organized to conduct more than 1.90 million nucleic acid tests. The Company’s special flight for COVID-19 vaccine transported more than 130 million doses of COVID-19 vaccines within and across the borders.

 

21


Implemented Over

1,120

Revenue increase and

Cost-Reduction Measures

2. Safety Management

During the reporting period, the Group continued to enhance safety quality, commenced special work for safety system improvement, work style construction and rectification, and safety risk management and control. We further carried out a three-year campaign of rectification special work for safety production, pushed forward the construction of seven safety systems, formulated and improved safety management system; we utilized digitalised concept to constantly enhance safety management level, promoted and applied professional system for safety management; we conducted work style rectification special work and promoted the obviousness of work style issues by using technical means.

3. Management Response

During the reporting period, the Group closely followed the changes in the pandemic, made every effort to enhance operating efficiency. We adhered to positive and flexible operation strategy, emphasised “two matching and two strengthening”, that is matching the capacity with the market, matching the load volume with the load cost, strengthening the revenue management, strengthening customer base. We adjusted the pace of capacity introduction, continuously optimized feet structure, implemented different strategies based on the pandemic evolvement; we adjusted the deployment of transport capacity in a timely manner, proactively captured time slot resources; we increased the utilization rate of real estate and promoted the refined management of real estate. During the reporting period, we seized opportunities in the freight market, constantly innovated sales mode, and expanded warehousing, e-commerce trade and other innovative businesses, organized 7,023 freight flights converted from passenger aircraft, completed cargo and mail transportation volume of 1.442 million tonnes and made a new record in the operating results of cargo transportation.

 

22


4. Hub Network

During the reporting period, the Group further advanced its hub network strategy, accelerated the construction of two comprehensive international hubs in Guangzhou and Beijing. We continued to establish the Guangzhou-Shenzhen integrated hub, deeply cultivated in the Greater Bay Area market, further enhanced flight time slot coverage for the Greater Bay Area market; we drove the high quality development of Beijing hub, constantly propelled the construction of Daxing express route, developed 6 express routes including the Guangzhou-Shenzhen-Chengdu route and comprehensively enhanced the operating quality of Daxing Airport. We coordinated the expansion of Hainan Free Trade Port market and proactively pursued new time slots; we expanded route network by joint operation of airline network and signed new cooperation agreements with 7 business partners including Juneyao Airlines and Loong Airlines.

5. Lean Control

During the reporting period, the Group continued to improve the long-acting mechanism of cost control. We continued to carry out lean cost management special activities, implemented over 1,120 revenue-increase and cost-reduction measures, and the Company gradually formed a consensus on lean control; we positively pursued preferential policies and commenced taxation planning; we continued to improve procurement system and control the procurement expenses; we continued to optimize the Company’s debt structure, expanded diversified financing channels and lowered financing cost; we prevented and resolved risks in terms of oil prices, exchange rates, interest rates, and receivables, to ensure the security of the Company’s funds.

Maintained Leading Position in the industry in flight on-time performance rate for

6 Consecutive Years

 

23


6. Operation Service

During the reporting period, the Group continued to improve operation quality, and enriched the service brand connotation. We carried out specific improvements actions on flight on-time performance, emphasized on the implementation of key measures to enhance operation efficiency, maintaining a leading position in the industry in terms of flight on-time performance rate for six consecutive years; we established AOC, GOC video collaboration platforms; we strengthened services management and control, established dynamic adjustment mechanism for pandemic service standard, strengthened the management of service quality in relation to flight adjustment within three days; we are the first in China to launch the baggage combined transport service, namely “baggage home” (行李到家) and “air-metro” (航空-地鐵). During the reporting period, the Group ranked No. 12 in Skytrax World Airline awards, and the first among major airlines in China.

We are the First in China to Launch the Baggage Combined Transport Service

Namely “Baggage Home” and “Air-Metro”

7. Reform and Development

During the reporting period, the Group made progress in deepening reform and implemented its development strategies one by one. We formulated the overarching approach for high quality development, coordinated and prepared the development plan for the “14th Five-Year Plan”; promoted downward penetration of governance reform, developed authorization management system from the Board to the management; deeply drove the adjustment and optimization of five major structures for fleet, market, manpower, industry, assets and liabilities; thoroughly promoted the contractual management of the tenure system, promoted the downward penetration of the market-oriented operation mechanism; propelled the development of “marketization, integration, industrialization and internationalization” of aircraft maintenance; proceeded with the non-public issuance of shares. During the reporting period, the Group outperformed the three-year reform action plan and formed the branch of engineering technology and the corporate governance structure has been constantly improved, the adjustment and optimization of the five major structures have achieved initial results, and the Group has moved a solid step for high quality development.

The “Green Flight” Project

Reduced Over

2,000 Tonnes

Airline Meals Wastage

in Aggregate by Service

on Demand

8. Social Responsibility

During the reporting period, the Group firmly promoted the green flight concept, boosted the development of rural revitalization and proactively performed social responsibility. We actively responded to the requirements of peak carbon and facilitated energy-saving and carbon reduction of aircrafts by optimizing air routes, managing aviation oil, reducing aircraft weight and other measures; the “Green Flight” project reduced over 2,000 tonnes airline meals wastage in aggregate by service on demand; the Group continued to improve environment management system and formulated Work Plan for Green Development, to reduce the use of plastics and accelerate the research and development of and actively promote advanced and applicable plastic replacement products. We continued to put more resources in rural revitalization and brought more than 40,000 impoverished people out of poverty.

 

24


(II) Industrial Position of the Company during the Reporting Period

1. Information of Development of International and Domestic Aviation Industry

(1) Development of International Aviation Industry

Passenger demand recovered slowly and the loss narrowed. According to data released by IATA, the global aviation industry has been constantly affected by the COVID-19 pandemic. In 2021, the global passenger traffic demand decreased by 58.4% as compared to the whole year of 2019 in terms of RPK, and increased as compared to 2020, among which, the international passenger transport demand decreased by 75.5% as compared to 2019. The industry-wide loss was expected to be US$51.8 billion, representing a year-on-year decrease of US$85.9 billion. The passenger load factor was 67.2%, representing a decrease of 15.4 percentage points as compared to 2019.

Cargo transport showed a strong demand and revenue achieved significant increase. According to data released by IATA, in 2021, the air cargo demand increased by 6.9% as compared to 2019 and increased by 18.7% as compared to 2020. Due to the insufficient global passenger transport demand, fewer aircraft providing belly-hold capacity, labor shortage caused by pandemic, the capacity for cargo decreased by 10.9% as compared to 2019. The cargo revenue recorded a significant increase and the cargo revenue of global airlines is expected to increase to US$175 billion.

The recovery of the industry faces continuous challenges. According to IATA, in 2021, the COVID-19 pandemic continued to have a huge impact on the global aviation industry. Global airlines significantly reduced costs and continued to adjust their businesses. IATA expected that the global aviation industry will remain in the red in 2022, and situation will remain grim. However, in view of the positive travel intentions of passengers, the industry is expected to recover gradually.

 

25


(2) Development of China Aviation Industry

According to the data released by CAAC:

In 2021, China’s civil aviation achieved a total traffic volume of 85.7 billion ton-kilometers, a passenger traffic volume of 440 million and a cargo and mail transportation volume of 7.32 million tonnes, representing a year-on-year increase of 7.3, 5.5 and 8.2 percentage points, respectively. By the end of 2021, the whole industry completed an investment of RMB115.0 billion throughout the year, representing a year-on-year increase of 6.4%. The number of certified transportation airports nationwide amounted to 248. The flight on-time performance rate in the China’s civil aviation industry reached 88%, maintaining over 80% for four consecutive years. In China, 29 airports were able to realize ID card access, 66 airports were able to apply face recognition technology, and 40 ten-million-level airports opened “Easy Check (易安檢)” service.

2. Features of Aviation Industry

(1) The development level of civil aviation industry is an important display of the comprehensive national strength

The civil aviation industry is an important strategic industry of the national economy. On one hand, its development level reflects the modernisation level, economy structure, opening level and other conditions of a country or a region. On the other hand, it is an important indicator to measure the national or regional economic competitiveness.

(2) Civil aviation industry is featured with commonality

Civil aviation industry plays a role that other transport methods cannot replace in promotion of international communication, providing service for public travel, emergency rescue and disaster relief, and many other social and public services. Aviation passenger transport is the basis for the development of the tourism industry and a safeguard for international political, economic and cultural communications. Aviation transport is routinely used for international transoceanic passenger transport. Aviation cargo transport is a must for the development of trade, logistics, high-tech and many other industries and the basis for the development of courier and postal industry.

 

26


(3) Civil aviation industry is featured with high degree of technology content

Civil aviation industry is featured with high degree of technology content, long industry chains and advanced technology-integration. The development of the civil aviation industry provides vast room for the technological innovation of related fields. Especially, the upstream aviation manufacturing industry may drive the development and innovation of material, metallurgy, chemical, mechanical manufacturing, special processing, electronics, information and many other industries. It is a strategic industry and forerunner high-tech industry for a country’s economic development and an important symbol of a country’s modernization, industrialization, science and technology, and comprehensive national strength.

(4) Civil aviation industry is featured with high risks and high investments

On one hand, high risks are reflected in uncertainties in air transport. The unsafe risk sources are very complex and diverse. There are many uncontrollable factors. Once there is any problem, the consequences are unthinkable. On the other hand, air transport is largely affected by political and economic situations, natural disasters and pandemic. The COVID-19 pandemic has caused a significant impact on the global aviation industry. At the same time, fluctuation of exchange rates, interest rates and aviation oil price will also affect the profits to a large extent. High investments are reflected in that airlines need to make huge investments in fixed assets, including investment in capacity input, infrastructure and technology reconstruction, among which, the cost of introducing aircraft, operation cost, and maintenance cost are huge. Airlines also need to input a huge fund for supporting infrastructure, facility, equipment and technology transformation.

 

27


3. Industrial Position

The Group is the biggest airline in China with the largest fleet, the most extensive route network and the largest annual passenger throughput. As at the end of reporting period, the Group has operated a total of 878 passenger and cargo transport aircraft including Boeing 787, 777, 737 series, Airbus 380, 350, 330, 320 series, ARJ21, etc.. The fleet of the Group ranked first in Asia and at the forefront of the world. In June 2018, the Company was awarded “Two-Star Diamond Award for Flight Safety”, the top award for flight safety from the CAAC.

In recent years, the Company has striven to build two comprehensive international hubs in Guangzhou and Beijing, and a network-based airline has taken shape gradually. In 2021, the Company continued to drive the high quality development of Beijing hub and developed six express routes including the Guangzhou-Shenzhen-Chengdu route. The market share of Daxing Airport reached 45.9%. Meanwhile, the Company continued to strengthen the integrated construction of the Guangdong-Hong Kong-Macao Greater Bay Area, consolidate and intensify market control in the Guangdong-Hong Kong-Macao Greater Bay Area. The market share of domestic departure capacity in Guangzhou, Shenzhen, Zhuhai and Huizhou reached 38%. The Company actively developed the Pearl River Delta hub airport. The Company accelerated the strategy in Hainan Free Trade Port, consolidated and intensified market control in the major cities in Hainan, and promoted the landing of the industrial projects.

(III) The Business of the Company during the Reporting Period

1. Principal Business

The scope of business of the Company covers: (1) provision of scheduled and non-scheduled domestic, regional and international air transportation services for passengers, cargo, mail and luggage; (2) provision of general aviation services; (3) provision of aircraft repair and maintenance services; (4) acting as agent for domestic and international airlines; (5) provision of air catering services (operated by branch office only); (6) engaging in other airline and airline-related business, including advertising for such businesses; (7) engaging in other aviation businesses and related businesses (limited to insurance agency business; personal accident insurance); provision of airline ground services; civil aircraft training (operated by branch office with proper licence); asset leasing services; project management and technical consultancy services; sales of aviation equipment; travel agency business; merchandise retail and wholesale; health and medical examination services (For all projects subject to approval in accordance with laws, the business activities can only be carried out after obtaining approval from relevant authorities in accordance with the laws.)

 

28


2. Operating Model

The Company, based on starting point and objective of the building of an world-class air transport enterprise and guided by the development goals of the “14th Five-Year Plan” and the Long-Range Objectives Through the Year 2035, further focuses on quality and efficiency, and has determined the overarching approach for quality development featuring “adhering to five concepts of development, implementing five strategies, promoting six campaigns, and achieving six transformations”.

The Company adheres to the “five development” concepts of safety, high quality, innovation, cooperation and sharing; focuses on the “five strategies” in relation to hub network, ecosystem, innovation-driven, lean management and control, and brand management; carries out “six campaigns” on promoting safety production, grasping major strategic opportunities, deepening reforms in key areas, enhancing management to first class, optimizing and adjusting five major structures, improving service quality; and strives for “six transformations” from speed-oriented to quality-oriented, from comprehensive market expansion to exploring key areas, from a relatively single industry to high relevance and diversified industries, from planning management and control to market operation, from the traditional business model to digitalization and ecological circle, and from extensive management to refined management.

(IV) Analysis on the Core Competitiveness during the Reporting Period

The Company’s five core competitive strengths have begun to take shape, including its powerful and well-rounded scale and network advantages, its network development pattern with Guangzhou-Beijing as its dual core hubs, its resource synergy capabilities combined with integrated operation and matrix management, its influential, high quality brand service and comprehensive leading information technology standards.

1. Powerful and well-rounded scale and network advantages. The Company had the largest fleet in China and advanced fleet performance. The Group has the densest network by forming a developed route network covering China, and the rest of Asia, and effectively connecting Europe, America, Australia and Africa. With the largest volume of passenger traffic, the Company is the first airline in China with its amount of passenger traffic exceeding 100 million. At present, the Company has 18 branches in Beijing, Shenzhen and other cities and 8 holding aviation subsidiaries, including Xiamen Airlines. Establishment of branches and subsidiaries could better coordinate resources including local market, airports, large customers, channels and media, and supply transiting customers to the hubs. Meanwhile, the Company has set up 7 regional marketing centers, 21 domestic offices and 53 overseas offices in all continents. The Company has formed a comprehensive sales network with branches, holding subsidiaries, regional marketing centers and offices.

 

29


2. Constantly enhanced the network strategy with Guangzhou and Beijing as core hubs. By focusing on the construction of route network structure with hubs as the core, strategic markets as the key and market development as support, CSA has striven to build two comprehensive international hubs in Guangzhou and Beijing to achieve two-wheel drive, thereby establishing a new profit model and development mode, and gradually develop a network-based airline. In 2021, CSA deeply cultivated in the Guangdong-Hong Kong-Macao Greater Bay Area, creating a new pattern of central and local cooperation and endeavored to build the Guangzhou hub into a model of an international aviation hub co-constructed with provinces and cities. Presently, CSA has nearly 50% of market share in Guangzhou, making positive contribution to the construction of a world-class city cluster and international technology innovation center for Guangdong-Hong Kong-Macao Greater Bay Area and the construction of “Belt and Road Initiative”. At the same time, CSA insisted to build Beijing hub with high quality. In 2021, the time slots of Daxing Airport exceeded 45%, becoming the largest main base airline, thus providing favorable conditions and resources for the development of the hub. CSA comprehensively advanced the strategic layout of hub network, and has further improved its institutional mechanisms and supporting resources to form a new development layout with “Guangzhou Hub in the south and Beijing Hub in the north”.

3. Constantly improved control and resources interoperability of integrated operation. With its scale of having multiple bases, hubs, models and fleet, the Company has formed an initial control pattern of “headquarters for overall management, branches and subsidiaries, regional marketing center, offices for execution, matrix unit for construction”, enabled more concentrated core resource, powerful coordinated command and timely dynamic responses, so as to enhance efficiency of resources distribution. Since the construction of the integrated operation, CSA has strengthened the platform construction and consolidated the support system through a sound management mechanism, and basically formed an integrated operation management framework of “centralized management and control, efficient decision-making, smooth communication, and coordinated system”, which has significantly improved flight operation efficiency. CSA continued to deepen the reform of marketing, strengthened capacity matching with the market under the epidemic, and enhanced marketing service quality management and the construction of customer management system, so as to continuously optimize its marketing management and control layout.

 

30


4. Striving for the world’s first-class brand service. CSA launched the construction of integrated service, built a first-class international service brand, and continuously improved service quality. Its brand influence has continued to increase at home and abroad. In 2021, by providing “humanized, digitalized, refined, personalized and convenient” air travel quality service, CSA realized “people enjoying travelling, goods delivered smoothly”. The flight on-time performance rate of the Company has maintained leading position in the industry for six consecutive years. The Company comprehensively performed political and social responsibilities including providing guarantees for material tasks, revitalizing rural areas and energy conservation and emission reduction, which strongly demonstrated the positive images of “Sunshine CSA” and “responsible state-owned enterprise”. The major support tasks in terms of transportation of anti-epidemic personnel and supplies have been successfully completed and the domestic vaccines were promoted to the world.

5. All-rounded leading position of information system. CSA has always attached importance to corporate information construction and has an information technology team composed of over 1,000 experts, which lays a solid foundation for relevant research and development. By constructing and reconstructing several IT systems, such as the new version of official websites, mobile APP, WeChat platform, B2B, etc, the Company has formed passenger marketing, operation control, ground services, aviation safety, cargo transport, corporate management, public platform and many other systems, providing strong support for the strategic transformation and business development of the Company achieving the information construction accomplishments that are generally accepted in the industry. The digitalization construction focusing on digitalized customer, digitalized employee, digitalized process and digitalized company proceeded steadily, and the data management capacity of data center enhanced constantly. The Company has comprehensively promoted the landing of “Ecosphere strategy”, and fully created mobile user end one-stop service platform. At present, the concept of “a hassle-free journey with one mobile device” has been fully realized, and the key indicators, such as number of APP activations and number of the social media followers, continue to lead in the industry.

 

31


Han Wen Sheng

Vice Chairman and President

(V) Safety Assurance Input

During the reporting period, the Company always insisted on the principle of “safety first”, continued to promote the safety system governance capacity, continued to improve the construction mechanism of work style on safety and focused on safety risks management.

First, we continued to promote the safety system governance capacity. We continued to build and improve the safety management and control system, updated safety assessment programs as well as reward and punishment measures, improved the effectiveness and pertinence of safety training, set up the chief pilot’s office, and strengthened safety system governance capacity.

Second, we improved the construction mechanism of work style on safety. We strengthened the facilitation effect of safety culture, continued to create a working atmosphere that emphasizes on safety in production and enhanced the management and control of process. We continued to promote the identification of safety issues and conducted cockpit sound monitoring and route safety auditing. We completed the installation project of monitoring equipment of cargo hold, which effectively contained damages to the cargo hold. We promoted remote monitoring means and improved safety monitoring efficiency.

Third, we focused on safety risks management. We strengthened the joint prevention mechanism for safety risks, focused on controlling various common safety risks, actively promoted safety performance management, established a sound performance indicator system for safety performance, promoted the construction of the safety information platform, and focused on the promotion of operational risk control and the system development of electronic flight bag.

II. Financial Performance

Part of the financial information presented in this section below is derived from the Group’s audited consolidated financial statements that have been prepared in accordance with IFRSs.

The net loss attributable to equity shareholders of the Company of RMB12,106 million was recorded in 2021 as compared to the net loss attributable to equity shareholders of the Company of RMB10,847 million in 2020. The Group’s total operating revenue increased by RMB9,083 million or 9.81% from RMB92,561 million in 2020 to RMB101,644 million in 2021. Passenger load factor decreased by 0.21 percentage point from 71.46% in 2020 to 71.25% in 2021. Yield per RPK increased by 6.52% from RMB0.46 in 2020 to RMB0.49 in 2021. Yield per RTK increased by 7.42% from RMB4.18 in 2020 to RMB4.49 in 2021. Operating expenses increased by RMB7,229 million or 6.63% from RMB109,111 million in 2020 to RMB116,340 million in 2021. Mainly affected by the impact of the COVID-19 pandemic on the aviation industry, operating loss of RMB9,929 million was recorded in 2021 as compared to operating loss of RMB11,864 million in 2020.

 

32


III. Operating Revenue

 

  

 

 

    
     2021      2020         
     Operating revenue     Percentage      Operating revenue     Percentage      Changes in revenue  
     RMB million     %      RMB million     %      %  

Traffic revenue

     95,279       93.74        87,027       94.02        9.48  

Including: Passenger revenue

     75,392          70,534          6.89  

– Domestic

     68,656          57,793          18.80  

– Hong Kong, Macau and Taiwan

     223          251          (11.16

– International

     6,513          12,490          (47.85

Cargo and mail revenue

     19,887          16,493          20.58  

Other operating revenue

     6,365       6.26        5,534       5.98        15.02  

Mainly including:

            

Commission income

     2,677                2,771                (3.39

Ground services income

     326          210          55.24  

General aviation income

     572          508          12.60  

Hotel and tour operation income

     538          390          37.95  

Cargo handling income

     864                507                70.41  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total operating revenue

     101,644       100.00        92,561       100.00        9.81  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Less: fuel surcharge income

     (673        (1,259        (46.54
  

 

 

      

 

 

      

 

 

 

Total operating revenue excluding fuel surcharge

     100,971          91,302          10.59  
  

 

 

      

 

 

      

 

 

 

Substantially all of the Group’s operating revenue is attributable to airlines transport operations. Traffic revenue accounted for 94.02% and 93.74% of the total operating revenue in 2020 and 2021, respectively. Passenger revenue and cargo and mail revenue accounted for 79.13% and 20.87%, respectively, of the traffic revenue in 2021. During the reporting period, the Group’s total traffic revenue was RMB95,279 million, representing an increase of RMB8,252 million or 9.48% from the same period of prior year, mainly because of the increase in passenger revenue and in cargo revenue. The other operating revenue of the Group is mainly derived from commission income, hotel and tour operation income, general aviation income, cargo handling income and ground services income.

The increase in operating revenue was primarily due to an increase in passenger revenue by 6.89% from RMB70,534 million in 2020 to RMB75,392 million in 2021. The total number of passengers carried increased by 1.7% from 96.86 million passengers in 2020 to 98.50 million passengers in 2021. RPKs decreased by 0.66% from 153,440 million in 2020 to 152,426 million in 2021.

Domestic passenger revenue, which accounted for 91.07% of the total passenger revenue in 2021, increased by 18.80% from RMB57,793 million in 2020 to RMB68,656 million in 2021, mainly due to the maturity of COVID-19 prevention policies in the PRC and the number of passengers carried by domestic flight increased by 4.05% as compare to 2020. Domestic passenger traffic in RPKs increased by 5.77%, while passenger capacity in ASKs increased by 5.93%, resulting in a decrease in passenger load factor by 0.11 percentage point from 72.26% in 2020 to 72.15% in 2021. Yield per RPK increased by 12.2% from RMB0.41 in 2020 to RMB0.46 in 2021.

Hong Kong, Macau and Taiwan passenger revenue, which accounted for 0.30% of total passenger revenue, decreased by 11.16% from RMB251 million in 2020 to RMB223 million in 2021. For Hong Kong, Macau and Taiwan flights, passenger traffic in RPKs decreased by 36.24%, while passenger capacity in ASKs decreased by 15.96%, resulting in a decrease in passenger load factor by 10.47 percentage points from 43.41% in 2020 to 32.93% in 2021. Passenger yield per RPK increased from RMB1.05 in 2020 to RMB1.46 in 2021.

International passenger revenue, which accounted for 8.64% of total passenger revenue, decreased by 47.85% from RMB12,490 million in 2020 to RMB6,513 million in 2021, primarily due to the continuous impact of overseas COVID-19 pandemic and the restriction of cross border traveling policy not lifted yet. For international flights, passenger traffic in RPKs decreased by 69.00%, while passenger capacity in ASKs decreased by 60.36%, resulting in a decrease in passenger load factor by 14.08 percentage points from 64.57% in 2020 to 50.49% in 2021. Passenger yield per RPK increased from RMB0.96 in 2020 to RMB1.61 in 2021.

 

33


Cargo and mail revenue, which accounted for 20.87% of the Group’s total traffic revenue and 19.57% of total operating revenue, increased by 20.58% from RMB16,493 million in 2020 to RMB19,887 million in 2021. The increase was mainly attributable to the increase of demand for freight, especially international freight, due to the impact of COVID-19 pandemic.

Other operating revenue increased by 15.02% from RMB5,534 million in 2020 to RMB6,365 million in 2021. The increase was primarily due to the increase of ground services income, general aviation income, and hotel and tour operation income, and cargo handling income.

IV. Operating Expenses

Total operating expenses in 2021 amounted to RMB116,340 million, representing an increase of RMB7,229 million or 6.63% comparing to that of 2020 because of the increase of various traffic expenses. Total operating expenses as a percentage of total operating revenue decreased from 117.88% in 2020 to 114.46% in 2021.

