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<TITLE>CHINA SOUTHERN AIRLINES 20-F</TITLE>
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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 1pt solid black; font-size: 1pt">&nbsp;</DIV>




<DIV align="center" style="font-size: 14pt; margin-top: 12pt"><B>UNITED STATES SECURITIES AND EXCHANGE COMMISSION</B>
</DIV>

<DIV align="center" style="font-size: 12pt"><B>WASHINGTON, D.C. 20549</B>
</DIV>

<DIV align="center" style="font-size: 18pt; margin-top: 12pt"><B>FORM 20-F</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(Mark One)</B>
</DIV>

<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR style="font-size: 6pt">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="center"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)&nbsp;OF THE SECURITIES EXCHANGE ACT
OF 1934</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>OR</B></DIV>

<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR style="font-size: 6pt">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="center"><FONT face="Wingdings">&#254;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 12%"><B><B>For the fiscal year ended December&nbsp;31, 2005</B>
</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>OR</B></DIV>

<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR style="font-size: 6pt">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="center"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>OR</B></DIV>

<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR style="font-size: 6pt">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="center"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left:12%"><B>Date of event requiring this shell company report.....................</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 12%"><B><B>For the transition period from <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> to <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U></B>
</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>Commission
file number 1-14660</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><IMG src="h00571h0057100.gif" alt="(CHINESE CHARACTERS)">
</DIV>

<DIV align="center" style="font-size: 10pt"><DIV style="border-bottom: 1px solid #000000; font-size: 1px">&nbsp;</DIV></DIV>


<DIV align="center" style="font-size: 10pt">(Exact name of Registrant as specified in its charter)</DIV>


<DIV align="center" style="font-size: 20pt; margin-top: 12pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED</B></DIV>

<DIV align="center" style="font-size: 10pt"><DIV style="border-bottom: 1px solid #000000; font-size: 1px">&nbsp;</DIV></DIV>


<DIV align="center" style="font-size: 10pt">(Translation of Registrant&#146;s name into English)</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>THE PEOPLE&#146;S REPUBLIC OF CHINA</B></DIV>

<DIV align="center" style="font-size: 10pt"><DIV style="border-bottom: 1px solid #000000; font-size: 1px">&nbsp;</DIV></DIV>


<DIV align="center" style="font-size: 10pt">(Jurisdiction of incorporation or organization)</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B><I>278 JI CHANG ROAD<BR>
GUANGZHOU<BR>
PEOPLE&#146;S REPUBLIC OF CHINA, 510405</I></B></DIV>

<DIV align="center" style="font-size: 10pt"><DIV style="border-bottom: 1px solid #000000; font-size: 1px">&nbsp;</DIV></DIV>


<DIV align="center" style="font-size: 10pt">(Address of principal executive offices)</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Securities
registered or to be registered pursuant to Section 12(b) of the Act.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="47%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="47%">&nbsp;</TD>
</TR>
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<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top">Title of each class
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Name of each exchange on which registered</TD>
</TR>
<TR style="font-size: 1px">
    <TD align="center" valign="top" style="border-top: 1px solid #000000">&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><I>Ordinary H Shares of par value</I>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><I>New York Stock Exchange, Inc.</I></TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><I>RMB 1.00 per share</I></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><I>represented by American</I></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><I>Depositary Shares</I></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Securities
registered or to be registered pursuant to Section 12(g) of the Act.</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt">None</DIV>

<DIV align="center" style="font-size: 10pt"><DIV style="border-bottom: 1px solid #000000; font-size: 1px">&nbsp;</DIV></DIV>


<DIV align="center" style="font-size: 10pt">(Title of Class)</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><DIV style="border-bottom: 1px solid #000000; font-size: 1px">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 10pt">(Title of Class)</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="60%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="16%">&nbsp;</TD>
</TR>
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<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">SEC 1852 (05-06)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><B>Persons who respond to the collection of information contained in
this form are not required to
respond unless the form displays a currently valid OMB control number.</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Securities
for which there is a reporting obligation pursuant to Section 15(d) of the Act.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt">None</DIV>

<DIV align="center" style="font-size: 10pt"><DIV style="border-bottom: 1px solid #000000; font-size: 1px">&nbsp;</DIV></DIV>


<DIV align="center" style="font-size: 10pt">(Title of Class)</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate the number of outstanding shares of each of the issuer&#146;s classes of capital or common
stock as of the close of the period covered by the annual report. 2,200,000,000 ordinary Domestic
Shares of par value RMB 1.00 per share and 1,174,178,000 ordinary H
Shares of par value RMB 1.00 per
share and 1,000,000 ordinary A Shares of par value RMB 1.00 per share were issued and outstanding as
of December&nbsp;31, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule&nbsp;405 of the Securities Act.
</DIV>


<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><FONT face="Wingdings">&#111;</FONT>
Yes <FONT face="Wingdings">&#254;</FONT> No
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">If this report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section&nbsp;13 or 15(d) of the
Securities Exchange Act of 1934.
</DIV>


<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><FONT face="Wingdings">&#111;</FONT>
Yes <FONT face="Wingdings">&#254;</FONT> No
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Note &#151; Checking the box above will not relieve any registrant required to file reports
pursuant to Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934 from their obligations
under those Sections.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark whether the registrant (1)&nbsp;has filed all reports required to be filed
by Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12&nbsp;months (or
for such shorter period that the Registrant was required to file such
reports), and (2)&nbsp;has been
subject to such filing requirements for the past 90&nbsp;days.
</DIV>


<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><FONT face="Wingdings">&#254;</FONT> Yes <FONT face="Wingdings">&#111;</FONT> No
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a
non-accelerated filer. See definition of &#147;accelerated filer and large accelerated filer&#148; in Rule
12b-2 of the Exchange Act. (Check one):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="33%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="33%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="32%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Large accelerated filer <FONT face="Wingdings">&#111;</FONT>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Accelerated filer <FONT face="Wingdings">&#254;</FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">Non-accelerated filer <FONT face="Wingdings">&#111;</FONT></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark which financial statement item the Registrant has elected to follow.
</DIV>


<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><FONT face="Wingdings">&#111;</FONT> Item&nbsp;17&nbsp;&nbsp;&nbsp; <FONT face="Wingdings">&#254;</FONT> Item&nbsp;18
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">If this is an annual report, indicate by check mark whether the registrant is a shell company
(as defined in Rule&nbsp;12b-2 of the Exchange Act).<BR>

<FONT face="Wingdings">&#111;</FONT> Yes <FONT face="Wingdings">&#254;</FONT> No
</DIV>


<DIV style="width: 100%; border-bottom: 1pt solid black; margin-top: 10pt; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>

<P align="center" style="font-size: 10pt">
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">







<DIV align="left">
<!-- TOC -->
</DIV>
<DIV align="left">
<A name="tocpage"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>TABLE OF CONTENTS</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>China Southern Airlines Company Limited</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Page</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#101">Forward-Looking Statements</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#102">Introductory Note</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#103">Glossary of Airline Industry Terms</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px"><A href="#104"><B>PART I</B></A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#105">Item&nbsp;1. Identity of Directors, Senior Management and Advisers</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#106">Item&nbsp;2. Offer Statistics and Expected Timetable</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#107">Item&nbsp;3. Key Information</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#108">Selected Financial Data</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#109">Capitalization and Indebtedness</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#110">Reasons for the Offer and Use of Proceeds</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#111">Risk Factors</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#112">Item&nbsp;4. Information on the Company</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#113">History and Development of the Company</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#114">CNA/XJA Acquisitions</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#115">Business Overview</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#116">Organizational Structure</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#117">Property, Plant and Equipment</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#118">Item&nbsp;5. Operating and Financial Review and Prospects</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#119">Critical Accounting Policies</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#120">Overview</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#121">Certain Financial Information and Operating Data by Geographic Region</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#122">Operating Results</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#123">Additional Information under U.S. GAAP</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#124">Liquidity and Capital Resources</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#125">Contractual Obligations and Commercial Commitments</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#126">Item&nbsp;6. Directors, Senior Management and Employees</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#127">Directors and Senior Management</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#128">Compensation</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#129">Board Practices</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#130">Remuneration Committee</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#131">Employees</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#132">Share Ownership</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#133">Item&nbsp;7. Major Shareholders and Related Party Transactions</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#134">Major Shareholders</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#135">Related Party Transactions</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#136">Interests of Experts and Counsel</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#137">Item&nbsp;8. Financial Information</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#138">Consolidated Statements and Other Financial Information</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#139">Significant Changes</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#140">Dividend Information</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#141">Item&nbsp;9. The Offer and Listing</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#142">Offer and Listing Details</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#143">Plan of Distribution</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#144">Markets</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#145">Selling Shareholders</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#146">Dilution</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#147">Expenses of the Issue</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#148">Item&nbsp;10. Additional Information</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#149">Share Capital</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#150">Memorandum and Articles of Association</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#151">Material Contracts</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">66</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#152">Exchange Controls</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#153">Taxation</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">2
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Page</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#154">Dividends and Paying Agents</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">68</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#155">Statement by Experts</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">68</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#156">Documents on Display</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">68</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#157">Subsidiary Information</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">68</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#158">Comparison of New York Stock Exchange Corporate Governance Rules and China
Corporate Governance Rules for Listed Companies</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">68</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#159">Item&nbsp;11. Quantitative and Qualitative Disclosures About Market Risk</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#160">Item&nbsp;12. Description of Securities other than Equity Securities</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">70</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px"><A href="#161"><B>PART II</B></A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#162">Item&nbsp;13. Defaults, Dividend Arrearages and Delinquencies</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">70</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#163">Item&nbsp;14. Material Modifications to the Rights of Security Holders and Use of Proceeds</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">70</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#164">Use of Proceeds</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px"><A href="#165"><B>PART III</B></A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#166">Item&nbsp;15. Controls and Procedures</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">71</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#167">Item&nbsp;16. &#091;Reserved&#093;</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">72</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#168">Item&nbsp;16 A. Audit Committee Financial Expert</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">73</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#169">Item&nbsp;16 B. Code of Ethics</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">73</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#170">Item&nbsp;16 C. Principal Accounting Fees and Services</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">73</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#171">Item&nbsp;16
D. Exemptions from the Listing Standards for Audit Committee</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#172">Item&nbsp;16 E. Purchases of Equity Securities By the Issuer and Affiliated Purchasers</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px"><A href="#173"><B>PART IV</B></A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#174">Item&nbsp;17. Financial Statements</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#175">Item&nbsp;18. Financial Statements</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#176">Index to Financial Statements</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#177">Item&nbsp;19. Exhibits</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#178">Signatures</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00571exv4w1.htm">EX-4.1 FORM OF DIRECTOR'S SERVICE AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00571exv4w2.htm">EX-4.2 FORM OF NON-EXECUTIVE DIRECTOR'S SERVICE AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00571exv8.htm">EX-8 SUBSIDIARIES OF THE COMPANY</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00571exv12w1.htm">EX-12.1 SECTION 302 CERTIFICATION OF CHAIRMAN</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00571exv12w2.htm">EX-12.2 SECTION 302 CERTIFICATION OF PRESIDENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00571exv12w3.htm">EX-12.3 SECTION 302 CERTIFICATION OF CHIEF FINANCIAL OFFICER</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00571exv13w1.htm">EX-13.1 SECTION 906 CERTIFICATION OF CHAIRMAN</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00571exv13w2.htm">EX-13.2 SECTION 906 CERTIFICATION OF PRESIDENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00571exv13w3.htm">EX-13.3 SECTION 906 CERTIFICATION OF CHIEF FINANCIAL OFFICER</A></FONT></TD></TR>
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">3
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<!-- /TOC -->
</DIV>
<DIV align="left">
<A name="101"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>FORWARD-LOOKING STATEMENTS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">This Annual Report contains forward-looking statements. These statements appear in a number of
different places in this Annual Report. A forward looking statement is usually identified by the
use in this Annual Report of certain terminology such as &#147;estimates&#148;, &#147;projects&#148;, &#147;expects&#148;,
&#147;intends&#148;, &#147;believes&#148;, &#147;plans&#148;, &#147;anticipates&#148;, or their negatives or other comparable words. Also
look for discussions of strategy that involve risks and uncertainties. Forward-looking statements
include statements regarding the outlook for the Company&#146;s future operations, forecasts of future
costs and expenditures, evaluation of market conditions, the outcome of legal proceedings (if any),
the adequacy of reserves, or other business plans. You are cautioned that such forward-looking
statements are not guarantees and involve risks, assumptions and uncertainties. The Company&#146;s
actual results may differ materially from those in the forward-looking statements due to risks
facing the Company or due to actual facts differing from the assumptions underlying those
forward-looking statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Some of these risks and assumptions, in addition to those identified under Item&nbsp;3, &#147;Key Information
&#150; Risk Factors,&#148; include:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>general economic and business conditions, including changes in interest rates;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>prices and other economic conditions;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>natural phenomena;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>actions by government authorities, including changes in government regulation;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the Company&#146;s relationship with CSAHC;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>uncertainties associated with legal proceedings;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>technological development;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>future decisions by management in response to changing conditions;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the Company&#146;s ability to execute prospective business plans; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>misjudgments in the course of preparing forward-looking statements.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company advises you that these cautionary remarks expressly qualify in their entirety all
forward-looking statements attributable to the Company, the Group, and persons acting on their
behalf.
</DIV>

<DIV align="left">
<A name="102"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>INTRODUCTORY NOTE</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In this Annual Report, unless the context indicates otherwise, the &#147;Company&#148; means China Southern
Airlines Company Limited, a joint stock company incorporated in China on March&nbsp;25, 1995, the
&#147;Group&#148; means the Company and its consolidated subsidiaries, and &#147;CSAHC&#148; means China Southern Air
Holding Company, the Company&#146;s parent company which holds a 50.3% controlling interest in the
Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">References to &#147;China&#148; or the &#147;PRC&#148; are to the People&#146;s Republic of China, excluding Hong Kong,
Macau and Taiwan. References to &#147;Renminbi&#148; or &#147;RMB&#148; are to the currency of China, references to
&#147;U.S. dollars&#148;, &#147;$&#148; or &#147;US$&#148; are to the currency of the United States of America (the &#147;U.S.&#148; or
&#147;United States&#148;), and reference to &#147;HK$&#148; is to the currency of Hong Kong. Reference to the &#147;Chinese
Government&#148; is to the national government of China. References to &#147;Hong Kong&#148; or &#147;Hong Kong SAR&#148;
are to the Hong Kong Special Administrative Region of the People&#146;s Republic of China. References to
&#147;Macau&#148; or &#147;Macau SAR&#148; are to the Macau Special Administrative Region of the People&#146;s Republic of
China.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company presents its consolidated financial statements in Renminbi. The consolidated financial
statements of the Company as of December&nbsp;31, 2004 and 2005 (the &#147;Financial Statements&#148;) have been
prepared in accordance with International Financial Reporting Standards (&#147;IFRS&#148;) promulgated by the
International Accounting Standards Board. IFRS includes International Accounting Standards (&#147;IAS&#148;)
and related interpretations. IFRS differs in certain significant respects from accounting
principles generally accepted in the United States of
</DIV>


<P align="center" style="font-size: 10pt">4
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">America (&#147;U.S. GAAP&#148;). Information relating to the nature and effect of such
differences is presented in Note 50 to the Financial Statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Solely for the convenience of the readers, this Annual Report contains translations of certain
Renminbi amounts into U.S. dollars at the rate of US$1.00 = RMB8.0694, which is the average of the
buying and selling rates as quoted by the People&#146;s Bank of China at the close of business on
December&nbsp;31, 2005. No representation is made that the Renminbi amounts or U.S. dollar amounts
included in this Annual Report could have been or could be converted into U.S. dollars or Renminbi,
as the case may be, at any particular rate or at all. Any discrepancies in the tables included
herein between the amounts listed and the totals are due to rounding.
</DIV>

<DIV align="left">
<A name="103"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>GLOSSARY OF AIRLINE INDUSTRY TERMS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In this Annual Report, unless the context indicates otherwise, the following terms shall have the
respective meanings set forth below.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="36%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="61%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><I>Capacity Measurements</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&#147;available seat kilometers&#148; or &#147;ASKs&#148;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">the number of seats made available for sale multiplied by the kilometers
flown</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&#147;available ton kilometers&#148; or &#147;ATKs&#148;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">the number of tons of capacity available for the transportation of revenue
load (passengers and cargo) multiplied by the kilometers flown</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><I>Traffic Measurements</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&#147;revenue passenger kilometers&#148; or &#147;RPKs&#148;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">the number of revenue passengers carried multiplied by the kilometers flown</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&#147;cargo ton kilometers&#148;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">the cargo load in tons multiplied by the kilometers flown</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&#147;revenue ton kilometers&#148; or &#147;RTKs&#148;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">the load (passenger and cargo) in tons multiplied by the kilometers flown</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><I>Yield Measurements</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&#147;passenger yield&#148;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">revenue from passenger operations divided by RPKs</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&#147;cargo yield&#148;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">revenue from cargo operations divided by cargo ton kilometers</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&#147;average yield&#148;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">revenue from airline operations (passenger and cargo) divided by RTKs</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&#147;ton&#148;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">a metric ton, equivalent to 2,204.6 pounds</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><I>Load Factors</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&#147;passenger load factor&#148;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">RPKs expressed as a percentage of ASKs</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&#147;overall load factor&#148;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">RTKs expressed as a percentage of ATKs</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&#147;breakeven load factor&#148;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">the load factor required to equate scheduled traffic revenue with
operating costs assuming that total operating surplus is attributable to
scheduled traffic operations</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><I>Utilization</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&#147;utilization rate&#148;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">the actual number of flight hours per aircraft per operating day</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><I>Equipment</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&#147;rotables&#148;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">aircraft parts that are ordinarily repaired and reused</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&#147;expendables&#148;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">aircraft parts that are ordinarily used up and replaced with new parts</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">5
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<A name="104"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PART I</B>
</DIV>

<DIV align="left">
<A name="105"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>
<DIV align="left">
<A name="106"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>
<DIV align="left">
<A name="107"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 3. KEY INFORMATION.</B>
</DIV>

<DIV align="left">
<A name="108"></A>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Selected Financial Data</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following tables present selected financial data of the Company as of and for each of the
years in the five-year period ended December&nbsp;31, 2005. The selected data of consolidated statements
of operations for each of the years in the three-year period ended December&nbsp;31, 2005 and
consolidated balance sheets as of December&nbsp;31, 2004 and 2005 have been derived from the
consolidated financial statements of the Company, including the related notes, included elsewhere
in this Annual Report. The selected IFRS data of consolidated statements of operations for the
years ended December&nbsp;31, 2001 and 2002 and IFRS consolidated balance sheets of December&nbsp;31, 2001,
2002 and 2003 are derived from the Company&#146;s audited consolidated financial statements that are not
included in this Annual Report.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The consolidated financial statements of the Company are prepared
and presented in accordance with IFRS.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With effect from January 1, 2005, in
order to comply with IAS1 and IAS27, the Group has changed its accounting policy relating to
the presentation of minority interests.  In prior years, minority interests at the balance sheet
date were presented separately from liabilities and equity in the consolidated balance sheet.
Minority interests in the results of the Group for the year were also separately presented in the
consolidated statements of operations as a deduction before arriving at the profit attributable to
shareholders (the equity shareholders of the Company). Under the new policy, minority interests
are presented as part of equity, separately from interests attributable to the equity shareholders
of the Company. Minority interests in the results of the Group for the period are presented on
the face of the consolidated statements of operations as an allocation of the total profit or
loss for the period between the minority interests and the equity shareholders of the Company.
These changes in presentation have been applied retrospectively with comparatives restated.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, with effect from January 1, 2005,
the Group has changed its presentation of shares of affiliated companies and jointly controlled
entities&#146; taxation in order to comply with IAS 1.  In prior
years, the Group&#146;s share of taxation
of affiliated companies and jointly controlled entities accounted for using the equity method
was included as part of the Group&#146;s income tax in the consolidated statements of operations.
In accordance with the implementation guidance in IAS 1, the Group has changed the presentation
and includes the share of taxation of affiliated companies and jointly controlled entities
accounted for using the equity method in the respective shares of profit or loss reported in
the consolidated statements of operations before arriving at the
Group&#146;s profit or loss before tax. These changes in presentation have been applied
retrospectively with comparatives restated.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under IFRS, the purchase method of accounting was applied to
account for the acquisition of the airline operations and certain related assets of China Northern
Airlines Company (&#147;CNA&#148;) and Xinjiang Airlines Company (&#147;XJA&#148;) (&#147;CNA/XJA Acquisitions&#148;) (details of
which are disclosed in &#147;Item&nbsp;4. Information on the Company &#151; History and Development of the
Company&#148;) such that at December&nbsp;31, 2004 only the acquired assets and liabilities are included inthe consolidated financial statements. The results of the acquired operations and their related
cash flows was included in the consolidated financial statements of the Group beginning January&nbsp;1,
2005. Under U.S. GAAP, such transaction is considered to be &#147;a combination of entities under common
control&#148;. A combination of entities under common control is accounted for in a manner similar to a
&#147;pooling-of-interests&#148;. Consequently, the assets and liabilities of CNA and XJA are reflected at
their U.S. GAAP carrying values and the U.S. GAAP consolidated financial statements are restated to
include the assets and liabilities of CNA and XJA, and their results of operations and cash flows
for all periods presented. See Note 50 to the consolidated financial statements for the nature and
effect of such differences and other significant differences related to the Group between IFRS and
U.S. GAAP as of December&nbsp;31, 2004 and 2005 and for each of the years in the three-year period ended
December&nbsp;31, 2005 and the condensed consolidated financial statements prepared and presented in
accordance with U.S. GAAP for the relevant periods. The following information should be read in
conjunction with, and is qualified in its entirety by, the Financial Statements of the Group.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="23" style="border-bottom: 1px solid #000000"><B>Year ended December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2001</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2002</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>US$</B></TD>
</TR>
<TR style="font-size: 1px" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="23"><B>(in million, except per share data)</B></TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Income Statement Data:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">IFRS:</DIV></TD>


        <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000; font-size: 8pt"><B>(Restated)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000; font-size: 8pt"><B>(Restated)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000; font-size: 8pt"><B>(Restated)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000; font-size: 8pt"><B>(Restated)</B></TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,880</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,019</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,470</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,974</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,293</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,745</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,479</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,993</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,014</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,065</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,598</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,907</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating income/(loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,401</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,026</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">456</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">909</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,305</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(162</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(934</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(959</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(824</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(691</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,616</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(200</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Exchange gain/(loss), net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">297</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(176</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(164</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(59</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,220</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">151</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income/(loss) before taxation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">788</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,130</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(521</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">220</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,853</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(230</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Taxation
(expense)/benefit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(313</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(389</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">334</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(65</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income/ (loss)&nbsp;for the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">475</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">741</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(187</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">155</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,846</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(229</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">

<TD><DIV style="margin-left:15px; text-indent:-15px">Income/(loss) attributable to :</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Equity
shareholders of the Company</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">340</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">576</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(358</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(48</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,848</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(229</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Minority interests</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">135</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">165</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">171</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">203</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Basic earnings/(loss) per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.17</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.09</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.01</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.42</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.052</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Basic earnings/(loss) per ADS</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.53</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4.68</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.55</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(21.12</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2.62</TD>
    <TD nowrap>)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">6
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="23" style="border-bottom: 1px solid #000000"><B>Year ended December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2001</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2002</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>US$</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="23"><B>(in million, except per share data)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD align="left" valign="top" nowrap>Cash dividends declared per share
</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&#151;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">0.02</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&#151;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&#151;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&#151;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&#151;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">
U.S. GAAP:</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Traffic revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,854</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,897</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,235</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,419</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,637</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other operating revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">657</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">904</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">586</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">930</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">874</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">108</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating income/(loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,584</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,948</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">366</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,877</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,092</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(135</TD>
    <TD nowrap>)</TD>
</TR>


<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,800</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,820</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,604</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,184</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,589</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(197</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Foreign currency exchange gain/(loss), net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">532</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(327</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(381</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(124</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,220</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">151</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">

<TD><DIV style="margin-left:15px; text-indent:-15px">Income/(loss)
before income taxes and minority interests</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">468</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(145</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,549</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">693</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,574</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(193</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax (expense)/benefit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(401</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(356</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">536</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(261</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Minority interests</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">(97</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">(154</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">(127</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">(193</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">(2</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net
(loss)/income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(30</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(655</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,140</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">239</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,530</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(189</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Basic (loss)/earnings per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.009</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.194</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.298</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.055</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.350</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.043</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Basic (loss)/earnings per ADS</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.432</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(9.706</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(14.876</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.732</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">(17.489</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">(2.172</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash dividend declared per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.02</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="23" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2001</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2002</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>US$</B></TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="23"><B>(in million)</B></TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Balance Sheet Data:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD><DIV style="margin-left:15px; text-indent:-15px">IFRS:</DIV></TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000; font-size: 8pt"><B>(Restated)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000; font-size: 8pt"><B>(Restated)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000; font-size: 8pt"><B>(Restated)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000; font-size: 8pt"><B>(Restated)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,818</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,771</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,080</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,083</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,901</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">360</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,561</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,835</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,922</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,286</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,320</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">535</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Property, plant and equipment, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,352</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,921</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,536</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,841</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54,266</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,725</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,653</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,188</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,062</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62,383</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">71,402</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,848</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Notes payable, including current installments of long term notes payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,178</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,241</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,097</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,518</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,223</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,010</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current installments of obligations under capital leases</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,452</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,567</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,298</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,144</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,373</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">418</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Notes payable, excluding current installments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,628</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,835</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,522</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,935</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,740</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,579</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Obligations under capital leases, excluding current installments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,692</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,632</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,543</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,599</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,459</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,544</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,130</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,569</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,903</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,936</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,479</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">U.S. GAAP:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,384</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,772</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,999</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,083</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,901</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">360</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,065</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,391</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,034</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,505</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,551</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">561</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Property, plant and equipment, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,676</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,277</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,012</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,202</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53,759</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,662</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48,456</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54,860</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58,610</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65,144</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74,906</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,283</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Notes payable, including current portion of long term notes payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,359</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,304</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,518</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,223</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,010</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current installments of obligations under capital leases</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,428</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,591</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,368</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,106</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,401</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">421</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Notes payable, excluding current portion</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,856</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,179</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,634</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,935</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,740</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,579</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Obligations under capital leases, excluding current installments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,167</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,333</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,849</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,975</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,807</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,835</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net shareholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,315</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,796</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,098</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,169</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,639</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,194</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Selected Operating Data
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following selected operating data of the Group for the five years ended December&nbsp;31, 2005
have been derived from consolidated financial statements prepared in accordance with IFRS and other
data provided by the Group and have not been audited.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The operating data and the profit analysis and comparison for other years below is calculated
and disclosed in accordance with the statistical standards, which has been implemented since
January&nbsp;1, 2001. See &#147;Glossary of Airline Industry Terms&#148; at the front of this Annual Report for
definitions of certain terms used herein.
</DIV>

<P align="center" style="font-size: 10pt">7
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="19" style="border-bottom: 1px solid #000000"><B>Year ended December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2001</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2002</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Capacity</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">ASK (million)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; Domestic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,393</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,753</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32,590</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,330</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">72,107</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; Hong Kong and Macau</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,690</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,746</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,347</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,896</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,656</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; International</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,981</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,746</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,930</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,543</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,598</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,064</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44,245</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,867</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53,769</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">88,361</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">ATK (million)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; Domestic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,622</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,924</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,772</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,773</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,352</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; Hong Kong and Macau</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">185</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">193</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">211</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">315</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; International</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,317</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,798</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,999</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,842</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,124</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,915</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,921</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,446</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,509</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Kilometers flown (thousand)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">234,051</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">258,379</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">249,068</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">324,827</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">539,844</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Hours flown (thousand)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">365</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">405</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">385</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">501</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">846</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Number of landing and take-offs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; Domestic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">183,651</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">194,776</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">191,460</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">243,410</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">394,069</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; Hong Kong and Macau</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,712</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,891</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,380</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,807</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; International</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,698</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,990</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,330</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,790</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,798</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">208,061</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">222,657</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">214,190</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">274,580</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">438,674</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Traffic</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">RPK (million)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; Domestic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,447</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,092</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,294</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,121</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51,472</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; Hong Kong and Macau</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,060</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,081</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">778</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,203</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,549</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; International</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,550</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,767</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,315</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,872</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,902</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,057</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,940</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,387</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,196</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61,923</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">RTK (million)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; Domestic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,217</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,532</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,424</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,206</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,571</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; Hong Kong and Macau</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">105</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">108</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">78</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">120</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">159</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; International</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">712</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">974</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,059</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,337</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,554</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,034</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,614</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,561</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,663</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,284</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Passengers carried (thousand)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; Domestic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,499</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,535</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,259</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,545</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; Hong Kong and Macau</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,409</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,369</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,019</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,394</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,556</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; International</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,213</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,589</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,192</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,811</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,018</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,121</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,493</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,470</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,207</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44,119</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cargo and mail carried (tons)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">398,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">470,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">464,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">545,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">775,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Load Factors</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Passenger load factor (RPK/ASK) (%)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; Domestic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">70.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">71.4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; Hong Kong and Macau</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">63.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58.3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; International</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">70.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Overall load factor (RTK/ATK) (%)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; Domestic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">66.7</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; Hong Kong and Macau</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50.4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; International</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">59.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">63.3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Breakeven load factor (%)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67.0</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="19" style="border-bottom: 1px solid #000000"><B>Year ended December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2001</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2002</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Yield</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Yield per RPK (RMB)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; Domestic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.62</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.55</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.58</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.55</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; Hong Kong and Macau</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.06</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.98</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.96</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.92</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.77</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; International</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.41</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.42</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.47</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.46</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.56</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.60</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.54</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.55</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Yield per cargo and mail ton kilometers (RMB)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.76</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.73</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.62</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.67</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.75</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">8
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="19" style="border-bottom: 1px solid #000000"><B>Year ended December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2001</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2002</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Yield per RTK (RMB)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; Domestic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.83</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.21</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.53</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.30</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; Hong Kong and Macau</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11.26</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.36</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.35</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.83</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.18</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; International</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.31</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.90</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.31</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.24</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.43</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.84</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.76</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.14</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Fleet</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; Boeing</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">91</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">102</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">108</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">137</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">140</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; Airbus</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">71</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; McDonnell Douglas</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; Others</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total aircraft in service at period end</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">111</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">122</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">132</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">261</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Overall utilization rate (hours per day)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Financial</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating cost per ASK (RMB)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.39</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.36</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.42</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.43</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.45</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating cost per ATK (RMB)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.02</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.70</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.87</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.44</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Exchange Rate Information
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth certain information concerning exchange rates, based on the
noon buying rates in New York City for cable transfers in foreign currencies, as certified for
customs purposes by the Federal Reserve Bank of New York (the &#147;Noon Buying Rate&#148;), between Renminbi
and U.S. dollars for the five most recent financial years.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Average(1)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Period</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Period End</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>(RMB per US$)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>High</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Low</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Annual Exchange Rate</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2766</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2766</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2910</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2642</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2773</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2773</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2897</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2152</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2767</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2772</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2769</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2765</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2765</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2889</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2641</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0694</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.1825</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2767</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0702</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets out the range of high and low exchange rates, based on the Noon
Buying Rate, between Renminbi and U.S. dollars, for the following periods.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Period</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>High</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Low</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>Monthly Exchange Rate</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">December&nbsp;2005
</DIV></TD>
    <TD>&nbsp;</TD>
            <TD align="center">8.0808
</TD>
    <TD>&nbsp;</TD>
            <TD align="center">8.0702</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">January&nbsp;2006
</DIV></TD>
    <TD>&nbsp;</TD>
            <TD align="center">8.0702
</TD>
    <TD>&nbsp;</TD>
            <TD align="center">8.0601</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">February&nbsp;2006
</DIV></TD>
    <TD>&nbsp;</TD>
                <TD align="center">8.0616
</TD>
    <TD>&nbsp;</TD>
                <TD align="center">8.0402</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">March&nbsp;2006
</DIV></TD>
    <TD>&nbsp;</TD>
                <TD align="center">8.0505
</TD>
    <TD>&nbsp;</TD>
                <TD align="center">8.0172</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">April&nbsp;2006
</DIV></TD>
    <TD>&nbsp;</TD>
                <TD align="center">8.0240
</TD>
    <TD>&nbsp;</TD>
                <TD align="center">8.0050</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">May&nbsp;2006
</DIV></TD>
    <TD>&nbsp;</TD>
        <TD align="center">8.0265
</TD>
    <TD>&nbsp;</TD>
        <TD align="center">8.0025</TD>
</TR>
<TR valign="bottom">

<TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">June&nbsp;2006
(up to June 28, 2006)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center">8.0230
</TD>
    <TD>&nbsp;</TD>
    <TD align="center">7.9964</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>Determined by averaging the rates on the last business day of each month during the relevant
period.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dividend Payments
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No interim dividends were paid during the year ended December&nbsp;31, 2005. The Board of Directors
of the Company (&#147;Board of Directors&#148;) has not recommended payment of a final dividend in respect of
the year ended December&nbsp;31, 2005.
</DIV>
<DIV align="left">
<A name="109"></A>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Capitalization and Indebtedness</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>

<P align="center" style="font-size: 10pt">9
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<A name="110"></A>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Reasons for the Offer and Use of Proceeds</B>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>
<DIV align="left">
<A name="111"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Risk Factors</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Risks Relating to the Company
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Government ownership and control of the Company</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All Chinese airlines are wholly- or majority-owned either by the Chinese Government or by
provincial or municipal governments in China. CSAHC, an entity wholly-owned by the Chinese
Government, holds and exercises the rights of ownership of all of the Domestic Shares or 50.3% of
the equity of the Company. The interests of the Chinese Government in the Company and in other
Chinese airlines may conflict with the interests of the holders of the ADSs, H Shares and A Shares.
The public policy considerations of the Chinese Government in regulating the Chinese commercial
aviation industry may also conflict with its indirect ownership interest in the Company.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>High operating leverage and foreign exchange exposure</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The airline industry is generally characterized by a high degree of operating leverage. In
addition, due to high fixed costs, the expenses relating to the operation of any flight do not vary
proportionately with the number of passengers carried, while revenues generated from a flight are
directly related to the number of passengers carried and the fare structure of such flight.
Accordingly, a decrease in revenues could result in a proportionately higher decrease in net
income. Moreover, as the Group has substantial obligations denominated in foreign currencies, its
results of operations are significantly affected by fluctuations in foreign exchange rates,
particularly for the U.S. dollar and the Japanese Yen. The Company incurred a net exchange loss of
RMB59&nbsp;million for 2004 and a net exchange gain of RMB1,220&nbsp;million for 2005, mainly as a result of
Japanese Yen fluctuation in 2004 and Renminbi appreciation in July&nbsp;2005, respectively. A majority of
this exchange loss or gain was unrealized in nature.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Potential conflicts of interest</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;CSAHC will continue to be the controlling shareholder of the Company. CSAHC and certain of its
affiliated companies will continue to provide certain important services to the Company, including
the import and export of aircraft spare parts and other flight equipment, housing services and
financial services. In addition, Mr.&nbsp;Liu Shao Yong, the Chairman of the Board of Directors, also
serves as the General Manager of CSAHC. The interests of CSAHC may conflict with those of the
Company. In addition, any disruption of the provision of services by CSAHC&#146;s affiliated companies
or a default by CSAHC of its obligations owed to the Company could affect the Company&#146;s operations
and financial conditions. In particular, as part of its cash management system, the Company
periodically places significant amount of demand deposits with China Southern Airlines Group Finance
Company Limited (&#147;SA Finance&#148;), a PRC authorized financial institution controlled by CSAHC and an
affiliated company of the Company. As a result, the Company&#146;s deposits with SA Finance are subject
to the risks associated with the business of SA Finance over which the Company does not exercise
control. As of December&nbsp;31, 2004 and 2005, the Group had short-term deposits of RMB406&nbsp;million and
RMB544&nbsp;million, respectively, with SA Finance.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain transactions between the Company and CSAHC or its affiliates (as defined in the Rules
Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (the &#147;Hong Kong
Listing Rules&#148;)) will constitute connected transactions of the Company under the Hong Kong Listing
Rules and, unless exemptions are applicable or waivers are granted, will be subject to disclosure
requirements and/or independent shareholders&#146; approval in a general meeting.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Risks relating to certain real property</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although systems for registration and transfer of land use rights and related real property
interests in China have been implemented, such systems do not yet comprehensively account for all
land and related property interests. The land in Guangzhou on which the Company&#146;s headquarters
buildings and other facilities are located and the buildings that the Company uses at its route
base in Wuhan and Haikou are leased by the Company from CSAHC. However, CSAHC lacks
adequate documentation evidencing CSAHC&#146;s rights to such land and buildings, and, as a consequence,
the lease agreements between CSAHC and the Company for such land have not been registered with the
relevant authorities. As a result, such lease agreements may not be enforceable. Lack of adequate
documentation for land use rights and ownership of buildings subjects the Company to challenges and
claims by third parties with respect to the Company&#146;s use of such land and buildings.
</DIV>

