Final Results - Part 1

RNS Number : 7370B

Air China Ld

20 April 2012

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Air China is the only national flag carrier of China and a member of Star Alliance, the world's largest airline alliance. It is also the only Chinese civil aviation enterprise listed in "The World's 500 Most Influential Brands".

Air China is headquartered in Beijing, the capital of China, with two increasingly important hubs in Shanghai and Chengdu. With Star Alliance, our network covered 1,290 destinations in 189 countries as at 31 December 2011. Air China is dedicated to provide passengers with safe, convenient, comfortable and personalised services.

Air China is actively implementing the strategic objectives of ranking among the top in terms of global competitiveness, continuously strengthening our development potentials, providing our customers with a unique and excellent experience and realising sustainable growth to create value for all related parties.

In addition, Air China also holds direct or indirect interests in the following airlines: Air China Cargo Co., Ltd, Shenzhen Airlines Company Limited, Air Macau Company Limited, Beijing Airlines Company Limited, Dalian Airlines Company Limited, Cathay Pacific Airways Limited and Shandong Airlines Co., Ltd.

Contents

2 Corporate Information

3 Summary of Financial Information

5 Summary of Operating Data

7 Chairman's Statement

9 Business Overview

15 Management's Discussion and Analysis of Financial Position

and Operating Results

22 Corporate Governance Report

33 Report of the Directors

53 Report of the Supervisory Committee

56 Profile of Directors, Supervisors and Senior Management

Financial Statements prepared under International Financial

Reporting Standards

63 - Independent Auditors' Report

65 - Consolidated Income Statement

66 - Consolidated Statement of Comprehensive Income

67 - Consolidated Statement of Financial Position

69 - Consolidated Statement of Changes in Equity

70 - Consolidated Statement of Cash Flows

72 - Statement of Financial Position

74 - Notes to Financial Statements

Financial Statements prepared under China Accounting Standards

for Business Enterprises

166 - Consolidated Balance Sheet

168 - Consolidated Income Statement

169 Supplementary Information

171 Glossary of Technical Terms

172 Definitions

REGISTERED CHINESE NAME

中國國際航空股份有限公司

ENGLISH NAME

Air China Limited

REGISTERED OFFICE

9/F, Blue Sky Mansion

28 Tianzhu Road

Zone A, Tianzhu Airport Economic Development Zone

Shunyi District

Beijing

China

PRINCIPAL PLACE OF BUSINESS IN HONG KONG

5th Floor, CNAC House

12 Tung Fai Road

Hong Kong International Airport

Hong Kong

WEBSITE ADDRESS

www.airchina.com.cn

Directors

Wang Changshun

Wang Yinxiang

Cao Jianxiong

Sun Yude

Christopher Dale Pratt

Ian Sai Cheung Shiu

Cai Jianjiang

Fan Cheng

Fu Yang

Li Shuang

Han Fangming

Yang Yuzhong

SUPERVISORS

Li Qinglin

Zhang Xueren

Zhou Feng

Xiao Yanjun

Su Zhiyong

LEGAL REPRESENTATIVE OF THE COMPANY

Wang Changshun

JOINT COMPANY SECRETARIES

Rao Xinyu

Tam Shuit Mui

AUTHORISED REPRESENTATIVES

Cai Jianjiang

Tam Shuit Mui

LEGAL ADVISERS TO THE COMPANY

Haiwen & Partners (as to PRC Law)

Sullivan & Cromwell (as to Hong Kong and English Law)

INTERNATIONAL AUDITORS

Ernst & Young

H SHARE REGISTRAR AND TRANSFER OFFICE

Computershare Hong Kong Investor Services Limited

Rooms 1712-1716, 17th Floor

Hopewell Centre

183 Queen's Road East

Wanchai

Hong Kong

LISTING VENUES

Hong Kong, London and Shanghai

Corporate Information

					(RMB'000)
	2011	2010	2009	2008	2007


Turnover	98,409,502	82,487,539	51,393,191	52,908,161	51,081,667
Profit from operations	6,258,661	10,927,521	5,500,956	(9,806,971)	3,912,123
Profit before tax	9,354,739	14,833,612	5,066,285	(10,977,680)	5,448,165
Profit after tax (including profit attributable to non-controlling interests)	7,062,666	12,335,864	4,803,051	(9,367,030)	3,935,552
Profit attributable to non-controlling interests	(19,708)	330,860	(51,183)	(111,208)	(110,661)
Profit attributable to owners of the Company	7,082,374	12,005,004	4,854,234	(9,255,822)	4,046,213
EBITDA⁽¹⁾	15,819,568	19,496,891	12,552,228	(3,441,696)	9,466,566
EBITDAR⁽²⁾	20,420,033	23,696,910	15,349,155	(593,230)	12,017,187
Earnings per share attributable to
equity holders of the Company (RMB)	0.58	1.03	0.41	(0.78)	0.34
Return on equity attributable to owners
of the Company (%)	15.36	28.97	20.30	(46.41)	13.22

Summary of Financial Information

(1) EBITDA represents earnings before finance revenue, finance costs, enterprise income taxes, profits resulting from sale of associates, share of profits and losses of associates, depreciation and amortisation as computed under the IFRSs.

(2) EBITDAR represents EBITDA before deducting operating lease expenses on aircraft and engines as well as other operating lease expenses.

					(RMB'000)
	31 December2011	31 December2010	31 December2009	31 December2008	31 December2007


Total assets	175,850,072	158,769,531	107,919,022	100,401,224	91,300,277
Total liabilities	127,524,637	117,398,294	83,964,555	79,944,718	60,548,027
Non-controlling interests	2,209,636	(66,717)	38,571	513,654	138,050
Equity attributable to equity holder of the Company	46,115,799	41,437,954	23,915,896	19,942,852	30,614,200
Equity attributable to owners of the Company per share (RMB)	3.79	3.56	2.02	1.68	2.58

Summary of Operating Data

The following summary includes the operating data of the Company, Air China Cargo, Shenzhen Airlines, Air Macau, Beijing Airlines and Dalian Airlines. Among which, the statistic data of Shenzhen Airlines includes those of Kunming Airlines. As Shenzhen Airlines only became a subsidiary of the Group since 20 April 2010, accordingly statistic data of Shenzhen Airlines for the 2010 period only included data collected from 20 April 2010 to 31 December 2010.

	2011	2010	Change


Traffic
RPK (in millions)	123,499.47	105,694.99	16.85%
International	35,724.19	33,206.63	7.58%
Domestic	82,676.09	67,839.75	21.87%
Hong Kong, Macau and Taiwan	5,099.20	4,648.61	9.69%

RFTK (in millions)	4,847.63	4,840.90	0.14%
International	3,427.48	3,583.74	(4.36%)
Domestic	1,323.22	1,154.99	14.57%
Hong Kong, Macau and Taiwan	96.93	102.17	(5.13%)

Passengers carried (in thousands)	69,691.73	60,006.20	16.14%
International	7,121.88	6,944.98	2.55%
Domestic	59,391.47	50,185.69	18.34%
Hong Kong, Macau and Taiwan	3,178.38	2,875.53	10.53%

Cargo and mail carried (tonnes)	1,426,086.62	1,347,267.42	5.85%

Kilometres flown (in millions)	873.11	767.37	13.78%

Block hours (in thousands)	1,386.27	1,218.36	13.78%

Number of flights	490,913	435,371	12.76%
International	50,254	48,551	3.51%
Domestic	413,557	362,107	14.21%
Hong Kong, Macau and Taiwan	27,102	24,713	9.67%

RTK (in millions)	15,868.94	14,294.41	11.01%


Capacity
ASK (in millions)	151,589.87	132,074.76	14.78%
International	45,298.99	41,476.98	9.21%
Domestic	99,401.93	84,370.14	17.82%
Hong Kong, Macau and Taiwan	6,888.94	6,227.64	10.62%

AFTK (in millions)	8,174.61	7,843.37	4.22%
International	5,351.52	5,254.06	1.86%
Domestic	2,572.06	2,369.04	8.57%
Hong Kong, Macau and Taiwan	251.03	220.28	13.96%

ATK (in millions)	21,845.35	19,740.75	10.66%


Load factor
Passenger load factor (RPK/ASK)	81.47%	80.03%	1.44ppts
International	78.86%	80.06%	(1.20ppts)
Domestic	83.17%	80.41%	2.77ppts
Hong Kong, Macau and Taiwan	74.02%	74.64%	(0.62ppts)

Cargo and mail load factor (RFTK/AFTK)	59.30%	61.72%	(2.42ppts)
International	64.05%	68.21%	(4.16ppts)
Domestic	51.45%	48.75%	2.69ppts
Hong Kong, Macau and Taiwan	38.61%	46.38%	(7.77ppts)


Yield
Yield per RPK (RMB)	0.68	0.64	6.25%
International	0.57	0.57	0%
Domestic	0.72	0.67	7.46%
Hong Kong, Macau and Taiwan	0.76	0.79	(3.80%)

Yield per RFTK (RMB)	1.79	1.85	(3.24%)
International	1.81	1.64	10.37%
Domestic	1.49	2.29	(34.93%)
Hong Kong, Macau and Taiwan	4.95	5.01	(1.20%)


Fleet
Total number of aircraft in service at year end	432	393	39
Daily utilisation (block hours per day per aircraft)	9.58	9.71	(0.13 hour)


Unit cost
Operating cost per ASK (RMB)	0.61	0.54	12.96%
Operating cost per ATK (RMB)	3.13	3.46	(9.54%)

Chairman's Statement

The market conditions for the aviation industry in 2011 were very complicated. Some prominent characteristics include the relatively rapid growth in the domestic air passenger market, continuing recession in the international air passenger market and significant decline in air cargo operations. At the same time, jet fuel price remained high and domestic and international competition intensified, all of which had put great pressure on our operations. The Group adhered to a strategy of continuing development by steady and prudent operation and implementation and achieved progress in various areas. We have strengthened our operation management, adopted an active stance towards market changes, consolidated our cost advantages and continued to improve service quality. During the reporting period, we recorded a turnover of RMB98,410 million and profit attributable to equity holders of RMB7,082 million, representing a year-on-year increase of 19.30% and a year-on-year decrease of 41%, respectively.

Further strengthened position in the domestic
market - In 2011, we took advantage of the growth in the domestic air passenger market and timely adjusted our capacity deployment. This resulted in significant improvement of yield quality and fortified our market position. Our domestic capacity increased to 99,402 million available seat kilometres and we realised 82,676 million RPKs, representing an increase of 17.82% and 21.87%, respectively, from the previous year. We carried 59,391,500 passengers with a passenger load factor of 83.17%, representing an increase of 18.34% and 2.77% over the previous year respectively. Our passenger yield increased by 7.46% to RMB0.72.

Further enhanced international air passenger operations - In 2011, our international route capacity reached 45,299 million available seat kilometres and we realised 35,724 million revenue passenger kilometres, representing an increase of 9.21% and 7.58%, respectively, from the previous year. Our passenger load factor fell slightly by 1.2 ppts and our passenger yield maintained the same as that of last year at RMB0.57.

Fleet optimisation - We introduced 58 aircraft and retired 19 aircraft, including B757-200 and B737-300 from our fleet. As at the end of 2011, our fleet comprised 432 aircraft with an average age of 6.77 years.

Steady increase in profitability - We have actively expanded our key sales and marketing channels, improved our mileage redemption programme for VIP frequent flyer customers and introduced seasonal rates offers. The revenue from our frequent flyer programme recorded a 17% growth from last year. We have focused on building and maintaining relationships with large corporate customers and improved management efficiency of our core customers. Contribution to revenue from our high-value customers, including our global and Star Alliance customers, continued to climb and revenue from our large corporate customers grew by 36% from the previous year. We made steady progress in developing our e-commerce platform and our e-commerce revenue increased by 53% from last year. Meanwhile, we upgraded the software and hardware of our products, refined our profit management and achieved a higher load factor of our first and business class cabins. Our revenue grew by 17% compared to the previous year. In response to the recession in the international passenger market, we continued to optimize capacity structure in a dynamic manner in line with our hub and network strategy. We adjusted the operations of Japan routes after the earthquake in Japan. We also introduced new routes (including Beijing-Milan and Beijing-Dusseldorf routes) and increased the frequency of services on Beijing-Los Angeles route, which have shown positive operating results.

Customer service enhancement - We are committed to provide comprehensive, personalised and high quality services to our passengers. 4 environmental-friendly, fuel-efficient and comfortable B777-300ER wide-body aircraft with enhanced safety features were introduced to our fleet. We also upgraded some of our cabin and lounge facilities, integrated our customer service hotlines and improved our website layout. We were the first domestic airline to provide wifi services on selected routes. Our services were accredited with a 4-star ranking by Skytrax and our customer service management system (CSM) was the first in the world to be certified by the British Standards Institution.

Comprehensive strategic collaboration - We strengthened our strategic partnership with Cathay Pacific. Our cargo joint venture was formally established on 18 March 2011 and has been running under a new operation and management model. We deepened our collaboration with Shenzhen Airlines in various areas, including sales and marketing, maintenance, information technology and central procurement. We also established Beijing Airlines which specialises in chartered business jet flights. Our influence in the regional market continued to grow through our investment in Tibet Airlines and the establishment of Dalian Airlines. The synergy from our internal collaboration was eminent and the results of Shenzhen Airlines increased significantly.

Efforts to improve cargo operations - Demand in the air cargo market has continued to fall since the second quarter last year. The cargo capacity and the actual output of Air China Cargo went down by 2.9% and 6.4%, respectively, compared to the previous year, and the load factor also decreased by 3ppts from last year to 79.2%. In response to the difficult market conditions, Air China Cargo launched internet-based, customer-based and product-based sales and marketing efforts, actively developing new customer base and improving our service standards. We focused on the development of the Shanghai cargo hub and strengthened the transit support capability at hub terminals. We responded to market changes and expedited the adjustments to our capacity deployment and introduced new routes (including Shanghai (Pudong)-Hong Kong route), reduced our capacity in non-performing long-haul routes, launched short-haul services and relocated our freighters to Shanghai. All of these measures effectively improved our air cargo operations and offsetting losses.

In 2012, the steady and continuous growth in the Chinese economy will bring new opportunities in the aviation industry. However, internal and external factors, including the lack of growth momentum in the European and American economies, the accelerated structural consolidation in the Chinese economy, the increasingly challenging domestic and international economic landscape, aviation resource limitations (including airspace, infrastructure and manpower limitations as well as slot constraints) and the high operating cost of our core business will generate new challenges and greater pressure for the Company. Our Company will fortify our existing customer-oriented value. We will put our management focal points on adopting international best practices, conforming to standards, exercising more fine-tuned management and realising information technology based coverage. We will continue to strengthen our management endeavours as well as hub and network development. We will deploy our capacity effectively in response to market trends. At the same time, we will step up our business process re-engineering and resources consolidation, enhance our strategic collaboration as well as synergise our air passenger and cargo businesses so as to improve our strengths and global competitiveness. With the goal of developing the Company into a large network airline with international competitiveness, we will continue to create new competitive edges, strive for stronger results and achieve new milestones.

Wang Changshun

Chairman

Beijing, PRC

27 March 2012

Business Overview

In 2011, the Group's ATKs reached 21.845 billion and RTKs reached 15.869 billion, representing an increase of 10.66% and 11.01% over the previous year, respectively. The Group's overall load factor was 72.64%, representing an increase of 0.23 ppts from 2010.

DEVELOPMENT OF FLEET

In 2011, we introduced 58 aircraft, including 4 B777-300ER, 19 B737-800, 5 A330 and 23 A320 series, and retired 19 old aircraft, including B757-200 and B737-300. As at the end of 2011, our fleet comprised 432 aircraft with an average age of 6.77 years.

Details of the fleet of our Group are set out in the table below:

	As of 31 December 2011					Introduction plan
	Subtotal	Self-owned	Finance leased	Operating leased	Average age	2012	2013	2014


Passenger aircraft	411	203	96	112	6.56	52	56	55


Airbus series	183	78	67	38	4.55	28	24	18
A319	43	24	9	10	6.90	0	0	0
A320/A321	106	42	41	23	3.38	22	17	10
A330	28	6	17	5	3.45	6	7	8
A340	6	6	0	0	13.56	0	0	0

Boeing series	228	125	29	74	8.22	24	32	37
B737	190	93	23	74	7.16	18	26	32
B747	9	8	1	0	14.74	0	0	2
B757	10	10	0	0	16.99	0	0	0
B767	5	5	0	0	16.91	0	0	0
B777	14	9	5	0	8.60	6	6	3

Freighters	12	8	0	4	17.29	2	0	0
B747F	10	8	0	2	17.17	2	0	0
A300F	2	0	0	2	17.90	0	0	0

Business jet	9	0	0	9	2.22	2	0	0


Total	432	211	96	125	6.77	56	56	55

Among the total number of aircraft of our Group, the Company operated a fleet of 288 aircraft in total (exclusive of those wet leased) with an average age of 7.03 years. During the year, the Company introduced 32 aircraft and retired 10 aircraft.

During 2011, the Company has achieved new developments in hub construction, marketing, product innovation and service improvement.

HUB NETWORK

The Company continued to strengthen our market position at the Beijing hub. As at the end of 2011, the number of our aircraft serving the Beijing hub amounted to 173. The number of transit passengers at the Beijing hub reached 4.5 million during the year. The operation control capability at the Beijing Hub Control Centre (HCC) continued to improve and operational quality steadily enhanced. In addition, the number of our aircraft serving the Chengdu hub was 47. By securing key resources including additional flight schedules, transit counters at Terminal 2 as well as lounge facilities for our first and business class passengers, the operational support capability of the Chengdu hub further strengthened. The number of our aircraft serving the Shanghai gateway was 34 as we saw gradual improvements in the support capability for flights, operations and maintenance at the Shanghai gateway.

In 2011, the Company introduced 20 domestic routes, including Chengdu - Ningbo and Chengdu - Yiwu routes, and eight international and regional routes, including Beijing - Milan, Beijing - Phuket and Chengdu - Tokyo routes.

As at 31 December 2011, the number of air passenger routes operated by the Company reached 282, among which 71 were international routes, 14 were regional routes, 197 were domestic routes, covering 30 countries and regions and 143 cities, including 43 international cities, 4 regional cities and 96 domestic cities.

MARKETING

In response to the changing market conditions and competitive landscape, the Company proactively launched new marketing channels, further improving its marketing capability. With respect to frequent flyers, our air mileage data bank was upgraded comprehensively to provide more options for air mileage consumption and more convenient services for our frequent flyers. During the year, our frequent flyers increased by 2.77 million, reaching a total of 17.44 million. The revenue derived from our frequent flyers amounted to RMB19.51 billion, representing a year-on-year increase of 24.2%. The steady progress in constructing our e-commerce platform as well as the introduction of a new online booking system and one-stop comprehensive sales hotline contributed to our growth in revenue. Our e-commerce revenue reached RMB9.6 billion for the year, representing an increase of 53.2% from the previous year. In addition, the Company focused on improving management efficiency of its key customers and achieved remarkable results in building and maintaining relationships with them, consequently, the revenue from our key customers reached RMB12 billion for the year, representing a year-on-year increase of 35.5%. Further, the Company upgraded the software and hardware of our products, refined our profit management, leading to an increase in our revenue in first and business class cabins resulting in a year-on-year growth of 17% in revenue.

PRODUCTS AND SERVICES

In 2011, the Company established a Customer Service Management (CSM) system applicable to the entire air passenger service chain and carried out service upgrades in various areas such as e-commerce, facilities and equipment in passenger cabins and lounges, with a view of enhancing passenger's experience. The following measures were implemented: integration of our customer service hotlines and standardisation of service interface as well as improving our website layout and its service functions. The Company also introduced new and more comfortable B777-300ER aircraft and completed the upgrading and rebuilding of the passenger cabins of 13 A330-200 aircraft. A platform for transmitting information from abnormal flights was established and seamless internal communication on our flight information was achieved initially. We increased our investments in food and beverages, shortened the turnaround time to refresh our menus, enriched the entertainment experience in our cabins, launched portable entertainment facilities and became the first domestic airline to provide wifi services in cabins. We were able to provide significantly improved service quality overall and our customer satisfaction increased steadily. During the year, the Company was accredited with a 4-Star Airline ranking by Skytrax, a world-recognised rating agency on airline services.

INTEGRATION OF RESOURCES AND OPTIMIsATION OF STRATEGIC LAYOUT

In order to diversify our development, we established Beijing Airlines which specialises in chartered business jet flights, expanding our capabilities in chartered flights and sales. We have also established a joint venture airline, Dalian Airlines, and successfully invested in Tibet Airlines. Through these measures, we have improved our strategic market positioning in the northeastern market and resource deployment and built a platform for exerting our influence in the regional market.

The synergy from our collaboration with Shenzhen Airlines have started to surface. Our influence in the southern China market improved and our market share increased through our collaboration in flight schedules and capacity deployment. We deepened our sales and marketing cooperation with Shenzhen Airlines and improved our network value efficiently. In addition, we have started cooperating in areas including maintenance, information technology and central procurement. Our revenue attributable to collaborative efforts increased by RMB1,600 million.

We continued to deepen and expand our cooperation with Cathay Pacific, resulting in a mutual increase in competitiveness on the Mainland - Hong Kong routes. Our joint venture with Cathay Pacific, Air China Cargo, was formally established on 18 March 2011. The new joint venture would allow us to complement each other and combine our operation management experience, while focusing on developing Air China Cargo to become the first choice cargo carrier for inbound and outbound customers in China.