 

     2021      2020  

Operating expenses

   RMB million      Percentage
%
     RMB million      Percentage
%
 

Flight operation expenses

     45,569        39.17        37,545        34.41  

Mainly including:

           

Jet fuel costs

     25,505                 18,797           

Aircraft operating lease charges

     920           977       

Flight personnel payroll and welfare

     10,763                 10,232           

Maintenance expenses

     12,162        10.45        13,375        12.26  

Aircraft and transportation service expenses

     21,147        18.18        18,743        17.18  

Promotion and selling expenses

     4,705        4.04        5,007        4.59  

General and administrative expenses

     3,663        3.15        4,088        3.75  

Depreciation and amortisation

     24,241        20.84        24,590        22.54  

Impairment losses on property, plant and equipment and right-of-use assets

     2,597        2.23        3,961        3.63  

Hotel and tour operation expenses

     423        0.36        317        0.29  

External air catering service expenses

     368        0.32        333        0.31  

Financial institution charges

     74        0.06        84        0.08  

Cargo handling expenses

     398        0.34        400        0.37  

Others

     993        0.86        668        0.61  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total operating expenses

     116,340        100.00        109,111        100.00  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

34


Flight operation expenses, which accounted for 39.17% of total operating expenses, increased by 21.37% from RMB37,545 million in 2020 to RMB45,569 million in 2021, mainly resulted from the increase of jet fuel cost, which increased by 35.69% from RMB18,797 million in 2020 to RMB25,505 million in 2021. The increase in jet fuel cost was caused by the increase in jet fuel price in 2021.

Maintenance expenses, which accounted for 10.45% of total operating expenses, decreased by 9.07% from RMB13,375 million in 2020 to RMB12,162 million in 2021.

Aircraft and transportation service expenses, which accounted for 18.18% of total operating expenses, increased by 12.83% from RMB18,743 million in 2020 to RMB21,147 million in 2021. The increase was mainly due to an increase in the amounts of take-off and landing as well as navigation fees and ground service related staff costs.

Promotion and selling expenses, which accounted for 4.04% of total operating expenses, decreased by 6.03% from RMB5,007 million in 2020 to RMB4,705 million in 2021. General and administrative expenses, which accounted for 3.15% of the total operating expenses, decreased by 10.40% from RMB4,088 million in 2020 to RMB3,663 million in 2021.

Depreciation and amortisation, which accounted for 20.84% of the total operating expenses, stayed at the same level in amounts as compared to 2020.

Impairment losses on property, plant and equipment and right-of-use assets, which accounted for 2.23% of the total operating expenses, decreased by 34.44% from RMB3,961 million in 2020 to RMB2,597 million in 2021, mainly due to the impairment provision for aircraft and related equipment.

V. Operating Loss

Operating loss of RMB9,929 million was recorded in 2021 (2020: operating loss of RMB11,864 million).

VI. Other Net Income

Other net income slightly increased by RMB81 million from RMB4,686 million in 2020 to RMB4,767 million in 2021.

VII. Income Tax

Income tax gains of RMB2,894 million was recorded in 2021 (2020: income tax gains of RMB3,368 million was recorded), as the Company recorded operating loss as impacted by the COVID-19 pandemic, and recognised deferred income tax asset for tax losses.

 

35


VIII. Liquidity, Financial Resources and Capital Structure

As at 31 December 2021, the Group’s net current liabilities was RMB73,124 million. For the year ended 31 December 2021, the Group recorded a net cash inflow from operating activities of RMB7,688 million mainly due to the improvement of the operation, a net cash outflow from investing activities of RMB15,820 million mainly due to the increase in the purchase of self-owned aircrafts, net cash inflow from financing activities of RMB4,186 million mainly due to the non-public issuance of shares and public issuance of convertible bonds of the Company in the same period last year, and the absence of such event in the current period, which in total resulted in a decrease in cash and cash equivalents of RMB3,946 million. The decrease in cash and cash equivalents was mainly due to the decrease in the scale of financing for issuance of shares, bonds and long-term and short-term loans.

The Group’s liquidity is dependent on its ability to maintain adequate cash inflow from operations, and its ability to obtain external financing to meet its debt obligations as they fall due and to meet its committed future capital expenditures. The Group’s policy is to regularly monitor its liquidity requirements and its compliance with lending covenants, to ensure that it maintains sufficient reserves of cash and adequate committed lines of funding from major financial institutions to meet its liquidity requirements in the short and longer term. As at 31 December 2021, the Group has obtained credit facilities of RMB295,683 million in aggregate (31 December 2020: RMB315,452 million) granted by several banks and financial institutes, among which approximately RMB204,051 million was unutilised (31 December 2020: RMB228,188 million). The Directors of the Company believe that sufficient financing will be available to the Group.

The analysis of the Group’s total interest-bearing liabilities are as follows:

Composition of total interest-bearing liabilities

 

     31 December
2021
     31 December
2020
 
     RMB million      RMB million  

    Lease liabilities

     102,749        121,213  

    Borrowings

     96,267        78,233  

    Long-term payable

     291        385  

Fixed rate interest-bearing liabilities

     144,553        130,072  

Floating rate interest-bearing liabilities

     54,754        69,759  

Analysis of interest-bearing liabilities by currency

 

     31 December 2021      31 December
2020
 
     RMB million      RMB million  

USD

     43,778        52,862  

RMB

     152,429        142,545  

Others

     3,100        4,424  
  

 

 

    

 

 

 

Total

     199,307        199,831  
  

 

 

    

 

 

 

 

36


Maturity analysis of interest-bearing liabilities

 

     31 December 2021      31 December
2020
 
     RMB million      RMB million  

Within 1 year

     78,816        61,123  

After 1 year but within 2 years

     37,942        27,805  

After 2 years but within 5 years

     55,761        61,751  

After 5 years

     26,788        49,152  
  

 

 

    

 

 

 

Total

     199,307        199,831  
  

 

 

    

 

 

 

Interest expense and exchange gain/(loss)

Interest expense decreased by RMB514 million from RMB6,716 million in 2020 to RMB6,202 million in 2021, mainly due to decrease in interest expense on lease liabilities.

Net exchange gains of RMB1,575 million was recorded in 2021, as compared with a net exchange gains of RMB3,485 million in 2020. Net exchange gain was primarily attributable to the exchange difference arising from the lease liabilities denominated in USD, along with the depreciation of the U.S. dollar against Renminbi.

The Group’s capital structure at the end of the year is as follows:

 

     31 December 2021     31 December
2020
    Change  

Total liabilities (RMB million)

     238,703       241,252       (1.06 %) 

Total assets (RMB million)

     323,211       326,383       (0.97 %) 

Debt ratio

     73.85     73.92    
Decreased by 0.07
percentage point
 
 

The Group monitors capital on the basis of debt ratio, which is calculated as total liabilities divided by total assets. The debt ratio decreased by 0.07 percentage point compared to that of the end of 2020.

IX. Major Charge on Assets

As at 31 December 2021, no property, plant and equipment of the Group (31 December 2020: Nil) were mortgaged for bank borrowings.

 

37


X. Commitments and Contingencies

Commitments

As at 31 December 2021, the Group had capital commitments (excluding investment commitment) of RMB64,243 million (31 December 2020: RMB66,996 million), of which, RMB54,662 million (31 December 2020: RMB56,547 million) related to the acquisition of aircraft and related flight equipment and RMB9,581 million (31 December 2020: RMB10,449 million) related to other projects of the Group.

The Group had investment commitments as follows:

 

     31 December
2021
     31 December
2020
 
     RMB million      RMB million  

Authorised and contracted for:

     

Share of capital commitments of a joint venture

     185        405  

Capital contributions for acquisition of interest in an associate

     171        —    
  

 

 

    

 

 

 
     356        405  
  

 

 

    

 

 

 

Authorised but not contracted for:

     

Share of capital commitments of a joint venture

     24        26  
  

 

 

    

 

 

 
     380        431  
  

 

 

    

 

 

 

Contingent liabilities

 

(1)

The Group leased certain properties and buildings from CSAH which were located in Guangzhou, Wuhan, Haikou, etc. Although such properties and buildings were used by CSAH before being leased to the Group, as known to the Group, such properties and buildings lack adequate documentation evidencing CSAH’s rights thereto. Pursuant to the indemnification agreement dated 22 May 1997 entered into between the Group and CSAH, CSAH has agreed to indemnify the Group against any loss or damage arising from any challenge of the Group’s right to use the aforementioned properties and buildings.

 

(2)

The Group entered into certain agreements with CSAH in prior years to acquire certain land use right and buildings from CSAH. The change of business registration of such land use right and buildings are still in progress as of the date of this report. CSAH issued letters of commitment to the Company, committing to indemnify the Group against any claims from third parties to the Group, or any loss or damage in the Group’s operation activities due to lack adequate documentation of the certain properties and buildings, without recourse to the Group.

 

(3)

The Company and its subsidiary, Xiamen Airlines, entered into agreements with certain pilot trainees and certain banks to provide guarantees on personal bank loans amounting to approximately RMB696 million (31 December 2020: RMB696 million) that can be drawn by the pilot trainees to finance their respective flight training expenses. As at 31 December 2021, total personal bank loans of approximately RMB181 million (31 December 2020: approximately RMB221 million), under these guarantees, were drawn down from the banks. During the year, RMB2 million has been made by the Group (2020: Nil) due to the default of payments of certain pilot trainees.

 

38


XI. Reconciliation of Differences in Financial Statements Prepared under PRC GAAP and IFRSs

(I) Difference in net loss and equity attributable to equity shareholders of the Company

in financial reports disclosed under IFRSs and PRC GAAP

Unit: RMB million            

 

     Net loss attributable
to equity shareholders of
the Company
     Equity attributable
to equity shareholders
of the Company
 
     2021
January to
December
     2020
January to
December
     31 December
2021
     31 December
2020
 

Amounts under PRC GAAP

     (12,103      (10,842      67,616        69,346  

Adjustments under IFRSs:

           

Government grants (a)

     1        /        (5      (6

Capitalisation of exchange difference of specific loans (b)

     (8      (9      39        47  

Adjustment arising from the Company’s business combination under common control (c)

     /        /        237        237  

Income tax effect of the above adjustments

     2        2        (8      (10

Effect of the above adjustments on non-controlling interests

     2        2        (28      (30
  

 

 

    

 

 

    

 

 

    

 

 

 

Amounts under IFRSs

     (12,106      (10,847      67,851        69,584  
  

 

 

    

 

 

    

 

 

    

 

 

 

(II) Explanation of differences between PRC GAAP and IFRSs

 

(a).

In accordance with the PRC GAAP, assets related government grants (other than special funds) are deducted from the cost of the related assets. Special funds granted by the government and clearly defined in the approval documents as part of “capital reserve” are accounted for as increase in capital reserve. Under IFRSs, assets related government grants are deducted to the cost of the related assets. The difference is resulted from government grants received in previous years and are recognised in capital reserve under PRC GAAP.

 

(b).

In accordance with the PRC GAAP, exchange difference arising on translation of specific loans and related interest denominated in a foreign currency is capitalised as part of the cost of qualifying assets. Under IFRSs, such exchange difference should be recognised in income statement unless the exchange difference represents an adjustment to interest.

 

(c).

In accordance with the PRC GAAP, the Company accounts for the business combination under common control by applying the pooling-of-interest method. Under the pooling-of-interest method, the difference between the historical carrying amount of the acquiree and the consideration paid is accounted for as an equity transaction. Business combinations under common control are accounted for as if the acquisition had occurred at the beginning of the earliest comparative year presented or, if later, at the date that common control was established; for this purpose, relevant comparative figures are restated under PRC GAAP. Under IFRSs, the Company adopts the purchase accounting method for acquisition of business under common control.

 

39


XII. Capital Needs for Maintaining the Existing Business Operation and

Completing the Investment Projects under Construction

 

Commitments

  

Contractual arrangement

  

Time schedule

  

Financing

methods

Commitments in respect of aircraft, engines and flight equipment of RMB54,662 million

  

Authorised and contracted

  

RMB33,165 million within 1 year (inclusive of 1 year);

  

Own funds or debt financing

     

RMB15,093 million after 1 year but within 2 years (inclusive of 2 years);

     

RMB6,404 million after 2 years but within 3 years (inclusive of 3 years);

     

Nil after 3 years

Investment commitments of RMB356 million

  

Authorised and contracted

  

RMB356 million within 1 year (inclusive of 1 year)

  

Own funds

Other commitments of
RMB9,581 million

  

Authorised and contracted

  

Not applicable

  

Own funds or debt financing

Upon prediction on the cash flows for the eighteen months ending 30 June 2023, the Group is of the view that the Group will have sufficient funds to meet the needs for working capital and capital expenditures during such period. The Group’s ability to pay off the payable due liabilities mainly depends on the Group’s net inflow of working capital and the ability to obtain external financing. As for future capital commitment and other financing demand, as of 31 December 2021, the Group has obtained a maximum credit line of RMB295,683 million for 2021 and subsequent years from several PRC banks, of which, the unused bank credit lines reached approximately RMB204,051 million. The Group believes that it will be able to obtain such financing.

XIII. Analysis of Operational Information from Industrial Perspective

(I) Major information of operations

 

Models

   Average age
(years)
     Daily utilization
rate (hours)
     Passenger
load factor (%)
     Total
load factor (%)
 

Passenger aircraft

           

A380 series

     9.7        3.95        57.21        50.80  

A350 series

     1.4        5.99        66.92        40.86  

A330 series

     8.0        5.17        70.19        45.80  

A320 series

     8.3        6.98        69.90        62.48  

B787 series

     5.0        6.77        62.88        44.44  

B777 series

     5.2        1.58        65.33        36.84  

B737 series

     8.4        7.27        73.92        65.76  

EMB190

     8.9        4.26        82.18        59.94  

ARJ21

     0.9        3.51        75.06        74.38  

Freighter

           

B777 series

     8.2        14.85        /        81.64  

B747 series

     19.4        0        /        0  

Average

     8.0        6.96        71.25        63.28  

 

Note:

the above daily utilization statistics excluded 34 B737MAX grounded due to short operation period.

 

40


(II) Capital arrangement for introducing aircraft and related equipment during the reporting period

 

     Unit: number of aircraft  
     Capital arrangement         

Models introduced during

the reporting period          

   Operating lease      Finance lease      Purchased      Number of aircraft
introduced during the
reporting period
 

A350 Series

     0        0        4        4  

A320 Series

     0        0        10        10  

B787 Series

     2        0        0        2  

ARJ21

     0        3        3        6  

Total

     2        3        17        22  

(III) Capital expenditure plan and relevant financing plan for aircraft and related equipment during 2022-2024

 

Capital expenditure commitments
of aircraft
and related equipment

  

Contractual arrangement

  

Time schedule

  

Financing methods

Commitments in respect of aircraft, engines and flight equipment of RMB54,662 million

  

Authorised and contracted

  

RMB33,165 million within 1 year (inclusive of 1 year);

RMB15,093 million after 1 year but within 2 years (inclusive of 2 years);

RMB6,404 million after 2 years but within 3 years (inclusive of 3 years).

  

Own funds or debt financing

(IV) New flight routes during the reporting period and future launching plan

During the reporting period, the Company launched new domestic routes including Guangzhou-Shijiazhuang-Zhangjiakou, Guangzhou-Hohhot–Hailar, Guangzhou-Jingzhou, Guangzhou-Heze, Beijing Daxing-Xi’an, Beijing Daxing-Fuzhou, Beijing Daxing-Nanchang, Beijing Daxing-Gan Zhou, Beijing Daxing-Holingol and other routes around the Guangzhou-Beijing core hub, and continued to improve the route network. For international routes, as affected by the “five ones” policy and the “One Country, One Policy” of the CAAC, the international flights of the Company maintained at low level during the reporting period. In 2021, the Company has not launched any new international route and the recovery will depend on policy adjustments.

In 2022, with an aim of maximizing marginal contribution, the Company will increase capacity in the domestic market and improve the quality of revenue from international routes. For domestic routes, we plan to launch Guangzhou-Quzhou, Guangzhou-Hechi-Mianyang, Guangzhou-Linfen-Changchun, Guiyang-Wuhan-Quzhou, Harbin-Heze-Kunming, Urumqi-Xining-Kunming, Zhuhai-Xinzhou-Changchun, Changchun-Qingdao-Taizhou, Shenyang-Shiyan-Huizhou, etc.. For international routes, we will gradually recover flights, increase frequency and launch new routes depending on policy adjustments.

 

41


XIV. Analysis on Investments

(I) Major equity investment

Nil.

(II) Major non-equity investment

Nil.

(III) Financial assets carried at fair value

 

    Unit: RMB million

Stock code

 

Abbreviation

  Initial
Investment
cost
    Equity
ownership
(%)
    Carrying
value at the
end of the
period
    Profit and loss
during the
reporting
period
    Changes in
owners’ equity
during the
reporting
period
   

Accounting item

 

Sources of the
shares

000099

  Citic Offshore Helicopter Co., Ltd.     9       0.48       25       3       /    

Other non-current financial assets

  Purchase

601328

  Bank of Communications Co., Ltd.     16       0.013       43       4       /    

Other non-current financial assets

  Purchase

N/A

  China Air Service Ltd.     2       1.00       1       /       /    

Other non-current financial assets

  Capital increase

N/A

  Aviation Data Communication Corporation     1       2.50       26       (1     /    

Other non-current financial assets

  Capital increase

00696

  Travelsky Technology Limited     33       2.25       523       1       (131  

Other investments in equity securities

  Establishment

N/A

  Haikou Meilan International Airport Co., Ltd.     100       2.35       40       /       (45  

Other investments in equity securities

  Capital increase

Total

      161       /       658       7       (176   /   /

XV. Major Assets and Shareholding Disposal

During the reporting period, there were no disposal of any major assets or equity investments by the Company.

 

42


XVI. Analysis on Major Subsidiaries and Joint Ventures and Associates

(I) Major operational data of major holding aviation subsidiaries of the Group:

 

Name of subsidiaries

   Number of
aircraft
     Proportion
(%)
     Number of
passengers
carried
(thousand)
     Proportion
(%)
     Cargo and mail
carried (tonne)
     Proportion
(%)
     RTK
(million)
     Proportion
(%)
     RPK
(million)
     Proportion
(%)
 

Xiamen Airlines

     209        23.8        26,124.6        26.5        193,024.5        13.4        3,907.0        18.4        38,130.0        25.0  

Shantou Airlines

     16        1.8        2,290.4        2.3        13,809.3        1.0        290.4        1.4        3,056.1        2.0  

Zhuhai Airlines

     16        1.8        2,028.2        2.1        10,650.9        0.7        305.9        1.4        3,252.2        2.1  

Guizhou Airlines

     20        2.3        2,852.2        2.9        20,249.4        1.4        399.3        1.9        4,151.2        2.7  

Chongqing Airlines

     30        3.4        3,738.5        3.8        14,129.7        1.0        464.9        2.2        5,010.5        3.3  

Henan Airlines

     30        3.4        3,805.5        3.9        26,866.8        1.9        489.9        2.3        5,094.7        3.3  

 

Note:

The operational information of Xiamen Airlines includes operational information of its subsidiaries, Hebei Airlines and Jiangxi Airlines.

1. Information of Xiamen Airlines

Xiamen Airlines was established in August 1984 with registered capital of RMB14 billion. The legal representative is Wang Zhi Xue. The Company holds 55% of the shares in Xiamen Airlines; Xiamen Jianfa Group Co., Ltd. and Fujian Investment Group Co., Ltd. also hold 34% and 11% in Xiamen Airlines, respectively.

In 2021, Xiamen Airlines earned operating revenue of RMB21,037 million, representing an increase of 1.75% as compared with the same period of the previous year; and net loss of RMB938 million was recorded as compared with net loss of RMB181 million for the same period of the previous year. As at 31 December 2021, Xiamen Airlines’ total assets amounted to RMB51,912 million, and net assets amounted to RMB19,530 million.

2. Information of Logistics Company

Logistics Company was established in June 2018 with registered capital of RMB1.818 billion. The legal representative is Liu Zubin (劉袓斌). The Company holds 55% of the shares in Logistics Company.

In 2021, Logistics Company earned operating revenue of RMB19,659 million and a net profit of RMB5,693 million, representing an increase of 27.68% and 41.86%, respectively. As of 31 December 2021, Logistics Company’s total assets amounted to RMB14,170 million and net assets amounted to RMB10,574 million.

(II) Information of other major joint ventures and associates

 

Name of investee companies    Nature of business    Registered capital      Proportion of shares held at the
investee companies (%)
 
                 Direct      Indirect  

1. Joint ventures

           

Guangzhou Aircraft Maintenance Engineering Co., Ltd.

  

Aircraft repair and maintenance services

     USD        65,000,000        50        0  

MTU Maintenance Zhuhai Co., Ltd.

  

Aircraft repair and maintenance services

     USD      163,100,000        50        0  

2. Associates

           

Finance Company

  

Financial services

     RMB  1,377,730,000        41.81        6.78  

SACM

  

Advertising agency services

     RMB     200,000,000        40        0  

Sichuan Airlines

  

Airlines transportation

     RMB  1,000,000,000        39        0  

 

43


China Southern Airlines

Satisfaction to Perfection

XVII. Industry Landscape and Trend

In 2021, the COVID-19 pandemic continued to spread around the world and caused huge impact on the global air transport industry. Global airlines significantly reduced costs and continued to adjust their businesses. In 2021, global demand for air travel increased and showed a recovery trend, and air cargo carriage experienced a strong growth, which provided support for airlines. IATA expects that the net loss in the global aviation industry will be US$51.8 billion in 2021.

IATA expects that the global air transport industry will remain in the red in 2022, and airlines around the world face problems including international air travel restrictions, continuous impact by COVID-19 pandemic and high leverage rate.

The global civil aviation industry has gradually shown new development trends after suffering from the huge impact of COVID-19 pandemic:

(I) The global aviation industry may enter a new round of restructuring

Large airlines may get out of trouble by obtaining government assistance, and the possibility of less powerful airlines being acquired by large airlines or even going bankrupt is greatly increased. After the reorganization, the global aviation industry will be more capable of responding to risks and challenges.

 

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(II) The long-term prospects of the aviation industry are bright, but the short-term recovery process is diversified

IATA predicts that by 2036, the global aviation industry will provide over 98 million jobs and create an output value of more than US$5.7 trillion. The aviation industry will play an irreplaceable role in the recovery of the global economy. However, as affected by the different international travel restriction policies in different economies and the unbalanced allocation of vaccines all around the world, the recovery of aviation industry differentiated in different regions.

The COVID-19 pandemic in 2021 continued to impose a huge impact on China’s civil aviation industry. However, in the long run, there is still huge room for the development of the industry. It is embodied in the following three aspects:

 

1.

Huge market potential

China’s civil aviation industry witnesses an average annual growth rate of passenger turnover of 11% in the first 10 years of 2020. However, the per capita air travel is only 0.47 time, while the per capita air travel in the United States is basically stable at 2.3-2.7 times, which is equivalent to 5-6 times of that in China. It is expected that China’s civil aviation transportation market will continue to maintain a middle and high-speed growth with great development space during the “14th Five-Year Plan” period. IATA predicts that by 2036, the total air passenger traffic of China will reach 1.5 billion.

 

2.

China’s development strategy and macro policies are conducive to the development of aviation industry

The development strategies implemented in China has greatly expanded the development space for the aviation industry. According to the Guidelines on Developing Comprehensive Transport Network (《國家綜合立體交通網規劃綱要》) issued by the Central Committee of the Communist Party of China and the State Council, the comprehensive transport network will reach about 700,000 kilometers by 2035. The aviation network has the potential for continuous improvement, and the construction of global and regional logistics network system will see new opportunities. The Outline of Action for Building a Civil Aviation Power in the New Era (《新時代民航強國建設行動綱要》) issued by the CAAC clearly defines the goal of building a civil aviation power in an all-rounded way by the middle of this century. China’s civil aviation is marching towards the construction of a multi-sector civil aviation power. In addition, a series of policies such as the “Belt and Road Initiative”, the construction of the Xiong’an New Area, Guangdong-Hong Kong-Macao Greater Bay Area, Shenzhen’s pilot demonstration area, and the strategy of Hainan Free Trade Port foreshadow the broad development prospects of the aviation industry.

 

3.

New development pattern promotes high-quality development

China took the global lead in economic development and pandemic prevention and control in response to hundred-year changes and the century pandemic, and made new progress in building new development pattern, which provided a better macroeconomic environment for aviation industry development. During the “14th Five-Year Plan” period, China’s civil aviation will seize the new development stage, completely, accurately and thoroughly implement the philosophy of new development, build new development pattern, take the high-quality development as the theme, construct the first-class infrastructure system, develop the first-class air service system, improve the eco-friendly green development system and implement the strategy led by technological and innovation.

 

45


XVIII. Development Strategy of the Company

The Company, based on starting point and objective of the building of an world-class air transport enterprise and guided by the development goals of the “14th Five-Year Plan” and the Long-Range Objectives Through the Year 2035, further focuses on quality and efficiency, and has determined the overarching approach for quality development featuring “adhering to five concepts of development, implementing five strategies, promoting six campaigns, and achieving six transformations”.