<P align="center" style="font-size: 10pt">10
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has been occupying all of the land and buildings described above without challenge
or claim by third parties. CSAHC has received written assurance from the General Administration of
Civil Aviation of China (&#147;CAAC&#148;) to the effect that CSAHC is entitled to continued use and
occupancy of the land and certain related buildings and facilities. However, such assurance does
not constitute formal evidence of CSAHC&#146;s right to occupy such lands, buildings and facilities, or
the right to transfer, mortgage or lease such real property interests. The Company cannot predict
the magnitude of the adverse effect on its operations if its use of any one or more of these
parcels of land or buildings were successfully challenged. CSAHC has agreed to indemnify the
Company and Guangzhou Aircraft Maintenance Engineering Company Limited (&#147;GAMECO&#148;), the Company&#146;s
jointly controlled entity, against any loss or damage caused by any challenge of, or interference
with, the use by the Company and GAMECO of any of their respective land and buildings.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Risks associated with Hong Kong and Macau routes</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s Hong Kong regional routes benefit from traffic originating in Taiwan. The
Company&#146;s Hong Kong regional routes might be materially adversely affected if direct flights
between Taiwan and Mainland China were permitted in the future. In such event, Xiamen Airlines
Company Limited (&#147;Xiamen Airlines&#148;), the Company&#146;s subsidiary, might apply for route rights for
direct flights between Taiwan and Mainland China, due partly to the proximity to Taiwan of Fujian
province, where Xiamen Airlines is based. However, there can be no assurance that sufficient routes
and flights between destinations in Taiwan and Mainland China could be obtained by Xiamen Airlines,
if at all, or that adequate yields will be generated on these routes and flights.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><i>Internal
controls and management system</i>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company will become subject to Section 404
of the Sarbanes-Oxley Act of 2002 in the fiscal year ending December 31, 2006, which requires the Company to set out a management report
containing an assessment on its internal controls over financial reporting in its annual report. It also requires an independent registered
public accounting firm attest to and report on management&#146;s
assessment of the effectiveness of the Company&#146;s internal controls over financial
reporting. If the Company cannot implement the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 in a timely manner or with
adequate compliance, its independent auditors may not be able to provide a written attestation as to the effectiveness of its internal controls
over financial reporting and it may be subject to sanctions or investigation by regulatory authorities, such as the Securities and Exchange
Commission. It could also result in the loss of investor confidence in the Company, in particular the reliability of financial statements,
which in turn could harm the Company&#146;s business and negatively affect
the market price of the Company&#146;s ADSs or H Shares. Furthermore,
the Company may be required to incur significant costs for compliance
with Section 404, and thereby increasing its costs relative to its
revenues and decreasing its operating margins.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Risks Relating to the Chinese Commercial Aviation Industry
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Government regulation</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s ability to implement its business strategy will continue to be affected by
regulations and policies issued or implemented by the CAAC, which encompasses substantially all
aspects of the Chinese commercial aviation industry, including the approval of domestic, Hong Kong
regional and international route allocation, air fares, aircraft acquisition, jet fuel prices and
standards for aircraft maintenance, airport operations and air traffic control. Such regulations
and policies limit the flexibility of the Company to respond to market conditions, competition or
changes in the Company&#146;s cost structure. The implementation of specific CAAC policies could from
time to time adversely affect the Company&#146;s operations. The CAAC has confirmed in writing that the
Company will be treated equally with other Chinese airlines with respect to certain matters
regulated by the CAAC. Nevertheless, there can be no assurance that the CAAC will, in all
circumstances, apply its regulations and policies in a manner that results in equal treatment of
all airlines.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Jet fuel supply and costs</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The availability and cost of jet fuel have a significant impact on the Group&#146;s results of
operations. The Group&#146;s jet fuel costs for 2005 accounted for 30.1% of its operating expenses. All
of the domestic jet fuel requirements of Chinese airlines (other than at the Shenzhen, Zhuhai and
Sanya airports) must be purchased from the exclusive providers, China Aviation Oil Supplies Company
(&#147;CAOSC&#148;) and Bluesky Oil Supplies Company, companies controlled and supervised by the CAAC.
Chinese airlines may also purchase their jet fuel requirements at the Shenzhen, Zhuhai and Sanya
airports from joint ventures in which the CAOSC is a partner. Jet fuel obtained from the CAOSC&#146;s
regional branches is purchased at uniform prices throughout China that are determined and adjusted
by the CAOSC from time to time with the approval of the CAAC and the pricing department of the
State Planning Commission based on market conditions and other factors. As a result, the costs of
transportation and storage of jet fuel in all regions of China are spread among all domestic
airlines. Prior to 1994, domestic jet fuel prices were generally below international jet fuel
prices. Since then, however, domestic jet fuel price from CAOSC has always been higher than
international jet fuel prices, sometimes creating tension in fuel supply. In addition, jet fuel
shortages have occurred in China and, on limited occasions before 1993, required the Company to
delay or cancel flights. Although such shortages have not materially affected the Company&#146;s results
of operations since 1993, there can be no assurance that such shortage will not occur in the
future. If such shortage occurs in the future and the Company is forced to delay or cancel flights
due to fuel shortage, its operational reputation among passengers and results of operations may
suffer.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Infrastructure limitations</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The rapid increase in air traffic volume in China in recent years has put pressure on many
components of the Chinese commercial aviation industry, including China&#146;s air traffic control
system, the availability of qualified flight personnel and airport facilities. Airlines, such as
the Company, which have route networks that emphasize short- to medium-haul routes are generally
more affected by insufficient aviation
</DIV>

<P align="center" style="font-size: 10pt">11
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">infrastructure in terms of on-time performance and high operating
costs due to fuel inefficiencies resulting from the relatively short segments flown, as well as the
relatively high proportion of time on the ground during turnaround. All of these factors may
adversely affect the perception of the service provided by an airline and, consequently, the
airline&#146;s operating results. In recent years, the CAAC has placed increasing emphasis on the safety
of Chinese airline operations and has implemented measures aimed at improving the safety record of
the industry. The ability of the Company to increase utilization rates and to provide safe and
efficient air transportation in the future will depend in part on factors such as the improvement
of national air traffic control and navigation systems and ground control operations at Chinese
airports, which factors are beyond the control of the Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Competition</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The CAAC&#146;s extensive regulation of the Chinese commercial aviation industry has had the effect
of managing competition among Chinese airlines. Nevertheless, competition has become increasingly
intense in recent years due to a number of factors, including relaxation of certain regulations by
the CAAC, and an increase in the capacity, routes and flights of Chinese airlines. Competition in
the Chinese commercial aviation industry has led to widespread price-cutting practices that do not
in all respects comply with applicable regulations. Until the interpretation, if it occurs, of CAAC
regulations limiting or prohibiting such price-cutting has been finalized and strictly enforced,
discounted tickets from competitors will continue to have an adverse effect on the Company&#146;s sales.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company faces varying degrees of competition on its Hong Kong regional routes from certain
Chinese airlines and Hong Kong Dragon Airlines Limited and on its international routes, primarily
from non-Chinese airlines, most of which have significantly longer operating histories,
substantially greater financial and technological resources and greater name recognition than the
Company. In addition, the public&#146;s perception of the safety and service records of Chinese airlines
could adversely affect the Company&#146;s ability to compete against its Hong Kong regional and
international competitors. Many of the Company&#146;s international competitors have larger sales
networks and participate in reservation systems that are more comprehensive and convenient than
those of the Company, or engage in promotional activities, such as International Alliance programs,
that may enhance their ability to attract international passengers.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Limitation on foreign ownership</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Chinese Government policies limit foreign ownership in Chinese airlines. Under these policies,
the percentage ownership of the Company&#146;s total outstanding ordinary shares held by investors in
Hong Kong and any country outside China (&#147;Foreign Investors&#148;) may not in the aggregate exceed 49%.
Currently, 26.8% of the total outstanding ordinary shares of the Company is held by
Foreign Investors. For so long as the limitation on foreign ownership is in force, the Company will
have no meaningful access to the international equity capital markets.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Consolidation and Restructuring</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2000, the CAAC announced a restructuring plan with respect to the PRC aviation industry.
Pursuant to such restructuring plan, each domestic airline is directed to consolidate into one of
the three major airline groups in China: CSAHC, China National Aviation Holding Company and China
Eastern Air Holding Group. As approved by the Company&#146;s shareholders in an extraordinary general
meeting on December&nbsp;31, 2004, the Company acquired the airline operations and certain related
assets of CNA and XJA. These consolidation and restructuring pursuant to the CAAC restructuring
plan may involve uncertainties and risks over a long period of time, including the following:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>failure to achieve the anticipated synergies, cost savings or revenue enhancing
opportunities resulting from the restructuring activities;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>diversion of management&#146;s attention from existing business concerns and other
business opportunities of the Group;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>difficulty in integrating the assets and business of other airlines, including its
employees, corporate culture, managerial systems and processes, business information
systems and services;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>difficulty in exercising control and supervision over various new operations within the Group;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>failure to retain key personnel; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>increase in financial pressure due to assumption of recorded / unrecorded liabilities of the acquired businesses.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">12
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The inability to manage additional businesses or integrate successfully the acquired
businesses without substantial expense, delay or other operational or financial problems, or the
occurrence of one or more of the events enumerated above, could materially adversely affect the
Group&#146;s financial condition and results of operations.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Risks relating to the PRC
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Foreign exchange risks</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
current Chinese foreign exchange regulations, Renminbi is fully
convertible for current account transactions, but is not freely
convertible for capital account transactions. Current account foreign
exchange transactions can be undertaken without prior approval from the relevant Chinese Government
agencies by producing commercial documents evidencing such transactions,
provided that they are processed through Chinese banks licensed to engage in foreign exchange transactions. Conversion from Renminbi into a foreign currency or vice versa for purposes of capital account transactions requires prior
approvals of relevant Chinese Government agencies. This restriction on capital account transactions could affect the ability of the Company to acquire foreign
currency for capital expenditures.  It could also have a material adverse effect on the Company's operations and financial conditions, given the Company's substantial foreign currency obligations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The value of the Renminbi against the US dollar and other foreign currencies may fluctuate and is affected by,
among other things, changes in China's political and economic
conditions. On July 21, 2005, the PRC government changed its policy of pegging the value of the Renminbi to the U.S. dollar so that the Renminbi is now permitted to fluctuate within a band against a basket of certain foreign currencies. As a result, the value of the Renminbi against the U.S. dollar has appreciated by approximately 2%. Under the new
policy, the value of Renminbi against the U.S. dollar has fluctuated on a daily basis within narrow ranges, but overall has further strengthened against the U.S.
dollar. The PRC government has stated publicly that it intends to further liberalize its currency policy, which could result in a further and more significant change in
the value of the Renminbi against the U.S. dollar. As the Company is not able to hedge effectively against the revaluation of the Reminbi other than by retaining its foreign currencies which it receives from its business and operational activities to the extent permitted by applicable law, any significant revaluation of the
Renminbi may have a material adverse effect on the Company's
financial performance, and the value of, and any dividends payable on, the Company's H Shares and ADSs in foreign currency terms.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Developing legal system</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Chinese legal system is based on written statutes and is a system, unlike common law
systems, in which decided legal cases have little precedential value. In 1979, China began to
promulgate a more comprehensive system of laws. On December&nbsp;29, 1993, the Chinese National People&#146;s
Congress promulgated the Company Law, which became effective on July&nbsp;1, 1994. In August&nbsp;1994,
pursuant to the Company Law, the PRC State Council issued the PRC Special Regulations on Overseas
Offering and Listing of Shares by Companies Limited by Shares to regulate joint stock companies
that offer and list their shares overseas. These laws, regulations and legal requirements are
relatively recent, and, like other laws, regulations and legal requirements applicable in China
(including with respect to the commercial aviation industry), their interpretation and enforcement
involve significant uncertainties.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Taxation of holders of H Shares or ADS by China</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Chinese tax law generally provides for the imposition of a withholding tax on dividends paid
by a Chinese company to a non-Chinese shareholder at a rate of 20%. In a notice and a letter issued
by the State Taxation Bureau of the PRC, however, the Chinese tax authorities confirmed that the
imposition of this withholding tax on dividends paid by joint stock companies, such as the Company,
had been suspended. Accordingly, for so long as this imposition is suspended and not replaced or
supplemented with similar requirements, any future dividends to be paid by the Company to holders
of H Shares or ADS who are foreign individuals not resident in China or which are foreign
enterprises with no permanent establishment in China will not be subject to a Chinese withholding
tax. In the event that the suspension of the withholding tax is lifted, such payments will be
subject to withholding tax at the 20% rate unless the holder is entitled to a tax waiver or a lower
tax rate under an applicable double-taxation treaty. See Item&nbsp;10 &#147;Additional Information &#151;
Taxation&#148;.
</DIV>
<DIV align="left">
<A name="112"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 4. INFORMATION ON THE COMPANY.</B>
</DIV>

<DIV align="left">
<A name="113"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>History and Development of the Company</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company is a joint stock company incorporated in China on March&nbsp;25, 1995, and is 50.3%
owned by CSAHC. The registered address of the Company is Guangzhou Economic &#038; Technology
Development Zone, People&#146;s Republic of China (telephone no: (86)20-8612-4738, website:
www.cs-air.com).
</DIV>

<P align="center" style="font-size: 10pt">13
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On March&nbsp;13, 2003, the Company obtained an approval certificate from the Ministry of Commerce
to change to a permanent limited company with foreign investments and on October&nbsp;17, 2003 obtained
a business license for its new status, as a permanent limited company with foreign investments
issued by the State Administration of Industry and Commerce of the People&#146;s Republic of China.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to an extraordinary general meeting of shareholders held on May&nbsp;21, 2002, a
resolution was passed authorizing the Company to issue not more than 1,000,000,000 A Shares of par
value of RMB1.00 each. The Company issued and listed its 1,000,000,000 A Shares with a par value of
RMB1.00 each on the Shanghai Stock Exchange in July&nbsp;2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On October&nbsp;17, 2003, the Company&#146;s registered address was moved to Guangzhou Economic &#038;
Technology Development Zone. In accordance with the Rules and Regulations for Implementation of
Income Tax for Foreign Investment Enterprises and Foreign Enterprises of the PRC and a taxation
approval document &#147;Guangzhou Municipal State Tax Bureau Suo De Shui Zi Que 020043&#148;, the Company is
entitled to enjoy the preferential tax policy implemented in the Guangzhou Economic &#038; Technology
Development Zone effective October&nbsp;1, 2003. As a result, the Company&#146;s income tax rate has been
changed from 33% to 15% beginning from that date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Flight safety is a perennial concern to airlines. In this regard, the Group is committed to
flight safety by strengthening internal safety checks, pilot training and aircraft maintenance. As
a result, the Group was awarded the Golden Roc Cup, the highest award for flight safety in the
Chinese civil aviation industry, for the fourth time in 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The acquisition of the airline operations of CNA and XJA was approved at the general meeting
of the Company held on December&nbsp;31, 2004. Such acquisition provides a robust platform for the Group
to consolidate its market leadership and financial results. It also brought in various benefits to
the Group by expanding its flight service network, fleet size and transport capacity, as well as
lowering costs and improving overall efficiency. Given the investment incentive policies such as
&#147;Go West&#148; and &#147;Revitalising the Old Industrial Bases in the North-eastern Region&#148; promulgated by
the Chinese government, the economy in the western and north-eastern regions of China is expected
to grow at a rapid pace in the coming decades, which in turn provides substantial growth potential
for the Group. Ultimately, the acquisition will strengthen the Group&#146;s position as the largest
airline in China and will create positive value to its investors. At present, the management of the
Group focuses on harnessing the expanded business capacity and operation scale of the Group, and on
enhancing its overall management standards through an integration of corporate culture, innovation
and development, thereby realizing the ultimate goal of the
Group&#146;s reorganization.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to &#147;Pricing Reform of Domestic Civil Aviation&#148; as approved by the State Council of
China effective on April&nbsp;20, 2004, prices on domestic routes now fluctuate freely within a
predetermined range. Instead of direct supervision by setting prices of air tickets through local
price bureau, the government now provides guidance on domestic flights and domestic civil aviation
is controlled by the government indirectly. Market-oriented pricing policy was introduced and
pricing system has been adjusted as a result of the above pricing reform.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 2005, the economy of the PRC maintained its rapid growth, which in turn gave the civil
aviation industry a powerful boost. In particular, the fast expansion of the fleet capacity of the
industry encouraged market demand through a number of factors, including improvement of civil
aviation facilities and service quality as well as favorable price offers, which in turn drove up
the passenger and cargo carried volume, the passenger load factor and overall load factor. On the
other hand, as the PRC government expedited the process of &#145;open sky&#146; policy and relaxed
restrictions for investment in domestic airlines, the fleet capacity and number of flights provided
have significantly increased, which in turn intensified the competition in domestic and
international routes. Together with the soaring jet fuel prices, these have exerted strong pressure
on the operating costs for domestic airlines.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2005, with the persistent joint efforts of the Company&#146;s management and staff, the Group
secured an exceptional safe flight operation record, and the enlarged operations after the joint
recombination had undergone a smooth transition and gradually began to achieve the benefits from
economies of scale. To cope with the increasing competition and the ever-changing demands of the
aviation market, the Company is taking advantage of its own economies of scale and the potential
market demands to stage a strategic transition from a city-pair operation model to a hubbing
network operation model, so as to enhance the operational efficiency of the overall service
network, and to maintain and increase its competitive edge in the market.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With the approval of the Board, the Company established a branch company in Beijing and will
add wide-body airplanes to the operation base in Beijing from the summer of 2006, with the view to
expanding its Beijing aviation business and building another main hub there in addition to its
Guangzhou base. The Board believes that the establishment of Guangzhou and Beijing hubs will
facilitate the Group&#146;s strategic refinement and enhancement of its route network operations in
order to better position the Group to explore and seize the opportunities in the regional aviation
market to be brought about by the 2008 Beijing Olympic Games.
</DIV>

<P align="center" style="font-size: 10pt">14
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group had RMB4,707&nbsp;million, RMB6,631&nbsp;million and RMB11,873&nbsp;million capital expenditures in
2003, 2004 and 2005 respectively. Of such capital expenditures in 2005, RMB6,938 were financed by
capital lease, RMB4,325&nbsp;million were financed by bank borrowings while the remaining RMB610&nbsp;million
were financed by internal resources. The capital expenditures were primarily incurred on the
additional investments in aircraft and flight equipment under the Group&#146;s fleet expansion plans and
Guangzhou new airport, and, to a small extent, additional investments in other facilities and
buildings for operations.
</DIV>
<DIV align="left">
<A name="114"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>CNA/XJA Acquisitions</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to a sale and purchase agreement dated November&nbsp;12, 2004 between the Company, China
Southern Airlines Holding Company, CNA and XJA which was approved by the Company&#146;s shareholders in
an extraordinary general meeting held on December&nbsp;31, 2004, the Company acquired the airline
operations and certain related assets of CNA and XJA with effect from December&nbsp;31, 2004 (the
&#147;CNA/XJA Acquisitions&#148;). The consideration payable for the CNA/XJA Acquisitions amounting to
RMB15,522&nbsp;million was determined based on the fair value of the acquired assets. Such consideration
was partly satisfied by assumption of debts and liabilities of CNA and XJA totaling RMB13,563
million outstanding as of December&nbsp;31, 2004 and the remaining balance of RMB1,959&nbsp;million was fully
paid in cash during 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The CNA/XJA Acquisitions have significantly expanded the fleet size and flight service network
as well as the market share of the Group. Presently, the Group is implementing various measures to
harnessing the expanded flight capacity and operations and integrating the business cultures and
goals of the acquired operations with those of the Group.
</DIV>
<DIV align="left">
<A name="115"></A>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Business Overview</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">General
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group provides commercial airline services throughout China, Hong Kong and Macau regions,
Southeast Asia and other parts of the world. The Group is one of the three largest Chinese airlines
and, as of year end 2005, ranked first in terms of passengers carried, number of scheduled flights
per week, number of hours flown and size of route network and aircraft fleet. During the three
years ended December&nbsp;31, 2005, the Group&#146;s RPKs increased at a compound annual rate of 53.2%, from
26,387&nbsp;million in 2003 to 61,923&nbsp;million in 2005, while its capacity, measured in terms of ASKs,
increased at a compound annual rate of 47.1%, from 40,867&nbsp;million in 2003 to 88,361&nbsp;million in
2005. In 2005, the Group carried 44.12&nbsp;million passengers and had passenger revenue of RMB34,328
million (US$4,254&nbsp;million). The loss for 2005 attributable to
equity shareholders of the Company was RMB1,848
million (US$229&nbsp;million).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group conducts a portion of its airline operations through its airline subsidiaries namely
Xiamen Airlines, Southern Airlines (Group) Shantou Airlines Company Limited (&#147;Shantou Airlines&#148;),
Guangxi Airlines Company Limited (&#147;Guangxi Airlines&#148;), Zhuhai Airlines Company Limited (&#147;Zhuhai
Airlines&#148;) and Guizhou Airlines Company Limited (&#147;Guizhou Airlines&#148;) (collectively, the &#147;Airline
Subsidiaries&#148;). In 2005, the Airline Subsidiaries carried 11.30&nbsp;million passengers and had
operating revenue of RMB8,019&nbsp;million (US$994&nbsp;million) and
accounted for 25.6% and 20.9% of the
Group&#146;s passengers carried and operating revenue, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group also provides air cargo and mail services. The cargo and mail revenue of the Group
increased by 37.7% to RMB3,091&nbsp;million (US$383&nbsp;million) in 2005 as compared with 2004. The Group&#146;s
airline operations are fully integrated with its airline-related businesses, including aircraft and
engine maintenance, flight simulation and air catering operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of the year end of 2005, the Group operated 559 routes, of which 452 were domestic, 78 were
international and 29 were Hong Kong and Macau. The Group operates the most extensive domestic route
network among all Chinese airlines. In 2005, the Group operated an average of 8,436 landings and
take-offs per week, serving 142 destinations. Its route network covers commercial centres or
rapidly developing economic regions in Mainland China.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group&#146;s corporate headquarters and principal base of operations are located in Guangzhou,
which is the capital of Guangdong Province and the largest city in southern China. Located in the
rapidly developing Pearl River Delta region, Guangzhou is also the transportation hub of southern
China and one of China&#146;s major gateway cities. Guangzhou&#146;s significance has increased as the
transportation infrastructure of Guangdong Province has developed through the construction and
development of expressways, an extensive rail network and the port cities of Yantian, Shekou,
Chiwan, Mawan, Huangpu and Zhuhai.</DIV>

<P align="center" style="font-size: 10pt">15
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to its main route base in Guangzhou, the Group also maintains certain regional
route bases in Beijing, Zhengzhou, Wuhan, Changsha, Shenzhen, Shenyang, Changchun, Dalian, Harbin,
Urumqi, Haikou, Zhuhai, Xiamen, Fuzhou, Guilin, Shantou, Guiyang, Sanya and Beihai. Most of its
regional route bases are located in provincial capitals or major commercial centers in China.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group&#146;s operations primarily focus on the domestic market. In addition, the Group also
operates Hong Kong and Macau and international flights. As of year end of 2005, the Group had 29
Hong Kong and Macau routes and 78 international routes. The Group&#146;s Hong Kong and Macau operations
include flights between destinations in China and Hong Kong and Macau. The Group&#146;s international
operations include scheduled services to Tokyo, Osaka, Amsterdam, Sharjah, Los Angeles, Fukuoka,
Seoul, Sydney, Dubai, Paris and 11 Southeast Asian destinations. The Group operates the most
extensive Southeast Asian route network among Chinese airlines.</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, the Group operated a fleet of 261 aircraft, consisting primarily of
Boeing 737 series, 747, 757, 777, Airbus 300, 319, 320, 330, McDonnell Douglas 82, 90 and etc. The
average age of the Group&#146;s fleet was 7.19&nbsp;years as of the year end of 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Restructuring and Initial Public Offering
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As part of China&#146;s economic reforms in the 1980&#146;s, the PRC State Council directed the CAAC to
separate its governmental, administrative and regulatory role from the commercial airline
operations that were being conducted by the CAAC and its regional administrators. As a result,
CSAHC was established on January&nbsp;26, 1991 for the purpose of assuming the airline and
airline-related commercial operations of the Guangzhou Civil Aviation Administration, one of the
six regional bureaus of the CAAC. CSAHC was one of the 55 large-scale enterprises designated by the
Chinese Government to play a leading role in their respective industries.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;CSAHC was restructured in 1994 and 1995 in anticipation of the initial public offering of the
Company. The restructuring was effected through the establishment of the Company and the execution
of the Demerger Agreement, dated as of March&nbsp;25, 1995, as amended (the &#147;Demerger Agreement&#148;),
between CSAHC and the Company. Upon the restructuring, the Company assumed substantially all of the
airline and airline-related businesses, assets and liabilities of CSAHC, and CSAHC retained its
non-airline and non-airline-related businesses, assets and liabilities, and the non-business assets
and liabilities. Upon this separation, all interests, rights, duties and obligations of CSAHC,
whenever created or accrued, were divided between the Company and CSAHC based on the businesses,
assets and liabilities assumed by each of them under the Demerger Agreement. Under the Demerger
Agreement, CSAHC agreed not to conduct or participate or hold any interest in, either directly or
indirectly, any business, activity or entity in or outside China that competes or is likely to
compete with the commercial interests of the Group, although CSAHC may continue to hold and control
the affiliates of CSAHC existing on the date of the Demerger Agreement and may continue to operate
the businesses of such affiliates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In July&nbsp;1997, the Company completed a private placement of 32,200,000 H Shares to certain
limited partnership investment funds affiliated with Goldman Sachs &#038; Co. and an initial public
offering of 1,141,978,000 H Shares, par value RMB 1.00 per share, and listing of the H Shares on
The Stock Exchange of Hong Kong Limited (the &#147;Hong Kong Stock Exchange&#148;) and American Depositary
Shares (&#147;ADSs&#148;, each ADS representing 50 H Shares) on the New York Stock Exchange. Prior to the
private placement and the initial public offering, all of the issued and outstanding shares of
capital stock of the Company, consisting of 2,200,000,000 Domestic Shares, par value RMB 1.00 per
share, were owned by CSAHC, which owns and exercises, on behalf of the Chinese Government and under
the supervision of the CAAC, the rights of ownership of the Domestic Shares held by CSAHC. After
giving effect to the private placement and the initial public offering, CSAHC&#146;s continued ownership
of the 2,200,000,000 Domestic Shares, represented approximately 65.2% of the total share capital of
the Company, and will be entitled to elect all the directors of the Company and to control the
management and policies of the Group. Domestic Shares and H Shares are both ordinary shares of the
Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to an extraordinary general meeting of shareholders held on May&nbsp;21, 2002, a
resolution was passed authorizing the Company to issue not more than 1,000,000,000 A Shares of par
value of RMB1.00 each. The Company issued 1,000,000,000 A Shares with a par value of RMB1.00 each
in July&nbsp;2003 and listed these shares on the Shanghai Stock Exchange. Subsequent to the A Share
issue, the shareholding of CSAHC on the Company was reduced from 65.2% to 50.3%.
</DIV>

<P align="center" style="font-size: 10pt">16
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Traffic
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth certain statistical information with respect to the Group&#146;s
passenger and cargo and mail traffic for the years indicated.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" colspan="9" style="border-bottom: 1px solid #000000"><B>Passenger carried</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>Cargo and Mail Carried (tons)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>Total traffic (tons kilometers)</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Increase</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Increase</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Increase</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(decrease)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(decrease)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(decrease)</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>over</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>over</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>over</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Year</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>previous year</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>previous year</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>previous year</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(in million)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(%)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(in thousand)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(%)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(in million)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(%)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19.12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">398.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,034.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21.49</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">470.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,614.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20.47</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4.7</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">464.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1.3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,561.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1.5</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28.21</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">545.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,663.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30.9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44.12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">775.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,284.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56.2</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Route Network
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Overview
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group operates the most extensive route network among the Chinese airlines. As of December
31, 2005, the Group operated 559 routes consisting of 452 domestic routes, 29 Hong Kong and Macau
routes and 78 international routes. In 2005, the Group conducted an average of 8,436 landings and
take-offs per week, serving 142 destinations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group continually evaluates its network of domestic, Hong Kong and Macau and international
routes in light of its operating profitability and efficiency. The Group seeks to coordinate flight
schedules with the Airline Subsidiaries on shared routes to maximize load factors and utilization
rates. The acquisition of domestic, Hong Kong and Macau and international routes is subject to
approval of the CAAC, and the acquisition of Hong Kong and Macau and international routes is also
subject to the existence and the terms of agreements between the Chinese Government and the
government of the Hong Kong SAR, the government of Macau Special Administrative Region of the
People&#146;s Republic of China (&#147;Macau SAR&#148;) and the government of the proposed foreign destination.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order to expand the Group&#146;s international route network, the Group has entered into
code-sharing agreements with several international airlines, including Delta Airlines, Asiana
Airlines, Japan Air System, Vietnam Airlines, Royal Dutch Airlines and Garuda Indonesian. Under the
code sharing agreements, the participating airlines are permitted to sell tickets on certain
international routes operated by the Group to passengers using the Group&#146;s codes. Similarly, the
Group is permitted to sell tickets for the other participating airlines using its &#147;CZ&#148; code. The
code sharing agreements help increase the number of the Group&#146;s international sales outlets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Route Bases
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to its main route base in Guangzhou, the Group maintains certain regional route
bases in Beijing, Zhengzhou, Wuhan, Changsha, Shenzhen, Shenyang, Changchun, Dalian, Harbin,
Urumqi, Haikou, Zhuhai, Xiamen, Fuzhou, Guilin, Shantou, Guiyang, Sanya and Beihai. Most of its
regional route bases are located in provincial capitals or major commercial centres in the PRC.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group believes that its extensive network of route bases enables it to coordinate flights
and deploy its aircraft more effectively and to provide more convenient connecting flight schedules
and access service and maintenance facilities for its aircraft. The Group believes that the number
and location of these route bases may enhance the Group&#146;s ability to obtain the CAAC&#146;s approval of
requests by the Group to open new routes and provide additional flights between these bases and
other destinations in China. Current regulations of the CAAC generally limit airlines to operations
principally conducted from their respective route bases.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Chinese Government approved a new Guangzhou airport project, which commenced construction
in 2000 and completed in August&nbsp;2004. The commencement of operation of the new Guangzhou Baiyun
International Airport which is the main hub of the Group, provides a wider platform of development
for the operations of the Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Moreover, the Group has successfully secured the exclusive right to use Terminal No.&nbsp;1 of the
Beijing Capital International Airport, marking a substantial step in carrying out the strategy of
the Group to improve its flight routes network.
</DIV>

<P align="center" style="font-size: 10pt">17
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Domestic Routes
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group&#146;s domestic routes network serves substantially all provinces and autonomous regions
in China, including Guangdong, Fujian, Hubei, Hunan, Hainan, Guangxi, Guizhou, Henan, Heilongjiang,
Jilin, Liaoning and Xinjiang, and serves all four centrally-administered municipalities in China,
namely, Beijing, Shanghai, Tianjin, and Chongqing. In 2005, the Group&#146;s most profitable domestic
routes were the routes between Guangzhou and Beijing, Guangzhou and
Shanghai, Shenzhen and Beijing, Shanghai and Guangzhou, Shenzhen and
Shanghai, Beijing and Guangzhou, Urumqi and Beijing, Beijing and
Urumqi, Shanghai and Shenzhen, Beijing and Changchun.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Hong Kong and Macau Routes
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group offers scheduled service between Hong Kong and Guangzhou, Kunming, Xiamen, Shantou,
Beijing, Guilin, Meixian, Haikou, Wuhan, Zhengzhou, Nanning, Changsha, Quanzhou and Sanya; and
between Macau and Fuzhou, Hangzhou and Xiamen. The Group&#146;s Hong Kong regional routes also include
routes between Hong Kong and Zhanjiang, which the Group operates on a &#147;charter&#148; flight basis, as explained below. The Group
believes that the routes on which it operates these &#147;charter&#148; flights are among its highest
yielding routes, primarily because the Group faces limited competition on such routes and is
consequently less subject to downward pricing pressures. In 2005, the most profitable Hong Kong
regional routes (other than these &#147;charter&#148; flights) were
those between Hong Kong and each of Wuhan,
Guangzhou, Beijing, Shantou, Guilin, Kunming and Zhengzhou.</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group&#146;s &#147;charter&#148; flights are regularly scheduled flights, but permission to operate these
flights is subject to monthly review by the CAAC and the Civil Aviation Department of the Hong Kong
SAR. The CAAC has informally indicated that it primarily considers market demand and airline
capability in granting permission for such flights. The Group has been able to maintain all of the
Hong Kong regional routes which it operates on a &#147;charter&#148; flight basis and believes that demand on
such routes will continue. In 2005, the Group conducted a total of 17,807 flights on its Hong Kong
and Macau routes, accounting for approximately 34.4% of all passengers carried by
Chinese airlines on routes between Hong Kong or Macau and destinations in China.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;International Routes
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group is the principal Chinese airline connecting the rapidly developing Pearl River Delta
region of China to Southeast Asia, with 29 routes serving 11 Southeast Asian destinations,
including Singapore and major cities in Indonesia, Thailand, Malaysia, the Philippines, Vietnam and
Laos. In 2005, the Group&#146;s most profitable international routes were those between Seoul and Dalian, Guangzhou and Tokyo. The Group believes that, among Chinese airlines, it is
well-positioned to benefit from the business opportunities arising out of increased air traffic and
the growing economic relationships between China and Southeast Asian countries.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to the 29 routes serving 11 Southeast Asian destinations, the Group operates 45
other international routes providing scheduled services to Amsterdam, Sharjah, Osaka, Tokyo,
Fukuoka, Seoul, Los Angeles, Sydney, Melbourne, Dubai and Paris.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Aircraft Fleet
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group&#146;s fleet plan in recent years has emphasized expansion and modernization through the
acquisition of new aircraft, the acquisition of existing aircraft in conjunction with our
acquisition of CNA and XJA, and the retirement of less efficient, older aircraft. As of December
31, 2005, the Group operated a fleet of 261 aircraft with an average age of 7.19&nbsp;years. Most
aircraft of the Group are Boeing and Airbus aircraft. The Group has the largest fleet among Chinese
airline companies. Most of the aircraft operated by the Group are leased pursuant to various types
of leasing arrangements.
</DIV>

<P align="center" style="font-size: 10pt">18
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth certain information regarding the Group&#146;s fleet of 261 aircraft
as of December&nbsp;31, 2005.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Average</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Average age</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Passenger</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Model</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Aircraft</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>(years)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Capacity</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Boeing 777-200</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.53</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">380</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Boeing 777-21B</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">292</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Boeing 757-200</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11.12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">200</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Boeing 747F</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.42</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">n/a</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Boeing 737-800</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.32</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">167</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Boeing 737-700</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.85</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">138</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Boeing 737-500</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12.80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">130</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Boeing 737-300</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11.89</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">145</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Airbus 300-600</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.96</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">272</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Airbus 319-100</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">128</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Airbus 320-200</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.38</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">158</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Airbus 321-100</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">182</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Airbus 330-200</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.72</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">264</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">McDonnell Douglas 82</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14.63</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">144</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">McDonnell Douglas 90</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.85</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">157</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Embraer 145 Jet</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.23</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cessna 208B</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">ATR-72</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.95</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">72</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">261</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 2005, the Group continued to expand and modernize its aircraft fleet. In 2005, the
Group&#146;s major aircraft transactions included:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The addition of seven Airbus 319-100, two Boeing 737-700 and three Boeing 737-800 aircraft
under operating lease and addition of one McDonnell Douglas 82 aircraft under wet lease agreement
and the return of two Boeing 737-300, three Boeing 737-500 and two Boeing 737-300 QC under
operating lease ; and
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The acquisition of five Boeing 737-700 aircraft, six Airbus 320-200, four Airbus 330-200, six
Airbus 319-100, two Airbus 321-200 and one Embraer 145 Jet financed by a combination of internal
funds and long term bank loans.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January&nbsp;2005, the Company, as a lessee, entered into an agreement with an independent
lessor for operating leases of nine Boeing 737-800 aircraft for a term of seven years with total
future lease payments totalling approximately RMB1,721&nbsp;million, scheduled for deliveries in 2005
and 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January&nbsp;2005, China Aviation Supplies Import and Export Corporation, as a sole importing
agent, entered into, on behalf of several PRC airlines including the Group, a general purchase
agreement with the Boeing Company for the import of Boeing B7E7 aircraft. The Company, being one of
the ultimate users for thirteen of the Boeing B7E7 aircraft, endorsed the general purchase
agreement. The Company is currently in negotiation with the Boeing Company regarding the purchase
agreements on such aircraft.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In March&nbsp;2005, the Company, as a lessee, entered into another agreement with an independent
lessor for operating leases of a total of twenty-five aircraft comprising five Boeing 737-700
aircraft, five Boeing 737-800 aircraft, five Airbus 320-200 aircraft and ten Airbus 321-200
aircraft with scheduled deliveries in 2006 and 2007. The terms of the
leases range from ten to
twelve years with total future lease payments totalling approximately RMB8,243&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In April&nbsp;2005, the Company entered into a purchase agreement with Airbus SNC for the purchase
of five Airbus A380 aircraft, scheduled for deliveries in 2007 to 2010.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In August&nbsp;2005, CSA as a lessee, entered into an agreement with an independent lessor for
operating leases of three 737-800 aircraft for a term of 138&nbsp;months, with total future lease payments
totalling approximately Rmb986&nbsp;million, scheduled for deliveries in 2006.
</DIV>

<P align="center" style="font-size: 10pt">19
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November&nbsp;2005, CSA, as a lessee, entered into an agreement with an independent lessor for
operating leases of five A320-200 aircraft for a term of 140&nbsp;months with total future lease payments
totalling approximately Rmb1,694&nbsp;million, scheduled for deliveries in 2006; and
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
August&nbsp;2005, CSA entered into two separate purchase agreements with Boeing and Airbus SNC
respectively for the purchase of ten B787 aircraft, which are scheduled for deliveries in 2008 to
2010, and ten A330 aircraft, which are scheduled for deliveries in
2007 and 2008.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Aircraft Financing Arrangements
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Overview</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A significant portion of the Group&#146;s aircraft is acquired under long-term capital or operating
leases or long-term mortgage loans with remaining terms to maturity ranging from one to fifteen
years. As of December&nbsp;31, 2005, 65 of the Group&#146;s 261 aircraft were operated under capital leases,
86 were operated under operating leases, 51 were financed by long-term mortgage loans, while the
remaining were acquired either with cash proceeds or acquired by exercising the purchase options
upon expiry of the respective capital leases. The Group&#146;s planned acquisition of aircraft in the
foreseeable future will generally be made pursuant to operating
leases or capital leases. The Group&#146;s determination as to its acquisition strategy depends on the Group&#146;s
evaluation at the time of its capacity requirements, anticipated deliveries of aircraft, the
Group&#146;s capital structure and cash flow, prevailing interest rates and other general market
conditions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth, as of December&nbsp;31, 2005, the number of aircraft operated by
the Group pursuant to capital and operating leases and the remaining terms, expressed in years, of
such leases.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Average</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Capital</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Operating</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Remaining</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Model</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Lease</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Lease</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Lease Term</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Boeing 777-200 and 777-21B</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.48</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Boeing 757-200</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.10</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Boeing 737-700</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.60</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Boeing 737-800</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.17</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Boeing 737-500</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.99</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Boeing 737-300</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.32</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Airbus 300-600</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.20</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Airbus 319-100</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.05</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Airbus 320-200</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.35</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Airbus 321-100</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.02</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Airbus 330-200</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11.28</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">McDonnell Douglas 82</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.17</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">McDonnell Douglas 90</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.69</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">86</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Capital Leases</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, the Group&#146;s aggregate future minimum lease payments (including future
finance charges) required under its capital leases were RMB18,615&nbsp;million (US$2,307&nbsp;million). As of
year end 2005, a majority of the Group&#146;s capital leases had original terms ranging from ten to
fifteen years from the date of delivery of the relevant aircraft, and the remaining terms of these
leases ranged from one to twelve years. The Group&#146;s capital leases typically cover a significant
portion of the relevant aircraft&#146;s useful life and transfer the benefits and risks of ownership to
the Group. Under its capital leases, the Group generally has an option to purchase the aircraft at
or near the end of the lease term. As a customary in the case of capital leases, the Group&#146;s
obligations are secured by the related aircraft, as well as other collateral.
</DIV>