The Company had proactively used the Star Alliance platform, explored our customer resources and at the same time, promoted product and services integration. We continued to enhance our cooperation with our Star Alliance partners, such as Lufthansa and United Airlines and increased our revenue attributable to the alliance. In 2011, the revenue attributable to Star Alliance was RMB2,300 million, representing a year-on-year growth of 6.9%.

ENVIRONMENTAL PROTECTION

Our Company adhered to a principle of "Sustainable Development through Green Operation" and effectively managed the unfavourable environmental effects from our operations. We are committed to continuously improve our efficiency, reduce our emissions and conserve energy. We have built a multi-tier energy conservation and emission reduction management system and adopted various measures to improve our fuel efficiency. We have also strengthened our pollutants recycling efforts and launched various promotional campaigns and training programmes for our staff members to increase their environmental awareness. In 2011, the Company conducted a successful trial flight using bio-fuel on an active aircraft for the first time in China, launching a low-carbon environmentally-friendly initiative.

SOCIAL WELFARE

Our Group is fully committed to our social responsibilities and provided flying services during emergencies and special situations. We were proactive in emergency situations, such as the evacuation of Chinese nationals from Egypt and Libya and the rescue mission following the Japanese earthquake, and provided chartered flights services successfully while taking the overall circumstances into account. We are dedicated to social welfare, supporting educational development, assisting the disadvantaged group and launching volunteering services to promote harmony between the society and our corporate development. As one of the promoters of the Chinese Children Special Insurance Fund, we will continue to raise donations for the fund and our donations, together with the contributions from our passengers, amounted to approximately RMB987,400 in 2011.

MAJOR SUBSIDIARIES

Air China Cargo

Air China Cargo was established in 2003. In 2011, Air China completed the cargo joint venture project with Cathay Pacific based on the platform of the former Air China Cargo, pursuant to which Air China holds a 51% shareholding in the new joint venture company.

As at 31 December 2011, Air China Cargo operated a fleet of 10 aircraft in total with an average age of 17.17 years. During the year, a new aircraft was introduced and an aircraft retired from its fleet.

Air China Cargo operates a total of 17 routes, including 3 domestic routes, 12 international routes and 2 regional routes. Air China Cargo's flights cover 10 countries and regions and 20 cities, including 5 domestic cities, 13 international cities and 2 regional cities.

In 2011, affected by weak market demand and the significant increase in oil prices, the overall operation of Air China Cargo underperformed. During the year, the AFTKs of Air China Cargo reached 7,578 million, representing an increase of 2.0% from 2010. It achieved cargo and mail traffic of 4,416 million RFTKs, representing a year-on-year decrease of 2.5%. The volume of cargo and mail carried increased by 0.1% from 2010 to 1,148,900 tonnes and the cargo and mail load factor decreased by 2.7 ppts from 2010 to 58.27% in 2011.

In 2011, Air China Cargo's turnover was RMB8,087 million, decreased by 5.76% from 2010. Among which, cargo and mail transportation revenue was RMB7,726 million, representing a year-on-year decrease of 5.97%. During the year, Air China Cargo incurred a loss of RMB924 million, as compared to a profit of RMB592 million last year.

Shenzhen Airlines

Shenzhen Airlines was established in 1992, with its principal operating base located in Shenzhen. Its main business activity is the operation of passenger and cargo transportation business. Air China increased its shareholding in Shenzhen Airlines by way of a capital injection in 2010 and is currently holding 51% equity interest of Shenzhen Airlines.

As at 31 December 2011, Shenzhen Airlines operated a fleet of 110 aircraft in total with an average age of 4.78 years. During the year, 19 aircraft were introduced to the fleet and 9 aircraft retired.

Shenzhen Airlines operates 136 routes, including 126 domestic routes, 5 international routes and 5 regional routes, covering destinations across 5 countries and regions and 63 cities, including 57 domestic cities, 3 international cities and 3 regional cities.

Benefiting from the steady increase in domestic passenger market demand and the synergy gradually appearing from the extensive cooperation with Air China, the ASKs of Shenzhen Airlines reached 34,192 million in 2011, representing a year-on-year increase of 12.5%. Its passenger traffic was 28,062 million RPKs in 2011, representing a year-on-year increase of 15.1%. Shenzhen Airlines carried 19,633,600 passengers, representing a year-on-year increase of 11.8%. Its average passenger load factor was 82.07%, representing an increase of 1.9 ppts from the previous year.

The AFTKs of Shenzhen Airlines reached 529 million, representing a year-on-year increase of 0.9%. In total, 407 million RFTKs of cargo and mail were carried, representing a year-on-year increase of 9.8%. The amount of cargo and mail carried by Shenzhen Airlines was 259,100 tonnes in 2011, representing a year-on-year increase of 9.4%, while the cargo and mail load factor was 76.83%, representing an increase of 6.1 ppts from the previous year.

In 2011, Shenzhen Airlines recorded a turnover of RMB21,747 million, representing a year-on-year increase of 19.96%. Among which, air traffic revenue was RMB20,565 million, representing a year-on-year increase of 20.38%. The profit for the period was 672 million, representing a year-on-year decrease of 25.44%.

Air Macau

Air Macau was established in 1994 and is an airline based in Macau. Air China holds 66.9% equity interest in Air Macau.

As at 31 December 2011, Air Macau operated a fleet of 13 aircraft (excluding three aircraft wet leased to Air China) with an average age of 12.89 years.

Air Macau operated 19 flight routes, covering 18 cities in Japan, Korea, Singapore, Thailand, Taiwan and Mainland China.

In 2011, Air Macau's ASKs reached 3,396 million, representing a year-on-year increase of 9.4%. Its passenger traffic was 2,233 million RPKs, representing a year-on-year increase of 2.2%. It carried 1,386,400 passengers with an average load factor of 65.75%, representing an increase of 1.6% and a decrease of 4.6 ppts respectively compared with the previous year.

In terms of air cargo, Air Macau's AFTKs reached 66 million, representing a year-on-year decrease of 12.8%. In total, 25 million RFTKs of cargo and mail were carried, representing a year-on-year decrease of 35.5%. During the period, it carried 18,200 tonnes of cargo and mail, representing a year-on-year decrease of 31.8%, while the cargo and mail load factor was 38.28%, representing a year-on-year decrease of 13.5 ppts.

In 2011, Air Macau recorded a turnover of RMB2,365 million, representing a year-on-year increase of 8.83%. Among which, air traffic revenue was RMB2,062 million, representing a year-on-year increase of 16.03%. The profit for the period was RMB212 million, representing a year-on-year increase of 1.92%.

Dalian Airlines

Dalian Airlines was established on 1 August 2011 with 80% of its equity interest held by Air China.

On 31 December 2011, Dalian Airlines successfully launched its first flight on Dalian - Shenzhen route. As at 31 December 2011, Dalian Airlines operated two aircraft and three routes, being Dalian-Beijing, Dalian-Shenzhen and Dalian-Taiyuan-Sanya.

Dalian Airlines will implement its regional aviation hub strategy in Dalian and will strive to establish an air traffic network corresponding to its position to become the gateway in the northeast China within 5 years.

Beijing Airlines

Beijing Airlines was established on 28 February 2011 with 51% of its equity interest held by Air China.

As at 31 December 2011, Beijing Airlines operated a fleet of 9 entrusted business jets with an average age of 2.22 years.

With its operation base in Beijing and starting with the business of the former business jet subsidiaries of Air China, Beijing Airlines has made full use of its resource advantages, such as well-established flight operation capacity, marketing networks, airworthiness maintenance capacity and global airport supporting capacity, with the target of developing its domestic and international business jet and charter flight business.

PROSPECT

The Company will face great pressure and many challenges in 2012. The global economic landscape will become more complicated with the slow recovery of the US economy and the worsening European debt crisis. There are obviously increasing risk in the aviation market as the competition among carriers in China in the domestic market intensifies, and flight frequency to and from China by overseas airlines increases. The competition for core resources, such as flight schedules, airspace and pilots among China's civil aviation players, will become more intense. Highways and high-speed railways also pose real threats to medium and short-haul business in the aviation industry. In addition, other uncertainties, including exchange rates fluctuation, will increase the operating pressure of the Company.

Despite the factors above, benefiting from the stable and steady growth in the Chinese economy and the national economic policies of boosting consumer demand and steady development of foreign trade, the domestic aviation industry will maintain a sustainable growth as Air China enters a strategic development phase.

In 2012, the Company will adhere to the business strategy of international development, actively strengthening and expanding the domestic and international markets, improving its routes network, accelerating the construction of aviation hubs, optimising the allocation of core resources and improving resource utilisation efficiency while continuing to strengthen safety management. The Company will strive to improve its global competitiveness using its global insight, strategic thinking and customer-orientation. Meanwhile, the Company will affirm its principle of offering passenger-oriented services, strengthening its products and services development capability, and striving to promote the development of comprehensive products and services.

Management's Discussion and Analysis of Financial Position and Operating Results

The following discussion and analysis is based on the Group's consolidated financial statements and the notes prepared in accordance with the IFRSs and are designed to assist readers in further understanding the information in this report and to better understand the financial performance of the Group as a whole.

Profit Analysis

In 2011, we took advantage of the growth in the domestic air passenger market and adopted various measures including precise production organisation, innovative sales and marketing efforts, exploitation of cost potential and internal strategic collaboration with our associated companies. We recorded an operating profit of RMB6,259 million, profit attributable to equity holders of RMB7,082 million and an earning-per-share of RMB0.58 despite the continued recession in the air cargo and international air passenger markets, high international jet fuel prices and intensification of market competition.

Turnover

In 2011, the Group's total turnover (net of business taxes and surcharges of RMB2,268 million) was RMB98,410 million, representing an increase of RMB15,922 million or 19.30% as compared with that of the previous year. Revenue from our air traffic operations contributed RMB93,343 million to the total turnover, representing an increase of RMB15,134 million or 19.35% over last year, primarily due to the rapid growth in the domestic air passenger market and our increased capacity deployment. Our other operating revenue was RMB5,066 million, representing a year-on-year increase of RMB788 million or 18.41%, mainly attributable to the revenue increase from ground services and aircraft engine repair and maintenance.

Revenue Contribution by Geographical Segments

	2011		2010		Change
(RMB'000)	Amount	Percentage	Amount	Percentage


Mainland China	66,154,716	67.22%	52,441,112	63.57%	26.15%
Hong Kong, Macau and Taiwan	4,335,880	4.41%	4,212,616	5.11%	2.93%
Europe	10,464,556	10.63%	9,848,721	11.94%	6.25%
North America	6,984,158	7.10%	6,008,965	7.28%	16.23%
Japan and Korea	6,110,530	6.21%	5,818,381	7.05%	5.02%
Asia Pacific and others	4,359,662	4.43%	4,157,744	5.05%	4.86%


Total	98,409,502	100.00%	82,487,539	100.00%	19.30%

Air Passenger Revenue

In 2011, the Group recorded an air passenger revenue of RMB83,510 million, representing an increase of RMB15,373 million from 2010. The revenue increases from our increased capacity deployment, higher passenger load factor and improved passenger yield were RMB9,988 million, RMB3,970 million and RMB1,415 million, respectively, all of which contributed to our air passenger revenue increase. The Group's 2011 capacity deployment, passenger load factor and passenger yield per unit are as follows:

	2011	2010	Change


Available seat kilometres (million)	151,590	132,075	14.78%
Passenger load factor (%)	81.47	80.03	1.44ppts
Yield per RPK (RMB)	0.68	0.64	6.25%

Air Passenger Revenue Contributed by Geographical Segments

	2011		2010		Change
(RMB'000)	Amount	Percentage	Amount	Percentage


Mainland China	59,120,211	70.79%	45,515,250	66.80%	29.89%
Hong Kong, Macau and Taiwan	3,855,927	4.62%	3,661,208	5.37%	5.32%
Europe	6,612,011	7.92%	6,348,204	9.32%	4.16%
North America	5,032,417	6.03%	4,052,842	5.95%	24.17%
Japan and Korea	5,173,573	6.19%	4,910,183	7.21%	5.36%
Asia Pacific and others	3,716,184	4.45%	3,649,985	5.35%	1.81%


Total	83,510,323	100.00%	68,137,672	100.00%	22.56%

Air Cargo Revenue

In 2011, the Group's air cargo and mail revenue was RMB9,833 million, representing a decrease of RMB238 million from the previous year. Among the Group's air cargo and mail revenue, increase in capacity deployment contributed to an increase resulted in RMB473 million in revenue, while the decreases in cargo and mail load factor and cargo yield resulted in a decrease in revenue of RMB400 million and RMB311 million, respectively. The capacity deployment, cargo and mail load factor and cargo and mail yield (per unit) in 2011 are as follows:

	2011	2010	Change


Available freight tonne kilometres (million)	8,174.61	7,843.37	4.22%
Cargo and mail load factor (%)	59.30	61.72	(2.42ppts)
Yield per RFTK (RMB)	1.79	1.85	(3.24%)

Air Cargo and Mail Revenue Contributed by Geographical Segments

	2011		2010		Change
(RMB'000)	Amount	Percentage	Amount	Percentage


Mainland China	1,968,424	20.02%	2,647,511	26.29%	(25.65%)
Hong Kong, Macau and Taiwan	479,953	4.88%	551,408	5.47%	(12.96%)
Europe	3,852,545	39.18%	3,500,517	34.76%	10.06%
North America	1,951,741	19.85%	1,956,123	19.42%	(0.22%)
Japan and Korea	936,957	9.53%	908,198	9.02%	3.17%
Asia Pacific and others	643,478	6.54%	507,759	5.04%	26.73%


Total	9,833,098	100.00%	10,071,516	100.00%	(2.37%)

Operating Expenses

In 2011, the Group's operating expenses were RMB92,151 million, representing an increase of 28.77% from RMB71,560 million of 2010. The breakdown of the operating expenses is set out below:

	2011		2010		Change
(RMB'000)	Amount	Percentage	Amount	Percentage


Jet fuel costs	34,703,369	37.66%	24,096,078	33.67%	44.02%
Profits and losses resulting from
movements in fair value of
fuel derivative contracts	(85,447)	(0.09%)	(1,954,071)	(2.73%)	(95.63%)
Take-off, landing and depot
charges	8,740,822	9.48%	7,707,019	10.77%	13.41%
Depreciation	9,560,907	10.37%	8,569,370	11.97%	11.57%
Aircraft maintenance,
repair and overhaul costs	2,612,678	2.84%	2,577,185	3.60%	1.38%
Employee compensation costs	12,270,065	13.32%	9,851,935	13.77%	24.54%
Air catering charges	2,662,984	2.89%	2,044,359	2.86%	30.26%
Selling expenses	5,480,514	5.95%	4,602,745	6.43%	19.07%
General and administrative
expenses	2,261,549	2.45%	1,637,824	2.29%	38.08%
Other	13,943,400	15.13%	12,427,574	17.37%	12.20%


Total	92,150,841	100.00%	71,560,018	100.00%	28.77%

Including:

• Jet fuel costs increased by 44.02% or RMB10,607 million in 2011 as compared to 2010. Jet fuel costs accounted for 37.66% of the operating expenses in 2011 as compared to 33.67% in 2010. The sharp increase in jet fuel costs was primarily due to the continuous fluctuation in high international fuel prices and an increase of fuel consumption resulting from the increase in flight hours. The Group's jet fuel consumption was 4,721,800 tons, representing an increase of 459,700 tons or 10.79% over last year.

• Gains on the fair value movements of fuel derivative contracts amounted to RMB85 million including a recovery of fair value of RMB83 million and an increase in fair value by RMB2 million from the actual settlement of fuel derivative contracts. Such gains decreased by 95.63% as compared with the same period of 2010, mainly due to the combined effect of the gradual reduction in the number of unsettled contracts and continuous fluctuations in high international oil prices.

• Take-off, landing and depot charges increased by RMB1,034 million from last year primarily due to the increase in the number of takeoffs and landings.

• Depreciation expenses increased due to increase in the number of self-owned and leased aircraft during the year.

• Employee compensation costs increased by RMB2,418 million, largely due to the adjustments in remuneration standards, increase in the number of employees and the differences in the reporting periods resulting from the consolidation of Shenzhen Airlines since 20 April 2010.

• Air catering charges increased by RMB619 million, mainly due to the increase in the number of passengers carried, enhancement of service quality as well as increase in raw materials prices.

• Selling expenses increased by RMB878 million as compared with the previous year because of the consequential increase in sales commission resulting from the revenue increase as well as the differences in the reporting periods resulting from the consolidation of Shenzhen Airlines.

• General and administrative expenses increased by RMB624 million as compared to last year because of the increase in the number of research and development projects.

• Other operating expenses included mainly aircraft and engines operating lease expenses, contributions to the civil aviation infrastructure construction fund and ordinary expenses arising from our core air traffic business not included in the aforesaid items.

Financial Revenue and Financial Costs

In 2011, the Group recorded a net exchange gain of RMB3,118 million, representing an increase of RMB1,199 million or 62.43% as compared with the previous year, which was mainly due to the increase in the proportion of US dollars denominated debts as well as the significant appreciation of RMB against US dollars. The Group also incurred an interest expense (including the capitalised portion) of RMB2,197 million, representing a year-on-year increase of RMB588 million, primarily due to the growth in interest-bearing liabilities and finance costs of the Group.

Share of Profits and Losses of Associates

In 2011, the Group's share in the profits of its associates was RMB1,329 million, as compared with RMB3,375 million in 2010, mainly due to the recognition of gains on investment in Cathay Pacific of RMB959 million in this reporting period compared to RMB3,003 million in 2010.

Analysis of Assets Structure

As at 31 December 2011, the total assets of the Group amounted to RMB175,850 million, representing an increase of 10.76% from the previous year, among which current assets accounted for RMB23,353 million or 13.28% of the total assets, while non-current assets accounted for RMB152,497 million, or 86.72% of the total assets.

Among the current assets, cash and cash equivalents were RMB15,457 million, accounting for 66.19% of the current assets and representing an increase of 7.33% from the previous year, mainly due to the increase in sales revenue during the year, which in turn led to an increase in cash and bank balances. Accounts receivable amounted to RMB2,701 million, representing a decrease of 12.66% from the previous year, largely due to the tightened control of accounts receivable, shortening our accounts receivable collection period.

Among the non-current assets, the net book value of property, plant and equipment was RMB112,399 million, accounting for 73.71% of the non-current assets and representing an increase of 16.90% from the previous year, which was primarily attributable to the increase in the number of self-owned and leased aircraft.

Assets Mortgage

As at 31 December 2011, the Group, pursuant to certain bank loans and finance leasing agreements, has mortgaged certain aircraft and premises with an aggregate net book value of approximately RMB72,244 million (approximately RMB55,885 million as at 31 December 2010), a number of shares in its associates with a market value of approximately RMB4,312 million (approximately RMB7,287 million as at 31 December 2010) and land use rights with a net book value of approximately RMB40 million (approximately RMB40 million as at 31 December 2010). At the same time, the Group had approximately RMB133 million (approximately RMB843 million as at 31 December 2010) in bank deposits pledged as partial security for certain bank loans, operating leases and financial derivatives of the Group.

Capital Expenditure

In 2011, the Company's capital expenditure amounted to RMB21,168 million, of which the total investment in aircraft and engines was RMB17,369 million, including prepayments of RMB8,576 million for aircraft to be introduced from 2012 onwards.

Other capital expenditure amounted to RMB3,799 million, which was mainly spent on high-cost rotables, aircraft modifications, flight simulators, infrastructure construction, information system building, ground equipment purchase and cash component of the long-term investments.

Equity Investment

As at 31 December 2011, the Group's equity investment in its associates totalled RMB13,397 million, representing a decrease of 5.58% as compared with the previous year, mainly due to the continuous depreciation of Hong Kong dollars against RMB which affected the currency translation of the Group's equity interest in Cathay Pacific which was denominated in Hong Kong dollars. We have invested RMB11,811 million in Cathay Pacific, RMB786 million in Shandong Aviation and RMB463 million in Shandong Airlines among our equity investments, and these companies recorded a profit of RMB4,570 million, RMB340 million and RMB710 million in 2011, respectively.

Debt Structure Analysis

As at 31 December 2011, the Group's total liabilities were RMB127,525 million, representing an increase of 8.63% from the previous year, among which current liabilities accounted for RMB61,332 million and non-current liabilities accounted for RMB66,193 million, representing 48.09% and 51.91% of the total liabilities, respectively.

Among the current liabilities, interest-bearing debts (including bank and other loans, obligations under finance leases and bills payable) amounted to RMB30,825 million, representing an increase of 9.72% from the previous year. Other advances and payables increased 25.59% from last year to RMB30,506 million, which was mainly due to the increase in accounts payable for major costs resulting from the soaring international oil prices and the increase in the number of flights.

Among the non-current liabilities, interest-bearing debts (including bank and other loans, corporate bonds and obligations under finance leases) amounted to RMB58,590 million, representing an increase of 0.63% from the previous year and maintaining a level similar to that as of the end of 2010.

Details of interests-bearing debts of the Group by currency are set out below:

	2011		2010		Change
(RMB'000)	Amount	Percentage	Amount	Percentage


US dollars	66,323,072	74.17%	61,265,234	70.98%	8.26%
Hong Kong dollars	5,112,274	5.72%	5,845,683	6.77%	(12.55%)
RMB	17,795,620	19.90%	18,996,833	22.01%	(6.32%)
Other	184,613	0.21%	206,333	0.24%	(10.53%)


Total	89,415,579	100.00%	86,314,083	100.00%	3.59%

Commitments and Contingent Liabilities

The Group's capital commitment decreased from RMB122,085 million as at 31 December 2010 to RMB96,199 million as at 31 December 2011, and was mainly committed for settling the purchase of certain aircraft and related equipment to be delivered in the coming years. The Group had operating lease commitments of RMB16,906 million, representing a decrease of 11.58% as compared with the previous year, which was mainly committed for leasing aircraft and settling the purchase of office premises and related equipment. The Group had investment commitments of RMB35 million, representing a decrease of RMB204 million as compared with 31 December 2010, consisting of the investment commitments made by Shenzhen Airlines to its associate mainly.

