AVIC International HK : (I) REVISION OF ANNUAL CAP OF CONTINUING CONNECTED TRANSACTIONS FOR THE YEAR ENDING 31 DECEMBER 2019; (II) RENEWAL OF CONTINUING CONNECTED TRANSACTIONS; (III) RE-ELECTION OF DIRECTOR; AND (IV) NOTICE OF SPECIAL GENERAL MEETING

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your stockbroker, or other licensed securities dealer, bank manager, solicitors, professional accountant or other professional adviser.

If you have sold or transferred all your shares in AVIC International Holding (HK) Limited (the ''Company''), you should at once hand this circular together with the enclosed form of proxy to the purchaser or the transferee, or to the bank, stockbroker or other agent through whom the sale or transfer 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 losses howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

(Incorporated in Bermuda with limited liability)

(Stock Code: 232)

1. REVISION OF ANNUAL CAP OF CONTINUING CONNECTED TRANSACTIONS FOR THE YEAR ENDING 31 DECEMBER 2019; (II) RENEWAL OF CONTINUING CONNECTED TRANSACTIONS;
2. 1. RE-ELECTIONOF DIRECTOR;

AND

(IV) NOTICE OF SPECIAL GENERAL MEETING

Independent financial adviser to

the Independent Board Committee and the Independent Shareholders

SOMERLEY CAPITAL LIMITED

A notice convening the special general meeting (the ''SGM'') of the Company to be held at Forum Room 1, Basement 2, Regal Hongkong Hotel, 88 Yee Wo Street, Causeway Bay, Hong Kong on Friday, 27 December 2019 at 11:00 a.m. is set out on pages 36 to 38 of this circular. A form of proxy for use at the SGM is also enclosed with this circular.

A letter from the Board is set out on pages 5 to 14 of this circular. A letter from the Independent Board Committee containing its recommendation to the Independent Shareholders is set out on pages 15 to 16 of this circular. A letter from the Independent Financial Adviser containing its advice and recommendation to the Independent Board Committee and the Independent Shareholders is set out on pages 17 to 31 of this circular.

Whether or not you are able to attend the SGM, please complete and sign the enclosed form of proxy in accordance with the instructions printed thereon and return it to the Company's branch share registrar and transfer office in Hong Kong, Computershare Hong Kong Investor Services Limited at 17M Floor, Hopewell Centre, 183 Queen's Road East, Wan Chai, Hong Kong as soon as possible and in any event no later than 48 hours before the time appointed for holding the SGM (i.e. Wednesday, 25 December 2019 at 11:00 a.m. (Hong Kong time)) or any adjournment thereof. Completion and return of the enclosed form of proxy will not preclude you from attending and voting in person at the SGM or any adjournment thereof if they so wish.

5 December 2019

CONTENTS

			Page
DEFINITIONS	. . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
LETTER FROM THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . . . . . . . . .	15
LETTER FROM INDEPENDENT FINANCIAL ADVISER . . . . . . . . . . . . . . . . . . . . . . . . .	17
APPENDIX I	-	PARTICULARS OF DIRECTOR FOR RE-ELECTION . . . . . . . . . . .	32
APPENDIX II	-	GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	33
NOTICE OF SGM	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	36

- i -

DEFINITIONS

In this circular, unless the context otherwise requires, the following expressions shall have the following meanings when used herein:

''Acquisition Completion''	completion of the sale and purchase of the entire share
	capital of Motto Investment Limited and the Shareholder 's
	loan note(s) owing by the Motto Investment Limited to
	AVIC International (HK) Group Limited
''associates''	has the meaning ascribed to it under the Listing Rules
''Aviation Industry''	Aviation Industry Corporation of China, Ltd（. 中國航空工
	業集團有限公司）, a company established in the PRC and
	holds 91.14% of the equity interest in AVIC International
	as at the date of this circular, a controlling shareholder of
	the Company
''AVIC International''	AVIC International Holding Corporation（中國航空技術國
	際控股有限公司）, a company incorporated with limited
	liability in the PRC and indirectly owns as to 46.40% of
	the entire issued share capital of the Company

''Board''

''Company''

''connected person(s)''

''Continuing Connected Transactions''

''controlling shareholder(s)''

''Director(s)''

''Group''

''Hong Kong''

the board of Directors

AVIC International Holding (HK) Limited, a company incorporated in Bermuda with limited liability and the issued Shares of which are listed on the Main Board of the Stock Exchange (stock code: 232)

has the meaning ascribed to it under the Listing Rules

the transactions contemplated under the 2019 Sale Framework Agreement

has the meaning ascribed to it under the Listing Rules

director(s) of the Company

the Company and its subsidiaries

the Hong Kong Special Administrative Region of the PRC

- 1 -

DEFINITIONS

''Independent Board Committee''	an independent committee of the Board comprising all the
	independent non-executive Directors established for the
	purpose of advising the Independent Shareholders on the
	Supplemental Sale Framework Agreement, the 2019 Sale
	Framework Agreement and the transactions contemplated
	thereunder
''Independent Financial Adviser''	Somerley Capital Limited, a corporation licensed to carry
	on Type 1 (dealing in securities) and Type 6 (advising on
	corporate finance) regulated activities under the SFO, and
	the independent financial adviser to the Independent Board
	Committee and the Independent Shareholders on the
	Supplemental Sale Framework Agreement, the 2019 Sale
	Framework Agreement and the transactions contemplated
	thereunder
''Independent Shareholder(s)''	Shareholder(s) other than Aviation Industry, its respective
	associates and all other Shareholders who are interested in
	the Supplemental Sale Framework Agreement, the 2019
	Sale Framework Agreement and the transactions
	contemplated thereunder
''Independent Third Parties''	the independent third parties who are, to the best of the
	Directors' knowledge, information and belief, having made
	all reasonable enquiry, independent of and not connected
	with the Company and the connected person(s) of the
	Company
''Latest Practicable Date''	3 December 2019, being the latest practicable date prior to
	the printing of this circular for ascertaining certain
	information contained herein
''Listing Rules''	the Rules Governing the Listing of Securities on the Stock
	Exchange
''OEM''	original equipment manufacturer
''Original Annual Cap''	the annual cap amount in respect of the sale of engines and
	engine parts to Aviation Industry and its associates by the
	Group under the 2017 Sale Framework Agreement for the
	year ending 31 December 2019

- 2 -

DEFINITIONS

''PRC''	the People's Republic of China which, for the purpose of
	this circular, excludes Hong Kong, the Macau Special
	Administrative Region and Taiwan
''Revised Annual Cap''	the revised annual cap amount in respect of the sale of
	engines and engine parts to Aviation Industry and its
	associates by the Group under the 2017 Sale Framework
	Agreement for the year ending 31 December 2019
''SASAC''	t h e P R C S t a t e - o w n e d A s s e t s S u p e r v i s i o n a n d
	Administration Commission
''SFO''	the Securities and Futures Ordinance (Chapter 571 of the
	Laws of Hong Kong)
''SGM''	the special general meeting of the Company to be
	convened and held on Friday, 27 December 2019 at 11:00
	a.m. for the Independent Shareholders to consider and, if
	thought fit, approve, among other things, the Supplemental
	Sale Framework Agreement, the 2019 Sale Framework
	Agreement and the transactions contemplated thereunder
	and the re-election of Director
''Share(s)''	ordinary share(s) of HK$0.10 each in the issued capital of
	the Company
''Shareholder(s)''	holder(s) of issued Share(s)
''Stock Exchange''	The Stock Exchange of Hong Kong Limited
''Supplemental Sale Framework	the supplemental sale framework agreement dated 19
Agreement''	November 2019 and entered into between the Company
	and Aviation Industry in relation to the revision of the
	Original Annual Cap
''2017 Sale Framework	the agreement dated 24 October 2017 and entered into
Agreement''	between the Company and Aviation Industry in relation to
	sale of engines and engine parts to Aviation Industry and/
	or its associates (excluding the Group) for use in new
	aircraft manufacture and the sale of parts into the
	aftermarket for maintenance, repair and overhaul

- 3 -

DEFINITIONS

''2019 Sale Framework	the agreement dated 19 November 2019 and entered into
Agreement''	between the Company and Aviation Industry in relation to
	sale of engines, engine parts and related services to
	Aviation Industry and/or its associates (excluding the
	Group) for use in new aircraft manufacture and the sale of
	parts into the aftermarket for maintenance, repair and
	overhaul
''HK$''	Hong Kong dollars, the lawful currency of Hong Kong
''US$''	United States dollars, the lawful currency of the United
	States of America
''%''	per cent.