<P align="center" style="font-size: 10pt">20
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Operating Leases</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, the Group&#146;s aggregate future minimum lease payments required under
its operating leases were RMB24,594&nbsp;million (US$3,048&nbsp;million). As of year end 2005, the Group&#146;s
operating leases had original terms generally ranging from eight to ten years from the date of
delivery of the relevant aircraft, and the remaining terms of these leases generally ranged from
one to ten years. Pursuant to the terms of the operating leases, the Group is obligated to make
rental payments based on the lease term, with no termination payment obligations or purchase
option, and the lessor bears the economic benefits and risks of ownership. Under its operating
leases, the Group has no option to purchase the aircraft and is required to return the aircraft in
the agreed condition at the end of the lease term. Although title to the aircraft remains with the
lessor, the Group is responsible during the lease term for the maintenance, servicing, insurance,
repair and overhaul of the aircraft.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to capital or operating leases, the Group is obligated to indemnify the lessors
against any withholding or similar taxes that may be imposed on the lessors by taxing authorities
in China with regard to payments made pursuant to such leases. In accordance with relevant PRC tax
regulations, a PRC lessee is liable to pay PRC withholding tax in respect of any lease payments
regularly made to an overseas lessor. Depending on the circumstances, this tax is generally imposed at a fixed rate ranging from 10%
to 20% of the lease payments, or in certain cases, the interest components of such payments.
Pursuant to an approval document from the State Taxation Bureau, lease arrangements executed prior
to September&nbsp;1, 1999 are exempt from PRC withholding tax. The PRC withholding tax payable in
respect of the operating leases executed after September&nbsp;1, 1999
of RMB8&nbsp;million, RMB23&nbsp;million and
RMB55&nbsp;million during 2003, 2004 and 2005 respectively, have been included as part of the operating
lease charges.
</div>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Aircraft Flight Equipment
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The jet engines used in the Group&#146;s aircraft fleet are manufactured by General Electric
Corporation, Rolls-Royce plc, United Technologies International, Inc., CFM International, Inc. and
International Aviation Engines Corporation. As of year end 2005, the
Group had 67 spare jet engines for its fleet. The Group determines its requirements for jet engines based on all
relevant considerations, including manufacturers&#146; recommendations, the performance history of the
jet engines and the planned utilization of its aircraft. Rotables and certain of the expendables
for the Group&#146;s aircraft are generally purchased by Southern Airlines (Group) Import &#038; Export
Trading Corporation (&#147;SAIETC&#148;), a subsidiary of CSAHC acting as agent for the Group, in
consideration of an agency fee. The Group arranges the ordering of aircraft, jet engines and other
flight equipment for the Airline Subsidiaries and keeps an inventory of rotables and expendables
for the Airline Subsidiaries.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Aircraft Maintenance
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A major part of the maintenance for the Group&#146;s fleet other than overhauls of jet engines is
performed by GAMECO, a jointly controlled entity established by the Company, Hutchison Whampoa
(&#147;Hutchison&#148;) and South China International Aircraft Engineering Company Limited, consistent with
the Group&#146;s strategy to achieve fully integrated airline operations and to assure continued access
to a stable source of high quality maintenance services. The remaining part of the maintenance for
the Group&#146;s fleet other than overhauls of jet engines is performed by service providers in China
and overseas. GAMECO performs all types of maintenance services, ranging from maintenance
inspections performed on aircraft before, after and between flights (&#147;line maintenance services&#148;)
to major overhaul performed at specified intervals. GAMECO was the first of three aircraft
maintenance facilities in China having been certified as a repair station by both the CAAC and the
FAA. In March&nbsp;1998, GAMECO received an approval certificate from the United Kingdom Civil Aviation
Authority for the repair and maintenance of aircraft and aircraft engines.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group believes that GAMECO performs major maintenance checks on the Group&#146;s aircraft
within time periods generally consistent with those of large international airline maintenance
centers. GAMECO&#146;s repair and maintenance capabilities include overhaul of more than 90% of the
Group&#146;s aircraft. Although rotables for the Group&#146;s aircraft are generally imported through SAIETC,
a portion of expendables and other maintenance materials are directly imported by GAMECO. GAMECO
also provides line maintenance services to 7 other Chinese airlines and 19 international
airlines. GAMECO provides heavy maintenance services to 5 other Chinese airlines and 11
international airlines.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company and GAMECO had entered into an Aircraft Maintenance and Engineering Agreement for
the provision of aircraft repair and maintenance services. On
May&nbsp;17, 1996, the Company and GAMECO
entered into an agreement regarding the fee arrangement for the provision of such repair and
maintenance services (the &#147;Fee Agreement&#148;). Pursuant to the Fee Agreement and subsequent
agreements, GAMECO charged the Company for expendables at cost plus 16%, and labour costs at
US$30 per hour during 2005. For the year ended December&nbsp;31, 2005, the amount incurred by the
Group for such repair and maintenance services was RMB535&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Overhauls of jet engines are performed by overseas qualified service providers in Germany,
Malaysia, Canada and England. Starting from 2003, MTU Maintenance Zhuhai Co., Ltd., (&#147;MTU Zhuhai&#148;)
a jointly controlled entity of the Company and MTU Aero Engines Gmbh., also performed overhauls of
certain jet engines for the Group. For the year ended December&nbsp;31, 2005, repair fees amounting to
RMB583&nbsp;million were paid to MTU Zhuhai.
</DIV>

<P align="center" style="font-size: 10pt">21
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Safety
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group endeavors to maintain strict compliance with all laws and regulations applicable to
flight safety. In addition, the Group has adopted measures to eliminate or minimize factors that
may impair flight safety, including specialized training programs and safety manuals. The Air
Safety Management Department of the Company implements safety-related training programs on an
ongoing basis in all of the Group&#146;s operations to raise the safety awareness of all employees. As a
result, overall flight safety has gradually improved. There were no serious incidents involving
casualty or flight damage throughout the three years ended December&nbsp;31, 2005. For minor &#147;incidents&#148;
which include various events and conditions prescribed by the CAAC which do not involve serious
personal injury or material damage to flight equipment, the Group has kept the number consistently
below the standard prescribed by the CAAC. For example, the Company&#146;s &#147;flight incident&#148; ratio was
0.13, 0.13 and 0.13 in 2003, 2004 and 2005, respectively. In comparison, CAAC&#146;s
published maximum acceptable flight incident ratio was 1.3 in 2003
and 0.9 in 2004 and 0.29 in 2005. This ratio is defined as the occurrence of one incident for every 10,000 hours of
flight time.</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Jet Fuel
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Jet fuel costs typically represent a major component of an airline&#146;s operating expenses. The
Group&#146;s jet fuel costs for 2005 accounted for 30.1% of the Group&#146;s operating expenses. Like all
Chinese airlines, the Group is generally required by the Chinese Government to purchase its jet
fuel requirements from regional branches of CAOSC and Bluesky Oil Supplies Company, except at the
Shenzhen, Zhuhai and Sanya airports which are supplied by Sino-foreign joint ventures in which
CAOSC is a joint venture partner. CAOSC is a State-owned organization controlled and supervised by
the CAAC that controls the importation and distribution of jet fuel throughout China.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Jet fuel obtained from CAOSC&#146;s regional branches is purchased at uniform prices throughout
China that are determined and adjusted by CAOSC from time to time with the approval of the CAAC and
the pricing department of the National Development and Reform Commission (&#147;NDRC&#148;) based on market
conditions and other factors. As a result, the costs of transportation and storage of jet fuel in
all regions of China are spread among all domestic airlines. Jet fuel costs in China are influenced
by costs at State-owned oil refineries and limitations in the transportation infrastructure, as
well as by insufficient storage facilities for jet fuel in certain regions of China.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior to 1994, domestic jet fuel prices were generally below international jet fuel prices.
The Chinese Government had gradually increased domestic jet fuel prices in order to reflect more
accurately the costs of supplying jet fuel in China. As a result, domestic jet fuel prices have
become higher than those in the international market since the beginning of 1994. With the WTO
entry, the jet fuel price in China will probably be trimmed by the market force to be in line with
the international market.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;CAOSC&#146;s maximum fuel price in 2005 was RMB5,220 per ton. The average price paid by the Group
in 2005 was RMB4,846 per ton, which represents a 28.47% increase from that of 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;According
 to the Notice of the National Development and Reform Commission
(&#147;NDRC&#148;) and the Civil Aviation
Administration of China (&#147;CAAC&#148;) on Issues Relating to Introduction of the Fuel Surcharge for
Domestic Routes, domestic airlines imposed fuel surcharges for all the domestic routes (excluding
those from the mainland PRC to Hong Kong and Macau) with effect from
August 1, 2005 (based on
flight time). On February 16, 2006, the NDRC and CAAC released a supplementary document on Issues
Relating to the Introduction of Fuel Surcharge for Domestic Routes, stating that due to the rising
 jet fuel price, the period of imposition of fuel surcharge by airlines was extended. On 28 March
2006, the NDRC and CAAC released another supplementary document on Issues Relating to the
Introduction of Fuel Surcharge for Domestic Routes, thereby adjusting the amount of fuel
surcharges from RMB20 to RMB30 per passenger for distance flown being less than 800 kilometres,
and from RMB40 to RMB60 for distance exceeding 800 kilometres, during the period temporarily
from April 10, 2006 to October 10, 2006. The introduction of fuel surcharge and the extension of
the duration of the same will help relieve, to a certain extent, the
burden of high jet fuel cost on
the Group.</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to purchases of jet fuel from CAOSC, the Group is also permitted by the Chinese
Government to purchase a portion of its jet fuel requirements for its international flights from
foreign fuel suppliers located outside China at prevailing international market prices. Jet fuel
purchased from such sources outside China accounted for approximately 20% of the Group&#146;s total jet
fuel consumption in 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Flight Operations
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Flight operations for the Group&#146;s flights originating in Guangzhou are managed by the
Company&#146;s flight operations and marketing divisions, which are responsible for formulating flight
plans and schedules consistent with route and flight approvals received from the CAAC. The
Company&#146;s flight operations center in Guangzhou is responsible for the on-site administration of
flights, including the dispatch and coordination of flights, deployment of aircraft, ground
services and crew staffing. In addition, each of the Airline Subsidiaries maintains flight
operations centers at all servicing airports for on-site administration of their flights. The
Company&#146;s general dispatch offices are responsible for monitoring conditions on the Group&#146;s route
network, administering the Group&#146;s flight plans, collecting and monitoring navigation data and
analyzing and monitoring airport conditions.
</DIV>

<P align="center" style="font-size: 10pt">22
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To enhance its management of flight operations, the Group&#146;s computerized flight operations
control system (SOC)&nbsp;began operation in May&nbsp;1999. The system utilizes advanced computer and
telecommunications technology to manage the Group&#146;s flights on a centralized, realtime basis. The
Group believes that the system will assist it to (i)&nbsp;compile flight schedules more efficiently;
(ii)&nbsp;increase the utilization of aircraft; (iii)&nbsp;allow real-time tracking of all of the Group&#146;s
flights; and (iv)&nbsp;improve coordination of the Group&#146;s aircraft maintenance and ground servicing
functions.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Training of Pilots and Flight Attendants
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group believes that its pilot training program which was established in cooperation with
the CAAC affiliated Beijing Aeronautics and Aviation University (the &#147;BAAU&#148;) has significantly
improved the quality of the training received by the Group&#146;s pilots and has helped maintain the
quality of the Group&#146;s staff of pilots at a level consistent with the expansion of operations
called for by the Group&#146;s business strategy.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the Group&#146;s pilot training program, trainees have two years of theoretical training at the
BAAU. After successful completion of academic and physical examinations, students receive flight
training for a period of approximately 20&nbsp;months at China Southern West Australian Flying College
Pty Ltd. (the &#147;Australian Pilot College&#148;), a company that is 65% owned by the Company and 35% owned
by CSAHC. Each student at the Australian Pilot College is required to fly at least 230 hours before
being awarded a flight certificate. Graduates of the BAAU and the Australian Pilot College are
hired by the Group as trainee pilots after passing a CAAC-administered examination to obtain a
pilot license. The total training period for the Group&#146;s trainee pilots is approximately five
years. About 110 trainee pilots graduated from the Australian Pilot College each year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior to January&nbsp;2003, as part of the pilot training program, the Group also operated a flight
simulator training center in Zhuhai, Guangdong Province (the &#147;Zhuhai Training Center&#148;), which was
equipped with simulators for all models of aircraft currently operated by the Group. Trainee pilots
received their initial training in the operation of a specific aircraft at the Zhuhai Training
Center, which also provided training to pilots from other Chinese airlines. Such flight simulation
training has been shifted to Zhuhai Xiang Yi Aviation Technology Company Limited (&#147;Zhuhai Xiang
Yi), a jointly controlled entity between the Company and CAE International Holdings Limited, since
January&nbsp;2003. Zhuhai Xiang Yi currently leases the flight simulation facilities of Zhuhai Training
Center from the Group and provides flight simulation training services to the Group.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group&#146;s pilots are required to be licensed by the CAAC, which requires an annual
recertification examination. The Group&#146;s pilots attend courses in simulator training twice annually
and in simulator emergency procedures annually. The Group also conducts regular advanced training
courses for captains and captain candidates. Pilots advance in rank based on number of hours flown,
types of aircraft flown and their performance history.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group conducts theoretical and practical training programs for its flight attendants at
its Flight Attendants Training Center in Guangzhou (the &#147;Guangzhou Training Center&#148;). The Guangzhou
Training Center is equipped with computerized training equipment, as well as simulator cabins for
all models of aircraft currently operated by the Group. At the Guangzhou Training Center, flight
attendants of the Group receive comprehensive training in areas such as in-flight service,
emergency evacuation and water rescue.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Ground Services
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group makes arrangements with airport authorities, other airlines or ground services
companies for substantially all ground facilities, including jet-ways, waiting areas, ticket
counters and support services buildings, at each airport that it serves. The Group pays landing,
parking and other fees to such airports, including Baiyun International Airport in Guangzhou. At
domestic airports, such fees are generally determined by the CAAC.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At new Baiyun International Airport in Guangzhou, the Group operates its own passenger
check-in, cargo, mail and baggage handling, aircraft maintenance and cleaning services. The Group
also provides such services to other airlines that operate in new Baiyun International Airport.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Ground services at the airports in Shenzhen, Changsha,Wuhan, Zhengzhou, Haikou, Zhuhai,
Xiamen, Fuzhou, Guilin, Shantou, Guiyang and Beihai are primarily operated directly by the Group.
Ground services at other airports in China are provided to the Group by local airport authorities
or local airlines pursuant to various service agreements. Ground services and other services at
airports outside China are provided to the Group by foreign services providers pursuant to various
service agreements with such parties. All such agreements of the Group are short term and otherwise
on terms that are customary in the industry.
</DIV>

<P align="center" style="font-size: 10pt">23
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Air Catering
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company owns a 75% equity interest in Guangzhou Nanland Air Catering Company Limited
(&#147;Nanland&#148;). Nanland provides in-flight meals, snacks, drinks and related services for all of the
Group&#146;s flights originating in Guangzhou and substantially all other flights departing from new
Baiyun International Airport. The Group contracts with various air catering suppliers with respect
to in-flight catering services for flights originating from other airports, generally on an annual
basis and otherwise on terms that are customary in the industry.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cargo and Mail
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group also provides air cargo and mail services. A significant portion of these services
is combined with passenger flights services. Currently, the Group also has two Boeing 747-400
freighters servicing three international cargo routes, Shenzhen to
Chicago and Shenzhen to Shanghai to Belgium and Shanghai
to Amsterdam.</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Currently, the Group conducts its cargo business primarily through its cargo division in
Shenzhen. To further tap into the growing cargo market, the Group has commenced the construction of
a cargo centre in the Guangzhou new airport in 2004 and the construction was completed in 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sales, Reservations and Marketing
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Passenger Ticket Sales and Reservations</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group&#146;s ticket sales and reservations are conducted by or through independent sales agents
and the Group&#146;s own network of exclusive sales offices as well as the CAAC&#146;s sales offices and
CSAHC&#146;s affiliates. The Group has sales offices in Guangzhou and its other route bases. In
addition, the Group maintains regional sales offices in other cities in China, including Beijing
and Shanghai. The Group maintains international sales offices in Bangkok, Manila, Hanoi, Ho Chi
Minh City, Singapore, Kuala Lumpur, Penang, Jakarta and Phnom Penh in Southeast Asia, as well as in
Sendai, Toyame, Hiroshima, Nagoya, Niigata, Osaka, Fukuoka, Tokyo,
Seoul, Daejeon, Daegu, Busan Amsterdam, Los Angeles, Sydney,
Paris, Melbourne and Sharjah.</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In Hong Kong, ticket sales and reservations services are provided to the Group by China
National Aviation Corporation and Nanlung Travel Agency Limited (a subsidiary of CSAHC) for a
commission of 3% &#150; 9% of the ticket price. The Group also has agency agreements
with airlines in the Asia-Pacific region, Europe, the United States and Africa for the processing
of ticket sales and reservations on a reciprocal basis. In 2005,
approximately 30%
of all ticket sales for the Group&#146;s scheduled flights were made by the Group&#146;s and CAAC&#146;s network
of sales offices and CSAHC&#146;s affiliates. The Group also sells tickets and accepts reservations
through an extensive network of non-exclusive independent sales agents, substantially all of whom
operate in cities throughout China, with the remainder operating principally in Hong Kong and other
Southeast Asian destinations served by the Group. Under the agency agreements with these sales
agents, the Group pays commissions based on the value of tickets sold. The Group pays independent
sales agents in China a commission of 3% of the ticket price, and pays independent
sales agents outside China a commission ranging from 5% &#150; 9% of the ticket price.
Sales agents are typically permitted to withhold their commission from the proceeds of ticket sales
that are remitted to the Group. In 2005, independent sales agents
accounted for approximately 70% of the Group&#146;s ticket sales for its scheduled flights.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Substantially all of the Group&#146;s sales offices and agents in China are linked electronically
to the CAAC&#146;s computerized ticketing and reservations system, which is in turn linked to all
domestic airlines for flights throughout China. The Group has also entered into membership
agreements with several international reservation systems, including ABACUS in Southeast Asia,
SABRE and GALILEO in the United States, AMADEUS in Europe and INFINI in Japan. These systems
facilitate reservations and sales of tickets for the Group&#146;s international flights.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Cargo</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group&#146;s cargo and mail services are promoted through its own cargo divisions and
independent cargo agents both within and outside China that track available space among all
airlines. In particular, the Group employs a number of cargo agents in the Pearl River delta
region. The Group generally pays such agents a commission of 4% &#150; 5% of the
relevant cargo freight rate for domestic and international services, respectively.
</DIV>

<P align="center" style="font-size: 10pt">24
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Promotional and Marketing Activities</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group engages in regular promotional and marketing activities in an effort to increase its
market share. The Group&#146;s promotional and marketing activities for domestic routes emphasize
safety, passenger comfort and the frequency of the Group&#146;s flights. The Group&#146;s promotional and
marketing activities for international and Hong Kong regional passengers emphasize the Group&#146;s
quality of service, extensive route network in China and greater frequency of flights relative to
other Chinese airlines. In addition, the Group also promotes and markets its Hong Kong regional and
international routes on the basis of price.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group has been seeking to increase its name recognition by offering new services to
passengers. For example, the Group was the first Chinese airline to provide off-airport check-in
services. The Group also offers transfer and baggage &#147;through-handling&#148; services to passengers
connecting to other airlines, including passengers connecting in Hong Kong for flights to Taiwan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To enhance relationships with its passengers, the Group has launched two frequent flyer
programs, namely the &#147;China Southern Airlines Sky Pearl Club&#148;, and the &#147;Egret Mileage Plus&#148;. By the
end of 2005, the Group had approximately 4,055,600 members under these programs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Regulation
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Chinese commercial aviation industry is subject to a high degree of regulation and
oversight by the CAAC. Regulations and policies issued or implemented by the CAAC encompass
substantially all aspects of airline operations, including the approval of domestic, Hong Kong
and Macau and international route allocation, published airfares, aircraft acquisition, jet fuel
prices and standards for aircraft maintenance, airport operations and air traffic control. The
Civil Aviation Law, which became effective in March&nbsp;1996, provides a framework for regulation of
many of these aspects of commercial aviation activities. Although China&#146;s airlines operate under
the supervision and regulation of the CAAC, they are accorded an increasingly significant degree of
operational autonomy, including with respect to the application for domestic, Hong Kong and Macau
and international routes, the allocation of aircraft among routes, the purchase of flight
equipment, the pricing of air fares within a certain range, the training and supervision of
personnel and their day-to-day operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As an airline providing services on international routes, the Group is also subject to a
variety of bilateral civil air transport agreements that provide for the exchange of air traffic
rights between China and various other countries. In addition, China is a contracting state, as
well as a permanent member, of the International Civil Aviation Organization (the &#147;ICAO&#148;), an
agency of the United Nations established in 1947 to assist in the planning and development of
international air transport, and is a party to many other international aviation conventions. The
ICAO establishes technical standards for the international aviation industry. The Group believes
that it, in all material respects, complies with all such technical standards.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Route Rights</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Domestic Routes</I>. The right of any Chinese airline to carry passengers or cargo on any domestic
route must be obtained from the CAAC. Non-Chinese airlines are not permitted to provide domestic
air service between destinations in China. The CAAC&#146;s policy is to assign a domestic route to the
Chinese airline that is best suited to serve the route based, in part, on the location of the
airline&#146;s main or regional base at the point of origin. Under current regulations, airlines are
generally expected to operate mainly from their route bases, and flights within a particular region
are expected to be served by airlines based in that region. The Group believes that these
regulatory parameters benefit airlines, such as the Group, that have a large number of regional
route bases. The CAAC also considers other factors that may make a particular airline suitable to
operate a domestic route, including the applicant&#146;s general operating authority, compliance with
pricing regulations and regulations applicable to safety and service quality, market demand, the
ability of the applicant in terms of its existing routes, and airport facilities and related
support services.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The CAAC considers market conditions for a domestic route in determining whether the route
should be allocated to one or more airlines. The CAAC requires the passenger load factor on a
particular route to reach 75% before additional flights may be added on that route. Airlines
serving the route are given priority for such additional flights, and only if such airlines cannot
operate more flights will the CAAC permit another airline to commence service.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Hong
Kong and Macau Routes</I>. Hong Kong and Macau routes and landing rights are derived from
agreements between the Chinese Government and the government of the Hong Kong SAR, and between the
Chinese Government and the government of Macau SAR. Such rights are allocated by the CAAC among the
four Chinese airlines permitted to fly to Hong Kong or Macau. The Group understands that the criteria for determining whether a Hong Kong and Macau route
will be allocated to a particular airline, include market demand, the ability of the airline to
service the route and the appropriateness of the airline&#146;s aircraft for such route.</DIV>

<P align="center" style="font-size: 10pt">25
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A number of
Hong Kong routes are operated by Chinese airlines on a &#147;charter&#148; flight basis. Permission
to operate these flights is in theory subject to monthly review by the CAAC and the Hong Kong Civil
Aviation Department. The CAAC has informally indicated that it primarily considers market demand
and airline capability in granting permission for such flights.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>International Routes</I>. International route rights, as well as the corresponding landing rights,
are derived from air services agreements negotiated between the Chinese Government, through the
CAAC, and the government of the relevant foreign country. Each government grants to the other the
right to designate one or more domestic airlines to operate scheduled service between certain
destinations within each of such countries. Upon entering into an air services agreement, the CAAC
determines the airline to be awarded such routes based on various criteria, including the
availability of appropriate aircraft, flight and management personnel, safety record, the overall
size of the airline, financial condition and sufficiency of assets to bear civil liabilities in
international air services. These route rights may be terminated by the CAAC under special
circumstances.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The criteria for determining whether an international route will be allocated to a second
airline generally include (i)&nbsp;the terms of the relevant bilateral civil aviation agreement; (ii)
consistency with overall national plans and the national interest and the enhancement of reasonable
competition; and (iii)&nbsp;whether the international airports to be used are sufficient for the
aircraft flown and employ security measures consistent with international standards.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, if the relevant bilateral civil aviation agreement permits more than one Chinese
airline to operate a particular international route, the CAAC will only permit a second airline to
operate on such route if the number of passengers carried annually exceeds 100,000 and if there is
a minimum average load factor of 68% for routes with at least five weekly flights by Chinese
airlines, or 80% for routes with four or fewer weekly flights by Chinese airlines.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Air Fare Pricing Policy</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to &#147;Pricing Reform of Domestic Civil Aviation&#148; as approved by the State Council of
the PRC effective on April 20, 2004, prices on domestic routes now fluctuate freely within a
predetermined range. Instead of direct supervision by setting prices of air tickets through local
price bureau, the government now provides guidance on domestic flights and domestic civil aviation
is controlled by the government indirectly. Market-oriented pricing policy was introduced and
pricing system has been adjusted as a result of the above pricing reform.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Published air fares of Chinese airlines for the Hong Kong and Macau routes are determined by
the CAAC and the relevant civil aviation authorities in Hong Kong or Macau, subject to consultation
between the relevant Chinese airlines and Hong Kong or Macau airlines. Airlines may offer discounts
on flights on their Hong Kong regional routes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Published air fares of Chinese airlines for international routes are determined through
consultation between the relevant Chinese airlines and foreign airlines in accordance with the
civil aviation agreements between the Chinese Government and the relevant foreign government,
taking into account the international air fare standards established through the International Air
Transport Association. All air fares for international routes must be approved by the CAAC.
Discounting of published international air fares is permitted.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Acquisition of Aircraft and Flight Equipment</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The CAAC requires all Chinese airlines to acquire their aircraft through China Aviation
Supplies Import and Export Corporation (&#147;CASC&#148;), an entity controlled by the CAAC. If a Chinese
airline plans to acquire an aircraft, the airline must first seek approval from the CAAC and NDRC.
The airline must, as a condition of approval, provide specific acquisition plans, which are subject
to modification by the CAAC and NDRC. If the CAAC and NDRC approve an aircraft acquisition, the
airline negotiates the terms of the acquisition with the manufacturer together with CASC because
CASC possesses the license required to import or export aircraft, and CASC receives a commission in
respect thereof. Most Chinese airlines are also required to acquire their aircraft engines, spare
parts and other flight equipment through CASC. The Company and a few other Chinese airlines are
permitted to import jet engines and other flight equipment for their own use without the
participation of CASC. In the case of the Company, SAIETC acts as its importer agent and is paid an
agency fee for its services.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Jet Fuel Supply and Pricing</I>
</DIV>

<P align="center" style="font-size: 10pt">26
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;CAOSC and Bluesky Oil Supplies Company, companies controlled and supervised by the CAAC, are
the only jet fuel supply companies in China, with the exception of the joint venture jet fuel
supply companies that supply the Shenzhen, Zhuhai and Sanya airports, in each of which CAOSC is a
partner. Airlines are generally not permitted to buy jet fuel from other suppliers in their
domestic operations, since the direct import of jet fuel for domestic purposes is prohibited. As a
result, all Chinese airlines purchase their domestic jet fuel supply requirements (other than in
respect of their Shenzhen, Zhuhai or Sanya operations) from the seven regional branches of CAOSC.
Jet fuel obtained from such regional branches is purchased at uniform prices throughout China that
are determined and adjusted by CAOSC from time to time with the approval of the CAAC and the
pricing department of the NDRC based on market conditions and other factors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Safety</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The CAAC has made the improvement of air traffic safety in China a high priority and is
responsible for the establishment of operational safety, maintenance and training standards for all
Chinese airlines. The Chinese airlines are required to provide monthly flight safety reports to the
CAAC, including reports of flight or other incidents or accidents and other safety related problems
involving such airline&#146;s aircraft occurring during the relevant reporting period. The CAAC
periodically conducts safety inspections on individual airlines.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The CAAC oversees the standards of all Chinese airline pilots through its operation of the
CAAC Aviation College. The CAAC Aviation College is a monitoring unit located in Tianjin which
implements a uniform pilot certification process applicable to all Chinese airline pilots and is
responsible for the issuance, renewal, suspension and cancellation of pilot licenses. Every pilot
is required to pass CAAC-administered examinations before obtaining a pilot license and is subject
to an annual recertification examination.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All aircraft operated by Chinese airlines, other than a limited number of leased aircraft
registered in foreign countries, are required to be registered with the CAAC. All aircraft operated
by Chinese airlines must have a valid certificate of airworthiness, which is issued annually by the
CAAC. In addition, maintenance permits are issued to a Chinese airline only after its maintenance
capabilities have been examined and assessed by the CAAC. Such maintenance permits are renewed
annually. All aircraft operated by Chinese airlines may be maintained and repaired only by
CAAC-certified maintenance facilities, whether located within or outside China. Aircraft
maintenance personnel must be certified by the CAAC before assuming aircraft maintenance posts.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Security</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The CAAC establishes and supervises the implementation of security standards and regulations
for the Chinese commercial aviation industry. Such standards and regulations are based on Chinese
laws, as well as standards developed by international commercial aviation organizations. Each
airline and airport in China is required to submit to the CAAC an aviation security handbook
describing specific security procedures established by such airline or airport for the day-to-day
operations of commercial aviation and procedures for staff training on security. Such security
procedures must be based on relevant CAAC regulations and international commercial aviation
treaties. Chinese airports and airlines that operate international routes must also adopt security
measures in accordance with the requirements of the relevant international agreements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Noise and Environmental Regulation</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All airlines in China must comply with the noise and environmental regulations of the PRC
State Environmental Protection Agency. Applicable regulations of the CAAC permit Chinese airports
to refuse take-off and landing rights to any aircraft that does not comply with noise regulations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Chinese Airport Policy</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The CAAC supervises and regulates all civilian airports in China. The local government of the
PRC manages the administration of most civilian airports in China, including the new Baiyun
International Airport as of 2005, with limited exceptions. Airports in China are also subject to
regulation and ongoing review by the CAAC, which determines take-off and landing charges, as well
as charges for the use of airports and airport services.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Competition</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The CAAC&#146;s extensive regulation of the Chinese commercial aviation industry has had the effect
of managing competition among Chinese airlines. Nevertheless, competition has become increasingly
intense in recent years due to a number of factors, including relaxation of certain regulations by the CAAC, an increase in the number of Chinese airlines
and an increase in the capacity, routes and flights of Chinese airlines.</DIV>

<P align="center" style="font-size: 10pt">27
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the Chinese aviation industry, the three dominant airlines are the Group, Air China and
China Eastern Airlines (&#147;China Eastern&#148;). In 2005, these three airlines together controlled
approximately 74.84% of the commercial aviation market in China as measured by
passengers carried.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Most major Chinese airlines have in recent years significantly expanded their fleets, while at
the same time, passenger traffic has not increased proportionately. This has resulted in a
reduction in the passenger load factors for most Chinese airlines. As a result, Chinese airlines
are required to be more competitive with respect to, for example, quality of service, including
ticketing and reservations, in-flight services, flight scheduling and timeliness.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group expects that competition in China&#146;s commercial aviation industry will continue to be
intense. The Group will also face increasing competition from alternative means of transport, such
as highway and rail, as China&#146;s transportation infrastructure improves.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Relative to other Chinese airlines, however, the Group believes that it possesses certain
competitive advantages. The Group has the most extensive route network and the largest number of
regional route bases among Chinese airlines, which the Group believes places it in a favorable
position in the route allocation process. The Group also has the largest aircraft fleet of any
Chinese airline, which, together with the Group&#146;s planned aircraft acquisitions, will permit the
Group to expand its operations and to improve the deployment of the aircraft in its fleet. The
Group also believes that its dominant presence in the populous and economically developed southern
and central regions of China provides it with a competitive advantage in attracting new customers
and that its fully integrated flight training, aircraft and engine maintenance, and air catering
operations enable it to achieve and maintain high quality service to its customers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth the Group&#146;s market share of passengers carried, cargo and mail
carried and total traffic of Chinese airlines for the years indicated.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="1%" nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%" nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%" nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%" nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%" nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%" nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Total traffic</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>Passenger carried</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>Cargo and Mail Carried (tons)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>(ton kilometers)</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Industry</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Group&#146;s</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Industry</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Group&#146;s</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Industry</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Group&#146;s</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Year</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Share</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Share</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Share</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(in million)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(% of total)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(in thousand)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(% of total)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(in billion)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(% of total)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">1999</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,704</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18.9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,967</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,709</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">85.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,021</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21.9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">87.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,190</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20.8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">121.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,770</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap>138.3</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap>31.8</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap>3,067</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap>25.3</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap>26.1</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap>27.9</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Domestic Routes</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group competes against its domestic competitors primarily on the basis of flight schedule,
route network, quality of service, safety, type and age of aircraft and, to a lesser extent and
until recently, price. The Group competes against 10 other Chinese airlines in its various domestic
route markets. Of these competitors, the largest are two airlines owned or controlled by the
Chinese Government, and the remaining eight airlines are operated by or under the control of
various Chinese provincial or municipal governments.
</DIV>

<P align="center" style="font-size: 10pt">28
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>


<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth the Group&#146;s market share of the passengers carried, cargo and
mail carried on departing flights and total departing flights at the ten busiest airports in China,
based on passenger volume, in 2005.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Cargo and Mail</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Passenger carried</B></TD>
   <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Carried</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Departing flight</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Airport</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>(% of total)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>(% of total)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>(% of total)</B></TD>

</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Beijing</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">19.14</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">19.06</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">17.95</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shanghai Pudong</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">9.86</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">5.13</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">10.38</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Guangzhou</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">54.71</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">45.10</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">53.75</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shanghai Hongqiao</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">18.18</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">18.41</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">16.95</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shenzhen</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">33.08</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">31.59</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">29.98</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Chengdu</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">13.99</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">17.07</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">10.72</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Kunming</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">21.71</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">18.27</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">18.24</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Hangzhou</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">38.31</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">32.91</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">35.00</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Xian</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">14.75</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">19.69</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">10.18</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Haikou</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">30.26</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">33.19</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">23.73</TD>
    <TD nowrap>%</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth the Group&#146;s market share of the passengers carried, cargo and
mail carried on departing flights and total departing flights at 8 busiest airports in southern and
central China (excluding Guangzhou, Shenzhen and Haikou, which are included in the table above),
based on passenger volume, in 2005.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Cargo and Mail</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Passenger carried</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Carried</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Departing flight</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Airport</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>(% of total )</B></TD>
    <TD>&nbsp;</TD>
        <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>(% of total)</B></TD>
    <TD>&nbsp;</TD>
        <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>(% of total)</B></TD>
    </TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Changsha</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">51.60</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">71.54</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">47.39</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Wuhan Tianhe</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">39.60</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">43.56</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">33.79</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Guilin</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">38.90</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">38.26</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">38.69</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sanya</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">43.45</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">29.70</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">40.33</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Zhengzhou</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">71.79</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">61.78</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">59.17</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Nanning</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">43.60</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">40.67</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">35.27</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Zhang Jia Jie</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">40.45</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">80.56</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">38.33</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shantou</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">81.64</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">80.67</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">69.55</TD>
    <TD nowrap>%</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Hong Kong and Macau Routes</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group dominates the routes operated by Chinese airlines between Hong Kong and Macau and
China. In 2005, the Group operated an average of more than 17,807 &#147;charter&#148; and
other scheduled flights per week between China and Hong Kong or Macau, accounting for approximately
34.4% of the total number of passengers carried by all Chinese airlines on the Hong
Kong and Macau routes. The Group believes that the routes on which it operates &#147;charter&#148; flights
are among its highest yielding routes, primarily because the Group faces limited competition on
such routes and is consequently less subject to downward pricing pressures. Dragon Air, which is a
Hong Kong-based airline, competes with the Group on many of the Group&#146;s Hong Kong and Macau routes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Air Macau Group Ltd. (&#147;Air Macau&#148;), a Macau-based airline, started to operate routes in 1996
between Macau and China, including destinations such as Beijing, Shanghai, Xiamen and Wuhan. Air
Macau also operates routes between Macau and Taiwan, including flights which allow passengers to
travel between Taiwan and China through Macau. The air fares on some of Air Macau&#146;s routes are
significantly less than air fares on comparable routes of the Group. Air Macau&#146;s routes provide an
alternative to and compete with the Group&#146;s Hong Kong and Macau routes for passengers travelling
between Taiwan and China.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>International Routes</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group competes with Air China, China Eastern and many well-established foreign airlines on
its international routes. Most of these international competitors have significantly longer
operating histories, substantially greater financial and technological resources and greater name
recognition than the Group. In addition, the public&#146;s perception of the safety and service records
of Chinese airlines may adversely affect the Group&#146;s ability to compete against its Hong Kong
and Macau and international competitors. Many of the Group&#146;s international competitors have larger
sales networks and participate in reservation systems that are more comprehensive and convenient
than those of the Group, or engage in promotional activities that may enhance their ability to
attract international passengers.
</DIV>