Details of the Group's contingent liabilities are set out in note 48 to the Group's 2011 financial statements.

Gearing Ratio

As at 31 December 2011, the Group's gearing ratio (total liabilities divided by total assets) was 72.52%, representing a decrease of 1.42 ppts from 73.94% as at 31 December 2010, which was mainly attributable to the significant increase in shareholders' equity as a result of improved profitability in 2011. Considering that high gearing ratios are common among aviation enterprises, the Group continued to maintain a relatively better gearing ratio in the domestic aviation industry and long-term insolvency risks are also within control.

Working Capital and Its Sources

As at 31 December 2011, the Group's net current liabilities (current liabilities minus current assets) were RMB37,978 million, representing an increase of RMB8,570 million as compared with the previous year. The current ratio (current assets divided by current liabilities) was 0.38, representing a decrease of 6 ppts from 0.44 as at 31 December 2010. The increase in net current liabilities was due to the increase in the Group's accounts payable for major costs as well as interest-bearing debts due within one year.

The Group meets its working capital needs mainly through its operating activities and external financing activities. In 2011, the Group's net cash inflow from operating activities was RMB19,670 million, representing an increase of 7.10% from the RMB18,366 million in 2010. Net cash outflow from investment activities was RMB21,669 million, representing an increase of 54.14% from RMB14,058 million in 2010, mainly due to the increase in purchase of aircraft and decrease in unpledged deposits due in three months or above. The Group's net cash outflow from financing activities was RMB1,432 million, representing a decrease of RMB8,895 million from the net cash inflow of RMB7,463 million in 2010, mainly due to the issuance of shares by way of private placement last year as well as the increase in repayment of loans during the reporting period as compared with the previous year. In 2011, the Group's balance of cash and cash equivalents was RMB10,783 million, representing a decrease of approximately RMB3,593 million from the previous year. The Company has obtained bank facilities of RMB141,263 million from a number of banks in the PRC, among which approximately RMB49,902 million has been utilised, sufficient to meet our demand on working capital and future capital commitments.

Financial Risk Management Objectives and Policies

The Group is exposed to fluctuations in jet fuel prices in its daily operation. International jet fuel prices are subject to market volatility and fluctuation in supply and demand. The Group's strategy for managing jet fuel price risk aims at controlling the risk arising from the rise in fuel price. The Group has been engaging in fuel hedging transactions since March 2001. The hedging instruments used were mainly derivatives of Singapore kerosene together with Brent crude oil and New York crude oil, which are closely linked to the price of jet fuel. As at 31 December 2011, the fuel derivative contracts of the Company all expired, and no new position has been established. Considering the volatility of international prices and cost sensitivity, the Company will continue to develop its fuel hedging business in compliance with the regulatory requirements so as to cope with changes in the jet fuel market.

As at 31 December 2011, the interest-bearing debts of the Group totalled RMB89,416 million, accounting for 70.12% of the Group's total liabilities, most of which were foreign debts, mainly denominated in US dollars, Hong Kong dollars and European dollars. In addition, the Group also had sales revenues and expenses denominated in foreign currencies. The Group endeavoured to minimise any risks relating to foreign exchange rate and interest rate by adjusting the interest rates and denominating currencies structure of its debt and by making use of financial derivatives.

Details of the other financial risk management objectives and policies of the Group's operations are set out in note 53 to the Group's 2011 financial statements.

Corporate Governance Report

The Company has been maintaining and enhancing the level of its corporate governance so as to ensure greater accountability and transparency and bring long-term return to its shareholders. The Company has complied in all respects with the principles and code provisions of the Code on Corporate Governance Practices (the "Code") under Appendix 14 to the Listing Rules in 2011. The Company's corporate governance practices in 2011 are summarised and discussed below.

GOVERNANCE structure

MAJOR CORPORATE GOVERNANCE PRINCIPLES AND PRACTICES OF THE COMPANY

A. Directors

The Board must include at least three independent non-executive directors

• As at 31 December 2011, the Board comprised 12 Directors, out of which four were independent non-executive directors. The Directors are elected at the shareholders' general meeting for a three-year term of office, and are eligible for re-election upon expiry of the term.

• Pursuant to the Listing Rules, each of the independent non-executive directors has confirmed his independence with the Hong Kong Stock Exchange. As at 31 December 2011, the Company had already received from all independent non-executive directors the annual statements concerning their independence in which each of the independent non-executive directors re-confirmed his or her independence. The Company considers all independent non-executive directors as independent within the meaning of Rule 3.13 of the Listing Rules.

Deviation: Nil

The Directors shall have a balance of skills and experience appropriate for the requirements of the business of the Company

• The Directors have extensive expertise and experience in the fields of aviation, finance and financial management and provide substantial support for the effective performance of the Board.

• The list of the Directors and their biographical details and respective roles on the Board and specialised committees under the Board are set out in this annual report and published on the Company's website.

Deviation: Nil

Distinguished roles of the Chairman and President

• The Chairman, concurrently a non-executive director, is responsible for leading the Board and ensuring the Board's efficient operation and that all major and relevant issues are discussed by the Board in a prompt and constructive manner.

• The Chairman shall be elected and dismissed by a majority of the Directors. The term of office of the Chairman shall be three years, and the Chairman is eligible for re-election and re-appointment upon expiry of the term.

• The Company has a President who shall be nominated, appointed or dismissed by the Board.

• The President is authorised to oversee the Group's business and implement its strategies to attain overall commercial goals.

Deviation: Nil

Non-executive directors shall be appointed for a specific term, and all Directors appointed to fill a casual vacancy shall be subject to election by shareholders at the first general meeting after their appointment

• The term of office of the existing non-executive directors is three years upon election at the shareholders' general meeting.

Deviation: Nil

The Board shall assume responsibility for the leadership and control of the Company and be collectively responsible for promoting the success of the Company

• The Board is accountable to the shareholders' general meeting and determines the investment proposals of the Company and disposals of the Company's fixed assets according to the authorisation of the shareholders' general meeting. The Company formulated the "Rules and Procedures for Shareholders' General Meetings", "Rules and Procedures for Board Meetings" and "Rules and Procedures for Senior Management Meetings". Pursuant to the Articles of Association, the main responsibilities of the Board are: to decide on the Company's business policies and investment plans; to formulate the Company's annual budget and final accounts; to formulate the Company's profit distribution proposals and loss recovery proposals; to decide on the establishment of the Company's internal management bodies; to appoint or dismiss the President of the Company, Secretary to the Board, and, according to the nomination by the President, to appoint or dismiss the Vice President, Chief Accountant, Chief Pilot and other senior management of the Company; and to exercise other functions and powers as stipulated in the Articles of Association and granted by the shareholders' general meeting.

• The President shall be authorised by the Board to implement various strategies and oversee the day-to-day operations of the Company.

• The Board shall have independent access to the senior management personnel for enquiries in relation to the Company's management.

• The Board shall have specialised committees to provide support to the Board in its decision-making.

Deviation: Nil

Besides the work relationships in the Company, there was no financial, business, family relationship or other material relationships among the Directors, Supervisors and senior management

Deviation: Nil

The Board shall meet regularly to carry out its duties. The Board and its committees shall be provided with adequate information in a timely manner

• Board meetings are held regularly throughout the year and generally include annual meetings, interim meetings and meetings for the first and third quarters. Board meetings shall be convened by the Chairman and a 14-day notice shall be served to all Directors before each meeting. The meetings may be attended through personal participation or other electronic means of communication.

• The Secretary to the Board shall be responsible for the communications and liaison with all Directors from the time the notice is served to the commencement of the meeting, and shall provide in a timely manner necessary information to the Directors to facilitate their decision-making on matters set out in the agenda.

• For the purpose of considering resolutions or matters during Board meetings, the Directors may require the presence of the persons-in-charge of the relevant departments at the Board meetings to answer queries, so that the Directors can have a thorough understanding of the key issues and the general situation.

• All Directors shall have access to the Secretary to the Board. Under the leadership of the Board and the Chairman, the Secretary to the Board shall take the initiative to acquaint him/herself with the implementation progress of the Board resolutions, and report to and advise the Board and the Chairman in a timely manner on major issues arising in the course of implementation.

• Minutes of Board meetings shall be kept by the Secretary to the Board and made available for inspection by any Director at any time.

• All Directors have actively participated in the business operations of the Company. Attendance of all Directors at Board meetings in 2011 was as follows:

No. of meetings	15


Non-executive directors
Wang Changshun (Chairman) (appointed on 20 January 2012)	N/A	N/A
Kong Dong (Chairman) (resigned on 20 January 2012)	15/15	100%
Wang Yinxiang	15/15	100%
Cao Jianxiong	15/15	100%
Sun Yude	15/15	100%
Christopher Dale Pratt	15/15	100%
Ian Sai Cheung Shiu	15/15	100%


Executive directors
Cai Jianjiang (President)	15/15	100%
Fan Cheng	15/15	100%


Independent non-executive directors
Jia Kang (resigned on 26 May 2011)	8/8	100%
Fu Yang	15/15	100%
Li Shuang	15/15	100%
Han Fangming	15/15	100%
Yang Yuzhong (appointed on 26 May 2011)	7/7	100%


Average attendance rate:		100%

For the year ended 31 December 2011, the number of Board meetings held, the convening procedures, minutes and record, rules of procedure and other relevant matters in connection with such meetings were in compliance with the relevant provisions of the Code. It can be shown from the attendance rate that all Directors have discharged their duty of diligence and are dedicated to making contribution for the interest of the Company and its shareholders as a whole.

Each director is required to keep abreast of his/her responsibilities as a Director and of the operating manner, business activities and developments of the Company

• The management shall provide members of the Board and specialised committees under the Board with appropriate and sufficient information in a timely manner so as to update them with the latest developments of the Company and facilitate their discharge of duties.

• Newly appointed Directors shall be given introduction in relation to the Company to ensure that they have a sufficient understanding of the management, business and governance practices of the Company.

• The Company also encourages its Directors to participate in seminars and courses conducted by recognised institutions so as to ensure that they continually upgrade their skills and are aware of the latest changes or developments in laws and regulations, the Listing Rules and the Code with which they are required to comply in discharging their duties.

Deviation: Nil

The Company shall arrange appropriate insurance in respect of potential legal actions against its Directors

• The Company has purchased liability insurance for the Directors, Supervisors and senior management.

Deviation: Nil

Compliance with the Model Code for Securities Transactions by Directors of Listed Issuers ("Model Code")

• After making specific enquiries, the Company confirmed that each Director and each Supervisor has complied with the required standards under the Model Code as set out in Appendix 10 to the Listing Rules throughout 2011.

• The Model Code contained in Appendix 10 to the Listing Rules requires the Board to adopt written guidelines regarding transactions of securities of the issuer by its employees on terms no less exacting than the required standards under the Model Code. On 5 September 2005, the Company adopted and formulated a code of conduct which was revised on 19 March 2007 and 4 December 2009, regarding securities transactions by Directors on terms no less exacting than the required standards of the Model Code. The code of conduct of the Company also applies to Supervisors and the relevant employees.

Deviation: Nil

B. Remuneration of Directors and Senior Management

The Company shall establish a remuneration committee with certain authorities and obligations under specific written terms. A majority of the members of the remuneration committee shall be independent non-executive directors

• The Company has established a nomination and remuneration committee to recommend to the Board on the compensation of the Directors as well as candidates to fill vacancies on the Board. In addition, the nomination and remuneration committee reviews the performance of and determines the compensation structure of the senior management.

• The majority of the members of the nomination and remuneration committee are independent non-executive directors. As at 31 December 2011, the members of the nomination and remuneration committee were Mr. Kong Dong, Ms. Wang Yinxiang, Mr. Fu Yang, Mr. Li Shuang and Mr. Han Fangming with Mr. Fu Yang acting as the Chairman. Due to expiry of the term of office of Mr. Kong Dong (being a non-executive director) on 20 January 2012, Mr. Wang Changshun (being a non-executive director) has filled the vacancy on the nomination and remuneration committee.

• Attendance at the meetings of the nomination and remuneration committee in 2011 was as follows:

No. of meetings	6


Fu Yang (Chairman)	6/6	100%
Li Shuang	6/6	100%
Han Fangming	6/6	100%
Kong Dong (resigned on 20 January 2012)	6/6	100%
Wang Changshun (appointed on 20 January 2012)	N/A	N/A
Wang Yinxiang	6/6	100%


Average attendance rate		100%

• The Articles of Association provides that a shareholder holding 5% or more of the total shares of the Company is entitled to nominate a Director through the nomination and remuneration committee, which will evaluate the candidates for directorship and senior management according to the standards as set out in the Articles of Association and report to the Board.

• At the second meeting of the nomination and remuneration committee under the third session of the Board held on 21 February 2011, it was resolved that Mr. Xu Chuanyu, Mr. Wang Mingyuan and Mr. Zhao Xiaohang be appointed as Vice President of the Company at the fifth meeting of the third session of the Board.

• At the third meeting of the nomination and remuneration committee under the third session of the Board held on 29 March 2011, it was resolved that the "Report on Stock Appreciation Rights Plan" and the amended "Air China Limited Stock Appreciation Rights Management Rules" be approved; Mr. Yang Yuzhong be nominated as candidate for independent non-executive director; and the remuneration for each independent non-executive director be raised to RMB100,000 per annum. It was proposed that such matters be considered and approved at the eighth meeting of the third session of the Board.

• At the fourth meeting of the nomination and remuneration committee under the third session of the Board held on 8 April 2011, it was resolved that Mr. Liu Tiexiang be appointed as the Chief Aviation Officer and Ms. Zhang Yang be appointed as Assistant to the President at the ninth meeting of the third session of the Board.

• At the fifth meeting of the nomination and remuneration committee under the third session of the Board held on 15 July 2011, it was resolved that the Company implement the enterprise annuity scheme in accordance with the "Enterprise Annuity Plan of CNAHC" and adopt the "implementation Rules of Enterprise Annuity Plan of Air China" set under the "Enterprise Annuity Plan of CNAHC". It was proposed that such matters be considered and approved at the twelfth meeting of the third session of the Board.

• At the sixth meeting of the nomination and remuneration committee under the third session of the Board held on 20 December 2011, it was resolved that Ms. Rao Xinyu be appointed as the Joint Secretary to the Board and the Company at the seventeenth meeting of the third session of the Board.

• At the seventh meeting of the nomination and remuneration committee under the third session of the Board held on 28 December 2011, it was resolved that Mr. Wang Changshun be nominated as the candidate for the Chairman of the Board at the eighteenth meeting of the third session of the Board and to reduce the exercise price of the Company's first issue of the stock appreciate rights by HK$0.27.

• Remuneration payable to Directors shall be determined according to the terms of their respective employment contracts, if any, and the recommendation of the nomination and remuneration committee. Details of the remuneration of the Directors are set out in note 9 to the audited financial statements of this annual report.

Deviation: Nil

C. Accountability and Audit

The Board shall present a balanced, clear and comprehensive assessment of the Company's performance, position and prospects

• The Company has established an audit and risk control committee to review the financial information of the Company and the relevant disclosure, as well as to review the internal control systems of the Company.

• The Company has published its annual and interim results in accordance with the requirements of the Listing Rules and other relevant laws and regulations in a timely manner i.e. within three months and two months, respectively, after the end of the relevant periods.

• The Company has set up an investor relations webpage, on which figures of operating results are published monthly in order to improve the transparency of the Company's performance and to provide the latest developments of the Company in a timely manner.

• The Company has a sound environment for implementing internal controls. The Company has set up an effective electronic information system to support business development which comprises various operation systems, settlement system and a core accounting and audit platform, i.e. the Oracle financial information system. For treasury management, the Company has implemented a global online banking management system. An effective accounting information system was also established.

Deviation: Nil

The Board shall ensure that the Company maintains a sound and effective internal control system to safeguard the shareholders' investments and the Company's assets

• The Board takes ultimate responsibility for the internal controls of the Company. Every year, the Company conducts self-assessment on the comprehensiveness of the internal control system and the effectiveness of its implementation. The Board will publicly announce the self-assessment report on the internal control for the year after the audit and risk control committee reports to the Board.

Deviation: Nil

The Board shall establish formal and transparent arrangements in relation to the application of financial reporting and internal control principles and the maintenance of an appropriate relationship with the Company's auditors

• Through the audit and risk control committee, the Board reviews and supervises the Company's financial reporting process, communicates with the auditors and reviews periodic financial reports so as to make sure the financial reporting and internal control principles are formal and transparent.

• As at 31 December 2011, the audit and risk control committee comprised two independent non-executive directors, Mr. Li Shuang and Mr. Fu Yang, and a non-executive director, Mr. Cao Jianxiong, with Mr. Li Shuang acting as the chairman.

• Attendance at the meetings of the audit and risk control committee in 2011 was as follows:

No. of meetings	8


Li Shuang (Chairman)	8/8	100%
Fu Yang	8/8	100%
Cao Jianxiong	8/8	100%


Average attendance rate:		100%

• At the second meeting of the third session of the Supervisory Committee held on 13 January 2011, the financial plan, the cash flow and fund raising and financing plans for the year 2011 and capital expenditure plan of the Company for the year 2011 were considered and approved. At the meeting, the Company was approved to engage fuel hedging business in compliance with the requirements set out in the "Fuel Hedging Transaction Operational Plan" (strategy for year 2011), meanwhile, documents such as the "Risk Management Manual for Overseas Financial Derivatives Business Conducted by Air China Limited", "Regulatory Requirements for Fuel Hedging Business of Air China Limited (Provisional)", "Feasibility Report on Conducting Financial Derivatives Business" and "Foreign Exchange Payment Limits Required for Fuel Hedging Business in 2011" were approved, and consent was given to the Company to apply for permission from relevant competent authorities to conduct overseas hedging business.

• At the third meeting of the audit and risk control committee under the third session of the Board held on 24 March 2011, the proposal for the impairment of aircraft and the related assets was considered and approved. The Company was given approval to make an impairment provision of RMB1,345 million for aircraft and related assets proposed to be disposed of. The total provision for the impairment was RMB1,856 million in the consolidated financial statement.

• At the fourth meeting of the audit and risk control committee under the third session of the Board held on 28 March 2011, the audited financial report and annual report for the year 2010 prepared by the Company in accordance with CASs and IASs, respectively, the "Status of Implementation of Connected Transactions of the Company for the Year 2010" and the "Special Explanation on Receivables from Controlling Shareholders and Connected Parties for the Year 2010"; the profit distribution proposal of the Company for the year 2010; the self-assessment report on internal control of the Company for the year 2010 and the standardised working plan for implementing internal control measures of the Company for the year 2011; the "Special Report on Deposit and Utilisation of Capital Raised from Private Placement of A Shares for the Year 2010 by Air China Limited"; the "2010 Summary Report on Audit Work by Ernst & Young and Ernst & Young Hua Ming"; the "Management Rules of Offshore Guarantee of Air China Limited (Provisional)"; and "Work Report of the Audit and Risk Control Committee for the Year 2010" were considered and approved.

• At the fifth meeting of the audit and risk control committee under the third session of the Board held on 28 April 2011, the Company's first quarterly report for the year 2011 was considered and approved.

• At the sixth meeting of the audit and risk control committee under the third session of the Board held on 24 August 2011, the interim report and interim financial report of the Company for the year 2011; the "Special Report on Deposit and Utilisation of Capital Raised from the Placing of A Shares by Air China Limited in the First Half of 2011"; the management plan and operational procedures for fuel hedging business of the Company; a guarantee of not more than RMB1 billion provided by Shenzhen Zunpeng Investment LLC, a wholly-owned subsidiary of Shenzhen Airlines to the Construction Bank of China, Shenzhen Branch with regard to the housing loan in connection with the Shenzhen Residential Park, including a joint maximum amount guarantee under the housing loan guarantee and a pledge of a maximum amount not exceeding RMB30 million; and the proposed interim adjustments to the Company's 2011 financial plan and 2011 investment plan were considered and approved.

• At the seventh meeting of the audit and risk control committee under the third session of the Board held on 10 October 2011, the proposal on providing an entrusted loan to Air China Cargo was considered and approved. With the prior consent of the independent directors, the connected transaction of the RMB1.5 billion entrusted loan provided to Air China Cargo was approved.

• At the eighth meeting of the audit and risk control committee under the third session of the Board held on 26 October 2011, the third quarterly report of the Company for the year 2011 was considered and approved. It was resolved that the Company enter into a framework agreement with Air China Cargo for connected transactions from 2011 to 2013 and submit to the Hong Kong Stock Exchange the exempted annual cap for the total amount of connected transactions for the years from 2011 to 2013; it was further resolved that the Company revise the annual cap for connected transactions with CNAMC under the "Advertising Services Framework Agreement" and enter into the "Supplemental Advertising Services Framework Agreement" with CNAMC.

• At the ninth meeting of the audit and risk control committee under third session of the Board held on 6 December 2011, it was resolved that Ernst & Young Hua Ming be appointed as the internal control auditor of the Company for the year 2011 to review the effectiveness of the Company's internal control and provide the internal control audit report. It was also resolved that the Company's management be authorised to determine the remuneration of Ernst & Young Hua Ming for providing internal control audit services.

• The annual report for the year ended 31 December 2011 of the Company was reviewed by the audit and risk control committee.

Deviation: Nil

The responsibility of the Directors in relation to the financial statements

The Company prepares and publishes annual reports, interim reports and quarterly reports each year. The responsibilities of the Directors in relation to the financial statements are set out below and shall be read together with the "Independent Auditors' Report" set out in this annual report.

