MAJOR TRANSACTION

3 Jul 2006 07:01

Air China Ld03 July 2006 THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION If you are in any doubt as to any aspect of this circular, you shouldconsult a stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser. If you have sold or transferred all your shares of Air China Limited,you should at once hand this circular and the accompanying form of proxy and the notice of attendance to the purchaser or transfereeor to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee. The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, makes no representation as toits accuracy or completeness and expressly disclaims any liabilitywhatsoever for any loss however arising from or in reliance upon the whole or any part of the contents of this circular. AIR CHINA LIMITED (a joint stock limited company incorporated in the People's Republic of China with limited liability) (Stock Code: 753) (1) MAJOR TRANSACTION (i) ACQUISITION OF CATHAY SHARES (ii) ACQUISITION OF CATHAY SHARES BY CNAC LIMITED (2) CONNECTED TRANSACTIONS (i) ACQUISITION OF CATHAY SHARES (ii) ISSUE OF AIR CHINA H SHARES (3) CONNECTED TRANSACTIONS (i) SALE OF DRAGONAIR SHARES BY CNAC LIMITED (ii) ACQUISITION OF CATHAY SHARES BY CNAC LIMITED Exclusive Financial Advisers to Air China Limited and China National Aviation Company Limited China International Capital Merrill LynchCorporation (Hong Kong) Limited (Asia Pacific) Limited Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders BNP PARIBAS PEREGRINE It is important to note that the purpose of distributing this circular is to provide the shareholders of the Company with information, inter alia, on the proposed issue of H Shares by the Company, so that the shareholders of the Company may make an informed decision on voting in respect of certain resolution(s) to be tabled at the EGM of the Company. This circular does not constitute, or form part of, an offer or invitation, or solicitation or inducement of an offer, to subscribe for or purchase any of the H Shares or other securities of the Company, nor is this circular calculated to invite offers for any shares orother securities of the Company. A letter from the Board is set out on pages 6 to 25 of thiscircular. A letter from the Independent Board Committee, containing its advice to the Independent Shareholders of the Company, is set out on pages 26 to 27 of this circular. A letter from BNP, the independent financial adviser, containing its advice to the Independent Board Committee and the Independent Shareholders of the Company is set out on pages 28 to 42 of this circular. Notices convening Foreign Shareholders Class Meeting (as appropriate) of the Company to be held on 22 August 2006 at 2:30 p.m. (or immediately after the conclusion or adjournmentof the EGM), and the EGM on 22 August 2006 at 2:00 p.m. at The Conference Room, Air China Building, 36 Xiaoyun Road, Chaoyang District, Beijing, PRC, together with the notice of attendance and form of proxy are enclosed herein. Whether or not you intend to attend the Class Meetings or the EGM, you are requested to complete and return the form of proxy in accordance with the instruction printed thereon, as soon as possible in any event not later than 24 hours before the time appointed for the meetings or any adjourned meetingsthereof. Completion and return of the form(s) of proxy will not preclude you from attending and voting in person at the meetings or at any adjourned meetings should you so wish. 3 July 2006 CONTENTS DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . 1LETTER FROM THE BOARD1. Introduction . . . . . . . . . . . . . . . . . . 62. Description of the Transaction . . . . . . . . . 73. Other relevant information in relation to the Transaction . . . . . . . .. . . . . 144. Regulatory implications of the Listing Rules . .165. Reasons for and benefits of the Transaction and related Operating Agreement . . . . . . . . 196. Shareholders approval . . . . . . . . . . . . . 227. EGM and Class Meetings . . . . . . . . . . . . .248. Recommendation of the Board . . . . . . . . . . 249. Additional information . . . . . . . . . . . . 25LETTER FROM THE INDEPENDENT BOARD COMMITTEE . . . . . 26LETTER FROM THE INDEPENDENT FINANCIAL ADVISER . . . . 28APPENDIX I - FINANCIAL INFORMATION OF THE GROUP . 43I. Summary of Consolidated Income Statements and Consolidated Balance Sheets of the Group . . . 43II. Consolidated Financial Statements of the Group for the Year Ended 31 December 2005 . . . . . . 46III. Indebtedness . . . . . . . . . . . . . . . . . 121IV. Unaudited Pro Forma Statement of Financial Position . . . . . . . . . .. . . . 124APPENDIX II - FINANCIAL INFORMATION OF CATHAY . . . . 132APPENDIX III - GENERAL INFORMATION . . . . .194NOTICE OF FOREIGN SHAREHOLDERS CLASS MEETING . . . . .207NOTICE OF EXTRAORDINARY GENERAL MEETING . . . . . . . 209 To view the full text of this press release, paste the following link into your web browser: http://www.rns-pdf.londonstockexchange.com/rns/4349f_-2006-7-3.pdf This information is provided by RNS The company news service from the London Stock Exchange