<P align="center" style="font-size: 10pt">29
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Air China has the most extensive international route network among Chinese airlines. Beijing,
the hub of Air China&#146;s operations, has been the destination for most international flights to
China. The Group competes against, among other airlines, Thai Airways International, Singapore
Airlines, Malaysian Airlines System, Air China and China Eastern on flights to Southeast Asian
destinations. In the case of its European routes, the Group&#146;s competitors include Air France &#151; KLM.
The Group faces competition on its international route from Air China and China Eastern, each of
which operates several routes between destinations in China and the United States, as well as
international airlines that fly to Los Angeles from Hong Kong. The Group competes in the
international market primarily on the basis of safety, price, timeliness and convenience of
scheduling.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Airline Subsidiaries</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Airline Subsidiaries are joint ventures established by the Company and local companies in
the provinces or special economic zones where the Airline Subsidiaries are based and are engaged in
providing airline and related services. Except for Guangxi Airlines, of which the Company has 95% equity interest, the Company owns 60% equity interest in each of the remaining Airline
Subsidiaries.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, Xiamen Airlines operated under its own &#147;MF&#148; code a fleet of 34
aircraft on 96 domestic routes, 9 international route and 7 Hong Kong and Macau routes. In 2005, Xiamen Airlines carried a total of about 6.92&nbsp;million
passengers, or approximately 15.7% of the passengers carried by the Group in that year, and had
RMB4,852&nbsp;million in operating revenue.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of December&nbsp;31, 2005, Shantou Airlines operated under the Group&#146;s &#147;CZ&#148; code 6 aircraft on
12 domestic routes, 1 international route and 1 Hong
Kong and Macau route. In 2005, Shantou Airlines carried a total of about 1.17&nbsp;million passengers, or
2.7% of the passengers carried by the Group in that year. Total operating revenue of Shantou
Airlines for the year ended December&nbsp;31, 2005 was RMB844&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of December&nbsp;31, 2005, Guangxi Airlines operated under the
&#147;CZ&#148; code 5 aircraft on 15 domestic routes, 4 international
routes and 2 Hong Kong
and Macau routes. In 2005, Guangxi Airlines carried a total of about 1.03&nbsp;million passengers, or
2.3% of the total number of passengers carried by the Group in that year. Total operating revenue
of Guangxi Airlines for the year ended December&nbsp;31, 2005 was RMB722&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of December&nbsp;31, 2005, Zhuhai Airlines operated under the
&#147;CZ&#148; code 5 aircraft on 10 domestic routes. In 2005, Zhuhai Airlines carried a total of about 834,000 passengers, or
approximately 1.9% of the total number of passengers carried by the Group in that year. Total
operating revenue of Zhuhai Airlines for the year ended December&nbsp;31, 2005 was RMB719&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of December&nbsp;31, 2005, Guizhou Airlines operated under the
&#147;CZ&#148; code 6 aircraft on 14 domestic routes. In 2005, Guizhou Airlines carried a total of about 1.34&nbsp;million
passengers, or approximately 3.0% of the total number of passengers carried by the Group in 2005.
Total operating revenue of Guizhou Airlines was approximately RMB882&nbsp;million for the year ended
December&nbsp;31, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Insurance
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The CAAC maintains fleet and legal liability insurance on behalf of the Group and all other
Chinese airlines with the People&#146;s Insurance Company of China (&#147;PICC&#148;) under the PICC master
policy. The Group maintains aviation hull all risks, spares and airline liability insurance,
aircraft hull all risks and spare engines deductible insurance, aviation hull war and allied perils
policy of the type and in the amount customary in the Chinese aviation industry.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under Chinese law, civil liability of Chinese airlines for injuries suffered by passengers on
domestic flights is limited to RMB70,000 (approximately US$8,455)
per passenger. Under the Convention for the Unification of Certain Rules&nbsp;Relating to International
Transportation by Air of 1929 (as amended by the protocol of 1955, the &#147;Warsaw Convention&#148;), unless
a separate agreement has been entered into between China and a specific country, civil liability
for injuries suffered by passengers on international flights is
limited to US$135,000 per passenger. The Group believes that it maintains adequate insurance coverage for the
maximum civil liability that can be imposed in respect of injuries to passengers under Chinese law,
the Warsaw Convention or any separate agreement applicable to the Group.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The CAAC allocates insurance premiums payable in respect of the PICC master policy to each
participating airline based on the value of the airline&#146;s insured aircraft or, in the case of
leased aircraft, based on the amount required by the terms of the lease. Insurance claims made by
any participating airline may cause the premiums paid by the Group
under the PICC master policy to increase. PICC&#146;s practice has
been to reinsure a substantial portion of its aircraft insurance
business through reinsurance brokers on the London reinsurance market.
</DIV>

<P align="center" style="font-size: 10pt">30
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Intellectual Property
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group&#146;s businesses and operations, other than the businesses and operations of Xiamen
Airlines, are conducted under the names &#147;China Southern&#148; and &#147;China Southern Airlines&#148; in both
English and Chinese. The Group uses as its logo a stylized rendition of a kapok plant. Xiamen
Airlines conducts its businesses and operations under the name of &#147;Xiamen Airlines&#148; in English and
Chinese and uses its own logo depicting a stylized rendition of an egret.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The names &#147;China Southern&#148; and &#147;China Southern Airlines&#148; contain Chinese words of common usage
and are therefore not eligible for registration as tradenames under current Chinese law. The kapok
logo is a trademark registered in China and recorded with the International Air Transport
Association (&#147;IATA&#148;), the rights to which are owned by CSAHC. The Company and CSAHC have entered
into a trademark license agreement (the &#147;Trademark License Agreement&#148;), pursuant to which CSAHC has
licensed to the Group the right to use the names &#147;China Southern&#148; and &#147;China Southern Airlines&#148; in
both English and Chinese and granted the Company a 10-year renewable license from 1997 to use the
kapok logo on a world-wide basis. CSAHC has retained the right to use the kapok logo in connection
with its non-airline related businesses conducted as of the date of the Trademark License Agreement
and to permit its affiliates that do not compete, directly or indirectly, with the Group to use the
kapok logo. Xiamen Airlines owns all rights to its egret logo, which is a trademark registered in
China, and recorded with the IATA.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company owns all rights to three trademarks, being SKY PEARL CLUB, the logo relating to
Easy Cargo 5000 and &#147;SKY PEARL CARD&#148; which are registered in China, and recorded with Trademark
Office of the State Administration for Industry and Commerce. Zhuhai Airlines Company Limited owns
all rights to the airline logo which is registered with the Trademark Office of the State
Administration for Industry and Commerce.
</DIV>
<DIV align="left">
<A name="116"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Organizational Structure</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following chart illustrates the corporate structure of the Group as of year end 2005 and
the aggregate effective equity interest of the Company in each of its principal subsidiaries,
affiliated companies and jointly controlled entities.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><IMG src="h00571h0057101.gif" alt="(FLOW CHART)">
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Note a:
Another 26% ownership interest is held by CSA&#146;s subsidiaries.
</DIV>



<P align="center" style="font-size: 10pt">31
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The particulars of the Company&#146;s principal subsidiaries as of December&nbsp;31, 2005 are as
follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Place and date of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>establishment</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Proportion of ownership</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Name of company</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>/operation</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>interest held by the Company</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Guangxi Airlines Company Limited
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">PRC<BR>April&nbsp;28, 1994
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">95</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Southern Airlines (Group) Shantou Airlines Company Limited
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">PRC<BR> July&nbsp;20, 1993
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">60</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Zhuhai Airlines Company Limited
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">PRC<BR>May&nbsp;8, 1995
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">60</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Xiamen Airlines Company Limited
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">PRC<BR>August&nbsp;11, 1984
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">60</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Guizhou Airlines Company Limited
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" valign="top">PRC<BR>November&nbsp;12, 1991
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">60</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Guangzhou Air Cargo Company Limited
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">PRC<BR>March&nbsp;31, 2004
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">70</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Guangzhou Nanland Air Catering Company Limited
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">PRC<BR> November&nbsp;21, 1989
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">75</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">China Southern West Australian Flying College Pty Ltd.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Australia<BR> January&nbsp;26, 1971
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">65</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Guangzhou Baiyun International Logistic Company Ltd
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">PRC<BR>July&nbsp;23, 2002
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">61</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Xinjiang Civil Aviation Property Management Limited
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">PRC<BR> February&nbsp;12, 2002
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">51.8</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Affiliated Companies and Jointly Controlled Entities
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The particulars of the Group&#146;s principal affiliated companies and jointly controlled entity as
of December&nbsp;31, 2005 are as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Proportion of ownership</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Place and date of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>interest held by</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>establishment</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Group</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Name of company</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>/operation</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>effective interest</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>The Company</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>Subsidiaries</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Guangzhou Aircraft Maintenance Engineering Company Limited
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" valign="top">PRC <BR>October&nbsp;28, 1989
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">50</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">50</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&#151;</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">China Southern Airlines Group Finance Company Limited
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">PRC <BR>June&nbsp;28, 1995
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">49.3</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">32</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">26</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Sichuan Airlines Corporation Limited
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">PRC <BR>August&nbsp;28, 2002
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">39</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">39</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&#151;</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">China Postal Airlines Limited
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" valign="top">PRC <BR>November&nbsp;25, 1996
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">49</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">49</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&#151;</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">MTU Maintenance Zhuhai Co. Ltd
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">PRC <BR>April&nbsp;6, 2001
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">50</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">50</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&#151;</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Zhuhai Xiang Yi Aviation Technology Company Limited
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">PRC <BR>July&nbsp;10, 2002
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">51</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">51</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&#151;</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Beijing Southern Airlines Ground Service Company Limited
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">PRC <BR>April&nbsp;1, 2004
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">50</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">50</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain of the Company&#146;s subsidiaries, affiliated companies and jointly controlled entities
are PRC joint ventures which have limited duration pursuant to PRC law.
</DIV>
<DIV align="left">
<A name="117"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Property, Plant and Equipment</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For a discussion of the Group&#146;s aircraft, see Item&nbsp;4, &#147;Information on the Company &#151; History
and development of the Company &#151; Aircraft Fleet.&#148;
</DIV>

<P align="center" style="font-size: 10pt">32
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Group&#146;s headquarters in Guangzhou occupy an area of approximately 149,000 square meters of land and a total gross floor area of approximately
149,000 square
meters. The Group leases from CSAHC the land in Guangzhou on which the Group&#146;s headquarters and
other facilities are located. The Group also leases from CSAHC
certain buildings at the Wuhan and
Haikou airports.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s principal properties are located at its headquarters site and at its route
bases. The following table sets forth certain information with respect to the Company&#146;s properties
at its headquarters in Guangzhou and certain route bases as of the date hereof.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Land</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Buildings</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>(in square meters)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>(in square meters)</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Owned</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Leased</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Owned</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Leased</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Guangzhou</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,797</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">80,809</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">514,957</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,755</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shenzhen</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">208,740</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54,093</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Zhuhai</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">170,062</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,791</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Changsha</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">138,949</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47,190</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Zhengzhou</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">290,841</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60,582</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Haikou</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,265</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">63,570</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,633</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Wuhan</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,061</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,335</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Nanyang</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,156</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following table sets forth certain information with respect to the properties of the Airline
Subsidiaries as of the date hereof.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Land</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Buildings</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>(in square meters)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>(in square meters)</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Owned</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Leased</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Owned</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Leased</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Xiamen</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">451,121</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">355,038</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,509</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shantou</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36,931</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55,407</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,624</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Zhuhai</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">68,186</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54,398</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,135</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Guilin</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">72,563</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">73,379</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">139</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Guizhou</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">259,879</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">93,390</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,533</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As systems for registration and transfer of land use rights and related real property
interests in China have been implemented relatively recently, such systems do not yet
comprehensively account for all land and related property interests. The land in Guangzhou on which
the Group&#146;s headquarters and other facilities are located and the buildings that the Group uses at
its route base in Wuhan and Haikou are leased by the Company from CSAHC. However, CSAHC lacks
adequate documentation evidencing CSAHC&#146;s rights to such land and buildings, and, as a consequence,
the lease agreements between CSAHC and the Company for such land may not be registered with the
relevant authorities. Lack of registration may affect the validity of such lease agreements. There
are certain other parcels of land and buildings owned or used by the Group that lack adequate
documentation. Lack of adequate documentation for land use rights and ownership of buildings may
impair the ability of the Group to dispose of or mortgage such land use rights and buildings.
</DIV>


<DIV align="left">
<A name="118"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following discussion and analysis should be read in conjunction with the Financial
Statements of the Group contained elsewhere in this Annual Report. The Group maintains its books
and accounts in accordance with PRC Accounting Rules and Regulations (&#147;PRC GAAP&#148;) and prepares its
financial statements in accordance with both PRC GAAP and IFRS. The Financial Statements contained
elsewhere in this Annual Report have been prepared in accordance with IFRS. IFRS differs in certain
significant respects from U.S. GAAP. Information relating to the nature and effect of such
differences is presented in Note 51 to the Financial Statements.</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain
IFRS comparative figures have been restated as a result of the
changes in accounting policies. For details, please refer to item 3.
</DIV>

<P align="center" style="font-size: 10pt">33
</DIV>
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="119"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Critical Accounting Policies</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The discussion and analysis of the Group&#146;s financial condition and results of operations are
based upon the consolidated financial statements, which have been prepared in accordance with IFRS.
The preparation of such consolidated financial statements requires the Group to make estimates and
judgments that affect the reported amount of assets and liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities at the date of the consolidated financial
statements. Actual results may differ from these estimates under different assumptions or
conditions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Critical accounting policies are defined as those that are reflective of significant judgments
and uncertainties, and potentially result in materially different results under different
assumptions and conditions. The Group believes that its critical accounting policies are limited to
those described below. For a detailed discussion on the application of these and other accounting
policies, see Note 2 to the Financial Statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenue Recognition
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group records sales of passenger, cargo and mail tickets as &#147;Sales in advance of
carriage&#148;, a current liability, on the consolidated balance sheet. Passenger, cargo and mail
revenues are recognized and the related current liability is reduced when the transportation is
provided. Sales in advance of carriage therefore represents ticket sold for future travel dates and
estimated future refunds and exchanges of tickets sold for past travel dates. The Group&#146;s balance of sales in
advance of carriage as of December&nbsp;31, 2005 was RMB1,413&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Property, plant and equipment
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Group has approximately RMB54,266&nbsp;million fixed assets as of December&nbsp;31, 2005. In
addition to the original cost of these assets, their recorded value is impacted by a number of
policy elections, including the estimation of useful lives and residual values and when necessary,
impairment charges.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There were no significant changes to the original estimated useful lives or residual values of
the property, plant and equipment of the Group during 2003, 2004 and 2005. The Group records
aircraft at acquisition cost. Depreciable life is determined through economic analysis, reviewing
existing fleet plans, recommendations from manufacturers and comparing estimated lives to other
airlines that operate similar fleets. Residual values are estimated based on our historical
experience with regards to the sale of aircraft and are established in conjunction with the
estimated useful lives of the aircraft. Residual values are based on current dollars when the
aircraft are acquired and typically reflect asset values that have not reached the end of their
physical life. Both depreciable lives and residual values are reviewed periodically to recognize
changes in our fleet plan and changes in conditions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, the Group evaluates fixed assets used in operations for impairment. Under IFRS,
if circumstances indicate that the net book value of an asset may not be recoverable, this asset
may be considered &#147;impaired&#148;, and an impairment loss may be recognized in accordance with IAS 36
&#147;Impairment of Assets&#148;. The amount of impairment loss is the difference between the carrying amount
of the asset and its recoverable amount. The recoverable amount is the greater of the net selling
price and the value in use. In determining the value in use, the Group utilizes certain
assumptions, including, but not limited to: (i)&nbsp;estimated fair market value of the assets, and (ii)
estimated future cash flows expected to be generated by these assets, which are based on additional
assumptions such as asset utilization, length of service the asset will be used in the Group&#146;s
operations and estimated residual values. The Group will use all readily available information in
determining an amount that is a reasonable approximation of recoverable amounts, including
estimates based on industry trends and reference to market rates and transactions. Changes to the
above estimates may have a material effect on the Group&#146;s Financial Statements. As of December&nbsp;31,
2005, based on the result of evaluation, the Group considered that no impairment is required. Under
U.S. GAAP, property, plant, and equipment of the Group are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of
an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the
carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is
recognized by the amount by which the carrying amount of the asset exceeds the fair value of the
asset. During 2003, the impairment losses of RMB510&nbsp;million was recognized on certain aircraft of
CNA.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Impairment loss for doubtful accounts</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Group maintains an impairment loss for doubtful accounts for
estimated losses resulting from the inability of the debtors to make
required payments. The Group bases the  estimates of future cash
flows on the ageing of the trade receivables balance, debtors&#146; credit-worthiness, and historical write-off experience. If the financial condition of the debtors were to deteriorate, actual write-offs would be higher than estimated.</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Movements
in impairment losses for doubtful accounts are as follows:</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Year ended December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">At January 1</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">70</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Impairment
losses for bad and doubtful accounts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Through the
CNA/XJA Acquistions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Bad and
doubtful accounts written off</DIV></TD>
    <TD>&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD align="right" style="border-bottom: 1px solid #000000">(49</TD>
    <TD align="left" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD align="right" style="border-bottom: 1px solid #000000">(48</TD>
    <TD align="left" nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">At December 31</DIV></TD>
    <TD>&nbsp;</TD>
    <TD style="border-bottom: 3px double #000000">&nbsp;</TD>
    <TD align="right" style="border-bottom: 3px double #000000">92</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-bottom: 3px double #000000">&nbsp;</TD>
    <TD align="right" style="border-bottom: 3px double #000000">44</TD>
    <TD>&nbsp;</TD>
</TR>
</TABLE>
</DIV>

<P align="center" style="font-size: 10pt">34
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="120"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Overview</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a result of the growth in airline market, and acquisition of the airline
operations and related assets of China Northern Airlines Company (&#147;CNA&#148;) and Xinjiang Airlines
Company (&#147;XJA&#148;), the Group&#146;s business benefited from the increase of transport capacity, passenger
volume and cargo and mail carried. Nevertheless, the Group is facing pressure on its operation due
to continuing increase of jet fuel cost and intensified competition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With effect from July&nbsp;21, 2005, China began to adopt a managed floating exchange rate system
based on market supply and demand of currencies, which is subject to adjustments with reference to
a basket of currencies. The exchange rate of Renminbi
(&#147;RMB&#148;) would no longer be pegged to the US
dollar only and a more flexible exchange rate system was established. The exchange rate of U.S.&nbsp;dollar and RMB was at USD1.00: RMB8.11. Because the Group finances its aircraft acquisitions
mainly through finance leases or bank loans in U.S.&nbsp;dollars, and there are a substantial amount of
transactions and obligations denominated in U.S.&nbsp;dollars in relation to its global purchase of jet
fuel, lease and purchase of aviation equipment as well as major repairs, in addition to the
landing fees of its international flights in the airports of other countries, the Group benefited
from the RMB appreciation. RMB appreciation has brought a one-off exchange gain to the Group and
reduced its operating costs which are denominated in foreign currencies. On the other hand, RMB
appreciation will also present the Group with a challenge in price competition in international
route operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;According to the Notice of the National Development and Reform Commission (&#147;NDRC&#148;) and the
Civil Aviation Administration of China (&#147;CAAC&#148;) on Issues Relating to Introduction of the Fuel
Surcharge for Domestic Routes, domestic airlines imposed fuel surcharges for all the domestic
routes (excluding those from the mainland PRC to Hong Kong and Macau) with effect from August&nbsp;1,
2005 (based on flight time). On February&nbsp;16, 2006, the NDRC and CAAC released a supplementary
document on Issues Relating to the Introduction of Fuel Surcharge for Domestic Routes, stating
that due to the rising jet fuel price, the period of imposition of fuel surcharge by airlines was
extended. On March&nbsp;28, 2006, the NDRC and CAAC released another supplementary document on Issues
Relating to the Introduction of Fuel Surcharge for Domestic Routes, thereby adjusting the amount
of fuel surcharges from RMB20 to RMB30 per passenger for distance flown being less than 800
kilometres, and from RMB40 to RMB60 for distance exceeding 800 kilometres, during the period
temporarily from April&nbsp;10, 2006 to October&nbsp;10, 2006. The introduction of fuel surcharge and the
extension of the duration of the same will help relieve, to a certain extent, the burden of high
jet fuel cost on the Group.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group&#146;s operating revenue is substantially dependent on the passenger and cargo traffic
volume carried, which is subject to seasonal and other changes in traffic patterns, the
availability of appropriate time slots for the Group&#146;s flights and alternative routes, the degree
of competition from other airlines and alternate means of transportation, as well as other factors
that may influence passenger travel demand and cargo and mail volume. In particular, the Group&#146;s
airline revenue is generally higher in the second and third quarters than in the first and fourth
quarters.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Like most airlines, the Group is subject to a high degree of financial and operating leverage.
A significant percentage of the Group&#146;s operating expenses is fixed costs that do not vary
proportionally based on the Group&#146;s yields or the load factors. These fixed costs include
depreciation expense, jet fuel costs, landing and navigation fees, financing costs, operating lease
payments, aircraft maintenance costs and labor for flight crew, cabin crew and ground personnel.
Thus, a minor change in the Group&#146;s yields or load factors would have a material effect on the
Group&#146;s results of operations. In addition, certain of these expenses, primarily financing costs
and operating lease payments, labor costs and depreciation do not vary based on the number of
flights flown. Thus, the Group&#146;s operating results can also be substantially affected by minor
changes in aircraft utilization rates. The Group is and will continue to be highly leveraged with
substantial obligations denominated in foreign currencies and, accordingly, the results of its
operations are significantly affected by fluctuations in foreign exchange rates, particularly for
the U.S. dollar and the Japanese yen. The Group recognized a net exchange loss of RMB59&nbsp;million and
net exchange gain of RMB1,220&nbsp;million in 2004 and 2005, respectively. These amounts represented
mainly unrealized exchange differences resulting from the retranslation of the foreign currency
borrowings.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A number of other external variables, including political and economic conditions in China,
tend to have a major impact on the Group&#146;s performance. The Group&#146;s financial performance is also
significantly affected by factors arising from operating in a regulated industry. As substantially
all aspects of the Group&#146;s airline operations are regulated by the PRC government, the Group&#146;s
operating revenues and expenses are directly affected by the PRC government&#146;s policies with respect
to domestic airfares, jet fuel prices and landing and navigation fees, among others. The nature and
extent of airline competition and the ability of Chinese airlines to
expand are also affected by
CAAC&#146;s control
</DIV>

<P align="center" style="font-size: 10pt">35
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">over route allocations. Any changes in the PRC government&#146;s regulatory policies, or
any implementation of such policies could have a significant impact on the Group&#146;s future
operations and its ability to implement its operating strategy.
</DIV>
<DIV align="left">
<A name="121"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Certain Financial Information and Operating Data by Geographic Region</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth certain financial information and operating data by geographic
region for the years ended December&nbsp;31, 2003, 2004 and 2005:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>Year ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004 vs. 2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2005 vs. 2004</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>% increase/</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>% increase/</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>(decrease)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>(decrease)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Traffic</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">RPK (million)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Domestic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,294</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,121</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51,472</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76.8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Hong Kong and Macau</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">778</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,203</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,549</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28.8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">International</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,315</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,872</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,902</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">59.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,387</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,196</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">66.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">RTK (million)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Domestic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,424</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,206</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,571</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">73.8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Hong Kong and Macau</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">78</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">120</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">159</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">International</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,059</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,337</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,554</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,561</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,663</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,284</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Passengers carried (thousand)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Domestic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,259</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,545</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Hong Kong and Macau</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,019</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,394</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,556</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">International</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,192</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,811</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,018</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">66.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,470</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,207</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44,119</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56.4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cargo and mail carried (thousand tons)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Domestic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">379</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">442</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">639</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Hong Kong and Macau</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">International</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">73</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">88</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">117</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">464</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">545</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">775</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42.2</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>Year ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004 vs. 2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2005 vs. 2004</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>% increase/</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>% increase/</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>(decrease)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>(decrease)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Capacity</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">ASK (million)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Domestic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32,590</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,330</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">72,107</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Hong Kong and Macau</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,347</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,896</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,656</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">International</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,930</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,543</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,598</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,867</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53,769</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">88,361</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64.3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">ATK (million)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Domestic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,772</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,773</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,352</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Hong Kong and Macau</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">211</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">315</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49.3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">International</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,999</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,842</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15.4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,921</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,446</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,509</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Load Factors</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Passenger load factor (RPK/ASK) (%)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Domestic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">70.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">71.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Hong Kong and Macau</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">63.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(8.0</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">International</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Overall</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">70.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Overall load factor (RTK/ATK) (%)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Domestic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">66.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.7</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Hong Kong and Macau</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(11.4</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">International</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Overall</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">63.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Yield</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Yield per RPK (RMB)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Domestic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.58</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.55</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5.2</TD>
    <TD nowrap>)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">36
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>Year ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004 vs. 2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2005 vs. 2004</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>% increase/</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>% increase/</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>(decrease)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>(decrease)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Hong Kong and Macau</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.96</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.92</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.77</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4.2</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(16.3</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">International</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.47</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.46</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.56</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2.1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Overall</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.55</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3.5</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Yield per RTK (RMB)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Domestic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.53</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4.2</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Hong Kong and Macau</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.35</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.83</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5.0</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(16.8</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">International</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.90</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.31</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.24</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Overall</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.76</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.14</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Financial IFRS</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Passenger revenue (RMB million)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Domestic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,242</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,869</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,182</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Hong Kong and Macau</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">750</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,104</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,194</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">International</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,018</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,127</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,952</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58.4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,328</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cargo and mail revenue (RMB million)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,955</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,244</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,091</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>U.S. GAAP</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Passenger revenue (RMB million)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Domestic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,679</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,773</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,182</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13.8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Hong Kong and Macau</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">781</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,151</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,194</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">International</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,978</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,519</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,952</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,438</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,443</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,328</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12.8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cargo and mail revenue (RMB million)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,459</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,792</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,091</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.7</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left">
<A name="122"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Operating Results</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The historical results of operations discussed below may not be indicative of the Group&#146;s
future operating performance. In addition to the factors discussed under &#147;Overview&#148; above, the
Group&#146;s future operations will be affected by, among other things, changes in the aviation market,
the cost of jet fuel, aircraft acquisition and leasing costs, aircraft maintenance expenses,
take-off and landing charges, wages, salaries and benefits and other operating expenses, foreign
exchange rates and the rates of income taxes paid.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2005 Compared with 2004
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The loss for 2005 attributable to equity shareholders of the Company is RMB1,848&nbsp;million, as
compared to a loss of RMB48&nbsp;million for 2004. The scale of operations increased as a result of
acquisition of the airline operations and related assets of CNA and XJA on December&nbsp;31, 2004. The
Group&#146;s operating revenue increased by RMB14,319&nbsp;million or 59.7% from RMB23,974&nbsp;million in 2004 to
RMB38,293&nbsp;million in 2005. Passenger load factor increased by 0.9&nbsp;percentage point from 69.2% in
2004 to 70.1% in 2005. Passenger yield (in passenger revenue per RPK) decreased slightly by 3.5% to
RMB0.55. Average yield (in traffic revenue per RTK) increased by 2.6% from RMB5.01 in 2004 to
RMB5.14 in 2005. Operating expenses increased by RMB16,533&nbsp;million or 71.7% from RMB23,065&nbsp;million
in 2004 to RMB39,598&nbsp;million in 2005. As the increase in operating revenue is smaller than the
increase in operating expenses, operating profit decreased by 243.6% from an operating profit of
RMB909&nbsp;million in 2004 to an operating loss of RMB1,305&nbsp;million in 2005. The Group&#146;s net
non-operating expenses decreased by 20.5%, from RMB689&nbsp;million in 2004 to RMB548&nbsp;million in 2005,
mainly attributable to the combined effect of increase in exchange gain of RMB1,279&nbsp;million,
increase in interest expense of RMB925&nbsp;million and a decrease in share of results of associates of
RMB295&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Operating revenue</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Substantially all of the Group&#146;s operating revenue is attributable to airline and airline
related operations. Traffic revenue accounted for 97.7% and 97.4% of total operating revenue in
2005 and 2004 respectively. Passenger revenue and, cargo and mail revenue accounted for 91.7% and
8.3% respectively of total traffic revenue in 2005. The other operating revenue is mainly derived
from commission income, income from general aviation operations, fees charged for ground services
rendered to other Chinese airlines and air catering services.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Operating revenue increased by 59.7% from RMB23,974&nbsp;million in 2004 to RMB38,293&nbsp;million in
2005. The increase was primarily due to a 62.7% rise in passenger revenue from RMB21,100&nbsp;million in
2004 to RMB34,328&nbsp;million in 2005 resulting from increased traffic volume. The total number of
passengers carried increased by 56.4% to 44.12&nbsp;million passengers and the ASKs increased by 64.3%
to 88,361&nbsp;million in 2005. The increase in 2005 compared to 2004 was attributable to the general
increasing traffic demand in the PRC airline market and deliveries of 108 aircraft during 2005
which caused an increase in passenger capacity of 68.1%.
</DIV>

<P align="center" style="font-size: 10pt">37
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Passenger yield decreased slightly by RMB0.02. RPKs increased by 66.5% from 37,196&nbsp;million in
2004 to 61,923&nbsp;million in 2005, primarily as a result of the increase in passengers carried.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Domestic passenger revenue, which accounted for 82.1% of the total passenger revenue in 2005,
increased by 67.1% from RMB16,869&nbsp;million in 2004 to RMB28,182&nbsp;million in 2005. Domestic passenger
traffic in RPKs increased by 76.8%, mainly due to an increase in passengers carried. Domestic
passenger yield decreased slightly by RMB0.03 to RMB0.55 in 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Hong Kong and Macau passenger revenue, which accounted for 3.5% of total passenger revenue,
increased by 8.2% from RMB1,104&nbsp;million in 2004 to RMB1,194&nbsp;million in 2005. For Hong Kong and
Macau flights, passenger traffic in RPKs increased by 28.8%, while passenger capacity in ASKs
increased by 40.1%, resulting in a 5.1&nbsp;percentage point decrease in passenger load factor from
2004. Passenger yield decreased from RMB0.92 in 2004 to RMB0.77 in 2005 mainly due to intensified
competition among airlines.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;International passenger revenue, which accounted for 14.4% of total passenger revenue,
increased by 58.4% from RMB3,127&nbsp;million in 2004 to RMB4,952&nbsp;million in 2005. For international
flights, passenger traffic in RPKs increased by 29.5%, while passenger capacity in ASKs increased
by 29.0%, resulting in a 0.3&nbsp;percentage point rise in passenger load factor from 2004. Passenger
yield increased by 21.7% from RMB0.46 in 2004 to RMB0.56 in 2005 mainly resulted from higher ticket
price and the increases in traffic derived from short haul routes which generally had a higher
yield than long haul routes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cargo and mail revenue, which accounted for 8.3% of the Group&#146;s total traffic revenue and 8.1%
of total operating revenue, increased by 37.7% from RMB2,244&nbsp;million in 2004 to RMB3,091&nbsp;million in
2005. The increase was attributable to the increasing traffic demand.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other operating revenue increased by 38.7% from RMB630&nbsp;million in 2004 to RMB874&nbsp;million in
2005. The increase was primarily due to the general growth in income from various auxiliary
operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Operating expenses</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total operating expenses in 2005 amounted to RMB39,598&nbsp;million, representing an increase of
71.7% or RMB16,533&nbsp;million over 2004, primarily due to the total effect of increases in jet fuel
costs, maintenance expenses and aircraft and traffic servicing expenses. Total operating expenses
as a percentage of total operating revenue increased from 96.2% in 2004 to 103.4% in 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Flight operations expenses, which accounted for 49.0% of total operating expenses, increased
by 86.2% from RMB10,418&nbsp;million in 2004 to RMB19,394&nbsp;million in 2005, primarily as a result of
increases in jet fuel costs, operating lease payments, catering expenses and labour costs for
flight personnel. Jet fuel costs, which accounted for 61.5% of flight operations expenses,
increased by 97.2% from RMB6,050&nbsp;million in 2004 to RMB11,929&nbsp;million in 2005 mainly as a result of
increased fuel prices and fuel consumption. Operating lease payments increased by 50.0% from
RMB1,665&nbsp;million in 2004 to RMB2,497&nbsp;million in 2005 primarily due to the additional rental
payments for new aircraft under operating leases. Catering expenses increased by 69.6% from RMB705
million in 2004 to RMB1,196&nbsp;million in 2005 due to the increase in number of passengers carried.
Aircraft insurance costs decreased by 43.2% from RMB185&nbsp;million in 2004 to RMB105&nbsp;million in 2005,
mainly because of the decrease in insurance premiums in 2005. Labour costs for flight personnel
increased by 57.8% from RMB1,026&nbsp;million in 2004 to RMB1,619&nbsp;million in 2005, largely due to the
increase in flying hours and allowance standard.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Maintenance expenses which accounted for 11.6% of total operating expenses, increased by 32.7%
from RMB3,459&nbsp;million in 2004 to RMB4,589&nbsp;million in 2005. The increase was mainly attributable to
the fleet expansion in recent years.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Aircraft and traffic servicing expenses, which accounted for 14.5% of total operating
expenses, increased by 64.4% from RMB3,503&nbsp;million in 2004 to RMB5,759&nbsp;million in 2005. The
increase primarily resulted from a 51.8% rise in landing and navigation fees from RMB3,222&nbsp;million
in 2004 to RMB4,891&nbsp;million in 2005, due to an increase in number of landing and takeoffs.
</DIV>

<P align="center" style="font-size: 10pt">38
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Promotional and marketing expenses, which accounted for 7.0% of total operating expenses,
increased by 43.3% from RMB1,940&nbsp;million in 2004 to RMB2,780&nbsp;million in 2005. The increase was
mainly resulted from the increase in sales volume, resulting in a 41.5% increase in sales
commission expenses from RMB1,062&nbsp;million in 2004 to RMB1,503&nbsp;million in 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;General and administrative expenses, which accounted for 6.2% of the total operating expenses,
increased by 85.7% from RMB1,323&nbsp;million in 2004 to RMB2,457&nbsp;million in 2005. This was mainly
attributable to increased scale of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation and amortisation, which accounted for 11.2% of total operating expenses,
increased by 84.0% from RMB2,413&nbsp;million in 2004 to RMB4,440&nbsp;million in 2005, mainly resulting from
the additional depreciation charge on aircraft delivered in 2004 and 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Operating(loss))/Profit</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There is an operating loss of RMB1,305&nbsp;million in 2005 as compared to an
operating profit of RMB909&nbsp;million in 2004. This was mainly because operating revenue increased by
RMB14,319&nbsp;million or 59.7% in 2005 while operating expenses increased by RMB16,533&nbsp;million or 71.7%
in the same period.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Non-operating income/(expenses)</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest expense increased by 133.9% from RMB691&nbsp;million in 2004 to RMB1,616&nbsp;million in 2005,
mainly due to the increase in loans and lease obligations and interest rate. Interest income
increased by 150.0% from RMB22&nbsp;million in 2004 to RMB55&nbsp;million in 2005, mainly attributable to the
increase of interest rate.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 2005, the Group recorded a net exchange gain of RMB1,220&nbsp;million (2004: Net exchange
loss of RMB59&nbsp;million) mainly resulted from Renminbi appreciation in July&nbsp;2005. Such amount
represents mainly unrealised translation exchange gain, resulting from exchange gains on translated
year end foreign currency denominated liabilities, rather than foreign exchange transactions
incurred during the year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Taxation</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The statutory income tax rate in the PRC is 33%. Except for certain branches and subsidiaries,
the Company and its subsidiaries are entitled to enjoy a preferential tax rate of 15% pursuant to
approval documents issued by the relevant tax authorities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2005,
the Group recorded an income tax benefit of RMB7 million and actual effective tax rate was 0.4%
while the Group&#146;s enacted tax rate is 15%. The difference is mainly due to the fact that a
portion of tax loss is not recognized, the deferred tax effect of which is RMB135 million. In
2004, income tax expense of RMB65 million was recorded and actual effective tax rate was 30%
while the Group&#146;s enacted tax rate in 2004 was 15%. The difference is mainly due to the tax
effect of non-deductible expenses of RMB29 million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2004 Compared with 2003
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group recorded a net loss of RMB48&nbsp;million attributable to equity shareholder for 2004, as
compared to a net loss of RMB358&nbsp;million attributable to equity shareholder for 2003. The Group&#146;s
operating revenue increased by RMB6,504&nbsp;million or 37.2% from RMB17,470&nbsp;million in 2003 to
RMB23,974&nbsp;million in 2004. Passenger load factor increased by 4.6&nbsp;percentage point from 64.6% in
2003 to 69.2% in 2004. Passenger yield (in passenger revenue per RPK) remain steady and at RMB0.57
in both years. Average yield (in traffic revenue per RTK) increased by 5.3% from RMB4.76 in 2003 to
RMB5.01 in 2004. Operating expenses increased by RMB6,051&nbsp;million or 35.6% from RMB17,014&nbsp;million
in 2003 to RMB23,065&nbsp;million in 2004. As operating revenue increased more than operating expenses,
operating profit increased by 99.3% from RMB456&nbsp;million in 2003 to RMB909&nbsp;million in 2004. The
Group&#146;s net non-operating expenses decreased by 30.1%, from RMB967&nbsp;million in 2003 to RMB676
million in 2004, mainly attributable to a decrease in unfavourable movement in foreign exchange
differences of RMB105&nbsp;million and a decrease in interest expense of RMB133&nbsp;million. Overall, the
Group recorded a net loss of RMB48&nbsp;million in 2004, as compared to a net loss of RMB358&nbsp;million in
2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Operating revenue</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Substantially all of the Group&#146;s operating revenue is attributable to airline and airline
related operations. Traffic revenue in 2004 and 2003 accounted for 97.4% and 97.1% respectively of
total operating revenue. Passenger revenue and, cargo and mail revenue accounted for 90.4% and 9.6%
respectively of total traffic revenue in 2004. The balance of the Group&#146;s operating revenue is
derived
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">from commission income, income from general aviation operations, fees charged for ground
services rendered to other Chinese airlines and air catering services.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Operating revenue increased by 37.2% from RMB17,470&nbsp;million in 2003 to RMB23,974&nbsp;million in
2004. This increase was primarily due to a 40.6% rise in passenger revenue from RMB15,010&nbsp;million
in 2003 to RMB21,100&nbsp;million in 2004 resulting from increased traffic volume. The PRC airline
industry has fully recovered from the outbreak of severe acute respiratory syndrome (&#147;SARS&#148;) in
China since August&nbsp;2003. Coupling with the continued growth in domestic economic conditions, the
aviation traffic volume in China attained a new highest record in 2004. The total number of
passengers carried increased by 37.8% to 28.2&nbsp;million passengers in 2004. The increase in 2004
compared to 2003 was attributable to the general increasing traffic demand in the PRC airline
market and deliveries of 20 aircraft (excluding effect of CNA/XJA Acquisitions) during 2004 which
caused an increase in passenger capacity of 31.6%. RPKs increased by 41.0% from 26,387&nbsp;million in
2003 to RMB37,196&nbsp;million in 2004, primarily as a result of an increase in passengers carried.
Passenger yield remained constant at RMB0.57.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Domestic passenger revenue, which accounted for 79.9% of the total passenger revenue in 2004,
increased by 37.8% from RMB12,242&nbsp;million in 2003 to RMB16,869&nbsp;million in 2004. Domestic passenger
traffic in RPKs increased by 36.8%, mainly due to an increase in passengers carried. Passenger
yield remained steady in 2004 and at RMB0.58. Included in the 2004 domestic passenger revenue was
fuel surcharge imposed on domestic flights of approximately RMB281&nbsp;million (2003: RMB716&nbsp;million).
Excluding the effect of fuel surcharge revenue, the passenger yield increased from RMB0.54 in 2003
to RMB0.57 in 2004 as a combined result of the growth in traffic demand and fleet expansion during
2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Hong Kong passenger revenue, which accounted for 5.3% of total passenger revenue, increased by
47.2% from RMB750&nbsp;million in 2003 to RMB1,104&nbsp;million in 2004. For Hong Kong regional flights,
passenger traffic in RPKs increased by 54.6%, while passenger capacity in ASKs increased by 40.8%,
resulting in a 5.6&nbsp;percentage point increase in passenger load factor from 2003. Passenger yield
decreased from RMB0.96 in 2003 to RMB0.92 in 2004 mainly due to intensified competition among
airlines. Included in 2004 Hong Kong passenger revenue was fuel surcharge imposed on Hong Kong
regional flights of approximately RMB67&nbsp;million (2003: RMB24&nbsp;million). Excluding the effect of fuel
surcharge revenue, the passenger yield decreased from RMB0.93 in 2003 to RMB0.86 in 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;International passenger revenue, which accounted for 14.8% of total passenger revenue,
increased by 55.0% from RMB2,018&nbsp;million in 2003 to RMB3,127&nbsp;million in 2004. For international
flights, passenger traffic in RPKs increased by 59.3%, while passenger capacity in ASKs increased
by 52.1%, resulting in a 2.9&nbsp;percentage point rise in passenger load factor from 2003. Passenger
yield decreased by 2.1% from RMB0.47 in 2003 to RMB0.46 in 2004 mainly resulted from the increases
in traffic derived from long haul routes which generally had a lower yield than short haul routes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cargo and mail revenue, which accounted for 9.6% of the Group&#146;s total traffic revenue and 9.4%
of total operating revenue, increased by 14.8% from RMB1,955&nbsp;million in 2003 to RMB2,244&nbsp;million in
2004. The increase was attributable to the increasing traffic demand.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other operating revenue increased by 24.8% from RMB505&nbsp;million in 2003 to RMB630&nbsp;million in
2004. The increase was primarily due to the general growth in income from various auxiliary
operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Operating expenses</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Substantially all of the Group&#146;s operating expenses result from its airline operations. The
vast majority of such expenses relate directly to flight operations, aircraft and traffic
servicing, aircraft repair and maintenance and to depreciation and amortisation in respect of
aircraft and flight equipment. Expenses associated directly with the Group&#146;s flight operations
(collectively, &#147;flight operations expenses&#148;) include fuel costs, operating lease payments, catering
expenses, aircraft insurance, flight personnel payroll and welfare and training expenses. Expenses
associated directly with repairs and maintenance in respect of the Group&#146;s aircraft (collectively,
&#147;repairs and maintenance expenses&#148;) include repairs and maintenance and overhaul charges, the costs
of consumables and other maintenance materials and labour costs for maintenance personnel. Expenses
associated directly with the Group&#146;s aircraft and traffic servicing operations (collectively
&#147;aircraft and traffic servicing expenses&#148;) include landing and navigation fees, rental payments and
charges in respect of terminal and other ground facilities and labour costs for ground personnel.
The balance of the Group&#146;s operating expenses result from promotional and marketing activities
(collectively, &#147;promotional and marketing expenses&#148;) such as sales commissions, fees for use of the
CAAC&#146;s reservation system, ticket-printing and sales office expenses, advertising and promotional
expenses, and from general and administrative expenses, such as administrative salaries and welfare
and other personnel benefits and office expenses.
</DIV>

