• China National Aviation Holding Company (CNAHC) Domestic Shares in issue 53.65%

• China National Aviation Corporation (Group) Limited (CNACG) Non-H Foreign Shares in issue 15.35%

Company Subsidiaries:

• Air China Group Import and Export Trading Co. 100%: Import and export trading
• Zhejiang Air Services Co., Ltd. 100% :Provision of airline catering and shuttle bus services
• Beijing Aviation Passenger Service Corporation 100% :Provision of passenger transportation services
• China National Aviation Air Passenger and Cargo Services Agency Company 100% :Provision of travel agency and freight forwarding services
• Sichuan Southwest Aviation Information Service Centre 100% :Provision of information system consultancy services
• Beijing Air China Engineering Technology Development Centre 100% :Provision of engineering consultancy services
• Beijing Civil Aviation Blue Sky Air Travel Services Company100% :Provision of travel agency services
• Sichuan Southwest Air Equipment and Supplies Centre 100% :Provision of wholesale and retail services

The Group is the national flag carrier of China and a leading provider of air passenger, air cargo and airline-related services in China. The Group is primarily based in Beijing, China¡¦s capital and a major hub for domestic and international air transportation. It has the largest share of air transportation business (as measured by total traffic volume) at Beijing Capital International Airport, China¡¦s busiest airport. With the operational centre in Beijing and extensive route network serving major Chinese cities and international destinations, it believes it is well positioned to capture the growing demand for airline services in greater China.

It believes that it operates a well-balanced route network, with complementary domestic and international routes providing the passengers with convenient direct flights and transfer services. The investments in Air Macau, Dragonair and Shenzhen Airlines allow it to benefit from growth in other aviation markets. The Group has formed business partnerships with numerous leading international and regional airlines, which it believes will assist it in broadening the service offerings, expanding the international customer base and providing additional customised services.

The Group provides airline-related services, including aircraft maintenance, repair and overhaul services (also known as MRO), ground services and in-flight catering services. It provides these airline-related services in Beijing, Chengdu, Hong Kong and other locations through its own business units and joint ventures with prominent companies, including Lufthansa and Hong Kong Jardine Matheson Ltd. As of June 30, 2004, the Group operated a fleet of 136 aircraft, serving 69 domestic and 34 international and regional destinations.

The Group believe it has the following competitive strengths:

• market leader in Beijing hub;

The Group is the leading airline serving Beijing Capital International Airport with a 42.2% market share of total passenger throughput in 2003.

• well-balanced and complementary route network;

The Group has an extensive route network that is well-balanced and mutually complementary between domestic and international routes.

• high-quality customer base;

Approximately 71% of the passengers on the flights are business travellers, according to a survey conducted by the China Civil Aviation Association in 2003.

• strong brand recognition;
• valuable business partnerships;

The Group has entered into codeshare agreements or frequent flyer reciprocity arrangements with leading global airlines, including Lufthansa, United Airlines, All Nippon Airways, Scandinavian Airlines System and Asiana Airlines.

• operating efficiencies resulting from business integration

It rationalised the network and fleet, centralised the procurement and inventory management of aircraft components, integrated maintenance resources and streamlined sales channels.

• leading position in China¡¦s air cargo market.

In 2003, the Group was the leading provider of air cargo services in China as measured by RFTKs, with a 38.1% market share among Chinese airlines.

• The net proceeds from the Global Offering and the future operating cash flows may not be sufficient to cover its planned capital expenditures, and the Group may require significant additional external financing, which may not be available on acceptable terms or at all.
• Its high level of indebtedness and other fixed payment obligations could adversely affect the group's liquidity and profitability.
• It may expand its business through acquisitions of airlines or airline-related businesses, which exposes it to uncertainties and integration risks related to future acquisitions.
• The Group is controlled by CNAHC, a state-owned enterprise, whose interests may conflict with those of the holders of the H Shares.
• Future changes in interest rates may adversely affect the profitability.
• The Group required to make a distribution to CNAHC and CNACG, which could be substantial. Such distribution should not be treated as indicative of the future dividend policy nor can the Group provide any assurances on the amount of future dividends, if any.

The Group aims to become the airline of choice in China and one of the world¡¦s most competitive airlines by enhancing its existing strengths in providing passenger and cargo services, and by implementing the following strategies:

• strengthen its Beijing hub and expand its route network;
• control cost and improve efficiency;
• enhance the effectiveness of its sales and marketing efforts;
• improve its service quality;
• strengthen its leadership in China¡¦s air cargo market; and
• improve its employee evaluation system.

The group estimates that the net proceeds to the Company from the Global Offering, after deducting underwriting discounts, commissions and estimated offering expenses payable, will be approximately HK$6,522 million before any exercise of the Over-allotment Option, assuming an Offer Price of HK$2.725 per H Share, being the midpoint of the price range of 2.35-3.10.