- 4 -

LETTER FROM THE BOARD

(Incorporated in Bermuda with limited liability)

(Stock Code: 232)

Executive Directors:	Registered office:
Mr. Lai Weixuan (Chairman)	Victoria Place, 5th Floor
Mr. Fu Fangxing	31 Victoria Street
Mr. Yu Xiaodong	Hamilton HM 10
Mr. Zhang Zhibiao	Bermuda
Mr. Zhao Yang (Chief Executive Officer)
	Head office and principal place
Non-executive Director:	of business in Hong Kong:
Mr. Chow Wai Kam	Unit A, 20/F
	Tower 2, Admiralty Centre
Independent non-executive Directors:	18 Harcourt Road
Mr. Chu Yu Lin, David	Admiralty, Hong Kong
Mr. Li Ka Fai, David
Mr. Zhang Ping
	5 December 2019
To the Independent Shareholders
Dear Sir or Madam,

1. REVISION OF ANNUAL CAP OF CONTINUING CONNECTED TRANSACTIONS FOR THE YEAR ENDING 31 DECEMBER 2019; (II) RENEWAL OF CONTINUING CONNECTED TRANSACTIONS;
2. 1. RE-ELECTIONOF DIRECTOR;

AND

(IV) NOTICE OF SPECIAL GENERAL MEETING

INTRODUCTION

References are made to the announcement of the Company dated 24 October 2017 and the circular of the Company dated 29 December 2017 in relation to, among others, the 2017 Sale Framework Agreement, and the announcement of the Company dated 19 November 2019 in respect of the Supplemental Sale Framework Agreement, the 2019 Sale Framework Agreement and the transactions contemplated thereunder.

- 5 -

LETTER FROM THE BOARD

On 24 October 2017, the Company entered into the 2017 Sale Framework Agreement with Aviation Industry, pursuant to which the Group will sell engines and engine parts to Aviation Industry and/or its associates (excluding the Group) for use in new aircraft manufacture and for the sale of parts into the aftermarket for maintenance, repair and overhaul.

On 19 November 2019, the Company entered into the Supplemental Sale Framework Agreement with Aviation Industry to revise the Original Annual Cap from US$24.0 million to US$25.5 million.

On 19 November 2019, the Company entered into the 2019 Sale Framework Agreement with Aviation Industry, pursuant to which the Group will sell engines, engine parts and related services to Aviation Industry and/or its associates (excluding the Group) for use in new aircraft manufacture and for the sale of parts into the aftermarket for maintenance, repair and overhaul for a term from 1 January 2020 to 31 December 2022.

The purpose of this circular is to provide you with, among other things, (i) further details of the Supplemental Sale Framework Agreement, the 2019 Sale Framework Agreement and the transactions contemplated thereunder and the re-election of Director; (ii) a letter of recommendation from the Independent Board Committee; (iii) a letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders on the Supplemental Sale Framework Agreement, the 2019 Sale Framework Agreement and the transactions contemplated thereunder; and (iv) a notice of the SGM.

REVISION OF THE ORIGINAL ANNUAL CAP

Principal terms of the Supplemental Sale Framework Agreement

Date:	19 November 2019
Parties:	Aviation Industry and the Company
Subject:	The annual cap amount in respect of the sale of engines and
	engine parts to Aviation Industry and/or its associates by the
	Group under the 2017 Sale Framework Agreement for the
	year ending 31 December 2019 shall be revised as follows:
		For the year ending
		31 December 2019
		US$ million
	Original Annual Cap	24.0
	Revised Annual Cap	25.5

- 6 -

LETTER FROM THE BOARD

Conditions precedent:	The Supplemental Sale Framework Agreement is conditional
	upon:
	(a)	the due execution of the Supplemental Sale Framework
		Agreement by the Company and Aviation Industry;
	(b)	the Supplemental Sale Framework Agreement and the
		transactions contemplated thereunder having been
		approved by the Board and having obtained approval
		from the Independent Shareholders at the SGM; and
	(c)	the necessary approvals having been obtained by
		Aviation Industry.

Basis of determination of the Revised Annual Cap

The actual historical transaction amounts for such sales to Aviation Industry and/or its associates for each of the two financial years ended 31 December 2018 and for the ten months ended 31 October 2019 are as follows:

			For the ten
	For the year ended	months ended
	31 December	31 October
	2017	2018	2019
	US$ million	US$ million	US$ million
Actual historical transaction amount	19.5	22.7	20.1

The 2017 Sale Framework Agreement was effective from 7 February 2018, being the date of Acquisition Completion, and the actual historical transaction amount was within the original annual cap for the year ended 31 December 2018.

The Revised Annual Cap was determined mainly by reference to: (i) the actual historical transaction amount for each of the two financial years ended 31 December 2018 and the ten months ended 31 October 2019; and (ii) the estimated amount of engines and engine parts to be purchased by Aviation Industry and/or its associates (excluding the Group) for the remaining term for the year ending 31 December 2019.

- 7 -

LETTER FROM THE BOARD

Reasons for and benefits of the Supplemental Sale Framework Agreement

Due to the increased operation needs of Aviation Industry, the annual cap amount in respect of the sale of engines and engine parts to Aviation Industry and/or its associates by the Group under the 2017 Sale Framework Agreement for the year ending 31 December 2019 is expected to be higher than the Original Annual Cap under the 2017 Sale Framework Agreement.

The Directors (including the independent non-executive Directors after considering the advice from the Independent Financial Adviser) consider that the Supplemental Sale Framework Agreement has been entered into on normal commercial terms and in the ordinary and usual course of business of the Group, and the Supplemental Sale Framework Agreement and the Revised Annual Cap are fair and reasonable and in the interests of the Group and the Shareholders as a whole.

RENEWAL OF CONTINUING CONNECTED TRANSACTIONS

Principal terms of the 2019 Sale Framework Agreement

Date:	19 November 2019
Parties:	Aviation Industry and the Company
Subject:	The Group will sell engines, engine parts and related services
	to Aviation Industry and/or its associates (excluding the
	Group) for use in new aircraft manufacture and the sale of
	parts into the aftermarket for maintenance, repair and
	overhaul
Term:	From 1 January 2020 up to 31 December 2022
Pricing:	To be determined on a fair and reasonable basis based on the
	negotiated price, product specifications, configurations,
	competitiveness and general market conditions with the
	pricing provided based on factors including, but not limited
	to, volume levels, strategic relationship and new product
	introduction strategies
Payment:	Specific payment terms are to be agreed between the parties
	by entering into specific agreements periodically consistent
	with general terms and conditions of payment in United States
	dollars and terms not to exceed 45 days from invoice date

- 8 -

LETTER FROM THE BOARD

Conditions precedent:	The 2019 Sale Framework Agreement is conditional upon:
	(a)	the due execution of the 2019 Sale Framework
		Agreement by the Company and Aviation Industry; and
	(b)	the 2019 Sale Framework Agreement and the
		transactions contemplated thereunder having been

approved by the Board and having obtained all necessary authorisations and approvals (including, if necessary, approval from the Independent Shareholders at the SGM) from the Stock Exchange and other relevant laws, regulations and rules (including the Listing Rules).

Annual caps and basis of determination

The Group has been selling engines, engine parts and related services for use in new aircraft manufacture and the sale of parts into the aftermarket for maintenance, repair and overhaul to Aviation Industry and/or its associates (excluding the Group). The actual historical transaction amounts for such sales to Aviation Industry and/or its associates for each of the two financial years ended 31 December 2018 and for the ten months ended 31 October 2019 are set out in the paragraph headed ''Basis of determination of the Revised Annual Cap'' in the section headed ''Revision of the Original Annual Cap'' of this circular.

Pursuant to the 2019 Sale Framework Agreement, it is proposed that the annual cap amounts for the sale of engines, engine parts and related services to Aviation Industry and/or its associates (excluding the Group) for each of the three financial years ending 31 December 2020, 2021 and

2022 shall not exceed the following:

	For the year ending 31 December
	2020	2021	2022
	US$ million	US$ million	US$ million
Annual cap	28.0	29.0	30.0

The above annual caps were determined mainly by reference to: (i) the actual historical transaction amount for each of the two financial years ended 31 December 2018 and the ten months ended 31 October 2019; (ii) the estimated amount of engines, engine parts and related services to be purchased by Aviation Industry and/or its associates (excluding the Group) for the three financial years ending 31 December 2020, 2021 and 2022; and (iii) an adequate buffer for a potential increase in demand by Aviation Industry and/or its associates (excluding the Group).

