Proposed A Share Issue

Air China Ld
24 July 2006

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents
of this announcement, makes no representation as to its accuracy or completeness
and expressly disclaims any liability whatsoever for any loss whatsoever arising
from or in reliance upon the whole or any part of the contents of this
announcement.





                               AIR CHINA LIMITED

 (a joint stock limited company incorporated in the People's Republic of China
                            with limited liability)

                               (Stock Code: 753)



                             Proposed A Share Issue



SUMMARY



Proposed A Share Issue



In connection with the Company's proposed A Share Issue, the Company has
submitted a draft of the A Share Prospectus to the CSRC in support of the
Company's application. The A Share Prospectus will contain consolidated
financial information of the Group for the Relevant Periods prepared under PRC
GAAP and has been available for investing public's review on the CSRC's website
since the late afternoon of 21 July 2006. To enable shareholders and investors
to better understand the material differences between the consolidated financial
information of the Group for the Relevant Periods prepared under IFRS (the basis
on which the figures in the accountants' report, and the figures in the
consolidated financial statements incorporated in the Company's published annual
reports for the years ended 31 December 2004 and 2005 were prepared) and those
prepared under PRC GAAP, this announcement presents the consolidated financial
information of the Group for the Relevant Periods prepared under PRC GAAP and a
reconciliation of the Net Profit/Net Assets, each attributable to equity holders
of the Company prepared under IFRS to those prepared under PRC GAAP.



1.     PROPOSED A SHARE ISSUE



Reference is made to the section headed 'Proposed A Share Issue' in the
Company's circular dated 13 February 2006 (the 'Circular').



The proposed A Share Issue will comprise the allotment and issue of not more
than 2.7 billion A Shares to institutional and public investors in the PRC. The
offer price for the proposed A Share Issue will be determined based on the PRC
securities market conditions at the time when the A Share Issue takes place and
in accordance with the applicable CSRC regulations. The offer price will not be
lower than 90% of the average closing price of the Company's H Shares on the
Hong Kong Stock Exchange during the Price Consultation Period of the A Share
Issue.



The proposed A Share Issue is subject to the approval of the relevant regulatory
authorities (including the CSRC) and hence, there is no assurance that the
proposed A Share Issue will proceed. Shareholders and investors are advised to
exercise caution in dealing in the H Shares.



Further details of the A Share Issue will be disclosed by the Company in the
newspapers in the PRC when the A Share Issue materialises and, in accordance
with the Listing Rules, relevant information will be disclosed by the Company in
the newspapers in Hong Kong concurrently.



The precise timing of the A Share Issue would depend on a number of factors.
Subject to obtaining the relevant approvals and market conditions, the Company
intends to proceed with the A Share Issue as soon as possible.



2.     CONSOLIDATED FINANCIAL INFORMATION PREPARED UNDER PRC GAAP FOR THE
RELEVANT PERIODS AND RECONCILIATION OF NET PROFIT/NET ASSETS OF THE GROUP
PREPARED UNDER PRC GAAP TO THE NET PROFIT/NET ASSETS ATTRIBUTABLE TO EQUITY
HOLDERS OF THE COMPANY PREPARED UNDER IFRS



As part of the submission that the Company has made to the CSRC applying for
approval for the A Share Issue, a draft of the A Share Prospectus was also
submitted to the CSRC which contains consolidated financial information of the
Group for the Relevant Periods prepared under PRC GAAP. The A Share Prospectus
has been available for review by the investing public on CSRC's website since
the late afternoon of 21 July 2006.



To enable shareholders and investors to better understand the material
differences between the consolidated financial information of the Group for the
Relevant Periods prepared under IFRS (the basis on which the figures in the
accountants' report, and the figures in the consolidated financial statements
incorporated in the Company's published annual reports for the years ended 31
December 2004 and 2005 were prepared) and those prepared under PRC GAAP, the
consolidated financial information of the Group for the Relevant Periods
prepared under PRC GAAP and a reconciliation of the Group's Net Profit/Net
Assets, each attributable to equity holders of the Company prepared under IFRS
and PRC GAAP are set out as follows.