<P align="center" style="font-size: 10pt">40
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total operating expenses in 2004 amounted to RMB23,065&nbsp;million, representing an increase of
35.6% or RMB6,051&nbsp;million over 2003, primarily due to the combined effect of increases in jet fuel
costs, maintenance expenses and aircraft and traffic servicing expenses. Total operating expenses
as a percentage of total operating revenue decreased from 97.4% in 2003 to 96.2% in 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Flight operations expenses, which accounted for 45.2% of total operating expenses, increased
by 47.4% from RMB7,070&nbsp;million in 2003 to RMB10,418&nbsp;million in 2004, primarily as a result of
increases in jet fuel costs, operating lease payments, catering expenses, labour costs for flight
personnel and inclusion of CAAC Infrastructure Development Fund of RMB466&nbsp;million in operating
expenses which is an usage charge since 2004 but was a turnover-based levy and deducted against the
traffic revenue in 2003. Jet fuel costs, which accounted for 58.1% of flight operations expenses,
increased by 56.5% from RMB3,867&nbsp;million in 2003 to RMB6,050&nbsp;million in 2004 mainly as a result of
increased fuel prices and fuel consumption. Operating lease payments increased by 8.4% from
RMB1,536&nbsp;million in 2003 to RMB1,665&nbsp;million in 2004, primarily due to the additional rental
payments for new aircraft under operating leases. Catering expenses increased by 38.2% from RMB510
million in 2003 to RMB705&nbsp;million in 2004, primarily due to increased passenger carried. Aircraft
insurance costs decreased by 5.6% from RMB196&nbsp;million in 2003 to RMB185&nbsp;million in 2004, primarily
because of a decrease in insurance premiums prescribed by the PRC insurance company. Labour costs
for flight personnel increased by 40.9% from RMB728&nbsp;million in 2003 to RMB1,026&nbsp;million in 2004,
largely due to the increase in flying hours.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Maintenance expenses which accounted for 15.0% of total operating expenses, increased by 33.6%
from RMB2,589&nbsp;million in 2003 to RMB3,459&nbsp;million in 2004. The increase was primarily attributable
to an 32.9% increase in aircraft overhaul charges from RMB2,377&nbsp;million in 2003 to RMB3,158&nbsp;million
in 2004, as resulted from fleet expansion in recent years.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Aircraft and traffic servicing expenses, which accounted for 15.2% of total operating
expenses, increased by 26.6% from RMB2,767&nbsp;million in 2003 to RMB3,503&nbsp;million in 2004. The
increase primarily resulted from an 25.7% rise in landing and navigation fees from RMB2,563&nbsp;million
in 2003 to RMB3,222&nbsp;million in 2004, due to an increase in number of landing and takeoffs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Promotional and marketing expenses, which accounted for 8.4% of total operating expenses,
increased by 31.1% from RMB1,480&nbsp;million in 2003 to RMB1,940&nbsp;million in 2004. The increase was due
to 44.4% increase in labour costs from RMB225&nbsp;million in 2003 to RMB325&nbsp;million in 2004, as more
payments of performance bonus were made because of the increased traffic volume.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;General and administrative expenses, which accounted for 5.7% of the total operating expenses,
increased by 25.6% from RMB1,053&nbsp;million in 2003 to RMB1,323&nbsp;million in 2004. This was mainly
attributable to increased scale of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation and amortisation, which accounted for 10.5% of total operating expenses,
increased by 18.4% from RMB2,038&nbsp;million in 2003 to RMB2,413&nbsp;million in 2004. This increase was
primarily as a result of the additions of aircraft during 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Operating profit</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Operating profit increased by 99.3% from RMB456&nbsp;million in 2003 to RMB909&nbsp;million in 2004.
This was mainly because operating revenue increased by RMB6,504&nbsp;million or 37.2% from 2003 and
operating expenses increased by RMB6,051&nbsp;million or 35.6% over the same period.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Non-operating income/(expenses)</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest expense decreased by 16.1% from RMB824&nbsp;million in 2003 to RMB691&nbsp;million in 2004,
mainly reflecting the combined effect of scheduled debt repayments and the replacement of certain
RMB denominated bank loans of higher interest rates with US$ denominated bank loans of lower
interest rates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest income increased by 69.2% from RMB13&nbsp;million in 2003 to RMB22&nbsp;million in 2004. This
was mainly attributable to an increase in average cash balances.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 2004, the Group recorded a net exchange loss of RMB59&nbsp;million (2003:RMB164&nbsp;million)
mainly from its Japanese yen denominated borrowings as a result of the Japanese yen appreciation.
Such amount comprised mostly unrealised translational exchange loss.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Taxation</I>
</DIV>

<P align="center" style="font-size: 10pt">41
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On October&nbsp;17, 2003, the Company&#146;s registered address was moved to Guangzhou Economic &#038;
Technology Development Zone, Guangzhou, China. In accordance with the Rules and Regulations for
Implementation of Income Tax for Foreign Investment Enterprises and Foreign Enterprises of the PRC
and a taxation approval document &#147;Guangzhou Municipal State Tax Bureau Suo De Shui Zi Que 020043&#148;,
the Company is entitled to enjoy the preferential tax policy implemented in the Guangzhou Economic
&#038; Technology Development Zone effective from October&nbsp;1, 2003. As a result, the Company&#146;s income tax
rate has been changed from 33% to 15% beginning from that date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2003, the Group recorded an income tax benefit of RMB334&nbsp;million resulting from reduction in
net deferred taxation liability balance of RMB392&nbsp;million. In
2004, income tax expense of RMB65&nbsp;million was recorded.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Minority interests</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Minority interests increased by 18.7% from RMB171&nbsp;million in 2003 to RMB203&nbsp;million in 2004,
primarily reflecting the increased net profits earned by certain of the Group&#146;s airline
subsidiaries for the year.
</DIV>
<DIV align="left">
<A name="123"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Additional information under U.S. GAAP</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2005 Compared with 2004
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The loss for 2005 attributable to equity shareholders of the Company is RMB1,530&nbsp;million, as
compared to an income of RMB239&nbsp;million for 2004. The scale of operations increased as a result of
acquisition of the airline operations and related assets of CNA and XJA on December 31,&nbsp;2004. The
Group&#146;s operating revenue increased by RMB4,128&nbsp;million or 12.1% from RMB34,165&nbsp;million in 2004 to
RMB38,293&nbsp;million in 2005. Passenger load factor increased by 1.2&nbsp;percentage point from 68.9% in
2004 to 70.1% in 2005. Passenger yield (in passenger revenue per RPK) decreased slightly by 3.1% to
RMB0.55. Average yield (in traffic revenue per RTK) decreased by 1.6% from RMB5.22 in 2004 to
RMB5.14 in 2005. Operating expenses increased by RMB7,097&nbsp;million or 22.0% from RMB32,288&nbsp;million
in 2004 to RMB39,385&nbsp;million in 2005. As the increase in operating revenue is smaller than the
increase in operating expenses, operating income decreased by 158.2% from an operating profit of
RMB1,877&nbsp;million in 2004 to an operating loss of RMB1,092&nbsp;million in 2005. The Group&#146;s net
non-operating expenses decreased by 60.8%, from RMB1,184&nbsp;million in 2004 to RMB464&nbsp;million in 2005,
mainly attributable to the combined effect of increase in exchange gain of RMB1,344&nbsp;million,
increase in interest expense of RMB405&nbsp;million and a decrease in share of results of associates of
RMB280&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Operating revenue
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Substantially all of the Group&#146;s operating revenue is attributable to airline and airline
related operations. Traffic revenue accounted for 97.7% and 97.3% of total operating revenue in
2005 and 2004 respectively. Passenger revenue and, cargo and mail revenue accounted for 91.7% and
8.3% and 91.6% and 8.4% respectively of total traffic revenue in 2005 and 2004 respectively. The
other operating revenue is mainly derived from commission income, income from general aviation
operations, fees charged for ground services rendered to other Chinese airlines and air catering
services.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Operating revenue increased by 12.1% from RMB34,165&nbsp;million in 2004 to RMB38,293&nbsp;million in
2005. The increase was primarily due to a 12.8% rise in passenger revenue from RMB30,443&nbsp;million in
2004 to RMB34,328&nbsp;million in 2005 resulting from increased traffic volume. The total number of
passengers carried increased by 14.0% to 44.12&nbsp;million passengers and the ASKs increased by 14.3%
to 88,361&nbsp;million in 2005. The increase in 2005 compared to 2004 was attributable to the general
increasing traffic demand in the PRC airline market and deliveries of 30 aircraft during 2005 which
caused an increase in passenger capacity of 12.4%. RPKs increased by 16.3% from 53,233&nbsp;million in
2004 to RMB61,923&nbsp;million in 2005, primarily as a result of the increase in passengers carried.
Passenger yield decreased slightly by RMB0.02 to RMB0.55.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Domestic passenger revenue, which accounted for 82.1% of the total passenger revenue in 2005,
increased by 13.8% from RMB24,773&nbsp;million in 2004 to RMB28,182&nbsp;million in 2005. Domestic passenger
traffic in RPKs increased by 17.8%, mainly due to an increase in passengers carried. Domestic
passenger yield decreased slightly by RMB0.02 to RMB0.55 in 2005.
</DIV>

<P align="center" style="font-size: 10pt">42
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Hong Kong and Macau passenger revenue, which accounted for 3.5% of total passenger revenue,
increased by 3.7% from RMB1,151&nbsp;million in 2004 to RMB1,194&nbsp;million in 2005. For Hong Kong and
Macau flights, passenger traffic in RPKs increased by 18.5%, while passenger capacity in ASKs
increased by 26.5%, resulting in a 4.0&nbsp;percentage point decrease in passenger load factor from
2004. Passenger yield decreased from RMB0.88 in 2004 to RMB0.77 in 2005 mainly due to intensified
competition among airlines.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;International passenger revenue, which accounted for 14.4% of total passenger revenue,
increased by 9.6% from RMB4,519&nbsp;million in 2004 to RMB4,952&nbsp;million in 2005. For international
flights, passenger traffic in RPKs increased by 8.3%, while passenger capacity in ASKs increased by
5.4%, resulting in a 1.8&nbsp;percentage point rise in passenger load factor from 2004. Passenger yield
increased by 1.1% from RMB0.55 in 2004 to RMB0.56 in 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cargo and mail revenue, which accounted for 8.3% of the Group&#146;s total traffic revenue and 8.1%
of total operating revenue, increased by 10.7% from RMB2,792&nbsp;million in 2004 to RMB3,091&nbsp;million in
2005. The increase was attributable to the increasing traffic demand.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other operating revenue decreased by 6.0% from RMB930&nbsp;million in 2004 to RMB874&nbsp;million in
2005. The decrease was primarily due to the reduced scale of other operation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Operating expenses</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total operating expenses in 2005 amounted to RMB39,385&nbsp;million, representing an increase of
22.0% or RMB7,097&nbsp;million over 2004, primarily due to the total effect of increases in jet fuel
costs, maintenance expenses and aircraft and traffic servicing expenses. Total operating expenses
as a percentage of total operating revenue increased from 94.5% in 2004 to 102.9% in 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Flight operations expenses, which accounted for 48.7% of total operating expenses, increased
by 27.8% from RMB15,016&nbsp;million in 2004 to RMB19,183&nbsp;million in 2005, primarily as a result of
increases in jet fuel costs, operating lease payments, catering expenses and labour costs for
flight personnel. Jet fuel costs, which accounted for 62.2% of flight operations expenses,
increased by 39.4% from RMB8,555&nbsp;million in 2004 to RMB11,929&nbsp;million in 2005 mainly as a result of
increased fuel prices and fuel consumption. Operating lease payments increased by 12.6% from
RMB2,109&nbsp;million in 2004 to RMB2,375&nbsp;million in 2005 primarily due to the additional rental
payments for new aircraft under operating leases. Catering expenses increased by 21.2% from RMB987
million in 2004 to RMB1,196&nbsp;million in 2005 due to the increase in number of passengers carried.
Aircraft insurance costs decreased by 60.8% from RMB268&nbsp;million in 2004 to RMB105&nbsp;million in 2005,
mainly because of the decrease in insurance premiums in 2005. Labour costs for flight personnel
increased by 4.8% from RMB1,545&nbsp;million in 2004 to RMB1,619&nbsp;million in 2005, largely due to the
increase in flying hours and allowance standard.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Maintenance expenses which accounted for 11.7% of total operating expenses, increased by 0.2%
from RMB4,578&nbsp;million in 2004 to RMB4,589&nbsp;million in 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Aircraft and traffic servicing expenses, which accounted for 14.6% of total operating
expenses, increased by 20.3% from RMB4,789&nbsp;million in 2004 to RMB5,759&nbsp;million in 2005. The
increase primarily resulted from a 10.0% rise in landing and navigation fees from RMB4,447&nbsp;million
in 2004 to RMB4,891&nbsp;million in 2005, due to an increase in number of landing and takeoffs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Promotional and marketing expenses, which accounted for 7.1% of total operating expenses,
increased by 6.7% from RMB2,606&nbsp;million in 2004 to RMB2,780&nbsp;million in 2005. The increase was
mainly resulted from the increase in sales volume, resulting in a 17.0% increase in sales
commission expenses from RMB1,285&nbsp;million in 2004 to RMB1,503&nbsp;million in 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;General and administrative expenses, which accounted for 6.2% of the total operating expenses,
increased by 39.7% from RMB1,759&nbsp;million in 2004 to RMB2,457&nbsp;million in 2005. This was mainly
attributable to increased scale of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation and amortisation, which accounted for 11.2% of total operating expenses,
increased by 25.1% from RMB3,523&nbsp;million in 2004 to RMB4,406&nbsp;million in 2005, mainly resulting from
the additional depreciation charge on aircraft delivered in 2004 and 2005.
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Operating (loss)/income</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There is an operating loss of RMB1,092&nbsp;million in 2005 as compared to an operating profit of
RMB1,877&nbsp;million in 2004. This was mainly because operating revenue increased by RMB4,128&nbsp;million
or 12.1% in 2005 while operating expenses increased by RMB7,097&nbsp;million or 22.0% in the same
period.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Non-operating income/(expenses)</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest expense increased by 34.2% from RMB1,184&nbsp;million in 2004 to RMB1,589&nbsp;million in 2005,
mainly due to the increase in loans and lease obligations and interest rate. Interest income
increased by 66.7% from RMB33&nbsp;million in 2004 to RMB55&nbsp;million in 2005, mainly attributable to the
increase of interest rate.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 2005, the Group recorded a net exchange gain of RMB1,220&nbsp;million (2004: net exchange
loss of RMB124&nbsp;million) mainly resulted from Renminbi appreciation in July&nbsp;2005. Such amount
represented mainly unrealised translation exchange gain, resulting from exchange gains on translated
year end foreign currency denominated liabilities, rather than foreign exchange transactions
incurred during the year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Taxation</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The statutory income tax rate in the PRC is 33%. Except for certain branches and
subsidiaries, the Company and its subsidiaries are entitled to enjoy a preferential tax rate of 15%
pursuant to approval documents issued by the relevant tax authorities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income
tax benefit for the year amounted to RMB46 million and actual effective tax rate was 3% in 2005
 while the Group&#146;s enacted tax rate is 15%. The difference is mainly due to a portion of tax loss
with a deferred tax effect of RMB135 million not recognized as well as the effect of change in
enacted income tax rate applicable to airline operations of CNA and XJA of RMB79 million.
In 2004, income tax expense of RMB261 million was recorded and actual effective tax rate was 38%
while the Group&#146;s enacted tax rate in 2004 was 15%.  The difference is mainly due to the effect
of change in enacted income tax rate applicable to airline operations of CNA and XJA of RMB99
million, rate differential on airline operations of CNA and XJA of RMB43 million and non-deductible
expenses of RMB37 million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2004 Compared with 2003
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group&#146;s operating revenue increased by RMB8,682&nbsp;million or 34.1% from RMB25,483&nbsp;million in
2003 to RMB34,165&nbsp;million in 2004. Such growth was primarily attributable to growth in volume of
passenger traffic carried by the Group as a result of the recovery of the Group&#146;s traffic
operations from SARS and flight capacity. Operating expenses increased by RMB7,171&nbsp;million or
28.6% from RMB25,117&nbsp;million in 2003 to RMB32,288&nbsp;million in 2004. As operating revenue increased
more than operating expenses, operating profit increased by 412.8% from RMB366&nbsp;million in 2003 to
RMB1,877&nbsp;million in 2004. The Group&#146;s net non-operating expenses decreased by 38.5%, from RMB1,905
million in 2003 to RMB1,171&nbsp;million in 2004, primarily attributable to a decrease in unfavourable
movement in foreign exchange differences of RMB257&nbsp;million and a decrease in interest expense of
RMB420&nbsp;million. Overall, the Group recorded a net income of RMB239&nbsp;million in 2004, as compared to
a net loss of RMB1,140&nbsp;million in 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Operating revenue
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Substantially all of the Group&#146;s operating revenue is attributable to airline and airline
related operations. Traffic revenue in 2004 and 2003 accounted for 97.3% and 97.7% respectively of
total operating revenue. Passenger revenue and, cargo and mail revenue accounted for 91.6% and 8.4%
respectively of total traffic revenue in 2004. The balance of the Group&#146;s operating revenue is
derived from commission income, income from general aviation operations, fees charged for ground
services rendered to other Chinese airlines and air catering services.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Operating revenue increased by 34.1% from RMB25,483&nbsp;million in 2003 to RMB34,165&nbsp;million in
2004. This increase was primarily due to a 35.7% rise in passenger revenue from RMB22,438&nbsp;million
in 2003 to RMB30,443&nbsp;million in 2004 resulting from increased traffic volume. The total number of
passengers carried increased by 33.0% to 38.7&nbsp;million passengers in 2004. RPKs increased by 34.3%
from 39,626&nbsp;million in 2003 to RMB53,233&nbsp;million in 2004, primarily as a result of an increase in
passengers carried. Passenger yield increased to RMB0.57.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Domestic passenger revenue, which accounted for 81.4% of the total passenger revenue in 2004,
increased by 32.6% from RMB18,679&nbsp;million in 2003 to RMB24,773&nbsp;million in 2004. Domestic passenger
traffic in RPKs increased by 30.6%, mainly due to an increase in passengers carried. Passenger
yield increased to RMB0.57 in 2004.
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Hong Kong passenger revenue, which accounted for 3.8% of total passenger revenue, increased by
47.4% from RMB781&nbsp;million in 2003 to RMB1,151&nbsp;million in 2004. For Hong Kong regional flights,
passenger traffic in RPKs increased by 68.0%, while passenger capacity in ASKs increased by 55.8%,
resulting in a 4.5&nbsp;percentage point increase in passenger load factor from 2003. Passenger yield
decreased from RMB1.00 in 2003 to RMB0.88 in 2004 mainly due to intensified competition among
airlines.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;International passenger revenue, which accounted for 14.8% of total passenger revenue,
increased by 51.7% from RMB2,978&nbsp;million in 2003 to RMB4,519&nbsp;million in 2004. For international
flights, passenger traffic in RPKs increased by 52.8%, while passenger capacity in ASKs increased
by 44.1%, resulting in a 3.6&nbsp;percentage point rise in passenger load factor from 2003. Passenger
yield remain steady in 2004 and at RMB0.55.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cargo and mail revenue, which accounted for 8.4% of the Group&#146;s total traffic revenue and 8.2%
of total operating revenue, increased by 13.5% from RMB2,459&nbsp;million in 2003 to RMB2,792&nbsp;million in
2004. The increase was attributable to the increasing traffic demand.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other operating revenue increased by 58.7% from RMB586&nbsp;million in 2003 to RMB930&nbsp;million in
2004. The increase was primarily due to the general growth in income from various auxiliary
operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Operating expenses</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Substantially all of the Group&#146;s operating expenses result from its airline operations. The
vast majority of such expenses relate directly to flight operations, aircraft and traffic
servicing, aircraft repair and maintenance and to depreciation and amortisation in respect of
aircraft and flight equipment. Expenses associated directly with the Group&#146;s flight operations
(collectively, &#147;flight operations expenses&#148;) include fuel costs, operating lease payments, catering
expenses, aircraft insurance, flight personnel payroll and welfare and training expenses. Expenses
associated directly with repairs and maintenance in respect of the Group&#146;s aircraft (collectively,
&#147;repairs and maintenance expenses&#148;) include repairs and maintenance and overhaul charges, the costs
of consumables and other maintenance materials and labour costs for maintenance personnel. Expenses
associated directly with the Group&#146;s aircraft and traffic servicing operations (collectively
&#147;aircraft and traffic servicing expenses&#148;) include landing and navigation fees, rental payments and
charges in respect of terminal and other ground facilities and labour costs for ground personnel.
The balance of the Group&#146;s operating expenses result from promotional and marketing activities
(collectively, &#147;promotional and marketing expenses&#148;) such as sales commissions, fees for use of the
CAAC&#146;s reservation system, ticket-printing and sales office expenses, advertising and promotional
expenses, and from general and administrative expenses, such as administrative salaries and welfare
and other personnel benefits and office expenses, and from asset impairment charges.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total operating expenses in 2004 amounted to RMB32,288&nbsp;million, representing an increase of
28.6% or RMB7,171&nbsp;million over 2003, primarily due to the combined effect of increases in jet fuel
costs, maintenance expenses and aircraft and traffic servicing expenses. In addition, in 2003, the
Group recorded an asset impairment charge of RMB510&nbsp;million on certain aircraft of CNA. The Group
did not incur any asset impairment charges on its aircraft in 2004. Total operating expenses as a
percentage of total operating revenue decreased from 98.6% in 2003 to 94.5% in 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Flight operations expenses, which accounted for 46.5% of total operating expenses, increased
by 45.1% from RMB10,351&nbsp;million in 2003 to RMB15,016&nbsp;million in 2004, primarily as a result of
increases in jet fuel costs, operating lease payments, catering expenses, labour costs for flight
personnel and inclusion of CAAC Infrastructure Development Fund of RMB632&nbsp;million in operating
expenses which is an usage charge since 2004 but was a turnover-based levy and deducted against the
traffic revenue in 2003. Jet fuel costs, which accounted for 57.0% of flight operations expenses,
increased by 51.1% from RMB5,662&nbsp;million in 2003 to RMB8,555&nbsp;million in 2004 mainly as a result of
increased fuel prices and fuel consumption. Operating lease payments increased by 16.6% from
RMB1,808&nbsp;million in 2003 to RMB2,109&nbsp;million in 2004, primarily due to the additional rental
payments for new aircraft under operating leases. Catering expenses increased by 30.9% from RMB754
million in 2003 to RMB987&nbsp;million in 2004, primarily due to increase in number of passengers carried. Aircraft
insurance costs decreased by 7.9% from RMB291&nbsp;million in 2003 to RMB268&nbsp;million in 2004, primarily
because of a decrease in insurance premiums prescribed by the PRC insurance company. Labour costs
for flight personnel increased by 37.2% from RMB1,126&nbsp;million in 2003 to RMB1,545&nbsp;million in 2004,
largely due to the increase in flying hours.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Maintenance expenses which accounted for 14.2% of total operating expenses, increased by 18.1%
from RMB3,878&nbsp;million in 2003 to RMB4,578&nbsp;million in 2004. The increase was primarily attributable
to an 16.7% increase in aircraft overhaul charges from RMB2,913&nbsp;million in 2003 to RMB3,399&nbsp;million
in 2004, which was resulted from fleet expansion in recent years.
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Aircraft and traffic servicing expenses, which accounted for 14.8% of total operating
expenses, increased by 25.9% from RMB3,803&nbsp;million in 2003 to RMB4,789&nbsp;million in 2004. The
increase primarily resulted from an 25.7% rise in landing and navigation fees from RMB3,539&nbsp;million
in 2003 to RMB4,447&nbsp;million in 2004, and an increase in number of landing and takeoffs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Promotional and marketing expenses, which accounted for 8.1% of total operating expenses,
increased by 27.6% from RMB2,043&nbsp;million in 2003 to RMB2,606&nbsp;million in 2004. The increase was due
to 40.0% increase in labour costs from RMB305&nbsp;million in 2003 to RMB427&nbsp;million in 2004, as more
payments of performance bonus were made because of the increased traffic volume.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;General and administrative expenses, which accounted for 5.4% of the total operating expenses,
increased by 25.9% from RMB1,397&nbsp;million in 2003 to RMB1,759&nbsp;million in 2004. This was mainly
attributable to increased scale of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation and amortisation, which accounted for 11.0% of total operating expenses,
increased by 15.8% from RMB3,042&nbsp;million in 2003 to RMB3,523&nbsp;million in 2004. This increase was
primarily as a result of the additions of aircraft during 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Operating income</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Operating income increased by 412.8% from RMB366&nbsp;million in 2003 to RMB1,877&nbsp;million in 2004.
This was mainly because operating revenue increased by RMB8,682&nbsp;million or 34.1% from 2003 and
operating expenses increased by RMB7,171&nbsp;million or 28.6% over the same period.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Non-operating income/(expenses)</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest expense decreased by 26.2% from RMB1,604&nbsp;million in 2003 to RMB1,184&nbsp;million in 2004,
mainly reflecting the combined effect of scheduled debt repayments and the replacement of certain
RMB denominated bank loans of higher interest rates with US$ denominated bank loans of lower
interest rates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest income increased by 22.2% from RMB27&nbsp;million in 2003 to RMB33&nbsp;million in 2004. This
was mainly attributable to an increase in average cash balances.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 2004, the Group recorded a net exchange loss of RMB124&nbsp;million (2003: RMB381&nbsp;million)
mainly from its Japanese yen denominated borrowings as a result of the Japanese yen appreciation.
Such amount comprised mostly unrealised translational exchange loss.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Taxation</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On 17 October, 2003, the Company&#146;s registered address was moved to Guangzhou Economic &#038;
Technology Development Zone, Guangzhou, China. In accordance with the Rules and Regulations for
Implementation of Income Tax for Foreign Investment Enterprises and Foreign Enterprises of the PRC
and a taxation approval document &#147;Guangzhou Municipal State Tax Bureau Suo De Shui Zi Que 020043&#148;,
the Company is entitled to enjoy the preferential tax policy implemented in the Guangzhou Economic
&#038; Technology Development Zone effective from 1 October, 2003. As a result, the Company&#146;s income tax
rate has been changed from 33% to 15% beginning from that date. In 2003, the Group recorded an
income tax benefit of RMB536&nbsp;million resulting from a reduction in net deferred taxation liability
balance of RMB341&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The airline operations of CNA and XJA were subject to PRC income tax at 33% during 2003 and up
to December&nbsp;30, 2004. As a result of the CNA/XJA Acquisitions having been effective December&nbsp;31,
2004, the airline operations of CNA and XJA have become divisions of the Company and are subject to
PRC income tax at the applicable rate of 15% beginning that date. Consequently, the airline
operations of CNA and XJA recorded an income tax benefit of RMB99&nbsp;million. Overall, net income tax
expenses of the airline operations of CNA and XJA amounted to RMB274&nbsp;million for 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Minority interests</I>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Minority interests increased by 52.0% from RMB127&nbsp;million in 2003 to RMB193&nbsp;million in 2004,
primarily reflecting the increased net profits earned by certain of the Group&#146;s airline
subsidiaries for the year.
</DIV>


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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="124"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Liquidity and Capital Resources</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior to the initial public offering of the Company, the Group met its working capital and
capital expenditure requirements through cash from its operations, the proceeds of certain
long-term and short-term bank loans, capital lease financing and rebates available under certain of
the Group&#146;s aircraft leases. In July&nbsp;1997, the Company received net proceeds of RMB5,459&nbsp;million
from its initial public offering.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A majority part of these net proceeds was utilized to finance the Group&#146;s working capital and
capital expenditure requirements. In July&nbsp;2003, the Company issued 1,000,000,000 A Shares with a
par value of RMB1.00 each at issue price of RMB2.70 by way of a public offering to natural persons
and institutional investors in the PRC. The proceeds received by the Company, net of the issuance
costs of RMB59,233, amounted to RMB2,641&nbsp;million and have been used for the purchase of Boeing
737-800 aircraft in accordance with the disclosure in the Prospectus for Offering of the A Shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, the Group had banking facilities with several PRC commercial banks
for providing loan finance up to an approximate amount of RMB39,294&nbsp;million to the Group. As of
December&nbsp;31, 2005, an approximate amount of RMB28,242&nbsp;million was utilized. As of December&nbsp;31, 2004
and 2005, the Group&#146;s cash and cash equivalents totaled RMB3,083&nbsp;million and RMB2,901&nbsp;million,
respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash inflows from operating activities in 2003, 2004 and 2005 were RMB2,129&nbsp;million,
RMB3,596&nbsp;million and RMB3,835&nbsp;million, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash used in investing activities in 2003, 2004 and 2005 was RMB5,434&nbsp;million, RMB8,824
million and RMB8,009&nbsp;million, respectively. Cash capital expenditures in 2003, 2004 and 2005 were
RMB4,707&nbsp;million, RMB6,631&nbsp;million and RMB4,935&nbsp;million, respectively, reflecting predominantly
additional investments in aircraft and flight equipment under the Group&#146;s fleet expansion plans and
Guangzhou new airport, and, to a small extent, additional investments in other facilities and
buildings for operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Financing activities resulted in net cash inflows of RMB1,615&nbsp;million, RMB6,231&nbsp;million and
RMB3,992&nbsp;million in 2003, 2004 and 2005, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, the Group&#146;s aggregate long-term debt and obligations under capital
leases totaled RMB30,449&nbsp;million. Based on such amount, in 2006, 2007, 2008, 2009, 2010 and
thereafter, amounts payable under such debt and obligations will be RMB5,250&nbsp;million, RMB7,246
million, RMB4,764&nbsp;million, RMB2,812&nbsp;million, RMB1,472&nbsp;million and RMB8,905&nbsp;million. Such borrowings
were denominated, to a larger extent, in United States dollars and, to a smaller extent, in
Japanese yen and Hong Kong dollars, with a significant portion being fixed interest rate
borrowings. In the normal course of business, the Group is exposed to fluctuations in foreign
currencies. The Group&#146;s exposure to foreign currencies was primarily as a result of its foreign
currency debts. Depreciation or appreciation of the Renminbi against foreign currencies affects the
Group&#146;s results significantly because the Group&#146;s foreign currency payments generally exceed its
foreign currency receipts. The Group is not able to hedge its foreign currency exposure effectively
other than by retaining its foreign currency denominated earnings and receipts to the extent
permitted by the State Administration of Foreign Exchange, or subject to certain restrictive
conditions, entering into forward foreign exchange contracts with authorised PRC banks.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, the Group&#146;s short term bank debt was RMB14,346&nbsp;million with interest
rates ranging from 3.15% to 5.34% per annum. The Group&#146;s weighted average interest rate on short-term bank
notes payable was 4.83% per annum as of December&nbsp;31, 2005. The primary use of the proceeds of the Group&#146;s
short-term debt is to finance working capital needs. The Group has generally been able to arrange
short-term bank loans with domestic banks in China as necessary and believes it can continue to
obtain them based on its well-established relationships with various lenders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Through April 19, 2006, the Group
renewed certain short-term bank debts of RMB2,611 million. The renewed debts are unsecured,
bear interest at floating rates ranging from 3-month HIBOR/6-month LIBOR + 0.55% to 0.60% per
annum and are repayable one year from their respective renewal dates.  In addition, the Group
 entered into new short term bank debts agreement totalling RMB2,671 million subsequent to
December 31, 2005.  These new short term bank debts are unsecured and bear interest at floating
rates ranging from 6-month LIBOR + 0.55% to 0.70% per annum with maturities through 2008.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From April 20, 2006 to May 31, 2006,
the Group entered into additional new bank debts agreements totalling RMB3,808 million. These
additional bank debts are unsecured, bear interest at floating rates ranging from 6-month
LIBOR + 0.53% to 0.55% per annum and repayable one year from these respective origination
dates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, the Group had obligations under operating leases totaling RMB24,594
million, predominately for aircraft. Of such amount, RMB3,340&nbsp;million, RMB2,881&nbsp;million, RMB2,785
million, RMB2,609&nbsp;million, RMB2,523&nbsp;million and RMB10,456&nbsp;million, respectively, was due in 2006,
2007, 2008, 2009, 2010 and thereafter.
</DIV>

<P align="center" style="font-size: 10pt">47
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, the Group had a working capital deficit of RMB25,907&nbsp;million, as
compared to a working capital deficit of RMB18,855&nbsp;million as of December&nbsp;31, 2004. Historically,
the Group operated in a negative working capital position, relying on cash inflow from operating
activities and short-term bank debt refinancings to meet its short-term liquidity and working
capital needs. The increase in the Group&#146;s working capital deficit from 2004 to 2005 was mainly
because the Group sought increased short term debts to finance its aircraft acquisitions. Upon
deliveries of the aircraft, the Group continued to seek renewal of its short-term debts instead of replacing
such debts with long-term debts, as the interest rates for short-term
debts are lower. The liquidity of the Group in the future will primarily be dependent on its
ability to maintain adequate cash inflow from operations to meet its debt obligations as they
become due and, on its ability to obtain adequate external financing to meet its committed future
capital expenditures. The Group has obtained firm commitments from its principal bankers to renew
its short-term bank loans outstanding at December&nbsp;31, 2005 when
they fall due during 2006. Subsequent to December 31, 2005, the Group
renewed short-term debts of RMB2,611 million.