- 9 -

LETTER FROM THE BOARD

Pricing of products and control mechanism of the Company

The products to be sold by the Group to Aviation Industry and/or its associates are mainly engines and related parts and services to be produced as an OEM. Therefore, the products are usually unique in nature and involve different specifications and configurations. When determining the selling prices of the products, the same policy is adopted for the products to be sold by the Group to Aviation Industry and/or its associates and similar OEM independent third party customers. The prices of the products will be determined with reference to a number of factors, including a negotiated price for different products, the specifications and configurations of the products to be sold, the competitiveness of the Group in producing such products and the then market conditions. In addition, the level of pricing is also determined after taking into account, among other things, purchase volume, strategic relationship and new product introduction strategies.

When determining the selling prices of the OEM products, the Group will first understand from the customer the nature, type of the products and any incumbent competitors. An initial price list or individual prices by part number will be set. The price lists of the products will be reviewed and set based on several factors such as, but not limited to, the specifications and configurations of the products, the complexity of producing the products and the estimated cost differences to produce such products with the required specifications and configurations. The Group will also consider the then market conditions and the Group's competitiveness (such as experience, capabilities and efficiency). Further pricing considerations may also be given to individual customers with reference to the factors mentioned above, including, among other things, purchase volume, strategic relationship and new product introduction strategies.

The Group has formulated internal control measures and procedures in order to ensure the pricing mechanism and the terms of the transactions under the 2019 Sale Framework Agreement are fair and reasonable and no less favourable to the Company than the terms available to or from independent third parties, and in the interest of the Company and its Shareholders as a whole. A control mechanism to segregate duties to notify and review connected transactions has been set up within the Group. Connected transaction report is required to submit to the company secretary and financial department of the Company monthly. All selling prices and price lists of the products are analysed and reviewed annually and documented approval of all pricing is required by the relevant sales director and vice president of sales of the Group annually.

Further, the Company will comply with all relevant requirements under the Listing Rules which include the annual review and/or confirmation by the independent non-executive Directors and auditors of the Company on the actual execution of the transactions contemplated under the 2019 Sale Framework Agreement.

- 10 -

LETTER FROM THE BOARD

Reasons for and benefits of the 2019 Sale Framework Agreement

The Group has been selling engines, engine parts and related services to Aviation Industry and/or its associates (excluding the Group), such as Cirrus Design Corporation, for use in new aircraft manufacture and for the sale of parts into the aftermarket for maintenance, repair and overhaul and will continue to do so on an ongoing basis. Such transactions are conducted in the ordinary and usual course of business of the Group and agreed on an arm's length basis with terms that are fair and reasonable to the Company. Cirrus Design Corporation, which is indirectly owned as to 70% by Aviation Industry, is the world's largest producer of piston-powered aircraft located in the United States of America. Also, with the growth in the PRC general aviation industry in recent years and the intentions of the PRC government in encouraging the development of such industry, the Company shall continue to seize the potential business opportunities available in such industry and benefit from the industrial development in future years. The Company considers it is in its best interest to continue the business relationship between the Group and Aviation Industry and/or its associates, provided that such parties shall purchase from the Group at prices comparable to market prices and are considered to be fair and reasonable to the Group. The Company therefore entered into the 2019 Sale Framework Agreement with Aviation Industry to govern such sales.

The Directors (including the independent non-executive Directors after considering the advice from the Independent Financial Adviser) consider that the 2019 Sale Framework Agreement has been entered into on normal commercial terms and in the ordinary and usual course of business of the Group, and the 2019 Sale Framework Agreement and its proposed annual caps are fair and reasonable and in the interests of the Group and the Shareholders as a whole.

INFORMATION OF THE GROUP

The Company is a company incorporated in Bermuda with limited liability, the shares of which are listed on the main board of the Stock Exchange (stock code: 232). The Group is principally engaged in the general aviation aircraft piston engine business.

INFORMATION OF AVIATION INDUSTRY

Aviation Industry is established in the PRC and is wholly-owned by SASAC. Aviation Industry's core businesses consist of defense, transport aircraft, helicopter, avionics and systems, general aviation, aviation research and development, flight testing, trade and logistics, assets management, finance services, engineering and construction, automobile etc.

- 11 -

LETTER FROM THE BOARD

LISTING RULES IMPLICATIONS

As Aviation Industry and/or its associates are connected persons of the Company under Chapter 14A of the Listing Rules, the Supplemental Sale Framework Agreement and the 2019 Sale Framework Agreement constitute continuing connected transactions on the part of the Company under Chapter 14A of the Listing Rules.

As the Revised Annual Cap under the Supplemental Sale Framework Agreement and each of the annual caps under the 2019 Sale Framework Agreement exceeds HK$10,000,000 and the relevant applicable percentage ratios calculated under Rule 14.07 of the Listing Rules exceed 5%, the Supplemental Sale Framework Agreement and the 2019 Sale Framework Agreement constitute non-exempt continuing connected transactions for the Company under Chapter 14A of the Listing Rules and are therefore subject to reporting, announcement and independent shareholders' approval requirements.

As (i) Mr. Lai Weixuan is the director of AVIC International, (ii) Mr. Fu Fangxing, Mr. Zhang Zhibiao, Mr. Yu Xiaodong and Mr. Zhao Yang are directors of subsidiaries of AVIC International, each of Mr. Lai Weixuan, Mr. Fu Fangxing, Mr. Zhang Zhibiao, Mr. Yu Xiaodong and Mr. Zhao Yang had abstained from voting on the resolutions at the meeting of the Board for approving the Supplemental Sale Framework Agreement and the 2019 Sale Framework Agreement.

INDEPENDENT BOARD COMMITTEE AND INDEPENDENT FINANCIAL ADVISER

The Independent Board Committee comprising all the independent non-executive Directors has been formed to advise the Independent Shareholders as to whether the Supplemental Sale Framework Agreement, the 2019 Sale Framework Agreement and the transactions contemplated thereunder are fair and reasonable, on normal commercial terms or better, in the ordinary and usual course of business of the Group and in the interests of the Company and its Shareholders as a whole, and as to how to vote on the proposed resolutions to approve the Supplemental Sale Framework Agreement, the 2019 Sale Framework Agreement and the transactions contemplated thereunder at the SGM. Somerley Capital Limited has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this regard.

- 12 -

LETTER FROM THE BOARD

RE-ELECTION OF DIRECTOR

According to Bye-law 102(A), any Director appointed by the Board shall hold office only until the next following general meeting of the Company (in the case of filling a casual vacancy), and shall be eligible for re-election at that meeting.

In accordance with Bye-law 102(A), Mr. Zhao Yang will offer himself for re-election as an executive Director. At the SGM, ordinary resolution will be proposed to re-elect Mr. Zhao Yang as an executive Director.

Details of the retiring Director who is proposed to be re-elected at the SGM are set out in Appendix I to this circular.

SGM

The notice convening the SGM is set out on pages 36 to 38 of this circular. The SGM will be convened and held at Forum Room 1, Basement 2, Regal Hongkong Hotel, 88 Yee Wo Street, Causeway Bay, Hong Kong on Friday, 27 December 2019 at 11:00 a.m. for the Independent Shareholders to consider and, if thought fit, pass the resolutions to approve, among others, the Supplemental Sale Framework Agreement, the 2019 Sale Framework Agreement and the transactions contemplated thereunder and the re-election of Director. The voting at the SGM will be taken by way of poll.

In view of the interests of Aviation Industry in the Supplemental Sale Framework Agreement and the 2019 Sale Framework Agreement, Aviation Industry and/or its associates will be required to abstain from voting in relation to the Supplemental Sale Framework Agreement and the 2019 Sale Framework Agreement and the transactions contemplated thereunder at the SGM. To the best knowledge, information and belief of the Directors having made all reasonable enquiries, save and except Aviation Industry and/or its associates, no other Shareholder has a material interest in the Supplemental Sale Framework Agreement and the 2019 Sale Framework Agreement, therefore, no other Shareholder will be required to abstain from voting at the SGM.