The Company adheres to the “five development” concepts of safety, high quality, innovation, cooperation and sharing; focuses on the “five strategies” in relation to hub network, ecosystem, innovation-driven, lean management and control, and brand management; carries out “six campaigns” on promoting safety production, grasping major strategic opportunities, deepening reforms in key areas, enhancing management to first class, optimizing and adjusting five major structures, improving service quality; and strives for “six transformations” from speed-oriented to quality-oriented, from comprehensive market expansion to exploring key areas, from a relatively single industry to high relevance and diversified industries, from planning management and control to market operation, from the traditional business model to digitalization and ecological circle, and from extensive management to refined management.

XIX. Business Plan in 2022

Looking forward to 2022, the trend of the global pandemic still has relatively highly uncertainty, and measures for pandemic prevention and control of different countries differentiated gradually. The prospects for economic recovery in both developed countries and developing countries are uncertain. According to the forecast of the International Monetary Fund, the global economy is more fragile than expected. The global economy growth for 2022 is expected to be lowered to 4.4%.

China’s economic development encounters three pressures, namely demand reduction, supply disruption and anticipation weakening. In 2022, China will insist on the overall basis of prioritising stability and pursuing improvement in stability, accelerating the building of new development pattern, comprehensively deepen reform and opening up, adhere to innovation-driven development to drive high quality development, and keep taking supply-side structural reform as its main task, to coordinate pandemic prevention and control and economic and social development.

Facing the complicated and changeable environment both domestically and abroad, the Group will proactively participate in the construction of a strong country in the new era and support China’s civil aviation in building a strong country of civil aviation. Besides, the Group will coordinate pandemic prevention and control and management response, stick to high quality development and spare no efforts to build the Group into a world-class air transport enterprise with global competitiveness.

 

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(I) To stick to scientific and precise prevention and control, and strengthen normalized

management of pandemic prevention and control

The Group will stick to scientific and precise prevention and control, and assume its main responsibility for pandemic prevention and control. We will pay attention to the situation of pandemic prevention and control, and follow the requirements of each regulator to dynamically adjust measures for pandemic prevention and control; we will strengthen pandemic prevention training and the supervision and inspection of epidemic prevention, and strengthen the awareness of responsibility for pandemic prevention and control; we will manage passengers and staffs according to their classifications, so as to implement precise prevention and control; we will continue to amend working system for pandemic prevention and control, improve working mechanism to achieve scientific prevention and control; and we will continue to control the risk of imported pandemic and whole-process monitoring of passengers, to implement normalized management of pandemic prevention and control.

(II) To put safety first, and prevent and dissolve safety risks

The Group will build a sustainable and high quality safety, and by taking the deepening the construction of seven major safety systems as its core, strengthen responsibilities, controlling risks and managing process. We will strictly implement safety responsibility, improve the construction of safety system; improve safety training system, reform flight training management system, implement maintenance skill improvement training; perform dual prevention mechanism of safety risks classification and control and the identification and management of potential safety hazards, to propel the construction of operation risk control system; strengthen safety performance management and application, to drive the digital transformation of safety process management; to promote the construction of safety system by means of innovative technologies. In 2022, the Group will ensure its continuation in aviation safety as in past years.

(III) To ensure management response, and spare no effort to improve business performance

The Group will pay close attention to the pandemic situation and changes in the aviation market, and adjust operation strategies in a timely manner. We will increase inputs in domestic transportation capacity, optimize international layout, continue to enhance market control, optimize market structure, spare no efforts to pursue time slot resources, and establish management system for high-value clients and to consolidate the cooperation with airlines; we will capture the opportunities in the international freight market to improve the utilization rate of freighters and do well in international in-bound market and belly-hold operation; an improved product system will be established to expand group customers and increase freight flights converted from passenger aircraft; we will accelerate the construction of freight hubs to establish Guangzhou-Shenzhen integrated hub, strengthen Shanghai Pudong hub and enhance the operating quality of Beijing Daxing hub; we will promote the sustainable development of warehousing, e-commerce trade, supply chain management and other new businesses.

 

47


(IV) To establish a long-term mechanism for cost control, and enhance the ability to resist risks

The Group shall establish a long-term mechanism for cost control to found a solid foundation for high quality development. We will continue to conduct projects of “Golden Idea Makes Benefits”, comprehensive improvement of budget management, market-based accounting, digitalised finance, goal setting and benchmarking management, etc. and optimize the business-based variable cost management system; we will expand financing channels to realize diversified and low-cost financing, continue to optimize debt structure; proceed with non-public issuance of shares, to constantly optimize assets and liabilities structure; strengthen the management of financial risks and finance risks; strengthen centralized control of funds to ensure the security of capital chain; and continue to invigorate idle assets and real estate.

(V) To improve operation quality, and build a first-class brand service system

The Group will continue to improve operational efficiency and service quality. We will strengthen the management ability to the operation and dispatching system at all levels, and promote the digitalised and intelligent transformation in operational area; improve the whole chain management mechanism for jet fuel, to drive the data-based transformation of fuel saving control and constantly lower fuel consumption per ATK; we will establish a customer-oriented service quality management system, to manage the service quality during the whole process, and promote the integration of service with marketing and operation, so as to develop “Humanized, Digitalized, Refined, Personalized, Convenient” service. We will strengthen the brand image of “Affinity and Refinement”, further enhance brand management capacity, formulate and optimize the management standard of corporate identity system.

(VI) To intensify reforms, expedite the implementation of strategies and create momentum for development

The Group will deeply promote the reform of systems and mechanisms, to ensure that the critical strategies for high quality development are implemented gradually, and continue to explore development space. We will complete the reforms of three systems, to realize the full coverage of tenure system and contractual management of staff; deepen reform of aircraft maintenance to build aircraft maintenance brand; promote the implementation of “Double Hundred Action” and “Innovative Technology Reform Demonstration Actions”, continue to improve the modern enterprise system with Chinese characteristics, and perform the powers and functions of the Board; establish “Sunshine Purchase” system to drive the construction of standardized procurement; we will proceed with the construction of hubs in high quality, grasp the opportunities arising from the development of Greater Bay Area, continue to expedite the “Four Integrations”; continue to promote the adjustment and optimization of five major structures, deeply proceed the building of business ecosystem and establish products lines by focusing on “food, accommodation, transportation, entertainment, travel and shopping”. We will accelerate the deployment in Hainan Free Trade Port, to drive the implementation of projects in freight, air catering, general aviation and e-commerce industries.

 

48


XX. RISK FACTORS ANALYSIS

(I) Macro Environment Risks

1. Risks of Fluctuation in Macro Economy

The degree of prosperity of the civil aviation industry is closely linked to the status of the development of the domestic and international macro economy. Macro economy has a direct impact on the economic activities, the disposable income of the residents and the import and export trade volume, which in turn affects the demand of the air passenger and air cargo, and further affects the business and operating results of the Group.

2. Risks of Macro Policies

Macroeconomic policies made by the government, in particular the adjustment in the cyclical macro policies, such as credit, interest rate, exchange rate and fiscal expenditure, have a direct or indirect impact on the air transportation industry. In addition, the establishment of the new airlines, the opening of aviation rights, routes, air ticket fares and other aspects are regulated by the government, and the fuel surcharges pricing mechanism is also formulated by the government. The changes in the relevant policies will have a potential impact on the operating results and the future development of the business of the Company.

(II) Force Majeure Risks e.g. Pandemics and Natural Disasters

The aviation industry is subject to a significant impact from the external environment, abrupt public health emergencies, such as serious pandemics, natural disasters such as floods, typhoons and volcanic eruptions, terrorist attacks, international political turmoil and other factors. These risks will affect the normal operation of the airlines, and thus bringing unfavourable effect to the results and long-term development of the Company.

(III) Industry Risks

1. Risks of Intensifying Competition in the Industry

Faced with ever-changing markets, if the Company fails to effectively enhance its ability to predict and adopt flexible sales strategies and pricing mechanisms, this may have an impact on the Company’s goal of achieving expected returns. With regard to the introduction of transportation capacity, rapid growth of industry capacity and the slowdown in market demand has become increasingly significant. If the Company fails to establish a corresponding capacity introduction and exit mechanism, it may have a material adverse effect on the Company’s operating efficiency. In terms of exploring the international market, if the Company fails to further improve the operational quality of international routes, it may affect the Company’s operating income and profit levels.

 

49


2. Risks of Competition from Other Modes of Transportation

There is certain substitutability in short to medium range routes transportation among air transport, railway transportation and road transportation. With the improving high speed rails network, if the Company fails to develop an effective marketing strategy to deal with high-speed rail competition, it may affect the Company’s operating efficiency.

(IV) Risks of the Company Management

1. Safety Risks

Flight safety is the prerequisite and foundation for the normal operation of the airlines. Adverse weather, mechanical failure, human error, aircraft defects as well as other force majeure incidents may have effect on the flight safety. With big size of aircraft fleet and large amount of cross-location, overnight or international operations, the Company was confronted with certain challenges in its safety operation. In case of any flight accident, it will have an adverse effect on the normal production and operation and reputation of the Company.

2. Information Safety Risks

The information safety situation is becoming more and more severe. If the Company fails to manage the information safety affairs at company level or a higher level, increase input of information safety resources, and strengthen the information safety management, the Company’s safety, production, operation, marketing, service, etc. may be affected, as a result of which the Company may be affected and suffer losses.

3. Risks of High Capital Expenditure

The major capital expenditure of the Company is to purchase aircraft. In recent years, the Company has been optimising the fleet structure and reducing the operational cost through introducing more advanced models, disposing obsolete models and streamlining the number of models. Due to the high fixed costs for the operation of aircraft, if the operation condition of the Company suffered from a severe downturn, it may lead to the significant drop in the operating profit, facing financial distress and other problems.

(V) Financial Risks of the Company

1. Risks of Fluctuation in Foreign Currency

Renminbi is not freely convertible into foreign currencies. All foreign exchange transactions involving Renminbi must take place either through the People’s Bank of China (“PBOC”) or other institutions authorised to buy and sell foreign exchange or at a swap centre. Substantially all of the Group’s lease liabilities are denominated in foreign currencies, principally US dollars, Euro and Japanese Yen.

 

50


Depreciation or appreciation of Renminbi against foreign currencies therefore affects the Group’s results significantly. In particular, fluctuations in exchange rate of US dollar against Renminbi will have a material impact on the Group’s finance expense. Assuming risks other than exchange rate remain unchanged, the shareholders’ equity of the Group will increase (or decrease) by RMB322 million and the net loss of the Group will decrease (or increase) by RMB322 million during the reporting period in the case of each and every 1% increase (or decrease) of the exchange rate of RMB to US dollar at 31 December 2021.

2. Risks of Fluctuation in Jet Fuel Price

The jet fuel cost is the most major expenditure for the Group. Both the fluctuation in the international crude oil prices and the adjustment of domestic fuel prices by the NDRC has big impact on the cost of the Group. Although the Group has adopted various fuel saving measures to decrease the fuel consumption volume, provided there is significant fluctuation in the international oil prices, the operating results of the Group may be significantly affected. Assuming that the fuel oil consumption remains unchanged, in the case of each and every 10% increase or decrease on average in fuel price during the reporting period, the Group’s operating expenses would increase or decrease by RMB2,551 million for the reporting period.

In addition, the Group is required to procure a majority of its jet fuel domestically at PRC spot market prices. There is currently no effective means available to manage the Group’s exposure to the fluctuations of domestic jet fuel prices. However, according to a “Notice on Questions about Establishing Linked Pricing Mechanism for Fuel Surcharges of Domestic Routes and Jet Fuel” jointly published by the NDRC and the CAAC in 2009, airlines may, within a prescribed scope, make its own decision as to fuel surcharges for domestic routes and the pricing structure. The linked pricing mechanism, to a certain extent, reduces the Group’s exposure to fluctuation in jet fuel price.

3. Risks of Fluctuation in Interest Rate

Since the civil aviation industry is featured with high investments, the gearing ratio of the airlines is generally high. Therefore, the interest rate fluctuation resulting from the change of capital in the market has a relatively greater influence on the Group’s financial expense, so as to further affect the Group’s operating results. During the reporting period, assuming all other risk variables other than interest rate remained constant, 100 basis point increase (or decrease) of the Group’s comprehensive capital cost would decrease (or increase) shareholders’ equity of the Group by the amount of RMB328 million and increase (or decrease) net loss of the Group by the amount of RMB328 million during the reporting period. As at 31 December 2021, the gearing ratio (defined as total borrowings divided by total equity) of the Company was 114%).

 

51


SERVICE

Reinforce Affinity and Refinement,

Make an Image of Rich Advantages

 

52


REPORT OF DIRECTORS

The Board of the Company hereby presents this annual report and the audited financial statements for the year ended 31 December 2021 of the Group to the shareholders of the Company.

Business Review

The Group is principally engaged in airlines operations. The Group also operates certain airlines related businesses, including provision of aircraft maintenance and air catering services. The Group is one of the biggest airlines in China. In 2021, the Group ranked first among all Chinese airlines in terms of number of passengers carried, number of scheduled flights per week, number of hours flown, number of routes and size of aircraft fleet. For the business conditions of the Group in 2021 and major risks faced by the Group as well as the business plan of the Group in 2022, please refer to the section headed “Management Discussion and Analysis” in this annual report. The Group has prepared the financial statements for the year ended 31 December 2021 in accordance with IFRSs. Please refer to pages 163 to 276 of this annual report for details. For the key financial indicators of the Group, please refer to the sections headed “Principal Accounting Information and Financial Indicators” in this annual report.

Dividends

Considering that the Company suffered an operating loss for year of 2021, which does not meet the conditions for profit distribution as required under the Articles of Association, the Board did not recommend any payment of cash dividend or conversion of capital reserve into share capital or other profit distribution of the Company for the year of 2021. The abovementioned proposal is still subject to the approval of the 2021 annual general meeting of the Company.

Five-Year Financial Summary

A summary of the results and of the assets and liabilities of the Group for the five-year period ended 31 December 2021 (prepared under IFRSs) are set out on page 280 of this annual report.

Bank Loans and Other Borrowings

Details of the bank loans and other borrowings of the Group are set out in note 36 to the financial statements prepared under IFRSs.

Interest Capitalisation

For the year ended 31 December 2021, interest expense of RMB701 million (2020: RMB363 million) was capitalised as the cost of construction in progress and property, plant and equipment in the financial statements prepared under IFRSs.

Property, Plant and Equipment

Property, plant and equipment of the Group and movements of property, plant and equipment during the year ended 31 December 2021 are set out in note 19 to the financial statements prepared under IFRSs.

 

53


Major Customers and Suppliers

The Group’s aggregate revenue from the top five customers did not exceed 30% of the Group’s total revenue in 2021. The sales to the top five customers was RMB4,148 million in total, representing 4.08% of the total sales in 2021, of which no sales were made to related parties.

The Group’s purchases from the largest supplier was RMB7,630 million, representing 15.23% of the Group’s total purchases in 2021. The purchases from the top five suppliers was RMB19,435 million in total, representing 38.78% of the total purchases in 2021, of which purchases from related parties was RMB4,598 million, representing 9.18% of the total purchases in 2021. During the year, none of the directors, their closed associates or any shareholder of the Company (which, to the knowledge of the Directors, owns more than 5% of the total issued shares of the Company) had any interest in these top five suppliers.

Relationships with Customers and Suppliers

The Group understands that it is important to maintain good relationship with its suppliers and customers to fulfill its long-term goals and maintain the leading position in the market.

The Group fulfilled sincere service concept and systematically improved the whole process service experience of passengers. We have innovated the service mode and improved the service experience of delayed passengers in terms of sales, service and information acquisition. We have implemented the requirement of “affinity and refinement”, and introduced two-cabin “family service 360” products. We promoted the baggage tracking program in an all-round way and became the first airline in Asia obtaining IATA baggage tracking compliance certification. We implemented the upgrade of “China Southern e-Travel”, and the paperless self-service during the whole process to bring more convenient travel experience to passengers. During the reporting period, we continued to promote the construction of customer touch point and scenes, enriched and improved the QR Code on the plane, WIFI in the airport, digital lounge, digital cabin and other products and services, so as to lay a good foundation for the ecosystem scene construction in the future.

The Group continued to explore how to improve its supplier management mechanisms. Since 2018, the Group issued and continuously revised the Measures for Supplier Management to promote classification and hierarchical management of supplier, gradually established and improved the supplier assessment system, revised Supplier Evaluation Workflow, Supplier Information Verification Implementation Measures and other documents, and encouraged suppliers to actively assume social responsibility by continuously standardizing its cooperation with suppliers. Meanwhile, we communicated with suppliers regularly, took the advice and suggestion of suppliers to better improve its work.

During the reporting period, there had been no material or significant dispute between the Group and its suppliers and/or customers.

 

54


For the year ended 31 December 2021, the Group had following major customers and suppliers:

 

    

Unit: RMB million

 

Name of customers

   Operating
revenue
     Percentage as
total operating
revenue (%)
 

Customer 1

     1,097        1.08

Customer 2

     902        0.89

Customer 3

     853        0.84

Customer 4

     693        0.68

Customer 5

     602        0.59
  

 

 

    

 

 

 

Total

     4,148        4.08
  

 

 

    

 

 

 

 

     Unit: RMB million  

Name of suppliers

   Purchase      Percentage as
total purchase
(%)
 

China National Aviation Fuel Group

     7,630        15.23

South China Blue Sky Aviation Fuel Co., Ltd

     5,691        11.35

MTU Maintenance Zhuhai Co., Ltd.

     2,474        4.94

Guangzhou Aircraft Maintenance Engineering Co., Ltd.

     2,124        4.24

China Aviation Fuel (Beijing) Airport Aviation Oil Co., Ltd

     1,516        3.02
  

 

 

    

 

 

 

Total

     19,435        38.78
  

 

 

    

 

 

 

Based on the nature of the Group’s business, the Group has not relied on major suppliers or customers. For details of the customer services of the Group, please refer to the analysis on market and service under “Management Discussion and Analysis” section in this annual report.

Taxation

Details of taxation of the Group are set out in notes 16 and 29 to the financial statements prepared under IFRSs.

Enterprise Income Tax of Overseas Non-Resident Enterprises

In accordance with the relevant tax laws and regulations in the PRC, the Company is obliged to withhold and pay PRC enterprise income tax on behalf of non-resident enterprise shareholders at a tax rate of 10% when the Company distributes any dividends to non-resident enterprise shareholders. As such, any H Shares of the Company which are not registered in the name(s) of individual(s) (which, for this purpose, includes shares registered in the name of HKSCC Nominees Limited, other nominees, trustees, or other organisations or groups) shall be deemed to be H Shares held by non-resident enterprise shareholder(s), and the PRC enterprise income tax shall be withheld from any dividends payable thereon. Non-resident enterprise shareholders may wish to apply for a tax refund (if any) in accordance with the relevant requirements, such as tax agreements (arrangements), upon receipt of any dividends.

 

55


Individual Income Tax of Overseas Individual Shareholders

In accordance with the relevant tax laws and regulations in the PRC, when non-foreign investment companies of the mainland which are listed in Hong Kong distribute dividends to their shareholders, the individual shareholders in general will be subject to a withholding tax rate of 10% without making any application for the entitlement for the above-mentioned tax rate. However, the Company is a foreign investment company and, as confirmed by the relevant tax authorities, according to the Circular on Certain Issues Concerning the Policies of Individual Income Tax (Cai Shui Zi [1994] No. 020) (《關於個人所得稅若干政策問題的通知》 (財稅字[1994]020)) promulgated by the Ministry of Finance and the State Administration of Taxation on 13 May 1994, overseas individuals are, as an interim measure, exempted from the PRC individual income tax for dividends or bonuses received from foreign investment enterprises.

Investors of Northbound Trading

For investors of the Stock Exchange (including enterprises and individuals) investing in the A shares of the Company listed on the SSE (the “Northbound Trading”), the Company will withhold and pay income taxes at the rate of 10% on behalf of those investors and will report to the tax authorities for the withholding. For investors of Northbound Trading who are tax residents of other countries and whose country of domicile is a country which has entered into a tax treaty with the PRC stipulating a dividend tax rate of lower than 10%, those enterprises and individuals may, or may entrust a withholding agent to, apply to the competent tax authorities of the Company for the entitlement of the rate under such tax treaty. Upon approval by the tax authorities, the paid amount in excess of the tax payable based on the tax rate according to such tax treaty will be refunded.

Investors of Southbound Trading

Pursuant to the relevant requirements under the “Notice on the Tax Policies Related to the Pilot Program of the Shanghai Hong Kong Stock Connect (Cai Shui [2014] No. 81)” (《關於滬港股票市場交易互聯互通機制試點有關稅收政策的通知 (財稅[2014]81)), for dividends received by domestic individual investors from investing in H shares listed on the Hong Kong Stock Exchange through Shanghai-Hong Kong Stock Connect, the company of such H shares shall withhold and pay individual income tax at the rate of 20% on behalf of the investors. For dividends received by domestic securities investment funds from investing in shares listed on the Hong Kong Stock Exchange through Shanghai-Hong Kong Stock Connect, the tax payable shall be the same as that for individual investors. The company of such H shares will not withhold and pay the income tax of dividends for domestic enterprise investors and those domestic enterprise investors shall report and pay the relevant tax themselves.

Reserves

Movements in the reserves of the Group during the year are set out in the consolidated statement of changes in equity in the financial statements prepared under IFRSs.

Subsidiaries

Details of the major subsidiaries of the Company are set out in note 23 to the financial statements prepared under IFRSs.

 

56


Purchase, Sale and Redemption of Shares

Neither the Company nor any of its subsidiaries purchased, sold or redeemed any shares during the year ended 31 December 2021.

Pre-emptive Rights

There is no specific provision under the PRC laws or the articles of association of the Company regarding pre-emptive rights, which requires the Company to offer new shares to existing shareholders in proportion to their existing shareholdings when there is issuance of shares.

Permitted Indemnity Provision

The Company did not have any arrangement with a term providing for indemnity against liability incurred by the Directors or the Supervisors during their tenure.

The Company has purchased insurance to protect Directors and senior management against legal actions arising from corporate activities.

Audit and Risk Management Committee

The Audit and Risk Management Committee of the Company has reviewed and confirmed the audited financial statements of the Group for the year ended 31 December 2021.

Compliance with Laws and Regulations

Laws and regulations that have a significant impact on the operations of the Group include: Civil Aviation Law of the People’s Republic of China, Opinions of the State Council on Promoting the Development of the Civil Aviation Industry, Regulation on the Civil Airport Administration, Regulation of the People’s Republic of China on Civil Aviation Security, Provisions on the Administration of Flight Procedures and Minimum Operation Standards for Civil Airports, Provisions of the CAAC on the Administration of the Transport of Dangerous Goods by Air, Provisions of China’s Civil Aviation Business Permits for Domestic Routes and Provisions on the Business License for Public Air Transport Enterprises.

For the year ended 31 December 2021, the Company strictly followed the laws and regulations mentioned above to ensure safe operation of the Company, and to secure its slots execution rate and flight punctuality rate to reach the standard. The Company applied new routes and slots according to laws and returned back in a timely manner any unused traffic rights. No punishment was imposed on the Group by any regulatory authorities which caused material impact on the operation of the Group.

For the year ended 31 December 2021, the Group had complied with laws and regulations that had material effect on the operation of the Group.

 

57


Management Contracts

For the year ended 31 December 2021, no contracts concerning the management or administration of the whole or any substantial part of business of the Company were entered into or existed.

Contract of Significance

Save as disclosed in the section headed “Connected Transactions” below, during the year ended 31 December 2021, none of the Company or any of its subsidiaries entered into any contract of significance with the controlling shareholder or any of its subsidiaries other than the Group, and there was no contract of significance for the provision of services between the Group and its controlling shareholder or any of its subsidiaries other than the Group.

Directors and Supervisors’ Interests in Transaction, Arrangement or Contract of Significance

Save as disclosed in the section headed “Connected Transactions” below, none of the Directors, Supervisors or entities connected with the Directors or Supervisors had a material interest, either directly or indirectly, in any transaction, arrangement or contract of significance to the business of the Group subsisting at any time during the year ended 31 December 2021 or at the end of the year to which the Company, its holding company, or any of its subsidiaries was a party.

Directors and Supervisors’ Rights to Acquire Shares or Debentures

During the year ended 31 December 2021, neither the Company nor any of its subsidiaries was a party to any arrangement that would enable the Directors or Supervisors to acquire benefits through acquiring shares or debentures of the Company or any other body corporate, and none of the Directors or Supervisors or any of their spouses or children under the age of 18 were granted any right to subscribe for the equity or debt securities of the Company or any other body corporate or had exercised any such right.

