THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION - Form 6-K

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular, you should consult a stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares of China Southern Airlines Company limited, you should at once hand this circular to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale was effected for transmission to the purchaser or the transferee.

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

This circular is for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for the securities.

(1) CONNECTED TRANSACTIONS IN RESPECT OF THE PROPOSED SHARE ISSUANCE;

(2) PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION IN RELATION TO THE PROPOSED SHARE ISSUANCE;

(3) PROPOSED APPOINTMENT OF SUPERVISOR;

(4) PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION AND

THE PROCEDURAL RULES OF THE BOARD OF DIRECTORS;

AND

(5) NOTICE OF THE EGM

Independent financial adviser to the Independent Board Committee and Independent Shareholders

A letter from the Board is set out on pages 4 to 24 of this circular. A letter from the Independent Board Committee is set out on pages 25 to 26 of this circular. A letter from the independent financial adviser to the Independent Board Committee and Independent Shareholders, is set out on pages 27 to 51 of this circular.

Notice of the EGM to be held at No. 3301 Conference Room, 33/F, China Southern Air Building, No. 68 Qixin Road, Baiyun District, Guangzhou, the PRC at 9 a.m. on Tuesday, 28 December 2021 are set out on pages EGM-1 to EGM-6 of this circular. Whether or not you intend to be present at the EGM or any adjournment thereof, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return the same to the branch share registrar of the Company in Hong Kong, Hong Kong Registrars Limited at 17M Floor, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong (in case of holders of H shares) or the principal office of the Company in the PRC at No. 68 Qixin Road, Baiyun District, Guangzhou, PRC 510403 (in case of holders of A shares), no later than 24 hours before the time fixed for holding the EGM or any adjournment thereof. Completion and return of the form of proxy will not prevent you from attending and voting at the EGM or any adjournment thereof if you so wish.

11 November 2021

CONTENTS

- i -

DEFINITION

In this circular, unless the context otherwise requires, the following expressions have the following meanings:

- 1 -

DEFINITION

- 2 -

DEFINITION

- 3 -

LETTER FROM THE BOARD

To the Shareholders

Dear Sir or Madam,

(1) CONNECTED TRANSACTIONS IN RESPECT OF THE PROPOSED SHARE ISSUANCE;

(2) PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION IN RELATION TO THE PROPOSED SHARE ISSUANCE;

(3) PROPOSED APPOINTMENT OF SUPERVISOR;

(4) PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION AND THE PROCEDURAL RULES OF THE BOARD OF DIRECTORS;

AND

(5) NOTICE OF THE EGM

References are made to the announcements of the Company dated 27 August 2021 and 29 October 2021, respectively, in relation to (i) the Proposed Share Issuance; (ii) the proposed amendments to the Articles of Association in relation to the Proposed Share Issuance; (iii) the proposed appointment of Supervisor; and (iv) the proposed amendments to the Articles of Association and to the Procedural Rules of the Board of Directors. The purpose of this circular is, among other things, to provide you with more information in relation to the aforesaid matters, to enable you to make an informed decision on whether to vote for or against the resolutions at the EGM.

- 4 -

LETTER FROM THE BOARD

On 29 October 2021, the Board resolved to put forward to the EGM to approve the A Shares Subscription Agreement and the connected transaction in relation to the proposed issuance of 803,571,428 new A Shares to CSAH 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 29 October 2021, the Board also resolved to put forward to the EGM to approve the 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) 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.

A Shares Subscription Agreement

On 29 October 2021, CSAH entered into the A Shares Subscription Agreement with the Company, pursuant to which, the Company will issue and CSAH shall subscribe in cash for 803,571,428 new A Shares at the A Share Subscription Price, which is not more than 20% of the number of issued A Shares as at the date of the 2020 annual general meeting of the Company on which the General Mandate was approved, raising gross proceeds of not more than RMB4,500 million (including RMB4,500 million).

Date

29 October 2021

Parties

- 5 -

LETTER FROM THE BOARD

Number of new A Shares to be issued

The Company will issue under the General Mandate and CSAH will subscribe for 803,571,428 new A Shares, which is not more than 20% of the number of issued A Shares as at the date of the 2020 annual general meeting of the Company on which the General Mandate was approved, raising gross proceeds of not more than RMB4,500 million (including RMB4,500 million).

If the A Share Subscription Price is adjusted due to ex-right events as mentioned below, the number of new A Shares to be issued will be adjusted accordingly. The final number of A Shares to be issued under the A Share Issuance is subject to the approval of CSRC.

Lock-up period

The new A Shares to be subscribed by CSAH shall not be traded or transferred within 36 months from the completion date of the issuance thereof. The same lock-up requirement is applicable for the A Shares CSAH may subsequently obtain due to distribution of share dividend, transfer to share capital from capital reserve and rights issue by the Company during the lock-up period.

A Share Subscription Price

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.

- 6 -

LETTER FROM THE BOARD

Based on the abovementioned pricing principles, the A Share Subscription Price is RMB5.60 per Share. For illustrative purposes only, the A Share Subscription Price represents:

The A Share Subscription Price will not be adjusted by the latest audited net asset value per Share attributable to equity shareholders in subsequent years.

Where there are 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 Price Benchmark Date to the date of issuance of the new A Shares, the A Shares Subscription Price shall be adjusted in view of the ex-right or ex-dividend events. The adjustment methods are set out as follows:

whereas P₁ represents the adjusted issue price, P₀ represents the issue price before adjustment, D represents cash dividends per Share, N represents the number of bonus shares per Share or number of Shares resulting from capitalisation of capital reserve to be issued for each Share, A represents the subscription price of the rights shares, and K represents the number of rights shares to be issued for each Share.

As at the Latest Practicable Date, the Company has no intention to conduct any ex-right or ex-dividend event prior to the A Share Issuance.

- 7 -

LETTER FROM THE BOARD

In addition, pursuant to Rule 13.36(5) of the Listing Rules, the A Share Subscription Price shall not represent a discount of 20% or more to the higher of (i) the closing price of the H Shares on the date of the A Shares Subscription Agreement (i.e. 29 October 2021), and (ii) the average closing price of the H Shares in the five trading days immediately prior to the date of the A Shares Subscription Agreement. For illustrative purposes only and based on the central parity rate announced by the People's Bank of China on the date of the A Share Subscription Agreement (HK$1=RMB0.82164), the A Share Subscription Price represents:

Despite any subsequent corporate events which may lead to an adjustment in the A Share Subscription price, the Company will take all actions in its power to monitor and control these corporate events so as to ensure that (i) the final A Share Subscription Price is higher than HK$3.792, being a discount of 20% of the higher of the abovementioned benchmark prices; and (ii) the number of new A Shares to be issued will not exceed 2,534,651,815 A Shares, being the maximum number of A Shares to be issued under the General Mandate. If any corporate event may cause the A Share Issuance to fail to meet the abovementioned requirements, the Company will re-comply with the Listing Rules where necessary.

The one-time subscription for the new A Shares to be issued shall be made in full by CSAH and the consideration shall be satisfied in cash.

After the conditions precedent set out below have all been satisfied, CSAH agreed to subscribe for the new A Shares to be issued pursuant to the Company's notice and the A Shares Subscription Agreement and to transfer in a lump sum the subscription consideration in cash to a designated bank account as notified by the Company in writing.

Conditions precedent

The A Shares Subscription Agreement shall take effect after being executed by the legal or authorised representatives, as well as the satisfaction of the following conditions:

- 8 -

LETTER FROM THE BOARD

The Company and CSAH shall use their best efforts to make or cause to make necessary further action to fulfil the above conditions and A Share Issuance in accordance with the applicable laws and regulations.

In the event that the conditions set out above are not fulfilled within 12 months of the date of passing of the Shareholders' resolution approving the A Share Issuance, and an extension of the A Share Issuance, the A Shares Subscription Agreement shall cease to be of any effect and the Company and CSAH shall have no claims against each other, save for claims arising out of any antecedent breach of the A Shares Subscription Agreement. In the event that an extension of the A Share Issuance has been granted at general meetings, the A Shares Subscription Agreement shall remain pending for being effective until the conditions are all fulfilled or the expiry of the valid period of the relevant Shareholders' resolution in relation to the extension granted.

As at the Latest Practicable Date, condition (1) above has been partly fulfilled in that the Board has approved the A Share Issuance under the A Shares Subscription Agreement, and condition (2) above has been partly fulfilled in that the board of directors of CSAH has approved the subscription of the new A Shares to be issued under the A Shares Subscription Agreement.

Completion

The completion of the A Share Issuance under the A Shares Subscription Agreement will take place when the Shanghai branch of the China Securities Depository and Clearing Corporation Limited confirms that the new A Shares to be issued have been fully subscribed by CSAH and the registration has been completed.

H Shares Subscription Agreement

On 29 October 2021, the Company entered into the H Shares Subscription Agreement with Nan Lung (a wholly-owned subsidiary of CSAH), pursuant to which the Company shall issue and Nan Lung shall subscribe in cash for not more than 855,028,969 new H Shares (including 855,028,969 H Shares) at the H Share Subscription Price, representing not more than 20% of the number of issued H Shares as at the date of the 2020 annual general meeting of the Company on which the General Mandate was approved, and raising gross proceeds of not more than HK$1,800 million (including HK$1,800 million).

- 9 -

LETTER FROM THE BOARD

Date

29 October 2021

Parties

Number of new H Shares to be issued

The Company will issue under the General Mandate and Nan Lung will subscribe for not more than 855,028,969 new H Shares (including 855,028,969 H Shares), representing not more than 20% of the number of issued H Shares as at the date of the 2020 annual general meeting of the Company on which the General Mandate was approved, and raising gross proceeds of not more than HK$1,800 million (including HK$1,800 million). With reference to the illustrative H Share Subscription Price as mentioned below, the Company may issue 325,497,287 new H Shares.

If the H Share Subscription Price is adjusted due to ex-right events as mentioned below, the number of new H Shares to be issued will be adjusted accordingly.

Lock-up period

The new H Shares to be subscribed for by Nan Lung shall not be traded or transferred within 36 months from the completion date of the issuance thereof, except for the transfer of the new H Shares to a wholly-owned or controlled (either directly or indirectly) subsidiary of CSAH as permitted by the laws of the PRC, other laws applicable to the Company and the listing rules of the stock markets where the Company is listed. The said transferee will be subject to the same lock-up period described above immediately and until expiry of such lock-up period. If the respective requirements of the CSRC and the stock markets where the Company is listed regarding the lock-up period are different from the terms of the H Shares Subscription Agreement, Nan Lung should comply with the respective requirements of the CSRC and the stock markets where the Company is listed.

During the abovementioned lock-up period, if Nan Lung creates a charge or any other security interests over all or part of the new H Shares Nan Lung would obtain pursuant to the proposed H Share Issuance, and where creation of such charge or security interests would necessitate a transfer of the abovementioned new H Shares, Nan Lung warrants that the transferee would be subject to the same lock-up period described above.

- 10 -

LETTER FROM THE BOARD

H Share Subscription Price

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. As at 31 December 2020, the audited net asset value per Share attributable to equity shareholders of the Company (ex-dividend) was HK$5.53.

Based on the abovementioned pricing principles and the information available to the Company as at the Latest Practicable Date, the illustrative H Share Subscription Price is HK$5.53 per Share.

However, the final H Share Subscription price shall be determined with reference to the latest audited net asset value per Share attributable to equity shareholders of the Company as at the issuance of the new H Shares. If the H Share Issuance takes place after the publication of the 2021 annual results of the Company, the H Share Subscription Price shall be the higher of HK$4.68 per H Share and the audited net asset value per Share attributable to equity shareholders of the Company as at 31 December 2021 in HK$ 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) (rounded up to the nearest two decimal places).

For illustrative purpose only, the illustrative H Share Subscription Price represents:

- 11 -

LETTER FROM THE BOARD

Where there are 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 Board Meeting Date to the date of issue of the new H Shares, the H Share Subscription Price shall be adjusted in view of the ex-right or ex-dividend events. The adjustment methods are set out as follows:

whereas P₁ represents the adjusted issue price, P₀ represents the issue price before adjustment, D represents cash dividends per Share, N represents the number of bonus shares per Share or number of Shares resulting from capitalisation of capital reserve to be issued for each Share, A represents the subscription price of the rights shares, and K represents the number of rights shares to be issued for each Share.