Whether or not you are able to attend the SGM, please complete and sign the enclosed form of proxy in accordance with the instructions printed thereon and return it to the Company's branch share registrar and transfer office in Hong Kong, Computershare Hong Kong Investor Services Limited at 17M Floor, Hopewell Centre, 183 Queen's Road East, Wan Chai, Hong Kong as soon as possible and in any event no later than 48 hours before the time appointed for holding the SGM (i.e. Wednesday, 25 December 2019 at 11:00 a.m. (Hong Kong time)) or any adjournment thereof. Completion and return of the enclosed form of proxy will not preclude Shareholders from attending and voting in person at the SGM or any adjournment thereof if they so wish.

- 13 -

LETTER FROM THE BOARD

RECOMMENDATIONS

Your attention is drawn to the letter from the Independent Board Committee set out on pages 15 to 16 of the circular. The Independent Board Committee, having taken into account the advice from the Independent Financial Adviser, the text of which is set out on pages 17 to 31 of this circular, considers that the Supplemental Sale Framework Agreement and the 2019 Sale Framework Agreement were entered into on normal commercial terms following arm's length negotiations between the parties thereto and in the ordinary and usual course of business of the Group, and that the terms of the Supplemental Sale Framework Agreement, the 2019 Sale Framework Agreement and the transactions contemplated thereunder are fair and reasonable so far as the Independent Shareholders are concerned and 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 resolutions to be proposed at the SGM to approve the Supplemental Sale Framework Agreement, the 2019 Sale Framework Agreement and the transactions contemplated thereunder.

The Board considers that the Supplemental Sale Framework Agreement, the 2019 Sale Framework Agreement and the transactions contemplated thereunder are fair and reasonable and in the interests of the Company and its Shareholders as a whole and therefore recommends that the Independent Shareholders to vote in favour of the relevant resolutions to be proposed at the SGM.

The Board considers that the re-election of Director is in the interests of the Company and its Shareholders as a whole and therefore recommends that the Shareholders to vote in favour of the relevant resolution to be proposed at the SGM.

ADDITIONAL INFORMATION

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

For and on behalf of the Board

AVIC International Holding (HK) Limited

Lai Weixuan

Chairman

- 14 -

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

(Incorporated in Bermuda with limited liability)

(Stock Code: 232)

5 December 2019

To the Independent Shareholders

Dear Sir or Madam,

1. REVISION OF ANNUAL CAP OF CONTINUING CONNECTED TRANSACTIONS FOR THE YEAR ENDING 31 DECEMBER 2019; AND
   (II) RENEWAL OF CONTINUING CONNECTED TRANSACTIONS

We refer to the circular of the Company dated 5 December 2019 (the ''Circular'') of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as defined in the Circular unless the context otherwise requires.

We have been appointed by the Board as members to form the Independent Board Committee to consider the Supplemental Sale Framework Agreement, the 2019 Sale Framework Agreement and the transactions contemplated thereunder and to advise the Independent Shareholders as to whether the Supplemental Sale Framework Agreement, the 2019 Sale Framework Agreement and the transactions contemplated thereunder are fair and reasonable, on normal commercial terms or better, in the ordinary and usual course of business of the Group and in the interests of the Company and its Shareholders as a whole, and as to how the Independent Shareholders should vote on the proposed resolutions to approve the Supplemental Sale Framework Agreement, the 2019 Sale Framework Agreement and the transactions contemplated thereunder at the SGM. Somerley Capital Limited has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this regard. Details of the letter of advice from the Independent Financial Adviser, together with the principal factors taken into consideration in arriving at such advice, are set out on pages 17 to 31 of the Circular. Your attention is also drawn to the letter from the Board set out on pages 5 to 14 of the Circular and the additional information set out in the Appendix II to the Circular.

- 15 -

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Having taken into account the Supplemental Sale Framework Agreement, the 2019 Sale Framework Agreement and the transactions contemplated thereunder, and the factors and reasons considered by, and the opinion of the Independent Financial Adviser as stated in its letter of advice, we consider that the Supplemental Sale Framework Agreement and the 2019 Sale Framework Agreement were entered into on normal commercial terms following arm's length negotiations between the parties thereto and in the ordinary and usual course of business of the Group, and that the terms of the Supplemental Sale Framework Agreement, the 2019 Sale Framework Agreement and the transactions contemplated thereunder are fair and reasonable so far as the Independent Shareholders are concerned, and in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the resolutions at the SGM to approve the Supplemental Sale Framework Agreement, the 2019 Sale Framework Agreement and the transactions contemplated thereunder.

Yours faithfully,

For and on behalf of

the Independent Board Committee

Mr. Chu Yu Lin, David	Mr. Li Ka Fai, David	Mr. Zhang Ping
Independent non-executive	Independent non-executive	Independent non-executive
Director	Director	Director

- 16 -

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the letter of advice from Somerley Capital Limited to the Independent Board Committee and the Independent Shareholders, which has been prepared for the purpose of inclusion in this circular.

SOMERLEY CAPITAL LIMITED

20th Floor

China Building

29 Queen's Road Central

Hong Kong

5 December 2019

To: the Independent Board Committee and

the Independent Shareholders

Dear Sirs,

1. REVISION OF ANNUAL CAP OF CONTINUING CONNECTED TRANSACTIONS FOR THE YEAR ENDING 31 DECEMBER 2019; AND
   (II) RENEWAL OF CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

We refer to our appointment to advise the Independent Board Committee and the Independent Shareholders in connection with (i) the Supplemental Sale Framework Agreement together with the Revised Annual Cap; and (ii) the 2019 Sale Framework Agreement and the transactions contemplated thereunder (including the proposed annual caps for each of the three financial years ending 31 December 2020, 2021 and 2022 (the ''Proposed Annual Caps'')). Details of the Supplemental Sale Framework Agreement and the 2019 Sale Framework Agreement are set out in the circular of the Company dated 5 December 2019 (the ''Circular''), of which this letter forms part. Unless otherwise defined, capitalised terms used in this letter shall have the same meanings as those defined in the Circular.

The original annual caps under the 2017 Sale Framework Agreement for the continuing connected transactions with Aviation Industry and/or its associates for the three years ending 31 December 2019 were approved by the Shareholders on 23 January 2018. Due to the reasons set out in the section headed ''1. Background to and reasons for the revision of 2019 annual cap'' of this letter below, the Company considers necessary to revise the annual cap for the year ending 31 December 2019. Therefore, on 19 November 2019, the Company entered into the Supplemental Sale Framework Agreement with Aviation Industry to revise the Original Annual Cap from US$24.0 million to US$25.5 million.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

On 19 November 2019, the Company entered into the 2019 Sale Framework Agreement with Aviation Industry, pursuant to which the Group will sell engines, engine parts and related services to Aviation Industry and/or its associates (excluding the Group) for use in new aircraft manufacture and for the sale of parts into the aftermarket for maintenance, repair and overhaul for a term from 1 January 2020 to 31 December 2022.

As Aviation Industry and its associates are connected persons of the Company under Chapter 14A of the Listing Rules, the Supplemental Sale Framework Agreement and the 2019 Sale Framework Agreement constitute continuing connected transactions on the part of the Company under Chapter 14A of the Listing Rules. As the Revised Annual Cap and each of the Proposed Annual Caps exceeds HK$10,000,000 and the relevant applicable percentage ratios calculated under Rule 14.07 of the Listing Rules exceed 5%, the revision of the Original Annual Cap under the Supplemental Sale Framework Agreement and the transactions contemplated under the 2019 Sale Framework Agreement constitute non-exempt continuing connected transactions for the Company under Chapter 14A of the Listing Rules and are therefore subject to reporting, announcement and independent shareholders' approval requirements. Aviation Industry and its associates will be required to abstain from voting in relation to the resolutions to approve the Supplemental Sale Framework Agreement and the 2019 Sale Framework Agreement at the SGM.