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As the Group is subject to a
high degree of operating leverage, a minor decrease in the Group&#146;s yield and/or load factor could
result in a significant decrease in its operating revenue and hence its operating cashflows. This
could arise in such circumstances as where competition between Chinese airlines increases or where
PRC aviation demand decreases. Similarly, a minor increase in the jet fuel prices, particularly
those in domestic market, could result in a significant increase in the Group&#146;s operating expenses
and hence a significant decrease in its operating cashflows. This could be caused by fluctuations
in supply and demand in international oil market. Currently, the Group&#146;s existing debt and lease
facilities do not contain any financial covenants. Nevertheless, as the Group is subject to a high
degree of financial leverage, an adverse change in the Group&#146;s operating cashflows could adversely
affect its financial health and hence weaken its ability to obtain additional debt and lease
facilities and to renew its short-term debt facilities as they fall due.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, the Group had capital commitments in 2006, 2007, 2008, 2009 and 2010 of
approximately RMB8,933&nbsp;million, RMB9,445&nbsp;million, RMB14,437&nbsp;million, RMB5,300 and RMB9,688 respectively. Of such
amounts, RMB7,341&nbsp;million in 2006, RMB8,945&nbsp;million in 2007 and RMB14,354&nbsp;million in 2008, RMB5,300
million in 2009 and RMB9,688&nbsp;million in 2010 are related to the acquisition of aircraft and related
flight equipment, and RMB840&nbsp;million in 2006 is related to the Group&#146;s facilities and equipment to
be constructed and installed at the Guangzhou new airport. The remaining amounts of RMB752&nbsp;million
in 2006, RMB500&nbsp;million in 2007 and RMB83&nbsp;million in 2008 are related to the Group&#146;s other airport
and office facilities and equipment, overhaul and maintenance bases and training facilities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, the Group undertook to make a capital contribution of approximately
RMB83&nbsp;million to jointly controlled entities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, the cash and cash equivalents of the Group totaled RMB2,901&nbsp;million.
Of such balance, 20.4% was denominated in foreign currencies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No interim dividend was paid during the year ended December&nbsp;31, 2005. The Board of Directors
does not recommend the payment of a final dividend in respect of the year ended December&nbsp;31, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group expects that the Group&#146;s cash from operations and short-term and long-term bank
borrowings will be sufficient to meet its cash requirements in the foreseeable future.
</DIV>

<P align="center" style="font-size: 10pt">48
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="125"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Contractual Obligations and Commercial Commitments</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth the Group&#146;s obligations and commitments to make future payments
under contracts and under contingent commitments as of December&nbsp;31, 2005.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="18" style="border-bottom: 1px solid #000000"><B>As of December 31, 2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>As of December</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="18" style="border-bottom: 1px solid #000000"><B>Payment due by period</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>31, 2004</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>less than</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>1 year</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>1-3 years</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>4-5 years</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>After 5 years</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="22"><B>(RMB million)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Contractual obligations</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Short-term
debt (Note 2)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>14,346</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,735</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,611</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,925</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>14,617</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,877</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,472</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,095</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,173</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,528</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Capital lease obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>15,832</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,373</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,538</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,189</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,732</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,743</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash payable for CNA/ XJA Acquisitions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,959</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Total contractual obligations</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>44,795</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>16,985</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>14,621</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>4,284</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>8,905</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>37,155</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Other commercial commitments</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating lease commitments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>24,594</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,340</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,666</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,132</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,456</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,750</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD NOWRAP><DIV style="margin-left:15px; text-indent:-15px">Aircraft purchase commitments (Note 1)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>45,628</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,341</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,299</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,988</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,776</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Capital commitments in respect of
investments in the Guangzhou new
airport</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>840</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">840</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">824</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other capital commitments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,335</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">752</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">583</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">700</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Investing commitments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>83</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">83</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">83</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Total commercial obligations</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>72,480</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>12,356</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>29,548</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>20,120</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>10,456</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>26,133</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Estimated future interest payments on
short term debt and long term debt</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Fixed rates</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>3,285</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">785</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,071</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">640</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">789</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,388</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Variable rates</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2,171</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">935</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">635</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">369</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">232</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">939</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>5,456</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,720</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,706</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,009</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,021</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>3,327</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="100%"></TD>
</TR>

<TR valign="top">
    <TD>Note 1 Amounts shown are net of previously paid purchase deposits.</TD>
</TR>
 <TR style="font-size: 3pt"><TD align="left" valign="top">&nbsp;</TD></TR>
<TR valign="top">
    <TD>Note 2 Short term bank debts included certain debts of RMB2,611 million which
were renewed subsequent to December 31, 2005. The renewed debts are unsecured, bear
interest at floating rates ranging from 3-month HIBOR/6-month LIBOR + 0.55% to 0.60%
per annum and are repayable one year from their respective renewal dates.</TD>
</TR>

</TABLE>


<DIV align="left">
<A name="126"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.</B>
</DIV>

<DIV align="left">
<A name="127"></A>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Directors, Senior Management and Employees</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth certain information concerning directors (&#147;Directors&#148;), senior
management (&#147;Senior Management&#148;) and supervisors (&#147;Supervisors&#148;) of the Company in 2005. There were
certain changes in the Company&#146;s Directors, Senior Management and Supervisors subsequent to
December&nbsp;31, 2005, details of which are set forth below.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="22%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="60%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><B>Position</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><B>Gender</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3"><B>Age</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Liu Shao Yong</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chairman of the Board</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Male</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Liu Ming Qi(1)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Vice Chairman of the Board</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Male</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Peng An Fa(2)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Male</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Wang Quan Hua</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Male</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Zhao Liu An</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Male</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Zhou Yong Qian(3)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Male</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Si Xian Min</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director, President</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Male</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Zhou Yong Jin(1)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Male</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">63</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Xu Jie Bo</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director, Chief Financial Officer and Vice President</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Male</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Wu Rong Nan(1)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Male</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Simon To(4)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Independent Non-executive Director</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Male</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Peter Lok</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Independent Non-executive Director</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Male</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">70</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Wei Ming Hai</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Independent Non-executive Director</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Male</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">49
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="22%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="60%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><B>Position</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><B>Gender</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3"><B>Age</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Wang Zhi</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Independent Non-executive Director</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Male</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sui Guang Jun</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Independent Non-executive Director</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Male</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sun Xiao Yi</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chairman of the Supervisory Committee</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Male</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Yang Guang Hua</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Supervisor</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Male</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Yang Yi Hua</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Supervisor</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Female</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Li Kun(5)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Vice President</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Male</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Yuan Xin An</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Vice President</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Male</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Zheng En Ren(6)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Vice President</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Male</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Hao Jian Hua</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Vice President</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Male</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Ren Ji Dong(7)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Vice President</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Male</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">He Zong Kai(7)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Vice President</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Male</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Liu Qian</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Pilot</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Male</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Su Liang</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Company Secretary</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Male</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Chen Wei Hua</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">General Counsel</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Male</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>The resignation of Liu Ming Qi, Zhou Yong Jin and Wu Rong Nan as Directors due to their
retirement was approved at the first and second extraordinary general meetings of the Company on
December&nbsp;16, 2005.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>The removal of Peng An Fa as Director of the Company owing to
suspicion that he had committed a crime was
discussed and approved at the first extraordinary general meeting of the Company on December&nbsp;16,
2005.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(3)</TD>
    <TD>&nbsp;</TD>
    <TD>The resignation of Zhou Yong Qian as Director of the Company
due to his retirement was approved at the 2005 annual general meeting of the Company on June 15, 2006.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(4)</TD>
    <TD>&nbsp;</TD>
    <TD>The resignation of Simon To as independent non-executive Director upon the expiry of his
six years&#146; term was approved at the second extraordinary general meeting of the Company on December
16, 2005.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(5)</TD>
    <TD>&nbsp;</TD>
    <TD>Li Kun was relocated to another position and his resignation as Vice President of the
Company was approved by the Board of the Company on December 13, 2005.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(6)</TD>
    <TD>&nbsp;</TD>
    <TD>The resignation of Zheng En Ren as Vice President of the Company due to his retirement was
approved by the Board of the Company on April 19, 2006.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(7)</TD>
    <TD>&nbsp;</TD>
    <TD>The appointment of Ren Ji Dong and He Zong Kai as Vice Presidents of the Company were
approved by the Board on March&nbsp;29, 2005.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>BOARD OF DIRECTORS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Mr.&nbsp;Liu Shao Yong </B>is the chairman of the Board. He is a qualified class one pilot. He joined
the Company in November&nbsp;2004. Mr.&nbsp;Liu graduated from China Civil Aviation Flying College and
obtained an EMBA from Tsinghua University in 2005. He joined the civil aviation industry in 1978.
He held the positions of Captain of the Flying Squadron of China General Aviation Corporation and
was appointed as the Deputy General Manager of China General Aviation Corporation, Deputy Director
of Shanxi Provincial Civil Aviation Administration, General Manager of the Shanxi branch of China
Eastern Airlines Corporation Limited and the Chief of the Flying Model Division of the Civil
Aviation Administration of China. He served as the General Manager of China Eastern Airlines
Corporation Limited and was appointed as the Vice Minister of Civil Aviation Administration of
China. Since August&nbsp;2004, Mr.&nbsp;Liu has served as the General Manager of China Southern Air Holding
Company. Mr.&nbsp;Liu became the chairman of the Board on  November
29 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Mr.&nbsp;Wang Quan Hua </B>is currently a Director of the Company and Vice President of CSAHC and
became the employee of the Company in March&nbsp;1995 after the establishment of the Company. Mr.
Wang graduated from the Economic Management Department of Central Communist Party College. Mr.&nbsp;Wang
began his career in civil aviation in 1972, and successively served as the Director of Planning
Department of Guangzhou Civil Aviation Administration, the Office Director of China Southern
Airlines Shenzhen Co., the Director of the Planning and Operation Division of CSAHC, the President
of Strategy and Development Department of China Southern Airlines
</DIV>

<P align="center" style="font-size: 10pt">50
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Company
Limited and the Vice President of CSAHC. Mr. Wang became a Director
of the Company on May 13, 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Mr.&nbsp;Zhao Liu An </B>is a Director of the Company and the Vice President of CSAHC. Mr.&nbsp;Zhao joined
the Company in May&nbsp;2003. Mr.&nbsp;Zhao began his career in civil aviation in 1966, and successively
served as the Director of Flight Meteorology and Flight Safety Monitoring Division, Director of
Science Education Division, the Director of Flying Model Division of Urumqi Civil Aviation
Administration, Captain of the Ninth Squadron of the Civil Aviation Administration, the Vice
President and President of Urumqi Civil Aviation Administration and
Xinjiang Airlines.  Mr. Zhao became a Director of the Company on May
13, 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Mr.&nbsp;Si Xian Min </B>is a Director and President of the Company. Mr.&nbsp;Si graduated from No.&nbsp;14
Aviation College as an aircraft piloting major with an associate degree. Mr.&nbsp;Si, a professional
political tutor, he began his career in civil aviation in 1975. He held positions as Director of
the political division of China Southern Airlines Henan Branch, Party Secretary and Vice President
of Guizhou Airlines, Deputy Party Secretary of China Southern Airlines Company Limited, Secretary
of the Disciplinary Department of China Southern Airlines Company Limited and Party Secretary of
China Northern Airlines and has been the President of the Company
since October&nbsp;2004.  Mr. Si became a Director of the Company on
December 31, 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Mr.&nbsp;Xu
Jie Bo </B>is a Director, Vice President and Chief Financial Officer of
the Company. Mr.&nbsp;Xu joined the Company in July&nbsp;1998. He graduated from the Management Department of
Tianjin University and was subsequently awarded with a master degree in business administration
from Hong Kong Baptist University. A qualified senior accountant by profession, Mr.&nbsp;Xu started his
career in August&nbsp;1986 and worked as Supervisor of the Financial Management Office for
Infrastructure Projects of Guangzhou Civil Aviation Administration. In December&nbsp;1992, he took up
the posts of Deputy Director and Director of the Financial Department of Central and Southern China
Civil Aviation Administration. In July&nbsp;1998, he became General Manager of the Financial Department
and Chief Financial Officer of the Company. Currently, he is a
Director and the Vice President and Chief Financial Officer of the Company. He is also a Director of Guizhou Airlines
Company Limited, Vice Chairman of Sichuan Airlines Corporation Limited, and Vice Chairman of Xiamen
Airlines Company Limited.  Mr. Xu became a Director of the Company on
April 16, 2001.</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Mr.&nbsp;Peter Lok </B>has been an Independent Non-Executive Director of the Company since
April 16, 2001. He is also a veteran in the civil aviation industry. Mr.&nbsp;Lok joined the Civil Aviation
Department of Hong Kong in 1956 and became its Assistant Director in 1982, Deputy Director in 1988,
and Director from 1990 to 1996. From 1997 to 2000, Mr.&nbsp;Lok was an advisor and president of Hong
Kong Commercial Airlines Center. Mr.&nbsp;Lok has sat on various Committees such as the Evaluation
Committees for the Design of Shanghai&#146;s Pudong Airport, Committee for China&#146;s Zhuhai Aviation and
Spaceflight Fair, Evaluation Committees for the IATA Eagle Award. He is also independent director
of several listed airline companies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Mr.&nbsp;Wei Ming Hai </B>has been an Independent Non-Executive Director of the Company since
April 16, 2001. Professor Wei has worked in Jiangxi Provincial Accounting Association, and he started
working in Zhongshan University from 1991. In 1993 he became the chairman of the Accounting
Department in the School of Management of Zhongshan University. In 1996 he became the Deputy Dean
of the School of Management in Zhongshan University. In January&nbsp;2000, he became Dean of the School
of Management in Zhongshan University. Since 1998, Professor Wei has been a doctorate advisor for
Accounting Information and Investment Analysis. Professor Wei is also on the board of directors of
China Accountants Association, Vice Chairman of Accountants Association of Guangdong Province, Vice
Chairman of Auditors Association of Guangzhou , Executive Member of the Research Institute of
Financial Costs for Young and Middle-aged Accountants, member of American Accounting Association.
Professor Wei holds a Ph.D degree in economics and has an MBA degree from Tulane University in the
United States of America. He has published over 7 academic books or textbooks, and over 80 academic papers.
</DIV>

<P align="center" style="font-size: 10pt">51
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Mr.&nbsp;Wang Zhi </B>has been an Independent Non-Executive Director of the Company since May
2003. Mr.&nbsp;Wang graduated from the Aircraft Design Department of Harbin Institute of Technology. Mr.
Wang began his career in 1965, and has successively served as the Director and Senior Engineer of
Aeronautics Research Institute of China, the Vice Director and Vice secretary of the First Research
Institute of Civil Aviation, the Vice Director and Director of the Planning Bureau of CAAC and the
Director of the Planning Technology System Reform Department and the Planning Technology Department
of CAAC. Mr.&nbsp;Wang is also a professor in several universities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Mr.&nbsp;Sui Guang Jun </B>has been an Independent Non-Executive Director of the Company since
May&nbsp;2003. Mr.&nbsp;Sui graduated from the Economic Department of Jinan University and obtained a master
degree. Mr.&nbsp;Sui obtained a doctor degree in the Management of Organizations of Jinan University. He
has successively served as the Vice Director of the Research Institute of Hong Kong and Macao
Economies, the Dean of corporate administration department of Jinan University and the Chief of the
Post-doc Committee of Applied Economics and the Dean of Management College in Jinan University. Mr.
Sui is currently the Deputy Vice Chancellor of Guangdong University of Foreign Studies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The independent non-executive Directors of the Company are nominated by the Board of Directors, and
their appointment must be approved by the shareholders of the Company in a general meeting. The
executive Directors of the Company are nominated by CSAHC, the controlling shareholder of the
Company, and their appointment must be approved by the shareholders of the Company in a general
meeting.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>SUPERVISORY COMMITTEE</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As required by the Company Law and the Articles of Association, the Company has a supervisory
committee (the &#147;Supervisory Committee&#148;) which is primarily responsible for the supervision of
senior management of the Company, including the Board of Directors, executive officers and other
senior management personnel, to ensure that they act in the interests of the Company, its
shareholders and employees, as well as in compliance with applicable law. The Supervisory Committee
consists of three Supervisors. Two of the Supervisors are shareholder representatives appointed by
shareholders, and one Supervisor is a representative of the Company&#146;s employees. The Supervisors
serve terms of three years and may serve consecutive terms.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Mr.&nbsp;Sun Xiao Yi </B>is a member of Party Committee and head of Discipline Supervision Team of
China Southern Air Holding Company. Mr.&nbsp;Sun graduated from the Civil Aviation University of China
with a degree in Economics and Administration and is currently a postgraduate law student of
Central Communist Party College. Mr.&nbsp;Sun is a senior expert of Political Science and Economics with
an associate degree. Mr.&nbsp;Sun has successively served as Vice Party Secretary of the Hubei branch of
the Company, Party Secretary of the Flight Operations Department of the Company, and Vice Party
Secretary of China Southern Air Holding Company. Mr. Sun became a
Supervisor on June 16, 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Mr.&nbsp;Yang Guang Hua </B>is the Vice Party Secretary and Discipline Supervision Secretary of the
Company. Mr.&nbsp;Yang is an engineer with university qualification. Mr.&nbsp;Yang has successively served as
Deputy General Manager of the Hunan branch of the Company, General Manager of Southern Airlines
(Group) Zhuhai Helicopters Company Limited, General Manager of the Hunan branch of the Company, and
Deputy General Manager of the Company. Mr. Yang became a Supervisor
on June 16, 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Ms.&nbsp;Yang Yi Hua </B>is the General Manager of the Audit Department of the Company. Ms.&nbsp;Yang is an
internationally qualified internal auditor. She has successively served as Deputy Manager of the
Clearance and Settlement Office of the Financial Division of the Guangzhou Civil Aviation
Administration, Manager of the Financial Office of the Company&#146;s Financial Division, and Deputy
General Manager of the Company&#146;s Audit Department. She has been the President of Xiamen Airlines
since September&nbsp;2005. Ms. Yang became a Supervisor on June 16,
2004.
</DIV>

<P align="center" style="font-size: 10pt">52
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>SENIOR ADMINISTRATIVE OFFICERS</B>
</DIV>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Mr.&nbsp;Yuan Xin An </B>is a Vice President of the Company. He graduated from the Air
Engineering College. Mr.&nbsp;Yuan has over 25&nbsp;years of experience in the Chinese aviation industry. He
has been the Manager of Quality Assurance and Deputy Controller of Quality Control of Guangzhou
Aircraft Maintenance Engineering Company Limited, Deputy General Manager of the Aircraft
Engineering Department of the Company, and Vice President of Guangzhou Aircraft Maintenance
Engineering Company Limited. Mr.&nbsp;Yuan became the Chief Engineer of the Company in 2000, and
a Vice President of the Company in April&nbsp;2002.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Mr.&nbsp;Hao Jian Hua </B>is currently the Vice President of the Company. He completed his
pilot training at the CAAC Advanced Flying College. Mr.&nbsp;Hao has held positions as Captain, then Deputy
Chief Captain, and subsequently Chief Captain of the Sixth Squadron of the Civil Aviation
Administration during the period from 1989 to 1994. He then became a Deputy General Manager, from
1994 to 1998, and the General Manager, from 1998 to 1999, of the Flying Aviation Department of the
Company. He became a Vice President of the Company in July 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Mr.&nbsp;Ren Ji Dong </B>is a Vice President of the Company who graduated from the College of
Energy and Power Engineering Department of Nanjing University of Aeronautics and Astronautics with
a major degree in motor design, is a senior engineer. Mr.&nbsp;Ren assumed various offices in the
aircraft maintenance workshop of Xinjiang Airlines Company, including Head of Workshop, Deputy
Director of Workshop and President of the Engineering Department. Mr.&nbsp;Ren served as the Deputy
Director of Urumqi Civil Aviation Administration and Vice President of Xinjiang Airlines Company.
He was the Vice President of Xinjiang Airlines from 2002 to 2004. Mr.&nbsp;Ren became a Vice President of the Company in March&nbsp;2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Mr.&nbsp;He Zong Kai </B>is a Vice President of the Company who graduated from Bejing Foreign
Language Institute with a major degree in French, is a senior economist. Mr.&nbsp;He served as the
Deputy Manager of the Operation Department of the Company, Manager of Passenger Transportation
Department, Head of Seats Arrangement Department, Vice General Manager of the Marketing Department
and General Manager of the Ground Services Department. He assumed the offices of the President and
Deputy Party Secretary of Hubei branch of the Company since 2003 and became a Vice President of
the Company in March&nbsp;2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Mr.&nbsp;Liu Qian </B>is the Chief Pilot of the Company who graduated from China Civil
Aviation Flying College with specialty in aircraft piloting. Mr.&nbsp;Liu served the Civil Aviation
Administration of China as assistant researcher of the piloting skills supervision division of the
piloting standards department, as assistant researcher of the operation supervision division of the
piloting standards department, as assistant researcher of the freight transportation piloting
standards division of the piloting standards department, and as the Deputy Head of the Piloting
Standards Division of the Piloting Standards Department. He assumed the offices of the Deputy
Chief Pilot and Chief Pilot of the Company in November&nbsp;2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Mr.&nbsp;Su Liang </B>is currently holding the position as Company Secretary. He was a graduate of the
Cranfield College of Aeronautics, University of Cranfield, United Kingdom, specialising in Air
Transport Management Engineering. Mr.&nbsp;Su is a holder of master degree. During the period from 1998
to 1999, Mr.&nbsp;Su held the position as Deputy Manager of the Flight Operations Department, China
Southern Airlines Shenzhen Co. and from 1999 to 2000, he was the Manager of the Planning and
Administration Department of China Southern Airlines Shenzhen Co.. Mr.&nbsp;Su was in charge of the
international cargo project of the Company, responsible for the planning and development of the
Company&#146;s North American cargo business. Mr. Su became the
Company Secretary on June 26, 2000.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Mr.&nbsp;Chen Wei Hua </B>is the Chief Legal Adviser to the Company. Mr.&nbsp;Chen graduated from the school
of law of Peking University. He is a qualified solicitor and a qualified corporate legal
counsellor. Mr.&nbsp;Chen joined the Civil Aviation Administration of China in 1998. He then joined the
CSAHC in January&nbsp;1991. From 1997 to 2003, he served as Vice Director and Director of the Legal
Affairs Office of the Company. Currently, he is President of the Legal Department of the Company.
Since December&nbsp;2003, Mr.&nbsp;Chen has been the Chief Legal Adviser to the Company. He is also a
Director of Xiamen Airlines Company Limited.
</DIV>


<P align="center" style="font-size: 10pt">53
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="128"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Compensation</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A total of RMB232,000 has been paid to independent non-executive Directors for the year ended December
31, 2005. The aggregate compensation paid by the Company to all Directors (excluding non-executive
Directors), Supervisors and Senior Management for 2005 was RMB5.9&nbsp;million. For the year ended
December&nbsp;31, 2005, the Company accrued an aggregate of approximately RMB132,000 on behalf of its
executive Directors, Supervisors and Senior Management pursuant to the SA Pension Scheme and the
retirement plans operated by various municipal governments in which the Company participates.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Details of Directors&#146; and Supervisors&#146; emoluments for the year ended December&nbsp;31, 2005 are set out below:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>Salaries,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>allowances</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>Retirement</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>Directors&#146;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>and benefits</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>Discretionary</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>scheme</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>fees</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>in kind</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>bonuses</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>contributions</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>Total</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Note</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>RMB&#146;000</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>RMB&#146;000</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>RMB&#146;000</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>RMB&#146;000</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>RMB&#146;000</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="25" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><I>Executive directors</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Liu Shao Yong</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(i</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>299</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>12</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>311</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Liu Ming Qi</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>242</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>10</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>252</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Peng An Fa</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>101</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>6</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>107</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Wang Quan Hua</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>237</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>12</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>249</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Zhao Liu An</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(i</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>237</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>12</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>249</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Zhou Yong Qian</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>237</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>12</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>249</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Si Xian Min</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>281</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>12</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>293</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Zhou Yong Jin</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>127</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>129</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Xu Jie Bo</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>226</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>12</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>238</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Wu Rong Nan</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>368</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>162</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>7</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>537</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><I>Supervisors</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sun Xiao Yi</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>237</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>12</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>249</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Yang Guang Hua</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>225</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>12</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>237</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Yang Yi Hua</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>48</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>70</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>11</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>129</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><I>Independent non-executive
directors</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Simon To</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(ii</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Peter Lok</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>58</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>58</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Wei Ming Hai</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>58</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>58</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Wang Zhi</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>58</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>58</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sui Guang Jun</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>58</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>58</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="25" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>232</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2,865</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>232</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>132</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>3,461</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="25" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">Notes:</TD>
    <TD>&nbsp;</TD>
    <TD></TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(i)</TD>
    <TD>&nbsp;</TD>
    <TD>The above amounts included the salaries paid to these
Directors as pilots of the Company.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(ii)</TD>
    <TD>&nbsp;</TD>
    <TD>Simon To received director&#146;s fee of RMB1 during the
year ended December&nbsp;31, 2005.</TD>
</TR>

</TABLE>




<DIV align="left">
<A name="129"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Board Practices</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each Directors&#146; service contract with the Company or any of its subsidiaries provide prorated
monthly salary upon termination of employment in accordance with his contract. The Director is
entitled to paid leave in accordance with his contract. The term of
office of a Director is three years. The term of office of the
current Directors will end in 2007. A Director may serve consecutive
terms upon re-election.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Audit Committee
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The audit committee is appointed by the Board of Directors and consists of three independent
non-executive Directors. The current members of the audit committee are Wei Ming Hai, Wang
Zhi and Sui Guang Jun. Wei Ming Hai is the chairman of the audit
committee. The term of office of each member is three years. The term
of office of the current members will end in 2007. A member may serve
consecutive terms upon re-election. At least once a year, the committee is required to meet with the
Company&#146;s external auditors without any executive members of the Board in attendance. The quorum necessary
for the transaction of any business is two committee members. The Audit Committee held nine
meetings in 2005, which were attended by all members. The external auditors or the Chief Financial
Officer of the Company may request a meeting of the audit committee.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The audit committee selects and engages, on behalf of the Company, external auditors to audit
the Company&#146;s annual financial statements and considers questions regarding the audit fees and the
resignation or dismissal of the external auditors. The audit committee also reviews and approves
the planned scope of the Company&#146;s annual audit. In addition, the audit committee reviews the
annual and interim financial statements, the preliminary announcement of results and any other
announcement regarding the Company&#146;s results or other financial information to be made public,
before submission to the Board of Directors. Moreover, the committee discusses problems arising
from the audit and reviews the external auditors&#146; management letter and management&#146;s response.
Furthermore, the audit committee reviews the effectiveness of the system of internal financial
controls from information provided by the Executive Directorate and management of the Company and
ensures adherence to the Company&#146;s control policies so that the Company&#146;s assets are safeguarded
and financial records are complete and accurate. The audit committee meets regularly with
the Company&#146;s senior positions from finance department and
internal audit department and the external auditors to consider the Company&#146;s
financial reporting, the nature and scope of audit review and the effectiveness of the systems of
internal control. The audit committee also reviews any significant transactions that are not in the
ordinary course of business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has an internal audit department which reviews procedures in all major financial
and operational activities. This department is led by the head of internal audit who is directly
responsible to the Chairman of the Board and submits regular reports to the audit committee.
</DIV>
<DIV align="left">
<A name="130"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Remuneration Committee
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The remuneration committee comprises three members. Currently, the remuneration committee is chaired by
independent non-executive Director Sui Guang Jun with independent non-executive Director Wei Ming
Hai and executive Director Wang Quan Hua as members. The term of
office of each member is three years. The term of office of the
current members will end in 2007. A member may serve consecutive terms
upon re-election. The remuneration committee met once in 2005,
which meeting was attended by all members. In addition, the remuneration committee also meets as and when
required to consider remuneration related matters.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The responsibilities of the remuneration committee are to approve the remuneration packages of
Directors and Senior Management of the Group, and the Company&#146;s &#147;preliminary proposals on annual
emoluments of the directors and senior management of the Group&#148;. The remuneration committee is also
responsible for assessing performance of executive Directors and approving the terms of executive
Directors&#146; service contracts.
</DIV>
<DIV align="left">
<A name="131"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Employees</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, the Group had 34,417 employees, including 2,567 pilots, 4,539 flight
attendants, 5,076 maintenance personnel, 10,445 sales and marketing
personnel, 3,243 administrative personnel and 8,547 temporary
employees. All of the Group&#146;s pilots, flight attendants,
maintenance personnel,
administrative personnel and sales and marketing personnel are contract employees, and most of the
Group&#146;s ancillary service workers are temporary employees. Contract employees are hired by the
Group pursuant to renewable employment contracts with terms ranging from
</DIV>

<P align="center" style="font-size: 10pt">54
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">three to five years. Temporary employees generally are hired
by the Group pursuant to at-will employment contracts or employment contracts with a term of one
year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s employees are members of a trade union organized under the auspices of the
All-China&#146;s Federation of Trade Unions, which is established in accordance with the Trade Union Law
of China. A representative of the Company labor union currently serves on the Supervisory Committee
of the Company. Each of the Company&#146;s subsidiaries has its own trade union. The Group has not
experienced any strikes, slowdowns or labor disputes that have interfered with its operations, and
the Group believes that its relations with its employees are good.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All employees of the Group receive cash remuneration and certain non-cash benefits. Cash
remuneration consists of salaries, bonuses and cash subsidies provided by the Group. Salaries are
determined in accordance with the national basic wage standards. The total amount of wages payable
by the Group to its employees is subject to a maximum limit based on the profitability of the Group
and other factors. Bonuses are based on the profitability of the Group. Cash subsidies are intended
as a form of cost-of-living adjustment. In addition to cash compensation, the Group&#146;s contract
employees receive certain non-cash benefits, including housing, education and health services, and
the Group&#146;s temporary employees receive limited health services, but not housing or education.
CSAHC provides certain services in respect of these benefits to the Group&#146;s employees in
consideration of certain fees and other charges.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Retirement And Housing Benefits
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Employees of the Group participate in several defined contribution retirement schemes
organised separately by PRC municipal governments in regions where the major operations of the
Group are located. The Group is required to contribute to these schemes at the rates ranging from
9% to 20% of salary costs including certain allowances. A member of the retirement schemes is
entitled to pension benefits equal to a fixed proportion of the salary at the retirement date. The
retirement benefit obligations of all existing and future retired staff of the Group are assumed by
these schemes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, the Group was selected as one of the pilot enterprises to establish a
supplementary defined contribution retirement scheme for the benefit of employees. In this
connection, employees of the Group participate in a supplementary defined contribution retirement
scheme whereby the Group is required to make defined contributions at rates ranging from 3% to 5%
of total salaries. The Group has no obligation for the payment of pension benefits beyond the
contributions described above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Furthermore, pursuant to the comprehensive services agreement (the &#147;Services Agreement&#148;) dated
May&nbsp;22, 1997 between the Company and CSAHC, CSAHC provided quarters to eligible employees of the
Group. In return, the Group paid a fixed annual fee of RMB85&nbsp;million to CSAHC for a ten-year period
from 1995 to 2004. The agreement expired by December&nbsp;31, 2004 and no further payment was made in
2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to an additional staff housing benefit scheme effective September&nbsp;2002, the Group
agreed to pay lump sum housing allowances to certain employees who have not received quarters from
CSAHC or the Group according to the relevant PRC housing reform policy, for subsidising their
purchases of houses. An employee who quits prior to the end of the vesting benefit period is
required to pay back a portion of the lump sum housing benefits determined on a pro-rata basis of
the vesting benefit period. The Group has the right to effect a charge on the employee&#146;s house and
to enforce repayment through selling the house in the event of default in repayment. Any shortfall
in repayment would be charged against income statement. As of December&nbsp;31, 2005, the Company and
the Group had made payments totalling RMB168&nbsp;million under the scheme and recorded its remaining
contractual liabilities totalling RMB92&nbsp;million as accrued expenses on the balance sheets. Housing
allowances are payable when applications are received from eligible employees.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Workers&#146; Compensation
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There is no workers&#146; compensation or other similar compensation scheme under the Chinese labor
and employment system. As required by Chinese law, however, the Group, subject to certain
conditions and limitations, pays for the medical expenses of any contract employee who suffers a
work-related illness, injury or disability and continues to pay the full salary of, and provides
all standard cash subsidies to, such employee during the term of such illness, injury or
disability. The Group also pays for certain medical expenses of its temporary employees.
</DIV>

<P align="center" style="font-size: 10pt">55
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="132"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Share Ownership</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of the date of this Annual Report, no Director, Senior Management or Supervisor of the
Company is a beneficial owner of any shares of the Company&#146;s capital stock. As of the date of this
Annual Report, no arrangement has been put in place involving issue or grant of options or shares
or securities of the Company to any of the Director, Senior Management, Supervisor or employees of
the Company.
</DIV>
<DIV align="left">
<A name="133"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.</B>
</DIV>

<DIV align="left">
<A name="134"></A>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Major Shareholders</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Share Capital Structure
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of May 31, 2006, the total share capital of the Company was divided
into 4,374,178,000 shares, of
which approximately 50.3% (2,200,000,000 domestic shares) was held by CSAHC, approximately 26.84%
(1,174,178,000 H shares) was held by Hong Kong and overseas shareholders and approximately 22.86%
(1,000,000,000 A shares) was held by domestic shareholders. CSAHC owns 50.30% of the total share capital of the Company, therefore it is entitled to exercise all the
rights of a controlling shareholder, including the election of executive Directors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Substantial Shareholders
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of May 31, 2006, the following shareholders had an interest of 5% or more in the
Company&#146;s shares:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="29%">&nbsp;</TD>
    <TD width="50%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Approximate</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Percentage</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>of the Total</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Number of Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Number of Shares</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">CSAHC</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="left">2,200,000,000 domestic shares</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD nowrap colspan="2" align="center">50.30%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">HKSCC Nominees Limited</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" nowrap align="left">1,150,854,998 H shares</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD nowrap colspan="2" align="center">26.31%</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
table below sets forth, as of May 31, 2006, the following entities hold 5% or more of
the total number of H shares issued by the Company.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="30%">&nbsp;</TD>
    <TD width="51%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Approximate</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Percentage of</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>the Total</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number of H</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Number of H Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Shares</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">HKSCC Nominees Limited</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,150,854,998</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD nowrap colspan="2" align="center">98.01%</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Domestic shares and H shares have identical voting rights.
</DIV>
<DIV align="left">
<A name="135"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Related Party Transactions</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company enters into transactions from time to time with CSAHC and its affiliates. For a
description of such transactions, see Note 36 to the Financial Statements. In particular, the
following arrangements, which the Company believes are material to its operations, have been made
between the Company and CSAHC and its affiliates. The Company believes that these arrangements have
been entered into by the Group in the ordinary course of business and
in accordance with the agreements governing such transactions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Arrangements with CSAHC
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Trademark License Agreement</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company and CSAHC entered into a ten year trademark licence agreement dated May&nbsp;22, 1997
pursuant to which CSAHC acknowledges that the Company has the right to use the name &#147;China
Southern&#148; and &#147;China Southern Airlines&#148; in both Chinese and English, and grants the Company a
renewable royalty free license to use the kapok logo on a worldwide basis in connection with the
Company&#146;s airline and airline-related businesses. Unless CSAHC gives a written notice of
termination three months before the expiration of the agreement, the agreement will be
automatically renewed for another ten-year term.
</DIV>