Consolidated Net Profit of the Group for the Relevant Periods as of 31 December
2004 and 2005 prepared under PRC GAAP


                                                    For the year ended/as of 31 December
                                                       2005                 2004                 2003
                                                        RMB                  RMB                  RMB

Revenue from principal operations            40,081,238,004       34,845,699,600       24,446,735,653
Less:CAAC Infrastructure
Development Fund                                          -                    -          247,177,609

Net revenue                                  40,081,238,004       34,845,699,600       24,199,558,044
Less:Cost of principal operations            32,014,850,658       26,016,601,301       19,175,577,433
Business tax and surcharges                     971,425,138          861,075,289          271,594,997

Profit from principal operations              7,094,962,208        7,968,023,010        4,752,385,614
Add:Profit from other operations                222,005,075           92,810,278          345,030,489
Less:Selling expenses                         2,232,450,843        1,813,692,714        1,446,320,857
Administrative expenses                       1,853,179,616        1,744,115,889        1,234,270,169
Financial expenses                              840,048,430        1,806,323,386        2,479,073,187

Operating profit/(loss)                       2,391,288,394        2,696,701,299         (62,248,110)
Add:Non-operating income                        146,121,832          117,864,650           61,652,216
Subsidy income                                   52,784,421          112,333,024           70,723,364
Investment income                                69,538,653          426,444,967          124,962,198
Less:Non-operating expenses                     101,161,523          130,341,054           35,111,953

Profit before income tax                      2,558,571,777        3,223,002,886          159,977,715
Less:Income tax                                 642,353,985          381,069,423           20,065,489
Minority interests                              206,930,837          280,992,846         (75,517,197)


Net profit for the year1                      1,709,286,955        2,560,940,617          215,429,423




1.      Net profit for the year as used by the Group under PRC GAAP is
comparable to net profit of the Group attributable to equity holders of the
Company under IFRS.



Consolidated Net Assets of the Group as of 31 December 2004 and 2005 prepared
under PRC GAAP


Total assets                                                 69,061,959,812              67,846,183,680
Total liabilities                                            46,450,167,333              48,174,419,724
Minority interests                                            2,771,770,238               2,658,067,993
Net assets attributable to equity
  holders of the Company                                     19,840,022,241              17,013,695,963



Reconciliation of the financial statements of the Group prepared under PRC GAAP
and IFRS



Net profit of the Group attributable to equity holders of the Company


                                                           For the year ended 31 December
                                                     2005                      2004               2003
                                      Notes                  RMB                RMB                RMB

According to the financial
statements
  prepared under PRC GAAP                          1,709,286,955      2,560,940,617        215,429,423
Deferred taxes                         (i)         (277,713,317)      (607,823,621)       (33,846,798)
Dilution gains on investments         (ii)                     -        410,136,740                 -
Impact of difference in cost of
fixed
  assets on depreciation              (iii)        (164,391,052)      (172,263,978)      (173,157,510)
Depreciation and amortisation
arising
  from the revaluation of assets      (iv)           535,663,228        200,617,456                  -
Amortisation of equity investment      (v)            44,614,415         45,961,035         45,961,035
differences arising from the
investments in Hong Kong Dragon
Airlines Limited and Jardine
Airport Services Limited
Amortisation of equity investment
  differences arising from other      (vi)            35,651,996          8,947,960                  -
investments
Supplementary pension benefits        (vii)                    -         39,135,890         53,928,000
payments
Provision for early retirement
  benefits obligations               (viii)            6,046,599          3,409,230       (15,271,937)
Gain/(loss) on financial              (ix)           125,867,987       (28,000,000)         69,000,000
instruments
Adjustment for difference in
exchange
  gain recognised                      (x)                     -       (17,525,813)                  -
Adjustment for government grants      (xi)             6,417,376       (13,943,074)       (15,072,819)
Net profit of BJ Catering and SW      (xii)                    -          9,205,000         18,994,673
Catering
Adjustment for sharing of profits/
(losses)
  of associates                      (xiii)           53,409,088        (7,311,406)         33,291,074
Adjustment for capitalisation of
major
  overhaul of aircraft and engines    (xiv)          311,058,311                  -                  -
Others                                                20,342,633       (45,521,867)       (39,651,078)


According to the financial
statements
  prepared under IFRS                         2,406,254,219      2,385,964,169      159,604,063




Net assets of the Group attributable to equity holders of the Company


                                                                          As at 31 December
                                                                              2005                2004
                                                      Notes                    RMB                 RMB

According to the financial
  statements prepared under
  PRC GAAP                                                          19,840,022,241      17,013,695,963
Deferred taxes                                         (i)             498,371,108         776,084,425
Difference in net book value
  of fixed assets                                     (iii)          1,052,573,801       1,216,964,853
Impact of revaluation surplus
  on net assets as at year end                        (iv)         (1,910,152,700)     (2,445,815,928)
Equity investment differences and its
  amortization arising from
  the investments in Hong Kong
  Dragon Airlines Limited and
  Jardine Airport Services Limited                     (v)             737,070,707         692,456,292
Provision for early retirement
  benefits obligations                               (viii)          (189,141,437)       (195,188,036)
Difference on net asset value of
  financial instruments                               (ix)             125,867,987                   -
Adjustment for difference in exchange
  gain recognised                                      (x)                      -                   -
Adjustment for government grants                      (xi)           (416,154,898)       (422,572,274)
Adjustment for net asset value of
  catering companies                                  (xii)                      -       (165,582,661)
Adjustment for sharing of net asset
  value of associates                                (xiii)            122,558,451          69,149,363
Adjustment for capitalisation of major
  overhaul of aircraft and engines                    (xiv)            311,058,311                   -
Others                                                                (79,832,747)           9,063,283