As at the Latest Practicable Date, the Company has no intention to conduct any ex-right or ex-dividend event prior to the H Share Issuance.

In addition, pursuant to Rule 13.36(5) of the Listing Rules, the H Share Subscription Price shall not represent a discount of 20% or more to the higher of (i) the closing price of the H Shares on the date of the H Shares Subscription Agreement (i.e. 29 October 2021), and (ii) the average closing price of the H Shares in the five trading days immediately prior to the date of the H Shares Subscription Agreement. Accordingly, the H Share Subscription Price in any event shall be higher than HK$3.792, which represents a discount of 20% of the higher of:

- 12 -

LETTER FROM THE BOARD

Despite any subsequent corporate events which may lead to an adjustment in the H Share Subscription price, the Company will take all actions in its power to monitor and control these corporate events so as to ensure that (i) the final H Share Subscription Price is higher than HK$3.792; and (ii) the number of new H Shares to be issued will not exceed 855,028,969 H Shares, being the maximum number of H Shares to be issued under the General Mandate. If any corporate event may cause the H Share Issuance to fail to meet the abovementioned requirements, the Company will re-comply with the Listing Rules where necessary.

The one-time subscription for the new H Shares to be issued shall be made in full by Nan Lung and the consideration shall be satisfied in cash in HK$.

After the conditions precedent set out below have all been satisfied, Nan Lung agreed to subscribe for the new H Shares to be issued pursuant to the Company's notice and the H Shares Subscription Agreement and to transfer in a lump sum the subscription consideration in cash to a designated bank account as notified by the Company in writing.

Conditions precedent

The H Shares Subscription Agreement shall take effect after being executed by the legal or authorised representatives of both parties, as well as the satisfaction of the following conditions:

The Company and Nan Lung shall use their best efforts to make or cause to make necessary further action to fulfil the above conditions and the H Share Issuance in accordance with the applicable laws and regulations.

- 13 -

LETTER FROM THE BOARD

In the event that the conditions set out above are not fulfilled within 12 months from the date of the Shareholders' resolution approving the H Share Subscription Agreement, and an extension of the H Share Issuance, the H Shares Subscription Agreement shall cease to be of any effect and the Company and Nan Lung shall have no claims against each other save in respect of claims arising out of any antecedent breach of the H Shares Subscription Agreement. In the event that an extension of the H Share Issuance has been granted at general meetings, the H Shares Subscription Agreement shall remain pending for being effective until the conditions are all fulfilled or the expiry of the valid period of the relevant Shareholders' resolution in relation to the extension granted.

As at the Latest Practicable Date, the condition (2) above has been fulfilled, and condition (1) has been partly fulfilled in that the Board has approved the H Share Issuance under the H Shares Subscription Agreement.

Completion

The completion of the H Share Issuance under the H Shares Subscription Agreement will take place when Computershare Hong Kong Investor Services Limited confirms that the new H Shares to be issued have been fully subscribed by Nan Lung and the registration has been completed.

Reasons for Conducting the H Share Issuance

The Company considers that the H Share Issuance, in addition to the A Share Issuance, will help maintain the Share structure of the Company and minimize the impact on the Share price and capital markets in mainland China and in Hong Kong brought by the Proposed Share Issuance. As at the Latest Practicable Date, the Company currently has 12,673,276,199 A Shares and 4,275,144,849 H Shares in issue, with the number of A Shares being roughly three times the number of H Shares. The Proposed Share Issuance is designed to include the issuance of new A Shares of not more than RMB4,500 million, which is also roughly three times the expected proceeds from the issuance of H Shares of HK$1,800 million. Based on the A Share Subscription Price of RMB5.60 per Share and the illustrative H Share Subscription Price of HK$5.53 per Share, the number of new A Shares to be issued is also roughly three times the number of new H Shares to be issued. By conducting the H Share Issuance, the Company will be able to keep the ratio of the number of A Shares against the number of H Shares at roughly 3:1 and to avoid the percentage of H Shares being diluted, which is beneficial to the holders of H Shares. The Company has no special consideration for foreign exchange control under relevant laws and regulations when contemplating the H Share Issuance.

The H Share Issuance is an integrated part of the Company's plan to issue Shares, which was entered into through arms-length negotiation between the Company and Nan Lung. The H Share Subscription Price, which was set to be not lower than the latest audited net asset value per Share attributable to equity shareholders of the Company as at the issuance of the new H Shares, can reflect the true value of the H Shares to the maximum and minimize the dilution effect on the interest of the existing holders of H Shares, especially given that the recent H Share price is at a relatively low level. As a result, the Board consider the terms of the H Share Issuance (including the H Share Subscription Price) is fair and reasonable.

- 14 -

LETTER FROM THE BOARD

In conclusion, considering the H Share Issuance is in the interest of the holders of H Shares, and the terms of the H Share Issuance (including the H Share Subscription Price) is fair and reasonable, the Board is of the view that the H Share Issuance is in the interest of the Company and its Shareholders as a whole.

In order to ensure the smooth implementation of the relevant matters relating to the A Share Issuance and the H Share Issuance, and pursuant to the laws, regulations and rules of stock exchanges, such as the Company Law of the People's Republic of China, the Securities Law of the People's Republic of China, Measures on the Administration of Issuance of Securities by Listed Companies and the Listing Rules, as well as the relevant provisions of the Articles of Association, the Board has proposed to seek approval at the EGM to authorise the Board and its authorised representative(s) with all the powers necessary to proceed with the matters relating to the A Share Issuance and the H Share Issuance, including but not limited to:

- 15 -

LETTER FROM THE BOARD

- 16 -

LETTER FROM THE BOARD

On the basis of the abovementioned authorisation, the Board shall be approved to authorise any one executive Director to decide, handle and deal with all the abovementioned matters relating to the A Share Issuance and the H Share Issuance.

The new A Shares to be issued pursuant to the A Share Issuance will rank, upon issue, pari passu in all respects with the A Shares in issue at the time of issue and allotment of such new A Shares, except that the new A Shares to be issued to CSAH are subject to a lock-up period of 36 months.

The new H Shares to be issued pursuant to the H Share Issuance will rank, upon issue, pari passu in all respects with the H Shares in issue at the time of issue and allotment of such new H Shares, except that such new H Shares to be issued to Nan Lung are subject to a lock-up period of 36 months.

The Company will apply to the Shanghai Stock Exchange for the listing of the new A Shares to be issued under the A Share Issuance, and for the permission to deal in such Shares upon expiry of the lock-up period abovementioned.

The Company will also apply to the Stock Exchange for the listing of, and permission to deal in, the new H Shares to be issued under the H Share Issuance.

The following table illustrates the shareholding structure of the Company as at the Latest Practicable Date and immediately after the completion of the Proposed Share Issuance:

- 17 -

LETTER FROM THE BOARD

Notes:

The Company has not conducted any fund raising activities in the past 12 months preceding the Latest Practicable Date.

Assuming the maximum number of new A Shares and new H Shares will be issued at the respective A Share Subscription Price and the H Share Subscription Price under the Proposed Share Issuance, the Company will be able to raise gross proceeds of not more than RMB4,500 million (including RMB4,500 million) from the proposed A Share Issuance and not more than HK$1,800 million (including HK$1,800 million) from the proposed H Share Issuance. The aggregate nominal value of the new A Shares and new H Shares to be issued under the Proposed Share Issuance is not more than RMB1,658,600,397. The net price of each new A Share and new H Share to be issued under the Proposed Share Issuance will be determined and disclosed upon completion of the proposed A Share Issuance and proposed H Share Issuance, respectively, as well as the determination of the relevant expenses incurred or to be incurred in relation to the Proposed Share Issuance in accordance with the requirements of the Listing Rules.

The proceeds from the A Share Issuance and the H Share Issuance (after deduction of relevant expenses for the Proposed Share Issuance) will be utilised to supplement the general working capital of the Company, which mainly includes payment for liquidity expenses incurred during the operation, including but not limited to fuel expenses, take-off and landing expenses, maintenance and repair expenses, and the purchase of aviation materials. It is expected the proceeds will be used up within 6 months from the receipt of the proceeds.

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. As CSAH and Nan Lung are willing to inject further funding to the Company, the Directors consider that it is in the interests of the Company to raise capital directly from CSAH and Nan Lung by way of non-public issue. The Company will be able to raise gross proceeds of not more than RMB4,500 million (including RMB4,500 million) from the proposed A Share Issuance and not more than HK$1,800 million (including HK$1,800 million) from the proposed H Share Issuance, if completed. The Directors consider that the respective A Share Subscription Price and the H Share Subscription Price are fair and reasonable by taking into account the recent trading prices of the A Shares and the H Shares. Having considered the above, the Directors consider the terms of the Proposed Share Issuance are fair and reasonable and in the best interests of the Company and the Shareholders as a whole.

- 18 -

LETTER FROM THE BOARD

The Directors (including the independent non-executive Directors) consider that the terms of the Share Subscription Agreements were entered into after arms-length negotiation and the terms therein are fair and reasonable, the transactions contemplated thereunder are, although not conducted in the ordinary and usual course of business of the Group, on normal commercial terms or better, and are beneficial to the operation and long-term development of the Group and in the interests of the Company and its Shareholders as a whole.

As CSAH is the controlling shareholder of the Company and Nan Lung is a wholly-owned subsidiary of CSAH, they are connected persons of the Company under the Listing Rules. Consequently, the subscription of new A Shares by CSAH and new H Shares by Nan Lung under the Share Subscription Agreements constitute connected transactions of the Company under Chapter 14A of the Listing Rules and are subject to the reporting, announcement and independent Shareholders' approval requirements under the Listing Rules.

The new A Shares and new H Shares to be issued pursuant to the Proposed Share Issuance will be allotted and issued under the General Mandate. Under the General Mandate, the Board is authorised to issue Shares not exceeding 20% of the total number of each of the existing A Shares and H Shares in issue as at the date of the 2020 annual general meeting of the Company held on 30 June 2021, being a maximum of 2,534,651,815 A Shares and 855,028,969 H Shares, respectively. As at the Latest Practicable Date, the Company has not issued any Shares pursuant to the General Mandate. The issue of new A Shares and new H Shares under the General Mandate is not subject to Shareholders' approval, however, as disclosed above, the subscription of new A Shares by CSAH and the subscription of new H Shares by Nan Lung constitute connected transactions of the Company and are subject to Independent Shareholders' approval at a general meeting. In addition, pursuant to the Articles of Association and relevant laws and regulations in the PRC, the A Share Issuance is subject to Shareholders' approval.

Among the six Directors, two connected Directors, Mr. Ma Xu Lun and Mr. Han Wen Sheng, were required to abstain from voting in the Board meeting in respect of the resolutions to approve the Share Subscription Agreements and the transactions contemplated thereunder due to their positions held in CSAH. All remaining four Directors who were entitled to vote, unanimously approved the above resolutions. The format and procedure for passing the resolutions were in compliance with the Company Law of the People's Republic of China and the Articles of Association.

- 19 -

LETTER FROM THE BOARD

The Independent Financial Adviser has been appointed to advise the Independent Board Committee and the Independent Shareholders, and the Independent Board Committee comprising all four independent non-executive Directors has been established to advise the Independent Shareholders, in respect of the Share Subscription Agreements and the transactions contemplated thereunder.

In respect of the proposed resolution to approve the Proposed Share Issuance, the Share Subscription Agreements and the transactions contemplated thereunder, as at the Latest Practicable Date, CSAH and its associates, i.e., Nan Lung and Perfect Lines (Hong Kong) Limited, who are directly and indirectly holding an aggregate of 10,880,881,085 Shares, representing approximately 64.20% of the issued share capital of the Company, are required to abstain from voting at the EGM. Each of CSAH, Nan Lung and Perfect Lines (Hong Kong) Limited controls or is entitled to exercise control over the voting right in respect of its respective Shares in the Company.

The Company

The principal business activity of the Company is civil aviation service.

CSAH

CSAH is a state-owned enterprise established in the PRC. The principal business activity of CSAH are (i) operating the Group and other enterprises which the Group invested in and which constitutes wholly state-owned assets and state-owned equity formed through the state's investments; (ii) engaging in operations in air transportation, as well as other relevant industries including import and export trading, financing, construction and development and media and advertising through CSAH's subsidiaries.