Directors and Supervisors’ Interest in Competing Business

As at 31 December 2021, none of the Directors, Supervisors or any of their respective associates had engaged in or had any interest in any business which competes or is likely to compete, either directly or indirectly, with the business of the Group.

Sufficiency of Public Float

According to the information publicly available to the Company, and within the knowledge of the Directors as at the latest practicable date prior to the publication of this annual report, the Company had maintained sufficient public float as required by the Listing Rules throughout the year ended 31 December 2021.

 

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Connected Transactions

The Company entered into certain connected transactions with CSAH (the controlling shareholder of the Company) and other connected persons from time to time. Details of the connected transactions of the Company conducted in 2021 which are required to be disclosed herein under the Listing Rules, are as follows:

 

(1)

De-merger Agreement

The De-merger Agreement dated 25 March 1995 (such agreement was amended by the Amendment Agreement No.1 dated 22 May 1997) was entered into between CSAH and the Company for the purpose of defining and allocating the assets and liabilities between CSAH and the Company. Under the De-merger Agreement, CSAH and the Company have agreed to indemnify the other party against claims, liabilities and expenses incurred by such other party relating to the businesses, assets and liabilities held or assumed by CSAH or the Company pursuant to the De-merger Agreement.

Neither the Company nor CSAH has made any payments in respect of such indemnification obligations from the date of the De-merger Agreement up to the date of this annual report.

 

(2)

Continuing Connected Transactions between the Group and CSAH (and its Subsidiaries)

 

A.

SACM, which is 60% owned by CSAH

(1) The Company entered into a new Media Services Framework Agreement (“Media Services Framework Agreement”) on 27 December 2018 with SACM to renew the media services provided by SACM to the Group under the original media services framework agreement entered into by the Company and SACM with a term of three years on 30 December 2015, for an additional term of three years, commencing from 1 January 2019 to 31 December 2021.

Pursuant to the Media Services Framework Agreement, the Company has appointed SACM to provide exclusive advertising agency services, the plotting, purchase and production of in-flight TV and movie program agency services, channel publicity and production services, public relations services relating to recruitment of air-hostess, services relating to the distribution of newspapers and magazines and printing, production and procurement services in relation to media such as thermal boarding passes. The service fee for the media services to be provided to members of the Group by SACM and its subsidiaries are determined based on, among others, the prevailing market price. Pricing are based on prevailing market price and agreed upon between the parties for each transaction on arm’s length negotiations in accordance with the following pricing mechanism: (a) if there are prevailing market prices for same or similar types of services in the same or similar locations of the services being provided, the pricing of the services shall be no less favourable than the terms obtained from independent third parties and such prevailing market price evaluated; or (b) if there are no such prevailing market price in the same or similar locations, the service to be provided by SACM Group shall be on terms which are no less favourable than the terms which can be obtained by the Group from independent third parties within the PRC market. The Company will satisfy the service fee by its internal resources.

In view of the increase in demand for services to be provided by SACM to the Group under the Media Services Framework Agreement, the Company and SACM entered into a supplemental agreement on 29 November 2019 to revise the annual cap for the Media Services Framework Agreement for the year ended 31 December 2019 from RMB150 million (excluding tax) to RMB200.9 million (excluding tax). Pursuant to the Media Services Framework Agreement and supplemental agreement, the annual caps for each of the financial years ended 31 December 2019, 2020 and 2021 are RMB200.9 million, RMB170 million and RMB190 million (excluding tax), respectively.

 

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For the year ended 31 December 2021, the transaction amount of the Group for media services was RMB131 million.

(2) As the Media Services Framework Agreement is about to expire and the transactions contemplated hereunder will continue, the Company entered into the new Media Services Framework Agreement on 28 December 2021 with SACM (the “New Media Services Framework Agreement”), to renew the media services provided by SACM to the Group under the Media Services Framework Agreement for a further term of three years from 1 January 2022 to 31 December 2024.

Pursuant to the New Media Services Framework Agreement, SACM Group agrees to continue to provide the Group with (i) agency services for collecting, editing and distribution for the Group’s internal publicity media and platforms; (ii) exclusive advertising agency services for the Company and advertising agency services for the Company’s wholly-owned or controlled subsidiaries; (iii) agency services for the planning, procurement and production of entertainment content in the application software of the Group’s in-flight entertainment system; (iv) supply services for CSA Mall; (v) recruitment public relations services; (vi) newspaper placement services; and (vii) other media services. The service fees for media services provided by the SACM and its subsidiaries to members of the Group are determined by reference to market prices after arms-length negotiations between the parties. The market prices are determined in the following order: (a) the prices then charged by independent third parties providing similar services under normal trading conditions in or in the vicinity of the place where such services are provided; or (b) the prices then charged by independent third parties providing similar services under normal trading conditions within the PRC. The Company will assign staff to check prices and terms offered by independent third parties for similar products or services (usually through online price comparison tools).

Pursuant to the New Media Services Framework Agreement and supplemental agreement, the annual caps for each of the financial years ending 31 December 2022, 2023 and 2024 are RMB240 million, RMB261 million and RMB282 million (excluding tax), respectively. For details, please refer to the announcement of the Company dated 28 December 2021 in relation to the New Media Services Framework Agreement.

 

B.

Finance Company, which is 51.416% owned by CSAH

On 27 August 2019, the Company entered into a New Financial Services Framework Agreement (the “Financial Services Framework Agreement”) with Finance Company, in order to renew the financial services provided by Finance Company to the Group under original financial services framework agreement entered into by the Company and Finance Company on 29 August 2016 for a term of three years. The term of the agreement is three years, starting from 1 January 2020 to 31 December 2022.

Under the Financial Services Framework Agreement, financial services provided by the Finance Company to the Group including deposit services (“Deposit Services”), loan services (“Loan Services”) and other financial services (“other financial services”). Both parties agreed that: (1) the Finance Company shall accept deposit of money from the Group at interest rates not lower than interest rate set by the PBOC for the same term of deposit. The Finance Company will in turn deposit the whole of such sums of money deposited by the Group with it with state-owned commercial banks and listed commercial banks to control the risks; (2) The Finance Company shall make loans or provide credit line services to the Group and the entering into of separate loan agreements upon application by the Company during the term of the Financial Services Framework Agreement, and the Finance Company shall not charge interest rates higher than the interest rate set by the PBOC for the similar term of loans. The total amount of outstanding loans extended by the Finance Company to the CSAH Group (excluding the Group) must not exceed the sum of the Finance Company’s shareholders’ equity, capital reserves and money deposit received from other parties (except the Group); (3) Upon request by the Company, the Finance Company shall also provide other financial services to the Group, including financial and financing consultation, credit certification and other relevant advice and agency services, insurance agency services, and other businesses which are approved by China Banking and Insurance Regulatory Commission to be operated by the Finance Company by entering into separate agreements. If the Company is approved to issue bond, the Finance Company can accept engagement by the Company to provide bond issuance or underwriting services, subject to the entering into separate agreements. The fees charged by the Finance Company for the provision of other financial services shall be fixed according to the rate of fees chargeable prescribed by the regulatory institutions such as the PBOC or the China Banking and Insurance Regulatory Commission.

 

60


Pursuant to the Financial Services Framework Agreement, each of the maximum daily balance of deposits (including the corresponding interests accrued thereon) placed by the Group as well as the maximum amount of the outstanding loans provided by the Finance Company to the Group (including the corresponding interests payable accrued thereon) for each of the three years ending 31 December 2020, 2021 and 2022 shall not exceed the Deposit Services Cap which is set at RMB13.0 billion, RMB14.5 billion and RMB16.0 billion, respectively, on any given day. The deposits placed by the Group with Finance Company were RMB12,621 million on 31 December 2021 and did not exceed RMB14.5 billion on any given day during the year ended 31 December 2021.

The provision of loan services by the Finance Company to the Group would constitute financial assistance by a connected person for the benefit of the Group, which are on normal commercial terms or better, and such loans are not secured by the assets of the Group, therefore the provision of the loan services by the Finance Company to the Group is exempt under rule 14A.90 of the Listing Rules from all reporting, annual review, announcement and shareholders’ approval requirements.

In respect of the other financial services to be provided by the Finance Company to the Group, the Company expects that the total fees payable by the Group to the Finance Company will not exceed RMB5.0 million for each of the three years ending 31 December 2022, which fall within the de minimis threshold set out in rule 14A.76 of the Listing Rules, therefore the provision of the other financial services by the Finance Company to the Group is also exempt from the reporting, annual review, announcement and shareholders’ approval requirements of the Listing Rules.

 

C.

CSAGPMC, a then wholly-owned subsidiary of CSAH

The Company has entered into the new Property Management Framework Agreement (the “Property Management Framework Agreement”) with CSAGPMC on 21 December 2020 for a term of three years from 1 January 2021 to 31 December 2023 to renew the property management transactions under the original property management framework agreement entered into by the Company and CSAGPMC on 19 December 2017 for a term of three years.

The property management and maintenance services to be provided by CSAGPMC under the Property Management Framework Agreement include (i) ensuring that the Company’s facilities in the production area, office area and living area of the old Baiyun Airport area, the China Southern Airlines building, the new Baiyun Airport and their surroundings are kept in an ideal condition and that the equipment in those areas are in normal operation; (ii) managing and carrying out maintenance in the old Baiyun Airport area, the China Southern Airlines building and their surrounding properties; (iii) managing and carrying out maintenance in the properties rented by the Company in the China Southern Airlines base and the terminal building of the new Baiyun Airport; (iv) managing and carrying out maintenance in the 110KV electrical substation in the new Baiyun Airport; (v) managing the operation of and carrying out maintenance in the high and low voltage transformer and distribution equipment in the Guangzhou freight station; and (vi) providing the water and electricity charge agency services.

 

61


The management and maintenance services fee shall be determined at an arm’s length basis between both parties and determined by multiplying the building area of each relevant property by the comprehensive property management unit fee of the applicable type of property as agreed by the parties. The comprehensive property management unit fees of the various types of properties shall be determined by the Company and CSAGPMC (i) with reference to the special circumstances in relation to the usage by the Company of such properties; (ii) according to the building areas of the various types of properties of the Company; and (iii) in combination with the comprehensive base service fees of the same types of properties in the market and other adjustment factors. The management and maintenance services fee charged should not be higher than the one charged by any independent third parties in the similar industries.

The annual cap for management and maintenance services fee payable pursuant to the Property Management Framework Agreement is set at RMB167 million for each of the three years ending 31 December 2021, 2022 and 2023, respectively. For the year ended 31 December 2021, the property management and maintenance services fee incurred by the Group amounted to RMB154 million pursuant to the Property Management Framework Agreement.

On 15 February 2022, CSAH completed the disposal of 95% interest in CSAGPMC to China Merchants Property Operation & Service Co., Ltd., an independent third party to the Company. Subsequent to the disposal, CSAH only holds 5% of the interest in CSAGPMC and CSAGPMC will no longer be a connected person to the Company. As such, the transactions contemplated under the Property Management Framework Agreement ceased to be a continuing connected transaction of the Company following the disposal.

 

D.

SACC, which is 50.1% owned by CSAH

(1) The Company entered into a new Catering Services Framework Agreement (the “Catering Services Framework Agreement”) on 27 December 2018 with SACC to renew the catering services provided by SACC to the Group under the original catering services framework agreement renewed by the Company with SACC for a term of three years on 30 December 2015 and extend for a term of three years, commencing from 1 January 2019 to 31 December 2021.

Pursuant to the Catering Services Framework Agreement, the service fee for catering services transaction mainly include four parts, i.e. in-flight meal boxes fees, service fee, in-flight supply service fee and storage management fees. The in-flight meal boxes fees are the main charging item, the determination of which is in accordance with raw material costs, labor costs, management fees, tax and fixed profit rate in the corresponding proportions of 35%, 35%, 10%, 10% and 10%, respectively. Other charges will be determined based on applicable items such as rental, labor costs, facilities depreciation costs and management fees. For the labor costs, it will be determined by reference to the average wage of the previous year issued by the Shenzhen Municipal Government. The various service fee charged by SACC should not be higher than the fees charged by any independent third parties in the similar locations providing similar services. The Company will fund the services fee wholly by its internal resources.

The annual caps for each of the three financial years ended 31 December 2019, 2020 and 2021 are RMB231 million, RMB266 million and RMB306 million, respectively.

For the year ended 31 December 2021, the service fee paid by the Group to SACC was RMB84 million.

 

62


(2) As the Catering Services Framework Agreement is about to expire and the transactions contemplated hereunder are expected to continue, the Company entered into the new Catering Services Framework Agreement (the “New Catering Services Framework Agreement”) on 28 December 2021 with SACC to renew the catering services provided by SACC to the Group under the Catering Services Framework Agreement for a term of three years, commencing from 1 January 2022 to 31 December 2024.

The service fees for the continuing connected transactions contemplated under the New Catering Services Framework Agreement mainly comprise four parts, i.e. meal fees, service fees, in-flight supply service fees and storage management fees. The meal fees, being the main part, are determined with reference to raw material costs, labor costs, management fees, tax and reasonable profit rate in the corresponding proportions of 38%, 38%, 12% and 12%, respectively. The reasonable profit rate will be determined based on the recovery of business from the pandemic and the industry environment. Other parts of the service fees are determined based on, where applicable, rental costs, labor costs, facilities depreciation costs and management fees. The labor costs will be determined with reference to the average wage of the preceding year published by the Shenzhen Municipal Government. The relevant departments of the Company will set upper price limit for meals according to the local price level and the consumer price index in Shenzhen, and with reference to the catering standards of similar routes and the catering prices of similar routes of other airlines. The final meal fees shall not exceed the upper price limit set by the Company.

Pursuant to the New Catering Services Framework Agreement, the annual caps for each of the three financial years ending 31 December 2022, 2023 and 2024 are RMB200 million, RMB230 million and RMB265 million, respectively. For details, please refer to the announcement of the Company dated 28 December 2021 in relation to the New Catering Services Framework Agreement.

 

(3)

Trademark License Agreement

The Company and CSAH entered into a ten year trademark license agreement dated 22 May 1997. Pursuant to which CSAH acknowledges that the Company has the right to use the name “南方航空 (China Southern)” and “中國南方航空 (China Southern Airlines)” in both Chinese and English, and grants the Company a renewable and royalty free license to use the kapok logo on a worldwide basis in connection with the Company’s airlines and airlines-related businesses. Unless CSAH gives a written notice of termination three months before the expiration of the agreement, the agreement will be automatically renewed for another ten-year term. In May 2017, the trademark license agreement entered into by the Company and CSAH was automatically renewed for ten years.

 

(4)

Leases

The Group (as lessee) and CSAH or its associates (as lessor) entered into lease agreements as follows:

 

A.

The Company and CSAH entered into an indemnification agreement dated 22 May 1997 in which CSAH had agreed to indemnify the Company against any loss or damage caused by or arising from any challenge of, or interference with, the Company’s right to use certain lands and buildings.

 

B.

The Company and CSAH entered into the new Asset Lease Framework Agreement (the “Asset Lease Framework Agreement”) on 21 December 2020 to continue (i) the asset lease transactions contemplated under the original Asset Lease Framework Agreement entered into by the Company and CSAH as at 26 January 2018 for a term of three years; and (ii) the asset lease transactions contemplated under the CSA Building Asset Lease Agreement entered into by the Company and Guangzhou Southern Airlines Construction Company Limited (a wholly-owned subsidiary of CSAH) as at 19 January 2018 for a lease term commencing from 1 January 2021 to 31 December 2023.

 

63


Pursuant to the Asset Lease Framework Agreement, CSAH agreed to (i) lease certain properties, parking lots and equipment assets such as machinery equipment, transportation equipment and electronic equipment located in various cities such as Nanyang, Wuhan, Changsha, Beijing, Urumqi, Guangzhou and Zhanjiang held by CSAH or its subsidiaries to the Company for the purposes of civil aviation and related businesses of the Company; and (ii) lease certain lands located in Nanyang, Wuhan, Guangzhou and Zhanjiang by leasing the land use rights of such lands to the Company for the purposes of civil aviation and related businesses of the Company.

The annual aggregate amount of rent payable by the Company to CSAH under the Asset Lease Framework Agreement for each of the three years ending 31 December 2021, 2022 and 2023 is RMB346.2905 million, which was determined with reference to the Rental Assessment Results. For the year ended 31 December 2021, the rent incurred by the Group amounted to RMB323 million pursuant to the Asset Lease Framework Agreement.

According to IFRS 16 – “Leases”, the Group, as the lessee, shall recognise a lease as a right-of-use asset and a lease liability in the consolidated statement of financial position of the Group. As such, the proposed lease transactions contemplated under the New Asset Lease Framework Agreement should be regarded as an acquisition of asset under the definition of transaction set out in rule 14.04 (1)(a) of the Listing Rules. The aggregate value of the right-of-use asset recognised under the proposed lease transactions contemplated under the New Asset Lease Framework Agreement is RMB934,921,570.17.

 

C.

On 30 December 2019, the Company entered into a new Property and Land Lease Framework Agreement (the “Property and Land Lease Framework Agreement”) with CSAH to renew the property and land lease transactions under the original Property and Land Lease Framework Agreement entered into by the Company and CSAH with a term of three years on 16 December 2016 for a term commencing from 1 January 2020 to 31 December 2022. Pursuant to the Property and Land Lease Framework Agreement, CSAH agreed to (i) lease certain properties, facilities and other infrastructure located in various cities such as Beijing, Shenyang, Chaoyang, Dalian, Changchun, Harbin, Jilin, Urumqi and overseas locations held by CSAH or its subsidiaries to the Company for office use related to the civil aviation business development; and (ii) lease certain lands located in Shenyang, Chaoyang, Dalian, Changchun, Harbin and Urumqi by leasing the land use rights of such lands to the Company for the purposes of civil aviation and related businesses of the Company. The annual rental is determined after arm’s length negotiation between the parties, based on the fair market rental of the relevant properties, facilities, infrastructure and lands. In addition, CSAH agreed that the annual rental shall not be higher than the prevailing market rental for properties, facilities, infrastructure and lands located at similar locations. The annual aggregate amount of rent payable by the Company to CSAH under the Property and Land Lease Framework Agreement for each of the three years ending 31 December 2020, 2021 and 2022 is RMB96.78 million, which was determined with reference to the Rental Assessment Results. For the year ended 31 December 2021, the rent incurred by the Group amounted to RMB83 million pursuant to the Property and Land Lease Framework Agreement.

According to IFRS 16 – “Leases”, the Group, as the lessee, shall recognise a lease as a right-of-use asset and a lease liability in the consolidated statement of financial position of the Group. As such, the lease transactions under the Property and Land Lease Framework Agreement should be regarded as an acquisition of asset under the definition of transaction set out in rule 14.04 (1)(a) of the Listing Rules. The aggregate value of the right-of-use asset recognised under the lease transactions under the Property and Land Lease Framework Agreement is RMB259,335,413.67.

 

64


D.

On 27 April 2017, the Company entered into a finance lease agreement in relation to one Airbus A321 aircraft (the “A321 Finance Lease Agreement”) and a finance lease agreement in relation to one Airbus A330-300 aircraft (the “A330 Finance Lease Agreement”, together with the A321 Finance Lease Agreement, the “Relevant Finance Lease Agreements”) with Guangzhou Nansha CSA Tianru Leasing Co., Ltd. (“CSA Leasing Company”), an associate of CSAH, respectively, pursuant to which CSA Leasing Company agreed to provide finance leasing to the Company in relation to one Airbus A321 aircraft and one Airbus A330-300 aircraft, respectively, in accordance with the terms and conditions of Relevant Finance Lease Agreements.

Under the A321 Finance Lease Agreement, (1) the lease term is 12 years, commencing on the Delivery Date of relevant aircraft, (2) principal amount is not more than 100% of the consideration for the purchase of relevant aircraft, (3) the applicable interest rate will be 21.6% float down of the interest rate for RMB loan for above 5 years set by the People’s Bank of China and the rental fee is the repayment of the principal amount and the interest under such Finance Lease. The total amount of rental fees payable to CSA Leasing Company is not expected to be more than US$80 million (which is equivalent to approximately RMB552 million), (4) the handling fee for the relevant aircraft shall be paid to CSA Leasing Company in one lump sum prior to the Delivery Date, which is estimated to be of no more than US$293,150 (which is equivalent to approximately RMB2,022,735), and (5) upon the expiry of the lease term, the Company is entitled to purchase such aircraft back from CSA Leasing Company at RMB10,000.

Under the A330 Finance Lease Agreement, (1) the lease term is 12 years, commencing on the Delivery Date of relevant aircraft, (2) principal amount is not more than 100% of the consideration for the purchase of relevant aircraft, (3) the applicable interest rate will be 21.6% below the interest rate for RMB loan for above 5 years set by the People’s Bank of China and the rental fee is the repayment of the principal amount and the interest under such Finance Lease. The total amount of rental fees payable to CSA Leasing Company is not expected to be more than US$170 million (which is equivalent to approximately RMB1,173 million), (4) the respective handling fee for the relevant aircraft shall be paid to CSA Leasing Company in one lump sum prior to the Delivery Date, which is estimated to be of no more than US$634,700 (which is equivalent to approximately RMB4,379,430), and (5) upon the expiry of the lease term, the Company is entitled to purchase such aircraft back from CSA Leasing Company at RMB10,000.

The total rental fee and handling fee for the Aircraft Finance Leases shall not exceed US$250.93 million (which is equivalent to approximately RMB1,731.42 million).

For the year ended 31 December 2021, the rental fee and handling fee paid by the Company to CSA Leasing Company under the A321 Finance Lease Agreement and A330 Finance Lease Agreement were RMB1,260 million and RMB3 million, respectively. Up to 31 December 2021, the Company paid the total rental fee and handling fee to CSA Leasing Company under the A321 Finance Lease Agreement and A330 Finance Lease Agreement to the extent of RMB4,846 million.

 

E.

On 10 October 2019, the Company entered into the 2020-2022 Finance and Lease Service Framework Agreement with CSA International Finance Leasing Co., Ltd. (“CSA International”), an associate of CSAH to renew the transactions under the 2018-2019 Finance and Lease Service Framework Agreement entered into on 17 October 2017 by the Company and CSA International, for an additional term of three years from 1 January 2020 to 31 December 2022.

 

65


CSA International agreed to continue to provide finance leasing service to the Company in relation to the Leased Aircraft, Leased Aircraft Related Assets and Leased Aviation Related Equipment, as well as the operating lease service to the Company in relation to certain aircraft, helicopters and engines, as and when the Company considers desirable, in the interests of the Company and the Shareholders as a whole in accordance with the terms and conditions of the 2020-2022 Finance and Lease Service Framework Agreement and the relevant implementation agreements contemplated thereunder.

 

  (1)

Subject matter under the Finance Lease Transactions under the 2020-2022 Finance and Lease Service Framework Agreement contains the Leased Aircraft, Leased Aircraft Related Assets and Leased Aviation Related Equipment (comprises part of the aircraft, Aircraft Related Assets and Aviation Related Equipment in the Company’s introduction plan (“introduction plan”) from 1 January 2020 to 31 December 2022, subject to adjustment from time to time). According to the introduction plan, the number of the leased Aircraft will be no more than 50, 51 and 41 for the years ending 31 December 2020, 31 December 2021 and 31 December 2022, respectively (subject to adjustment from time to time). Under the Finance Lease Transactions, the aggregate principal amount shall not more than 100% of the consideration for the purchase of the subject matter (including the aircraft, the Aircraft Related Assets and the Aviation Related Equipment), the applicable interest rate will be further determined and agreed by the Company and CSA International with reference to the results of the Company’s requests for proposals or other bidding processes in respect of financing of the aircraft, Aircraft Related Assets and Aviation Related Equipment satisfying certain prerequisites. The rental fee is the repayment of the principal amount for the subject matter and the interest under the Finance Lease Transactions.

The lease period of the subject matter under the 2020-2022 Finance and Lease Service Framework Agreement will be agreed upon entering into the individual Finance Lease Agreements. Based on previous similar transactions, the lease period of the Leased Aircraft under the separate Finance Lease Agreement(s) would be 10-12 years. Based on the common practice of the aviation industry, the lease period of the Leased Aircraft Related Assets would be 12 years. The respective handling fee for each of (i) the Leased Aircraft and Leased Aircraft Related Assets which is not more than 1% of the principal amount for each of the Leased Aircraft and Leased Aircraft Related Assets; and (ii) the Leased Aviation Related Equipment which is not more than 1.5% of the principal amount for each of the Leased Aviation Related Equipment shall be paid by the Company to CSA International prior to the commencement of the respective Delivery Date or on the agreed date after the respective Delivery Date. Upon the payment of the last instalment of rental fee by the Company to CSA International for each of the relevant Leased Aircraft, Leased Aircraft Related Assets and Leased Aviation Related Equipment, the Company is entitled to purchase the relevant Leased Aircraft, Leased Aircraft Related Assets and Leased Aviation Related Equipment back from CSA International at a nominal purchase price for such subject matter.