According to the financial statements
  prepared under IFRS                                               20,092,240,824      16,548,255,280




Notes:



i.       In accordance with IFRS, deferred taxes should be recorded. In
accordance with PRC GAAP, the Company records corporate income tax when it is
payable. Hence, no deferred taxes are recognised in the financial statements
prepared under PRC GAAP.



ii.       In accordance with PRC GAAP, for the purpose of establishing a company
together with other investors, the valuation surplus of the assets contributed
to that company as capital contribution should be recorded as capital reserve.
In accordance with IFRS, such surplus should be recognised in the income
statement. Hence, the Group recorded a dilution gain of RMB330,221,877 on
investment in Air China Cargo Co., Ltd. for the year ended 31 December 2004.



         In addition, in accordance with the basis of preparation of financial
statements under IFRS (note xii below), BJ Catering and SW Catering are
accounted for as directly-held joint ventures of the Company up to November 2004
whereby the Company transferred the equity interests in BJ Catering and SW
Catering to a wholly-owned subsidiary of China National Aviation Company
Limited, a subsidiary of the Company. Thereafter, BJ Catering and SW Catering
become indirect joint ventures of the Company and this resulted in a dilution
gain of RMB79,914,863. However, in accordance with the basis of preparation of
financial statements under PRC GAAP, the acquisitions of shareholdings in BJ
Catering and SW Catering by cash under acquisition method were completed in
November 2004. Hence, no dilution gain was recognised in the financial
statements prepared under PRC GAAP.



iii.      The difference in the original cost of fixed assets is mainly due to
the fact that fixed assets, denominated in foreign currency, acquired before 1
January 1994 were translated to RMB at the exchange rate required by the
government (i.e. the government-regulated official rate at that time) under PRC
GAAP. In accordance with IFRS, swap centre rate obtained from the PRC foreign
exchange swap centre at the date of purchase of the aforesaid fixed assets was
used to translate the fixed asset amount. This resulted in a difference in the
original cost of the fixed assets recorded in the financial statements prepared
under PRC GAAP and the financial statements prepared under IFRS.



iv.      In accordance with the accounting policy established under IFRS, assets
should be recorded at historical cost. Hence, the revaluation surplus and its
amortisation recorded under PRC GAAP should be reversed in the financial
statements prepared under IFRS.



v.       The amortisation of equity investment differences arising from the
investments in Hong Kong Dragon Airlines Limited and Jardine Airport Services
Limited recognised under PRC GAAP should be reversed under IFRS.



vi.      The amortisation of equity investment differences arising from the
acquisitions of the shareholdings in three catering companies, Shandong Aviation
Group Corporation and Shandong Airlines Co., Ltd. should be reversed under IFRS.



vii.     Upon incorporation of the Company, the Company's employees are no
longer entitled to any supplementary pension benefits. Hence, prior to the
incorporation of the Company, the cash payments of all supplementary pension
benefits (the amount in excess of the defined contribution pension benefits paid
to the social insurance authorities) made to employees should be reversed in the
financial statements prepared under IFRS.



viii.    In accordance with IFRS, early retirement benefits obligations should
be fully provided and recognised immediately as and when the employees apply for
early retirement. There is no such requirement under PRC GAAP.



ix.      In accordance with IFRS, the financial assets and financial liabilities
arising from fuel derivatives contracts should be measured and recorded at fair
values on the balance sheet date. There is no such requirement under PRC GAAP.



x.      In accordance with IFRS, the exchange gain arising from the unification
of PRC exchange rates on 1 January 1994 was recognised by Aircraft Maintenance
and Engineering Corporation, Beijing in its income statement. In accordance with
the regulation under PRC GAAP, such exchange gain could be carried on the
balance sheet as a long term payable and recognised as a gain upon the
liquidation of the company. The joint venture agreement of Aircraft Maintenance
and Engineering Corporation, Beijing was matured in 2004 and hence Aircraft
Maintenance and Engineering Corporation, Beijing recognised the exchange gain in
its income statement in 2004 prior to the extension of the joint venture
agreement in 2004 as if the original joint venture agreement was finished.



xi.      In accordance with IFRS, government grant of assets and subsidies
should be recorded as government grant receivable or recognised as assets. In
addition, deferred income should be recognised on the balance sheet and income
should be recognised in the income statement on a straight-line basis. In
accordance with PRC GAAP, upon the receipt of government grant of assets, assets
and capital reserve should be recorded on the balance sheet. Cash subsidy income
received from the government should be recorded in cash and bank balance on the
balance sheet and recognised as income in the income statement when received.



xii.     In accordance with the basis of preparation of financial statements
under IFRS, as the shareholdings of BJ Catering and SW Catering were ultimately
owned by China National Aviation Holding Company, the shareholdings in BJ
Catering and SW Catering were considered to have been held by the Company from 1
January 2003 in the financial statements prepared under IFRS.