• Annual reports and accounts

The Directors acknowledge that they are responsible for preparing the financial statements for each financial year so as to present a true and fair view of the financial position of the Company and the Group, and of the financial performance and cash flow of the Group.

• Accounting policy

When preparing the financial statements of the Company and the Group, the Directors have consistently applied appropriate accounting policies under the relevant accounting standards.

• Accounting records

The Directors are responsible for ensuring that the Company shall keep the accounting records, which will reflect the financial position of the Company with reasonable accuracy, enabling the Group to prepare the financial statements in accordance with the requirements of the Listing Rules, Hong Kong "Companies Ordinance" and the relevant accounting standards.

• Ongoing operation

After making appropriate enquiries, the Directors believe that the Group has sufficient resources for operation in the foreseeable future. Accordingly, the Group's financial statements should be prepared on a going concern basis.

The statement of reporting responsibility of the auditors is set out in the "Independent Auditors' Report" set out in this annual report.

Auditors' remuneration

The international and domestic auditors of the Company are Ernst & Young and Ernst & Young Hua Ming, respectively. Breakdown of the remuneration to the Company's external auditors for providing audit services and non-audit service assignments for the year ended 31 December 2011 is as follows:

• Audit services

RMB11.5 million was charged for the review of the Group's financial statements for the six months ended 30 June 2011 and for the audit of the Group's financial statements for the year ended 31 December 2011 and an aggregate amount of approximately RMB6,870,169 was charged for the audit of the financial statements of certain subsidiaries of the Group for the year ended 31 December 2011.

• Non-audit service assignments

An aggregate amount of approximately RMB1,129,986 was charged for the provision of internal control, tax and other non-audit services to the Group.

D. Delegation by the Board

The Company shall formalise the functions reserved to the Board and those delegated to the management. There shall be division of responsibility between the Board committees, and each committee shall be formed with certain authorities under specific terms

• The Articles of Association has provided for the authorities and authorisations of the Board and the President, details of which are set out in the "Rules and Procedure for Board Meetings" and "Rules and Procedures for Senior Management Meetings".

• The primary duties of the audit and risk control committee are: to propose the engagement or change of external auditors, conduct appropriate review and evaluation, as well as give opinion in writing to the Board, in connection with the appointment of new accounting firms or reappointment of the existing accounting firms for carrying out annual audits; to review and supervise our internal auditing system and its implementation, review the duties and responsibilities of the internal audit personnel and the appointment or dismissal of the responsible person of the audit department; to be responsible for the communication between the internal auditors and external auditors; to review and verify the Company's financial information and its disclosure; to review the Company's internal control system and risk control system, evaluate the effectiveness of the detailed management and control rules and the operational standards relating to risk investments (including but not limited to financial derivatives instruments), and consider the strategies and proposals of the Company's risk investment; to review the work report prepared by the responsible audit personnel of the Company, any report relating to the fraudulent acts of the Company and the report on the related discovery and complaints; and to fulfill other duties authorised by the Board.

• The primary duties of the nomination and remuneration committee are: to nominate candidates to the Board for director vacancies and recommend the remuneration of Directors to the Board. In addition, the nomination and remuneration committee reviews the performance and determines the remuneration structure of the senior management.

• The primary duties of the strategy and investment committee are: to analyse and identify the Company's development strategy and to decide on investment matters as authorised by the Board. As at 31 December 2011, the members of the strategy and investment committee were Mr. Kong Dong, Mr. Cao Jianxiong, Mr. Sun Yude and Mr. Cai Jianjiang, with Mr. Cai Jianjiang acting as the chairman.

• The Company has established the aviation safety committee with Mr. Cao Jianxiong and Mr. Cai Jianjiang as its members and Mr. Cao Jianxiong acting as the chairman as at 31 December 2011.

• The supervisory committee is responsible for: monitoring the Company's financial matters and supervising the conduct of the Board and our management. The functions and authority of the supervisory committee include: reviewing the financial reports and other financial information prepared by the Board and proposed to be tabled before the shareholders' general meeting; supervising the work of the Directors, President, Vice President and other senior management and preventing the abuse of power or conducts detrimental to the Company's interests. The current members of the supervisory committee are Mr. Li Qinglin, Mr. Zhang Xueren, Mr. Zhou Feng, Ms. Xiao Yanjun and Mr. Su Zhiyong, with Mr. Li Qinglin acting as the chairman. In the event that any Director has a conflict of interests with the Company, a Supervisor may negotiate with the Director concerned or bring the case to court on behalf of the Company. Resolution of meetings of the supervisory committee shall be passed by at least two-thirds of all Supervisors.

Deviation: Nil

E. Communication with shareholders

The Board shall endeavour to maintain an on-going dialogue with shareholders and in particular, use general meetings to communicate with shareholders

• The Company has established and maintained various communication channels with its shareholders through the publication of annual reports, interim reports and quarterly reports, press releases and announcements on the Company's website. The Company has also implemented the "Investors Relation Management System".

• The annual general meetings represent an effective means for the shareholders to exchange their views with the Board. The Chairman of the Board, as well as the respective chairmen of the audit and risk control committee, nomination and remuneration committee, strategy and investment committee and aviation safety committee will answer queries raised by shareholders at general meetings.

• At the annual general meeting, the Board shall report to the shareholders and announce the progress of the implementation by the Board of the matters set out in the resolutions which were passed since the previous annual general meeting and which were for the Board to implement.

• Resolutions in respect of independent matters, including the election and change of the Directors, shall be tabled as separate resolutions before the annual general meeting.

• Other than the annual general meeting, the Company would also hold extraordinary general meeting ("EGM") as required. In accordance with articles 65 and 91 of the Articles of Association, shareholder(s), individually or in the aggregate, holding more than 10% of the shares of the Company may request the Board to convene an EGM by making one or more written request(s) in the same form to the Board with a clear agenda. The Board shall respond to such written request(s) within ten days of receipt of such written request(s). If the Board agrees to convene an EGM, it shall within five days of the board resolution resolving to hold an EGM issue a notice of EGM convening an EGM within two months of receiving such request(s) from the shareholder(s). If the Board does not accept the request(s) from shareholder(s) for a meeting or fails to respond within ten days of the receipt of such written request(s), such shareholder(s) shall request the supervisory committee to convene an EGM by written request(s). If the supervisory committee fails to issue a notice for convening a meeting within five days of the receipt of such written request(s), shareholder(s), individually or in the aggregate, holding more than 10% of the shares of the Company for a consecutive 90 days or more may convene and hold a meeting by themselves.

• For including a resolution relating to other matters in a general meeting, shareholders are requested to follow the requirements and procedures as set out in article 67 of the Articles of Association which provides that shareholder(s), individually or in the aggregate, holding more than 3% of the shares of the Company may put forward proposal(s) by providing a written request to the convener of the meeting not less than ten days before the meeting. The convener of the meeting shall, within two days of the receipt of such written request, give supplemental meeting notice to each shareholder which specifies information on such proposal(s).

Deviation: Nil

• The Board values the views and input of shareholders. Shareholders, may at any time, send their enquiries and concerns to the Board by addressing them to the Company Secretary, whose contact details are as follows:

Address: Air China Headquarter, 30 Tian Zhu Road,

Tianzhu Airport Economic Development Zone, Beijing, 101312

Email: IR@AIRCHINA.COM

Telephone number: 86-10-61462777

Fax number: 86-10-61462805

The Company shall ensure that shareholders are familiar with the detailed procedures for conducting a poll

• The chairman of a meeting shall, at the commencement of the meeting, ensure that an explanation of the detailed procedures for conducting a poll is provided and subsequently, any questions from shareholders in relation to voting by way of a poll are answered.

Deviation: Nil

Report of the Directors

GROUP ACTIVITIES AND RESULTS

The Group is a provider of air passenger, air cargo and airline-related services. The results of the Group for the year ended 31 December 2011 and the financial positions of the Group and the Company as at the same date are set out in the audited financial statements on pages 65 to 165 of this annual report.

FIVE-YEAR FINANCIAL HIGHLIGHTS

The summary of the Group's results and balance sheet prepared in accordance with IFRSs for the five years ended 31 December 2011 are set out on pages 3 and 4 of this annual report.

SHARE CAPITAL

As at 31 December 2011, the total share capital of the Company was RMB12,891,954,673, divided into 12,891,954,673 shares with a par value of RMB1.00 each. The following table sets out the share capital structure of the Company as at 31 December 2011:

Category of Shares	Number of shares	Percentage of the total share capital


A Shares	8,329,271,309	64.61%
H Shares	4,562,683,364	35.39%


Total	12,891,954,673	100%

SIGNIFICANT INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES OF THE COMPANY

As at 31 December 2011, to the knowledge of the Directors, Supervisors and chief executive of the Company, the interests and short positions of the following persons (other than a Director, Supervisor or chief executive of the Company) who have an interest and short position in the shares, underlying shares and debentures of the Company which would fall to be disclosed to the Company pursuant to the SFO are as follows:

Name	Type of interests	Type and number of shares of the Company concerned	Percentage of the total issued shares of the Company	Percentage of the total issued A shares of the Company	Percentage of the total issued H shares of the Company	Short position


CNAHC	Beneficial owner	5,126,147,507	39.76%	61.54%	-	-
		A shares

CNAHC⁽¹⁾	Attributable interests	1,332,482,920	10.34%	16.00%	-	-
		A shares

CNAHC⁽¹⁾	Attributable interests	223,852,000	1.74%	-	4.91%	-
		H shares

CNACG	Beneficial owner	1,332,482,920	10.34%	16.00%	-	-
		A shares

CNACG	Beneficial owner	223,852,000	1.74%	-	4.91%	-
		H shares

Cathay Pacific	Beneficial owner	2,517,385,455	19.53%	-	55.17%	-
		H shares

Swire Pacific Limited⁽²⁾	Attributable interests	2,517,385,455	19.53%	-	55.17%	-
		H shares


John Swire & Sons (H.K.) Limited⁽²⁾	Attributable interests	2,517,385,455	19.53%	-	55.17%	-
		H shares

John Swire & Sons Limited⁽²⁾	Attributable interests	2,517,385,455	19.53%	-	55.17%	-
		H shares

Notes:

Based on the information available to the Directors, Supervisors and chief executive of the Company (including such information as was available on the website of the Hong Kong Stock Exchange) and so far as the Directors, Supervisors and chief executive are aware, as at 31 December 2011:

1. By virtue of CNAHC's 100% interest in CNACG, CNAHC was deemed to be interested in the 1,332,482,920 A shares and 223,852,000 H shares of the Company directly held by CNACG.

2. By virtue of John Swire & Sons Limited's 100% interest in John Swire & Sons (H.K.) Limited and their approximately 42.79% equity interest and 58.45% voting rights in Swire Pacific Limited, and Swire Pacific Limited's approximately 44.97% interest in Cathay Pacific as at 31 December 2011, John Swire & Sons Limited, John Swire & Sons (H.K.) Limited and Swire Pacific Limited were deemed to be interested in the 2,517,385,455 H shares of the Company directly held by Cathay Pacific.

Save as disclosed above, as at 31 December 2011, to the knowledge of the Directors, Supervisors and chief executive of the Company, no other person (other than a Director, Supervisor or chief executive of the Company) had an interest or short position in the shares, underlying shares and debentures of the Company which would fall to be disclosed to the Company pursuant to the SFO.

PUBLIC FLOAT

Pursuant to public information available to the Company and to the knowledge of the Directors of the Company, the Company has maintained a public float as required by the Listing Rules and agreed by the Hong Kong Stock Exchange throughout the current reporting period.

DIVIDEND

Based on the 2011 profit distribution plan of the Company, the Board recommends the appropriation of 10% of the balance of the net profit of the Company of the year 2011 as set out in the financial statements prepared under the PRC Accounting Standards into the discretionary surplus reserve and to distribute a cash dividend of RMB1.521 billion, or RMB0.1180 per share (including tax) based on the total number of 12,891,954,673 shares of the Company, for the year 2011.

The recommended final dividends are subject to shareholders' approval at the forthcoming annual general meeting. Dividends payable to the Company's shareholders shall be denominated and declared in RMB. Dividends payable to the holders of A shares shall be paid in RMB while dividends payable to the holders of H shares shall be paid in Hong Kong dollars. The amount of Hong Kong dollars payable shall be calculated on the basis of the average of the middle rate of RMB to Hong Kong dollars as announced by the People's Bank of China for the calendar week prior to the declaration of the final dividends (if approved) at the annual general meeting.

TAXATION ON DIVIDEND

In accordance with the "Enterprise Income Tax Law of the People's Republic of China" and the "Rules for the Implementation of the Enterprise Income Tax Law of the People's Republic of China", both implemented on 1 January 2008 and the "Notice of the State Administration of Taxation on Issues Relevant to the Withholding of Enterprise Income Tax on Dividends Paid by PRC Enterprises to Offshore Non-resident Enterprise Holders of H Shares" (Guo Shui Han [2008] No. 897) promulgated on 6 November 2008, the Company is obliged to withhold and pay PRC enterprise income tax on behalf of non-resident enterprise shareholders at a tax rate of 10% from 2008 onwards when the Company distributes any dividends to non-resident enterprise shareholders whose names appear on the register of members of H shares of the Company. As such, any H shares of the Company which are not registered in the name(s) of individual(s) (which, for this purpose, includes shares registered in the name of HKSCC Nominees Limited, other nominees, trustees, or other organisations or groups) shall be deemed to be H shares held by non-resident enterprise shareholder(s), and the PRC enterprise income tax shall be withheld from any dividends payable thereon. Non-resident enterprise shareholders may wish to apply for a tax refund (if any) in accordance with the relevant requirements, such as tax agreements (arrangements), upon receipt of any dividends.

In accordance with the "Circular on Certain Issues Concerning the Policies of Individual Income Tax" (Cai Shui Zi [1994] No.020) promulgated by the Ministry of Finance and the State Administration of Taxation on 13 May 1994, overseas individuals are, as an interim measure, exempted from the PRC individual income tax for dividends or bonuses received from foreign-invested enterprises. As the Company is a foreign-invested enterprise, the Company will not withhold and pay the individual income tax on behalf of individual shareholders when the Company distributes the final dividends for the year 2011 to individual shareholders whose names appear on the register of members of H shares of the Company.

Shareholders are recommended to consult their tax advisors regarding the ownership and disposal of H shares of the Company in the PRC and in Hong Kong and other tax effects.

PURCHASES, SALES OR REDEMPTION OF SHARES

Save as disclosed otherwise, for the year ended 31 December 2011, neither the Company nor any of its subsidiaries purchased, sold or redeemed any of its listed securities (the term "securities" has the meaning ascribed to it under Paragraph 1 of Appendix 16 to the Listing Rules), without taking into account any issuance of new securities.

PRE-EMPTIVE RIGHTS

The Articles of Association does not provide for any pre-emptive rights requiring the Company to offer new shares to the existing shareholders in proportion to their existing shareholdings.

Directors AND SUPERVISORS OF THE COMPANY

Directors

Name	Age	Position in the Company	Date of Appointment and if applicable, Resignation as Director


Wang Changshun	54	Chairman and non-executive director	Appointed on 20 January 2012
Kong Dong	63	Chairman and non-executive director	Appointed on 28 October 2010
			Resigned on 20 January 2012
Wang Yinxiang	56	Vice chairman and non-executive director	Appointed on 28 October 2010
Cao Jianxiong	52	Non-executive director	Appointed on 28 October 2010
Sun Yude	57	Non-executive director	Appointed on 28 October 2010
Christopher Dale Pratt	55	Non-executive director	Appointed on 28 October 2010
lan Sai Cheung Shiu	56	Non-executive director	Appointed on 28 October 2010
Cai Jianjiang	48	Executive director and president	Appointed on 28 October 2010
Fan Cheng	56	Executive director, vice president and chief accountant	Appointed on 28 October 2010
Jia Kang	57	Independent non-executive director	Appointed on 28 October 2010
			Resigned on 26 May 2011
Fu Yang	62	Independent non-executive director	Appointed on 28 October 2010
Li Shuang	67	Independent non-executive director	Appointed on 28 October 2010
Han Fangming	45	Independent non-executive director	Appointed on 28 October 2010
Yang Yuzhong	67	Independent non-executive director	Appointed on 26 May 2011

Supervisors

Name	Age	Position in the Company	Date of Appointment and if applicable, Resignation as Director


Li Qinglin	56	Chairman of the Supervisory Committee	Appointed on 28 October 2010
Zhang Xueren	58	Supervisor	Appointed on 28 October 2010
He Chaofan	49	Supervisor	Appointed on 28 October 2010
			Resigned on 25 November 2011
Zhou Feng	50	Supervisor	Appointed on 25 November 2011
Chen Bangmao	61	Supervisor	Appointed on 18 August 2009
			Ceased to be a Supervisor on 16 June 2011
Xiao Yanjun	47	Supervisor	Appointed on 16 June 2011
Su Zhiyong	48	Supervisor	Appointed on 16 June 2011

INDEPENDENCE OF THE INDEPENDENT Non-executive directors

The Company has confirmed its receipt of, from each of the independent non-executive directors of the Company, a confirmation of his/her independence pursuant to Rule 3.13 of the Listing Rules. The Company considers all of the independent non-executive directors to be independent.

BOARD COMMITTEES

The Board committees include the audit and risk control committee, nomination and remuneration committee, strategy and investment committee and aviation safety committee. The composition of each committee is set out in the "Corporate Governance Report" of this annual report.

Directors' AND SUPERVISORS' RIGHTS TO ACQUIRE SHARES OF THE COMPANY

At no time during the year ended 31 December 2011 had the Company granted its Directors, Supervisors or their respective spouses or children under the age of 18 any rights to subscribe for the shares or debentures of the Company or any of its other associated corporations, and no such rights for the subscription of shares or debentures were exercised by them.

Directors' AND SUPERVISORS' INTERESTS AND SHORT POSITIONS IN THE SHARES, UNDERLYING SHARES AND DEBENTURES OF THE COMPANY

As at 31 December 2011, the Company's Directors, Supervisors or chief executive had following interests or short positions in the shares, underlying shares and/or debentures (as the case may be) of the Company or its associated corporations (within the meaning of Part XV of the SFO) which shall be recorded in the register maintained by the Company pursuant to section 352 of the SFO, or which shall be notified to the Company and the Hong Kong Stock Exchange pursuant to the Model Code:

Interests in Shares of Associated Corporations

	Number of Shares				Shareholding Percentage as at 31 December2011
Name of associatedcorporation and relevantshareholder	Personal interest	Interest of children under the age of 18 or spouse	Corporate interest	Total	Shareholding Percentage as at 31 December2011


Cathay Pacific Airways Limited
Ian Sai Cheung Shiu	1,000	-	-	1,000	0.00%

Air China Limited
Zhou Feng	10,000(A Shares)	-	-	10,000 (A Shares)	0.00%

Save as disclosed above, as at 31 December 2011, none of the Directors, Supervisors or chief executive of the Company had interests or short positions in the shares, underlying shares and/or debentures (as the case may be) of the Company or its associated corporations (within the meaning of Part XV of the SFO) which were recorded in the register maintained by the Company pursuant to section 352 of the SFO, or which were notified to the Company and the Hong Kong Stock Exchange pursuant to the Model Code.

REMUNERATION OF Directors AND SUPERVISORS

Details of the remuneration of the Directors and Supervisors are set out in note 9 to the audited financial statements of this annual report.

INTERESTS OF Directors AND SUPERVISORS IN CONTRACTS AND SERVICE CONTRACTS

Each of the Directors has entered into a service contract with the Company. All Directors of the Company shall serve a term of three years.

None of the Directors or Supervisors has proposed to enter into any service contract with any member of the Group which is not expiring or terminable by the Group within one year without payment of compensation (other than statutory compensation).

None of the Directors or Supervisors of the Company was materially interested in any contract or arrangement subsisting as at 31 December 2011 and which is significant in relation to the business of the Group.

Mr. Christopher Dale Pratt is a non-executive director of the Company and is concurrently the chairman and executive director of Cathay Pacific. Mr. lan Sai Cheung Shiu is a non-executive director of the Company and concurrently the director of Cathay Pacific and Dragonair. Cathay Pacific is a substantial shareholder of the Company, holding 2,517,385,455 H shares in the Company as at 31 December 2011, which would fall to be disclosed to the Company under the provisions of divisions 2 and 3 of Part XV of the SFO, and it wholly owns Dragonair. Mr. Kong Dong, who was the chairman and a non-executive director of the Company and resigned on 20 January 2012, Mr. Cai Jianjiang and Mr. Fan Cheng, who are both executive directors of the Company, are concurrently non-executive directors of Cathay Pacific (Mr. Kong Dong resigned as a non-executive director of Cathay Pacific on 14 March 2012). Cathay Pacific and Dragonair compete or are likely to compete either directly or indirectly with some aspects of the business of the Company as they operate airline services to certain destinations, which are also served by the Company.

Save as above, none of the Directors or Supervisors of the Company and their respective associates (as defined in the Listing Rules) has any competing interests which would be required to be disclosed under Rule 8.10 of the Listing Rules if each of them were a controlling shareholder of the Company.

CONVENTION OF BOARD MEETINGS AND COMPLIANCE WITH THE CODE ON CORPORATE GOVERNANCE PRACTICES

The Company held 15 Board meetings during the year 2011. The Company has been continuously improving its corporate governance structure since its listing. The Board is committed to conducting normative operations to protect the interests of the Company and its shareholders. The Directors of the Company are of the opinion that as at 31 December 2011 the Company has refined its internal corporate governance structure in compliance with the requirements set out in the Code on Corporate Governance Practices in Appendix 14 to the Listing Rules then in effect.