The Independent Board Committee comprising all the independent non-executive Directors, namely Mr. Chu Yu Lin, David, Mr. Li Ka Fai, David and Mr. Zhang Ping, has been established to advise the Independent Shareholders in respect of the Supplemental Sale Framework Agreement and the 2019 Sale Framework Agreement and on how they should vote at the SGM. We, Somerley Capital Limited, have been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in the same regard.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As at the Latest Practicable Date, Somerley Capital Limited does not have any relationships or interests with the Company that could reasonably be regarded as a hindrance to the independence of Somerley Capital Limited as defined under Rule 13.84 of the Listing Rules to act as the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Supplemental Sale Framework Agreement and the 2019 Sale Framework Agreement. In the past two years, except for the independent financial adviser engagements in relation to (i) the very substantial acquisition and connected transaction regarding the acquisition of general aviation aircraft piston engines business, the continuing connected transactions, and the application for whitewash waiver, details of which were set out in the circular of the Company dated 29 December 2017; and (ii) the very substantial disposal and connected transaction regarding the disposal of property development and investment business, details of which were set out in the announcement of the Company dated 1 October 2018, there has been no other engagement between the Group and Somerley Capital Limited. We do not consider that the past engagements as independent financial adviser gives rise to any conflict for Somerley Capital Limited to act as the independent financial adviser in respect of the Supplemental Sale Framework Agreement and the 2019 Sale Framework Agreement. Apart from normal professional fees paid in respect of the past engagements or payable to us in connection with this appointment as the independent financial adviser in respect of the Supplemental Sale Framework Agreement and the 2019 Sale Framework Agreement, no arrangement exists whereby we will receive any fees or benefits from the Company.

In formulating our advice, we have relied on the information and facts supplied, and the opinions expressed, by the Directors and the management of the Group (the ''Management''), and have assumed that they are true, accurate and complete in all material aspects at the time they were made and will remain so up to the time of the SGM. We have also sought and received confirmation from the Directors, that all material relevant information has been supplied to us and that no material facts have been omitted or withheld from the information supplied and opinions expressed to us. We have no reason to doubt the truth or accuracy of the information provided to us, or to believe that any material information has been omitted or withheld. We have relied on such information and consider that the information we have received is sufficient for us to reach our opinion and recommendation as set out in this letter. However, we have not conducted any independent investigation into the business and affairs of the Group and Aviation Industry and its associates, nor have we carried out any independent verification of the information supplied.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion and recommendation, we have taken into account the following principal factors and reasons:

1. REVISION OF 2019 ANNUAL CAP
   1. Background to and reasons for the revision of 2019 annual cap

Pursuant to the 2017 Sale Framework Agreement, the Original Annual Cap is US$24 million. As advised by the Management, it is estimated that the transaction amount with respect to the transactions contemplated under the 2017 Sale Framework Agreement for the year ending 31 December 2019 will be higher than that estimated at the time of determining the Original Annual Cap due to the increased operation needs of Aviation Industry and/or its associates. After considering the actual transaction amounts up to 31 October 2019 and reviewing the latest orders received on hand and estimating the transaction amount involved, with additional revenue expected to be recognised in November and December 2019, the Management expects that the Original Annual Cap of US$24 million will not be sufficient to cover all transactions contemplated under the 2017 Sale Framework Agreement in 2019.

In view of the above, the Company enters into the Supplemental Sale Framework Agreement with Aviation Industry to revise the Original Annual Cap to the Revised Annual Cap. Taking into account that the Revised Annual Cap allows the Group to maintain a stable business relationship with and have sufficient room for conducting further transactions with Aviation Industry and/or its associates, and given that the other terms of the 2017 Sale Framework Agreement remain the same, we concur with the Directors' view that the entering into of the Supplemental Sale Framework Agreement (together with the Revised Annual Cap) is in the interests of the Company and the Shareholders as a whole.

2. Principal terms of the Supplemental Sale Framework Agreement

The Supplemental Sale Framework Agreement, dated 19 November 2019, was entered into between Aviation Industry and the Company, pursuant to which the annual cap amount in respect of the sale of engines and engine parts to Aviation Industry and its associates by the Group under the 2017 Sale Framework Agreement for the year ending 31 December 2019 shall be revised from the Original Annual Cap of US$24.0 million to the Revised Annual Cap of US$25.5 million.

The Supplemental Sale Framework Agreement is conditional upon, among other things, the approval from the Independent Shareholders at the SGM. Further details of the Supplemental Sale Framework Agreement are set out in the section headed ''Revision of the Original Annual Cap'' of the ''Letter from the Board'' contained in the Circular.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

3. The Revised Annual Cap

Pursuant to the Supplemental Sale Framework Agreement, the Original Annual Cap of US$24 million will be revised to the Revised Annual Cap of US$25.5 million, representing an increase of approximately 6.3%. We note from the ''Letter from the Board'' contained in the Circular that the Revised Annual Cap is determined mainly with reference to (i) the actual historical transaction amount for each of the two financial years ended 31 December 2017 and 2018 and the ten months ended 31 October 2019; and (ii) the estimated amount of engines and engine parts to be purchased by Aviation Industry and/or its associates (excluding the Group) for the remaining term for the year ending 31 December 2019.

We have obtained and reviewed the calculation of the Revised Annual Cap from the Company and discussed with the Management the basis for determining the Revised Annual Cap. We note that when determining the Revised Annual Cap, the Management has taken into account, among other things, (i) the actual transaction amount recorded for the ten months ended 31 October 2019; (ii) transaction amounts in relation to orders received on hand for November and December 2019; and (iii) projected amount of additional revenue for November and December 2019. Based on the calculation provided by the Management, the transaction amount for the ten months ended 31 October 2019 is approximately US$20.1 million and the estimated transaction amount for the orders received on hand is approximately US$3.6 million. We also understand from the Management that additional revenue amounting to approximately US$0.2 million was projected on top of the orders on hand for November and December 2019, mainly with reference to historical trends of transaction amounts.

A buffer of approximately 6% was taken into account by the Management in determining the Revised Annual Cap taking into account the growth in transaction amounts in 2017, 2018 and first half of 2019. The buffer allows the Group to have sufficient room for potential increase in transactions towards the end of the year, which is considered to be moderate.

Having considered the bases of determining the Revised Annual Cap above, we consider that the Revised Annual Cap of US$25.5 million is fair and reasonable.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

1. RENEWAL OF CONTINUING CONNECTED TRANSACTIONS
   1. Background to and reasons for the 2019 Sale Framework Agreement

As set out in the 2019 interim report of the Company, the Group is principally engaged in design, development and production of general aviation aircraft piston engines and spare parts as well as the provision of aftermarket services and support for piston engines. The Group sells products to different customers around the world and its major operations are in the United States of America (the ''USA'') with over 70% of the Group's revenue generated in the USA. Continental Motors, Inc. (''Continental Motors'') is one of the Group's key subsidiaries located and operating in the USA.

As disclosed in the ''Letter from the Board'' contained in the Circular, the Group has been selling engines, engine parts and related services to Aviation Industry and/or its associates (excluding the Group), such as Cirrus Design Corporation (''Cirrus''), for use in new aircraft manufacture and for the sale of parts into the aftermarket for maintenance, repair and overhaul. Cirrus, which is indirectly owned as to 70% by Aviation Industry, has been a customer of Continental Motors since 1984. It is the world's largest producer of piston-powered aircraft located in the USA. As such, the Management is of the view that such transactions are conducted in the ordinary and usual course of business of the Group.

We understand from the Management that the Group has maintained good business relationship with Cirrus with no major disputes in the past few years. The Management considers that the past transactions between the Group and Cirrus were conducted under fair and reasonable terms and it is appropriate to continue the business relationship with Aviation Industry and/or its associates so as to maintain a stable revenue stream of the Group. The Company therefore entered into the 2019 Sale Framework Agreement with Aviation Industry to govern such sales.

In view of the above and given that (i) the Group is principally engaged in the manufacture of engines and engine components; and (ii) the Group has been conducting transactions with Aviation Industry and/or its associates over the past few years and the 2019 Sale Framework Agreement represents a continuation of such business relationship, we concur with the Management's view that the entering into of the 2019 Sale Framework Agreement is in the interests of the Company and the Shareholders as a whole, and consider that the transactions under the 2019 Sale Framework Agreement are in the ordinary and usual course of business of the Group.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

2. Principal terms of the 2019 Sale Framework Agreement

Set out below is a summary of details of the 2019 Sale Framework Agreement. Further details of the 2019 Sale Framework Agreement are set out in the ''Letter from the Board'' contained in the Circular.