Based on the assumption that (i) the maximum aggregate transaction amount (including the principal, interest and handling fee) of the aircraft (excluding helicopters) finance lease transactions shall not exceed 60% of the aggregate amount (including the principal, interest and handling fee) of all the aircraft planned to be introduced under the Company’s introduction plan from 2020 to 2022; (ii) the maximum aggregate transaction amount of the finance lease of the Aircraft Related Assets shall not exceed total amount of the Aircraft Related Assets to be introduced under the Company’s introduction plan from 2020 to 2022; and (iii) the maximum aggregate transaction amount of the finance lease of the Aviation Related Equipment shall not exceed total amount of the Aviation Related Equipment to be introduced under the Company’s introduction plan from 2020 to 2022, the proposed total rental fee (including principal and interest) and handling fee under the Finance Lease Transactions are US$5,140 million (or the equivalent amount in RMB), US$5,039 million (or the equivalent amount in RMB) and US$4,434 million (or the equivalent amount in RMB) for the three years ending 31 December 2020, 31 December 2021 and 31 December 2022. Pursuant to IFRS 16, the Finance Lease Transactions by the Company (including the wholly-owned or controlled subsidiaries of the Company or their wholly-owned or controlled subsidiaries) as lessee under the 2020-2022 Finance and Lease Service Framework Agreement will be recognised as right-of-use assets, the proposed caps for the Finance Lease for the years ending 31 December 2020, 2021 and 2022 under the 2020-2022 Finance and Lease Service Framework Agreement are US$3,922 million (or the equivalent amount in RMB), US$3,833 million (or the equivalent amount in RMB) and US$3,385 million (or the equivalent amount in RMB), respectively.

 

66


The total rental fee (including principal and interest) and handling fee for finance lease transaction under the 2020-2022 Finance and Lease Service Framework Agreement was RMB2,311 million for the year ended 31 December 2021. The calculated right-of-use assets by discounting the above mentioned total rental fee (including principal and interest) and the handling fee was RMB1,869 million.

 

  (2)

Subject matter under the Operating Lease Transactions under the 2020-2022 Finance and Lease Service Framework Agreement contains the aircraft, helicopters and engines in the Company’s introduction plan through operating lease from 1 January 2020 to 31 December 2022. The rental fee will be further determined and agreed by the Company and CSA International with reference to the results of the Company’s requests for proposals or other bidding processes in respect of leasing of aircraft, helicopters and engines satisfying certain prerequisites.

During the lease period, CSA International has ownership of the aircraft, helicopters and engines and the Company has the rights to use the aircraft, helicopters and engines. Upon the expiry of the lease period, the Company should return the aircraft, helicopters and engines to CSA International.

Based on the assumption that (i) the maximum aggregate transaction amount (including the principal, interest payable and handling fee) of operating lease transactions of the aircraft and helicopters shall not exceed 50% of the aggregate amount of all aircraft planned to be introduced under the introduction plan; and (ii) the maximum aggregate transaction amount of the operating lease of the engines shall not exceed total amount of the engines planned to be introduced under the introduction plan, the proposed maximum annual rental fee under the Operating Lease Transactions are US$135 million (or the equivalent amount in RMB), US$255 million (or the equivalent amount in RMB) and US$368 million (or the equivalent amount in RMB) for the three years ending 31 December 2020, 31 December 2021 and 31 December 2022, respectively, and proposed maximum total rental fee under the Operating Lease Transactions are US$1,385 million (or the equivalent amount in RMB), US$1,213 million (or the equivalent amount in RMB) and US$1,201 million (or the equivalent amount in RMB) for the three years ending 31 December 2020, 31 December 2021 and 31 December 2022, respectively. Pursuant to IFRS 16, the Operating Lease Transactions by the Company as lessee under the 2020-2022 Finance and Lease Service Framework Agreement will be recognised as right-of-use assets, the proposed caps for the Operating Lease for the years ending 31 December 2020, 2021 and 2022 under the 2020-2022 Finance and Lease Service Framework Agreement are US$1,116 million (or the equivalent amount in RMB), US$961 million (or the equivalent amount in RMB) and US$949 million (or the equivalent amount in RMB), respectively.

 

67


The Company has paid the rental fees (namely actual amount of rental fees payable to CSA Leasing by the Company every year, including twelve-month rental fees for current aircraft, helicopters and engines as well as newly added aircraft, helicopters and engines during the year) of RMB150 million based on the Operating Lease Transactions under the 2020-2022 Finance and Lease Service Framework Agreement for the year ended 31 December 2021. The total amount of rental fees of newly added aircraft, helicopters and engines (leases from CSA Leasing by the way of operating lease by the Company every year with lease term ranging from two to twelve years) and the calculated right-of-use assets by discounting the above mentioned total rental fee during the year ended 31 December 2021 were nil.

 

(5)

Share Issuance in 2020

On 27 December 2019, the Company’s 2019 second extraordinary general meeting, the 2019 first class meeting for holders of A shares, and the 2019 first class meeting for holders of H shares considered and approved the resolution to issue to CSAH not more than 2,453,434,457 A shares (including 2,453,434,457 A shares) (“A Share Issuance”) and to enter into the A shares subscription agreement with CSAH and the resolution to issue not more than 613,358,614 H shares (including 613,358,614 H shares) to Nan Lung (a wholly-owned subsidiary of CSAH) (“H Share Issuance”) and to enter into the H shares subscription agreement with Nan Lung. The proceeds from the A Share Issuance was utilised in the procurement of aircraft and the repayment of the Company’s borrowings, and the proceeds from the H Share Issuance was utilised to supplement the general working capital of the Company. For details of the A Share Issuance and the H Share Issuance, please refer to the Announcement of the Connected Transaction in respect of the Non-public Issuance of A Shares and Non-public Issuance of H Shares of the Company published on China Securities Journal, Shanghai Securities News and Securities Times and the website of the SSE on 31 October 2019 and the announcement on Connected Transactions in respect of Proposed Share Issuance of the Company published on the website of the Stock Exchange and the Company on 30 October 2019.

On 15 April 2020, the Company issued 608,695,652 H shares in total to Nan Lung at the issue price of HK$5.75 per H share pursuant to the subscription agreement dated 30 October 2019 entered into between the Company and Nan Lung. The net price of each new H share issued under the H Share Issuance was HK$5.74 per H share. The use of proceeds utilized was consistent with the intended use of proceeds as previously disclosed.

Gross proceeds and the use of proceeds from H Shares Issuance:

 

Gross proceeds from

H Shares Issuance

(HKD)                         

  

Intended use of the proceeds as

previously disclosed

   Utilised proceeds as
of 31 December
2021 (denominated
in RMB)
     Unutilised proceeds
as of 31 December
2021 (denominated
in RMB)
    

Expected timeline

for the use of

unutilised proceeds

3,499,999,999

  

Supplement of general working capital

     3,499,999,999        0      Not applicable

 

Note:

The total amounts of funds raised from 2020 Non-public Issuance of H shares were HKD3,499,999,999, equivalent to RMB3,178,664,999.09 based on the middle exchange rate of 1:0.90819 of HKD dollar against RMB on 15 April 2020. After deducting the issuance expenses of RMB3,570,544.56, the net proceeds raised was RMB3,175,094,454.53.

On 18 June 2020, the Company issued 2,453,434,457 A Shares in total to CSAH at the issue price of RMB5.21 per A Share pursuant to the subscription agreement dated 30 October 2019 entered into between the Company and CSAH. The net price of each new A Share issued under the A Share Issuance was RMB5.21 per A Share. For details, please refer to the announcement of the Company published on the website of the Stock Exchange on 18 June 2020. The use of proceeds utilized was consistent with the intended use of proceeds as previously disclosed.

 

68


Gross proceeds and the use of proceeds from A Shares Issuance:

 

Gross proceeds from

the A Share Issuance

(RMB)                         

  

Intended use of the proceeds as

previously disclosed

   Utilised proceeds as
of 31 December
2021 (RMB)
     Unutilised proceeds
as of 31 December
2021 (RMB)
    

Expected timeline

for the use of

unutilised proceeds

12,782,393,520.97

  

Procurement of aircraft

     7,195,237,293.60        2,080,848,019.82      On or before 30 June 2022
  

Repayment of the Company’s borrowings

     3,500,000,000.00        0      Not applicable

 

Note:

The total amounts of funds raised from 2020 Non-public Issuance of A Shares was RMB12,782,393,520.97. After deducting the underwriting expenses of RMB2,000,000.00 (including VAT), the net cash subscription amount actually received was RMB12,780,393,520.97. After deducting other issuance expenses of RMB4,308,207.55 (including VAT) paid by the Company from the net cash subscription amounts, the actual net proceeds raised was RMB12,776,085,313.42.

 

(6)

A Share Convertible Bonds Issuance

On 14 May 2020, the thirteenth meeting of the eighth session of the Board of the Company considered and approved, among others, the relevant resolutions on the issuance plan of the convertible corporate bonds in the total amount of not more than RMB16 billion (including RMB16 billion) which are convertible into new A shares and proposed to be issued by the Company within the PRC (the “A Share Convertible Bonds”) and the possible subscription for the A Share Convertible Bonds by CSAH.

On 15 October 2020, the Company has completed the public issuance of 160 million A Share Convertible Bonds in the total amount of RMB16 billion with a nominal value of RMB100 each and the initial conversion price of RMB6.24 per share, out of which CSAH subscribed for 101,027,580 A Share Convertible Bonds.

Pursuant to the approval by the Self-discipline Supervision Decision [2020] No. 355 issued by the SSE, the A Share Convertible Bonds were listed on the SSE on 3 November 2020 with the bond abbreviation of “Nanhang Convertible Bonds (南航轉債)” and the bond code of 110075. The closing price of each bond on that day was RMB117.

On 21 April 2021, the conversion of the A Share Convertible Bonds was commenced, with the conversion price being RMB6.24 per share and the conversion period being from 21 April 2021 to 14 October 2026.

On 18 June 2021, CSAH converted all the A Share Convertible Bonds held by it, with a nominal value of RMB10,102,758,000, into A shares of the Company, with the number of shares converted being 1,619,031,728 shares. Upon completion of the conversion, CSAH does not hold any A Share Convertible Bonds. Immediately following the completion of the conversion, CSAH and its concert parties held in aggregate 10,880,881,085 RMB ordinary shares and overseas-listed foreign shares of the Company, representing 64.20% of the total shares in issue of the Company.

The use of proceeds utilized was consistent with the intended use of proceeds as previously disclosed.

 

69


Gross proceeds and the use of proceeds from A Share Convertible Bonds:

 

Gross proceeds from

the A Shares issuance

(RMB)                         

  

Intended use of the proceeds as

previously disclosed

   Utilised proceeds as
of 31 December
2021 (RMB)
     Unutilised proceeds
as of 31 December
2021 (RMB)
    

Expected timeline

for the use of

unutilised proceeds

16,000,000,000.00

  

Purchasing aircraft and aviation equipment and maintenance projects

     4,904,844,932.90        5,674,758,986.82      On or before 31 December 2022
  

Introduction of spare engines

     589,584,801.07        10,415,198.93      On or before 31 December 2022
  

Supplementing working capital

     4,800,000,000.00        0      Not applicable

 

Note:

The total amounts of funds raised from 2020 Public Issuance of A Share Convertible Bonds were RMB16,000,000,000.00. After deducting the underwriting expenses of RMB17,691,726.00 (including VAT), the net cash subscription amount actually received was RMB15,982,308,274.00. After deducting other issuance expenses of RMB2,704,354.28 (including VAT) paid by the Company from the net cash subscription amounts, the actual net proceeds raised was RMB15,979,603,919.72.

As of 31 December 2021, the A Share Convertible Bonds with a nominal value of RMB5,896,593,000 were outstanding. If the outstanding A Share Convertible Bonds were fully converted during the reporting period based on the conversion price of RMB6.24 per share, the Company would have issued approximately 944,966,826 A shares and the total issued shares of the Company would have increased to approximately 17,893,404,854 shares, while the shares held by the controlling shareholder of the Company, CSAH, would have decreased to approximately 60.81% of the total issued shares of the Company. The A Share Convertible Bonds may be conditionally redeemed by the Company during the conversion period. It is expected that the full redemption of the outstanding A Share Convertible Bonds would not have material adverse impact on the financial and liquidity position of the Company. Please refer to note 18 and note 27 to the financial statements and the section headed “Related Information of Bonds – II. Corporate Convertible Bonds” for the dilution impact on loss per share may be brought by the full conversion of the outstanding A Share Convertible Bonds during the reporting period and other details of the A Share Convertible Bonds.

 

(7)

Proposed Share Issuance

On 29 October 2021, the Board resolved to put forward to the EGM to approve the A Shares Subscription Agreement (“A Shares Subscription Agreement”) and the connected transaction in relation to the proposed issuance of 803,571,428 new A Shares to CSAH (“A Share Issuance”) at the A Share Subscription Price, payable in cash. The total funds to be raised from the proposed A Share Issuance will be not more than RMB4,500 million (including RMB4,500 million), which will be utilised to supplement the general working capital of the Company. On the same day, the Board also resolved to put forward to the EGM to approve the H Shares Subscription Agreement (“H Shares Subscription Agreement”) and the connected transaction in relation to the issuance of not more than 855,028,969 new H Shares (including 855,028,969 H Shares) to Nan Lung (a wholly-owned subsidiary of CSAH) (“H Share Issuance”, together with “A Share Issuance” referred to as “Proposed Share Issuance”) at the H Share Subscription Price, payable in cash. The total funds to be raised from the proposed H Share Issuance will be not more than HK$1,800 million (including HK$1,800 million), which will be utilised to supplement the general working capital of the Company. The A Share Issuance and the H Share Issuance are not inter-conditional upon each other. The new A Shares and the new H Shares to be issued under the Proposed Share Issuance will be allotted and issued pursuant to the general mandate.

 

70


The A Share Subscription Price shall be the higher of (i) 90% of the average trading price of the A Shares as quoted on the Shanghai Stock Exchange in the 20 trading days immediately prior to the date of the announcement regarding the Board resolutions approving the A Share Issuance published on the website of the Shanghai Stock Exchange (i.e., 30 October 2021, the “Price Benchmark Date”), and (ii) the latest audited net asset value per Share attributable to equity shareholders of the Company (rounded up to the nearest two decimal places). The average trading price of the A Shares in the 20 trading days preceding the Price Benchmark Date equals to the total trading amount of A Shares traded in the 20 trading days preceding the Price Benchmark Date divided by the total volume of A Shares traded in the 20 trading days preceding the Price Benchmark Date. Where there are any ex-right or ex-dividend events, including distribution of dividend, bonus issue, rights issue, and transfer to share capital from capital reserve, during the period from the balance sheet date of the Company’s latest audited financial report to the date of issuance of such new A Shares, the abovementioned audited net asset value per Share attributable to equity shareholders of the Company will be adjusted accordingly. The average trading price of the A Shares in the 20 trading days preceding the Price Benchmark Date is RMB6.22 per Share. As at 31 December 2020, the audited net asset value per Share attributable to equity shareholders of the Company (ex-dividend) was RMB4.52. Based on the abovementioned pricing principles, the A Share Subscription Price is RMB5.60 per Share.

The H Share Subscription Price shall be the higher of (i) the average trading price of the H Shares as quoted on the Stock Exchange in the 20 Hong Kong trading days immediately prior to the date of the Board meeting approving the H Share Issuance (i.e., 29 October 2021, the “Board Meeting Date”), and (ii) the latest audited net asset value per Share attributable to equity shareholders of the Company in HK$ calculated based on the central parity rate announced by the People’s Bank of China on the Board Meeting Date for the new H Shares (HK$1=RMB0.82164) as at the issuance of the new H Shares (rounded up to the nearest two decimal places). The average trading price of the H Shares in the 20 Hong Kong trading days preceding the Board Meeting Date equals to the total trading amount of H Shares traded in the 20 Hong Kong trading days preceding the Board Meeting Date divided by the total volume of H Shares traded in the 20 Hong Kong trading days preceding the Board Meeting Date. Where there are any ex-right or ex-dividend events, including distribution of dividend, bonus issue, rights issue, and transfer to share capital from capital reserve, during the period from the balance sheet date of the Company’s latest audited financial report to the date of issuance of such new H Shares, the abovementioned audited net asset value per Share attributable to equity shareholders of the Company will be adjusted accordingly. The average trading price of the H Shares in the 20 Hong Kong trading days preceding the Board Meeting Date for the new H Shares is HK$4.68 per Share.

The proceeds from the Proposed Share Insurance, after deduction of expenses for issuance, will be utilised to supplement the general working capital, which will help enhance the capital strength and asset volume of the Company and alleviate the pressure brought by capital demand from the daily operation of the Company. At the same time, the availability of the raised funds will help consolidate the Company’s foundation of business development, strengthen the Company’s core competitiveness and profitability, promote the sustained and rapid growth of the Company’s principal business, and provide capital guarantee for the Company’s further expansion and growth, which has important strategic significance for the realization of the Company’s long-term sustainable development.

The A Shares Subscription Agreement shall take effect after the satisfaction of the following conditions:

 

(1)

the approval of the Board and the approval at the extraordinary general meeting of the A Share Issuance under the A Shares Subscription Agreement have been obtained;

 

(2)

the approval by the board of directors of CSAH or the regulatory authority stipulated in the articles of association of CSAH of the subscription of the new A Shares to be issued under the A Shares Subscription Agreement by CSAH has been obtained; and

 

(3)

all necessary licences, authorisations, permits, consents and other forms of approvals from the relevant approval authorities, including but not limited to the competent authorities supervising the state-owned assets and CSRC, for the A Share Issuance contemplated under the A Shares Subscription Agreement have been obtained.

 

71


The H Shares Subscription Agreement shall take effect after the satisfaction of the following conditions:

 

(1)

the approval of the Board and the approval of the shareholders of the Company at the extraordinary general meeting of the H Share Issuance under the H Share Subscription Agreement have been obtained;

 

(2)

the approvals by the respective boards of directors of Nan Lung and CSAH of the subscription of new H Shares to be issued under the H Share Subscription Agreement by Nan Lung have been obtained;

 

(3)

all necessary licences, authorisations, permits, consents and other forms of approvals from the relevant approval authorities, including but not limited to the competent authorities supervising state-owned assets, CSRC and the Stock Exchange, for the H Share Issuance contemplated under the H Shares Subscription Agreement have been obtained; and

 

(4)

the Listing Committee of the Stock Exchange granting approval for the listing of, and permission to deal in, the new H Shares to be issued.

On 28 December 2021, the aforesaid Proposed Share Issuance was considered and approved at the Company’s 2021 second extraordinary general meeting.

On 18 March 2022, the Company announced that it has received the approval issued by the CSRC to issue not more than 855,028,969 overseas listed foreign shares (H shares).

Annual Confirmations

The Company has confirmed that the execution and enforcement of the implementation agreements under the continuing connected transactions above for the year ended 31 December 2021 has followed the pricing principles of such continuing connected transactions.

The independent non-executive Directors of the Company have confirmed to the Board that they have reviewed all non-exempt continuing connected transactions and are of the view that:

 

(a)

those transactions were conducted in the ordinary and usual course of business of the Group;

 

(b)

those transactions were entered into on normal commercial terms or better; and

 

(c)

those transactions were conducted in accordance with the relevant agreement governing them on terms that were fair and reasonable and in the interests of the shareholders of the Company as a whole.

 

72


The Company’s auditor was engaged to report on the Group’s continuing connected transactions in accordance with Hong Kong Standard on Assurance Engagements 3000 (Revised) “Assurance Engagements Other Than Audits or Reviews of Historical Financial Information” and with reference to Practice Note 740 (Revised) “Auditor’s Letter on Continuing Connected Transactions under the Hong Kong Listing Rules” issued by the Hong Kong Institute of Certified Public Accountants. The auditor has issued their unmodified letter containing the auditor’s findings and conclusions in respect of the continuing connected transactions disclosed by the Group in the Annual Report in accordance with Rule 14A.56 of the Listing Rules. A copy of the auditor’s letter has been provided by the Company to the Stock Exchange. The Company’s auditor has indicated that:

 

(a)

nothing has come to their attention that causes them to believe that the disclosed continuing connected transactions have not been approved by the Company’s board of directors.

 

(b)

for transactions involving the provision of goods or services by the Group, nothing has come to their attention that causes them to believe that the disclosed continuing connected transactions were not, in all material respects, in accordance with the pricing policies of the Group.

 

(c)

nothing has come to their attention that causes them to believe that the disclosed continuing connected transactions were not entered into, in all material respects, in accordance with the relevant agreements governing such transactions.

 

(d)

with respect to the aggregate amount of each of the aforementioned continuing connected transactions, nothing has come to their attention that causes them to believe that the disclosed continuing connected transactions have exceeded the annual cap as set by the Company.

Save as disclosed above, none of the other related party transactions as disclosed in note 50 to the financial statements prepared under IFRSs constituted connected transactions or continuing connected transactions which are required to be disclosed in accordance with the Listing Rules. The Company has complied with the disclosure requirements of Chapter 14A of Listing Rules in respect of the connected transactions and continuing connected transactions.

Donations

For the year ended 31 December 2021, the Group made donations for charitable purposes with an amount of RMB17.28 million.

Designated Deposits and Overdue Time Deposits

As of 31 December 2021, the Group’s deposits placed with financial institutions or other parties did not include any designated deposits, or overdue time deposits for which the Group failed to receive repayments.

 

73


Material Litigation

As at 31 December 2021, the Group was not involved in any material litigation.

Subsequent Events

On 29 October 2021, the Company entered into the Conditional Subscription Agreement in relation to the Subscription of the A Shares under the Non-public Issue of A Shares of China Southern Airlines Company Limited with CSAH, and entered into the Conditional Subscription Agreement in relation to the Subscription of the H Shares under the Non-public Issue of H Shares of China Southern Airlines Company Limited with Nan Lung Holding Limited (“Nan Lung”). The Company proposed the non-public issuance of 803,571,428 A Shares to CSAH (“the A Share Issuance”). The total funds to be raised from the A Share Issuance will be not more than RMB4,500 million (including RMB4,500 million). The consideration shall be made by CSAH in full by cash. Meanwhile, the Company proposed the non-public issuance of not more than 855,028,969 H shares (including 855,028,969 H shares) to Nan Lung (“the H Share Issuance”). The total funds to be raised from the H Share Issuance will be not more than HKD1,800 million (including HK$1,800 million). The consideration shall be made by Nan Lung in full by cash. Both of the A Share Issuance and the connected transaction contemplated under H Share Issuance were approved by the Extraordinary General Meeting of the Company on 28 December 2021. The Company announced that it had received the “Acceptance Notice of the Application for Administration Permission” issued by China Securities Regulatory Commission (“CSRC”) for the A Share Issuance and H share Issuance on 10 January 2022 and 11 January 2022, respectively. On 18 March 2022, the Company announced that it had received the Approval on Issuance of Overseas Listed Foreign Shares by China Southern Airlines Company Limited (Zheng Jian Xu Ke [2022] No. 497) issued by the CSRC. As at the date of this report, the A Share Issuance is under review by the CSRC.

Auditors

A resolution is to be proposed at the forthcoming annual general meeting of the Company for the appointment of KPMG Huazhen LLP to provide professional services to the Company for its domestic financial reporting and internal control reporting, U.S. financial reporting and internal control reporting for the year 2022 and the appointment of KPMG to provide professional services to the Company for its Hong Kong financial reporting for the year 2022. There has been no change in the Company’s auditors in the past three years.

By order of the Board

Ma Xu Lun

Chairman

Guangzhou, the PRC

30 March 2022

 

74


CHANGES IN THE SHARE CAPITAL, SHAREHOLDERS’ PROFILE AND DISCLOSURE OF INTERESTS

 

I.

CHANGE IN SHARE CAPITAL

 

(I)

Changes in Shareholdings

 

1.

Changes in Shareholdings

Unit: Share

 

          31 December 2020            31 December 2021  
          Number of Shares      Percentage
(%)
     Increase/(decrease)
during the year 2021
Number of Shares
    Number of Shares      Percentage
(%)
 

I.

  

Shares subject to restrictions on sales

             

1.

  

RMB ordinary shares

     2,942,637,115        19.20        (489,202,658     2,453,434,457        14.48  

2.

  

Overseas listed foreign shares

     1,209,621,577        7.89        (1,209,621,577     0        0  
  

Total

     4,152,258,692        27.09        (1,698,824,235     2,453,434,457        14.48  

II.

  

Shares not subject to restrictions on sales

             

1.

  

RMB ordinary shares

     8,111,520,431        52.91        2,108,338,291       10,219,858,722        60.30  

2.

  

Overseas listed foreign shares

     3,065,523,272        20.00        1,209,621,577       4,275,144,849        25.22  
  

Total

     11,177,043,703        72.91        3,317,959,868       14,495,003,571        85.52  

III.

  

Total number of shares

     15,329,302,395        100        1,619,135,633       16,948,438,028        100  

 

2.