EMPLOYEES

As at 31 December 2011, the Company had 24,474 employees and its subsidiaries and joint ventures had 30,438 employees. The categories of employees of the Company are as follows:

Professional Categories	As at 31 December 2011	As at 31 December 2010	Increase/ (decrease)


Management	6,065	5,811	254
Marketing and Sales	1,881	2,055	(174)
Operation	1,393	1,376	17
Ground Handling	4,114	4,283	(169)
Cabin Service	1,816	1,959	(143)
Logistics and Support	1,446	1,429	17
Flight Crew	3,363	3,119	244
Engineering and Maintenance	2,754	2,712	42
Information Technology	311	290	21
Others	1,331	1,425	(94)


Total	24,474	24,459	15

COMPENSATION POLICY

In order to implement the Company's strategies and to incentivise its employees, the Board approved, upon consideration, the proposal relating to the welfare reform on the remuneration of the ground crew, flight attendants, safety officers and air police officers and the proposal to revise the welfare system applicable to the flight crew. Accordingly, the welfare reform on the remuneration of the ground crew, flight attendants, safety officers and air police officers was implemented from 1 July 2007 and the welfare system applicable to the flight crew (as revised) came into force on 1 March 2008.

To proceed with the implementation of the Company's strategies and to reward and retain its employees, based on the welfare reform on the remuneration completed in 2008, the Company adjusted the welfare system applicable to its flight crew, flight (security) attendants and ground crew in 2010.

In order to eliminate the conflicts and problems in the management of remuneration and welfare, and stabilise its employees while optimising and refining the relevant systems, the Company released additional compensation to all of its employees from July 2011.

EMPLOYEES AND EMPLOYEES' PENSION SCHEME

313 employees of the Company retired in 2011. These retired employees are entitled to benefits under the social pension scheme approved and provided by the labour and social security authority of the local governments. Details of the staff pension scheme and other welfare are set out in note 10 to the audited financial statements.

STOCK APPRECIATION RIGHTS

The Directors and Senior Management Stock Appreciation Rights Handbook of the Company was considered and approved at the general meeting held on 28 December 2006. The first issue of the stock appreciation rights was implemented by the Company on 15 June 2007 under which a total of approximately 14.94 million stock appreciation rights were granted. Details of the stock appreciation rights programme are set out in note 45 to the audited financial statements of this annual report.

On 25 August 2009, it was resolved at the twenty-ninth meeting of the second session at the Board to suspend the above scheme and require the Company to amend the original scheme in accordance with the relevant regulations, which, after the consideration of and approval by the Board, would be submitted to a general meeting for approval and then be implemented.

In November 2010, the Company submitted a proposal through CNAHC to the State Owned Assets Supervision and Administration Commission of the State Council, regarding proposed amendments to the first issue of the stock appreciation rights programme and relevant administration measures in accordance with the relevant regulations, and intended to resume the first issue of the stock appreciation rights programme of the Company. The resolution in relation to the resumption of the first issue of the stock appreciation rights programme of the Company would be resolved at the annual general meeting.

On 26 May 2011, the revised "Management Measures for Stock Appreciation Rights of Air China Limited" proposed by the Company and the resumption of the first issue of the stock appreciation rights programme in accordance with the revised management measures were approved by shareholders at the 2010 annual general meeting of the Company.

The Board determined that 70% of the first issue of the stock appreciation rights already vested should be exercisable at a settlement price of HK$7.85 during the specified period from 19 to 22 July and 25 July 2011. As at 31 December 2011, the abovementioned 70% of the stock appreciation rights had been exercised and the carrying amount of the liabilities relating to the stock appreciation rights was RMB1,235,353 (the amount in 2010 was RMB19,284,138).

SUBSIDIARIES AND ASSOCIATED COMPANIES

Details of the subsidiaries and associates of the Company as at 31 December 2011 are set out respectively in notes 20 and 22 to the audited financial statements of this annual report.

BANK loans AND OTHER BORROWINGS

Details of the bank loans and other borrowings of the Company and the Group are set out in note 38 to the audited financial statements of this annual report.

FIXED ASSETS

Changes in the fixed assets of the Group for the year ended 31 December 2011 are set out in note 15 to the audited financial statements of this annual report.

CAPITALISED INTERESTS

Details of the capitalised interests of the Group for the year ended 31 December 2011 are set out in note 8 to the audited financial statements of this annual report.

RESERVES

Changes in the reserves of the Company and the Group during the year are set out in note 44 to the audited financial statements of this annual report.

DONATIONS

For the year ended 31 December 2011, the Company made donations for charitable and other purposes amounting to RMB2.84 million.

MAJOR CUSTOMERS AND SUPPLIERS

For the year ended 31 December 2011, the purchases from the largest supplier accounted for 26.83% of the total purchases of the Group, while the purchases from the five largest suppliers accounted for 60.94%. None of the Directors or Supervisors of the Company, their associates, nor any shareholder, who to the knowledge of the Directors owns 5% or more of the Company's share capital, had any interest in the five largest suppliers of the Company.

For the year ended 31 December 2011, the sales of the Group to the five largest customers accounted for not more than 30% of the total sales of the Group.

PROPERTY TITLE CERTIFICATE

The Company effected changes to the titles of assets e.g. land use rights, buildings and vehicles, in accordance with its undertakings as disclosed in the Company's prospectus issued at the time of its offering of shares. The title transfer procedures for the motor vehicles of the Company's headquarters and branches have been completed. Except for certain regions, the title transfer procedures for the land use rights and buildings of the Company's headquarters and branches have been substantially completed. The Company is in the process of completing the outstanding formalities in this respect, which should not have any material adverse effect on the operation of the Company.

MATERIAL LEGAL PROCEEDINGS

Save as disclosed in note 48 to the audited financial statements of this annual report, the Company was not involved in any significant litigation or arbitration as at 31 December 2011. To the knowledge of the Company, there was no litigation or claim of material importance pending or threatened or initiated against the Company.

CONNECTED TRANSACTIONS

The Group has entered into a number of connected transaction agreements with CNAHC and its associates (as defined under the Listing Rules) (for the purpose of this section "Report of the Directors", hereinafter referred to as "CNAHC Group") and other connected persons of the Group as described in the paragraphs below. The Company has complied with the disclosure requirements of the connected transactions in accordance with Chapter 14A of the Listing Rules in force from time to time.

I. Continuing Connected Transactions Between the Group and CNAHC Group

As CNAHC is a substantial shareholder of the Company and therefore a connected person of the Company, the transactions between CNAHC and the Company described in paragraphs (a) to (d) below constitute continuing connection transactions for the Company under Rule 14A.14 of the Listing Rules and are subject to the requirements under Rules 14A.35, 14A.36 and 14A.37 of the Listing Rules.

(a) Property Leasing

The Company entered into a properties leasing agreement with CNAHC on 27 October 2009 (the "Properties Leasing Agreement").

Pursuant to the Properties Leasing Agreement, the Company will lease from CNAHC Group a number of properties for various uses including business premises, offices and storage facilities.

The Company will lease to CNAHC Group a number of properties for various uses including business premises and offices.

The rent payable under the Properties Leasing Agreement will be determined in accordance with the relevant PRC regulations or market rates and by entering into a specific properties leasing agreement. The annual increase in rental rate is expected not to exceed 5%.

The term of the Properties Leasing Agreement is from 1 January 2010 to 31 December 2012. For further details of the Properties Leasing Agreement, please refer to the Company's circular dated 6 November 2009.

(b) Sales Agency Services of Airline Tickets and Cargo Space

The Company entered into a Sales Agency Services Framework Agreement (the "Sales Agency Services Framework Agreement") with CNAHC on 27 October 2009.

Pursuant to the Sales Agency Services Framework Agreement, certain subsidiaries of CNAHC acting as the Company's sales agents ("Sales Agency Companies") will:

• procure purchasers for the Company's air tickets and cargo spaces on a commission basis; or

• purchase air tickets (other than domestic air tickets) and cargo spaces from the Company and resell such air tickets and cargo spaces to end customers.

Regarding the air passenger agency services, the Company will continue to comply with the existing fee standards for air passenger sales agency services before the relevant competent authority promulgates administrative regulations on the fee range allowed for air passenger sales agency services. After the promulgation of such administrative regulations, the Company will consult with the Sales Agency Companies on a fair and voluntary basis and determine the agency service fee standards within the stipulated floating range. In addition, the Company and the Sales Agency Companies may agree on specific sales targets and the corresponding incentive plans for achieving such targets to the extent permitted by law and in accordance with the industry practice.

Regarding the air cargo agency services, the Company and the Sales Agency Companies will discuss and determine the applicable transportation prices based on the prevailing market prices, and the Sales Agency Companies may formulate the transportation prices charged to its customers (including the prices for extended services offered to its customers) based on the aforesaid transportation prices, with the differences to be retained as commissions. In addition, the Company and the Sales Agency Companies may agree on specific sales targets and the corresponding price discounts for achieving such sales targets in accordance with the industry practice.

The term of the Sales Agency Services Framework Agreement is from 1 January 2010 to 31 December 2012. For further details of the Sales Agency Services Framework Agreement, please refer to the Company's circular dated 6 November 2009.

The Company entered into a comprehensive services agreement with CNAHC on 27 October 2009 (the "Comprehensive Services Agreement").

Pursuant to the Comprehensive Services Agreement:

• Certain wholly-owned and controlled companies of CNAHC engaged in ancillary production and supply services in relation to air transportation business ("Ancillary Business Companies"), provided that such Ancillary Business Companies have obtained the relevant qualifications and certification, will primarily provide the following services to the Company as suppliers to the Company in respect of the Company's ancillary production and supply services:

(i) supply of various items for in-flight services;

(ii) manufacturing and repair of aviation-related ground equipment and vehicles;

(iii) cabin decoration and equipment;

(iv) properties management services;

(v) warehousing services;

(vi) airline catering services; and

(vii) printing of air tickets and other publications.

• The Company accepts the commission of CNAHC and provides welfare-logistics services for CNAHC's retired employees.

The charges of the services provided by the Ancillary Business Companies to the Company shall not exceed the prevailing market rates (including the tender quotes) and the prices of the similar services they provide to independent third parties. If no prevailing market rate is available, a fair and reasonable price should be adopted through arm's length negotiation between the parties. The management charges payable by CNAHC to the Company for the welfare-logistics services shall be settled at a rate of 4% of the actual aggregate welfare expense paid to such retired employees as confirmed by CNAHC.

The term of the Comprehensive Services Agreement is from 1 January 2010 to 31 December 2012. For further details of the Comprehensive Services Agreement, please refer to the Company's circular dated 6 November 2009.

(d) Subcontracting of Charter Flight Services

The Company entered into a government charter flight service framework agreement with CNAHC on 27 October 2009 (the "Charter Flight Service Framework Agreement").

Pursuant to the Charter Flight Service Framework Agreement, CNAHC shall resort to the Company's charter flight services so as to fulfill the government charter flight assignment. The Company's hourly rate of the charter flight service fee will be calculated on the basis of the following formula:

Hourly rate = Total cost per flight hour x (1 + 6.5%)

Total cost per flight hour includes direct costs and indirect costs.

The term of the Charter Flight Service Framework Agreement is from 1 January 2010 to 31 December 2012. For further details of the Charter Flight Service Framework Agreement, please refer to the Company's circular dated 6 November 2009.

Media and Advertising Services

The Company entered into an advertising services framework agreement with CNAMC on 27 October 2009 (the "Advertising Services Framework Agreement").

As CNAMC is a wholly-owned subsidiary of CNAHC and therefore a connected person of the Company, the transactions between CNAMC and the Company constitute continuing connected transactions for the Company under Rule 14A.14 of the Listing Rules and are subject to the requirements under Rules 14A.35, 14A.36 and 14A.37 of the Listing Rules.

Pursuant to the Advertising Services Framework Agreement, CNAMC will have the following rights:

• an exclusive right to distribute the in-flight reading materials of the Company;

• an exclusive operation right of the specific media of the Company, including the flight boarding passes, aircraft seat pillow sheets, paper cups, in-flight entertainment system and flight schedules;

• a right to be commissioned to purchase in-flight entertainment programmes (which may include advertising content) from independent third parties or produce such programmes on its own;

• a right to develop and use the media of the Company and receive effective support and assistance from the Company in the course of the sale of advertisements. The advertising business cooperation which may be conducted from time to time between the Company and CNAMC includes (1) advertisements produced by CNAMC or for which CNAMC acts as agent and media developed by CNAMC for the Company (including outdoor advertisements on properties owned by the Company, ground broadcasting programmes (at ticket offices and on airport shuttles), the international e-commerce network check-in system and ticket envelops (including air ticket envelops and boarding pass envelops)) and (2) advertisements designed, produced and published by CNAMC, as commissioned by the Company directly or through public tender; and

• a right to receive advertising fees at market price in respect of advertising design and image promotion conducted by CNAMC for the Company under the Company's commissioning.

As a consideration, CNAMC agrees to:

• pay the Company RMB23.81 million, RMB25.00 million and RMB26.25 million, respectively, for each of the three years ending 31 December 2010, 2011 and 2012 in respect of the exclusive operation rights of the specific media of the Company, and according to the annual budget of the Company, provide the Company at nil charge with sufficient in-flight media (other than in-flight entertainment programmes), including in-flight publications, boarding passes, pillow sheets, flight schedules, and paper cups that meet the Company's requirements; and

• pay the Company 20% of any revenue from any new advertising media of the Company which is not mentioned in the Advertising Services Framework Agreement but proposed to be developed by CNMAC on a case-to-base basis.

The Company agrees to pay immediately and directly to the independent entertainment programmes providers the purchasing price for those in-flight entertainment programmes provided or purchased by CNAMC for the Company. In the event that the relevant entertainment programmes are produced by CNAMC at the request of the Company, the Company will pay the corresponding production costs and expenses to CNAMC.

On 27 October 2011, the Company entered into a supplemental advertising services framework agreement with the CNAMC revising the caps of the continuing connected transactions between the Company and CNAMC (the "Supplemental Agreement").

The term of the Advertising Services Framework Agreement is from 1 January 2010 to 31 December 2012. For further details of the Advertising Services Framework Agreement and the Supplemental Agreement, please refer to the Company's circular dated 6 November 2009 and announcement dated 27 October 2011.

Tourism Co-operation Services

The Company entered into a tourism services cooperation agreement with China National Aviation Tourism Company ("CNATC") on 27 October 2009 (the "Tourism Cooperation Agreement").

As CNATC is a wholly-owned subsidiary of CNAHC and therefore a connected person of the Company, the transactions between CNATC and the Company constitute continuing connected transactions for the Company under Rule 14A.14 of the Listing Rules and are subject to the requirements under Rules 14A.35, 14A.36 and 14A.37 of the Listing Rules.

Pursuant to the Tourism Cooperation Agreement, the Company has agreed to provide the following services to CNATC:

• Package tours services: The Company and CNATC will design, and the Company will sell, the competitive "Air Tickets and Hotel" product combining discounted airline tickets for certain routes offered by the Company and accommodation at hotels owned and operated by CNATC at preferential group rates. Out of the proceeds from package tours, the Company will pay CNATC for the hotel fee portion of the packages.

• Reciprocal frequent-flyer programme ("FFP") co-operation services: CNATC will join the Company's FFP under which our companion card members are encouraged to stay at CNATC's hotels by receiving mileage credits for such stay. As a consideration, CNATC will pay us the equivalent value represented by those mileage credits at market rates.

• Commercial charter flight services: The Company will provide commercial charter services to customers procured by CNATC at market rates.

Pursuant to the Tourism Cooperation Agreement, CNATC has agreed to provide the following services to the Company:

• FFP co-operation services: Under the FFP, our frequent flyers may redeem their mileage credits for discounted stay at CNATC's hotels, and the Company will make payment settlement with CNATC for the discount portion of such redemption according to similar pricing arrangements with our other FFP partners.

• Hotel accommodation services: CNATC will provide temporary hotel accommodation services to the Company's employees on duty and passengers affected by our flight delays, for which services the Company will pay hotel accommodation fees to CNATC as scheduled and at the actual amount incurred.

• Aviation tourist services with special features including but not limited to a newly launched service of ground transportation for passengers of two classes at market rates.

The term of the Tourism Cooperation Agreement is from 1 January 2010 to 31 December 2012. For further details of the Tourism Cooperation Agreement, please refer to the Company's circular dated 6 November 2009.

Financial Services

The Company entered into a financial services agreement with China National Aviation Finance Co., Ltd. ("CNAF") on 27 October 2009 (the "Financial Services Agreement").

As CNAF is a 75.54% held subsidiary of CNAHC and therefore a connected person of the Company, the transactions between CNAF and the Company constitute continuing connected transactions for the Company under Rule 14A.14 of the Listing Rules and are subject to the requirements under Rules 14A.35, 14A.36 and 14A.37 of the Listing Rules.

Pursuant to the Financial Services Agreement, CNAF has agreed to provide the Company with a range of financial services including the following:

• deposit services;

• loan and finance leasing services;

• negotiable instrument and letter of credit services;

• trust loan and trust investment services;

• underwriting services for debt issuances;

• intermediary and consulting services;

• guarantee services;

• settlement services;

• internet banking services;

• bills and payment collection services;

• insurance agency services; and

• other services provided by CNAF under the approval of the China Banking Regulatory Commission ("CBRC").

In particular, CNAF is currently paid to provide the Company with bills acceptance services, letter of credit services, guarantee services, internet banking services, finance leasing services, discounting services and ticket collection services and charges fees incurred thereon. Such fees are charged in accordance with the relevant fees standard (if any) stipulated by the People's Bank of China ("PBOC") or the CBRC. In addition to complying with the foregoing, the fees charged by CNAF to the Company for financial services of similar type shall not be higher than those generally charged by commercial banks from the Company and those charged by CNAF to other group members.

With respect to the deposit and loan services, both parties agree:

• the interest rate applicable to the Company for its deposits with CNAF shall not be lower than the minimum interest rate specified by the PBOC for deposits of similar type. In addition, the interest rate for the Company's deposits with CNAF shall not be lower than the interest rate for similar type of deposits placed by other members of CNAHC Group with CNAF, and shall not be lower than the interest rate for similar type of deposit services provided by commercial banks to the Company generally; and

• the interest rate for loans (including other credit business) granted to the Company by CNAF shall not be higher than the maximum interest rate specified by the PBOC for loans of similar type. In addition, the interest rate for loans granted to the Company by CNAF shall not be higher than the interest rate for similar type of loans granted by CNAF to other members of CNAHC Group or higher than those for similar type of loans granted by commercial banks to the Company generally. The Company agrees that it will under the same conditions accord priority to and use the financial services provided by CNAF. CNAF has treated the Company as its major client and undertook to provide financial services of the same kind under conditions no less favourable than those provided by CNAF to other members of CNAHC Group and those provided by other financial institutions to the Company at the same time.

In order to ensure the security of the Company's capital, CNAF is not allowed, at any time, to make use of the deposits of the Company other than making external loans. The prohibited use of the deposits of the Company includes, but not limited to, investment activities in equity securities and corporate bonds. CNAF, as a non-banking financial institution approved by the CBRC, shall strictly comply with the regulatory targets and other requirements of the CBRC to conduct its operation and business, establish effective and complete internal control and risk management systems and set up the credit review committee and investment committee in order to effectively manage risks and ensure the safety of all capital. If the Company intends to inspect the accounts of CNAF, CNAF shall make arrangement for such an inspection within 10 days thereof. Pursuant to provisions of the Measures on Administrating the Financial Companies of Enterprise Groups, in the emergent event that CNAF encounters financial difficulties in making payments, CNAHC, as the controlling shareholder of the Company, shall increase the capital of CNAF accordingly to meet the actual need to overcome such financial difficulties in making payments.

The unpaid services provided by CNAF to the Company include settlement services and financial information services ("Unpaid Services").

In addition to the specific services set out in the Financial Services Agreement, CNAF is also exploring and developing other licensed financial services and will provide new financial services to other members of CNAHC Group as and when appropriate ("New Financial Services").

If CNAF charges fees for the Unpaid Services and New Financial Services during the period in which the Financial Services Agreement remains in force, such fees charged by CNAF shall comply with the standards stipulated by the PBOC or the CBRC for services of similar type and shall not be higher than those charged by commercial banks to the Company for similar type of financial services and those charged by CNAF to other members of CNAHC Group.

The term of Financial Services Agreement is from 1 January 2010 to 31 December 2012. For further details of the Financial Services Agreement, please refer to the Company's circular dated 6 November 2009.

II. Continuing Connected Transactions between the Group and CNACG

The Company entered into a framework agreement with CNACG on 26 August 2008 which was renewed on 10 September 2010 (the "CNACG Framework Agreement).

As CNACG is a substantial shareholder of the Company and therefore a connected person of the Company, the transactions between CNACG and the Company constitute continuing connected transactions for the Company under Rule 14A.14 of the Listing Rules and are subject to the requirements under Rules 14A.35, 14A.36 and 14A.37 of the Listing Rules.

The CNACG Framework Agreement provides a framework for relevant agreements between the Group and CNACG Group covering transactions relating to ground handling and engineering services, management services and other services and transactions as may be agreed by parties to be undertaken under the CNACG Framework Agreement excluding those transactions which have been contemplated by the Properties Leasing Agreement, Sales Agency Services Framework Agreement, Comprehensive Services Agreement, Charter Flight Service Framework Agreement, Tourism Cooperation Agreement and the Financial Services Agreement.

The term of the CNACG Framework Agreement is from 1 January 2011 to 31 December 2013, which is renewable for successive periods of three years unless either party gives to the other party a notice of termination of not less than three months expiring on any 31 December. For further details of the CNACG Framework Agreement, please refer to the Company's announcements dated 26 August 2008 and 10 September 2010.