Nan Lung

Nan Lung is a company incorporated in Hong Kong and a direct wholly-owned subsidiary of CSAH. The principal business activity of Nan Lung is investment holding. The ultimate beneficial owner of Nan Lung is CSAH.

Upon completion of the Proposed Share Issuance, the articles regarding the registered share capital, the number of Shares, the shareholding structure and/or the Shareholders of the Company will change and therefore, the Articles of Association will be required to be amended to reflect the relevant changes. The Board proposes to seek the approval of the Shareholders at the EGM to authorise the Board to make corresponding amendments to relevant provisions in the Articles of Association based on the results of the Proposed Share Issuance, and to make relevant registration of change.

- 20 -

LETTER FROM THE BOARD

On 29 October 2021, the Supervisory Committee resolved to propose to appoint Mr. Ren Ji Dong ("Mr. Ren") as a shareholder representative Supervisor of the 9th session of the Supervisory Committee (the "Proposed Appointment").

In accordance with the Articles of Association, the Proposed Appointment is subject to the approval by the Shareholders at the EGM. Upon due appointment of Mr. Ren, he will enter into a service contract with the Company and shall hold his office until the expiration of the term of the current session of the Supervisory Committee.

The biographical details of Mr. Ren are as follows:

Mr. Ren Ji Dong, male, born in January 1965 (aged 56), 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. Mr. Ren began his career in August 1986 and joined the Chinese Communist Party in June 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, Chairman of the Labor Union of China Southern Air Holding Company Limited and Chairman of the Labor Union of the Company from August 2021.

Pursuant to the "Administrative Measures on Supervisors' Remuneration of China Southern Airlines Company Limited", the emolument of a Supervisor is determined with reference to the responsibilities, risk and contributions of his/her position. Mr. Ren will not receive any remuneration from the Company for his role as a Supervisor.

As at the Latest Practicable Date, save as disclosed, Mr. Ren (i) had not held any directorships in other publicly listed companies in the last three years; (ii) had not had any relationship with any Directors, Supervisors, senior management, substantial or controlling shareholders of the Company; and (iii) had not had any interests in the Shares within the meaning of Part XV of the SFO.

There is no other matter that need to be brought to the attention of the Shareholders in connection with the Proposed Appointment, nor is there any other information to be disclosed pursuant to Rule 13.51(2)(h) to (v) of the Listing Rules.

- 21 -

LETTER FROM THE BOARD

On 27 August 2021, the Board convened the second meeting of the ninth session of the Board and approved, among others, the resolutions in relation to the proposed amendments to the Articles of Association and to the Procedural Rules of the Board of Directors (the "Proposed Amendments").

The Proposed Amendments are made pursuant to the following reasons:

For details of the Proposed Amendments, please refer to Appendix V to this circular.

Except for the clause as stated in Appendix V to this circular, other clauses in the Articles of Association and the Procedural Rules of the Board of Directors remain unchanged.

The Proposed Amendments are subject to the approval of the Shareholders by way of a special resolution at the EGM, and the obtaining of any approval, endorsement or registration (as applicable) from or with the relevant government authorities in the PRC.

The EGM will be held to consider and, if thought fit, approve (i) the Proposed Share Issuance; (ii) the proposed amendments to the Articles of Association in relation to the Proposed Share Issuance; (iii) the proposed appointment of Supervisor; and (iv) the proposed amendments to the Articles of Association and to the Procedural Rules of the Board of Directors. The EGM will be held at No. 3301 Conference Room, 33/F, China Southern Air Building, No. 68 Qixin Road, Baiyun District, Guangzhou, the PRC at 9 a.m. on, Tuesday, 28 December 2021.

The notice of the EGM is set out on pages EGM-1 to EGM-6 of this circular and is also published on the website of the Stock Exchange (http://www.hkexnews.hk) and the Company (http://www.csair.com).

- 22 -

LETTER FROM THE BOARD

Whether or not you intend to be present at the EGM or any adjournment thereof, you are requested to complete the form of proxy in accordance with the instructions printed thereon and return the same to the Hong Kong Registrars Limited at 17M Floor, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong (for holders of H Shares) or the principal office of the Company in the PRC at No. 68 Qixin Road, Baiyun District, Guangzhou, PRC 510403 (for holders of A Shares), by no later than 24 hours before the time fixed for holding the EGM or any adjournment thereof. Completion and delivery of the form of proxy will not prevent you from attending and voting at the EGM or any adjournment thereof if you so wish.

Pursuant to rule 13.39(4) of the Listing Rules and the Articles of Association, any vote of the Shareholders at the EGM must be taken by poll.

The register of holders of H Shares will be closed from Friday, 26 November 2021 to Tuesday, 28 December 2021, both days inclusive, during which period no transfer of H Shares will be effected. In order to qualify for attending the EGM, all transfer documents of H Shares accompanied by the relevant share certificates must be lodged with the Hong Kong Registrars Limited at 17M Floor, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong by no later than 4:30 p.m. on Thursday, 25 November 2021.

The Directors consider that (i) the Proposed Share Issuance; (ii) the proposed amendments to the Articles of Association in relation to the Proposed Share Issuance; (iii) the proposed appointment of Supervisor; and (iv) the proposed amendments to the Articles of Association and to the Procedural Rules of the Board of Directors are in the interests of the Group and the Shareholders as a whole. Accordingly, the Directors recommend that Shareholders to vote in favour of the abovementioned resolutions to be proposed at the EGM.

Having taken into account the advice of Independent Financial Adviser, the Independent Board Committee considers that (i) the terms of the Share Subscription Agreements are fair and reasonable, (ii) the Share Subscription Agreements and the transactions contemplated thereunder are, although not conducted in the ordinary and usual course of business of the Group, on normal commercial terms or better, and (iii) the Share Subscription Agreements and the transactions contemplated thereunder are in the interests of the Company and the Shareholders as a whole. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the relevant resolutions to be proposed at the EGM in respect of the Proposed Share Issuance, the Share Subscription Agreements and the transactions contemplated thereunder.

- 23 -

LETTER FROM THE BOARD

Your attention is drawn to the letter from the Independent Board Committee as set out on pages 25 to 26 of this circular which contains its recommendation to the Independent Shareholders as to voting in respect of the Proposed Share Issuance, the Share Subscription Agreements and the transactions contemplated thereunder at the EGM and to the letter from the Independent Financial Adviser as set out on pages 27 to 51 of this circular which contains its advice to the Independent Board Committee and the Independent Shareholders in relation to the Proposed Share Issuance, the Share Subscription Agreements and the transactions contemplated thereunder therein.

Your attention is also drawn to the additional information set out in the Appendices to this circular.

- 24 -

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

11 November 2021

To the Independent Shareholders

Dear Sir or Madam,

CONNECTED TRANSACTIONS

IN RESPECT OF PROPOSED SHARE ISSUANCE

INTRODUCTION

We refer to a circular (the "Circular") of the Company dated 11 November 2021 of which this letter forms part. Terms used in this letter have the same meaning as defined in the Circular unless the context otherwise requires.

We have been appointed by the Board as the Independent Board Committee to advise you on whether, in our opinion, (i) the terms of the Share Subscription Agreements are fair and reasonable, (ii) the Share Subscription Agreements and the transactions contemplated thereunder are on normal commercial terms or better and in the ordinary and usual course of business of the Group, and (iii) the Share Subscription Agreements and the transactions contemplated thereunder are in the interests of the Company and the Shareholders as a whole. Lego Corporate Finance Limited has been appointed as the Independent Financial Adviser to advise us and the Independent Shareholders in this regard.

We wish to draw your attention to the letter from the Board as set out on pages 4 to 24 of the Circular and the letter from the Independent Financial Adviser as set out on pages 27 to 51 of the Circular, which contains, inter alia, its advice and recommendation regarding the terms of the Share Subscription Agreements and the transactions contemplated thereunder with the principal factors and reasons for its advice and recommendation.

RECOMMENDATION

Having considered the terms of the Share Subscription Agreements and the transactions contemplated thereunder and taking into account the advice and recommendation of the Independent Financial Adviser, we are of the view that (i) the terms of the Share Subscription Agreements are fair and reasonable, (ii) the Share Subscription Agreements and the transactions contemplated thereunder are, although not conducted in the ordinary and usual course of business of the Group, on normal commercial terms or better, and (iii) the Share Subscription Agreements and the transactions contemplated thereunder are in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Shareholders to vote in favour of the relevant resolutions regarding the Share Subscription Agreements and the transactions contemplated thereunder at the EGM.

- 25 -

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

CHINA SOUTHERN AIRLINES COMPANY LIMITED

Independent Non-executive Directors

- 26 -

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the full text of a letter of advice from Lego Corporate Finance Limited to the Independent Board Committee and the Independent Shareholders in respect of the Proposed Share Issuance, which has been prepared for the purpose of inclusion in this circular.

11 November 2021

To: The Independent Board Committee and the Independent Shareholders of

China Southern Airlines Company Limited

Dear Sirs or Madams,

CONNECTED TRANSACTIONS IN RESPECT

OF THE PROPOSED SHARE ISSUANCE

INTRODUCTION

We refer to our appointment as the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Proposed Share Issuance, details of which are set out in the letter from the Board (the "Letter from the Board") contained in the circular of the Company to the Shareholders dated 11 November 2021 (the "Circular"), of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as those defined in the Circular unless otherwise defined or the context requires otherwise.

On 29 October 2021, the Board resolved to put forward to the EGM to approve the A Shares Subscription Agreement and the connected transaction in relation to the proposed issuance of 803,571,428 new A Shares to CSAH 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, which will be utilised to supplement the general working capital of the Company. On 29 October 2021, the Board also resolved to put forward to the EGM to approve the H Shares Subscription Agreement and the connected transaction in relation to the issuance of not more than 855,028,969 new H Shares to Nan Lung (a wholly-owned subsidiary of CSAH) 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, 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 new H Shares to be issued pursuant to the Proposed Share Issuance will be allotted and issued under the General Mandate. Under the General Mandate, the Board is authorised to issue Shares not exceeding 20% of the total number of each of the existing A Shares and H Shares in issue as at the date of the Company's 2020 annual general meeting held on 30 June 2021, being a maximum of 2,534,651,815 A Shares and 855,028,969 H Shares, respectively. As at the Latest Practicable Date, the Company has not issued any Shares pursuant to the General Mandate.

- 27 -

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As CSAH is the controlling shareholder of the Company and Nan Lung is a wholly-owned subsidiary of CSAH, they are connected persons of the Company under the Listing Rules. Accordingly, the subscription of new A Shares by CSAH and new H Shares by Nan Lung under the Share Subscription Agreements constitute connected transactions of the Company under Chapter 14A of the Listing Rules and are subject to the reporting, announcement and independent Shareholders' approval requirements under the Listing Rules.

INDEPENDENT BOARD COMMITTEE

The Independent Board Committee comprising all the independent non-executive Directors, namely Mr. Liu Chang Le, Mr. Gu Hui Zhong, Mr. Guo Wei and Mr. Yan Andrew Y, has been established to advise the Independent Shareholders as to (i) whether the terms of the Share Subscription Agreements are on normal commercial terms and fair and reasonable; and (ii) whether the Proposed Share Issuance is in the ordinary and usual course of business of the Group and in the interests of the Company and the Shareholders as a whole. We, Lego Corporate Finance Limited, have been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in this regard.

OUR INDEPENDENCE

As at the Latest Practicable Date, we did not have any relationships or interests with the Company or any other parties that could reasonably be regarded as relevant to our independence. In the last two years prior to the Latest Practicable Date, there was no engagement between the Company and us. Apart from normal professional fees paid or payable to us in connection with this appointment, no arrangement exists whereby we had received or will receive any fees or benefits from the Company. Accordingly, we are qualified to give independent advice in respect of the Proposed Share Issuance.

BASIS OF OUR OPINION

In formulating our opinion and recommendations to the Independent Board Committee and the Independent Shareholders, we have relied on the information, facts and representations contained or referred to in the Circular and the information, opinions and representations provided or expressed to us by the Directors and/or the management of the Company (the "Management"). We have assumed that all information, facts and representations contained or referred to in the Circular, and all information, opinions and representations provided or expressed by the Directors and/or the Management, for which they are solely responsible, were true, accurate and complete in all material respects at the time when they were provided and continue to be so as at the Latest Practicable Date and that they may be relied upon in formulating our opinion. We have also assumed that all such opinions and statements of intention or belief expressed by the Directors and/or the Management and those as set out or referred to in the Circular were reasonably made after due and careful enquiries.