<P align="center" style="font-size: 10pt">56
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Leases</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company as lessee and CSAHC as lessor have entered into the following lease agreements:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company and CSAHC entered into a land lease agreement dated May&nbsp;22, 1997, in respect
of the land used by the Company within Guangzhou Baiyun International Airport. The rental payment
is RMB2,651,000 per year. The term of the lease is five years commencing April&nbsp;1, 1997, renewable
by both parties thereafter (subject to mutual agreement with respect to rental terms).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company and CSAHC separately entered into four lease agreements dated May&nbsp;22, 1997,
in respect of office premises located at the east wing of the Guangzhou Railway Station on
Guangzhou Huanshi Dong Road, office premises at Haikou Airport, office premises in Haikou City, and
office premises at Tianhe Airport in Wuhan, Hubei Province. The aggregate rental payment under the
four leases is RMB15,745,000 per year. The term of each lease is one year, renewable by the parties
thereafter (subject to mutual agreement with respect to rental terms).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company and CSAHC entered into an indemnification agreement dated May&nbsp;22, 1997 in
which CSAHC has agreed to indemnify the Company against any loss or damage caused by or arising
from any challenge of, or interference with, the Company&#146;s right to use certain land and buildings.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company and CSAHC entered into a lease agreement dated November&nbsp;12, 2004, under which
CSAHC leases to the Company certain lands by leasing the land use rights of such lands to the
Company. These lands had been administratively allocated to Xinjiang Airlines and Northern Airlines
for the purposes of their civil aviation and related businesses. Subsequently, CSAHC was authorised
to deal with the land use rights of such lands, including leasing, but not transferring, such land
use rights. Total area of the lands leased is 1,182,297 square metres, and the locations of such
lands are in Urumqi, Shenyang, Dalian and Harbin. The lease is for a fixed term of three years,
commencing from the effective date of the lease, and is renewable, subject to compliance with the
relevant requirements of the Hong Kong Listing Rules by the Company, by an application in writing by the
Company to the lessor three months before the end of the fixed term. The rent for the land use
rights of the designated lands under lease agreement is RMB22,298,000 per year, payable in arrear by
cheque, in cash or by bank transfer on or before the 10th day of each calendar month, and is
determined after arm&#146;s length negotiation between the parties.
The maximum aggregate annual limit (&#147;Cap&#148;) for the lease agreement is
set at RMB22,298,000 per year. The lease agreement was approved by the shareholders of the Company
at the 2nd extraordinary general meeting on December&nbsp;31, 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Arrangements with CSAHC and CSAHC&#146;s Affiliates
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Leases</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company, CSAHC and CNA entered into a lease agreement dated November&nbsp;12, 2004, under
which CSAHC and CNA lease to the Company certain buildings, facilities and other infrastructure
related to the civil aviation businesses of CNA situated at various locations in Shenyang, Dalian,
Jilin, Harbin, Chaoyang and Russia. The lease is for a fixed term of three years, commencing from
the date of the lease, and is renewable, subject to compliance with the relevant requirements of
the Hong Kong Listing Rules by the Company, by an application in writing by the Company to the lessor three
months before the end of the fixed term. The consideration for lease agreement is RMB43,758,000 per
year, payable in arrear by cheque, in cash or by bank transfer on or before the 10th day of each
calendar month, and is determined after arm&#146;s length negotiation between the parties. The Cap for
the lease agreement is set at RMB43,758,000 per year. The lease agreement was approved by the
shareholders of the Company at the 2nd extraordinary general meeting
on December 31, 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company, CSAHC and XJA entered into a lease agreement dated November&nbsp;12, 2004, under
which CSAHC and XJA lease to the Company certain buildings, facilities and other infrastructure
related to the civil aviation businesses of XJA situated in Xinjiang and Russia. The lease is for a
fixed term of three years, commencing from the effective date of the lease, and is renewable,
subject to compliance with the relevant requirements of the Hong Kong Listing Rules by the Company, by an
application in writing by the Company to the lessor three months before the end of the fixed term.
The consideration for lease agreement is RMB5,798,000 per year, payable in arrear by cheque, in
cash or by bank transfer on or before the 10th day of each calendar month, and is determined after
arm&#146;s length negotiation between the parties. The Cap for the lease agreement is set at
RMB5,798,000 per year. The lease agreement was approved by the shareholders of the Company at the
2nd extraordinary general meeting on December&nbsp;31, 2004.
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Arrangements with CSAHC&#146;s Affiliates
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Southern Airlines (Group) Import and Export Trading Company (&#147;SAIETC&#148;), a wholly owned
subsidiary of CSAHC</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company and SAIETC entered into an agreement dated May&nbsp;22, 1997 for the import and export
of aircraft, flight equipment, special vehicles for airline use, communication and navigation
facilities, and training facilities for a term from May&nbsp;22, 1997 to May&nbsp;22, 2000 which was
subsequently extended to May&nbsp;22, 2006 by mutual agreement between the parties. The parties have
determined the various rates for import and export services provided by SAIETC after negotiations
on a fair and equitable basis, which are not higher than the market rates for similar services.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the year ended December&nbsp;31, 2005, the amount incurred by the Group for the import and
export of the above equipment was RMB31,714,000.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order to comply with the requirements under Rule&nbsp;14A.35 of the Hong Kong Listing Rules so
that SAIETC can continue to provide import and export services and custom clearing service after
the expiry of the original agreement, the Company and SAIETC entered into a new import and export
agency framework agreement (the &#147;Import and Export Agency Framework Agreement&#148;) on 1 January, 2006,
which became effective on April 25, 2006, having been approved by the Board of Directors of the
Company. The Import and Export Agency Framework Agreement is valid for a term of three years,
commencing from the date of the agreement, subject to compliance with the relevant provisions of
the Hong Kong Listing Rules by the Company. Both parties agreed that the agency fee for import and
export shall be determined after arm&#146;s length negotiation and shall not be higher than the market
rate.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Southern Airlines Advertising Company, which is 45% owned by the Company and 55% owned
by CSAHC (&#147;SAAC&#148;)</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company and SAAC entered into an agreement dated May&nbsp;22, 1997 for the provision of
advertising services for a term extending from May&nbsp;22, 1997 to May&nbsp;22, 2000. After extension of
three years, the parties have mutually agreed to extend the agreement for another three years to
May&nbsp;22, 2006.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order to comply with the requirements under Rule&nbsp;14A.35 of the Hong Kong Listing Rules, so
that SAAC can continue to provide advertising service after the expiry of the original agreement,
the Company and SAAC entered into a new advertising agency agreement (&#147;Advertising Agency
Agreement&#148;) on January 1, 2006 for a term of three years commencing from the date of the agreement,
which became effective on 25 April, 2006, having been approved by the Board of Directors of the
Company.
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the agreement, SAAC will produce advertisement script, graphic and music to the Company
with the copyright of such products belonging to the Company
products belonging to the Company, provided that the Company shall
comply with all relevant provisions under the Hong Kong Listing Rules. Both parties agreed that
the agency rate for advertising under the Advertising Agency Agreement shall be determined after
arm&#146;s length negotiation and shall not higher than the market rate. For the year ended 31 December
2005, the amount incurred by the Group to SAAC for advertising
services was RMB3,062,000.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>China Southern Airlines Group Finance Company Limited (&#147;SA Finance&#148;) which is 42% owned
by CSAHC, 32% owned by the Company and 26% owned in aggregate by five subsidiaries of the Company</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company entered into a financial agreement dated May&nbsp;22, 1997 with SA Finance for the
provision of financial services such as deposit and loan facilities, credit facilities, financial
guarantees and credit references for a term commencing from
May&nbsp;22, 1997 to May 21, 2000. As agreed
by the parties, the agreement was extended for six years to May&nbsp;22, 2006. In order to comply with
the new requirements under the Hong Kong Listing Rules, so that SA Finance can continue to provide deposit of
money service and other financial services (subject to execution of separate agreements and further
compliance with the Hong Kong Listing Rules), the Company and SA Finance entered into a new financial
agreement on November&nbsp;12, 2004, commencing from that date for a period of three years, and is
renewable, subject to compliance with the requirements of the
relevant Hong Kong Listing Rules by the
Company, by an application in writing by the Company not less than 30&nbsp;days before the end of the
fixed term.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
SA Finance is a connected person of the Company under the Hong Kong Listing Rules, the financial
agreement constitutes a discloseable and non-exempt continuing connected transaction under Rule
14A.35 of the Hong Kong Listing Rules and requires the Company to comply with the reporting and announcement
requirement and the independent shareholders&#146; approval
requirement under Rule&nbsp;14A.48 of the Hong Kong Listing
Rules. The independent shareholders of the Company approved the financial agreement at the second
extraordinary general meeting of the Company held on December&nbsp;31, 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under such agreement, SA Finance agrees to accept deposit of money from the Company at interest rates not lower than those set by the
People&#146;s Bank of China for the same term of deposit. SA Finance will in turn deposit the whole of
such sums of money with certain banks including Bank of Agriculture, Bank of Communications, China
Construction Bank and Industrial and Commercial Bank of China; make loans to the Company subject to the entering into of separate loan agreements, which will
set out the Cap, terms and conditions of the loans, upon
application by the Company during the term of the financial agreement. The maximum limit for amount
of money deposit under the financial agreement is RMB1&nbsp;billion.
The Company will comply with the Hong Kong
Listing Rules when entering into such separate written agreements. SA Finance shall not charge
interest rates higher than those set by the People&#146;s Bank of China for similar loans. The total
amount of outstanding loans extended by SA Finance to the Company
must not exceed the sum of SA Finance&#146;s shareholders&#146; equity, capital reserves and money deposit
received from other parties (except the Company); and provide credit facilities, financial guarantees, credit references, and other financial
services subject to the entering into of separate agreements, which will set out the cap, terms and
conditions of such services, upon request by the Company during the term of the financial
agreement. The Company will comply with the Hong Kong Listing Rules when entering into such separate written
agreements.
</DIV>


<P align="center" style="font-size: 10pt">58
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, the Group&#146;s deposits placed with SA Finance amounted to
RMB543,825,000, which bore interest at the rate of 0.72% per annum; the balance of the loans
extended to the Group by SA Finance amounted to RMB300,000,000.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Shenzhen Air Catering Company Limited, which is 33% owned by CSAHC, and 67% owned by two
independent third parties</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company and Shenzhen Air Catering Company Limited entered into an agreement dated May&nbsp;23,
1997 for the sale and purchase of in-flight meals for flights originating or stopping at the
airport in Shenzhen. Pursuant to such agreement, Shenzhen Air Catering Company Limited will supply
in-flight meals to the Group from time to time during the term from May&nbsp;23, 1997 to May&nbsp;23, 1998.
The parties have mutually agreed that the agreement can be renewed automatically.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the year ended December&nbsp;31, 2005, the amount incurred by the Group to Shenzhen Air
Catering Company Limited for the provision of in-flight meals was approximately RMB60,542,000.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>China Southern West Australian Flying College Pty Ltd (the &#147;Australian Pilot College&#148;),
which is 65% owned by the Company and 35% owned by CSAHC</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;CSAHC and the Australian Pilot College entered into an agreement dated October&nbsp;7, 1993 for the
provision of pilot training in Australia to the cadet pilots of CSAHC (the &#147;Training Agreement&#148;).
The Training Agreement will remain in force unless terminated by either party upon 90&nbsp;days&#146; prior
written notice to the other party. Pursuant to the De-merger Agreement, the Company has assumed all
the interests, rights and obligations of CSAHC under the Training Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the year ended December&nbsp;31, 2005, the amount paid by the Group to the Australian Pilot
College for training services was RMB81,471,000.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Southern Airlines (Group) Economic Development Company, which is 61% owned by CSAHC and
39% owned by an independent third party</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company and Southern Airlines (Group) Economic Development Company entered into an
agreement dated May&nbsp;22, 1997 for the provision of drinks, snacks, liquor, souvenirs and other
products for a term extending from May&nbsp;22, 1997 to May&nbsp;22, 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the year ended December&nbsp;31, 2005, the amount paid by the Group to Southern Airlines
(Group) Economic Development Company for the provision of drinks, snacks, liquor, souvenirs and
other products was RMB87,521,000.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Ticket sales arrangements</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group has entered into ticket agency agreements for the sale of the Group&#146;s air tickets
with several subsidiaries of CSAHC (the &#147;Agents&#148;). The Agents charge commission on the basis of the
rates stipulated by the CAAC and International Air Transport Association (&#147;IATA&#148;). The Agents
charge a commission in the amount of 3% of the ticket price for domestic tickets and 5% to 12% of
the ticket price for Hong Kong and Macau regional/international tickets. The Group has other air
ticket sales agents in China who also charge commission at the same rates. The Agents also act as
air ticket sales agents for other Chinese airlines and charge the same rates of commission to such
other airlines as those charged to the Group. The rates of commission are not higher than market
rates for similar services.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
the year ended December 31, 2005, the aggregate amount of ticket sales of the Group
conducted through the Agents was RMB451,121,000.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>China Southern Airlines Group Air Catering Company Limited (the &#147;Catering Company&#148;), a
wholly owned subsidiary of CSAHC</I>
</DIV>


<P align="center" style="font-size: 10pt">59
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company and the Catering Company entered into a catering agreement dated November&nbsp;12, 2004
under which the Catering Company would supply (1)&nbsp;in-flight meals in accordance with the menus of
in-flight meals to be agreed with the Company from time to time, and in such quantity as the
Company shall advise the Catering Company in advance; and (2)&nbsp;catering services for different
flights of the Company (including normal, additional, chartered and temporary flights) originating
or stopping at the domestic airports, mainly in northern China and the Xinjiang regions where the
Catering Company provides catering services.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The catering agreement is for a fixed term of three years, commencing from the date of the
agreement. The parties have agreed, after arm&#146;s length negotiation, on the price of each type of
in-flight meals and the service charges for each type of aircraft. The prices of in-flight meals
and the service charges are not higher than the market rate of comparable in-flight meals and
service charges. The Catering Company will issue an invoice listing out the quantity of in-flight
meals supplied, the agreed unit price and the total price payable for each of the Company flight it
provides service. The Cap for the Catering Agreement is set at RMB220,000,000 per year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the year ended December&nbsp;31, 2005, the Company paid the in-flight meals charge of
RMB112,136,000 pursuant to the catering agreement.
</DIV>





<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>China Southern Airlines Group Passenger and Cargo Agent Company Limited (&#147;PCACL&#148;), a wholly
owned subsidiary of CSAHC</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order to comply with the requirements under Rule&nbsp;14A.35 of the Hong Kong Listing Rules so
that PCACL can continue to provide ticket agency services, the Company and PCACL, a whollyowned
subsidiary of CSAHC whose principal business activity is that of acting as an air ticket agent and
airfreight forwarding agent, entered into a new ticket agency framework agreement (the &#147;New Ticket
Agreement&#148;) and a new airfreight forwarding agency framework agreement (the &#147;New Airfreight
Agreement&#148;, together with New Ticket Agreement, the &#147;Two
Sales Agency Framework Agreements&#148;) on January 1, 2006, which
became effective on April 25, 2006, having been approved by the Board of
Directors of the Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Two Sales Agency Framework Agreements are valid for a term of three years commencing from
January 1, 2006, subject to the compliance of relevant requirements of the Hong Kong Listing Rules
by the Company. The parties agreed that the agency fee shall be determined after arm&#146;s length
negotiation and shall not be higher than the market rate.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>China Southern Airlines Group Travel Development Company Limited (&#147;CSA Travel&#148;), a wholly
owned subsidiary of CSAHC</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company and CSA Travel, whose principal business activity is that of operating tourism
related business, entered into a framework agreement on Lease, Operation and Management (&#147;Framework
Agreement on Lease and Operation&#148;) on January 1, 2006 in order to allow Company to lease certain
hotels belonging to it to CSA Travel for it to operate, and to provide certain relevant services in
compliance with the requirements under Rule&nbsp;14A.35 of the Hong Kong Listing Rules for a term of
three years, commencing from the date of the agreement. The Framework Agreement on Lease and
Operation became effective on April 25, 2006, having been approved by the Board of Directors of the
Company. Pursuant to the agreement, the Company shall lease Guangzhou Airlines Hotel, Zhuhai Pilot
Mansion and certain portions of CSA Guangzhou Hotel and Beijing CSA Hotel to the CSA Travel for
operation and management of such hotels. With regard to the amount of rent payable under the
agreement, the annual cap for the Framework Agreement on Lease and Operation is set at RMB6,000,000
per annum for the entire term of the agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Guangzhou China Southern Airlines Property Management Company Limited (the &#147;GCSAPMC&#148;), which
is 90% owned by CSAHC and 10% owned by the Company&#146;s Union</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company and GCSAPMC, whose principal business activity is that of management of real
property, entered into a framework agreement for the Engagement of Property Management (&#147;Property
Management Framework Agreement&#148;) on January 1, 2006 in respect of engaging GCSAPMC to provide
property management and improvement services in compliance with the requirements under Rule&nbsp;14A.35
of the Hong Kong Listing Rules for a term of three years, commencing from the date of the
agreement. The Property Management Framework Agreement became
effective on April 25, 2006, having
been approved by the Board of Directors of the Company. The Property Management Framework Agreement
would become effective upon approval by the Board of Directors of the Company. Pursuant to the
agreement, the Company has appointed GCSAPMC to provide management and maintenance services for the
Company&#146;s headquarters in Guangzhou and to provide maintenance and management services for the
110KV transformer substation at the new Baiyun International Airport to ensure the ideal working
conditions of the Company&#146;s production and office facilities and physical environment, and the
normal operation of equipment. The fee charging schedule shall be determined at an arm&#146;s length
between both parties. The agency fee is payable within the time period set out in the invoice to be
delivered to the Company. The Company will fund the agency fee wholly by its internal resources.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With regard to the approximate amount of agency fee payable for property management and
improvement services under the agreement likely to be incurred each year during the term of the
agreement, the annual cap for the Property Management Framework Agreement is set at RMB47,010,000
per annum for the entire term of the agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>CSAHC Hainan Co., Ltd., (&#147;Hainan Co., Ltd.&#148;), a subsidiary of CSAHC from Hainan Co., Ltd.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order to expand the assets size and competitive advantage of the Company&#146;s airline
operations and completely remove competition with CSAHC in the airline industry, the Board of
Directors reviewed and approved the acquisition (the &#147;Acquisition&#148;) by the Company of the assets
(&#147;Core Assets&#148;) and liabilities (&#147;Core Liabilities&#148;) in relation to the airline operations of CSAHC
Hainan Co., Ltd. (&#147;Hainan Co., Ltd.&#148;), a subsidiary of CSAHC from Hainan Co., Ltd., whose main
business is that of civil aviation, on April 18, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As agreed by the parties, the value of the Core Assets to be acquired and the Core Liabilities
to be assumed by the Company is determined in accordance with the valuation reports
(Zhongqihuapingbaozi (2006)&nbsp;Report No.&nbsp;024) on the transfer of business and assets of Hainan Co.,
Ltd. dated June 30, 2005 which was issued by China Enterprise Appraisal Co., Ltd., which sets out
the estimated value of the Core Assets as RMB355,150,000, consisting mainly of RMB103,020,000 in
cash, RMB55,110,000 for bill and trade receivables, RMB160,970,000 for airplanes, aviation
equipment and productionrelated buildings and equipment, as well as RMB35,480,000 of land; and the
Core Liabilities, which include airplane repair expenses, jet fuel and takeoff and landing fees,
amount to RMB350,000,000. The Core Liabilities will be paid directly by the Company to the
creditors in accordance with the terms and period as agreed by relevant parties. After deducting
the above-mentioned liabilities, the Company shall pay RMB5,150,000 in cash, being the difference
in the estimated values of the Core Assets and Core Liabilities, into the bank account designated
by Hainan Co., Ltd. The Company will fund the consideration for the Acquisition wholly by its
internal resources.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Nan Lung Travel &#038; Express (Hong Kong) Ltd. (the &#147;Nanlung&#148;), a subsidiary wholly owned by CSAHC</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As China Airlines (Hong Kong) Co., Ltd. has ceased to act as agent of the Company in respect
of its ticket sales, account settlement and the ground operations of its flights in Hong Kong
region, for the purpose of maintaining the sales and operations of the Company in Hong Kong region,
the Company entered into a new General Agency Agreement for Sale of Freight and Passenger Services
(the &#147;Agency Agreement&#148;) with Nanlung on May&nbsp;16, 2006, having been approved by the Board of
Directors of the Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Agency Agreement is valid for a term of one year, commencing from January&nbsp;1, 2006, subject
to compliance with the relevant provisions of the Hong Kong Listing Rules by the Company. Both
parties agreed that prior to the establishment of any relevant entity in Hong Kong region by the
Company, the Company authorizes Nanlung to act as agent in its sales and account settlement and the
ground operations of its flights in Hong Kong region, and that the rates of the various agency fees
shall be determined after arm&#146;s length negotiation and shall not exceed those of the same category
that prevail in the market, with a ceiling set at 6% of the revenue of the Company that is derived
from freight and passenger services sold through the agency of Nanlung (the total amount shall not
exceed HK$60&nbsp;million). The agency fee is payable within the time period set out in the invoice to
be delivered to the Company. The Company will fund the agency fee wholly by its internal resources.
</DIV>










<DIV align="left">
<A name="136"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Interests of Experts and Counsel</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>
<DIV align="left">
<A name="137"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 8. FINANCIAL INFORMATION.</B>
</DIV>

<DIV align="left">
<A name="138"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Consolidated Statements and Other Financial Information</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;See &#147;Item&nbsp;18. Financial Statements&#148; for financial statements filed as part of this Annual
Report.
</DIV>
<DIV align="left">
<A name="139"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Significant Changes</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No significant changes have occurred since the date of the financial statements provided in
Item&nbsp;18 below.
</DIV>
<DIV align="left">
<A name="140"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Dividend Information</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No interim dividend was paid during the year ended December&nbsp;31, 2005. The Board of Directors
does not recommend the payment of a final dividend in respect of the year ended December&nbsp;31, 2005.
</DIV>

<P align="center" style="font-size: 10pt">60
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<A name="141"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 9. THE OFFER AND LISTING.</B>
</DIV>

<DIV align="left">
<A name="142"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Offer and Listing Details</B></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The principal trading market for the Company&#146;s H Shares is the Hong Kong Stock Exchange, and
the Company&#146;s trading code is &#147;1055&#148;. The ADSs, each representing 50 H Shares, are evidenced by
ADRs issued by The Bank of New York as the Depositary for the ADRs, and are listed on the New York
Stock Exchange under the symbol &#147;ZNH&#148;.</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In July&nbsp;2003, the Company issued and listed 1,000,000,000 A shares on the Shanghai Stock
Exchange with trading code of &#147;600029&#148;. The 2,200,000,000 Domestic Shares held by CSAHC are not
listed on any stock exchange and are essentially not transferrable by
CSAHC. </DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Set forth below for the periods indicated are the high and low sales prices of H Shares on the
Hong Kong Stock Exchange, ADSs on the New York Stock Exchange and A Shares on the Shanghai Stock
Exchange.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>The Stock Exchange</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>The New York</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>The Shanghai</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>of Hong Kong</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Stock Exchange</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Stock Exchange</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Price per H Share</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Price per ADS</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Price per A Share</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>(HK$)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>(US$)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>(RMB)</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>High</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Low</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>High</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Low</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>High</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Low</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><I>Annual Market Prices</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><I>Fiscal Year ended December&nbsp;31, 2000</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.93</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.02</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18.38</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.06</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><I>Fiscal Year ended December&nbsp;31, 2001</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.95</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.35</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18.10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><I>Fiscal Year ended December&nbsp;31, 2002</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.60</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.35</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><I>Fiscal Year ended December&nbsp;31, 2003</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.46</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22.78</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.53</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.34</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.75</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><I>Fiscal Year ended December&nbsp;31, 2004</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.68</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.47</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29.73</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15.95</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.87</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.96</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><I>Fiscal Year ended December&nbsp;31, 2005</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.22</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.17</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.68</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.62</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><I>Quarterly Market Prices</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><I>Fiscal Year ended December&nbsp;31, 2002</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><I>First Quarter</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.83</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.22</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17.63</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14.80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><I>Second Quarter</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.42</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.33</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21.74</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14.95</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><I>Third Quarter</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.60</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.89</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><I>Fourth Quarter</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.42</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.35</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><I>Fiscal Year ended December&nbsp;31, 2003</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><I>First Quarter</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.62</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.71</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11.75</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><I>Second Quarter</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.46</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14.85</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.53</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><I>Third Quarter</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.88</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18.59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.75</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><I>Fourth Quarter</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22.78</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16.76</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.34</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.86</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><I>Fiscal Year ended December&nbsp;31, 2004</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><I>First Quarter</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.68</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29.73</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20.91</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.87</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.95</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Second Quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.90</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.47</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24.89</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15.95</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.24</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.14</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Third Quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.17</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.47</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20.17</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.19</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.16</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Fourth Quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.53</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.55</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22.74</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16.71</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.96</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><I>Fiscal Year ended December&nbsp;31, 2005</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><I>First Quarter</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.47</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19.93</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16.10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.56</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Second Quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.72</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17.33</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14.72</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.02</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.95</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Third Quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16.86</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.35</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Fourth Quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.83</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15.45</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11.68</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.77</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.23</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Monthly Market Prices</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">December&nbsp;2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15.45</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13.68</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.74</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.52</TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">January&nbsp;2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13.91</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.53</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">February&nbsp;2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.53</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.17</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15.88</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14.05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.85</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.55</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">March&nbsp;2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.47</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15.78</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14.16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.84</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.45</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">April&nbsp;2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.96</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15.03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13.06</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.19</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">May&nbsp;2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.08</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.86</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13.59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.75</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.25</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">June
19, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.94</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.68</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12.65</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.76</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.97</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.53</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left">
<A name="143"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Plan of Distribution</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>

<P align="center" style="font-size: 10pt">61
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="144"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Markets</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;See
&#147;Offer and Listing Details&#148; above.
</DIV>
<DIV align="left">
<A name="145"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Selling Shareholders</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>
<DIV align="left">
<A name="146"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Dilution</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>
<DIV align="left">
<A name="147"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Expenses of the Issue</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>
<DIV align="left">
<A name="148"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 10. ADDITIONAL INFORMATION.</B>
</DIV>

<DIV align="left">
<A name="149"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Share Capital</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>
<DIV align="left">
<A name="150"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Memorandum and Articles of Association</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following is a summary of certain provisions of our articles of association. As this is a summary, it does not contain all the information that may be important to you. You and your advisors should read the text of our articles
of association for further information.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company is registered with and has obtained a business license from the State
Administration Bureau of Industry and Commerce of the People&#146;s Republic of China on March&nbsp;25, 1995.
The Company&#146;s business license number is 1000001001760.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On March&nbsp;13, 2003, the Company obtained an approval certificate from the Ministry of Commerce
to change to a permanent limited company with foreign investments and obtained the business license
(Qi Gu Guo Zi Di No.&nbsp;000995) on October&nbsp;17, 2003 issued by the State Administration of Industry and
Commerce of the People&#146;s Republic of China.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Objects and Purpose
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to Article&nbsp;13 of the Articles of Association, the business purposes of the Company
are: (i)&nbsp;to absorb domestic and foreign capital; (ii)&nbsp;to assist in developing the aviation industry
of China; (iii)&nbsp;to promote the development of the national economy of China; (iv)&nbsp;to utilize
corporate incentive mechanisms of privatization; (v)&nbsp;to draw on the advanced management expertise
of other domestic and foreign companies; (vi)&nbsp;to continuously improve the management of the
Company; (vii)&nbsp;to enhance the market competitiveness of the Company; (viii)&nbsp;to generate economic
and social benefits for the Company; and (ix)&nbsp;to generate steady income for the Company&#146;s
shareholders. Pursuant to Article&nbsp;14 of the Articles of Association, the scope of business of the
Company shall be consistent with and subject to the scope of business approved by the relevant
supervisory department of the State. The scope of business of the Company includes: (i)&nbsp;provision
of scheduled and non-scheduled domestic, regional and international air transportation services for
passengers, cargo, mail and luggage; (ii)&nbsp;undertaking general aviation services; (iii)&nbsp;provision of
aircraft repair and maintenance services; (iv)&nbsp;acting as agent for other domestic and international
airlines; (v)&nbsp;provision of air catering services and (vi)&nbsp;engaging in other airline or
airline-related business, including advertising for such services.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Directors
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant
to Article&nbsp;179 of the Articles of Association, where a Director of the Company is in
any way, directly or indirectly, materially interested in a contract, transaction or arrangement or
proposed contract, transaction or arrangement with the Company, (other than his contract of service
with the Company), he shall declare the nature and extent of his interests to the Board of
Directors at the earliest opportunity, whether or not the contract, transaction or arrangement or
proposal therefor is otherwise subject to the approval of the Board of Directors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant
to Article&nbsp;130 of the Articles of Association, where a Director is interested in any
resolution proposed at a board meeting, such Director shall not be present and shall not have a
right to vote. Such Director shall not be counted in the quorum of the relevant meeting.
</DIV>

<P align="center" style="font-size: 10pt">62
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant
to Article&nbsp;187 of the Articles of Association, the Company shall, with the prior
approval of shareholders in general meeting, enter into a contract in writing with a Director
wherein his emoluments are stipulated. The aforesaid emoluments include, emoluments in respect of
his service as Director, Supervisor or senior administrative officer of the Company or any
subsidiary of the Company; emoluments in respect of the provision of other services in connection
with the management of the affairs of the Company and any of its subsidiaries; and payment by way
of compensation for loss of office, or as consideration for or in connection with his retirement
from office.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant
to Article&nbsp;124(6) of the Articles of Association, the Board of Directors has the
power to formulate proposals for increases or reductions in the Company&#146;s registered capital and
the issue of debentures of the Company; such resolutions must be passed by more than two-thirds of
all the Directors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There is no mandatory retirement age for the Directors of the Company. The Directors of the
Company are not required to hold shares of the Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Ordinary Shares
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to Article&nbsp;19 of the Articles of Association<B>, </B>subject to the approval of the
securities authority of the State Council, the Company may issue and offer shares to domestic
investors or foreign investors for subscription. Foreign investors are those investors of foreign
countries and regions of Hong Kong, Macau and Taiwan who subscribe for shares issued by the
Company. Domestic investors are those investors within the territory of the PRC (excluding
investors of the regions referred to in the preceding sentence) who subscribe for shares issued by
the Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to Article&nbsp;20 of the Articles of Association<B>, </B>Shares issued by the Company to
domestic investors for subscription in Renminbi shall be referred to as &#147;Domestic-Invested Shares&#148;.
Shares issued by the Company to foreign investors for subscription in foreign currencies shall be
referred to as &#147;Foreign-Invested Shares&#148;. Foreign-Invested Shares which are listed overseas are
called &#147;Overseas-Listed Foreign-Invested Shares&#148;. The foreign currencies mean the legal currencies
(apart from Renminbi) of other countries or districts which are recognized by the foreign exchange
control authority of the state and can be used to pay the Company for the share price.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to Article&nbsp;21 of the Articles of Association<B>, </B>Domestic-Invested Shares issued by the
Company shall be called &#147;A Shares&#148;. Overseas-Listed Foreign-Invested Shares issued by the Company
and listed in Hong Kong shall be called &#147;H Shares&#148;. H Shares are shares which have been admitted
for listing on The Stock Exchange of Hong Kong Limited, the par value of which is denominated in
Renminbi and which are subscribed for and traded in Hong Kong dollars. H Shares can also be listed
on a stock exchange in the United States of America in the form of American depositary receipts.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has issued a total of 4,374,178,000 ordinary shares, of which (a)&nbsp;2,200,000,000 are
Domestic Shares held by CSAHC, (b)&nbsp;1,174,178,000 are H Shares held by Hong Kong and overseas
shareholders and (c)&nbsp;1,000,000,000 are A Shares held by PRC shareholders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to Article&nbsp;54 of the Articles of Association, the ordinary shareholders of the
Company shall enjoy the following rights:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the right to attend or appoint a proxy to attend shareholders&#146; general meetings and to vote
thereat;</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">(2)&nbsp;the right to dividends and other distributions in proportion to the number of shares held;
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the right of supervisory management over the Company&#146;s business operations, and the right to
present proposals or enquiries;</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the right to transfer, donate or pledge his shares in accordance with laws, administrative
regulations and provisions of these articles of association;</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(5)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the right of knowledge and decision making power with respect to important matters of the
Company in accordance with laws, administrative regulations and these articles of association;</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(6)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the right to obtain relevant information in accordance with the provisions of these articles
of association, including:</TD>
</TR>

</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) the right to obtain a copy of these articles of association, subject to payment of the
cost of such copy;
</DIV>

<P align="center" style="font-size: 10pt">63
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) the right to inspect and copy, subject to payment of a reasonable charge:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 6%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) all parts of the register of shareholders;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 6%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) personal particulars of each of the Company&#146;s directors, supervisors, president and other
senior administrative officers, including:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 9%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(aa) present name and alias and any former name or alias;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 9%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(bb) principal address (residence);
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 9%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(cc) nationality;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 9%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(dd) primary and all other part-time occupations and duties;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 9%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ee) identification documents and their relevant numbers;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 6%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) state of the Company&#146;s share capital;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 6%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) reports showing the aggregate par value, quantity, highest and lowest price paid in
respect of each class of shares repurchased by the Company since the end of last accounting
year and the aggregate amount paid by the Company for this purpose;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 6%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) minutes of shareholders&#146; general meetings;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 6%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) interim and annual reports of the Company.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(7)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in the event of the termination or liquidation of the Company, to participate in the
distribution of surplus assets of the Company in accordance with the number of shares held;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(8)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>other rights conferred by laws, administrative regulations and these articles of association.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to Article&nbsp;55 of the Articles of Association, the ordinary shareholders of the
Company shall assume the following obligations:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to abide by these articles of association;</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to pay subscription monies according to the number of shares subscribed and the method of
subscription;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>no right to return shares to the Company unless laws and regulations provide otherwise;</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>other obligations imposed by laws, administrative regulations and these articles of
association.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shareholders are not liable to make any further contribution to the share capital other than
as agreed by the subscriber of the relevant shares on subscription.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Action necessary to change rights of shareholders
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant
to Article&nbsp;112 of the Articles of Association, shareholders who hold different
classes of shares are shareholders of different classes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
holders of the Domestic-Invested Shares and holders of Overseas-Listed Foreign-Invested
Shares shall be deemed to be shareholders of different classes.
</DIV>

<P align="center" style="font-size: 10pt">64
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant
to Article&nbsp;113 of the Articles of Association, rights conferred on any class of
shareholders in the capacity of shareholders (&#147;class rights&#148;) may not be varied or abrogated unless
approved by a special resolution of shareholders in general meeting and by holders of shares of
that class at a separate meeting conducted in accordance with
Articles 115 to 119.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant
to Article&nbsp;115 of the Articles of Association, <B>s</B>hareholders of the affected class,
whether or not otherwise having the right to vote at shareholders&#146; general meetings, shall
nevertheless have the right to vote at class meetings in respect of matters concerning
sub-paragraphs (2)&nbsp;to (8), (11)&nbsp;and (12)&nbsp;of
Article&nbsp;114, but interested shareholder(s) shall not be
entitled to vote at class meetings. &#147;Interested shareholder(s)&#148; is:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in the case of a repurchase of shares by offers to all shareholders or public dealing on a
stock exchange under Article&nbsp;31, a &#147;controlling shareholder&#148; within the meaning of Article&nbsp;57;</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in the case of a repurchase of share by an off-market contract under Article&nbsp;31, a holder of
the shares to which the proposed contract relates;</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in the case of a restructuring of the Company, a shareholder within a class who bears less
than a proportionate obligation imposed on that class under the proposed restructuring or who
has an interest in the proposed restructuring different from the interest of shareholders of
that class.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant
to Article&nbsp;116 of the Articles of Association, resolutions of a class of shareholders
shall be passed by votes representing more than two-thirds of the voting rights of shareholders of
that class represented at the relevant meeting who, according to
Article&nbsp;115, are entitled to vote
at class meetings.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant
to Article&nbsp;117 of the Articles of Association, written notice of a class meeting shall
be given forty-five (45)&nbsp;days before the date of the class meeting to notify all of the
shareholders in the share register of the class of the matters to be considered, the date and the
place of the class meeting. A shareholder who intends to attend the class meeting shall deliver his
written reply concerning attendance at the class meeting to the Company twenty (20)&nbsp;days before the
date of the class meeting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If the number of shares carrying voting rights at the meeting represented by the shareholders
who intend to attend the class meeting reaches more than one half of the voting shares at the class
meeting, the Company may hold the class meeting; if not, the Company shall within five (5)&nbsp;days
notify the shareholders again by public notice of the matters to be considered, the date and the
place for the class meeting. The Company may then hold the class meeting after such publication of
notice.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant
to Article&nbsp;118 of the Articles of Association, notice of class meetings need only be
served on shareholders entitled to vote thereat.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Meeting of any class of shareholders shall be conducted in a manner as similar as possible to
that of general meetings of shareholders. The provisions of these articles of association relating
to the manner to conduct any shareholders&#146; general meeting shall apply to any meeting of a class of
shareholders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant
to Article&nbsp;119 of the Articles of Association, the special procedures for voting at
any meeting of a class of shareholders shall not apply to the following circumstances:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>where the Company issues, upon the approval by special resolution of its shareholders in
general meeting, either separately or concurrently once every twelve months, not more than 20
per cent of each of its existing issued Domestic-Invested Shares and Overseas-Listed
Foreign-Invested Shares;</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>where the Company&#146;s plan to issue Domestic-Invested Shares and Overseas-Listed
Foreign-Invested Shares at the time of its establishment is carried out within fifteen (15)
months from the date of approval of the Securities Committee of the State Council.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Meetings of shareholders
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shareholders&#146; general meetings is the organ of authority of the Company and shall exercise its
functions and powers, among other things, to decide on the Company&#146;s operational policies and
investment plans, to elect and replace directors and decide on matters relating to the remuneration
of directors, to examine and approve reports of the board of directors, etc.
</DIV>

<P align="center" style="font-size: 10pt">65
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are two types of shareholders&#146; general meetings: annual general meetings and
extraordinary general meetings. Shareholders&#146; general meetings shall be convened by the board of
directors. Annual general meetings are held once every year and within six (6)&nbsp;months from the end
of the preceding financial year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
any of the following circumstances, the Board of Directors shall convene an
extraordinary general meeting within two (2)&nbsp;months:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>when the number of Directors is less than the number of Directors required by the Company Law
or two thirds of the number of Directors specified in the Articles of Association;</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>when the unrecovered losses of the Company amount to one third of the total amount of its
share capital;</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>when shareholder(s) holding 10 per cent or more of the
Company&#146;s issued and outstanding shares carrying voting rights request(s) in writing the convening of an extraordinary general
meeting;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>when deemed necessary by the Board of Directors or as requested by the supervisory committee.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;When the Company convenes a shareholders&#146; general meeting, written notice of the meeting shall
be given forty five (45)&nbsp;days before the date of the meeting to notify all of the shareholders in
the share register of the matters to be considered and the date and the place of the meeting. A
shareholder who intends to attend the meeting shall deliver his written reply concerning the
attendance of the meeting to the Company twenty (20)&nbsp;days before the date of the meeting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company shall, based on the written replies received twenty (20)&nbsp;days before the date of
the shareholders&#146; general meeting from the shareholders, calculate the number of voting shares
represented by the shareholders who intend to attend the meeting. If the number of voting shares
represented by the shareholders who intend to attend the meeting reaches one half or more of the
Company&#146;s total voting shares, the Company may hold the meeting; if not, then the Company shall
within five (5)&nbsp;days notify the shareholders again by public notice of the matters to be
considered, the place and date for, the meeting. The Company may then hold the meeting after such
publication of notice.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Limitation on right to own securities
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The PRC Special Regulations on Overseas Offering and the Listing of Shares by Companies
Limited by Share (the &#147;Special Regulations&#148;) and the Mandatory Provisions for Articles of
Association of Companies to be Listed Overseas (the &#147;Mandatory Provisions&#148;) provide for different
classes of shares to be subscribed for and traded by local and overseas investors respectively.
Shares which can be traded by overseas investors must be in registered form and while denominated
in Renminbi, they are traded in foreign currency with dividends payable in foreign currency. Local
investors are prohibited from dealing in such shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Merger, acquisition or corporate restructuring
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant
to Article&nbsp;221 of the
Articles of Association, in the event of the merger or division
of the Company, a plan shall be presented by the Company&#146;s board of directors and shall be approved
in shareholders&#146; general meeting and the relevant examining and approving formalities shall be
processed as required by law. A shareholder who objects to the plan of merger or division shall
have the right to demand the Company or the shareholders who consent to the plan of merger or
division to acquire that dissenting shareholder&#146;s shareholding at a fair price. The contents of the
resolution of merger or division of the Company shall be made into special documents for
shareholders&#146; inspection. Such special documents shall be sent by mail to holders of
Overseas-Listed Foreign-Invested Shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Articles of Association do not contain any provisions governing the ownership threshold
above which shareholder ownership must be disclosed.
</DIV>
<DIV align="left">
<A name="151"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Material Contracts</B>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company has not entered into any material contracts other than in the ordinary course of
business and other than those described in this Item&nbsp;10, Item&nbsp;4, &#147;Information on the Company&#148; or
elsewhere in this annual report on Form&nbsp;20-F.
</DIV>