III. Continuing Connected Transactions between the Group and Cathay Pacific

The Company entered into a framework agreement with Cathay Pacific on 26 June 2008 which was renewed on 1 October 2010 (the "Cathay Pacific Framework Agreement").

As Cathay Pacific is a substantial shareholder and therefore a connected person of the Company, the transactions between the Company and Cathay Pacific Group (Cathay Pacific and its subsidiaries, including Dragonair) constitute continuing connected transactions for the Company under Rule 14A.14 of the Listing Rules and are subject to the requirements under Rules 14A.35, 14A.36 and 14A.37 of the Listing Rules.

The Cathay Pacific Framework Agreement provides the framework under which relevant agreements (the "Cathay Pacific Relevant Agreements") between members of the Group on the one hand and members of Cathay Pacific Group on the other hand are entered into, renewed and extended. The transactions under the Cathay Pacific Relevant Agreements are transactions between members of the Group on the one hand and members of Cathay Pacific Group on the other hand arising from joint venture arrangements for the operation of passenger air transportation, code sharing arrangements, interline arrangements, aircraft leasing, frequent flyer programmes, the provision of airline catering, ground support and engineering services and other services agreed to be provided and other transactions agreed to be undertaken under the Cathay Pacific Framework Agreement.

The term of the Cathay Pacific Framework Agreement is from 1 January 2011 to 31 December 2013, which is renewable for successive periods of three years unless either party gives to the other party a notice of termination of not less than three months to terminate the Cathay Pacific Framework Agreement on any 31 December. For further details of the Cathay Pacific Framework Agreement, please refer to the Company's announcements dated 26 June 2008 and 10 September 2010.

IV. Continuing Connected Transactions between the Group and the Lufthansa Group

The Company has entered into various transactions with Lufthansa and its associates (collectively, the "Lufthansa Group") in the ordinary course of its business pursuant to several agreements signed in different periods (some were over three years) respectively, including, among others:

• aircraft maintenance, repair and overhaul services provided by the Company to the Lufthansa Group;

• mutual provision of catering services;

• mutual provision of ground handling services in China and Germany;

• mutual provision of ticket sales agency services;

• airline code sharing arrangement under which the actual carrier's flights can be marketed under the airline designator code of the partner carrier and revenues earned from these arrangements are allocated between the parties based on negotiated terms according to airline industry standards;

• special prorate arrangement under which a carrier agrees to accept passengers from another carrier and receive payment directly from that carrier; and

• other airline co-operation arrangements between the Lufthansa Group and the Company.

Lufthansa holds 40% equity interest in, and is a substantial shareholder of, Aircraft Maintenance and Engineering Corporation (Beijing), a joint venture of the Company, and is therefore a connected person of the Company under the Listing Rules. As such, the transactions between Lufthansha Group and the Company constitute continuing connected transactions for the Company under Rule 14A.14 of the Listing Rules and are subject to the requirements under Rules 14A.35, 14A.36 and 14A.37 of the Listing Rules.

For further details of the transactions between the Company and Lufthansa Group, please refer to the Company's circular dated 6 November 2009 and the Company's announcement dated 10 September 2010.

V. Connected Transactions between the Group and Air China Cargo

Continuing Connected Transactions

The Company has entered into a framework agreement with Air China Cargo on 27 October 2011 (the "Cargo Framework Agreement").

Air China Cargo is a connected person of the Company by virtue of being a non-wholly owned subsidiary of the Company in which Cathay Pacific, a substantial shareholder of the Company, holds more than 10% of the voting rights through Cathay Pacific China Cargo Holdings Limited, a wholly-owned subsidiary of Cathay Pacific. As such, transactions between Air China Cargo and the Company constitute continuing connected transactions for the Company under Rule 14A.14 of the Listing Rules and are subject to the requirements under Rules 14A.35, 14A.36 and 14A.37 of the Listing Rules.

Pursuant to the Cargo Framework Agreement, the Group has agreed to provide the following services to Air China Cargo:

• the provision of bellyhold space of the passenger aircraft operated by the Company;

• ground support and aircraft maintenance engineering including, among others, the repair and maintenance of aircraft and engines; and

• other services to Air China Cargo including, among others, labour management and import and export agency services.

Pursuant to the Cargo Framework Agreement, Air China Cargo has agreed to provide the following services to the Group:

• ground support including, among others, cargo and mail ground loading and unloading and security inspection services; and

• other services provided to the Group.

The consideration of specific continuing connected transactions under the Cargo Framework Agreement shall be agreed between the Company and Air China Cargo on a case-by-case basis.

The term of the Cargo Framework Agreement is three years, ending on 31 December 2013, which is renewable unless being terminated by either party to the Cargo Framework Agreement. For further details of the Cargo Framework Agreement, please refer to the Company's circulars dated 8 April 2010 and 10 November 2011 as well as the announcements dated 29 March 2011 and 27 October 2011.

Provision of the Entrusted Loan

The Company entered into an entrustment agreement (the "Entrustment Agreement") with CNAF and an entrustment loan agreement (the "Entrustment Loan Agreement") with CNAF and Air China Cargo on 12 October 2011 in relation to the provision of the loan of a principal amount of up to RMB1.5 billion entrusted by the Company to Air China Cargo with CNAF acting as the lending agent (the "Entrusted Loan").

Pursuant to the Entrusted Loan Agreement, CNAF is designated by the Company to act as a lending agent to release the Entrusted Loan and to monitor the use and repayment of the Entrusted Loan by Air China Cargo. The proceeds of the Entrusted Loan is to be used to supplement the working capital of Air China Cargo. The Entrusted Loan is to be drawn down in tranches and the principal amount of each tranche shall be repayable in full within 6 months. The interest rate for each tranche of the Entrusted Loan shall be 10% less than the benchmark lending interest rate announced by the People's Bank of China on the date of the actual drawdown of such tranche and shall remain unchanged during the term of such tranche for a period of six months. The Company will pay CNAF a fee at an annualized rate of 0.075% of the principal amount of each tranche, which shall be payable upon the drawdown of each tranche.

As Air China Cargo is a connected person of the Company as described in the paragraphs above, the provision of the Entrusted Loan by the Company to Air China Cargo under the Entrusted Loan Agreement constituted a connected transaction of the Company under Chapter 14A of the Listing Rules. As each of the applicable percentage ratios (as defined in Rule 14.07 of the Listing Rules) for the principal amount of the Entrusted Loan, on an aggregated basis, is more than 0.1% but less than 5%, the Entrusted Loan Agreement is only subject to reporting and announcement requirements but is exempted from independent shareholders' approval requirements.

In addition, since CNAF is a connected person of the Company as described in the sub-section headed "Financial services" on page 45 of this annual report, the provision of the service by CNAF as a lending agent pursuant to the Entrustment Agreement in relation to the Entrusted Loan constituted a connected transaction of the Company under Chapter 14A of the Listing Rules which falls within the financial services under the Financial Services Agreement, details of which are set out on pages 45 to 47 of this annual report.

For further details of the Entrusted Loan, please refer to the Company's announcement dated 12 October 2011.

VI. Transaction Caps and Actual Transaction Amounts in 2011

Actual transaction amounts and transaction caps of the above-mentioned continuing connected transactions during the year ended 31 December 2011 are as follows:

		Aggregate amount of transactions for the year ended
		31 December 2011
	Currency	Cap	Actual Amount
		(in millions)	(in millions)


Transactions with the CNAHC Group:
Properties leasing	RMB	147	75
Aggregate sales of airline tickets and cargo space to the CNAHC Group	RMB	324	175
Comprehensive services	RMB	862	827
Subcontracting of charter flight services	RMB	825	522
Media and advertising services	RMB	100	58
Tourism co-operation services	RMB	69	0
Financial services
Maximum daily outstanding deposits with CNAF (note)	RMB	7,000	3,963
Maximum daily outstanding loans from CNAF	RMB	3,000	1,263

Transactions with the CNACG Group:
Ground handling, engineering, management and other services	RMB	350	123

Transactions with Cathay Pacific Group:
Aggregate amount payable/paid by the Company to Cathay Pacific Group	HK$	900	287
Aggregate amount payable/paid by Cathay Pacific Group to the Company	HK$	900	353

Transactions with the Lufthansa Group:
Aggregate amount payable/paid by the Company to the Lufthansa Group	RMB	1,400	1,166
Aggregate amount payable/paid by the Lufthansa Group to the Company	RMB	1,400	816

Transactions with Air China Cargo:
Aggregate amount payable/paid by the Company to Air China Cargo	RMB	46	2
Aggregate amount payable/paid by Air China Cargo to the Company	RMB	5,600	3,769

Note: The Company undertook in August 2010 that the actual daily outstanding deposits of the Company and its subsidiaries placed with CNAF would not exceed RMB4 billion.

VII. Confirmation from Independent Non-executive directors

The independent non-executive directors of the Company have confirmed that all continuing connected transactions in the year ended 31 December 2011 to which the Company was a party have been entered into:

1. in the ordinary and usual course of business of the Company;

2. either:

(i) on normal commercial terms; or

(ii) where there was no comparable transactions to judge whether they were on normal commercial terms, on terms no less favourable to the Company than terms available to or from independent third parties, where applicable; and

3. in accordance with terms that were fair and reasonable and in the interests of the shareholders of the Company as a whole.

VIII. Confirmation from the Auditor

The Company's external auditor, Ernst & Young, was engaged to report on the Group's continuing connected transactions in accordance with Hong Kong Standard on Assurance Engagement 3000 "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 Accountant. The external auditor has issued his unqualified letter containing his findings and conclusions in respect of the continuing connected transactions described in pages 41 to 50 of this annual report in accordance with Rule 14A.38 of the Listing Rules. A copy of the letter has been provided to the Hong Kong Stock Exchange confirming that the continuing connected transactions above:

1. have been approved by the Board;

2. were conducted in accordance with the pricing policies as stated in the relevant agreements;

3. were entered into in accordance with the relevant agreements governing such transactions; and

4. have not exceeded the cap amounts disclosed in the Company's circulars dated 6 November 2009 and 10 November 2011 and the announcements dated 10 September 2010 and 27 October 2011.

CONTRACT OF SIGNIFICANCE

Save as disclosed in "Connected Transactions" of this Report of the Directors, none of the Company or any of its subsidiaries entered into any contract of significance with the controlling shareholder or any of its subsidiaries, and there is no contract of significance in relation to provision of services by the controlling shareholder or any of its subsidiaries to the Company or any of its subsidiaries. None of the shareholders entered into any arrangement to waive or agree to waive any dividend.

AUDITORS

The Company appointed Ernst & Young and Ernst & Young Hua Ming as its international auditors and domestic auditors respectively for the year ended 31 December 2011. Ernst & Young has audited the attached financial statements prepared in accordance with IFRSs. The Company has retained Ernst & Young and Ernst & Young Hua Ming since the date of its listing. A resolution in respect of the appointment of the Company's international and domestic auditors for the year ending 31 December 2012 will be proposed at the forthcoming 2011 annual general meeting of the Company to be convened in 2012.

Report of the Supervisory Committee

To all Shareholders,

In 2011, in strict accordance with the relevant requirements of the Company Law of the PRC, the Articles of Association and the Rules of Procedure for Supervisory Committee's Meetings, the Supervisory Committee of the Company earnestly performed the duties conferred on it by laws and regulations. Members of the Supervisory Committee convened and attended relevant meetings, and conducted special inspections and researches, thereby overseeing the substantial decision-making processes of the Company; supervising the Board, its members and the management; and preventing any abuse of power on their part and any infringement of the legitimate rights and interests of the shareholders, the Company and its employees.

(I) MEETINGS HELD BY THE SUPERVISORY COMMITTEE

At the second meeting of the third session of the Supervisory Committee held on 13 January 2011, the financial plan, the cash flow and fund raising and financing plans for the year 2011 and capital expenditure plan of the Company for the year 2011 were considered and approved. At the meeting, the Company was approved to engage fuel hedging business in compliance with the requirements set out in the "Fuel Hedging Transaction Operational Plan", meanwhile, documents such as the "Risk Management Manual for Overseas Financial Derivatives Business Conducted by Air China Limited", "Regulatory Requirements for Fuel Hedging Business of Air China Limited (Provisional)", "Feasibility Report on Conducting Financial Derivatives Business" and "Foreign Exchange Payment Limits Required for Fuel Hedging Business in 2011" were approved, and consent was given to the Company to apply for permission from relevant competent authorities to conduct overseas hedging business.

At the third meeting of the third session of the Supervisory Committee held on 28 March 2011, the Report of Supervisory Committee for the year 2010, the audited financial report and annual report for the year 2010 prepared by the Company in accordance with CASs and IASs respectively, the "Status of Implementation of Connected Transactions for the Year 2010", the "Special Explanation on Receivables from Controlling Shareholders and Connected Parties of the Company for the Year 2010", the profits distribution proposal of the Company for the year 2010, the self-assessment report on internal control of the Company for the year 2010 and the standardised working plan for implementing internal control measures of the Company for the year 2011", and the "Special Report on Deposit and Utilisation of Capital Raised from Private Placement of A Shares for the Year 2010 by Air China Limited" were considered and approved.

At the fourth meeting of the third session of the Supervisory Committee held on 27 April 2011, the first quarterly report for the year 2011 was considered and approved. The Committee considered that the preparation and approval procedures of the first quarterly report fully complied with PRC laws and regulations, Articles of Association and requirements of internal management system of the Company. Before passing resolutions, no violation of confidentiality requirements by persons who prepared and reviewed the first quarterly report of 2011 was found.

At the fifth meeting of the third session of the Supervisory Committee held on 24 August 2011, the interim report and the interim financial report for the year 2011 and the adjusted interim financial plan and capital expenditure plan of the Company for the year 2011 were considered and approved. At the meeting, the "Special Report on Deposit and Utilisation of Capital Raised from the Placing of A Shares by Air China Limited in the First Half of 2011" was approved. The Supervisory Committee also approved the management plan and operational procedures for fuel hedging business engaged by the Company, and agreed that the Board authorised the management of the Company to revise the "Regulatory Requirements for Fuel Hedging Business of the Company (Provisional)", the "Operational Procedures of the Financial Derivates Business of the Company" and the "Risk Management Manual of Fuel Hedging Transactions Engaged by the Company". Further, the intended cooperation on fuel hedging business between the Company and China Development Bank and the establishment of a joint operational platform were approved.

At the sixth meeting of the third session of the Supervisory Committee held on 10 October 2011, the proposal to provide an entrusted loan to Air China Cargo by the Company was considered and approved. With the prior consent of the independent directors, the Supervisory Committee agreed the Company to carry out the connected transaction of providing an entrusted loan of RMB1.5 billion to Air China Cargo, a controlled subsidiary of the Company, and the signing of the agreement in relation to the entrusted loan.

At the seventh meeting of the third session of the Supervisory Committee held on 26 October 2011, the third quarterly report of the Company for the year 2011 was considered and approved. At the meeting, the Supervisory Committee also approved the entering into of a framework agreement for connected transactions from 2011 to 2013 between the Company and Air China Cargo, the annual cap for the total amount of connected transactions for the years from 2011 to 2013 under the framework agreement, the submission to the Hong Kong Stock Exchange of the said exempted annual cap. The Supervisory Committee also approved the revision of the annual cap of connected transactions between the Company and CNAMC under the Advertising Services Framework Agreement and the signing of the Supplemental Advertising Services Framework Agreement with CNAMC.

(II) INVESTIGATIONs AND RESEARCHES CONDUCTED BY THE SUPERVISORY COMMITTEE

Based on the strategic goals and key points of the Company set for 2011, the Supervisory Committee gained further insight into the implementation of corporate strategies, production and operations, internal control and team stability of the Company through on-site investigations and researches of sales departments in European and domestic markets, and played a good supervising role in the stable and sustainable development of the Company. In particular, the summary report of investigation and research prepared by the Supervisory Committee had successfully provided support for the establishment, adjustment and improvement of related managerial and marketing strategies by the management of the Company.

(III) INDEPENDENT OPINIONS OF THE SUPERVISORY COMMITTEE ON THE COMPANY'S COMPLIANCE IN OPERATIONS

During the year, in accordance with the relevant PRC laws and regulations and the Articles of Association, the Supervisory Committee of the Company performed its supervision and inspection functions to monitor whether the convening of shareholders' general meetings and Board meetings complied with the required procedures and whether the significant decision-making processes were legitimate. The Board's implementation of the resolutions passed at the general meetings and the senior management's discharge of duty were also supervised and inspected.

The Supervisory Committee is of the opinion that the Company has generally formed an inter-linking governance structure of check and balance among its authority body, decision-making body, operational body and supervisory body and been in compliance with the relevant PRC laws and regulations. The Company's decision-making processes are legitimate and its internal control system is sound. None of the Directors or senior management of the Company was found to have, in discharging his or her duties, committed any act that was in violation of laws, regulations and the Articles of Association and detrimental to the interests of the Company and its shareholders. The information disclosed by the Company is true, accurate, complete and prompt. No misleading or false information was released.

(IV) INDEPENDENT OPINIONS OF THE SUPERVISORY COMMITTEE ON THE COMPANY'S FINANCIAL POSITION

During the year, the Supervisory Committee focused its review on the quarterly, interim and annual financial reports. The Supervisory Committee is of the opinion that the standard unqualified opinion expressed in the auditors' report for the year 2011 issued by Ernst & Young reflects a true and fair view of the financial position and business performance of the Company.

(V) INDEPENDENT OPINIONS OF THE SUPERVISORY COMMITTEE ON ACTUAL UTILISATION OF PROCEEDS FROM THE LATEST ISSUE OF SHARES

The Supervisory Committee is of the opinion that the management and utilisation of proceeds from the issue of shares in 2011 complied with the relevant requirements enacted by the China Securities Regulatory Commission and the Shanghai Stock Exchange and the proceeds from the issue of shares were treated as special deposit and utilised for special purpose by the Company. There was no disguised utilisation of the proceeds from the issue of shares, impairment of shareholders' interests nor any violation of the requirements of the utilisation of the proceeds from the issue of shares.

(VI) INDEPENDENT OPINIONS OF THE SUPERVISORY COMMITTEE ON THE COMPANY'S ACQUISITIONS AND DISPOSALS OF ASSETS

During the year, the considerations of the asset acquisition and disposal transactions of the Company were fair and reasonable and no insider dealing, impairment of the interests of the Company's shareholders and asset drain were found.

(VII) INDEPENDENT OPINIONS OF THE SUPERVISORY COMMITTEE ON THE COMPANY'S CONNECTED TRANSACTIONS

During the year, the connected transactions of the Company were conducted on an arm's length basis and in compliance with relevant procedures, PRC laws and regulations, the Articles of Association and the Listing Rules. The disclosure of the connected transactions was made in a timely manner and the transactions were not detrimental to the interests of the Company and its shareholders.

(VIII)REVIEW by THE SUPERVISORy COMMITTEE of THE SELF-ASSESSMENT REPORT ON INTERNAL CONTROL AND ITS Opinions

At the eleventh meeting of the third session of the Supervisory Committee held on 26 March 2012, the self-assessment report on internal control of the Company for the year 2011 was considered and approved. The Supervisory Committee had no disagreement with the Board on the said report.

(IX) OPINIONs OF THE SUPERVISORY COMMITTEE ON THE IMPLEMENTATION OF THE ADMINISTRATIVE RECORDAL SYSTEM FOR PERSONS WITH INSIDE INFORMATION

During the year, the Company earnestly implemented the administrative system of inside information of Air China Limited, and entered into confidential agreements with senior officers of important departments including the office of the President, planning and development department, human resource department, finance department and secretary office of the Board and employees who may obtain inside information. Meanwhile, all relevant persons in possession of inside information are required to file a "Recordal Filing Form for Persons in Possession of Inside Information" in a timely manner. The Supervisory Committee did not find any Director, Supervisor or senior management of the Company or any relevant persons who were aware of the inside information taking advantage of such inside information to buy or sell the shares of the Company before the disclosure of such price-sensitive information.

In 2011, guided by the principle of scientific development, the Company had grasped market opportunities in good timing and adhered to the practices of prudent operation and vigorous innovation. While ensuring the safe operation and accomplishing various important operation tasks, the Company enhanced its capabilities in strategic leading, market controlling and comprehensive management. As a result, the Company created significant value for itself and the shareholders and further laid a solid foundation for the next round of leap-forward development.

In 2012, the Supervisory Committee will, as always, perform its duties diligently, strengthen its inspection and supervision roles and maximise its functions with a view to further improving the corporate governance and promoting the healthy development of the Company.

By order of the Supervisory Committee

Li Qinglin

Chairman of the Supervisory Committee

Beijing, PRC

26 March 2012

Profile of Directors, Supervisors and

Senior Management

As at the date of this annual report,

1. Directors

Mr. Wang Changshun, aged 54, is the Chairman and a non-executive director of the Company. Mr. Wang joined the Group in 2012. He graduated from the University of Science and Technology of China with a Ph.D. degree in management science and engineering. Mr. Wang was previously the Secretary of Communist Party Committee and Deputy Director of Xin Jiang Regional Administration and had served as Deputy General Manager, a Member of the Standing Committee to the Communist Party Committee and Secretary of Communist Party Committee of Xinjiang Airlines. From October 2000 to September 2002, Mr. Wang worked as General Manager, Deputy Chairman of the Board and Deputy Secretary of Communist Party Committee of China Southern Airlines Company Limited. Mr. Wang served as Deputy General Manager and a Member of Communist Party Committee of China Southern Air Holding Company and General Manager, Deputy Chairman of the Board and Deputy Secretary of Communist Party Committee of China Southern Airlines Company Limited from September 2002 to August 2004. Mr. Wang became Deputy Director and a Member of Communist Party Committee of General Administration of Civil Aviation of China from August 2004 to March 2008. Mr. Wang served as a Member of Communist Party Committee and Deputy Director of Civil Aviation Administration of China ("CAAC") and Secretary of Communist Party Committee of the department directly administered by CAAC and Chairman of National Labour Union of Civil Aviation from March 2008 to October 2011. Mr. Wang has served as General Manager and Deputy Secretary of Communist Party Committee of CNAHC since October 2011. Mr. Wang has been serving as the Chairman of the Company since January 2012.