The Directors have confirmed to us that no material facts have been withheld or omitted from the information provided, representations made or opinions expressed. We have no reason to suspect that any relevant information has been withheld or omitted, nor are we aware of any facts or circumstances which would render the information provided, representations made or opinions expressed to us untrue, inaccurate or misleading. We consider that we have been provided with, and have reviewed, sufficient information currently available, and that we have performed all the necessary steps to enable us to reach an informed view and to justify our reliance on the information provided so as to provide a reasonable basis for our opinion. We have not, however, carried out any independent verification of the information provided, representations made or opinions expressed by the Directors and/or the Management, nor have we conducted any form of in-depth investigation into the businesses, affairs, operations, financial position or future prospects of the Group. Our opinion is necessarily based on the financial, economic, market and other conditions in effect, and the information made available to us, as at the Latest Practicable Date.

- 28 -

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in the Circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement therein or the Circular misleading.

This letter is issued for the information of the Independent Board Committee and the Independent Shareholders solely in connection with their consideration of the Proposed Share Issuance. Except for its inclusion in the Circular, this letter is not to be quoted or referred to, in whole or in part, nor shall this letter be used for any other purposes without our prior written consent.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our opinion in respect of the Proposed Share Issuance, we have considered the following principal factors and reasons:

The Company is a joint stock limited liability company incorporated in the PRC on 25 March 1995. The H Shares have been listed on the Stock Exchange since 31 July 1997 and the A Shares have been listed on the Shanghai Stock Exchange since 25 July 2003.

Headquartered in Guangzhou, the Group is principally engaged in provision of civil aviation service. According to the annual report of the Company for the year ended 31 December 2020 (the "2020 Annual Report"), the Group is the biggest airline in China with the largest fleet, the most extensive route network and the largest annual passenger turnover. In 2020, the Group's passenger turnover ranked first among Chinese airlines for 42 consecutive years, and continued to rank first in Asia and at the forefront of the world. According to the interim report of the Company for the six months ended 30 June 2021 (the "2021 Interim Report"), the Group operated a fleet of 869 aircraft as at 30 June 2021.

- 29 -

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Set out below is a summary of the financial results of the Group (i) for the year ended 31 December 2019 ("FY2019") and the year ended 31 December 2020 ("FY2020") as extracted from the 2020 Annual Report; and (ii) for the six months ended 30 June 2020 ("1H2020") and the six months ended 30 June 2021 ("1H2021") as extracted from the 2021 Interim Report:

For FY2019 and FY2020

As disclosed in the 2020 Annual Report, the Group's total operating revenue decreased by approximately 40.0% from approximately RMB154,322 million for FY2019 to approximately RMB92,561 million for FY2020. Such decrease was primarily due to the substantial year-to-year decrease in passenger revenue of approximately RMB67,968 million caused by the decrease of traffic volume and air ticket price resulted from insufficient passenger confidence for travel and travel restriction due to the impact of the COVID-19 pandemic. The Group recorded an operating loss of approximately RMB11,864 million for FY2020 as compared to an operating profit of approximately RMB10,838 million for FY2019, mainly resulting from the decrease in traffic revenue due to the impact of the COVID-19 pandemic on the aviation industry. As a result, the Group recorded a net loss of approximately RMB11,827 million for FY2020 as compared to a net profit of approximately RMB3,084 million for FY2019.

For 1H2020 and 1H2021

As disclosed in the 2021 Interim Report, the Group's total operating revenue increased by approximately 32.4% from approximately RMB38,964 million for 1H2020 to approximately RMB51,576 million for 1H2021. Such increase was mainly attributable to the period-to-period increase in passenger revenue of approximately RMB10,898 million, owing to the recovery of China's civil aviation industry under the effective prevention and control of the COVID-19 pandemic in China. Due to such increase in operating revenue, the Group's operating loss dropped by approximately 55.6% from approximately RMB6,891 million for 1H2020 to approximately RMB3,057 million for 1H2021. As a result, the Group successfully narrowed the net loss from approximately RMB9,482 million for 1H2020 to approximately RMB3,967 million for 1H2021.

- 30 -

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Set out below is a summary of the financial position of the Group (i) as at 31 December 2019 and 2020 as extracted from the 2020 Annual Report; and (ii) as at 30 June 2021 as extracted from the 2021 Interim Report, respectively:

Notes:

As at 30 June 2021, the Group's non-current assets amounted to approximately RMB287,055 million, which mainly comprised (i) right-of-use assets of approximately RMB147,067 million; (ii) net book value of property, plant and equipment of approximately RMB89,550 million; and (iii) construction in progress of approximately RMB30,356 million. Meanwhile, the Group's current assets mainly consisted of (i) cash and cash equivalents of approximately RMB24,966 million; (ii) other receivables of approximately RMB8,574 million; and (iii) trade receivables of approximately RMB3,883 million. As advised by the Management, among such cash and cash equivalents of approximately RMB24,966 million as at 30 June 2021, approximately RMB12,329 million in aggregate were the unused funds in relation to (i) the non-public issuance of A Shares proposed by the then Board in 2019; and (ii) the issuance of A Share Convertible Bonds proposed by the then Board in 2020 (collectively, the "Previous Fundraising Activities"), which were restricted for their designated uses in accordance with the Previous Fundraising Activities.

- 31 -

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As at 30 June 2021, the Group's non-current liabilities amounted to approximately RMB131,642 million, which mainly comprised (i) lease liabilities of approximately RMB92,267 million; and (ii) borrowings of approximately RMB31,917 million. Meanwhile, the Group's current liabilities mainly consisted of (i) borrowings of approximately RMB48,765 million; (ii) lease liabilities of approximately RMB21,066 million; and (iii) accrued expenses of approximately RMB16,856 million.

The Group recorded net asset value attributable to the Shareholders of approximately RMB75,287 million as at 30 June 2021. Furthermore, the Group was in net current liabilities position of approximately RMB78,752 million, RMB56,696 million and RMB63,126 million as at 31 December 2019, 2020 and 30 June 2021, respectively, with a current ratio of approximately 0.39 times as at 30 June 2021. As at 30 June 2021, the Group's debt-to-asset ratio reached approximately 71.8% and the Group's gearing ratio reached approximately 257.7%.

CSAH, the controlling shareholder of the Company, is a state-owned enterprise established in the PRC. The principal business activities of CSAH are (i) operating the Group and other enterprises which the Group invested in and which constitutes wholly state-owned assets and state-owned equity formed through the state's investments; and (ii) engaging in operations in air transportation, as well as other relevant industries including import and export trading, financing, construction and development and media and advertising through CSAH's subsidiaries.

Nan Lung is a company incorporated in Hong Kong and a direct wholly-owned subsidiary of CSAH. The principal business activity of Nan Lung is investment holding. The ultimate beneficial owner of Nan Lung is CSAH.

As mentioned in the 2021 Interim Report, the COVID-19 pandemic still had a huge impact on the recovery of the global aviation industry in the first half of 2021. While the domestic market of various countries recovered rapidly and the global air cargo market maintained rapid growth, the international passenger transportation market remained sluggish due to different border control and related travel restrictions. The pandemic remains the biggest uncertain factor affecting the recovery of the air transportation industry. As advised by the Management, in order to cope with the uncertainties and complex market environment, the Group will continue to explore various means of financing to enhance its financial resilience against industry risks.

- 32 -

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

With reference to the Letter from the Board, upon completion of the Proposed Share Issuance, the Company will be able to raise gross proceeds of not more than RMB4,500 million from the A Share Issuance and not more than HK$1,800 million from the H Share Issuance. Such gross proceeds are intended to be utilised to supplement the general working capital of the Company, which mainly includes payment for liquidity expenses incurred during the operation, including but not limited to fuel expenses, take-off and landing expenses, maintenance and repair expenses, and the purchase of aviation materials.

According to the 2021 Interim Report, the Group's cash and cash equivalents were approximately RMB24,966 million as at 30 June 2021. As discussed above, excluding the portion of the restricted funds in relation to the Previous Fundraising Activities, the available cash balances of the Group only amounted to approximately RMB12,637 million as at 30 June 2021. Meanwhile, the Group had total borrowings of approximately RMB80,682 million as at 30 June 2021, of which approximately RMB48,765 million are repayable within one year. Furthermore, the Group was in net current liabilities position of approximately RMB78,752 million, RMB56,696 million and RMB63,126 million as at 31 December 2019, 2020 and 30 June 2021, which indicated that the Group has been experiencing shortfall of working capital in recent years. Based on our discussion with the Management, we are given to understand that there is an imminent financing need for the Group to replenish sufficient cash resources for satisfying its financial obligations and supporting its daily operation. The gross proceeds from the Proposed Share Issuance, which will be utilised to supplement the general working capital of the Group, could alleviate the funding pressure of the Group and in turn enhance its financial stability.

Moreover, air transportation industry is a capital-intensive industry which requires substantial capital investments in purchase of aircraft and related equipment. As discussed with the Management, we understand that the Group satisfies the capital expenditures on introduction of aircraft and related equipment generally through own funds, bank facilities, lease arrangements and/or other external financing methods. As a result, the debt-to-asset ratio and gearing ratio of the Group constantly maintain at high levels as illustrated in the section headed "1.1 The Group" above. Upon completion of the Proposed Share Issuance, such gearing position is expected to be improved, which will in turn provide a better environment for the sustainable development of the Group.

Last but not least, the intended subscription for the new A Shares and new H Shares under the Proposed Share Issuance by CSAH, being the controlling shareholder of the Company, demonstrates its confidence in and support for the long-term development of the Group, which is beneficial for the Group to optimise its capital structure, reduce the financial risks and enhance its core competitiveness.

Having considered the above reasons and benefits and the terms of the Share Subscription Agreements being on normal commercial terms and fair and reasonable as discussed below, we are of the view that the Proposed Share Issuance, although not in the ordinary and usual course of business of the Group, is in the interests of the Company and the Shareholders as a whole.

- 33 -

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As advised by the Management, apart from the Proposed Share Issuance, the Board has considered the feasibility of other financing alternatives such as debt financing and other means of equity financing.

In view of the current high debt-to-asset ratio and gearing ratio of the Group, the key objectives of the fundraising exercise are relieving the liquidity pressure of the Group and optimising the overall capital structure of the Group. However, debt financing by bank loans or other debt financing instruments will inevitably incur additional finance costs to the Group and worsen the gearing level and liquidity position of the Group, which will contradict with the Company's original intentions. Besides, debt financing from banks or financial institutions is generally subject to lengthy due diligence and credit risk assessment by banks or financial institutions. Therefore, raising additional funds by debt financing is not favourable to the Group under the current circumstances.

On the other hand, other equity financing methods such as rights issue or open offer are constrained by certain regulatory requirements. According to Article 7 of "Administrative Measures for the Issuance of Securities by Listed Companies" 《( 上市公司證券發行管理辦法》) promulgated by CSRC, PRC listed companies are required to maintain positive earnings for the latest three consecutive financial years in order to conduct public issuance of securities in the PRC. Having impacted by the COVID-19 pandemic, the Group recorded a net loss for FY2020 and therefore it cannot fulfil such requirement to issue A Shares under public offering. Furthermore, according to the "Regulatory Requirements for Guiding and Regulating the Financing Behavior of Listed Companies (Revised Edition)" 《( 關於引導規範上市公司融資行為的監管 要求(修訂版)》) published by CSRC on 14 February 2020, where PRC listed companies conduct fundraising though means other than non-public issuance or placement of shares and preferred shares or issuance to designated persons assigned by the board of directors, the proportion of proceeds to be used in supplement of working capital and debt repayment shall not exceed 30% of the total amount of proceeds. Taking into account the above regulatory requirements and the Company's sole intention to raise sufficient funds to replenish its working capital, it is not practicable for the Group to conduct other means of equity financing under the current circumstances.

In light of the above, the Board considers that the Proposed Share Issuance is comparatively more efficient and cost-effective, and we concur with the Directors' view that the Proposed Share Issuance is the most preferred means of fundraising for the Group under the current circumstances.