Description of Change in Shares

The Company publicly issued RMB16 billion Convertible Bonds with the bond abbreviation of “Nanhang Convertible Bonds (南航轉債)” on 15 October 2020. The Company’s controlling shareholder CSAH subscribed “Nanhang Convertible Bonds (南航轉債)” of RMB10,102,758,000. The conversion of the “Nanhang Convertible Bonds (南航轉債)” was commenced on 21 April 2021. On 18 June 2021, CSAH converted all the “Nanhang Convertible Bonds (南航轉債)” of RMB10,102,758,000 held by it into A shares of the Company through Shanghai Stock Exchange, and number of shares being converted was 1,619,031,728. As of the end of the reporting period, the total number of shares being converted by the holders of “Nanhang Convertible Bonds (南航轉債)” except CSAH was 103,905 shares.

During the reporting period, the number shares subject to restrictions on sales in the share capital of the Company reduced by 1,698,824,235, among which the 489,202,658 A shares non-publicly issued by the Company to CSAH on 26 September 2018 was lifted due to the expiry of the lock-up period.

In the above table, the 1,209,621,577 foreign listed shares of the Company subject to restrictions on sales as at 31 December 2020 included (i) 600,925,925 H shares (“2018 Subscription Shares”) owned by Nan Lung as a result of the subscription of the non-public issuance of H shares of the Company in 2018, while Nan Lung undertook that the 2018 Subscription Shares shall not be listed or traded on any stock exchange, or transferred within 36 months from the completion date of the issuance thereof (i.e. 11 September 2018) and such commitment period has expired during the year ended 31 December 2021; and (ii) 608,695,652 H shares (“2020 Subscription Shares”) owned by Nan Lung as a result of the subscription of the non-public issuance of H shares of the Company in 2020, while Nan Lung undertook that the 2020 Subscription Shares shall not be listed or traded on any stock exchange, or transferred within 36 months from the completion date of the issuance thereof (i.e. 15 April 2020). Considering that the 2018 Subscription Shares and the 2020 Subscription Shares are not subject to restrictions on sales in nature, the 2018 Subscription Shares and the 2020 Subscription Shares were reclassified as the Company’s foreign listed shares not subject to restrictions on sales during the year ended 31 December 2021.

 

75


3.

Other Information Considered to be Discloseable by the Company or Required to be Disclosed by the Securities Regulatory Authorities

On 29 October 2021, as approved by the third meeting of the 9th session of the Board of the Company, the Company non-publicly issued 803,571,428 A Shares to CSAH, with gross proceeds raised not more than RMB4,500 million (including RMB4,500 million), and non-publicly issued not more than 855,028,969 H Shares (including 855,028,969 H Shares) to Nan Lung, with gross proceeds raised not more than HK$1,800 million (including HK$1,800 million). For details, please refer to the announcement Connected Transactions in respect of Proposed Share Issuance and Proposed Amendments to the Articles of Association in relation to the Proposed Share Issuance disclosed by the Company on the website of the Stock Exchange on 29 October 2021.

As of the date of the report, the Company received feedback from the CSRC on the Company’s non-public issuance of A shares and made written reply and public disclosure to the feedback of the CSRC. For details, please refer to the relevant announcement disclosed on the China Securities Journal, Shanghai Securities News and Securities Times and the website of the SSE on 29 January 2022.

As of the date of the report, the Company received the Approval on Issuance of Overseas Listed Foreign Shares by China Southern Airlines Company Limited issue by the CSRC. For details, please refer to the relevant announcement disclosed on the Stock Exchange on 18 March 2022.

As of the date of the report, the aforesaid non-public issuance of A shares is still in the progress of review by the CSRC. The Company will continue to fulfill its disclosure obligations pursuant to relevant requirements.

 

(II)

Changes in Shares Subject to Trading Restrictions

Unit: Share

 

Name of shareholders (in full)

  Number of
shares subject
to lock-up at
the beginning
of the year
    Number of
shares
unlocked

during
the year
    Increase in
number of
shares

subject to
lock-up
during
the year
    Number of
shares subject
to lock-up at the
end of the year
    Reasons for lock-up     Date of
unlocking

China Southern Air Holding Company Limited

    489,202,658       489,202,658       0       0      


Non-public Issuance of
shares subject to
trading
restrictions
 
 
 
 
  27 September
2021

China Southern Air Holding Company Limited

    2,453,434,457       0       0       2,453,434,457      


Non-public Issuance of
shares subject to
trading
restrictions
 
 
 
 
  19 June 2023

Total

    2,942,637,115       489,202,658       0       2,453,434,457       /     /

 

76


II.

Issuance of Securities During the Reporting Period

Unit: RMB

 

Type of securities and derivatives

  Issuance date   Issuance price (or
interest rate)
    Amount issued     Listing date   Amount approved
for public trading
    Ending date of
transaction

Other derivatives

The second tranche of Ultra-short-term Financing Bills of the Company in 2021

  25 January
2021
  RMB   100 (2.50%)     RMB   2.0 billion     28 January
2021
  RMB   2.0 billion     25 March
2021

The third tranche of Ultra-short-term Financing Bills of the Company in 2021

  22 January
2021
  RMB   100 (2.50%)     RMB   3.5 billion     27 January
2021
  RMB   3.5 billion     25 March
2021

The fourth tranche of Ultra-short-term Financing Bills of the Company in 2021

  26 January
2021
  RMB   100 (2.53%)     RMB   2.0 billion     29 January
2021
  RMB   2.0 billion     27 April
2021

The fifth tranche of Ultra-short-term Financing Bills of the Company in 2021

  4 February
2021
  RMB   100 (2.50%)     RMB   2.0 billion     7 February
2021
  RMB   2.0 billion     2 April
2021

The sixth tranche of Ultra-short-term Financing Bills of the Company in 2021

  5 February
2021
  RMB   100 (2.45%)     RMB   3.0 billion     9 February
2021
  RMB   3.0 billion     8 April
2021

The seventh tranche of Ultra-short-term Financing Bills of the Company in 2021

  20 February
2021
  RMB   100 (2.48%)     RMB   1.5 billion     24 February
2021
  RMB   1.5 billion     20 April
2021

The eighth tranche of Ultra-short-term Financing Bills of the Company in 2021

  24 February
2021
  RMB   100 (2.40%)     RMB   3.0 billion     26 February
2021
  RMB   3.0 billion     30 March
2021

The ninth tranche of Ultra-short-term Financing Bills of the Company in 2021

  18 March
2021
  RMB   100 (2.53%)     RMB   3.0 billion     23 March
2021
  RMB   3.0 billion     20 May
2021

The tenth tranche of Ultra-short-term Financing Bills of the Company in 2021

  22 March
2021
  RMB   100 (2.53%)     RMB   3.0 billion     25 March
2021
  RMB   3.0 billion     25 May
2021

The eleventh tranche of Ultra-short-term Financing Bills of the Company in 2021

  26 March
2021
  RMB   100 (2.58%)     RMB   2.0 billion     30 March
2021
  RMB   2.0 billion     24 June
2021

The twelfth tranche of Ultra-short-term Financing Bills of the Company in 2021

  13 April
2021
  RMB   100 (2.41%)     RMB   5.0 billion     16 April
2021
  RMB   5.0 billion     10 June
2021

The thirteenth tranche of Ultra-short- term Financing Bills of the Company in 2021

  16 April
2021
  RMB   100 (2.48%)     RMB   2.0 billion     21 April
2021
  RMB   2.0 billion     15 July
2021

The fourteenth tranche of Ultra-short–term Financing Bills of the Company in 2021

  20 May
2021
  RMB   100 (2.22%)     RMB   3.0 billion     25 May
2021
  RMB   3.0 billion     22 July
2021

The fifteenth tranche of Ultra-short-term Financing Bills of the Company in 2021

  8 June 2021   RMB   100 (2.16%)     RMB   2.0 billion     10 June
2021
  RMB   2.0 billion     6 September
2021

The sixteenth tranche of Ultra-short- term Financing Bills of the Company in 2021

  25 June
2021
  RMB   100 (2.24%)     RMB   4.0 billion     29 June
2021
  RMB   4.0 billion     26 August
2021

The seventeenth tranche of Ultra-short-term Financing Bills of the Company in 2021

  25 June
2021
  RMB   100 (2.20%)     RMB   1.2 billion     29 June
2021
  RMB   1.2 billion     27 July
2021

The eighteenth tranche of Ultra-short–term Financing Bills of the Company in 2021

  12 July
2021
  RMB   100 (2.22%)     RMB   4.2 billion     15 July
2021
  RMB   4.2 billion     9 September
2021

The nineteenth tranche of Ultra-short–term Financing Bills of the Company in 2021

  20 August
2021
  RMB   100 (2.23%)     RMB   3.0 billion     24 August
2021
  RMB   3.0 billion     17 February
2022

The twentieth tranche of Ultra-short- term Financing Bills of the Company in 2021

  20 August
2021
  RMB   100 (2.07%)     RMB   3.0 billion     24 August
2021
  RMB   3.0 billion     21 October
2021

The twenty-first tranche of Ultra-short-term Financing Bills of the Company in 2021

  20 August
2021
  RMB   100 (2.07%)     RMB   2.0 billion     24 August
2021
  RMB   2.0 billion     21 October
2021

The twenty-second tranche of Ultra–short-term Financing Bills of the Company in 2021

  25 August
2021
  RMB   100 (2.03%)     RMB   2.0 billion     27 August
2021
  RMB   2.0 billion     25 October
2021

 

77


Type of securities and derivatives

  Issuance date   Issuance price (or
interest rate)
    Amount issued     Listing date   Amount approved
for public trading
    Ending date of
transaction

The twenty-third tranche of Ultra-short-term Financing Bills of the Company in 2021

  27 August
2021
  RMB   100 (2.10%)     RMB   1.5 billion     31 August
2021
  RMB   1.5 billion     25 November
2021

The twenty-fourth tranche of Ultra-short-term Financing Bills of the Company in 2021

  7 September
2021
  RMB   100 (2.25%)     RMB   2.0 billion     9 September
2021
  RMB   2.0 billion     6 December
2021

The twenty-fifth tranche of Ultra-short-term Financing Bills of the Company in 2021

  7 September
2021
  RMB   100 (2.42%)     RMB   3.0 billion     9 September
2021
  RMB   3.0 billion     5 January
2022

The twenty-sixth tranche of Ultra-short-term Financing Bills of the Company in 2021

  8 September
2021
  RMB   100 (2.17%)     RMB   1.0 billion     10 September
2021
  RMB   1.0 billion     7 December
2021

The twenty-seventh tranche of Ultra-short-term Financing Bills of the Company in 2021

  24 September
2021
  RMB   100 (2.55%)     RMB   2.0 billion     27 September
2021
  RMB   2.0 billion     24 March
2022

The twenty-eighth tranche of Ultra- short-term Financing Bills of the Company in 2021

  19 October
2021
  RMB   100 (2.10%)     RMB   3.0 billion     21 October
2021
  RMB   3.0 billion     17 January
2022

The twenty-ninth tranche of Ultra- short-term Financing Bills of the Company in 2021

  19 October
2021
  RMB   100 (2.25%)     RMB   1.5 billion     21 October
2021
  RMB   1.5 billion     17 March
2022

The thirtieth tranche of Ultra- short-term Financing Bills of the Company in 2021

  21 October
2021
  RMB   100 (2.70%)     RMB   4.0 billion     25 October
2021
  RMB   4.0 billion     18 July 2022

The thirty-first tranche of Ultra- short-term Financing Bills of the Company in 2021

  22 November
2021
  RMB   100 (2.49%)     RMB   1.5 billion     24 November
2021
  RMB   1.5 billion     21 April
2022

The thirty-second tranche of Ultra- short-term Financing Bills of the Company in 2021

  27 December
2021
  RMB   100 (2.17%)     RMB   2.0 billion     29 December
2021
  RMB   2.0 billion     24 March
2022

The thirty-third tranche of Ultra- short-term Financing Bills of the Company in 2021

  27 December
2021
  RMB   100 (2.19%)     RMB   1.0 billion     29 December
2021
  RMB   1.0 billion     26 April
2022

The thirty-fourth tranche of Ultra- short-term Financing Bills of the Company in 2021

  24 December
2021
  RMB   100 (2.30%)     RMB   2.6 billion     29 December
2021
  RMB   2.6 billion     26 April
2022

The first tranche of Medium-term Notes of the Company in 2021

  19 July 2021   RMB   100 (3.17%)     RMB   1.0 billion     22 July 2021   RMB   1.0 billion     19 July 2024

The second tranche of Medium-term Notes of the Company in 2021

  26 September
2021
  RMB   100 (3.09%)     RMB   3.0 billion     29 September
2021
  RMB   3.0 billion     27 September
2024

The third tranche of Medium-term Notes of the Company in 2021

  18 November
2021
  RMB   100 (3.20%)     RMB   3.5 billion     23 November
2021
  RMB   3.5 billion     21 November
2024

The fourth tranche of Medium-term Notes of the Company in 2021

  27 December
2021
  RMB   100 (2.90%)     RMB   1.5 billion     29 December
2021
  RMB   1.5 billion     27 December
2024

The first tranche of Ultra-short-term Financing Bills of Xiamen Airlines in 2021

  24 September
2021
  RMB   100 (2.42%)     RMB   0.5 billion     28 September
2021
  RMB   0.5 billion     23 February
2022

The second tranche of Ultra-short-term Financing Bills of Xiamen Airlines in 2021

  27 September
2021
  RMB   100 (2.50%)     RMB   0.5 billion     29 September
2021
  RMB   0.5 billion     24 March
2022

 

78


III.

Particulars of Shareholders and De Facto Controller

 

(I)

Total Number of Shareholders

As at the end of the reporting period, total number of ordinary shareholders of the Company was 154,765. As at 28 February 2022, total number of ordinary shareholders of the Company was 138,452.

 

(II)

Particulars of Shareholdings

 

1.

Particulars of the top ten shareholders

Unit: Share

 

Particulars of the top ten shareholders

Name of the shareholders (in full)

   Increase/
(decrease) during
the reporting period
    Total number of
shares held at
the end of
reporting period
     Shareholding
percentage
(%)
     Number of
shares subject to
trading
restrictions
     Status of pledged, marked
or frozen shares
     Capacity of shareholders
   Status of shares      Number  

China Southern Air Holding Company Limited

     1,619,031,728       8,600,897,508        50.75        2,453,434,457        Nil        0      Stated-owned legal
entity

Nan Lung Holding Limited

     0       2,243,271,577        13.24        0        Nil        0      Stated-owned legal
entity

HKSCC Nominees Limited

     (101,000     1,750,361,857        10.33        0        Unknown        /      Overseas legal entity

Hong Kong Securities Clearing Company Limited

     27,164,384       655,125,781        3.87        0        Nil        0      Overseas legal entity

China National Aviation Fuel Group Corporation

     (60,263,319     422,695,951        2.49        0        Nil        0      Stated-owned legal
entity

China Securities Finance Corporation Limited

     (8     320,484,148        1.89        0        Nil        0      Stated-owned legal
entity

American Airlines, Inc.

     0       270,606,272        1.60        0        Nil        0      Overseas legal entity

China Structural Reform Fund Co., Ltd.

     (46,882,483     194,019,933        1.14        0        Nil        0      Stated-owned legal
entity

Spring Airlines Co., Ltd.

     0       140,531,561        0.83        0        Nil        0      Domestic non-stated-
owned legal entity

Guo Xin Central Enterprise Operation Investment Fund Management (Guangzhou) Co., Ltd. – Guo Xin Central Enterprise Operation (Guangzhou) Investment Fund (LLP)

     0       70,006,275        0.41        0        Nil        0      Domestic non-stated-
owned legal entity

 

79


2.

Particulars of the top ten shareholders not subject to trading restrictions

Unit: Share

 

Particulars of the top ten shareholders not subject to trading restrictions  

Name of Shareholders

   Number of tradable
shares not subject to
trading restrictions
     Type and number of shares  
  

Type of shares

   Number  

China Southern Air Holding Company Limited

     6,147,463,051      RMB ordinary shares      6,147,463,051  

Nan Lung Holding Limited

     2,243,271,577      Overseas listed foreign shares      2,243,271,577  

HKSCC Nominees Limited

     1,750,361,857      Overseas listed foreign shares      1,750,361,857  

Hong Kong Securities Clearing Company Limited

     655,125,781      RMB ordinary shares      655,125,781  

China National Aviation Fuel Group Corporation

     422,695,951      RMB ordinary shares      422,695,951  

China Securities Finance Corporation Limited

     320,484,148      RMB ordinary shares      320,484,148  

American Airlines, Inc.

     270,606,272      Overseas listed foreign shares      270,606,272  

China Structural Reform Fund Co., Ltd.

     194,019,933      RMB ordinary shares      194,019,933  

Spring Airlines Co., Ltd.

     140,531,561      RMB ordinary shares      140,531,561  

Guo Xin Central Enterprise Operation Investment Fund Management (Guangzhou) Co., Ltd. – Guo Xin Central Enterprise Operation (Guangzhou) Investment Fund (LLP)

     70,006,275      RMB ordinary shares      70,006,275  

Explanation of the related party relationship or concert party relationship of the above shareholders

    



CSAH held aggregate 2,279,983,577 H shares of the Company
through its wholly-owned subsidiaries in Hong Kong, namely Nan
Lung and Perfect Lines (Hong Kong) Limited. The Company is not
aware of any other related party relationship between other
shareholders.
 
 
 
 
 

 

3.

Particulars of the top ten shareholders subject to trading restrictions and the conditions of trading restrictions

Unit: Share

 

No.

  

Name of the shareholders

   Number of
shares held
subject to
trading
restrictions
   Listing status of shares which are subject to trading restrictions
   Eligible listing time    Number of new
listed shares
  

Conditions for trading
restrictions

1

  

China Southern Air Holding Company Limited

   2,453,434,457    19 June 2023    2,453,434,457   

Non-public Issuance of shares subject to trading restrictions

Explanation of the related party relationship or concert party relationship of the above shareholders

   CSAH held aggregate 2,279,983,577 H shares of the Company through its wholly-owned subsidiaries in Hong Kong, namely Nan Lung and Perfect Lines (Hong Kong) Limited.

 

4.

Strategic investors or general legal entities becoming one of the top ten shareholders of the Company as a result of placing of new shares

Nil.

 

80


IV.

The Controlling Shareholders or De Facto Controllers

The chart below indicates the ownership and controlling relationship between the Company and de facto controllers:

 

LOGO

 

81


V.

Disclosure of Interests

As at 31 December 2021, to the best knowledge of the Directors, chief executive and Supervisors of the Company, the following persons (other than the Directors, chief executive or Supervisors of the Company) had interests or short positions in the shares (the “Shares”) or underlying shares of the Company which are required to be recorded in the register of the Company required to be kept under section 336 of the SFO:

 

Name of shareholders

 

Capacity

 

Types of
Shares

  Number of
Shares held
    % of the
total issued
A Shares
(Note 5)
    % of the
total issued
H Shares
(Note 5)
    % of the
total issued
share
capital of
the
Company
(Note 5)
 

CSAH (note 1)

 

Beneficial owner

  A shares    

9,404,468,936 (L)

(note 1)

 

 

    74.21     /       55.49
 

Interest of controlled corporations

  H shares    

3,135,012,546 (L)

(note 2)

 

 

    /       73.33     18.50
    Subtotal     12,539,481,482 (L)       /       /       73.99

Nan Lung (note 1)

 

Beneficial owner

  H shares    

3,135,012,546 (L)

(note 3)

 

 

    /       73.33     18.50

American Airlines Group Inc. (note 4)

 

Interest of controlled corporations

  H shares     270,606,272 (L)       /       6.33     1.60

Notes:

 

1.

As at 31 December 2021, CSAH was directly interested in 9,404,468,936 A Shares of the Company, which included 803,571,428 A Shares subscribed under the A Shares Subscription Agreement. As at 31 December 2021 and up to the latest practicable date, those A Shares have not been issued.

2.

As at 31 December 2021, CSAH was indirectly interested in 3,135,012,546 H Shares of the Company through its controlled corporations Nan Lung and Perfect Lines (Hong Kong) Limited, a wholly-owned subsidiary of Nan Lung, which included 855,028,969 H Shares subscribed under the H Shares Subscription Agreement by Nan Lung. As at 31 December 2021 and up to the latest practicable date, those H Shares have not been issued.

3.

As at 31 December 2021, Nan Lung was interested in 3,135,012,546 H Shares of the Company, which included the indirect interests in the 31,150,000 H Shares held through Perfect Lines (Hong Kong) Limited, its wholly-owned subsidiary, and the direct interests in the 3,103,862,546 H Shares (which included not more than 855,028,969 H Shares subscribed under the H Shares Subscription Agreement. As at 31 December 2021 and up to the latest practicable date, those H Shares have not been issued).

4.

American Airlines Group Inc. was deemed to be interested in 270,606,272 H Shares by virtue of its 100% control over American Airlines.

5.

The percentage was calculated according to the relevant total issued A Shares of 12,673,293,179 A Shares, total issued H Shares of 4,275,144,849 H Shares and the total issued Shares of 16,948,438,028 Shares of the Company as at 31 December 2021.

Save as disclosed above, as at 31 December 2021, so far as was known to the Directors, chief executive and Supervisors of the Company, no other person (other than the Directors, chief executive or Supervisors of the Company) had an interest or a short position in the shares or underlying shares of the Company recorded in the register of the Company required to be kept under section 336 of the SFO.

 

82


DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES

 

I.

Directors, Supervisors, Senior Management

 

(I)

Changes in the Number of Shares held by Directors, Supervisors and Senior Management and their Remuneration

During the reporting period, the Directors, Supervisors and senior management of the Company were as follows:

Unit: Share

 

Name

 

Position (note)

 

Gender

  Age    

Appointment

date for the

term of office

  Expiry date
for the term
of office
  Number of
shares held as
at the
beginning of
the year
    Number of
shares held as
at the end of
the year
    Increase or
decrease of
shares during
the year
    The total
remuneration
before tax
received from
the Company
during the
reporting
period
(RMB0’000)
    Had received
remuneration
from related
party of the
Company

Ma Xu Lun

 

Chairman

  Male     57     21 December 2020   up to date     0       0       0       0     Yes
 

Executive Director

      8 May 2019   up to date          
 

President

      18 March 2019   22 June 2021          

Han Wen Sheng

 

Executive Director

  Male     55     8 May 2019   up to date     0       0       0       0     Yes
 

Vice Chairman

      22 June 2021   up to date          
 

President

      22 June 2021   up to date          

Liu Chang Le

 

Independent Director

  Male     70     30 April 2021   up to date     0       0       0       13.33     No

Gu Hui Zhong

 

Independent Director

  Male     65     20 December 2017   up to date     0       0       0       15.33     No

Guo Wei

 

Independent Director

  Male     59     30 April 2021   up to date     0       0       0       13.33     No

Yan Andrew Y

 

Independent Director

  Male     64     30 April 2021   up to date     0       0       0       13.33     No

* Zheng Fan

 

Independent Director

  Male     66     20 December 2017   30 April
2021
    0       0       0       2     No

* Tan Jin Song

 

Independent Director

  Male     57     26 December 2013   30 April
2021
    0       0       0       5     No

* Jiao Shu Ge

 

Independent Director

  Male     56     30 June 2015   30 April
2021
    0       0       0       5     No

Ren Ji Dong

 

Chairman of Supervisory Committee

  Male     57     28 December 2021   up to date     0       0       0       79.81     Yes
 

Supervisor

      28 December 2021   up to date          
 

Executive Vice President

      7 May 2009   29 October
2021
         

Lin Xiao Chun

 

Supervisor

  Male     50     8 May 2019   up to date     0       0       0       80.19     No

Yang Bin

 

Supervisor

  Male     53     24 November 2021   up to date     0       0       0       31.93     No

* Li Jia Shi

 

Chairman of Supervisory Committee

  Male     60     8 May 2019   28 December
2021
    0       0       0       0     Yes
 

Supervisor

      30 June 2009   28 December
2021
         

* Mao Juan

 

Supervisor

  Female     49     20 December 2017   24 November
2021
    0       0       0       61.23     No

Zhang Zheng Rong

 

Executive Vice President

  Male     59     10 August 2018   up to date     0       0       0       0     Yes

Luo Lai Jun

 

Executive Vice President

  Male     50     18 March 2019   up to date     0       0       0       0     Yes

Wu Ying Xiang

 

Executive Vice President

  Female     48     29 June 2020   up to date     0       0       0       0     Yes

 

83


Name

 

Position (note)

 

Gender

  Age    

Appointment

date for the

term of office

  Expiry date
for the
term

of office
  Number of
shares held as
at the
beginning of
the year
    Number of
shares held as
at the end of
the year
    Increase or
decrease of
shares during
the year
    The total
remuneration
before tax
received from
the Company
during the
reporting
period
(RMB0’000)
    Had received
remuneration
from related
party of the
Company

Yao Yong

 

Executive Vice President

  Male     52     20 April 2021   up to date     0       0       0       0     Yes
 

Chief Accountant

                 
 

Chief Financial Officer

                 

Cheng Yong

 

Executive Vice President

  Male     59     21 August 2018   up to date     0       0       0       181.76     No

Wang Zhi Xue

 

Executive Vice President

  Male     61     3 August 2012   up to date     0       0       0       0     No

Su Liang

 

Chief Economist

  Male     59     27 December 2007   up to date     0       0       0       93.10     No

Chen Wei Hua

 

Chief Legal Adviser

  Male     55     16 June 2004   up to date     0       0       0       92.40     No

Li Shao Bin

 

Chief Training Officer

  Male     57     21 June 2019   up to date     0       0       0       89.26     No

Xie Bing

 

Secretary to the Board

  Male     48     26 November 2007   up to date     0       0       0       91.72     No

Feng Hua Nan

 

COO Flight Safety

  Male     59     15 August 2014   up to date     0       0       0       171.61     No

Luo Ming Hao

 

Chief Pilot

  Male     59     28 March 2018   up to date     0       0       0       168.34     No

Zhu Hai Long

 

Chief Operation Officer

  Male     58     30 December 2020   up to date     0       0       0       168.49     No

Wu Rong Xin

 

Chief Engineer

  Male     50     7 January 2022   up to date     0       0       0       0     No

Li Tong Bin

 

Chief Engineer

  Male     60     30 April 2014   7 January
2022
    0       0       0       110.89     No
 

Executive Vice President

     

14 September 2015

  7 January
2022
         
 

 

 

 

 

 

 

   

 

 

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

Total

  /   /     /     /   /     0       0       0       1,488.05     /
 

 

 

 

 

 

 

   

 

 

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

Notes:

 

1.