Ms. Wang Yinxiang, aged 56, is the Vice Chairman and a non-executive director of the Company. Ms. Wang joined the Group in July 1988. She graduated from the Party School of the Central Committee of the Communist Party of China majoring in economics and management. Ms. Wang is a senior engineer of political work and a senior flight attendant. Ms. Wang served several positions at Air China International Corporation, including Vice Captain of the in-flight service team of the Chief Flight Team, Deputy Manager of the in-flight service division, Deputy Manager of the passenger cabin service division and Deputy Secretary of the Communist Party Committee. In October 2002, Ms. Wang served several positions in CNAHC, including Deputy General Manager, Head of the Disciplinary and Supervisory Committee of the Communist Party Group and Secretary of the Communist Party Committee of CNAHC. Since March 2008, Ms. Wang has been serving as Secretary of the Communist Party Group, Deputy General Manager and Secretary of the Communist Party Committee of CNAHC, and was appointed as President of the Labour Union of CNAHC from July 2003 to July 2009. Ms. Wang has been serving as the Vice Chairman of the Company since October 2008.

Mr. Cao Jianxiong, aged 52, is a non-executive director of the Company. He joined the Group in June 2009. Mr. Cao holds a master degree in economics from the Eastern China Normal University and is a senior economist. He was appointed as the Deputy General Manager and Chief Financial Officer of China Eastern Airlines Corporation Limited in December 1996. In September 1999, he was appointed as the Vice President of China Eastern Airlines Group Corporation. Commencing from September 2002 till December 2008, he served as Vice President and a member of Communist Party Group of China Eastern Airlines Group Corporation and was also Secretary of the Communist Party Committee of China Eastern Airlines Northwest Company from December 2002 to September 2004. From October 2006 to December 2008, he served as the President and the Deputy Party Secretary of the Communist Party Committee of China Eastern Airlines Corporation Limited. Since December 2008, Mr. Cao has been serving as the Deputy General Manager and a member of Communist Party Group of CNAHC. Mr. Cao has been serving as a non-executive director of the Company since June 2009.

Mr. Sun Yude, aged 57, is a non-executive director of the Company. He joined the Group in October 2002. Mr. Sun graduated from China Civil Aviation Institute majoring in economic management. He started his career in China's civil aviation industry in 1972 and served various positions such as Deputy Head of CAAC Taiyuan Terminal and Head of its Ningbo Terminal, as well as General Manager of CNAC Zhejiang Airlines. In October 2002, Mr. Sun was appointed Vice President of Air China International Corporation, and concurrently took up the position of General Manager of its Zhejiang branch, and was appointed as Vice President of the Company in September 2004. Mr. Sun was appointed as Chairman in November 2004, and President and Deputy Secretary of the Communist Party Committee in December 2005, of Shandong Aviation, and has also served as Director and President of CNACG from March 2007 to September 2011. Mr. Sun served as Secretary of the Communist Party Committee of CNACG from April 2007 to December 2009. Since May 2009, he has been serving as Deputy General Manager and a member of the Communist Party Group of CNAHC. Mr. Sun has been serving as a non-executive director of the Company since October 2010.

Mr. Christopher Dale Pratt, aged 55, is a non-executive director of the Company. He joined the Group in June 2006. Mr. Pratt has an honours degree in modern history from the University of Oxford. He joined John Swire & Sons Limited in 1978 and has worked with the Swire Group in its offices in Hong Kong, Australia and Papua New Guinea. He is also the Chairman of John Swire & Sons (H.K.) Limited, Swire Pacific Limited, Cathay Pacific, Hong Kong Aircraft Engineering Company Limited and Swire Properties Limited, and a Director of The Hongkong and Shanghai Banking Corporation Limited. Mr. Pratt has been serving as a non-executive director of the Company since October 2007.

Mr. lan Sai Cheung Shiu, aged 56, is a non-executive director of the Company. He joined the Group in October 2010. He holds a bachelor's degree in business administration from University of Hawaii and an MBA degree from the University of Western Ontario. Mr. Shiu worked at offices of Cathay Pacific in Hong Kong, the Netherlands, Singapore and the United Kingdom. He has been a director of Cathay Pacific and Hong Kong Dragon Airlines Limited since October 2008. He has also been a director of John Swire & Sons (H.K.) Limited since July 2010. He has been serving as a director of Swire Pacific Limited since August 2010. Mr. Shiu has been serving as a non-executive director of the Company since October 2010.

Mr. Cai Jianjiang, aged 48, is the President and an executive director of the Company. He joined the Group in 2001. Mr. Cai graduated from China Civil Aviation Institute majoring in aviation control and English. Mr. Cai was appointed as General Manager of Shenzhen Airlines in 1999. He joined Air China International Corporation in 2001 as Manager of its Shanghai Branch, and subsequently as Assistant to the President and Manager of the marketing department. In October 2002, he was appointed as Vice President of Air China International Corporation, and subsequently was appointed as Secretary of the Communist Party Committee and Vice President of the Company in September 2004. He has been serving as President and Deputy Secretary of the Communist Party Committee of the Company and a member of the Communist Party Group of CNAHC since February 2007. Since May 2010, he has been serving as the Chairman of Shenzhen Airlines. Mr. Cai has been serving as an executive director of the Company since October 2004.

Mr. Fan Cheng, aged 56, is the Vice President and an executive director of the Company. He joined the Group in September 2004. Mr. Fan graduated from Nanjing Institute of Chemistry and Chemical Engineering with a major in organic fertilizer and has an MBA degree from Guanghua School of Management, Peking University. Mr. Fan is a senior accountant, senior engineer and Certified Public Accountant. Mr. Fan was appointed as Deputy General Manager of China New Technology Venture Capital Company in 1996. He started his career in China's civil aviation industry in 2001, and served as General Manager of the corporate management department and capital management department of CNAHC in October 2002 and Chief Financial Officer of the Company in September 2004. Since October 2006, he has been serving as Vice President and Chief Financial Officer of the Company. From December 2009 to May 2010, he served as Secretary of the Communist Party Committee of Shenzhen Airlines. From March 2010 to April 2010, he served as President of Shenzhen Airlines and from March 2010 to May 2010, he served as the Chairman of Shenzhen Airlines. Since February 2011, he has been serving as Secretary of the Communist Party Committee of the Company. Mr. Fan has been serving as an executive director of the Company since October 2004.

Mr. Fu Yang, aged 62, is an independent non-executive director of the Company. Mr. Fu previously served as Deputy director of the Economic Law Office of the National People's Congress Law Committee, Vice President of the third, fourth and fifth sessions of the All China Lawyers Association, a visiting professor of Center for Environment Law at the Law School of Renmin University of China. He is a partner and the director of Kang Da Law Firm in Beijing. He is also an arbitrator of China International Economic and Trade Arbitration Commission. Mr. Fu has been serving as an independent non-executive director of the Company since June 2009.

Mr. Li Shuang, aged 67, is an independent non-executive director of the Company. He is a professor of accounting and a tutor to doctorate students. Mr. Li graduated from the Foreign Language Department of Beijing Normal University in 1968. In 1982, he obtained a master's degree in economics from the Research Institute for Fiscal Science of the Ministry of Finance, and in October of the same year lectured at Central Institute of Finance & Banking (currently known as Central University of Finance and Economics) where he served various positions including the Head of the accounting department, director of the academic affair office, Dean and Vice President. From 1994 to 1997, he had been invited to the United States twice as a visiting scholar. In October 1996, he was entitled to the special allowance granted by the State Council. From 1999 to 2004, he worked as a Deputy Secretary-in-General and Adviser of the Chinese Institute of Certified Public Accountants. From May 2001 to June 2010, he served as an independent non-executive director of Da Cheng Fund Management Co., Ltd., China Minmetals Non-ferrous Metals Co. Ltd., Zhong Bao Ke Kong Investment Co., Ltd., Beijing Centergate Technologies (Holding) Co., Ltd., Shenyin & Wanguo Securities Investment Co., Ltd., Chengde Xinxin Vanadium and Titanium Co., Ltd. and Beijing Wangfujing Department Store (Group) Co., Ltd., respectively. Mr. Li had served as a non-executive director of China Shoto plc. from January 2005 to June 2011. He has been serving as an independent non-executive director of the Company since October 2010.

Mr. Han Fangming, aged 45, is an independent non-executive director of the Company. Mr. Han graduated from Peking University with a Ph.D degree. Mr. Han was a member of the 10th and 11th of National Committee of the Chinese People's Political Consultative Conference ("CPPCC") and is currently a Deputy Chairman of the Foreign Affairs Committee of CPPCC and the convener of the Public Diplomacy Team, the Deputy Chief Editor and Head of the editorial department of "Public Diplomacy Quarterly", Executive Member of the Chinese-African People's Friendship Association, Executive Member of the Chinese People's Association for Friendship with Foreign Countries, Executive Member of China Economic and Social Council, chairman of China-Africa Economic and Technological Cooperation Committee, Deputy director of China Overseas-Educated Scholars Development Foundation, Vice President of China Society for Southeast Asian Studies and founding chairman of the Charhar Institute under the Think-Tank for Foreign Policy and International Relationship, a researcher at the Center for Studies of World Modernisation Process of Peking University, a visiting professor at Tibet University and an arbitrator of the China International Economic and Trade Arbitration Commission. In 1999, he joined TCL Group and was appointed as an independent non-executive director of TCL Multimedia Technology Holdings Limited. He has been serving as an executive director of TCL Corporation from 2006 to June 2011. He has served as Vice Chairman of TCL Corporation since June 2011. Mr. Han has been serving as an independent non-executive director of the Company since October 2010.

Mr. Yang Yuzhong, aged 67, is an independent non-executive director of the Company. He graduated from Beijing Aeronautical Institute majoring in aircraft design and manufacturing. From July 1999 to July 2006, Mr. Yang served as the Deputy General Manager of China Aviation Industry Corporation I, during which period he was also the head of Chinese Aeronautical Establishment and the chairman of AVIC1 Commercial Aircraft Co., Ltd.. Mr. Yang has been a consultant of Aviation Industry Corporation of China since August 2006. He served as an independent non-executive director of China National Materials Company Limited from June 2007 to December 2009. Mr. Yang has been an independent non-executive director of China South Locomotive & Rolling Stock Corporation Limited since December 2007 and an external director of China National Materials Group Corporation Ltd. since December 2009. Mr. Yang has been serving as an independent non-executive director of the Company since May 2011.

2. Supervisors

Mr. Li Qinglin, aged 56, is the chairman of the supervisory committee of the Company. He joined the Group in October 2010. Mr. Li graduated from Beijing Television University majoring in Chinese and Zhongnanhai Amateur University majoring in administrative management, and is a senior engineer of political work. Mr. Li served various positions, including a Section Chief, Deputy director, director, Vice Director-General and Director-General, as well as the Chairman of the Labour Union, of the Government Office Administration of the State Council. From 1998 to 2000, he served as a Deputy director of the Hebei Leading Group Office of Poverty Alleviation and Development. Since 2000, he had served different positions, including a Deputy director of the Work Department under the Supervisory Committee of Central Enterprises Working Commission, Deputy director of the Office of Central Enterprises Working Commission, Deputy director and Inspector of the General Office of the State-owned Assets Supervision and Administration Committee of the State Council and a director of the Office of the Stability Preservation Leading Team of the State-owned Assets Supervision and Administration Committee. In September 2008, he was appointed as the Head of the Disciplinary and Supervisory Committee and a member of the Communist Party Group of CNAHC. Mr. Li has been serving as a supervisor of the Company since October 2010.

Mr. Zhang Xueren, aged 58, is a supervisor of the Company. He joined the Group in July 1988. Mr. Zhang graduated from Sichuan International Studies University majoring in English, and enrolled in the MBA programme of Peking University. Mr. Zhang holds the title of Senior Economist. He started his career in China's civil aviation in 1975 and served as a Section Chief and then a director of the operations department of Beijing Administrative Bureau of CAAC, the Head of the cargo department of Air China International Corporation, the General Manager of Tianjin branch of Air China International Corporation and Vice President of Air China International Corporation. In 2004, he served as a director and Vice President of CNACG. Since December 2009, he has been serving as the director, Secretary of the Communist Party Committee and Vice President of CNACG. Mr. Zhang has been serving as a supervisor of the Company since October 2010.

Mr. Zhou Feng, aged 50, is a supervisor of the Company. Mr. Zhou joined the Group in February 1997. He obtained a master's degree in economics from Shanghai University of Finance and Economics. He held various positions, including the Accountant, the Deputy Division Head, the Division Head of the finance division and the director of the finance and audit department of the CAAC, Zhejiang Bureau; the director, the Chief Accountant of finance department of CNAC Zhejiang Airlines; the Assistant General Manager of China National Aviation Corporation (Macau) Company Limited; the Deputy General Manager, the Chief Accountant and a member of the party committee of China National Aviation Finance Co., Ltd. ("CNAF"), the director, the Executive Vice President of Samsung Air China Life Insurance Co., Ltd.. Mr. Zhou has been Secretary of the Communist Party Committee and the Deputy General Manager of CNAF since August 2010. He has also been the General Manager of the finance department of CNAHC since April 2011. Mr. Zhou has been serving as a supervisor of the Company since November 2011.

Ms. Xiao Yanjun, aged 47, is a supervisor of the Company. Ms. Xiao joined the Group in July 1988. She obtained an EMBA degree from Tsinghua University and a Juris Master from Renmin University of China and is a professional of political work. From July 1988 to April 2002, Ms. Xiao held various positions in Air China International Corporation, including an Instructor at the Training Department, the Secretary of the Communist Party Committee, an Organisor at division level, Secretary of the Party branch and Head of Officer Training. She served as the Training Manager of the Human Resource Department of the Company from April 2002 to March 2008. Ms. Xiao has been Deputy director of the Labour Union of the Company since March 2008. Ms. Xiao has been serving as a supervisor of the Company since June 2011.

Mr. Su Zhiyong, aged 48, is a supervisor of the Company. He joined the Group in July 1988. Mr. Su graduated from Party School of the Central Committee of Communist Party Committee majoring in economics and management. Mr. Su started his career in China's civil aviation industry in 1983 and served as Officer and Personnel Clerk of the Communist Party Committee of the equipment management division, Secretary of the vehicle maintenance office (team II) of ground services department, and, starting from September 2006, Deputy Manager and Manager of the vehicle maintenance centre of ground services department of Air China International Corporation. Since August 2007, he has been serving as Senior Manager of the station operation centre of ground services department of the Company. Mr. Su has been serving as a supervisor of the Company since August 2009.

3. OTHER SENIOR MANAGEMENT

Mr. Feng Gang, aged 48, graduated from Sichuan University majoring in semiconductor. He started his career in July 1984 and served various positions including Cadre of the political department and Dispatcher of the scheduling office in Chengdu Civil Aviation Authority, Manager of Guangzhou Sales Department, Deputy Manager of Operating Department, Manager of Development and Service Department, Deputy Manager of Marketing Department, Manager of the Cargo Logistics Company of China Southwest Airlines, Deputy General Manager of China Southwest Airlines, Assistant to President of Air China International Corporation, General Manager and Party Secretary of China National Aviation Holding Assets Management Company. He served as the Chairman, President and Deputy Secretary of the Communist Party Committee of Shandong Aviation from May 2007 to April 2010. Mr. Feng has been serving as Vice President of the Company since April 2010. He has also served as a director, President and Deputy Secretary of the Communist Party Committee of Shenzhen Airlines since May 2010.

Mr. Ma Chongxian, aged 46, graduated from Inner Mongolia University majoring in planning and statistics. Mr. Ma started his career in July 1988 and served as Planner of the Mechanical Division of CAAC Inner Mongolia Bureau and various positions in Air China, including Deputy Chief and Secretary of the Party branch of Aircraft Repair Plant in Inner Mongolia branch, General Manager of the Bluesky Customer Service Department, Deputy General Manager of Inner Mongolia branch, Deputy General Manager, Party Secretary and General Manager of Zhejiang branch. He served as General Manager and Deputy Secretary of the Communist Party Committee of Hubei Branch of the Company from June 2009. Mr. Ma has been serving as Vice President of the Company as well as Chairman, President of Shandong Aviation and Vice Chairman of Shandong Airlines since April 2010.

Mr. Xu Chuanyu, aged 47, graduated from China Civil Aviation Institution majoring in aviation and obtained an MBA degree from Tsinghua University. Mr. Xu is a second-class Pilot. He started his career in July 1985. Mr. Xu previously served various positions in Air China International Corporation, including Pilot, Deputy Captain of the Third Group of the Chief Flight Team and an Inspector in the Safety Supervisory Office. In December 2001, Mr. Xu was appointed as the Deputy Captain of the Chief Flight Team of Air China International Corporation. In March 2006, Mr. Xu was appointed as the General Manager and Deputy Secretary of the Communist Party Committee of the Tianjin branch of the Company. Mr. Xu has been serving as Deputy Chief Operation Officer and General Manager of Operation Control Centre of the Company and a Member and Deputy Secretary of the Communist Party Committee of the Company from January 2009 to March 2011. Mr. Xu served as the Chief Pilot from January 2009 to April 2011. He has been serving as Vice President and Chief Operation Officer of the Company since February 2011 and March 2011 respectively.

Mr. Wang Mingyuan, aged 46, graduated from Xiamen University majoring in planning and statistics. He started his career in July 1988 and served various positions in Southwest Airlines, including Assistant of the planning department, Manager of the Production Plan Office of the Sales & Marketing Department, Deputy Manager of the Sales & Marketing Department Deputy Manager and Manager of the Market Department, and served various positions in the Company, including Deputy General Manager of the Marketing Department, Member of the Commerce Commission, Member of the Communist Party Committee and General Manager of Network Revenue Department. Mr. Wang has been appointed as a director of the Commerce Commission and Deputy Secretary of the Communist Party Committee of the Company since July 2008. He has been serving as Vice President and a member of the Standing Committee of the Communist Party Committee of the Company since February 2011.

Mr. Zhao Xiaohang, aged 50, graduated from Tsinghua University majoring in management engineering and holds a postgraduate diploma and a master's degree. Mr. Zhao started his career in August 1986 and served various positions, including Assistant of the Planning Department of Beijing Administration Bureau of CAAC, Assistant, Section Chief and Deputy Division Chief of the Planning Department of Air China, Manager and Deputy Secretary of the Ground Services Department, General Manager of the Planning and Development Department and Assistant President of Air China. He served as director and Vice President of CNACG from September 2003 to May 2004, director, Vice President and Secretary of the Commission for Discipline Inspection of CNACG from May 2004 to February 2011 and Chairman, executive director and General Manager of Air Macau from December 2009 to April 2011. He has been serving as director and General Manager of China National Aviation Company Limited since July 2005 and director and General Manager of China National Aviation Corporation (Macau) Company Limited since April 2007. Mr. Zhao has also been serving as Vice President of the Company since February 2011, a director of Shandong Aviation since April 2011 and Chairman of Dalian Airlines since August 2011.

Ms. Feng Rune, aged 49, obtained an EMBA degree from HEC Paris. Ms. Feng started her career in July 1984 and served various positions, including an Instructor of Science & Education Division of CAAC Inner Mongolia Bureau, Deputy Chief, Chief, Deputy director and director of Science & Education Department of Air China Inner Mongolia branch; Manager of Human Resource Department and Head of Party and Mass Affairs Department of Air China Inner Mongolia branch. She also served as Deputy Secretary of the Communist Party Committee and Secretary of Commission for Discipline Inspection of Air China Inner Mongolia branch. In October 2002, she began to serve as Head and director of Office of Communist Party Group of CNAHC. From January 2009 to March 2011, she was appointed as Secretary of the Communist Party Committee and Deputy General Manager of Air China Cargo. She has been serving as Deputy Secretary of the Communist Party Committee and Secretary of Commission for Discipline Inspection of the Company since February 2011 as well as a member and Secretary of the Communist Party Committee of the department directly under the Company since March 2011. She has been serving as president of the Labour Union of the Company since June 2011.

Mr. Chai Weixi, aged 50, graduated from City University of Seattle and holds a postgraduate diploma and a master's degree. He is a senior engineer. Mr. Chai started his career in September 1980 and served various positions, including Engineer and Manager of airframe team of Engineering Department of Aircraft Maintenance and Engineering Corporation, Deputy director of the Engineering Division under the Aircraft Engineering Department of Air China, Manager of Aircraft Maintenance Subdivision and Manager of Aircraft Overhaul Division of Aircraft Maintenance and Engineering Corporation, General Manager of Aircraft Engineering Department of Air China and Deputy General Manager of the Engineering Technology Branch of Air China. He served as General Manager, director, member of the Communist Party Committee of Aircraft Maintenance and Engineering Corporation and a member of the Communist Party Committee of the Engineering Technology Branch of Air China in October 2005. In April 2009, he served as General Manager and Deputy Secretary of the Communist Party Committee of the Engineering Technology Branch of Air China and director of Aircraft Maintenance and Engineering Corporation. Mr. Chai has been serving as Vice President of the Company since March 2012.