Date:	19 November 2019
Parties:	Aviation Industry and the Company
Subject:	The Group will sell engines, engine parts and related services
	to Aviation Industry and/or its associates (excluding the
	Group) for use in new aircraft manufacture and the sale of
	parts into the aftermarket for maintenance, repair and
	overhaul
Term:	From 1 January 2020 up to 31 December 2022
Pricing:	To be determined on a fair and reasonable basis based on the
	negotiated price, product specifications, configurations,
	competitiveness and general market conditions with the
	pricing provided based on factors including, but not limited
	to, volume levels, strategic relationship and new product
	introduction strategies
Payment:	Specific payment terms are to be agreed between the parties
	by entering into specific agreements periodically consistent
	with general terms and conditions of payment in United States
	dollars and terms not to exceed 45 days from invoice date

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Assessment of the terms of the 2019 Sale Framework Agreement

As regards the pricing terms above, we are advised by the Management that since the products to be sold by the Group to Aviation Industry and/or its associates are mainly engines and related parts and services to be produced as an original equipment manufacturer (''OEM''), the products are usually unique in nature and involve different specifications and configurations. When determining the selling prices of the products, the same policy is adopted for the products to be sold by the Group to Aviation Industry and/or its associates and similar OEM independent third party customers. The prices of the products will be determined with reference to a number of factors, including a negotiated price for different products, the specifications and configurations of the products to be sold, the competitiveness of the Group in producing such products and the then market conditions. In addition, the level of pricing is also determined after taking into account, among other things, purchase volume, strategic relationship and new product introduction strategies.

We understand from the Management that when determining the selling prices of the OEM products, the Group will first understand from the customer the nature, type of the products and any incumbent competitors. An initial price list or individual prices by part number will be set. The pricing will be based on several factors such as, but not limited to, the specifications and configurations of the products, the complexity of producing the products and the estimated cost differences to produce such products with the required specifications and configurations. The Group will also consider the then market conditions and the Group's competitiveness (such as experience, capabilities and efficiency). Further pricing considerations may also be given to individual customers with reference to the factors mentioned above, including, among other things, purchase volume, strategic relationship and new product introduction strategies.

We have reviewed documents in relation to the price determination procedures for transactions between the Group with Cirrus and two independent third party customers who also placed OEM sales orders to the Group for engines and parts. Based on our review of the documents and our discussion with the Management, we noted that the Group adopted a consistent approach as set out above when determining the selling prices of the OEM products for Cirrus and the two independent third party customers.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In respect of payment terms, we understand from the Management that specific payment terms will be agreed with Aviation Industry and/or its associates in the specific agreement, but in any event will be consistent with general terms and conditions of payment in US dollars and terms not to exceed 45 days from invoice date. We have reviewed agreements between the Group and Cirrus and the aforesaid two independent third party customers and noted that the payment terms offered to Cirrus are consistent with the aforesaid payment terms, and are generally comparable to that offered to those independent third party customers.

In view of the above, we are of the view that the pricing and payments terms of the 2019 Sale Framework Agreement are on normal commercial terms, and are fair and reasonable so far as the Company and the Independent Shareholders are concerned.

3. Internal control measures regarding the transactions contemplated under the 2019 Sale Framework Agreement

As disclosed in the ''Letter from the Board'' contained in the Circular, the Group has formulated internal control measures and procedures in order to ensure the pricing mechanism and the terms of the transactions under the 2019 Sale Framework Agreement are fair and reasonable and no less favourable to the Company than the terms available to or from independent third parties, and in the interest of the Company and its Shareholders as a whole. A control mechanism to segregate duties to notify and review connected transactions has been set up within the Group. Connected transaction report is required to be submitted to the company secretary and financial department of the Company monthly. All selling prices and price lists of the products are analysed and reviewed annually and documented approval of all pricing is required by the relevant sales director and vice president of sales of the Group annually with further details set out below.

Continental Motors, a subsidiary of the Company in the USA engaging in the transactions contemplated under the 2019 Sale Framework Agreement, has adopted internal control procedures in relation to the transactions with customers, including transactions with Aviation Industry and/or its associates. Based on the discussion with the Management and the standard procedures which have been approved by the global director of business development of Continental Motors for setting prices for products and services sold, among others,

1. all pricing is analyzed and reviewed annually. Documented approval of all pricing is required by the relevant sales director, director of business development and vice president of sales annually;

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

1. negotiated discounts and/or indexed based increases are allowed based on a customer-by-customer case and business development evaluation. All discounts and/or indexed based increases must be approved by the director of business development, the relevant sales director or vice president of sales for annual pricing updates; and
2. all customers determined to be a related party must be approved by the director of business development, relevant director of sales, vice president of sales, the chief financial officer or global controller. Related party pricing shall follow standard pricing guidelines outlined in the procedures.

The above internal control measures provide reasonable assurance that the transactions contemplated under the 2019 Sale Framework Agreement are governed with approval from relevant management level and hence are appropriate in safeguarding the interests of the Company in this regard by ensuring the pricing of the relevant transactions are fair and reasonable and on normal commercial terms. We have discussed with, and reviewed sample documents obtained from the Company, including the monthly report on connected transaction and annual review of selling prices, in respect of transactions with Aviation Industry and/or its associates conducted in 2019. Based on the review of sample documents of the above transactions, we noted that the pricing terms of those transactions were properly approved by relevant level of management as stated in the procedures above.

4. Review of the continuing connected transactions by auditors

The auditors of the Company have performed a review of the continuing connected transactions of the Group, including, among other things, the transactions contemplated under the 2017 Sale Framework Agreement for the year ended 31 December 2018 (the ''Past Transactions''). We noted from the 2018 annual report of the Company that the auditors were engaged to report in accordance with Hong Kong Standard on Assurance Engagements 3000 (Revised) Assurance Engagements Other Than Audits or Reviews of Historical Financial Information, and with reference to Practice Note 740 Auditor's Letter on Continuing Connected Transactions under the Hong Kong Listing Rules issued by the Hong Kong Institute of Certified Public Accountants. The auditors have issued their unqualified letter containing the findings and conclusions in respect of the continuing connected transactions in accordance with Rule 14A.56 of the Listing Rules.

Based on the analysis in this letter above, the auditors' review of the Past Transactions and the obligations of the Directors to comply with the Listing Rules to conduct the continuing connected transactions on normal commercial terms, we consider that the continuing connected transactions are being conducted on normal commercial terms.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

5. The proposed annual caps

The Group has been selling engines and engine parts for use in new aircraft manufacture and the sale of parts into the aftermarket for maintenance, repair and overhaul to Aviation Industry and/or its associates (excluding the Group). Set out below are (i) the historical transaction amounts for such sales to Aviation Industry and/or its associates for each of the two financial years ended 31 December 2017 and 2018 and the ten months ended 31 October 2019; and (ii) the Proposed Annual Caps.

	Actual transaction amounts (Note)	Proposed Annual Caps
			For the ten
			months
	For the year ended 31	ended
	December		31 October	For the year ending 31 December
	2017	2018	2019	2020	2021	2022
(US$ million)
Sale of engines, engine parts
and related	services to
Aviation Industry and/or its
associates (excluding the
Group)	19.5	22.7	20.1	28.0	29.0	30.0

Note: The above transactions constituted continuing connected transactions of the Company since the

completion of the very substantial acquisition of Motto Investment Limited in February 2018.

As disclosed in the ''Letter from the Board'' contained in the Circular, the Proposed Annual Caps were determined mainly with reference to (i) the actual historical transaction amount for each of the two financial years ended 31 December 2017 and 2018 and the ten months ended 31 October 2019; (ii) the estimated amount of engines, engine parts and related services to be purchased by Aviation Industry and/or its associates (excluding the Group) for the three financial years ending 31 December 2020, 2021 and 2022; and (iii) an adequate buffer for a potential increase in demand by Aviation Industry and/or its associates (excluding the Group).