According to performance appraisal plans of the Company, partial remuneration of some Directors, Supervisors and senior management of the Company shall be delayed based on evaluation results, total remuneration set out above includes such delayed remuneration;

2.

The total remuneration shown in the table above include social insurance, common reserve fund and corporate pensions, among which part of the social insurance for the year 2020 enjoyed deductions in accordance with the government policies, and the upper limit of the social insurance and common reserve fund payment base in 2021 has been uniformly raised according to the governmental policies. Therefore, the total contribution amount of the social insurance and common reserve fund increased in 2021;

3.

Mr. Cheng Yong, Mr. Feng Hua Nan, Mr. Luo Ming Hao and Mr. Zhu Hai Long serve as pilots, so their remunerations are inclusive of crew allowance, and their flight time increased in 2021; Mr. Ren Ji Dong’s remuneration was paid by CSAH since November 2021, Mr. Yang Bin’s remuneration was paid as supervisor of the Company since November 2021, Ms. Mao Juan ceased to be supervisor of te Company since November 2021; Mr. Wu Rong Xin’s remuneration was paid as chief engineer of the Company since January 2022, and Mr. Li Tong Bin retired in January 2022;

4.

*represents personnel who have already resigned as at the end of the reporting period.

As at 31 December 2021, none of the Directors, Chief Executive or Supervisors of the Company had interests or short positions in the shares, underlying shares and/or debentures (as the case may be) of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to the SFO (including interests or short positions which are taken or deemed to have under such provisions of the SFO), or which were required to be recorded in the register maintained by the Company pursuant to Section 352 of the SFO, or which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code as set out in Appendix 10 to the Listing Rules.

 

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(II)

Changes in Directors, Supervisors and Senior Management of the Company

During the reporting period, changes in the Directors, supervisors and senior management of the Company were as follows:

 

Name

  

Position

   Change    Reason of change

Han Wen Sheng

  

President

   Appointed    Appointed by the Board

Han Wen Sheng

  

Vice Chairman

   Elected    Elected by the Board

Liu Chang Le

  

Independent Non-executive Director

   Elected    Elected by the general meeting

Guo Wei

  

Independent Non-executive Director

   Elected    Elected by the general meeting

Yan Andrew Y

  

Independent Non-executive Director

   Elected    Elected by the general meeting

Ren Ji Dong

  

Supervisor

   Elected    Elected by the general meeting

Ren Ji Dong

  

Chairman of Supervisory Committee

   Elected    Elected by the Supervisory
Committee

Yang Bin

  

Supervisor

   Elected    Elected by the employees’
representatives meeting

Yao Yong

  

Executive Vice President

   Appointed    Appointed by the Board

Yao Yong

  

Chief Accountant

   Appointed    Appointed by the Board

Yao Yong

  

Chief Financial Officer

   Appointed    Appointed by the Board

Wu Rong Xin

  

Chief Engineer

   Appointed    Appointed by the Board

Zheng Fan

  

Independent Non-executive Director

   Resigned    Election of new session of the
Board

Tan Jin Song

  

Independent Non-executive Director

   Resigned    Election of new session of the
Board

Jiao Shu Ge

  

Independent Non-executive Director

   Resigned    Election of new session of the
Board

Mao Juan

  

Supervisor

   Resigned    Job Changes

Li Jia Shi

  

Chairman of Supervisory Committee

   Resigned    Retired

Li Jia Shi

  

Supervisor

   Resigned    Retired

Ma Xu Lun

  

President

   Resigned    Job Changes

Ren Ji Dong

  

Executive Vice President

   Resigned    Job Changes

Li Tong Bin

  

Executive Vice President

   Resigned    Retired

Li Tong Bin

  

Chief Engineer

   Resigned    Retired

 

(III)

Changes of Information of Directors or Supervisors under Rule 13.51B(1) of the Listing Rules

Below are the information relating to the changes of Directors or Supervisors required to be disclosed pursuant to Rule 13.51B(1) of the Listing Rules since the date of 2021 interim report:

Mr. Yang Bin, the Supervisor of the Company, served as supervisor of Xiamen Airlines.

Save as disclosed above, there is no other information required to be disclosed pursuant to Rule 13.51B(1) of the Listing Rules.

 

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(IV)

Remuneration of Directors, Supervisors and Senior Management

The Directors, Supervisors and Senior Management of the Company received remuneration annually. Remuneration of Directors and Supervisors are adjusted and paid pursuant to Administrative Measures on Remuneration of Directors of China Southern Airlines Company Limited and Administrative Measures on Remuneration of Supervisors of China Southern Airlines Company Limited approved at the general meeting. Remuneration of Senior Management are adjusted and paid pursuant to Administrative Measures on Remuneration of Senior Management of China Southern Airlines Company Limited after approval of the Board.

During the reporting period, the total remuneration before tax received from the Company by Directors, Supervisors and senior management amounted to RMB14.8805 million (2020: RMB12.6234 million).

The emolument policy of the Directors and senior management of the Company are recommended by the Remuneration and Assessment Committee to the Board, having regard to the Group’s operating results, individual performance and comparable market statistics in accordance with the Administrative Measures on Remuneration of Directors and Administrative Measures on Remuneration of Senior Management of the Group.

Details of the remuneration of the Directors, Supervisors and senior management of the Group are set out in notes 50 and 59 to the financial statements prepared under IFRSs.

Details of other employees’ pension scheme and housing benefits are set out in notes 42 and 51 to the financial statements prepared under IFRSs.

 

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The remuneration of the senior management of the Company by bands for the year ended 31 December 2021 is set out below:

 

Remuneration Band    Number of Senior Management  

HK$                             

   2021      2020  

0-500,000

     6        7  

500,001-1,000,000

     5        4  

1,000,001-1,500,000

     1        2  

1,500,001-2,000,000

     4        3  
  

 

 

    

 

 

 

Total

     16        16  
  

 

 

    

 

 

 

 

(V)

Service Contracts of the Directors and Supervisors

None of the Directors or Supervisors has entered or proposed to enter into any service contracts with the Company or its subsidiaries which are not determinable by the Company or its subsidiaries within one year without payment of compensation, other than statutory compensation.

During the year ended 31 December 2021, none of the Directors or Supervisors has any material interests in any significant contract to which the Company or its subsidiaries was a party.

 

(VI)

Profiles of Current Directors, Supervisors and Senior Management

Directors

Ma Xu Lun, male, born in July 1964 (aged 57), graduated from the School of Mechanical Science & Engineering of Huazhong University of Science & Technology, majoring in industrial engineering. He has a master’s degree of engineering and is a certified public accountant and a member of the Chinese Communist Party. He started his career in August 1984. He has been the Vice President of China National Materials Storage and Transportation Corporation, the Deputy Director General of the Finance Department of the CAAC, the Vice President and Standing Member of Party Committee of Air China Corporation Limited. He was appointed as the Vice President of general affairs and the Deputy Party Secretary of Air China Corporation Limited in October 2002; and served as a director, the President and the Deputy Party Secretary of Air China Limited in September 2004. He served as a Party Member of China National Aviation Holding Company and a Director, the President and the Deputy Party Secretary of Air China Limited in December 2004, and the Vice President and a Party Member of China National Aviation Holding Company from February 2007. In December 2008, he was appointed as the Deputy Party Secretary of China Eastern Air Holding Company and the President and the Deputy Party Secretary of China Eastern Airlines Corporation Limited. He served as the Secretary to the Party Committee and the Vice President of China Eastern Air Holding Company and the President of China Eastern Airlines Corporation Limited in October 2011. In November 2016, he served as a Director, the President and the Deputy Party Secretary of China Eastern Air Holding Company, and the Vice Chairman, the President and the Deputy Party Secretary of China Eastern Airlines Corporation Limited in December 2016. In February 2019, he served as the Director, the President and the Deputy Party Secretary of CSAH. In March 2019, he acted as the President of the Company. In May 2019, he acted as the Vice Chairman of the Company. Since December 2020, he has served as the President and Party Secretary of CSAH and Chairman and President of the Company. Currently, he also acts as the vice chairman of China Chamber of International Commerce, member of China Council for the Promotion of International Trade and director of the board of International Air Transport Association.

 

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Han Wen Sheng, male, born in January 1967 (aged 55), graduated from the Management Department of Tianjin University, majoring in engineering management, with qualification of a master’s degree, a member of the Chinese Communist Party. He obtained a master’s degree of Engineering and is an economist. He began his career in August 1987. He served as the Deputy Director General of Cadre Training Center of the Company, the Director of The Research Bureau of the Company, the General Manager of the Labour Department and the Secretary of the CPC General Committee of the Company, the Deputy Director General and a member of Party Committee of the Commercial Steering Committee, the General Manager as well as the Deputy Party Secretary of the Sales and Marketing Department of the Company, and the General Manager and Deputy Party Secretary of Shanghai base. He acted as the Deputy Party Secretary and the Deputy Director General of the Commercial Steering Committee of the Company since December 2009 and the Party Secretary and the Deputy Director General of the Commercial Steering Committee of the Company since October 2011. He served as the Vice President and the Party Member of CSAH from October 2016. From November 2017, he served as the Vice President and the Party Member of CSAH and the Vice President and Party Member of the Company. He was appointed as a Director and the Deputy Party Secretary of CSAH and the Vice President of the Company in November 2018. From December 2018, he served as the Deputy Party Secretary of the Company. Since January 2019, he has served as a Director and Deputy Party Secretary of CSAH. Since May 2019, he has served as a Director of the Company. Since June 2021, he has served as the President and Vice Chairman of the Company. Since July 2021, he has served as the President of CSAH. Currently, he also acts as the standing committee member of the 12th session of Guangdong Provincial Committee of Chinese People’s Political Consultative Conference. Apart from the Company, the company listed in Hong Kong or overseas in which Mr. Han has held directorship in the past three years is TravelSky Technology Limited.

Liu Chang Le, male, born in November 1951 (aged 70), graduated from the Communication University of China with Bachelor’s degree. He was conferred an honorary doctoral degree in literature by the City University of Hong Kong and an honorary doctoral degree in management sciences by the University of South China. Mr. Liu Chang Le founded Phoenix Satellite Television in 1996. He had been the Executive Director, Chairman and Chief Executive Officer of Phoenix Media Investment (Holdings) Limited. Mr. Liu Chang Le is currently a member of the Thirteenth National Committee of the Chinese People’s Political Consultative Conference (the “PCC”) and was a member of the Tenth and Eleventh National Committee of the PCC. He served as the Vice Chairman of the Subcommittee on Education, Science, Culture, Health and Sport of the Eleventh National Committee of the Chinese People’s Political Consultative Conference, and served as a member of Standing Committee of the Twelfth National Committee of the PCC. Mr. Liu Chang Le was an Independent Non-executive Director of the Company from December 2011 to December 2017. Mr. Liu Chang Le has been serving as an Independent Non-executive Director of the Company since April 2021. Apart from the Company, the company listed in Hong Kong or overseas in which Mr. Liu Chang Le has held directorship in the past three years is Phoenix Media Investment (Holdings) Limited.

Gu Hui Zhong, male, born in November 1956 (aged 65), graduated from Zhengzhou University of Aeronautics and holds a Master’s degree. He graduated with a Master’s degree from Beihang University majoring in International Finance and is a senior accountant at a professor level. Mr. Gu is a Chinese Communist Party member and began his career in 1974. He served as the Deputy Chief and Chief of the General Office of Financial Division of Aviation Industry Department, the Director of International Affairs Financial Division of Aviation Industry Corporation of China, the General Manager of Zhongzhen Accounting Consultative Corporation, the Vice Director-General of Financial Department of Aviation Industry Corporation of China and the Deputy Director-General of Financial Department of State Commission of Science, Technology and Industry for National Defence. From June 1999 to February 2005, he acted as a member of Party Leadership Group and the Vice President of Aviation Industry Corporation of China I. From February 2005 to August 2008, he acted as a member of the Party Leadership Group, the Vice President and the Chief Accountant of Aviation Industry Corporation of China I. From August 2008 to January 2017, he acted as a member of Party Leadership Group, the Vice President and the Chief Accountant of Aviation Industry Corporation of China. He acted as the Chairman of AVIC I International Leasing Co., Ltd., the Chairman of AVIC I Financial Co., Ltd., the Chairman of CATIC International Holdings Limited, the Chairman of AVIC Capital Co., Ltd. and the Chairman of AVIC International Vanke Company Limited. Currently, he is serving as an external director of Ansteel Group Co., Ltd. and the Vice Chairman of the Accounting Society of China. He has been serving as an Independent Non-executive Director of the Company since December 2017.

 

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Guo Wei, male, born in February 1963 (aged 59), holds a Master’s degree. He graduated from the University of Science and Technology of China. Mr. Guo is a senior engineer and a Chinese Communist Party member. He began his career in 1988. Mr. Guo served as Executive Director and the Senior Vice President of the Lenovo Group. Currently, he is the Executive Director, Chairman of the Board of Directors and Chief Executive Officer of Digital China Holdings Limited, the Chairman of Digital China Group Co., Ltd and the Chairman of Digital China Information Service Co., Ltd. In addition, Mr. Guo also served in a number of positions, such as a member of the Eleventh and Twelfth National Committee of the Chinese People’s Political Consultative Conference, a member of the Fourth Committee of the Advisory Committee for State Informatization, the first President of China Strategic Alliance of Smart City Industrial and Technology Innovation, the Vice President of Digital China Industry Alliance and the Vice President of the Society of Management Science of China. Mr. Guo was an Independent Non-executive Director of the Company from June 2015 to December 2017. He has been serving as an Independent Non-executive Director of the Company since April 2021.

Yan Andrew Y, male, born in September 1957 (aged 64), holds a Master’s degree. He graduated from Princeton University in International Political Economy. From February 1982 to October 1984, he served as the Chief Engineer of Jianghuai Airplane Corp. He studied in Peking University from 1984 to 1986. He studied in Princeton University from 1986 to 1989. From June 1989 to February 1991, he served as an Analyst in the World Bank. From March 1991 to January 1993, he served as a Research Fellow in the Hudson Institute. From January 1993 to February 1994, he served as the Director of Asia Business Development of US Sprint Corporation. From March 1994 to September 2001, he served as the Managing Director and Head of Hong Kong office of Emerging Markets Partnership, the management company of AIG Asian Infrastructure Funds. Since October 2001, he has been serving as the Founding Managing Partner of SAIF Partners. Currently, Mr. Yan is an Independent Non-executive Director of China Resources Land Limited, an Independent Non-executive Director of the Company, a Director of ATA Inc. and an Independent Non-executive Director of 360 DigiTech, Inc. In addition, Mr. Yan was a Director of TCL Corporation, Blue Focus Communication Group, Qingdao Haier Co., Ltd., Haier Smart Home Co., Ltd. and Shanghai Welltech Automation Co., Ltd., and an Independent Non-executive Director of Guodian Technology & Environment Group Corporation Limited in the last three years. Mr. Yan has been serving as an Independent Non-executive Director of the Company since April 2021.

Supervisors

Ren Ji Dong, male, born in January 1965 (aged 57), Bachelor of Engineering, graduated from Power Engineering Department of Nanjing University of Aeronautics and Astronautics with a bachelor’s degree, majoring in Aircraft Engine Design and obtained an Executive Master of Business Administration (EMBA) degree from Tsinghua University, and he is a senior engineer and a member of the Chinese Communist Party. Mr. Ren began his career in August 1986. He served as the Deputy Director (deputy general manager) and a member of the Standing Committee of the CPC of Urumqi Civil Aviation Administration (Xinjiang Airlines) and the Deputy General Manager and a member of the Standing Committee of the CPC of Xinjiang Airlines. He acted as the Party Secretary and Deputy General Manager of CSAH Xinjiang Company from June 2004, the Party Secretary and Deputy General Manager of Xinjiang Branch of the Company from January 2005, a member of the Standing Committee of the CPC of the Company from February 2005, Deputy General Manager and a member of the Standing Committee of the CPC of the Company from March 2005, a member of the Standing Committee of the CPC of the Company and the General Manager and Deputy Party Secretary of Xinjiang Branch from January 2007, a member of the Standing Committee of the CPC of the Company from April 2009, Deputy General Manager and a member of the Standing Committee of the CPC of the Company from May 2009 and the Executive Vice President of the Company from July 2018, the Chairman of the Labour Union of CSAH and the Company since August 2021; He served as the employees’ representative director of CSAH since November 2021 and Chairman of the Supervisory Committee of the Company since December 2021. Currently, he also acts as Vice President of Aviation Fuel Branch of China Air Transport Association, Director of China Air Transport Association and Vice Director General of Guangdong Lingnan Fund (廣東省嶺南基金會).

 

89


Lin Xiao Chun, male, born in May 1971 (aged 50), graduated from the Peking University Law School with a Bachelor’s degree of laws, majoring in international law. He obtained his Master of Business Administration from the Beijing University of Technology and the City University of the United States and his Executive Master of Business Administration (EMBA) from the Tsinghua University School of Economics and Management. He obtained qualifications as an Enterprise Legal Adviser and a corporate lawyer, and is a member of the Chinese Communist Party. He started his career in July 1995. He served as the Deputy Director of the legal department of the Company in October 2006, the Deputy General Manager of the legal department of China Southern Airlines Company Limited in January 2009, the Deputy Director of the legal department of CSAH and the Deputy General Manager of the legal department of the Company in December 2009, the Director of the legal department of CSAH in May 2013, and the General Manager of the Laws & Standards Division of CSAH and the General Manager of the Laws & Standards Division of the Company in April 2017. He has served as a Supervisor of the Company since May 2019.

Yang Bin, male, born in September 1968 (aged 53), Master of Business Administration. He is a qualified senior accountant and a member of the Chinese Communist Party. He began his career in November 1991. He had been as the Deputy General Manager and the General Manager of the Finance Department of the Company, the General Manager of the Finance Department in CSAH, the General Manager of Hunan Branch of the Company. He served as the General Manager of Audit Department in the CSAH and the Company from August 2021. He served as Supervisor of China Southern Airlines Company Limited since November 2021. Currently he also serves as a Supervisor of Xiamen Airlines Company Limited.

Senior management

Zhang Zheng Rong, male, born in September 1962 (aged 59), has a college degree from Civil Aviation Flight University of China majoring in Aircraft Piloting. He was graduated from Party School of the Central Committee of CPC majoring in economic management with a bachelor’s degree. He also obtained an Executive Master of Business Administration (EMBA) degree from Tsinghua University and is a member of the Chinese Communist Party. He began his career in February 1982. He served as Vice Captain of Third Flight Corps of Civil Aviation Administration, Vice Captain of Fourth Flight Corps and Captain of First Flight Corps of CSAH. From May 2002, he has been the Deputy General Manager of Civil Aviation Administration of the Company and Captain of First Flight Corps of the Company. From November 2002, he has been General Manager of Department of Security Supervision of the Company, as well as General Manager and Deputy Party Secretary of Guangzhou Flight Division of the Company in May 2004. In August 2007, he was appointed as Chief Pilot of the Company and General Manager and Deputy Party Secretary of Guangzhou Flight Division of the Company. From March 2009, he has been Chief Pilot and Director of Aviation Security Department of the Company. Since April 2012, he served as the Chief Pilot, COO Flight Safety and Director of Aviation Security Department of the Company and in July 2012, he served as the Chief Pilot and Aviation Security Minister of CSAH. Since April 2014, he has acted as Chief Pilot, COO Flight Safety and Director of Aviation Security Department of CSAH. Since December 2016, he has been Chief Pilot of CSAH. He has served as Chief Operation Officer of the Company since January 2017. Since November 2017, he has been the President Assistant of CSAH and Chief Operation Officer of the Company. From June 2018, he has been the Vice President, Party Member of CSAH and Chief Operation Officer of the Company. In August 2018, he served as the Executive Vice President of the Company. Since November 2018, he acted as the Executive Vice President, Party Member of CSAH and the Executive Vice President of the Company. Currently, he also serves as the chairman of Guizhou Airlines Company Limited, and Vice President of the fourth Council of Aircraft Owners and Pilots Association of China.

 

90


Luo Lai Jun, male, born in October 1971 (aged 50), graduated from Nanjing University of Aeronautics and Astronautics, majoring in Accounting and also obtained an Executive Master of Business Administration (EMBA) degree from Tsinghua University and is a member of the Chinese Communist Party. He began his career in July 1993. He served as the Manager of Finance Department in Shanghai Branch of the Company, Deputy Director of the Purchasing Office in Finance Department of the Company, Deputy Manager and Manager of Finance Department of Guizhou Airlines Company Limited. He has acted as a member of the party committee, Chief Financial Officer and manager of Finance Department of Guizhou Airlines Company Limited in June 2003; Director of Business Assessment Office of the Company in June 2005; Deputy Director of Commercial Steering Committee and General Manager and Party Member of Financing Plan Department of the Company in November 2005; General Manager and Deputy Party Secretary of Freight Department of the Company in February 2009; the General Manager and the Deputy Party Secretary of Dalian Branch of the Company in July 2012; Executive Deputy Director General and the Deputy Party Secretary of Commercial Steering Committee of the Company in November 2016; Director General and the Deputy Party Secretary of Commercial Steering Committee of the Company in August 2017; Executive Vice President and the Party Member of CSAH and Executive Vice President of the Company in March 2019. Currently, he also serves as Chairman of China Southern Airlines Henan Airlines Company Limited, Vice Chairman of Sichuan Airlines Co., Ltd. and Director of TravelSky Technology Limited, Vice President of the fifth Council of China Air Transport Association and Vice Chairman of the seventh Council of China Communications and Transportation Association.

Wu Ying Xiang, female, born in November 1973 (aged 48), graduated from Business Administration Department of Central South University of Technology (中南工業大學) with a bachelor’s degree, majoring in International Accounting and obtained an Executive Master of Business Administration (EMBA) degree from Tsinghua University, and she is a qualified senior accountant, a certified public accountant, a Chartered Global Management Accountant and a member of the Chinese Communist Party. Ms. Wu began her career in July 1994. She served as assistant minister of Finance Department of China Southern Airlines (Group) Company in March 2001; vice minister of Finance Department of CSAH in September 2005; minister of Finance Department of CSAH in September 2012; the head of Performance Appraisal Management Department of CSAH in February 2017; the General Manager of Comprehensive Performance Appraisal Department of CSAH and the Company in April 2017; the General Manager and Deputy Party Secretary of Shantou Airlines Company Limited in September 2018; Party Secretary and Deputy Director General of the Marketing Management Committee of the Company in October 2019; Party Member of China Southern Air Holding Company Limited in May 2020; the Executive Vice President and Party Member of CSAH as well as the Executive Vice President of the Company in June 2020. Currently, he also serves as vice chairman of China National Aviation Corporation (Hong Kong) Limited and the chairman of Shantou Airlines Company Limited.