On 29 October 2021, the Company entered into the A Shares Subscription Agreement with CSAH, pursuant to which the Company shall issue and CSAH shall subscribe in cash for 803,571,428 new A Shares at the A Share Subscription Price, which is not more than 20% of the number of issued A Shares as at the date of the 2020 annual general meeting of the Company on which the General Mandate was approved, raising gross proceeds of not more than RMB4,500 million which will be utilised to supplement the general working capital of the Company.

- 34 -

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The principal terms of the A Shares Subscription Agreement, details of which are set out in the section headed "1. A Share Issuance - A Shares Subscription Agreement" in the Letter from the Board, are summarised below:

Date

29 October 2021

Parties

(1) The Company, as the issuer

(2) CSAH, as the subscriber

Number of new A Shares to be issued

The Company will issue under the General Mandate and CSAH will subscribe for 803,571,428 new A Shares, which is not more than 20% of the number of issued A Shares as at the date of the 2020 annual general meeting of the Company on which the General Mandate was approved, raising gross proceeds of not more than RMB4,500 million.

If the A Share Subscription Price is adjusted due to ex-right events as mentioned below, the number of new A Shares to be issued will be adjusted accordingly. The final number of A Shares to be issued under the A Share Issuance is subject to the approval of CSRC.

Lock-up period

The new A Shares to be subscribed by CSAH shall not be traded or transferred within 36 months from the completion date of the issuance thereof. The same lock-up requirement is applicable for the A Shares CSAH may subsequently obtain due to distribution of share dividend, transfer to share capital from capital reserve and rights issue by the Company during the lock-up period.

A Share Subscription Price

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.

- 35 -

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

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 A Share. The A Share Subscription Price will not be adjusted by the latest audited net asset value per Share attributable to equity shareholders of the Company in subsequent years.

Where there are 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 Price Benchmark Date to the date of issuance of the new A Shares, the A Share Subscription Price shall be adjusted in view of the ex-right or ex-dividend events. The adjustment methods are set out as follows:

whereas P₁ represents the adjusted issue price, P₀ represents the issue price before adjustment, D represents cash dividends per Share, N represents the number of bonus shares per Share or number of Shares resulting from capitalisation of capital reserve to be issued for each Share, A represents the subscription price of the rights shares, and K represents the number of rights shares to be issued for each Share.

As at the Latest Practicable Date, the Company has no intention to conduct any ex-right or ex-dividend event prior to the A Share Issuance.

- 36 -

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In addition, pursuant to Rule 13.36(5) of the Listing Rules, the A Share Subscription Price shall not represent a discount of 20% or more to the higher of (i) the closing price of the H Shares on the date of the A Shares Subscription Agreement (i.e. 29 October 2021); and (ii) the average closing price of the H Shares in the five trading days immediately prior to the date of the A Shares Subscription Agreement. For illustrative purposes only and based on the central parity rate announced by the People's Bank of China on the date of the A Share Subscription Agreement (HK$1=RMB0.82164), the A Share Subscription Price represents (i) a premium of approximately 43.79% over the closing price of HK$4.740 per H Share quoted on the Stock Exchange on the date of the A Shares Subscription Agreement; and (ii) a premium of approximately 44.52% over the average closing price of HK$4.716 per H Share as quoted on the Stock Exchange for the five trading days immediately prior to the date of the A Shares Subscription Agreement.

Despite any subsequent corporate events which may lead to an adjustment in the A Share Subscription Price, the Company will take all actions in its power to monitor and control these corporate events so as to ensure that (i) the final A Share Subscription Price is higher than HK$3.792, being a discount of 20% of the higher of the abovementioned benchmark prices; and (ii) the number of new A Shares to be issued will not exceed 2,534,651,815 A Shares, being the maximum number of A Shares to be issued under the General Mandate. If any corporate event may cause the A Share Issuance to fail to meet the abovementioned requirements, the Company will re-comply with the Listing Rules where necessary.

In order to assess the fairness and reasonableness of the principal terms of the A Shares Subscription Agreement, we have performed the following analysis:

(i) Review of historical A Shares closing prices

The following share price chart illustrates the daily closing price of the A Shares as quoted on the Shanghai Stock Exchange during the period from 1 October 2020 up to and including the Price Benchmark Date (the "Review Period") against the A Share Subscription Price of RMB5.60 per A Share:

Source: Website of the Shanghai Stock Exchange (http://english.sse.com.cn)

- 37 -

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

During the Review Period, the closing price of the A Shares fluctuated between RMB5.23 per A Share and RMB7.17 per A Share, with an average closing price of approximately RMB6.11 per A Share. The lowest closing price of approximately RMB5.23 per A Share was recorded on 4 August 2021 and the highest closing price of approximately RMB7.17 per A Share was recorded on 22 March 2021. It is noted that the A Share Subscription Price is within the range of the lowest and highest closing prices of the A Shares, and represents a premium of approximately 7.1% over the lowest closing price of the A Shares, a discount of approximately 21.9% to the highest closing price of the A Shares and a discount of approximately 8.3% to the average closing price of the A Shares during the Review Period. Furthermore, the A Share Subscription Price represents:

(ii) Comparable issuances

On 14 February 2020, CSRC promulgated the "Decision on Amending the Administrative Measures for Issuance of Securities by Listed Companies" 《( 關於修改〈上市 公司證券發行管理辦法〉的決定》) and "Decision on Amending the Implementation Rules for Non-public Issuance of Shares by Listed Companies" 《( 關於修改〈上市公司非公開發行股票 實施細則〉的決定》) (the "New Issuance Decisions"), pursuant to which, among others, (i) the minimum issue price of A shares under non-public issuance is adjusted from not less than 90% to not less than 80% of the average trading price of the company's shares in the 20 trading days preceding the price benchmark date; and (ii) the lock-up period for the subscriber being the company's controlling shareholder or beneficial owner or their controlled connected person(s) is adjusted from 36 months to 18 months. As disclosed in the Letter from the Board, the A Share Subscription Price is not less than 90% of the average trading price of the A Shares in the 20 trading days immediately prior to the Price Benchmark Date and the lock-up period for CSAH is 36 months. Accordingly, we consider that such basis of determination of the A Share Subscription Price and such lock-up period are in compliance with the New Issuance Decisions.

- 38 -

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

To further assess the fairness and reasonableness of the principal terms of the A Shares Subscription Agreement, we have searched on the website of the Stock Exchange for successful non-public issuances of A shares as announced by companies listed on both (i) the Stock Exchange; and (ii) the Shanghai Stock Exchange or the Shenzhen Stock Exchange during the Review Period. We have, on a best-effort basis, identified 12 comparable issuances (the "Comparable Issuances") which we considered to be exhaustive for comparison purpose and appropriate to demonstrate the prevailing market practice regarding non-public issuances of A shares despite the businesses, operations and prospects of the Group may not be the same as those of the subject companies of the Comparable Issuances. Details of our findings are summarised in the table below:

- 39 -

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Source: Website of the Stock Exchange

- 40 -

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As shown in the table above, the issue price of the Comparable Issuances ranged from (i) a discount of approximately 20% to a premium of approximately 22% to/over the respective average trading price of shares in the 20 trading days preceding the price benchmark date, with an average discount of approximately 12%; and (ii) a discount of approximately 32% to a premium of approximately 593% to/over the respective net asset value per share attributable to the parent company, with an average premium of approximately 141%. Accordingly, the relevant discount to 20-day average trading price and premium over net asset value per share represented by the A Share Subscription Price fall within the aforesaid ranges. It is also noted that the 10% discount to the 20-day average trading price represented by the A Share Subscription Price is lower than the average discount of approximately 12% represented by the issue price of the Comparable Issuances.

Despite the range of the discount/premium to/over the net asset value per share represented by the issue price of the Comparable Issuances is very wide, having taken into account, in particular, (i) that the basis of determination of the A Share Subscription Price is in compliance with the New Issuance Decisions; (ii) that the A Share Subscription Price represents a premium of approximately 23.9% over the latest audited net asset value per Share attributable to equity shareholders of the Company; and (iii) the reasons for and benefits of the Proposed Share Issuance as discussed in the section headed "2. Reasons for and benefits of the Proposed Share Issuance" above, we consider the A Share Subscription Price to be fair and reasonable so far as the Independent Shareholders are concerned.

Furthermore, all of the above Comparable Issuances imposed lock-up restriction ranging from 6 months to 60 months. The lock-up period of 36 months under the A Share Issuance is within such range and in line with the market practice of lock-up period for subscribers being the controlling shareholder of the company.

Based on the above, we are of the opinion that the terms of the A Shares Subscription Agreement are on normal commercial terms and fair and reasonable so far as the Independent Shareholders are concerned.

On 29 October 2021, the Company entered into the H Shares Subscription Agreement with Nan Lung (a wholly-owned subsidiary of CSAH), pursuant to which the Company shall issue and Nan Lung shall subscribe in cash for not more than 855,028,969 new H Shares at the H Share Subscription Price, representing not more than 20% of the number of issued H Shares as at the date of the 2020 annual general meeting of the Company on which the General Mandate was approved, and raising gross proceeds of not more than HK$1,800 million which will be utilised to supplement the general working capital of the Company.

- 41 -

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The principal terms of the H Shares Subscription Agreement, details of which are set out in the section headed "2. H Share Issuance - H Shares Subscription Agreement" in the Letter from the Board, are summarised below:

Date

29 October 2021

Parties

Number of new H Shares to be issued

The Company will issue under the General Mandate and Nan Lung will subscribe for not more than 855,028,969 new H Shares, representing not more than 20% of the number of issued H Shares as at the date of the 2020 annual general meeting of the Company on which the General Mandate was approved, and raising gross proceeds of not more than HK$1,800 million. With reference to the illustrative H Share Subscription Price as mentioned below, the Company may issue 325,497,287 new H Shares.

If the H Share Subscription Price is adjusted due to ex-right events as mentioned below, the number of new H Shares to be issued will be adjusted accordingly.

Lock-up period

The new H Shares to be subscribed by Nan Lung shall not be traded or transferred within 36 months from the completion date of the issuance thereof, except for the transfer of the new H Shares to a wholly-owned or controlled (either directly or indirectly) subsidiary of CSAH as permitted by the laws of the PRC, other laws applicable to the Company and the listing rules of the stock markets where the Company is listed. The said transferee will be subject to the same lock-up period described above immediately and until expiry of such lock-up period. If the respective requirements of CSRC and the stock markets where the Company is listed regarding the lock-up period are different from the terms of the H Shares Subscription Agreement, Nan Lung should comply with the respective requirements of CSRC and the stock markets where the Company is listed.

During the abovementioned lock-up period, if Nan Lung creates a charge or any other security interests over all or part of the new H Shares Nan Lung would obtain pursuant to the proposed H Share Issuance, and where creation of such charge or security interests would necessitate a transfer of the above mentioned new H Shares, Nan Lung warrants that the transferee would be subject to the same lock-up period described above.

- 42 -

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

H Share Subscription Price

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 (i.e. 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. As at 31 December 2020, the audited net asset value per Share attributable to equity shareholders of the Company (ex-dividend) was HK$5.53.

Based on the abovementioned pricing principles and the information available to the Company as at the Latest Practicable Date, the illustrative H Share Subscription Price is HK$5.53 per H Share.

However, the final H Share Subscription Price shall be determined with reference to the latest audited net asset value per Share attributable to equity shareholders of the Company as at the issuance of the new H Shares. If the H Share Issuance takes place after the publication of the annual results of the Company for the year ended 31 December 2021, the H Share Subscription Price shall be the higher of HK$4.68 per H Share and the audited net asset value per Share attributable to equity shareholders of the Company as at 31 December 2021 in HK$ calculated based on the central parity rate announced by the People's Bank of China on the Board Meeting Date (HK$1=RMB0.82164) (rounded up to the nearest two decimal places).

- 43 -

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Where there are 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 Board Meeting Date to the date of issuance of the new H Shares, the H Share Subscription Price shall be adjusted in view of the ex-right or ex-dividend events. The adjustment methods are set out as follows:

whereas P₁ represents the adjusted issue price, P₀ represents the issue price before adjustment, D represents cash dividends per Share, N represents the number of bonus shares per Share or number of Shares resulting from capitalisation of capital reserve to be issued for each Share, A represents the subscription price of the rights shares, and K represents the number of rights shares to be issued for each Share.