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We have further discussed with the Management the basis of determining the Proposed Annual Caps and obtained and reviewed the calculation of the Proposed Annual Caps. When determining the Proposed Annual Caps, the Management has first considered the estimated sales amounts, comprising the estimated amount of sales of engines and related parts and the estimated amount of extended warranty of engines and parts. These amounts were based on indicative sales quantity as advised by Cirrus and historical trends of sales, including the estimated amounts of extended warranty to be purchased by the customers, and also estimated increase in selling prices of products. These amounts also include potential additional sales as a result of possible business growth. As advised by the Management, they understand from Aviation Industry and/or its associates (including Cirrus) that they have on-going development or manufacturing plans of new aircraft models, which if materialised, will require further purchases of engines, parts and warranties. Considering the good business relationship between the Group and Cirrus, the Management is of the view that Aviation Industry and/or its associates may place additional orders to the Group and hence demand for engines of the new aircraft models from the Group may increase in coming years. Based on the above factors, the Management estimated that sales (including engines, parts and warranty) to Aviation Industry and/or its associates (excluding the Group) would amount to approximately US$27.1 million, US$28.2 million and US$29.2 million for each of the year ending 31 December 2020, 2021 and 2022 respectively. We noted that such estimated sales amount represented an annual increase of approximately 3.8% from 2020 to 2022. As advised by the Management, the Group has achieved an increase in sales to Aviation Industry and its associates in 2018 and also the first half of 2019, due to an increased operation needs from Aviation Industry and its associates. The Management, considering the positive future prospects of the overall aviation industry and the possibilities of future increases in production costs, is of the view that such increasing trend will continue in the coming three years from 2020 to 2022. Considering the historical increase in sales to Cirrus as demonstrated by the historical growth of approximately 16.4% from 2017 to 2018, we consider the aforesaid Management's estimate of sales for the three years ending 31 December 2022 to be reasonable.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We have further discussed with the Management and understand that a buffer of approximately 2.7% to 3.3% was incorporated in estimating the Proposed Annual Caps for each of the three years ending 31 December 2020, 2021 and 2022 to cover additional sales as a result of possible business growth. Taking into account (i) the historical growth in transactions with Aviation Industry and/or its associates as mentioned above; (ii) the need for revision of 2019 annual cap; and (iii) the increase in price of approximately 2.5% and 4.0% in 2018 and 2019 respectively for products sold to Aviation Industry and/or its associates, it is reasonable for the Group to consider the potential additional growth opportunities when determining the Proposed Annual Caps, and the buffers are considered to be moderate. Generally speaking, in our opinion, it is in the interest of the Group for the Proposed Annual Caps to be as accommodating to the Group as possible. Provided that the terms for the transactions contemplated under the 2019 Sale Framework Agreement, including the pricing terms, are fair and reasonable and that the conduct of such transactions is subject to the internal control measures as mentioned in this letter above and annual review by independent non-executive Directors and auditors of the Company (as discussed below) as required under the Listing Rules, the Group would have flexibility in conducting its businesses if the Proposed Annual Caps are tailored to future business growth.

Taking into account the above factors, we are of the view that the bases and assumptions involved in setting the Proposed Annual Caps are reasonable.

6. Review and conditions of the transactions contemplated under the 2019 Sale Framework Agreement

As disclosed in the ''Letter from the Board'' contained in the Circular, the Company will comply with all relevant requirements under the Listing Rules which include the annual review and/or confirmation by the independent non-executive Directors and auditors of the Company on the actual execution of the transactions contemplated under the 2019 Sale Framework Agreement. In compliance with the Listing Rules, the transactions are subject to a number of conditions which include, among other things:

1. the Proposed Annual Caps for the transactions under the 2019 Sale Framework Agreement for each of the periods will not be exceeded;
2. the independent non-executive Directors must, in accordance with the Listing Rules, review annually the transactions contemplated under the 2019 Sale Framework Agreement and confirm in the Company's annual report whether the transactions contemplated under the 2019 Sale Framework Agreement have been entered into (a) in the ordinary and usual course of business of the Group; (b) on normal commercial terms or better; and (c) according to the agreements governing them on terms that are fair and reasonable and in the interests of the Shareholders as a whole;

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

1. the auditors of the Company must, in accordance with the Listing Rules, review annually the transactions contemplated under the 2019 Sale Framework Agreement and they must confirm in a letter to the Board (a copy of which letter will be provided to the Stock Exchange at least ten business days prior to the bulk printing of the annual report of the Company) whether anything has come to their attention that causes them to believe that the transactions:
2. 1. have not been approved by the Board;
   2. were not, in all material respects, in accordance with the pricing policies of the Group if the transactions involve the provision of goods or services by the Group;
   3. were not entered into, in all material respects, in accordance with the relevant agreement(s) governing the transactions contemplated under the 2019 Sale Framework Agreement; and
   4. have exceeded the Proposed Annual Caps with respect to the transactions contemplated under the 2019 Sale Framework Agreement;

1. the Company must promptly notify the Stock Exchange and publish an announcement if the independent non-executive Directors and/or the auditors cannot confirm the matters as required;
2. the Company must allow, and ensure that Aviation Industry allows, the auditors of the Company sufficient access to their records of the continuing connected transactions for the purpose of the auditors' reporting on the transactions contemplated under the 2019 Sale Framework Agreement. The Board must state in the annual report whether the auditors of the Company have confirmed the matters set out in Rule 14A.56 of the Listing Rules; and
3. the Company must comply with the applicable provisions of the Listing Rules governing continuing connected transactions in the event that the total amount of the transactions contemplated under the 2019 Sale Framework Agreement exceeds the relevant Proposed Annual Cap(s), or that there is any material amendment to the terms of the 2019 Sale Framework Agreement.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In light of the conditions imposed on the continuing connected transactions, in particular, (1) the limit of the value of the transactions by way of the Proposed Annual Caps; (2) the on-going review by the independent non-executive Directors and auditors of the Company regarding the terms of the transactions under the 2019 Sale Framework Agreement; and (3) the on-going review by the auditors of the Company confirming the relevant Proposed Annual Cap(s) not being exceeded, we are of the view that appropriate measures will be in place to govern the conduct of the transactions contemplated under the 2019 Sale Framework Agreement and safeguard the interests of the Independent Shareholders.

OPINION AND RECOMMENDATION

Having taken into account the above principal factors, we consider that (i) the terms of the

2019 Sale Framework Agreement are fair and reasonable and on normal commercial terms so far as the Independent Shareholders are concerned; (ii) the transactions contemplated under the 2019 Sale Framework Agreement are in the ordinary and usual course of business of the Group; (iii) the entering into of the Supplemental Sale Framework Agreement and the 2019 Sale Framework Agreement is in the interests of the Company and the Shareholders as a whole; and (iv) the Revised Annual Cap and the Proposed Annual Caps are fair and reasonable so far as the Independent Shareholders are concerned.

Accordingly, we advise the Independent Board Committee to recommend, and we ourselves recommend, the Independent Shareholders to vote in favour of the relevant ordinary resolutions to be proposed at the SGM to approve the Supplemental Sale Framework Agreement (including the Revised Annual Cap) and the 2019 Sale Framework Agreement (including the Proposed Annual Caps).

Yours faithfully,

for and on behalf of

SOMERLEY CAPITAL LIMITED

Clifford Cheng

Director

Mr. Clifford Cheng is a licensed person registered with the Securities and Futures Commission and a responsible officer of Somerley Capital Limited, which is licensed under the SFO to carry out Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities. He has over nine years of experience in the corporate finance industry.

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APPENDIX I PARTICULARS OF DIRECTOR FOR RE-ELECTION

Details of the Director who will retire from office at the SGM and being eligible, will offer himself for re-election at the SGM, are set out below:

Mr. Zhao Yang (''Mr. Zhao'')

Mr. Zhao, aged 49, obtained a Bachelor's degree in Finance from Nankai University and EMBA degree from China Europe International Business School. Mr. Zhao was the Chief Financial Officer starting from January 2017 and was responsible for the Group's corporate finance, accounting and treasury functions. Prior to joining the Group, Mr. Zhao held senior management positions in different companies, of which two are Shenzhen listed companies, 天馬 微電子股份有限公司 (Tianma Microelectronics Co. Ltd*) and 中航地產股份有限公司 (AVIC Real Estate Holding Company Limited*). Mr. Zhao has over 25 years of experience in accounting and finance.

The Company has entered into a service agreement with Mr. Zhao for a term of three years commencing from 23 August 2019, which may be terminated by either party giving to the other not less than one month's prior notice in writing. Mr. Zhao is entitled to a director's fee of HK$36,000 per annum which was determined by the Board with recommendation of the remuneration committee of the Company after considering a range of factors including his experience, his duties and responsibilities in the Group, the remuneration structure of the Group and levels of remuneration for peers in the market. His directorship is subject to retirement by rotation and re-election at general meetings of the Company in accordance with the bye-laws of the Company.

As at the Latest Practicable Date, save as disclosed herein, Mr. Zhao did not hold any other directorship in the last three years in other public company the securities of which are listed on any securities market in Hong Kong or overseas and does not have any relationship with any other directors, senior management or substantial or controlling shareholders of the Company. Mr. Zhao is currently the director of ten subsidiaries of the Company.