Mr. Xu Jianqiang, aged 59, graduated from Party School of the Central Committee of C.P.C. majoring in economics and management. Mr. Xu is a senior engineer of political work. He started his career in April 1969. He was the navigation director and the deputy political director of communication team of air force at Yingshanchang Station, deputy chief of cadre at political department of the 44th airborne division, party secretary of the First Group of the Chief Flight Team, deputy party secretary of training department, party secretary of cabin services department, party secretary of marketing department of Air China. He was appointed as Party Secretary and Deputy director of Commercial Committee of the Company in June 2005. He has been serving as Chief Economist of the Company since July 2009.

Mr. Liu Tiexiang, aged 45, graduated from State Organ Branch of Party School of the Central Committee of C.P.C. majoring economics and management. He is a second-class Pilot and currently serves as Chief Pilot. He started his career in June 1983 and became a member of the Communist Party Committee in April 1986. Mr. Liu previously served various positions in Air China, including pilot, squadron leader of the Third Group of the Chief Flight Team, deputy director and deputy manager of Flight Training Center, deputy general manager of Aviation Security Technology Department, deputy general manager and general manager of Flight Technical Management Department and vice captain of the Chief Flight Team of Air China. He served as captain of the Chief Flight Team of Air China and Deputy Secretary of the Communist Party Committee from June 2008 to April 2011. He has been serving as Chief Pilot of the Company since April 2011.

Ms. Rao Xinyu, aged 45, graduated from Beijing Foreign Studies University with a postgraduate diploma. Ms. Rao started her career in July 1990 and served as an officer at vice-director level and an officer at director level of the International Department of the CAAC, Deputy Manager of the General Office, Deputy Director of the Administration Office and Deputy General Manager of the Planning and Investment Department of China National Aviation Corporation, respectively. From December 2002, Ms. Rao was appointed as Deputy General Manager of the Planning and Investment Department of CNAHC. From October 2003, she served as Deputy General Manager of the Planning and Development Department of CNAHC. Ms. Rao has been Deputy Director of the Secretariat of the Board and General Manager of Investor Relation Department of the Company since April 2005. She has been serving as the Secretary to the Board and one of the Joint Company Secretaries since December 2011.

4. JOINT COMPANY SECRETARIES

Ms. Rao Xinyu, Ms. Rao's biography is set out in the section headed "Other Senior Management" above.

Ms. Tam Shuit Mui, aged 40, graduated from the State University of New York at Buffalo, USA in 1998 with a Bachelor of Science in Business Administration majoring in accounting and financial analysis. Ms. Tam is an associate member of the Hong Kong Institute of Certified Public Accountants and a member of The American Institute of Certified Public Accountants, USA. Between September 1998 and April 2001, Ms. Tam worked as an accountant with Tommy Hilfiger (HK) Limited. From May 2001 to October 2007, Ms. Tam served as the company secretary of Chaoyue Group Limited (formerly known as Graneagle Holdings Limited), a company listed on the Hong Kong Stock Exchange. Ms. Tam has been serving as one of the Joint Company Secretaries of the Company since October 2008.

	22nd Floor
	CITIC Tower
	1 Tim Mei Avenue, Central
	Hong Kong
	Phone: (852) 2846 9888
	Fax: (852) 2868 4432
	www.ey.com/china

Independent Auditors' Report

To the shareholders of Air China Limited

(Established in the People's Republic of China with limited liability)

We have audited the consolidated financial statements of Air China Limited (the "Company"), its subsidiaries and joint ventures (collectively, the "Group") set out on pages 65 to 165, which comprise the consolidated and company statements of financial position as at 31 December 2011, and the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

Directors' responsibility for the consolidated financial statements

The Company's Directors are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards and the disclosure requirements of the Hong Kong Companies Ordinance, and for such internal control as the Directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. Our report is made solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors' judgement, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity's preparation of consolidated financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Company's Directors, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Company and of the Group as at 31 December 2011, and of the profit and cash flows of the Group for the year then ended in accordance with International Financial Reporting Standards and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

Ernst & Young

Certified Public Accountants

Hong Kong

27 March 2012

		2011	2010
	Notes	RMB'000	RMB'000


TURNOVER
Air traffic revenue	4	93,343,421	78,209,188
Other operating revenue	5	5,066,081	4,278,351


		98,409,502	82,487,539


OPERATING EXPENSES
Jet fuel costs		(34,703,369)	(24,096,078)
Movements in fair value of fuel derivative contracts		85,447	1,954,071
Take-off, landing and depot charges		(8,740,822)	(7,707,019)
Depreciation		(9,560,907)	(8,569,370)
Aircraft maintenance, repair and overhaul costs		(2,612,678)	(2,577,185)
Employee compensation costs	6	(12,270,065)	(9,851,935)
Air catering charges		(2,662,984)	(2,044,359)
Aircraft and engine operating lease expenses		(3,931,549)	(3,488,014)
Other operating lease expenses		(668,916)	(712,005)
Other flight operation expenses		(9,342,935)	(8,227,555)
Selling and marketing expenses		(5,480,514)	(4,602,745)
General and administrative expenses		(2,261,549)	(1,637,824)


		(92,150,841)	(71,560,018)


PROFIT FROM OPERATIONS	7	6,258,661	10,927,521

Finance revenue	8	3,361,295	1,980,015

Finance costs	8	(1,594,015)	(1,449,249)

Share of profits and losses of associates		1,328,798	3,375,325


PROFIT BEFORE TAX		9,354,739	14,833,612

Tax	11	(2,292,073)	(2,497,748)


PROFIT FOR THE YEAR		7,062,666	12,335,864


Attributable to:
Owners of the parent		7,082,374	12,005,004
Non-controlling interests		(19,708)	330,860


		7,062,666	12,335,864


Dividends:	13
Interim		-	-
Proposed final		1,521,251	1,523,829


		1,521,251	1,523,829


Earnings per share attributable to equity holders of the parent:	14
Basic and diluted		RMB58.23 cents	RMB103.10 cents

Consolidated Income Statement

Year ended 31 December 2011

(Prepared under International Financial Reporting Standards)

	2011	2010
	RMB'000	RMB'000


PROFIT FOR THE YEAR	7,062,666	12,335,864


OTHER COMPREHENSIVE LOSSES
Share of other comprehensive losses of associates	(8,538)	(47,303)
Exchange realignment	(890,417)	(546,911)
Others	-	(1,150)


OTHER COMPREHENSIVE LOSSES FOR THE YEAR, NET OF TAX	(898,955)	(595,364)


TOTAL COMPREHENSIVE INCOME FOR THE YEAR	6,163,711	11,740,500


Attributable to:
Owners of the parent	6,193,453	11,412,599
Non-controlling interests	(29,742)	327,901


	6,163,711	11,740,500

Consolidated Statement of Comprehensive Income

Year ended 31 December 2011

(Prepared under International Financial Reporting Standards)

Consolidated Statement of Financial Position 31 December 2011 (Prepared under International Financial Reporting Standards)		2011	2010
	Notes	RMB'000	RMB'000


NON-CURRENT ASSETS
Property, plant and equipment	15	112,399,431	96,152,542
Lease prepayments	16	2,142,684	2,163,649
Investment properties	17	240,879	-
Intangible asset	18	37,221	41,076
Goodwill	19	1,310,830	1,657,675
Interests in associates	22	13,397,031	14,188,426
Advance payments for aircraft and flight equipment		19,443,291	18,946,626
Deposits for aircraft under operating leases		420,854	391,600
Long term receivable from the ultimate holding company	23	-	31,813
Available-for-sale investments	24	27,182	27,182
Deferred tax assets	25	3,077,502	2,193,002


		152,496,905	135,793,591


CURRENT ASSETS
Aircraft and flight equipment held for sale	26	92,487	77,682
Inventories	27	1,810,320	1,608,951
Accounts receivable	28	2,700,731	3,092,069
Bills receivable		1,601	14,295
Prepayments, deposits and other receivables	29	2,697,192	2,284,230
Financial assets	30	12,144	27,379
Due from the ultimate holding company	32	428,561	617,140
Due from related companies	32	20,194	3,244
Tax recoverable		-	6,171
Pledged deposits	33	132,565	843,065
Cash and cash equivalents	33	15,457,372	14,401,714


		23,353,167	22,975,940


TOTAL ASSETS		175,850,072	158,769,531


CURRENT LIABILITIES
Air traffic liabilities		(4,562,773)	(3,608,700)
Accounts payable	34	(10,417,186)	(8,100,472)
Bills payable	35	-	(387,327)
Other payables and accruals	36	(12,815,775)	(9,259,833)
Financial liabilities	30	(223,137)	(427,329)
Due to related companies	32	(190,775)	(181,002)
Tax payable		(1,707,553)	(2,210,372)
Obligations under finance leases	37	(2,687,925)	(2,223,240)
Interest-bearing bank loans and other borrowings	38	(28,137,313)	(25,482,725)
Provision for major overhauls	39	(589,123)	(503,628)


		(61,331,560)	(52,384,628)


NET CURRENT LIABILITIES		(37,978,393)	(29,408,688)


TOTAL ASSETS LESS CURRENT LIABILITIES		114,518,512	106,384,903


NON-CURRENT LIABILITIES
Obligations under finance leases	37	(19,191,860)	(16,061,352)
Interest-bearing bank loans and other borrowings	38	(39,398,481)	(42,159,439)
Provision for major overhauls	39	(2,496,294)	(2,105,150)
Provision for early retirement benefit obligations		(203,213)	(220,236)
Long term payables	40	(231,061)	(265,159)
Deferred income	41	(3,459,138)	(3,196,103)
Deferred tax liabilities	25	(1,213,030)	(1,006,227)


		(66,193,077)	(65,013,666)


NET ASSETS		48,325,435	41,371,237


EQUITY
Equity attributable to owners of the parent
Issued capital	42	12,891,955	12,891,955
Treasury shares	43	(2,889,399)	(2,613,232)
Reserves	44	36,113,243	31,159,231


		46,115,799	41,437,954

NON-CONTROLLING INTERESTS		2,209,636	(66,717)


TOTAL EQUITY		48,325,435	41,371,237

Cai Jianjiang	Fan Cheng
Director	Director

	Attributable to owners of the parent

	Issued capital	Treasury shares	Capital reserve	Reserve funds	Foreign exchange translation reserve	Retained earnings	Proposed Final dividend	Total	Non- controlling interests	Tota l equity
	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000


As at 1 January 2010	12,251,362	(2,319,879)	12,542,326	1,615,700	(1,624,408)	1,450,795	-	23,915,896	38,571	23,954,467

Profit for the year	-	-	-	-	-	12,005,004	-	12,005,004	330,860	12,335,864
Other comprehensive losses for the year:
Share of other comprehensive losses of associates	-	-	(47,303)	-	-	-	-	(47,303)	-	(47,303)
Exchange realignment	-	-	-	-	(543,952)	-	-	(543,952)	(2,959)	(546,911)
Others	-	-	(1,150)	-	-	-	-	(1,150)	-	(1,150)


Total comprehensive income/(losses) for the year	-	-	(48,453)	-	(543,952)	12,005,004	-	11,412,599	327,901	11,740,500
Issue of new shares	640,593	-	-	-	-	-	-	640,593	-	640,593
Share premium	-	-	5,780,556	-	-	-	-	5,780,556	-	5,780,556
Elimination for reciprocal shareholding	-	(293,353)	-	-	-	-	-	(293,353)	-	(293,353)
Acquisition of non-controlling interests in a subsidiary	-	-	(18,210)	-	-	-	-	(18,210)	(112)	(18,322)
Acquisition of a subsidiary	-	-	(127)	-	-	-	-	(127)	(433,077)	(433,204)
Appropriation of statutory reserve funds	-	-	-	614,386	-	(614,386)	-	-	-	-
Proposed final dividend	-	-	-	-	-	(1,523,829)	1,523,829	-	-	-


As at 31 December 2010	12,891,955	(2,613,232)	18,256,092*	2,230,086*	(2,168,360)*	11,317,584*	1,523,829*	41,437,954	(66,717)	41,371,237

Consolidated Statement of Changes in Equity

Year ended 31 December 2011

(Prepared under International Financial Reporting Standards)

As at 1 January 2011	12,891,955	(2,613,232)	18,256,092	2,230,086	(2,168,360)	11,317,584	1,523,829	41,437,954	(66,717)	41,371,237

Profit for the year	-	-	-	-	-	7,082,374	-	7,082,374	(19,708)	7,062,666
Other comprehensive losses for the year:
Share of other comprehensive losses of associates	-	-	(8,538)	-	-	-	-	(8,538)	-	(8,538)
Exchange realignment	-	-	-	-	(880,383)	-	-	(880,383)	(10,034)	(890,417)


Total comprehensive income/(losses) for the year	-	-	(8,538)	-	(880,383)	7,082,374	-	6,193,453	(29,742)	6,163,711
Elimination of reciprocal shareholding	-	(276,167)	-	-	-	-	-	(276,167)	-	(276,167)
Capital contribution by non-controlling interest of a subsidiary	-	-	327,759	-	-	-	-	327,759	1,736,095	2,063,854
Final dividend declared	-	-	-	-	-	-	(1,523,829)	(1,523,829)	-	(1,523,829)
Establishment of new subsidiaries	-	-	-	-	-	-	-	-	570,000	570,000
Appropriation of statutory reserve funds	-	-	-	679,126	-	(679,126)	-	-	-	-
Transfer to discretionary reserve funds and others	-	-	-	614,386	-	(657,757)	-	(43,371)	-	(43,371)
Proposed final dividend	-	-	-	-	-	(1,521,251)	1,521,251	-	-	-


As at 31 December 2011	12,891,955	(2,889,399)	18,575,313*	3,523,598*	(3,048,743)*	15,541,824*	1,521,251*	46,115,799	2,209,636	48,325,435

* These reserve accounts comprise the consolidated reserves of RMB36,113,243,000 (2010: RMB31,159,231,000) in the consolidated statement of financial position.

Consolidated Statement of Cash Flows Year ended 31 December 2011 (Prepared under International Financial Reporting Standards)		2011	2010
	Notes	RMB'000	RMB'000


CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax		9,354,739	14,833,612
Adjustments for:
Share of profits and losses of associates		(1,328,798)	(3,375,325)
Exchange gains, net	8	(3,117,700)	(1,919,415)
Interest income	8	(240,234)	(60,307)
Finance costs		1,594,015	1,449,249
Dividend income on long term investments		-	(152,678)
Gains on financial assets and financial liabilities, net		(29,493)	(1,964,074)
Depreciation	15	9,560,907	8,569,370
Impairment loss on property, plant and equipment	15	2,237,403	1,863,194
Gains on disposal of property, plant and equipment, net	5	(252,662)	(159,011)
Losses on derecognition of property, plant and equipment	7	31,345	55,434
Losses on disposal of lease prepayments		1,461	-
Amortisation of lease prepayments	16	53,247	87,039
Impairment of aircraft held for sale	26	99,669	185,992
Impairment of goodwill	7	176,891	-
Impairment of interests in an associate	7	19,810	-
Impairment of inventories	7	77,785	236,219
Impairment of accounts receivable	7	3,771	8,983
Impairment of prepayments, deposits and other receivables	7	239,582	118,609


		18,481,738	19,776,891

Decrease/(increase) in deposits for aircraft under operating leases		(55,073)	37,661
Increase in inventories		(279,154)	(200,807)
Decrease/(increase) in accounts receivable		366,006	(376,008)
Decrease/(increase) in bills receivable		12,694	(11,806)
Increase in prepayments, deposits and other receivables		(545,913)	(470,431)
Decrease/(increase) in amount due from the ultimate holding company		220,392	(55,993)
Decrease/(increase) in amounts due from related companies		(16,950)	6,950
Decrease in amounts due from associates		28,398	-
Increase in air traffic liabilities		954,073	825,730
Increase in accounts payable		2,358,106	4,323
Decrease in bills payable		(387,327)	(610,953)
Increase in other payables and accruals		3,403,782	1,134,326
Increase in amounts due to related companies		9,773	67,978
Increase in amounts due to associates		6,118	-
Increase/(decrease) in provision for major overhauls		476,639	(183,644)
Increase/(decrease) in provision for early retirement benefit obligations		(17,023)	10,230
Increase in deferred income		263,035	500,594


Cash generated from operations		25,279,314	20,455,041

Interest paid		(2,143,019)	(1,586,501)
Corporate income tax and profits tax paid		(3,466,417)	(502,918)


NET CASH FLOWS FROM OPERATING ACTIVITIES		19,669,878	18,365,622

		2011	2010
	Notes	RMB'000	RMB'000


CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment		(22,253,020)	(9,835,131)
Proceeds from disposal of property, plant and equipment		1,106,061	189,986
Proceeds from disposal of aircraft and flight equipment held-for-sale		69,430	119,486
Increase in lease prepayments		(76,709)	(190,300)
Decrease in intangible assets		3,855	8,191
Increase in advance payments for aircraft and flight equipment		(496,664)	(7,410,917)
Net settlements of financial liabilities		(159,463)	(174,982)
Increase in balances with associates		-	7,964
Decrease in pledged deposits		710,500	1,002,793
Decrease/(increase) in non-pledged deposits with original maturity of more than three months when acquired		(4,648,235)	4,785
Interest received		240,234	60,307
Capital contributions by non-controlling interests of subsidiaries		2,803,808	-
Acquisition of a subsidiary		-	1,820,051
Capital contributions to an associate		-	109,154
Acquisition of a non-controlling interest of a subsidiary		-	(90,122)
Capital contributions to associates		-	(197,246)
Dividend income from long term investments		-	2,050
Dividends received from associates		1,030,762	515,951


NET CASH FLOWS USED IN INVESTING ACTIVITIES		(21,669,441)	(14,057,980)


CASH FLOWS FROM FINANCING ACTIVITIES
New bank loans and other loans		28,866,385	28,849,284
Repayment of bank loans and other loans		(26,435,068)	(24,138,001)
Repayment of principals under finance lease obligations		(2,339,461)	(3,669,392)
Dividends paid		(1,523,829)	-
Proceeds from issuance of new shares		-	6,421,149


NET CASH FLOWS FROM/(USED IN) FINANCING ACTIVITIES		(1,431,973)	7,463,040


NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS		(3,431,536)	11,770,682

Cash and cash equivalents at beginning of year		14,376,050	2,676,309
Effect of exchange rate changes on cash and cash equivalents		(161,041)	(70,941)


CASH AND CASH EQUIVALENTS AT END OF YEAR		10,783,473	14,376,050


ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS
Cash and bank balances	33	5,079,886	3,576,984
Non-pledged time deposits with original maturity of less than three months when acquired	33	5,703,587	10,799,066


		10,783,473	14,376,050

Statement of Financial Position 31 December 2011 (Prepared under International Financial Reporting Standards)		2011	2010
	Notes	RMB'000	RMB'000


NON-CURRENT ASSETS
Property, plant and equipment	15	80,350,831	69,772,391
Lease prepayments	16	1,592,275	1,629,183
Intangible asset	18	37,221	41,076
Interests in subsidiaries	20	18,242,738	16,763,748
Interests in joint ventures	21	856,076	856,076
Interests in associates	22	646,366	707,787
Advance payments for aircraft and flight equipment		16,077,566	14,097,427
Deposits for aircraft under operating leases		251,729	202,668
Long term receivable from the ultimate holding company	23	-	31,813
Available-for-sale investments	24	3,366	3,366
Deferred tax assets	25	2,261,490	1,515,000


		120,319,658	105,620,535


CURRENT ASSETS
Aircraft and flight equipment held for sale	26	77,211	73,560
Inventories	27	762,546	610,976
Accounts receivable	28	1,224,596	1,447,627
Bills receivable		-	14,000
Prepayments, deposits and other receivables	29	1,641,153	1,076,104
Entrusted loans	31	2,200,000	-
Due from the ultimate holding company		432,267	617,669
Due from related companies		7,803	2
Cash and cash equivalents	33	7,797,123	11,501,617


		14,142,699	15,341,555


TOTAL ASSETS		134,462,357	120,962,090


CURRENT LIABILITIES
Air traffic liabilities		(3,708,720)	(2,974,145)
Accounts payable	34	(6,555,427)	(4,886,489)
Other payables and accruals	36	(5,546,130)	(4,320,488)
Financial liabilities	30	(176,167)	(340,049)
Due to related companies	32	(170,187)	(159,913)
Tax payable		(1,223,212)	(1,994,158)
Obligations under finance leases	37	(2,505,900)	(2,048,727)
Interest-bearing bank loans and other borrowings	38	(21,383,897)	(19,093,115)
Provision for major overhauls	39	(235,964)	(135,662)


		(41,505,604)	(35,952,746)


NET CURRENT LIABILITIES		(27,362,905)	(20,611,191)


TOTAL ASSETS LESS CURRENT LIABILITIES		92,956,753	85,009,344


NON-CURRENT LIABILITIES
Obligations under finance leases	37	(18,428,125)	(15,407,125)
Interest-bearing bank loans and other borrowings	38	(27,170,298)	(27,576,233)
Provision for major overhauls	39	(1,380,343)	(1,214,265)
Provision for early retirement benefit obligations		(55,608)	(77,820)
Long term payables	40	(643)	(2,376)
Deferred income	41	(2,631,068)	(2,447,707)
Deferred tax liabilities	25	(136,000)	(128,387)


		(49,802,085)	(46,853,913)


NET ASSETS		43,154,668	38,155,431


EQUITY
Issued capital	42	12,891,955	12,891,955
Reserves	44	30,262,713	25,263,476


TOTAL EQUITY		43,154,668	38,155,431

Cai Jianjiang	Fan Cheng
Director	Director

This information is provided by RNS

The company news service from the London Stock Exchange

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