As at the Latest Practicable Date, the Company has no intention to conduct any ex-right or ex-dividend event prior to the H Share Issuance.

In addition, pursuant to Rule 13.36(5) of the Listing Rules, the H Share Subscription Price shall not represent a discount of 20% or more to the higher of (i) the closing price of the H Shares on the date of the H Shares Subscription Agreement (i.e. 29 October 2021); and (ii) the average closing price of the H Shares in the five trading days immediately prior to the date of the H Shares Subscription Agreement. Accordingly, the H Share Subscription Price in any event shall be higher than HK$3.792, which represents a discount of 20% of the higher of (i) the closing price of HK$4.740 per H Share quoted on the Stock Exchange on the date of the H Shares Subscription Agreement; and (ii) the average closing price of HK$4.716 per H Share as quoted on the Stock Exchange for the five trading days immediately prior to the date of the H Shares Subscription Agreement.

Despite any subsequent corporate events which may lead to an adjustment in the H Share Subscription Price, the Company will take all actions in its power to monitor and control these corporate events so as to ensure that (i) the final H Share Subscription Price is higher than HK$3.792; and (ii) the number of new H Shares to be issued will not exceed 855,028,969 H Shares, being the maximum number of H Shares to be issued under the General Mandate. If any corporate event may cause the H Share Issuance to fail to meet the abovementioned requirements, the Company will re-comply with the Listing Rules where necessary.

- 44 -

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In order to assess the fairness and reasonableness of the principal terms of the H Shares Subscription Agreement, we have performed the following analysis:

The following share price chart illustrates the daily closing price of the H Shares as quoted on the Stock Exchange during the Review Period against the illustrative H Share Subscription Price of HK$5.53 per H Share:

Source: Website of the Stock Exchange

During the Review Period, the closing price of the H Shares fluctuated between HK$3.94 per H Share and HK$6.20 per H Share, with an average closing price of approximately HK$4.83 per H Share. The lowest closing price of approximately HK$3.94 per H Share was recorded on 4 August 2021 and the highest closing price of approximately HK$6.20 per H Share was recorded on 16 March 2021. It is noted that the illustrative H Share Subscription Price is within the range of the lowest and highest closing prices of the H Shares, and represents a premium of approximately 40.4% over the lowest closing price of the H Shares, a discount of approximately 10.8% to the highest closing price of the H Shares and a premium of approximately 14.5% over the average closing price of the H Shares during the Review Period. Furthermore, the illustrative H Share Subscription Price represents:

- 45 -

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(ii) Comparable issuances

To further assess the fairness and reasonableness of the principal terms of the H Shares Subscription Agreement, we have searched on the website of the Stock Exchange for transactions regarding subscription of H shares by connected person(s) as announced by companies whose H shares are listed on the Stock Exchange during the Review Period. However, on a best-effort basis, we could not identify any comparable issuances based on the aforesaid criteria. Alternatively, we have performed our analysis on the share prices of comparable companies as below.

(iii) Comparable companies

We attempted to perform a trading multiples analysis of price-to-earnings ("P/E") ratio and price-to-book ("P/B") ratio of comparable companies. Given the Group is principally engaged in provision of civil aviation service in the PRC, we have conducted a search for comparable companies which are (i) listed on the Stock Exchange; and (ii) principally engaged in provision of air transportation service in the PRC and the Asia Pacific region. To the best of our knowledge and as far as we are aware of, we have identified three comparable companies (the "Comparable Companies") and details of our analysis are summarised in the table below:

- 46 -

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Source: Website of the Stock Exchange

Notes:

- 47 -

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Due to the net loss position of the Group and the Comparable Companies for FY2020, no P/E ratio analysis can be performed in this regard. However, as the air transportation industry is asset-intensive in nature, we consider that it is also appropriate to compare the P/B ratio of the Comparable Companies with the implied P/B ratio of the illustrative H Share Subscription Price.

As set out in the table above, the historical P/B ratio of the Comparable Companies ranged from approximately 0.66 times to approximately 0.92 times, with a median of approximately 0.82 times and an average of approximately 0.80 times. We noted that the implied P/B ratio of the illustrative H Share Subscription Price of approximately 1.02 times is higher than the upper end of such range, which we consider to be favourable to the Independent Shareholders.

Taking into account of the above and that the H Share Subscription Price will not be lower than the latest audited net asset value per Share attributable to equity shareholders of the Company as at the issuance of the new H Shares, we consider the H Share Subscription Price to be fair and reasonable so far as the Independent Shareholders are concerned.

Based on the above, we are of the opinion that the terms of the H Shares Subscription Agreement are on normal commercial terms and fair and reasonable so far as the Independent Shareholders are concerned.

As at the Board Meeting Date, the closing price of the A Shares was RMB6.56 (equivalent to approximately HK$7.98) per A Share, representing a premium of approximately 68.4% over the closing price of the H Shares of HK$4.74 per H Share. We also noted that the A Share Subscription Price represents a premium of approximately 23.3% over the illustrative H Share Subscription Price, which is mainly attributable to the difference in valuation between the A shares market and the H shares market.

Moreover, as at the Latest Practicable Date, the Company has 12,673,276,199 A Shares and 4,275,144,849 H Shares in issue, with the number of A Shares being roughly three times of the number of H Shares. Based on the A Share Subscription Price of RMB5.60 per A Share and the illustrative H Share Subscription Price of HK$5.53 per H Share, the number of new A Shares to be issued is also roughly three times of the number of new H Shares to be issued. As stated in the Letter from the Board, the Company will be able to maintain the ratio of the number of A Shares against the number of H Shares at roughly 3:1 by conducting the H Share Issuance in addition to the A Share Issuance. As further stated in the Letter from the Board, the Company has no special consideration for foreign exchange control under relevant laws and regulations when contemplating the H Share Issuance. Notwithstanding the abovementioned premium of the A Share Subscription Price over the illustrative H Share Subscription Price, the A Share Issuance and H Share Issuance can help the Group to raise funds from onshore and offshore, respectively, which demonstrates the Group's confidence in both A shares market and H shares market and in turn helps to minimise the impact on the Share price in both markets brought by the Proposed Share Issuance.

- 48 -

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

On the above basis, we are of the view that it is beneficial for the Group to raise funds by the A Share Issuance and H Share Issuance together to satisfy the need of additional working capital and achieve its long-term business growth.

As at 30 June 2021, the Group was in net current liabilities position of approximately RMB63,126 million. As the gross proceeds to be raised from the Proposed Share Issuance will be utilised to supplement the working capital of the Group, it is expected that the cash position and working capital of the Group will be improved upon completion of the Proposed Share Issuance.

As at 30 June 2021, the consolidated net asset value of the Group attributable to equity shareholders of the Company was approximately RMB75,287 million. Upon completion of the Proposed Share Issuance, there will be a positive impact on the net asset value of the Group as a result of the increase in total assets of the Group by the gross proceeds to be raised from the Proposed Share Issuance.

As at 30 June 2021, the gearing ratio of the Group, being the total borrowings and lease liabilities of the Group divided by the total equity attributable to the Shareholders, was approximately 257.7%. Upon completion of the Proposed Share Issuance, the equity base of the Company will be increased by the gross proceeds to be raised therefrom. Accordingly, assuming the total borrowings and lease liabilities of the Group would remain the same, the gearing level of the Group will be reduced.

Shareholders are reminded that the above analysis is for illustrative purposes only and does not purport to represent how the financial position of the Group would be upon completion of the Proposed Share Issuance.

As at the Latest Practicable Date, the total issued share capital of the Company was 16,948,421,048 Shares, which comprised 12,673,276,199 A Shares and 4,275,144,849 H Shares. As at the Latest Practicable Date, the A Share Convertible Bonds with a nominal value of RMB5,896,699,000 were outstanding. Assuming the outstanding A Share Convertible Bonds are fully converted based on the conversion price of RMB6.24 per Share, the Company may issue approximately 944,983,814 A Shares.

- 49 -

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following table sets out the shareholding structure of the Company as at the Latest Practicable Date and immediately after completion of the Proposed Share Issuance (assuming a maximum of 803,571,428 new A Shares and 855,028,969 new H Shares are fully subscribed and issued):

As illustrated in the table above, (i) assuming none of the outstanding A Share Convertible Bonds is converted, the shareholding of the public A Shareholders will be decreased from approximately 24.03% to approximately 21.89% and the shareholding of the public H Shareholders will be decreased from approximately 11.77% to approximately 10.72%, with an overall dilution effect of approximately 3.19% immediately after completion of the Proposed Share Issuance; and (ii) assuming the outstanding A Share Convertible Bonds are fully converted, the shareholding of the public A Shareholders will be increased from approximately 24.03% to approximately 25.66% and the shareholding of the public H Shareholders will be decreased from approximately 11.77% to approximately 10.20%, with a slight increase in public float of approximately 0.06% immediately after completion of the Proposed Share Issuance.

Nevertheless, taking into account (i) the reasons for and benefits of the Proposed Share Issuance as discussed in the section headed "2. Reasons for and benefits of the Proposed Share Issuance" above; (ii) the appropriateness of raising capital by way of the Proposed Share Issuance as discussed in the section headed "3. Other financing alternatives available to the Group" above; (iii) the fairness and reasonableness of the terms of the Share Subscription Agreements as discussed in the sections headed "4. A Share Issuance" and "5. H Share Issuance" above; and (iv) the positive financial effects of the Proposed Share Issuance as discussed in the section headed "7. Possible financial effects of the Proposed Share Issuance" above, we are of the view that the aforementioned dilution effect on the shareholding of existing public Shareholders as a result of the Proposed Share Issuance is acceptable.

RECOMMENDATION

Having considered the above principal factors and reasons, we are of the opinion that (i) the terms of the Share Subscription Agreements are on normal commercial terms and fair and reasonable so far as the Independent Shareholders are concerned; and (ii) although the Proposed Share Issuance is not in the ordinary and usual course of business of the Group, it is in the interests of the Company and the Shareholders as a whole. Accordingly, we advise the Independent Board Committee to recommend, and we ourselves recommend, the Independent Shareholders to vote in favour of the relevant resolutions to be proposed at the EGM to approve the Proposed Share Issuance.

- 50 -

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Ms. Kristie Ho is a licensed person registered with the Securities and Futures Commission and a responsible officer of Lego Corporate Finance Limited to carry out Type 6 (advising on corporate finance) regulated activity under the SFO. She has over 16 years of experience in the securities and investment banking industries.

- 51 -

REPORT ON USE OF PROCEEDS FROM PREVIOUS FUND RAISING

ACTIVITIES AS OF 30 SEPTEMBER 2021

According to the "Rules Concerning the Report on the Use of Proceeds from Previous Fund Raising Activities" (Zheng Jian Fa Xing Zi [2007] No. 500) issued by the China Securities Regulatory Commission, the use of the proceeds from previous fund raising activities as of 30 September 2021 of China Southern Airlines Company Limited (hereinafter referred to as "China Southern Airlines" or the "Company") is reported as follows:

As approved by the Approval on the Non-public Issuance of Shares of China Southern Airlines Company Limited (Zheng Jian Xu Ke [2020] No. 918) issued by the China Securities Regulatory Commission (hereinafter referred to as "CSRC"), China Southern Airlines issued 2,453,434,457 A Shares by way of non-public issuance to China Southern Air Holding Company Limited at an issue price of RMB5.21 per share on 11 June 2020. The gross proceeds from the issuance was RMB12,782,393,520.97, and after deduction of sponsorship and underwriting expenses of RMB2,000,000.00 (VAT inclusive), the actual net subscription amount in cash received was RMB12,780,393,520.97. After deduction of other issuance expenses (VAT inclusive) paid by the Company of RMB4,308,207.55 in total, the actual net proceeds was RMB12,776,085,313.42.

The proceeds was received on 11 June 2020. KPMG Huazhen (SGP) inspected the availability of the proceeds and issued a capital verification report (KPMG Huazhen Yan Zi No. 2000486) on 12 June 2020.

As approved by the Approval on Issuance of Overseas Listed Foreign Shares by China Southern Airlines Company Limited (Zheng Jian Xu Ke [2020] No. 547) issued by the CSRC, China Southern Airlines issued 608,695,652 H Shares by way of non- public issuance to Nan Lung Holding Limited at an issue price of HK$5.75 per share on 15 April 2020. The gross proceeds of HK$3,499,999,999.00 was received on 15 April 2020, and converted into RMB3,178,664,999.09 based on the middle exchange rate for Hong Kong dollar to Renminbi on 15 April 2020 (HK$1 = RMB0.90819). In addition, after deduction of issuance expenses, being equivalent to RMB3,570,544.56, the net proceeds was RMB3,175,094,454.53.