As at the Latest Practicable Date, he does not have any interest in the shares of the Company within the meaning of Part XV of the SFO.

Save as disclosed herein, there is no other matter that needs to be brought to the attention of the Shareholders.

• For identification purpose only

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APPENDIX II

GENERAL INFORMATION

1. RESPONSIBILITY STATEMENT

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

2. DISCLOSURE OF INTERESTS

As at the Latest Practicable Date, none of the Directors and the chief executive of the Company had any interests or short positions in the Shares, underlying shares or debentures of the Company or any of its associated corporation (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which he/she was deemed or taken to have under such provisions of the SFO) or which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein, or which were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers, to be notified to the Company and the Stock Exchange.

As at the Latest Practicable Date, none of the Directors or proposed Directors is a director or employee of a company which has an interest or short position in the shares and underlying shares of the issuer which would fall to be disclosed to the issuer under the provisions of Divisions 2 and 3 of Part XV of the SFO.

3. DIRECTORS' SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contract with any member of the Group which does not expire or is not determinable by the Company within one year without payment of compensation (other than statutory compensation).

4. COMPETING INTERESTS

None of the Directors or their respective associate(s) are considered to have interests in business which compete or are likely to compete, either directly or indirectly, with the business of the Group which require disclosure under the Listing Rules. In any event, such Directors will be subject to the usual requirement to abstain from voting on resolutions of the Board approving any proposal in which any Director or his associate has a material interest, such that the decision making of the Board should not be affected by such material interest.

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APPENDIX II

GENERAL INFORMATION

5. MATERIAL ADVERSE CHANGE

The Directors are not aware of any material adverse change in the financial position or trading position of the Group since 31 December 2018, being the date to which the latest published audited financial statements of the Group was made up.

6. INTERESTS IN CONTRACTS, ASSETS AND ARRANGEMENT OF SIGNIFICANCE

None of the Directors is materially interested in any contract or arrangement subsisting at the Latest Practicable Date and which is significant in relation to the business of the Group taken as a whole.

As at the Latest Practicable Date, none of the Directors had any direct or indirect interests in any asset which had been acquired, or disposed of by, or leased to any member of the Group, or was proposed to be acquired, or disposed of by, or leased to any member of the Group since 31 December 2018, the date to which the latest published audited financial statements of the Group were made up.

7. EXPERT AND CONSENT

The following is the qualification of the expert who has given an opinion or advice contained in this circular:

Name	Qualification
Somerley Capital Limited	A licensed corporation to carry on Type 1 (dealing in
	securities) and Type 6 (advising on corporate finance)
	regulated activities under the SFO

Somerley Capital Limited has given and has not withdrawn its written consent to the issue of this circular with the inclusion herein of its letter and references to its name in the form and context in which they respectively appear.

As at the Latest Practicable Date, Somerley Capital Limited did not have any shareholding in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

As at the Latest Practicable Date, Somerley Capital Limited did not have any direct or indirect interests in any assets which have been acquired or disposed of by or leased to, any member of the Group, or which are proposed to be acquired or disposed of by or leased to, any member of the Group since 31 December 2018 (being the date to which the latest published audited accounts of the Group were made up).

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APPENDIX II

GENERAL INFORMATION

8. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at the principal place of business of the Company in Hong Kong at Unit A, 20/F, Tower 2, Admiralty Centre, 18 Harcourt Road, Admiralty, Hong Kong during normal business hours on any business day for a period of

14 days from the date of this circular:

1. the Supplemental Sale Framework Agreement;
2. the 2019 Sale Framework Agreement;
3. the letter from the Independent Board Committee to the Independent Shareholders, the text of which is set out on pages 15 to 16 of this circular;
4. the letter from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, the text of which is set out on pages 17 to 31 of this circular;
5. the written consent referred to in the section headed ''7. Expert and consent'' in this Appendix; and
6. this circular.

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NOTICE OF SGM

(Incorporated in Bermuda with limited liability)

(Stock Code: 232)

NOTICE IS HEREBY GIVEN that a special general meeting (the ''Meeting'') of AVIC International Holding (HK) Limited (the ''Company'', together with its subsidiaries, the ''Group'') will be held at Forum Room 1, Basement 2, Regal Hongkong Hotel, 88 Yee Wo Street, Causeway Bay, Hong Kong on Friday, 27 December 2019 at 11:00 a.m. for the purpose of considering and, if thought fit, passing, with or without modification, the following resolutions to be proposed as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

1. ''THAT

1. the supplemental sale framework agreement dated 19 November 2019 (the
   ''Supplemental Sale Framework Agreement'') and entered into between the Company and Aviation Industry Corporation of China, Ltd. (''Aviation Industry'') (a copy of which is marked ''A'' and produced to the Meeting and signed by the chairman of the Meeting for the purpose of identification) and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified;
2. the revised annual cap for the transactions contemplated under the Supplemental Sale Framework Agreement for the year ending 31 December 2019 be and is hereby approved, confirmed and ratified; and
3. any one or more of the directors of the Company (the ''Directors'') be and is/are hereby authorised to do all such acts and things and execute all such documents which he/they consider necessary, desirable or expedient for the purpose of, or in connection with, the implementation of and giving effect to the Supplemental Sale Framework Agreement and the transactions contemplated thereunder.''

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NOTICE OF SGM

1. ''THAT
2. 1. the sale framework agreement dated 19 November 2019 (the ''2019 Sale Framework Agreement'') and entered into between the Company and Aviation Industry (a copy of which is marked ''B'' and produced to the Meeting and signed by the chairman of the Meeting for the purpose of identification) and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified;
   2. the respective annual caps for the transactions contemplated under the 2019 Sale Framework Agreement for the three years ending 31 December 2022 be and are hereby approved, confirmed and ratified; and
   3. any one or more of the Directors be and is/are hereby authorised to do all such acts and things and execute all such documents which he/they consider necessary, desirable or expedient for the purpose of, or in connection with, the implementation of and giving effect to the 2019 Sale Framework Agreement and the transactions contemplated thereunder.''
3. ''THAT Mr. Zhao Yang be re-elected as executive Director and to authorise the board of Directors to fix his remuneration.''

By Order of the Board

AVIC International Holding (HK) Limited

Lai Weixuan

Chairman

Hong Kong, 5 December 2019

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NOTICE OF SGM

Registered office:	Head office and principal place of
Victoria Place, 5th Floor	business in Hong Kong:
31 Victoria Street	Unit A, 20/F
Hamilton HM 10	Tower 2, Admiralty Centre
Bermuda	18 Harcourt Road
	Admiralty, Hong Kong

Notes:

1. Any member of the Company entitled to attend and vote at the meeting shall be entitled to appoint one or, if he is the holder of two or more shares, more than one person as his proxy to attend and vote instead of him. A proxy need not be a member of the Company.
2. Where there are joint registered holders of any share of the Company, any one of such persons may vote at the meeting either personally or by proxy, in respect of such share as if he were solely entitled thereto; but if more than one of such joint holders be present at the meeting personally or by proxy, that one of the said persons whose name stands first on the register of members of the Company in respect of such share shall alone be entitled to vote in respect thereof.
3. Completion and return of the form of proxy will not preclude a member from attending and voting at the above meeting or any adjournment thereof if he so wishes. In that event, his form of proxy will be deemed to have been revoked.
4. In order to be valid, the form of proxy duly completed and signed in accordance with the instructions printed thereon together with the power of attorney or other authority, if any, under which it is signed or a notarially certified copy thereof must be delivered to the Hong Kong branch share registrar and transfer office of the Company, Computershare Hong Kong Investor Services Limited at 17M Floor, Hopewell Centre, 183 Queen's Road East, Wan Chai, Hong Kong, no later than 11:00 a.m. (Hong Kong time) on Wednesday, 25 December 2019.
5. In order to determine the entitlement to attend and vote at the meeting, the register of members of the Company will be closed from Friday, 20 December 2019 to Friday, 27 December 2019, both days inclusive, during which period the registration of Shares will be suspended. All transfers of shares of the Company accompanied by the relevant share certificates must be lodged with the Hong Kong branch share registrar and transfer office of the Company, Computershare Hong Kong Investor Services Limited at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen's Road East, Wan Chai, Hong Kong, for registration no later than 4:30 p.m. on Thursday, 19 December 2019.

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