Yao Yong, male, born in November 1969 (aged 52), graduated from National Economics and Management College of Sichuan University with a bachelor’s degree of economics, majoring in National Economic Management. He holds a Master of Business Administration degree from University of Electronic Science and Technology of China – Webster University. He is a qualified senior accountant, senior auditor, Chartered Certified Accountant of ACCA and a member of the Chinese Communist Party. He began his career in July 1991. He acted as a member of the Capital Construction Audit Department of Sichuan Provincial Audit Department, a deputy chief member and chief member of the Fixed Assets Investment Audit Department of Sichuan Provincial Audit Department. He acted as the Director of Financial Management Department of Ertan Hydropower Development Co Ltd in March 2003. He served as the deputy chief accountant and director of the Finance Department of Ertan Hydropower Development Co Ltd in July 2007, and the chief accountant and director of the Finance Department of Ertan Hydropower Development Co Ltd in October 2010. He served as the chief accountant of Yalong Hydro (雅礱江流域水電開發有限公司) in November 2012, the Director of Finance Department of State Development and Investment Corporation (renamed as State Development & Investment Corp., Ltd. in December 2017) in June 2017. He has served as the chief accountant and the Party Member of CSAH since March 2021, the Executive Vice President, chief accountant and Chief Financial Officer of the Company since April 2021. Currently, he also serves as Director of China Southern Airlines Overseas (Hong Kong) Co. Ltd. and Chairman of China Southern Airlines Group Finance Company Limited.

 

91


Cheng Yong, male, born in April 1962 (aged 59), graduated from Civil Aviation Flight College of China (中國民用航空飛行專科學校) majoring in Aircraft Piloting and Civil Aviation Flight University of China majoring in Wingmanship, with a bachelor’s degree. He obtained an Executive Master of Business Administration (EMBA) degree from Tsinghua University and is a qualified senior pilot and a member of the Chinese Communist Party. He began his career in January 1982. He has been the Deputy Head of Shenyang Chief Flight Corps Team of China Northern Airlines Company (中國北方航空公司瀋陽飛行總隊), vice president of China Northern Airlines Company Tian’e LLC (中國北方航空公司天鵝航空有限責任公司) and president of China Northern Airlines Company Sanya Co., Ltd. (中國北方航空公司三亞有限公司). He served as the General Manager of CSAH Northern Division in November 2004; president and Deputy Party Secretary of Northern Branch of the Company in January 2005; deputy leader of steering group for reorganization of Liaoning Airport Management Group Company, president and Deputy Party Secretary of Northern Branch of the Company in October 2008; deputy leader of steering group for reorganization of Liaoning Airport Management Group Company in January 2009; president and deputy party secretary of Beijing Branch of the Company in April 2009; a member of the Standing Member of Party Committee of the Company and General Manager and Deputy Party Secretary of Beijing Branch of the Company from April 2010; a Standing Member of Party Committee of the Company in July 2017. He has served as Executive Vice President of the Company since August 2018. Currently, he also serves as the chairman of Guangzhou Nanland Air Catering Company Limited, Guangzhou China Southern Airlines China Duty Free Co., Ltd., Shenzhen Air Catering Co., Ltd. and Southern Airlines Ka Yuen (Guangzhou) Aviation Supply Company Limited.

Wang Zhi Xue, male, born in January 1961 (aged 61), has a college degree from Civil Aviation Flight University of China majoring in Aircraft Piloting, and obtained a degree from Civil Aviation Flight University of China majoring in Wingmanship, and is a qualified senior pilot and a member of the Chinese Communist Party. Mr. Wang began his career in February 1981. Mr. Wang successively served as the Deputy Chief Pilot and Director of the Flight Safety Technology Department of Shantou Airlines Company Limited of CSAH, Deputy Chief Pilot and Manager of the Flight Safety Technology Division of Shantou Airlines Company Limited of CSAH. He also acted as the Deputy General Manager of Shantou Airlines Company Limited of CSAH from June 2002, and the General Manager of the Flight Management Division of the Company from October 2004, and the General Manager and Deputy Party Secretary of Guangzhou Flight Division of the Company from February 2009. Mr. Wang has been Chief Pilot and a member of the Standing Committee of the CPC of the Company from July 2012, and Executive Vice President, Chief Pilot and a member of the Standing Committee of the CPC of the Company from August 2012. He has been Executive Vice President and a member of the Standing Committee of the CPC of the Company from December 2016. He has been Executive Vice President of the Company from July 2018. Currently, he also serves as Vice Chairman, President and Legal Representative of Xiamen Airlines Company Limited and a member of the twelfth Committee of the Chinese People’s Political Consultative Conference of Fujian Province.

Su Liang, male, born in April 1962 (aged 59), graduated from the University of Cranfield, United Kingdom with a master’s degree majoring in Air Transport Management, and is an engineer and a member of the Chinese Communist Party. Mr. Su began his career in December 1981. He successively served as Deputy General Manager of the Flight Operations Division, Deputy General Manager and Manager of Planning and Management Division of CSAH Shenzhen Company. Mr. Su was the Secretary to the Board of the Company from July 2000, the Secretary to the Board and Director General of Company Secretary Office of the Company from December 2003, the Secretary to the Board, Deputy Director General and Party Member of Commercial Steering Committee of the Company from November 2005, the Secretary to the Board and Director General of Company Secretary Office and Deputy Director General and Party Member of Commercial Steering Committee of the Company from February 2006. Mr. Su has been the Chief Economist of the Company since December 2007. For now, he also serves as Chairman of Southern Airlines Culture and Media Co., Ltd.

 

92


Chen Wei Hua, male, born in October 1966 (aged 55), graduated from the School of Law of Peking University with a bachelor’s degree, majoring in Law and obtained an Executive Master of Business Administration (EMBA) degree from Tsinghua University, and is an economist, a qualified lawyer in the PRC, a qualified corporate legal counselor and a member of the Chinese Communist Party. Mr. Chen began his career in July 1988. He successively served as Deputy Director of Legal Department of China Southern Airlines (Group) Corporation, Deputy Director of the Office (Director of the Legal Division) of the Company and China Southern Airlines (Group) Corporation. Mr. Chen was the Chief Legal Adviser of the Company and Director of the Legal Division of the Company from June 2004. Mr. Chen has been the Chief Legal Adviser and General Manager of the Legal Division of the Company since October 2008. He has served as Chief Legal Adviser of the Company since April 2017. For now, he also acts as Director of the Board of Xiamen Airlines Company Limited.

Li Shao Bin, male, born in April 1964 (aged 57), graduated with a college degree from Chinese Language and Literature of Xiangtan Teachers’ College, and obtained a university degree from the Party School of the Central Committee of Communist Party of China majoring in economics and management. He is an expert of political science and a member of the Chinese Communist Party. He began his career in July 1984. He was an officer of Public Relationship Section of Political Department of the Hunan Bureau of Civil Aviation Administration, the Senior Staff Member of Publicity Division of Political Department of the Guangzhou Bureau of Civil Aviation Administration and the Principal Staff Member of Publicity Department of the Company. He served as the Deputy Director of Publicity Department of the China Southern Airlines (Group) Company in September 1994. He had been the Director of Political Division of Flight Department of the Company from December 1999. Mr. Li was the Deputy Party Secretary of Flight Department and Director of Political Division of the Company from May 2002. Subsequently, he was appointed as the Party Secretary of Guangzhou Flight Operations Division of the Company from May 2004. Mr. Li served as the Party Secretary and Vice President of Guangzhou Flight Operations Division of the Company from March 2006. Mr. Li has been the Chairman of the Labour Union of the Company since August 2012 and the Executive Director of the Company since January 2013. Mr. Li served as the President and Deputy Party Secretary of the Training Centre of the Company since April 2017. Mr. Li also has been the Chief Training Officer of the Company since June 2019.

Xie Bing, male, born in September 1973 (aged 48), graduated from Nanjing University of Aeronautics and Astronautics, majoring in Civil Aviation Management. He subsequently received a master’s degree of business administration from the Management School of Jinan University, a master’s degree of business administration (international banking and finance) from the University of Birmingham, Britain and a MBA, an Executive Master of Business Administration (EMBA) degree from Tsinghua University, respectively. Mr. Xie is a Senior Economist. Mr. Xie has the qualification for the Secretary to the Board of companies listed on the Shanghai Stock Exchange and also has the qualification for Company Secretary of companies listed on the Stock Exchange. Mr. Xie is a fellow member and FCS of The Hong Kong Chartered Governance Institute and a member of the Chinese Communist Party. Mr. Xie began his career in July 1995. He successively served as the Assistant of the Secretary to the Board of the Company, and the Executive Secretary of the General Office of CSAH. Mr. Xie has been the Secretary to the Board and Deputy Director of the Company Secretary Office from November 2007. From December 2009, Mr. Xie has been the Secretary to the Board and Director of the Company Secretary Office of the Company. From April 2017, he has been the Secretary to the Board of the Company, Director of the Company Secretary Office of the Company. For now, he also acts as Chairman of China Southern Airlines Group Capital Holding Limited (中國南航集團資本控股有限公司) and Chairman of CSA International Finance Leasing Co., Ltd., Deputy President of Central Enterprises Overseas Students Sodality (中央企業留學人員聯誼會), a Council Member of The Hong Kong Charted Governance Institute, Deputy Director of Secretary Committee of China Association for Public Companies, a committee member of the board secretaries committee for The Listed Companies Association of Guangdong and Vice President’s representative of China Group Companies Association.

 

93


Feng Hua Nan, male, born in November 1962 (aged 59), graduated with a college degree from China Civil Aviation Flying College, majoring in Aircraft Piloting, and obtained a master’s degree in Aeronautical Engineering from School of Automation Science and Electrical Engineering of Beijing University of Aeronautics and Astronautics and an Executive Master of Business Administration (EMBA) from Tsinghua University. He is a qualified senior pilot and a member of the Chinese Communist Party. Mr. Feng began his career in January 1983. He successively served as the Director of Zhuhai Flight Training Centre of China Southern Airlines (Group) Company and the Deputy General Manager of Flight Operation Division of the Company. He was the General Manager of Flight Safety Technology Department from December 1999, and the General Manager of Flight Technology Management Department of the Company from November 2002. Mr. Feng also served as the Party Secretary and Deputy General Manager of Guizhou Airlines Company Limited from September 2004, and then served as the General Manager and Deputy Party Secretary of Guizhou Airlines Company Limited from February 2006. He has been the COO Flight Safety of the Company since August 2014. For now, he also acts as Vice Chirman of China Airline Pilots Association, Expert of Guangzhou Airport Smart Tank (廣州空港智庫專家), Council Member of China Occupational Safety and Health Associatio, Member of the fifth Council China Air Transport Association and head of Safety Management Committee of China Air Transport Association.

Luo Ming Hao, male, born in September 1962 (aged 59), graduated from the Civil Aviation Flight College of China majoring in Aircraft Piloting. He graduated with a master’s degree from the Party School of Hunan Provincial Committee (湖南省委黨校) majoring in economics. He obtained an Executive Master of Business Administration (EMBA) degree from Tsinghua University. He is Second Class Pilot (二級飛行員) and a member of the Chinese Communist Party. He began his career in July 1982. He served as the deputy general manager of the flight division of Hunan Branch of CSAH and deputy general manager of Bei Hai Sales Department of Hunan Branch of CSAH, general manager of Bei Hai Sales Department in Hunan Branch of the Company. He served as the deputy general manager of Hunan Branch of the Company in May 2002, General Manager and Deputy Party Secretary of the Cabin Department of the Company in December 2006. He acted as General Manager and Deputy Party Secretary of Dalian Branch of the Company in December 2010, General Manager and Deputy Party Secretary of Guangzhou Flight Department of the Company in July 2012. He has been Chief Pilot of the Company since March 2018. For now, he also serves as Chairman of Zhuhai Xiang Yi Aviation Technology Company Limited.

Zhu Hai Long, male, born in December 1963 (aged 58), graduated from Civil Aviation Flight College of China (中國民用航空飛行專科學校) majoring in Aircraft Piloting and possesses post-secondary qualifications. He graduated from the Flight College of Civil Aviation Flight University of China, majoring in aviation transportation with an on-job bachelor’s degree. Mr. Zhu holds the title of First Class Pilot and a member of the Chinese Communist Party. He began his career in January 1983,. He was a pilot of the 15th Fleet of CAAC (民航第十五飛行大隊), a pilot in the Flight Department of CSA Hainan (南航海南公司), vice-captain of the Second Squadron, leader of the B737 Squadron, the deputy general manager and general manager of the Flight Department. He served as general manager’s assistant and general manager of Haikou Flight Department in Hainan Branch of the Company. He served as deputy general manager and a member of the Party Committee of Shantou Airlines Company Limited in June 2007; deputy general manager, manager of the Flight Department and a member of the Party Committee in Hubei Branch of the Company in March 2013; deputy general manager and a member of the Party Committee in Shenzhen Branch of the Company in September 2015; deputy general manager and Deputy Party Secretary of Guangzhou Flight Division of the Company in February 2018; the head of Chief Flight Corps Team and Deputy Party Secretary of the Company in May 2018. Since December 2020, he has been the Chief Operation Officer of the Company.

 

94


Wu Rong Xin, male, born in January 1972 (aged 50), graduated from the China Civil Aviation Institute with a bachelor’s degree, majoring in thermal power machinery and equipment. He also obtained an Executive Master of Business Administration (EMBA) degree from Tsinghua University and is a member of the Chinese Communist Party. He began his career in July 1994. He served as Manager of Finance Department of Aircraft Engineering Department of China Southern Airlines Company Limited. In June 2008, he served as the Chief Financial Officer and Party Member of Guangzhou Aircraft Maintenance Engineering Co., Ltd., and Executive Vice President and Deputy Party Secretary of Guangzhou Aircraft Maintenance Engineering Co., Ltd. in April 2011. He served as Director of Planning and Investment Department of China Southern Air Holding Company Limited in November 2016, General Manager of Strategic Planning & Investment Division of China Southern Air Holding Company Limited and China Southern Airlines Company Limited in April 2017, General Manager of Aircraft Engineering Department and Deputy Party Secretary of China Southern Airlines Company Limited in March 2021, and General Manager and Deputy Party Secretary of Engineering Technology Branch (Aircraft Engineering Department) of China Southern Airlines Company Limited in September 2021. He has served as Chief Engineer of China Southern Airlines Company Limited since January 2022. Currently, he also acts as Director of China Aviation Supplies Co., Ltd., Chairman of Guangzhou Aircraft Maintenance Engineering Co., Ltd., Director of MTU Maintenance Zhuhai Co., Ltd., and the Vice Chairman of Civil Aviation Maintenance Association of China.

Save as disclosed above, none of the above Directors, Supervisors or senior management of the Company has any relationship with any Directors, Supervisors, senior management or substantial shareholders of the Company.

 

II.

Staff of the Company and Major Subsidiaries

As of 31 December 2021, the Group had an aggregate of 98,098 employees (31 December 2020: 100,431).

 

Number of current staff in the Company (by person)

   Number of current staff
in major subsidiaries
(by person)
     Total number of
current staff
(by person)
 

61,677

     36,421        98,098  

 

1.

Professions Composition

 

Categories by profession

   Number of
professionals
(by person)
 

Pilots

     11,305  

Cabin attendants (including part-time security personnel)

     21,216  

Air marshals

     3,685  

Engineering unit

     15,979  

Navigation unit

     2,319  

Passenger transportation unit

     7,887  

Cargo transportation unit

     5,572  

Ground services unit

     11,475  

Information unit

     1,788  

Financial unit

     1,782  

Others

     15,090  
  

 

 

 

Total

     98,098  
  

 

 

 

 

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2.

Educational Level

 

Categories by education levels

   Number (by person)  

Postgraduates

     4,283  

Undergraduates

     52,160  

Junior college

     28,201  

Technical School or below

     13,454  
  

 

 

 

Total

     98,098  
  

 

 

 

 

3.

Emolument Policy of Employees

During the reporting period, in order to cope with the impact of the COVID-19 pandemic and achieve high-quality development, the Company formulated management measures for the filing system of total salary, and optimized the mechanism of linking total salary with market-based accounting. It continued to promote the downward penetration of total salary, and increased incentives for key positions and encourage employees to strive for excellence. The Company established and improved a market-oriented selection and employment mechanism as well as a incentive and restraint mechanism to promote the contractual management of the tenure system. It completed the signing of tenure contracts in more than 50 secondary units, and achieved the goal of linking performance with results. The Company formulated and improved a series of subsidy policies for front-line employees, such as subsidies for quarantine and pandemic prevention, which showed our care and love for the workforce. The Company actively explored medium and long-term incentive plans, and issued guidelines for the work on incentive mechanism of the Company. It built a “1+N” multi-dimensional incentive mechanism system to stimulate the vitality of the enterprise.

During the reporting period, details of the remuneration of the staff of the Company are set out in note 13 to the financial statements prepared under IFRSs.

 

4.

Training Plan

In 2022, the Company will follow the general idea of “adhering to five major developments, implementing five major strategies, promoting six major actions, and realizing six major transformations” to strive for high-quality development. It will practise the core concept of “training supports strategy, training creates value” to comprehensively strengthen the building of cadre and employee training system, promote the ability of cadre and staff, and provide sufficient talent guarantee for the safe and efficient operation of the Company. The Company will continue to optimize the training management system, carry out various employee training, enrich the training forms by combining online and offline methods, and accelerate the establishment of a training quality evaluation system. It will deepen the integration of production and education, promote the construction of market-oriented training mechanism, and achieve high-quality training. The Company will mainly advance the training of management trainees, CSA cloud T digital talent training, new employee training in various systems, annual pilot retraining, basic license training and professional and technical training for maintenance personnel, retraining for dispatchers, training for familiarization with international operations, regular retraining for flight attendants, emergency drills, training for aircraft transfer, and regular training for aviation safety officers.

 

5.

Information on Labor Outsourcing

 

Total hours of outsourced labor

   Total pay for outsourced labor (RMB)  

40.36 million hours

     2,562.55 million  

 

96


CORPORATE GOVERNANCE REPORT

The Company, according to the requirements of relevant laws and regulations, such as Company Law, Securities Law, and Articles of Association has set up its corporate governance systems consisted of general meeting, the Board, Supervisory Committee and operational management. This forms the Company’s operation mechanism based on which the Company’s organ of authority, decision-making body, supervisory body and executive body cooperate, coordinate and interact mutually. There was no material difference between the Company’s actual governance conditions and the requirements of normative documents, such as Code of Corporate Governance for Listed Companies in China released by the CSRC. The Company, according to domestic and international regulatory requirements, constantly modified and improved the Articles of Association and related rules to standardize its operation.

It is the firm belief of the Company that a good and solid corporate governance framework is an important foundation for ensuring the sustainable development of the Company and enhancing shareholders’ value. The Company has always been striving to strictly comply with the regulatory requirements of the CSRC, the SSE, the Stock Exchange, the New York Stock Exchange and the United States Securities and Exchange Commission, and is committed to attaining and maintaining high standards of corporate governance and adopts principles of corporate governance emphasizing a quality board, accountability to all stakeholders, open communication and fair disclosure.

Corporate Governance Code

The Board has reviewed the corporate governance practices of the Company, and considers that the Company has applied the principles of the corporate governance practices and adopted sound governance and disclosure practices accordingly. Except for the deviations disclosed in this report, the Group has complied with the code provisions of the Corporate Governance Code as set out in Appendix 14 to the Listing Rules for the year ended 31 December 2021.

The corporate governance practices adopted by the Company are summarized below.

System Construction

The Company strictly follows the regulatory requirements of the place where it is listed to constantly improve the Articles of Association and related governing rules. During the reporting period, the Company revised the Articles of Association of China Southern Airlines Company Limited, the Procedural Rules of the Board of Directors of China Southern Airlines Company Limited, the Measures on the Authorization Management of the Board of Directors of China Southern Airlines Company Limited and the Information Disclosure Management System for Listed Companies of China Southern Airlines Company Limited in accordance with the regulatory rules.

Controlling Shareholder

The controlling shareholder of the Company is CSAH, one of the central enterprises supervised by the SASAC, and there is no competition between CSAH and the Company. The controlling shareholder of the Company has regulated itself and has not directly or indirectly interfered with the decision making and business activities of the Company beyond the general meeting.

 

97


During the reporting period, Mr. Han Wen Sheng, President of the Company, served as the president of CSAH, Mr. Zhang Zheng Rong, Mr. Luo Lai Jun, and Ms. Wu Ying Xiang, Executive Vice Presidents of the Company, served as Executive Vice Presidents of CSAH, and Mr. Yao Yong, Executive Vice President, chief accountant and Chief Financial Officer of the Company, served as Chief Accountant of CSAH. The Regulatory Department of Listed Companies of the CSRC has agreed to exempt the restrictions on concurrent positions for aforementioned senior management. The independent Directors of the Company unanimously believed that the Company and CSAH were able to strictly require and regulate the performance of duties of the senior management of the Company, namely Mr. Han Wen Sheng, Mr. Zhang Zheng Rong, Mr. Luo Lai Jun, Ms. Wu Ying Xiang and Mr. Yao Yong in accordance with relevant regulatory regulations in 2021, and ensure that they executed due care and diligence, gave priority to fulfilling their duties as the Company’s senior management, and earnestly safeguarded the legitimate rights and interests of the Company and minority shareholders. These senior management of the Company, namely Mr. Han Wen Sheng, Mr. Zhang Zheng Rong, Mr. Luo Lai Jun, Ms. Wu Ying Xiang and Mr. Yao Yong, strictly followed the Company Law, the Securities Law and relevant laws and regulations of the place of listing, diligently discharged their responsibilities, and earnestly fulfilled their commitments. They did not damage the legitimate rights and interests of the Company and minority shareholders due to holding the abovementioned concurrent positions.

The General Meeting

The general meeting of the Company is the top organ of authority and exercise all of its powers and functions legally. The Company strictly followed the requirements of laws, regulations, the Articles of Association, and the Rules of Procedures for General Meeting, and etc. to conduct all work of the general meeting and fully secure shareholders to legally exercise their rights of shareholders. During the reporting period, the Company held 3 general meetings and engaged lawyers to witness the convening procedures of the general meeting. Such procedures were legal and effective and ensured all shareholders, especially minority shareholders, to participate in decision to fairly exercise their rights by online voting at the general meeting, without causing damage to the benefits of the minority shareholders.

The Board

The Board is the decision-making body of the Company and accountable to the General Meeting of Shareholders. Within the scope of its functions and powers stipulated in the Articles of Association, it shall formulate the Company’s development strategies in accordance with the procedures stipulated in the Rules of Procedure of the Board. In addition, it shall supervise the implementation of the operation and management and the financial performance, and provide recommendations on appointment of directors and senior management. It shall also make decisions on major contracts, transactions, financial matters as well as other major policies. The Board reasonably authorized management according to law, which improved the level of decision-making and the efficiency of discussion, and promoted the development of the Company’s production and operation.

At present, the Company has 6 Directors, including 2 executive Directors and 4 independent non-executive Directors. The number of independent non-executive Directors accounts for more than half of the Board. In 2021, the Board of the Company operated in accordance with the law and held 14 Board meetings, including 5 on-site meetings and 9 extraordinary meetings. The decision-making procedures and contents of the proposals of the Board meetings complied with the requirements of the Listing Rules, the Articles of Association and relevant laws and regulations. Resolutions approved at such meetings were legal and effective.

 

98


The major issues which were brought before the Board for their decisions included:

 

1.

Direction of the operational strategies of the Group;

 

2.

Setting the policies relating to key business and financial objectives of the Company;

 

3.

Monitoring the performance of the management;

 

4.

Approval of material acquisitions, investments, sales, disposal of assets or any significant capital expenditure of the Group;

 

5.

Ensuring a prudent and effective internal control system; and

 

6.

Review of the financial performance and results of the Company.

As of 31 December 2021, the members of the 9th session of the Board comprise two executive Directors and four independent non-executive Directors. All of the Directors have a term of three years. The brief biographical details of the Directors are set out on pages 90 to 92 of this Annual Report.

The Board held 14 meetings in 2021, all of which were convened in accordance with the Articles of Association. The Company held 3 general meetings in 2021, the Directors actively participated general meeting in person and have been doing their best to develop a balanced understanding of the views of shareholders of the Company.

The attendance of each Director is as follows:

 

Name of Directors

  Attendance of Board Meetings   Attendance of General Meetings  
  Whether
independent
non-executive
Director or not
  Number of
meetings that
required
attendance
    Number of
meetings
attended in
person
    Number of
meetings
participated by
way of conference
communication
    Number of
meetings
attended by
proxy
    Number of
meetings
absent
    Absence in
two
consecutive
meetings
  Attendance     Number of
general
meetings
attendance
    Attendance  

Ma Xu Lun

  No     14       4       9       1       0     No     100     3       100

Han Wen Sheng

  No     14       4       9       1       0     No     100     3       100

Liu Chang Le (Appointed on 30 April 2021)

  Yes     10       4       6       0       0     No     100     2       100

Gu Hui Zhong

  Yes     14       5       9       0       0     No     100     3       100

Guo Wei (Appointed on 30 April 2021)

  Yes     10       4       6       0       0     No     100     2       100

Yan Andrew Y (Appointed on 30 April 2021)

  Yes     10       3       6       1       0     No<