         In accordance with PRC GAAP, the Company only completed the
acquisitions of the shareholdings in BJ Catering and SW Catering by cash in
November 2004. Hence, the shareholdings in BJ Catering and SW Catering were
considered to have been held from November 2004 in the preparation of the
financial statements under PRC GAAP.



xiii.    Adjustments were made to the financial statements of associates in
accordance with IFRS.



xiv.    In accordance with IAS 16 (amended 2004), major overhaul of aircraft and
engines should be capitalised and depreciated.



3.    Future Significant Capital Expenditure Plan



The following table sets out the current projected capital expenditure plan of
the Company from 2006 to 2008:


                                                                                         In RMB million
                                              2006               2007               2008              Total

Fleet Expansion and
  Enhancement                                9,356              9,739             12,589             31,684
Others                                       2,401              1,511              1,321              5,233
Total                                       11,757             11,250             13,910             36,917



The Company currently projects that it will incur capital expenditure of
approximately RMB36,900,000,000 before the end of 2008, of which approximately
RMB31,700,000,000 will be used for the fleet expansion and enhancement of the
Company.



DEFINITIONS



In this announcement, unless the context otherwise requires, the following terms
shall have the following meanings:


'A Share Issue'                          the proposed issue of not more than 2.7 billion A Shares by Company
                                         to qualified institutional investors as approved by CSRC and
                                         investors including domestic individuals, legal persons and etc. who
                                         have opened accounts at the Shanghai Stock Exchange (except those
                                         prohibited from subscribing for the shares by the applicable laws and
                                         regulations at the time of the A Shares Issue), which are proposed to
                                         be listed on the Shanghai Stock Exchange

'A Shares'                               the Domestic Shares which are proposed to be allotted and issued by
                                         the Company to qualified institutional investors as approved by CSRC
                                         and investors including domestic individuals, legal persons and etc.
                                         who have opened accounts at the Shanghai Stock Exchange (except those
                                         prohibited from subscribing for the shares by the applicable laws and
                                         regulations at the time of the A Shares Issue) and listed on the
                                         Shanghai Stock Exchange

'BJ Catering'                            Beijing Air Catering Co., Ltd.

'Company'                                Air China Limited, a company incorporated in the People's Republic of
                                         China with primary listing on The Stock Exchange of Hong Kong Limited
                                         and secondary listing on the Official List of the UK Listing
                                         Authority

'CSRC'                                   China Securities Regulatory Commission 

'Director(s)'                            the director(s) of the Company

'Group'                                  the Company, its subsidiaries and joint ventures

'H Shares'                               overseas listed foreign shares of RMB1.00 each in the share capital
                                         of the Company which are listed on the Hong Kong Stock Exchange and
                                         traded in Hong Kong dollars and admitted to the Official List of the
                                         UK Listing Authority and are admitted for trading on the market for
                                         listed securities of the London Stock Exchange

'Hong Kong Stock Exchange'               The Stock Exchange of Hong Kong Limited

'IFRS'                                   International Financial Reporting Standards

'Listing Rules'                          The Rules Governing the Listing of Securities on The Stock Exchange
                                         of Hong Kong Limited

'PRC'                                    the People's Republic of China, excluding, for the purpose of this
                                         circular only, Hong Kong, Macau and Taiwan

'PRC GAAP'                               Accounting principles and the financial regulations applicable in the
                                         PRC

'Price Consultation Period'              the period commencing from the date the Company makes the preliminary
                                         offer document relating to the A Share Issue
                                         publicly available and ending on the date on which the book building
                                         process with the institutional investors is completed

'Relevant Periods'                       means the years ended 31 December 2003, 2004 and 2005

'RMB'                                    Renminbi, the lawful currency of the PRC

'Shareholders'                           holders of Domestic Shares, Non-H Foreign Shares and H Shares

'SW Catering'                            Southwest Air Catering Company Limited



                             By order of the Board

                               Air China Limited

                          Zheng Baoan       Li Man Kit

                           Joint Company Secretaries



Beijing, 24 July 2006



As at the date of this announcement, the Directors of the Company are Messrs Li
Jiaxiang, Kong Dong, Wang Shixiang, Yao Weiting, Christopher Dale Pratt, Ma
Xulun, Cai Jianjiang, Fan Cheng, Hu Hung Lick, Henry*, Wu Zhipan*, Zhang Ke* and
Jia Kang*.



*  Independent non-executive Director of the Company


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