- I-1 -

The proceeds was received on 15 April 2020. KPMG Huazhen (SGP) inspected the availability of the proceeds and issued a capital verification report (KPMG Huazhen Yan Zi No. 2000406) on 28 April 2020.

As approved by the Approval on Public Issuance of Convertible Bonds by China Southern Airlines Company Limited (Zheng Jian Xu Ke [2020] No. 2264) issued by the CSRC, China Southern Airlines publicly issued a total of 160,000,000 A Share convertible corporate bonds (hereinafter referred to as the "Convertible Bonds") with a nominal value of RMB100.00 each. The gross proceeds from the issuance were RMB16,000,000,000.00, and after deduction of sponsorship and underwriting expenses of RMB17,691,726.00 (VAT inclusive), the actual net subscription amount in cash received was RMB15,982,308,274.00. After deduction of other issuance expenses (VAT inclusive) paid by the Company of RMB2,704,354.28 in total, the actual net proceeds was RMB15,979,603,919.72.

The proceeds was received on 21 October 2020. KPMG Huazhen (SGP) inspected the availability of the proceeds and issued a capital verification report (KPMG Huazhen Yan Zi No. 2000749) on 21 October 2020.

China Southern Airlines opens special accounts for proceeds raised in accordance with the Shanghai Stock Exchange Share Listing Rules 《( 上海證券交易所股票上市規則》), No. 2 Regulatory Guidance on Listed Companies - Regulatory Requirements for Management and Use of Raised Funds 《( 上市公司監管指引第2號-上市公司募集資金管理和使用的監管要 求》), Administrative Measures of the Shanghai Stock Exchange for the Proceeds of Listed Companies (2013 Revision) 《( 上海證券交易所上市公司募集資金管理辦法 (2013年修訂)》) and Use and Management System of Raised Funds of China Southern Airlines Company Limited 《( 中國南方航空股份有限公司募集資金使用與管理制度》) (hereinafter referred to as the "Raised Funds Management System") of the Company, and sets out provisions on the deposit and utilization of proceeds raised, project implementation management, investment project changes and supervision of utilization.

- I-2 -

Upon receipt of the proceeds, China Southern Airlines set up special accounts for the proceeds at Foshan Branch of China Everbright Bank Company Limited, a subordinate branch of Guangzhou Branch, based on the actual needs of projects financed by the proceeds. The proceeds would be earmarked for intended purposes. China Southern Airlines and the sponsor China International Capital Corporation Limited (hereinafter referred to as "CICC") signed a Tripartite Supervision Agreement on Proceeds Raised with China Everbright Bank Company Limited Guangzhou Branch on 12 June 2020. On 13 October 2020, the 8th session of the board of directors of China Southern Airlines reviewed and approved the addition of Southern Airlines Nansha Finance Leasing (Guangzhou) Co., Ltd. (hereinafter referred to as "Nansha Leasing Company"), a wholly-owned subsidiary of China Southern Airlines, as an implementation entity of the project "Procurement of 31 Aircraft" to be financed by the proceeds from the Non-public Issuance of A Shares in 2020, which means China Southern Airlines and Nansha Leasing Company would act as the joint implementation entities of the above projects. On 22 October 2020, China Southern Airlines, Nansha Leasing Company, the sponsor CICC and China Everbright Bank Company Limited Guangzhou Branch signed a Four-Party Supervision Agreement on Special Account Keeping for Proceeds Raised. Nansha Leasing Company opened a special account at Guangzhou Tianhe Sub-branch, a subordinate branch of China Everbright Bank Company Limited Guangzhou Branch, for the proceeds from the Non-public Issuance of A Shares in 2020. All proceeds raised from the Non-public Issuance of A Shares in 2020 and allocated based on the payment schedule regarding Nansha Leasing Company's aircraft introduction was temporarily deposited in the special account for the proceeds.

As of 30 September 2021, the balance of the special account for proceeds raised is as follows:

Unit: RMB

In order to improve the efficiency of utilizing the proceeds, China Southern Airlines utilized idle proceeds to subscribe for large-value certificate of deposit for corporate purposes and 7-day notice deposit certificate. The details of the above-mentioned investment products for cash management are as follows:

- I-3 -

Unit: RMB

Unit: RMB

China Southern Airlines opens special accounts for proceeds raised in accordance with the Shanghai Stock Exchange Share Listing Rules 《( 上海證券交易所股票上市規則》), No. 2 Regulatory Guidance on Listed Companies - Regulatory Requirements for Management and Use of Raised Funds 《( 上市公司監管指引第2號-上市公司募集資金管理和使用的監管要求》), Administrative Measures of the Shanghai Stock Exchange for the Proceeds of Listed Companies (2013 Revision) 《( 上海證券交易所上市公司募集資金管理辦法 (2013年修訂)》) and Raised Funds Management System of the Company, and sets out provisions on the deposit and utilization of proceeds raised, project implementation management, investment project changes and supervision of utilization.

- I-4 -

Upon receipt of the proceeds, China Southern Airlines set up special accounts for the proceeds at Foshan Branch of China Everbright Bank Company Limited, a subordinate branch of Guangzhou Branch based on the actual needs of projects to be financed by the proceeds. The proceeds would be earmarked for intended purposes. China Southern Airlines and the sponsor CICC signed the Tripartite Supervision Agreement on Special Account Keeping for Proceeds Raised with China Everbright Bank Company Limited Guangzhou Branch on 21 October 2020. On 13 November 2020, the 8th session of the board of directors of China Southern Airlines reviewed and approved the addition of Nansha Leasing Company, a wholly-owned subsidiary of China Southern Airlines, as an implementation entity of the project of procurement of 11 aircraft in "Purchasing Aircraft and Aviation Equipment and Maintenance" project to be financed by the proceeds from the public issuance of A Share Convertible Bonds in 2020, which means China Southern Airlines and Nansha Leasing Company would act as the joint implementation entities of the above project. On 27 November 2020, China Southern Airlines, Nansha Leasing Company, the sponsor CICC and China Everbright Bank Company Limited Guangzhou Branch signed a Four-Party Supervision Agreement on Special Account Keeping for Proceeds Raised. Nansha Leasing Company opened a special account at Guangzhou Tianhe Sub-branch, a subordinate branch of China Everbright Bank Company Limited Guangzhou Branch, for the proceeds from the public issuance of A Share Convertible Bonds in 2020. All the proceeds raised from the public issuance of A Share Convertible Bonds in 2020 and allocated according to the payment schedule regarding Nansha Leasing Company's aircraft introduction are temporarily deposited in the special account for the proceeds.

As of 30 September 2021, the balance of the special account for proceeds raised is as follows:

Unit: RMB

- I-5 -

In order to improve the efficiency of utilizing proceeds raised, the Company utilized idle proceeds to subscribe for large-value certificate of deposit for corporate purposes and 7-day notice deposit certificate. The details of the above-mentioned investment products for cash management are as follows:

Unit: RMB

Unit: RMB

- I-6 -

As of 30 September 2021, China Southern Airlines utilized the above proceeds from the Non-public Issuance of A Shares in 2020 of RMB9,535,497,702.04 on an accumulated basis, and the balance of the unutilized proceeds was RMB3,240,587,611.38. As of 30 September 2021, the unredeemed amount of China Southern Airlines' cash management of idle proceeds was RMB3,521,500,000.00, the balance of the special account for proceeds was RMB1,129,253.84, and the balance of proceeds totaled RMB3,522,629,253.84 (including interest income generated by depositing the proceeds at bank and the cash management income of idle proceeds totaling RMB282,041,642.46).

As of 30 September 2021, the proceeds from the Non-public Issuance of H Shares in 2020 was fully utilized.

As of 30 September 2021, China Southern Airlines utilized the proceeds from the public issuance of A Share Convertible Bonds in 2020 of RMB9,125,741,936.80 on an accumulated basis, and the unutilized proceeds from the public issuance of A Share Convertible Bonds in 2020 was RMB6,853,861,982.92. As at 30 September 2021, the unredeemed amount of China Southern Airlines' cash management of idle proceeds was RMB7,176,000,000.00, the balance of the special account for proceeds was RMB20,785,164.06, and the balance of the proceeds totaled RMB7,196,785,164.06 (including interest income generated by depositing the proceeds at bank and the cash management income of idle proceeds totaling RMB342,923,181.14).

As of 30 September 2021, for the details of actual use of proceeds from the previous fund raising activities of China Southern Airlines, please refer to the "Comparison Table of Use of Proceeds Raised - Proceeds from the Non-public Issuance of A Shares in 2020" (Schedule 1-1), "Comparison Table of Use of Proceeds Raised - Proceeds from the Non-public Issuance of H Shares in 2020" (Schedule 1-2), and "Comparison Table of Use of Proceeds Raised - Proceeds from the Public Issuance of A Share Convertible Bonds in 2020" (Schedule 1-3) attached to this report.

- I-7 -

As of 30 September 2021, the projects to be financed by the proceeds from previous fund raising activities of China Southern Airlines have not changed.

The 8th session of the board of directors of China Southern Airlines unanimously passed the Resolution on the Use of Proceeds Raised to Replace the Initial Investment, and agreed to utilize the proceeds of RMB5,273,926,157.75 to replace the self-raised funds initially invested in the projects to be financed by the proceeds during the period from 1 November 2019 to 11 June 2020. KPMG Huazhen (SGP) issued the Verification Report on the Reporting of the Investment Projects with the Utilisation of Self-raised Funds Applied on China Southern Airlines Company Limited (KPMG Huazhen Zhuan Zi No. 2000813). CICC, the sponsor, issued a verification opinion on the Company's utilization of the proceeds to replace self-raised funds initially invested in the projects to be financed by the proceeds.

The 8th session of the board of directors of China Southern Airlines unanimously passed the Resolution on the Use of Proceeds Raised to Replace the Initial Investment, and agreed to utilize the proceeds of RMB445,608,783.59 to replace the self-raised funds that was initially invested in the projects financed by the proceeds during the period from 15 May 2020 to 30 September 2020. KPMG Huazhen (SGP) issued the Verification Report on the Reporting of the Investment Projects with the Utilisation of Self-raised Funds Applied on China Southern Airlines Company Limited (KPMG Huazhen Zhuan Zi No. 2001017). CICC, the sponsor, issued a verification opinion on the Company's utilization of the proceeds to replace self-raised funds initially invested in the projects to be financed by the proceeds.

China Southern Airlines has not externally transferred any project financed by the proceeds.

- I-8 -

On 23 June 2020, the 8th session of the board of directors of China Southern Airlines passed the Resolution on Cash Management of Idle Proceeds Raised, and within 12 months from the date of approval by the board of directors, agreed to the Company's cash management of part of the idle proceeds from the Non-public Issuance of A Shares of no more than RMB7.5 billion (inclusive). The investment products were 7-day notice deposit certificate and large-value certificate of deposit. According to the use plan of the proceeds raised, 7-day notice deposit certificate and large-value certificate of deposit products with different maturities were matched, and within the above-mentioned limit, the proceeds could be utilized on a rolling basis. On 4 June 2021, the 9th session of the board of directors of the Company passed the Resolution on Extending the Use of Idle Proceeds Raised for Cash Management, and agreed to the Company's extension of the cash management of temporarily idle proceeds from Non-public Issuance of A Shares, with an extension period of 12 months from the date of expiration of the validity period as previously authorized by the board of directors. The idle proceeds for the extension of cash management, with a maximum of RMB4.8 billion (inclusive), shall be subject to a rolling management within such limit and are invested in 7- day notice deposit certificate, large-value certificate of deposit and other deposit products.

As of 30 September 2021, the principal of the unredeemed large-value certificate of deposit purchased by China Southern Airlines with idle proceeds was RMB3,499,000,000.00, and the principal of the 7-day notice deposit certificate purchased but unredeemed was RMB22,500,000.00.

The 8th session of the board of directors of China Southern Airlines passed the Resolution on Cash Management of Idle Proceeds Raised, and within 12 months from the date of approval by the board of directors, agreed to the Company's cash management of part of the idle proceeds from the public issuance of A Share Convertible Bonds of no more than RMB10.8 billion (inclusive). The investment products were 7-day notice deposit certificate and large-value certificate of deposit. According to the use plan of the proceeds raised, 7-day notice deposit certificate and large-value certificate of deposit products with different maturities were matched, and within the above-mentioned limit, the proceeds could be utilized on a rolling basis. On 4 June 2021, the 9th session of the board of directors of the Company passed the Resolution on Extending the Use of Idle Proceeds Raised for Cash Management, and agreed to the Company's extension of the cash management of temporarily idle proceeds from public issuance of A Share Convertible Bonds, with an extension period of 12 months from the date of expiration of the validity period as previously authorized by the board of directors. The idle proceeds for the extension of cash management, with a maximum of RMB9.4 billion (inclusive), shall be subject to a rolling management within such limit and are invested in 7-day notice deposit certificate, large-value certificate of deposit and other deposit products.

As of 30 September 2021, the principal of the unredeemed large-value certificate of deposit purchased by the Company with idle proceeds was RMB7,172,000,000.00, and the principal of the 7-day notice deposit purchased but unredeemed was RMB4,000,000.00.

- I-9 -

For details of the benefits realised from the projects financed by the proceeds from previous fund raising activities of China Southern Airlines, please refer to the "Comparison Table of Actual Benefits Realised from Projects Financed by Proceeds from Previous Fund Raising Activities - Proceeds from Non-public Issuance of A Shares in 2020" (Schedule 2-1), "Comparison Table of Actual Benefits Realised from Projects Financed by Proceeds from Previous Fund Raising Activities - Proceeds from Non-public Issuance of H Shares in 2020" (Schedule 2-2), and "Comparison Table of Actual Benefits Realised from Projects Financed by Proceeds from Previous Fund Raising Activities - Proceeds from Public Issuance of A Share Convertible Bonds in 2020" (Schedule 2-3) attached to this report.

No assets were used to subscribe for shares in the proceeds from previous fund raising activities of China Southern Airlines.

The actual use of proceeds raised by China Southern Airlines from previous fund raising activities is consistent with the relevant content disclosed in the Company's periodic reports and other information disclosure documents.

The board of directors of China Southern Airlines believes that all of the proceeds from previous fund raising activities has been fully received, and China Southern Airlines has utilized the proceeds as intended. China Southern Airlines has faithfully fulfilled its obligation to disclose the investment and progress of the proceeds from previous fund raising activities.

All directors of China Southern Airlines warrant that there are no misrepresentations, misleading statements or major omissions in this report, and severally and jointly accept legal responsibility for the truthfulness, accuracy and completeness of the information contained herein.

Schedules: 1. Comparison Table of Use of Proceeds Raised

2. Comparison Table of Actual Benefits Realised from Projects Financed by Proceeds from Previous Fund Raising Activities

China Southern Airlines Company Limited

29 October 2021

- I-10 -

Schedule 1-1

China Southern Airlines Company Limited

Comparison Table of Use of Proceeds Raised -

Proceeds from Non-public Issuance of A Shares in 2020

As of 30 September 2021

- I-11 -

Schedule 1-2

China Southern Airlines Company Limited

Comparison Table of Use of Proceeds Raised -

Proceeds from Non-public Issuance of H Shares in 2020

As of 30 September 2021

- I-12 -

Schedule 1-3

China Southern Airlines Company Limited Comparison Table of Use of Proceeds Raised -

Proceeds from Public Issuance of A Share Convertible Bonds in 2020

As of 30 September 2021

- I-13 -

Schedule 2-1

China Southern Airlines Company Limited

Comparison Table of Actual Benefits Realised from Projects Financed by Proceeds from Previous Fund Raising Activities - Proceeds from Non-public Issuance of A Shares in 2020

As of 30 September 2021

- I-14 -

Schedule 2-2

China Southern Airlines Company Limited

Comparison Table of Actual Benefits Realised from Projects Financed by Proceeds fromPrevious Fund Raising Activities - Proceeds from Non-public Issuance of H Shares in 2020

As of 30 September 2021

- I-15 -

Schedule 2-3

China Southern Airlines Company Limited

Comparison Table of Actual Benefits Realised from Projects Financed by Proceeds from Previous Fund Raising Activities - Proceeds from Public Issuance of A Share Convertible Bonds in 2020

As of 30 September 2021

- I-16 -

FEASIBILITY REPORT ON THE USE OF PROCEEDS FROM THE

NON-PUBLIC ISSUE OF A SHARES

October 2021

Definitions

In this report, unless the context otherwise requires, the following abbreviations herein shall have the following meaning:

Any discrepancies in this report between totals and sums of figures listed are due to rounding.

- II-1 -

Content

- II-2 -

The aggregate amount of the proceeds of the Non-public Issuance of A Shares will be not more than RMB4,500 million (including RMB4,500 million), and (after deduction of relevant expenses for the issuance) will be used to replenish the liquidity.

Based on its liquidity requirement for operation and business development, the Company intends to use the proceeds from the Non-public Issuance of A Shares of not more than RMB4,500 million to replenish the liquidity. The use of proceeds to replenish the liquidity will further meet the Company's daily capital turnover needs, enhance the financial strength, increase the risk resistance capacity, reduce financial expenses and operational risk.

With the expansion of the fleet size and route network scale of the Company, the liquidity requirements for production and operation of the Company have also increased. At the same time, due to the impact of COVID-19 outbreak, the market demand of the civil aviation industry has been greatly impacted. As the domestic situation of pandemic prevention and control improves and the macro economy further recovers, the recovery of China's civil aviation gains momentum. However, in the context of normalized pandemic prevention and control, the overall liquidity and risk resistance capacity of the civil aviation industry still face certain challenges.

In this context, the move that the Company supplements working capital with the proceeds from the non-public issuance significantly enhances the capital strength of the Company, provides necessary financial support for the subsequent business development of the Company, and helps ease the operating pressure of the Company. It also strengthens the risk resistance capacity of the Company, and consolidates the core competitive advantage of the Company in the industry.

The air transport industry is capital-intensive. There are large capital expenditure requirements for the purchase of aircraft and other flying equipment. Debt financing is an important financing channel; therefore, airlines generally maintain a high gearing ratio. In recent years, with the continuous expansion of the Company, the capital demand of the Company has gradually increased, and its gearing ratio was further improved due to the implementation of the new leasing standards. As at 31 December 2018, 31 December 2019, 31 December 2020 and 30 September 2021, the asset-liability ratio of the Company's consolidated statements was 68.30%, 74.87%, 73.98% and 71.91%, respectively. At present, the Company's financial leverage is relatively high, which has reduced its financial security and risk resistance capacity to some extent. With the development of China's civil aviation industry, the Company will further develop and expand, and there will be a great demand on capital in the future, whereas the relatively high gearing ratio at present has become a bottleneck restricting the further development of the Company.

- II-3 -

By way of replenishing the liquidity through the proceeds raised from the Non-public Issuance of A Shares, it helps further reduce the Company's gearing ratio, optimize capital structure, improve financial soundness and promote the sustainable development of the Company.

The targeted subscriber of the Non-public Issuance of A Shares is CSAH, the controlling shareholder of the Company. CSAH expressed its confidence in the future development prospects of the Company through the subscription of the Non-public Issuance of A Shares, and at the same time provides strong financial support for the Company's future development. It is conducive to enhancing the investment value of the Company, thereby maximizing the shareholders' interests of the Company and effectively safeguarding the interests of minority shareholders of the Company.

All the proceeds from the Non-public Issuance of A Shares of the Company will be used to replenish the liquidity, which is in compliance with relevant policies and laws and regulations and in line with the Company's current actual development and is feasible. Upon the receipt of proceeds from the Non-public Issuance of A Shares, the Company's net assets and working capital will increase, which will help meet the Company's needs for capital turnover, reduce the Company's financial expenses, optimize its capital structure, enhance its risk-resistance capacity and consolidates the core competitive advantage of the Company in the industry.

The Company has established a modern corporate system focusing on corporate governance structure in accordance with the governance standards of listed companies, and has formed a relatively standardized corporate governance system and a relatively complete internal control procedure through continuous improvement and enhancement.

- II-4 -

In terms of the management of proceeds, the Company has established the "Raised Funds Use and Management Management System" in accordance with regulatory requirements, to set out detailed provisions for deposit, management and use of the raised funds and any change in the raised funds for investment. The Company will strictly comply with the provisions of the "Guidelines for the Supervision on Listed Companies No. 2 - Supervision Requirements for Listed Companies on the Management and Use of Proceeds" (CSRC Notice [2012] No. 44) 《(上市公司監管指引第2號--上市公司募集資金管理和使用的監管要 求》(證監會公告[2012]44號)) and "Administrative Measures of the Shanghai Stock Exchange for the Proceeds of Listed Companies (2013 Revision)" (Shang Zheng Gong Zi [2013] No. 13) 《( 上海證券交易所上市公司募集資金管理辦法(2013年修訂)》 (上證公字 [2013]13號)) as well as the "Raised Funds Use and Management Management System" of the Company and other relevant requirements, so as to ensure the reasonable and standardized deposit and use of proceeds and safeguard the use of proceeds against risks.

After deducting issuance expenses, all proceeds from the Non-public Issuance of A Shares will be used to replenish the liquidity. The Company's capital strength and asset scale will be improved, ease the pressure of capital demand in the daily operating activities of the Company. Meanwhile, the receipt of proceeds will help consolidate the Company's foundation for business development, enhance its core competitiveness and profitability, promote the continuous and rapid growth of its principal operations and provide capital guarantee for its further expansion and development, which has important strategic significance to realize long-term sustainable development of the Company.

Upon the receipt of proceeds, total assets and net assets of the Company will increase to a certain extent, and its working capital will be further replenished, which will effectively lower its gearing ratio, reduce its financial expenses, and further enhance its capacity in resisting risks.

In summary, the plan of use of proceeds from the Non-public Issuance of A Shares is in compliance with relevant policies and laws and regulations. Through the subscription under the Non-public Issuance of A Shares, the controlling shareholder can provide strong support for the Company's future development, and demonstrate its confidence in the Company's future prospects and its recognition of the Company's value. The non-public issuance helps alleviate the operating pressure, ensure the business development, optimize the capital structure, and improve risk resistance capability of the Company. The implementation of the project is conducive to improving the financial stability, enhancing the sustainable development capability, and consolidating the core competitive advantages of the Company in the industry, and is in the interests of shareholders as a whole.

China Southern Airlines Company Limited

29 October 2021

- II-5 -

STATEMENT ON RISK WARNINGS ON DILUTION OF CURRENT RETURNS AND REMEDIAL MEASURES OF THE NON-PUBLIC ISSUE OF SHARES

In order to further implement the Several Opinions of the State Council on Promoting the Health Development of Capital Market (Guo Fa [2014] No. 17), Opinions of the General Office of the State Council on Further Strengthening the Protection of the Legitimate Rights and Interests of Small and Medium-sized Investors of Capital Market (Guobanfa [2013] No. 110) and the Guidance on Matters concerning Dilution of Spot Returns by First Issuance, Refinancing and Major Asset Restructuring (Zheng Jian Hui Gong Gao [2015] No. 31), guarantee the right to know of the small and medium-sized investors, and maintain their interests, China Southern Airlines Company Limited (hereinafter referred to as "China Southern Airlines", "Company" or "the Company") carefully analyzed and calculated the impact on the dilution of spot returns by this non-public issuance of Shares. The impact of dilution of spot returns by this non-public issuance of Shares on the Company's major financial indicators and the Company's proposed measures are described as follows:

- III-1 -

The estimation is based on the respective assumptions under three scenarios that the net profit attributable to shareholders of the listed company and the net profit attributable to shareholders of the listed company after deducting non-recurring gains and losses in 2022 are flat as 2021; loss is reduced by 50%; and profit is recorded (the amount of profit being the same as 2019). This assumption analysis is only used to measure the impact of the dilution of spot returns of this issuance on the Company's key financial indicators and does not constitute the Company's earnings forecasts. Investors should not make investment decisions accordingly. If investors make investment decisions accordingly and any losses are caused, the Company does not assume any liability;

- III-2 -

The impact of the Non-public Issuance of A Shares and H Shares on financial indicators is as follows:

- III-3 -

- III-4 -