<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>A sale and purchase agreement (the &#147;Sale and Purchase Agreement&#148;) dated November&nbsp;12, 2004
between the Company, CSAHC, CNA, a wholly owned subsidiary of CSAHC, and XJA, a wholly owned
subsidiary of CSAHC, pursuant to which the Company agreed to acquire, and CSAHC, CNA and XJA
agreed to sell certain airlines and airlines-related operations, assets and properties of CNA,
XJA and their respective subsidiaries, which included aircraft, engines, spare parts, aviation
equipment and facilities, properties, office facilities, and other fixed, current and
intangible assets. In addition, the Company will also assume all indebtedness in the aggregate
sum of RMB13,438,191,000 owed by XJA, CNA and their respective subsidiaries in connection with
their civil aviation business. The total consideration, including the assumption of the debts
under the Sale and Purchase Agreement was RMB15,397,524,000. It became effective upon approval
by the shareholders of the Company on December&nbsp;31, 2004.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>A lease agreement (the &#147;Lease Agreement 1&#148;) dated November&nbsp;12, 2004 between
the Company, CSAHC and CNA, pursuant to which CSAHC and CNA lease to the Company
certain buildings, facilities and other infrastructure related to the civil
aviation business of CNA situated at various locations in Shenyang, Dalian, Jilin,
Harbin, Chaoyang and Russia for a period of three years. The consideration for
Lease Agreement 1 is RMB41,993,318.44 per year. It became effective upon approval
by the shareholders of the Company on December&nbsp;31, 2004.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(c)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>A lease agreement (the &#147;Lease Agreement 2&#148;) dated November&nbsp;12, 2004
between the Company, CSAHC and XJA, pursuant to which CSAHC and XJA lease to the
Company certain buildings, facilities and other infrastructure related to the
civil aviation business of XJA situated at Xinjiang and Russia for a period of
three years. The consideration for Lease Agreement 2 is RMB5,797,908.61 per year.
It became effective upon approval by the shareholders of the Company on December
31, 2004.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(d)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>A lease agreement (the &#147;Lease Agreement 3&#148;) dated November&nbsp;12, 2004
between the Company and CSAHC, pursuant to which CSAHC leases to the Company
certain lands situated in Urumqi, Shenyang, Dalian and Harbin, by leasing the land
use rights of such lands to the Company for a period of three years. The
consideration for Lease Agreement 3 is RMB22,298,033 per year. It became effective
upon approval by the shareholders of the Company on December&nbsp;31, 2004.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(e)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>A catering agreement (the &#147;Catering Agreement&#148;) dated November&nbsp;12,
2004 between the Company and China Southern Airlines Group Air Catering Company
Limited (the &#147;Catering Company&#148;), a wholly owned subsidiary of CSAHC, pursuant to
which the Catering Company supplies in-flight meal and catering services to the
flights of the Company originating or stopping at the domestic airports, mainly in
Northern China and Xinjiang regions where the Catering Company provides catering
services for a period of three years. The consideration for the catering agreement
is based on the price of each type of in-flight meals and the service price for
each type of aircraft, and is capped at RMB220&nbsp;million per year. It became
effective upon approval by the shareholders of the Company on December&nbsp;31, 2004.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(f)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>A financial agreement (the &#147;Financial Agreement&#148;) dated November&nbsp;12,
2004, between the Company and Southern Airlines Group Finance Company Limited (&#147;SA
Finance&#148;), a connected person of the Company which is 42% owned by CSAHC, 32%
owned by the Company and 26% owned in aggregate by five subsidiaries of the
Company. The Financial Agreement commenced from November&nbsp;12, 2004 for a period of
three years, and is renewable, subject to compliance with the requirements of the
relevant Hong Kong Listing Rules by the Company, by an application in writing by
the Company not less than 30&nbsp;days before the end of the fixed term. Under the
Financial Agreement, SA Finance provides deposit of money service and, subject to
the execution of further agreements with the Company, other financial services
like loan facilities, credit facilities, financial guarantees and credit
references to the Company. The Company is not subject to any extra charges for
depositing money with SA Finance. For the other financial services provided by SA
Finance under the financial agreement, the Company is liable to pay SA Finance the
standard charging rates set by the People&#146;s Bank of China. The PRC commercial
banks also charge similar charging rates set by the People&#146;s Bank of China. The
Company will make payment for such interest, fees and commissions in accordance
with the payment terms of the separate agreements for the provision of loans or
other financial services as might be entered into between the Company and SA
Finance. It became effective upon approval by the shareholders of the Company on
December&nbsp;31, 2004.</TD>
</TR>


<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(g)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>A framework agreement on lease and operation dated January&nbsp;1, 2006
between the Company and China Southern Airlines Group Travel Development Company
Limited (the &#147;CSA Travel&#148;), a wholly owned subsidiary of CSAHC, pursuant to which
the Company leases certain hotels belonging to it to CSA Travel for
operation and management for a period of three years. The
consideration for the framework agreement on lease and operation is based on the
rent payable and fees for operation and management of the hotels, and is capped at RMB6&nbsp;million per year. It became
effective on April&nbsp;25, 2006 has been approved by the directors of the Company.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(h)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>An advertising agency agreement dated January&nbsp;1, 2006 between the
Company and Southern Airlines Advertising Company (the &#147;SAAC&#148;), a related party
that is 45% owned by the Company and 55% owned by CSAHC, pursuant to which the
SAAC produces advertisement script, graphic and music for the Company with the
copyright of such products belonging to the Company for a period of three years.
The consideration for the advertising agency agreement is based on
the fees payable for advertising services to be provided, and is capped at RMB30&nbsp;million per year. It
became effective on April&nbsp;25, 2006 has been approved by the directors of the
Company.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(i)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>A property management framework agreement dated January&nbsp;1, 2006
between the Company and Guangzhou China Southern Airlines Property Management
Company Limited (the &#147;GCSAPMC&#148;), a related party that is 90% owned by CSAHC and
10% owned by the Company&#146;s union, pursuant to which the GCSAPMC provides property
management and improvement services for certain properties of the Company for a
period of three years. The consideration for the property management framework
agreement is based on the fees payable for management and maintenance
services to be provided, and is
capped at RMB47,010,000 per year. It became effective on April&nbsp;25, 2006 has been
approved by the directors of the Company.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(j)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>An acquisition agreement dated April 1, 2006 between the Company and CSAHC Hainan Co., Ltd.
(the &#147;Hainan Co., Ltd.&#148;), a subsidiary of CSAHC, pursuant to which the Company has
agreed to acquire and Hainan Co., Ltd. has agreed to sell the assets and
liabilities in relation to the airline operations of Hainan Co., Ltd. The total
consideration payable by the Company, including the assets to be acquired and the liabilities to be
assumed by the Company, was RMB5,150,000. It became effective upon approval by the
directors of the Company on April&nbsp;18, 2006.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(k)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>An agency agreement for sale of freight and passenger services dated
May&nbsp;16, 2006 between the Company and Nan Lung Travel &#038; Express (Hong Kong) Ltd.
(the &#147;Nanlung&#148;), a wholly owned subsidiary of CSAHC, pursuant to which the Nanlung
acts as agent in the Company&#146;s sales and account settlement and the ground
operations of the Company&#146;s flights in Hong Kong region for a period of one year.
The consideration for the agency agreement is based on the fees
payable for ticket sale and other services to be provided, and is capped at RMB60&nbsp;million for the entire
term of the agency agreement. It became effective on May&nbsp;16, 2006 and was
approved by the directors of the Company on December&nbsp;24, 2005.</TD>
</TR>

</TABLE>
</DIV>








<P align="center" style="font-size: 10pt">66
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="152"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Exchange Controls</B>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under current Chinese foreign exchange regulations, Renminbi is fully convertible
for current account transactions, but is not freely
convertible for capital account transactions. Current account foreign exchange transactions can be
undertaken without prior approval from the relevant Chinese Government agencies by producing
commercial documents evidencing such transactions, provided that they are processed through Chinese
banks licensed to engage in foreign exchange transactions. Conversion from Renminbi into a foreign
currency or vice versa for purposes of capital account transactions requires prior approvals of
relevant Chinese Government agencies. This restriction on capital account transactions could
affect the ability of the Company to acquire foreign currency for capital expenditures.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company is generally required by law to sell all its foreign exchange revenues to Chinese
banks. The Company may purchase foreign exchange directly from Chinese banks for any current
account transactions, such as trade transactions in its usual and normal course of business,
including acquisition of aircraft, jet fuel and flight equipment (such acquisition requires
approvals from the relevant Chinese Government agencies). Payment of dividends by the Company to
holders of the Company&#146;s H Shares and ADSs is also considered a current account transaction under
Chinese law. Therefore, there is no legal restriction on the conversion of Renminbi into foreign
exchange for the purpose of paying dividends to such holders of H Shares and ADSs. In addition, the
Company&#146;s Articles of Association require the Company to pay dividends to holders of the Company&#146;s
H Shares and ADSs in foreign currency.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On July&nbsp;21, 2005, the PRC government changed its policy of pegging the value of the Renminbi
to the U.S. dollar so that the Renminbi is now permitted to fluctuate within a band against a
basket of certain foreign currencies. As a result, the value of the Renminbi against the U.S.
dollar has appreciated by approximately 2%. Under the new policy, the value of Renminbi against the
U.S. dollar has fluctuated on a daily basis within narrow ranges, but overall has further
strengthened against the U.S. dollar. The PRC government has stated publicly that it intends to
further liberalize its currency policy, which could result in a further and more significant change
in the value of the Renminbi against the U.S. dollar. Any significant revaluation of the Renminbi
may have a material adverse effect on the Company&#146;s financial performance, and the value of, and
any dividends payable on, the Company&#146;s H Shares and ADSs in foreign currency terms.
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other Limitations
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are no limitations on the right of non-resident or foreign owners to hold or vote H
Shares or ADSs imposed by Chinese law or by the Articles of Association or other constituent
documents of the Company. However, under current Chinese law, foreign ownership of the Company may
not exceed 49%.
</DIV>
<DIV align="left">
<A name="153"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Taxation</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Chinese Taxation</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following is a general summary of certain Chinese tax consequences of the acquisition,
ownership and disposition of H Shares and ADSs. This summary is based upon tax laws of China as in
effect on the date of this Annual Report, including the income tax treaty between the United States
and China (the &#147;U.S.-PRC Tax Treaty&#148;), all of which are subject to change or different
interpretation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In general, for Chinese tax purposes, holders of ADSs will be treated as the owners of the H
Shares represented by those ADSs, and exchanges of H Shares for ADSs, and ADSs for H Shares, will
not be subject to taxation under the laws of China.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This summary does not purport to address all material tax consequences for holders or
prospective purchasers of H Shares or ADSs, and does not take into account the specific
circumstances of such investors. Investors should consult their own tax advisors as to Chinese or
other tax consequences of the acquisition, ownership and disposition of H Shares or ADSs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dividends
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Chinese tax law generally provides for the imposition of a withholding tax on dividends paid
by a Chinese company to a non-Chinese shareholder at a rate of 20%. However, the Chinese tax
authorities have temporarily suspended imposition of this withholding tax. Accordingly, dividends
paid by the Company to holders of H Shares or ADSs who are foreign individuals not resident in
China or which are foreign enterprises with no permanent establishment in China will currently not
be subject to Chinese withholding tax. In the event that the suspension of the withholding tax is
lifted, such payments will be subject to withholding tax at the 20% rate unless the holder is
entitled to a tax waiver or a lower tax rate under an applicable double-taxation treaty.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;China currently has double-taxation treaties with a number of countries, including Australia,
Canada, France, Germany, Japan, Malaysia, the Netherlands, Singapore, the United Kingdom and the
United States. Under the U.S.-PRC Tax Treaty, China may tax a dividend paid by the Company to a
U.S. holder up to a maximum of 10% of the gross amount of such dividend.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Capital Gains from Transfer or Disposition of Shares
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Chinese tax law generally provides that an individual who transfers or otherwise disposes of a
company&#146;s shares of capital stock is subject to a 20% capital gains tax. Currently, foreign
enterprises and all individuals are temporarily exempt from capital gains tax on transfers of
shares of capital stock of joint stock companies, such as the Company. Should such temporary
exemption be discontinued, such holders may be
</DIV>

<P align="center" style="font-size: 10pt">67
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">subject to a 20% capital gains tax unless reduced by an applicable
double-taxation treaty. Under the U.S.-PRC Tax Treaty, for example, China may only impose a 20%
capital gains tax from the sale or other disposition by a U.S. holder of H Shares or ADSs
representing an interest in the Company of 25% or more.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stamp Duty
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Transfers of shares of capital stock of a company are not subject to Chinese stamp duty if the
transfer does not take place within China (excluding Hong Kong, Macau and Taiwan).
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>United
States Federal Income Taxation</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This discussion describes the material U.S. federal income tax consequences of the purchase,
ownership and disposition of the Company&#146;s ADSs. This discussion does not address any aspect of
U.S. federal gift or estate tax, or the state, local or foreign tax consequences of an investment
in the Company&#146;s ADSs. This discussion applies to you only if you hold and beneficially own the
Company&#146;s ADSs as capital assets for tax purposes. This discussion does not apply to you if you are
a member of a class of holders subject to special rules, such as:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>dealers in securities or currencies;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>traders in securities that elect to use a mark-to-market method of
accounting for securities holdings;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>banks or other financial institutions;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>insurance companies;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>tax-exempt organizations;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>partnerships and other entities treated as partnerships for U.S.
federal income tax purposes or persons holding ADSs through any such
entities;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>persons that hold ADSs as part of a hedge, straddle, constructive
sale, conversion transaction or other integrated investment;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>U.S. Holders (as defined below) whose functional currency for tax
purposes is not the U.S. dollar;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>persons liable for alternative minimum tax; or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>persons who actually or constructively own 10% or more of the total
combined voting power of all classes of the Company&#146;s shares
(including ADSs) entitled to vote.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This discussion is based on the U.S. Internal Revenue Code of 1986, as amended, which is
referred to in this discussion as the Code, its legislative history, existing and proposed
regulations promulgated thereunder, published rulings and court decisions, all as currently in
effect. These laws are subject to change, possibly on a retroactive basis. In addition, this
discussion relies on the assumptions regarding the value of the Company&#146;s shares and the nature of
its business over time. Finally, this discussion is based in part upon the representations of the
depositary and the assumption that each obligation in the deposit agreement and any related
agreement will be performed in accordance with its terms. For U.S. federal income tax purposes, as
a holder of ADSs, you are treated as the owner of the underlying ordinary shares represented by
such ADSs.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You should consult your own tax advisor concerning the particular U.S. federal income tax
consequences to you of the purchase, ownership and disposition of the Company&#146;s ADSs, as well as
the consequences to you arising under the laws of any other taxing jurisdiction.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For purposes of the U.S. federal income tax discussion below, you are a &#147;U.S. Holder&#148; if you
beneficially own ADSs and are:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a citizen or resident of the United States for U.S. federal income tax purposes;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a corporation, or other entity taxable as a corporation, that was created or
organized in or under the laws of the United States or any political
subdivision thereof;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>an estate the income of which is subject to U.S. federal income tax regardless
of its source; or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a trust if (a)&nbsp;a court within the United States is able to exercise primary
supervision over its administration and one or more U.S. persons have the
authority to control all substantial decisions of the trust, or (b)&nbsp;the trust
has a valid election in effect to be treated as a U.S. person.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If you are not a U.S. person, please refer to the discussion below under &#147;Non-U.S. Holders.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">For U.S. federal income tax purposes, income earned through a foreign or domestic partnership or
other flow-through entity is attributed to its owners. Accordingly, if a partnership or other
flow-through entity holds ADSs, the tax treatment of the holder will generally depend on the status
of the partner or other owner and the activities of the partnership or other flow-through entity.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;U.S. Holders
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Dividends on ADSs</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subject to the &#147;Passive Foreign Investment Company&#148; discussion below, if the Company makes
distributions and you are a U.S. Holder, the gross amount of any distributions you receive on your
ADSs will generally be treated as dividend income if the distributions are made from the Company&#146;s
current or accumulated earnings and profits, calculated according to U.S. federal income tax
principles. Dividends will generally be subject to U.S. federal income tax as ordinary income on
the day you actually or constructively receive such income. However, if you are an individual and
have held your ADSs for a sufficient period of time, dividend distributions on the Company&#146;s ADSs
will generally constitute qualified dividend income taxed at a preferential rate (generally 15% for
dividend distributions before January&nbsp;1, 2009) as long as the Company&#146;s ADSs continue to be readily
tradable on the New York Stock Exchange and certain other conditions apply. You should consult your
own tax adviser as to the rate of tax that will apply to you with respect to dividend
distributions, if any, you receive from us.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Distributions on the Company&#146;s ADSs, if any, will generally be taxed to you as dividend
distributions for U.S. tax purposes. Even if you are a corporation, you will not be entitled to
claim a dividends-received deduction with respect to distributions you receive from the Company.
Dividends generally will constitute foreign source passive income for U.S. foreign tax credit
limitation purposes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Sales and other dispositions of ADSs</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subject to the &#147;Passive Foreign Investment Company&#148; discussion below, when you sell or
otherwise dispose of the Company&#146;s ADSs, you will generally recognize capital gain or loss in an
amount equal to the difference between the amount realized on the sale or other disposition and
your adjusted tax basis in the ADSs, both as determined in U.S. dollars. Your adjusted tax basis
will generally equal the amount you paid for the ADSs. Any gain or loss you recognize will be
long-term capital gain or loss if your holding period in the Company&#146;s ADSs is more than one year
at the time of disposition. If you are an individual, any such long-term capital gain will be taxed
at preferential rates. Your ability to deduct capital losses will be subject to various
limitations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Passive Foreign Investment Company</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If the Company were a Passive Foreign Investment Company or &#147;PFIC&#148; in any taxable year in
which you hold the Company&#146;s ADSs, as a U.S. Holder, you would generally be subject to adverse U.S.
tax consequences, in the form of increased tax liabilities and special U.S. tax reporting
requirements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company will be classified as a PFIC in any taxable year if either: (1)&nbsp;the average
percentage value of its gross assets during the taxable year that produce passive income or are
held for the production of passive income is at least 50% of the value of its total gross assets or
(2)&nbsp;75% or more of its gross income for the taxable year is passive income (such as certain
dividends, interest or royalties). For purposes of the first test: (1)&nbsp;any cash, cash equivalents,
and cash invested in short-term, interest bearing, debt instruments, or bank deposits that is
readily convertible into cash, will generally count as producing passive income or held for the
production of passive income and (2)&nbsp;the average value of the Company&#146;s gross assets is calculated
based on its market capitalization.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company believes that it was not a PFIC for the taxable year 2004. However, there can be
no assurance that the Company will not be a PFIC for the taxable year 2005 and/or later taxable
years, as PFIC status is re-tested each year and depends on the facts in such year. For example,
the Company would be a PFIC for the taxable year 2005 if the sum of its average market
capitalization, which is its share price multiplied by the total amount of its outstanding shares,
and its liabilities over that taxable year is not more than twice the value of its cash, cash
equivalents, and other assets that are readily converted into cash.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If the Company were a PFIC, you would generally be subject to additional taxes and interest
charges on certain &#147;excess&#148; distributions the Company makes and on any
gain realized on the disposition or deemed disposition of your ADSs, regardless of whether the
Company continues to be a PFIC in the year in which you receive an &#147;excess&#148; distribution or dispose
of or are deemed to dispose of your ADSs. Distributions in respect of your ADSs during a taxable
year would generally constitute &#147;excess&#148; distributions if, in the aggregate, they exceed 125% of
the average amount of distributions in respect of your ADSs over the three preceding taxable years
or, if shorter, the portion of your holding period before such taxable year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To compute the tax on &#147;excess&#148; distributions or any gain, (1)&nbsp;the &#147;excess&#148; distribution or the
gain would be allocated ratably to each day in your holding period, (2)&nbsp;the amount allocated to the
current year and any tax year before the Company became a PFIC would be taxed as ordinary income in
the current year, (3)&nbsp;the amount allocated to other taxable years would be taxable at the highest
applicable marginal rate in effect for that year, and (4)&nbsp;an interest charge at the rate for
underpayment of taxes for any period described under (3)&nbsp;above would be imposed with respect to any
portion of the &#147;excess&#148; distribution or gain that is allocated to such period. In addition, if the
Company were a PFIC, no distribution that you receive from the Company would qualify for taxation
at the preferential rate discussed in the &#147;Dividends on ADSs&#148; section above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If the Company were a PFIC in any year, as a U.S. Holder, you would be required to make an
annual return on IRS Form&nbsp;8621 regarding your ADSs. However, the Company does not intend to
generate, or share with you, information that you might need to properly complete IRS Form&nbsp;8621.
You should consult with your own tax adviser regarding reporting requirements with regard to your
ADSs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If the Company were a PFIC in any year, you would generally be able to avoid the &#147;excess&#148;
distribution rules described above by making a timely so-called &#147;mark-to-market&#148; election with
respect to your ADSs provided the Company&#146;s ADSs are &#147;marketable&#148;. The Company&#146;s ADSs will be
&#147;marketable&#148; as long as they remain regularly traded on a national securities exchange, such as the
New York Stock Exchange. If you made this election in a timely fashion, you would generally
recognize as ordinary income or ordinary loss the difference between the fair market value of your
ADSs on the first day of any taxable year and their value on the last day of that taxable year. Any
ordinary income resulting from this election would generally be taxed at ordinary income rates and
would not be eligible for the reduced rate of tax applicable to qualified dividend income. Any
ordinary losses would be limited to the extent of the net amount of previously included income as a
result of the mark-to-market election, if any. Your basis in the ADSs would be adjusted to reflect
any such income or loss. You should consult with your own tax adviser regarding potential
advantages and disadvantages to you of making a &#147;mark-to-market&#148; election with respect to your
ADSs. Separately, if the Company were a PFIC in any year, you would be able to avoid the &#147;excess&#148;
distribution rules by making a timely election to treat us as a so-called &#147;Qualified Electing Fund&#148;
or &#147;QEF.&#148; You would then generally be required to include in gross income for any taxable year (1)
as ordinary income, your pro rata share of the Company&#146;s ordinary earnings for the taxable year,
and (2)&nbsp;as long-term capital gain, your pro rata share of the Company&#146;s net capital gain for the
taxable year. However, the Company does not intend to provide you with the information you would
need to make or maintain a &#147;QEF&#148; election and you
will, therefore, not be able to make or maintain such an election with respect to your ADSs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Non-U.S. Holders</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If you beneficially own ADSs and are not a U.S. Holder for U.S. federal income tax purposes (a
&#147;Non-U.S. Holder&#148;), you generally will not be subject to U.S. federal income tax or withholding on
dividends received from the Company with respect to ADSs unless that income is considered
effectively connected with your conduct of a U.S. trade or business and, if an applicable income
tax treaty so requires as a condition for you to be subject to U.S. federal income tax with respect
to income from your ADSs, such dividends are attributable to a permanent establishment that you
maintain in the United States. You generally will not be subject to U.S. federal income tax,
including withholding tax, on any gain realized upon the sale or exchange of ADSs, unless:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>that gain is effectively connected with the conduct of a U.S. trade or
business and, if an applicable income tax treaty so requires as a
condition for you to be subject to U.S. federal income tax with
respect to income from your ADSs, such gain is attributable to a
permanent establishment that you maintain in the United States; or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>you are a nonresident alien individual and are present in the United
States for at least 183&nbsp;days in the taxable year of the sale or other
disposition and either (1)&nbsp;your gain is attributable to an office or
other fixed place of business that you maintain in the United States
or (2)&nbsp;you have a tax home in the United States.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If you are engaged in a U.S. trade or business, unless an applicable tax treaty provides
otherwise, the income from your ADSs, including dividends and the gain from the disposition of the
Company&#146;s ADSs, that is effectively connected with the conduct of that trade or business will
generally be subject to the rules applicable to U.S. Holders discussed above. In addition, if you
are a corporation, you may be subject to an additional branch profits tax at a rate of 30% or any
lower rate under an applicable tax treaty.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>U.S. information reporting and backup withholding rules</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In general, dividend payments with respect to the ADSs and the proceeds received on the sale
or other disposition of those ADSs may be subject to information reporting to the IRS and to backup
withholding (currently imposed at a rate of 28%). Backup withholding will not apply, however, if
you (1)&nbsp;are a corporation or come within certain other exempt categories and, when required, can
demonstrate that fact or (2)&nbsp;provide a taxpayer identification number, certify as to no loss of
exemption from backup withholding and otherwise comply with the applicable backup withholding
rules. To establish your status as an exempt person, you will generally be required to provide
certification on IRS Form W-9, W-8BEN or W-8ECI, as applicable. Any amounts withheld from payments
to you under the backup withholding rules will be allowed as a refund or a credit against your U.S.
federal income tax liability, provide that you furnish the required information to the IRS.
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;HOLDERS OF THE COMPANY&#146;S ADSS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE
APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX
CONSEQUENCES RESULTING FROM PURCHASING, HOLDING OR DISPOSING OF THE ADSS, INCLUDING THE
APPLICABILITY AND EFFECT OF THE TAX LAWS OF ANY STATE, LOCAL OR FOREIGN JURISDICTION AND INCLUDING
ESTATE, GIFT, AND INHERITANCE LAWS.
</DIV>





<DIV align="left">
<A name="154"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Dividends
and Paying Agents</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>
<DIV align="left">
<A name="155"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Statement by Experts</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>
<DIV align="left">
<A name="156"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Documents on Display</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has filed this Annual Report on Form 20-F with the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended. Statements made in this Annual
Report as to the contents of any document referred to are not necessarily complete. With respect to
each such document filed as an exhibit to this Annual Report, reference is made to the exhibit for
a more complete description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company is subject to the informational requirements of the Exchange Act and file reports
and other information with the Securities and Exchange Commission. Reports and other information
which the Company filed with the Securities and Exchange Commission, including this Annual Report
on Form 20-F, may be inspected and copied at the public reference room of the Securities and
Exchange Commission at 450 Fifth Street N.W. Washington D.C. 20549.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You can also obtain copies of this Annual Report on Form 20-F by mail from the Public
Reference Section of the Securities and Exchange Commission, 450 Fifth Street, N.W., Washington
D.C. 20549, at prescribed rates. Additionally, copies of this material may be obtained from the
Securities and Exchange Commission&#146;s Internet site at http://www.sec.gov. The Commission&#146;s
telephone number is 1-800-SEC-0330.
</DIV>
<DIV align="left">
<A name="157"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Subsidiary Information</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>
<DIV align="left">
<A name="158"></A>
</DIV>







<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Comparison of New York Stock Exchange Corporate Governance Rules and China Corporate
Governance Rules for Listed Companies</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Under the amended Corporate Governance Rules of New York Stock Exchange (NYSE), foreign issuers
(including the Company) listed on the NYSE are required to disclose a summary of the significant
differences between their domestic corporate governance rules and NYSE corporate governance rules
that would apply to a U.S. domestic issuer. A summary of such differences is listed below:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="48%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="48%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>NYSE corporate governance rules</B>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><B>Corporate governance rules applicable
to the domestically listed companies
in China and the Company&#146;s governance
practices</B></TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>Director Independence</B><BR>
A listed company must have a
majority of independent directors
on its board of directors. No
director qualifies as
&#147;independent&#148; unless the board of
directors affirmatively determines
that the director has no material
relationship with the listed
company (either directly or as a
partner, shareholder or officer of
an organization that has a
relationship with the company). In
addition, a director must meet
certain standards to be deemed
independent. For example, a
director is not independent if the
director is, or has been within
the last three years, an employee
of the listed company, or if the
director has received, during any
twelve-month period within the
last three years, more than
US$100,000 in direct compensation
from the listed company.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><B>Director Independence</B><BR>
Any listed company must establish an
independent director system and set
forth specific requirements for the
qualification of independent
directors. An independent director
shall not hold any other position in
the listed company other than being a
director and shall not be influenced
by the main shareholders or the
controlling persons of the listed
company, or by any other entities or
persons with whom the listed company
has a significant relationship.<BR><BR>
<I>The Company&#146;s governance practices</I><BR>
The Company has complied with the
relevant Chinese corporate governance
rules and has implemented internal
rules governing the independence and
responsibilities of independent
directors. The Company determines the
independence of independent directors
every year.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">The non-management directors of
each listed company must meet at
regularly scheduled executive
sessions without management.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">No similar requirements.</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="48%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="48%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>Nominating/Corporate Governance Committee</B><br>
Listed companies must have a
nominating/corporate governance
committee composed entirely of
independent directors.<br><br>
The nominating/corporate governance
committee must have a written charter
that addresses the committee&#146;s purposes
and responsibilities which, at minimum,
must be to: search for eligible people
for the board of directors, select and
nominate directors for the next session
of the shareholders&#146; annual meeting,
study and propose corporate governance
guidelines, supervise the evaluation of
the board of directors and management,
and evaluate the performance of the
committee every year.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><B>Nominating/Corporate Governance Committee</B><br>
The board of directors of a listed company may, through the
resolution of the shareholders&#146; meeting, establish a
nominating committee composed entirely of directors, of
which the independent directors shall be the majority and
the convener.<br><br>
<I>The Company&#146;s governance practices</I><br>
The Company has not established a nominating committee. The
independent non-executive Directors of the Company are
nominated by the Board of Directors, and their appointment
must be approved by the shareholders of the Company in a
general meeting. The executive Directors of the Company are
nominated by CSAHC, the controlling shareholder of the
Company, and their appointment must be approved by the
shareholders of the Company in a general meeting.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>Compensation Committee</B><br>
Listed companies must have a
compensation committee composed entirely
of independent directors.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><B>Compensation Committee</B><br>
The board of directors of a
listed company can, through the
resolution of shareholders&#146;
meeting, have a compensation and
evaluation committee composed
entirely of directors, of whom
the independent directors are the
majority and act as the convener.<br><br>
<I>The Company&#146;s governance practices</I><br>
The Company has established a
remuneration committee consisting
of three members. The
remuneration committee is chaired
by independent non-executive
Director Sui Guang Jun with
independent non-executive
Director Wei Ming Hai and
executive Director Wang Quan Hua
as members.</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="48%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="48%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">The written charter of the
compensation committee must state,
at least, the following purposes and
responsibilities:<br>
(1) review and approve the
corporate goals associated with
CEO&#146;s compensation, evaluate the
performance of the CEO in fulfilling
these goals, and based on such
evaluation determine and approve the
CEO&#146;s compensation level;
<br>(2)&nbsp;make recommendations to the
board with respect to non-CEO
executive officer compensation, and
incentive-compensation and
equity-based plans that are subject
to board approval;
<br>(3)&nbsp;produce a committee report on
executive compensation as required
by the SEC to be included in the
annual proxy statement or annual
report filed with the SEC.<br>
The charter must also include the
requirement for an annual
performance evaluation of the
compensation committee.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The responsibilities are similar to
those stipulated by the NYSE rules,
but the committee is not required to
produce a report on the executive
compensation or make an annual
performance evaluation of the
committee.
The responsibilities of the
remuneration committee are to
approve the remuneration packages of
Directors and senior management of
the Group, and the Company&#146;s
&#147;preliminary proposals on annual
emoluments of the directors and
senior management of the Group&#148;. The
remuneration committee is also
responsible for assessing
performance of executive director
and approving the terms of executive
directors&#146; service contracts.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>Audit Committee</B><br>
Listed companies must have an audit
committee that satisfies the
requirements of Rule&nbsp;10A-3 of
Exchange Act. It must have a minimum
of three members, and all audit
committee members must satisfy the
requirements for independence set
forth in Section&nbsp;303A.02 of NYSE
Corporate Governance Rules as well
as the requirements of Rule&nbsp;10A-3b
(1)&nbsp;of the Exchange Act.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><B>Audit Committee</B><br>
The board of directors of a listed
company can, through the resolution
of the shareholders&#146; meeting,
establish an audit committee
composed entirely of directors, of
which the independent directors are
the majority and act as the
convener, and, at minimum, one
independent director is an
accounting professional.</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="48%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="48%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">The written charter of the audit committee must specify
that the purpose of the audit committee is to assist the
board oversight of the integrity of financial statements,
the company&#146;s compliance with legal and regulatory
requirements, qualifications and independence of
independent auditors and the performance of the listed
company&#146;s internal audit function and independent
auditors.<br>
The written charter must also require the audit committee
to prepare an audit committee report as required by the
SEC to be included in the listed company&#146;s annual proxy
statement as well as an annual performance evaluation of
the audit committee.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The responsibilities of the audit committee are
similar to those stipulated by the NYSE rules, but
according to the domestic practices, the Company is
not required to make an annual performance
evaluation of the audit committee and the audit
committee is not required to prepare an audit
report to be included in the Company&#146;s annual proxy
statement.<br><br>
<I>The Company&#146;s governance practices</I><br>
The Board of Directors of the Company has
established an audit committee that satisfies
relevant domestic requirements and the audit
committee has a written charter.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Each listed company must have an internal audit department.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">China has a similar regulatory provision, and the
Company has an internal audit department.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Shareholders must be given the opportunity to vote on
equity-compensation plans and material revisions thereto,
except for employment incentive plans, certain awards and
plans in the context of mergers and acquisitions.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The relevant regulations of China require the board
of directors to propose plans and types of director
compensation for the shareholders&#146; meeting to
approve. The compensation plan of executive
officers is subject to approval by the board and
announced at the shareholders&#146; meeting and
disclosed to the public upon the approval of the
board of directors. The approval of director
compensation and compensation plan of executive
officers of the Company satisfies relevant domestic
requirements.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>Corporate Governance Guidelines</B><br>
Listed companies must adopt and disclose corporate
governance guidelines, involving director qualification
standards, director compensation, director continuing
education, annual performance evaluation of the board of
directors, etc.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><B>Corporate Governance Guidelines</B><br>
China Securities Regulatory Commission (&#147;CSRC&#148;) has
issued the Corporate Governance Rules, with which
the Company has complied.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>


<TR valign="bottom">
<TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>Code of Ethics for Directors, Officers and Employees</B><br>
Listed companies must adopt and disclose a code of
business conduct and ethics for directors, officers and
employees, and promptly disclose any waivers of the code
for directors or executive officers.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><B>Code of Ethics for Directors, Officers and Employees</B><br>
China does not have such requirement for a code for
ethics. But, the directors and officers must
perform their legal responsibilities in accordance
with the Company Law of PRC, relative requirements
of CSRC and Mandatory Provisions to the Charter of
Companies Listed Overseas.</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="48%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="48%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><I>The Company&#146;s governance practices</I><br>
The Company does not have, in form, a code of
ethics that applies to the president, chief
financial officer and principal accounting officer,
or collectively, the senior corporate officers.
The senior executive officers, all of whom
currently serve as our directors, are subject to
the director service contracts that they have with
the Company. Under the director service contracts,
the directors, including the senior corporate
officers, agree that each director owes a fiduciary
and diligence obligation to the Company and that no
director shall engage in any activities in
competition with the Company&#146;s business or carry
any activities detrimental to the interests of the
Company. Each of the directors, including the
senior corporate officers, also agreed to perform
their respective duties as directors and senior
officers in accordance with the Company Law of the
PRC, relevant rules and regulations promulgated by
China Securities Regulatory
Commission and the Mandatory Provisions of Articles
of Association of Overseas Listed Companies.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Each listed company CEO must certify to the NYSE each year
that he or she is not aware of any violation by the
company of NYSE corporate governance listing standards and
he or she must promptly notify the NYSE on writing of any
material non-compliance with any applicable provisions of
Section&nbsp;303A.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">No similar requirements.</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>





<P align="center" style="font-size: 10pt">68
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left">
<A name="159"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group is subject to market risks due to fluctuations in interest rates. The majority of
the Group&#146;s borrowings is in the form of long-term fixed- and variable-rate debts with original
maturities ranging from two to fifteen years. Fluctuations in interest rates can lead to
significant fluctuations in the fair value of such debt instruments. From time to time, the Group
may enter into interest rate swaps designed to mitigate exposure relating to interest rate risks.
No such contract was outstanding as of December&nbsp;31, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group is also exposed to foreign currency risk as a result of its aircraft and flight
equipment being sourced from overseas suppliers. Specifically, the Group&#146;s foreign currency
exposure relates primarily to its foreign currency long-term debts used to finance such capital
expenditures and its capital commitments. Subject to certain restrictive conditions imposed by the
State Administration of Foreign Exchange, the Group may, from time to time, enter into forward
foreign exchange contracts to mitigate its foreign currency exposures. No such contract was
outstanding as of December&nbsp;31, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, the Group operated a total of 151 aircraft under operating and
capital leases at rates that are substantially fixed. Such leases expose the Group to market risks;
however, in accordance with Item&nbsp;305 of Regulation&nbsp;S-K, such leases have been excluded from the
following market risk tables. Commitments under operating and capital leases are disclosed in Note
28 to the Financial Statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table provides information regarding the Group&#146;s material interest rate
sensitive financial instruments as of December&nbsp;31, 2005 and 2004:
</DIV>
<DIV align="center">
<TABLE style="font-size: 8pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="35%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="31" style="border-bottom: 1px solid #000000"><B>As of December 31, 2005</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>As of December 31, 2004</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="23" style="border-bottom: 1px solid #000000"><B>Expected maturity date</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Total</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Total</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>recorded</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>recorded</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2008</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2009</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2010</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Thereafter</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>amount</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Fair value(2)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>amount</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Fair value(2)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Fixed-rate notes payable
In US$</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>484</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>449</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>303</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>266</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>215</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>697</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2,414</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2,440</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,252</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,464</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Average interest rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>6.47</B></TD>
    <TD nowrap><B>%</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>6.47</B></TD>
    <TD nowrap><B>%</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>6.47</B></TD>
    <TD nowrap><B>%</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>6.62</B></TD>
    <TD nowrap><B>%</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>6.47</B></TD>
    <TD nowrap><B>%</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>6.47</B></TD>
    <TD nowrap><B>%</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>6.47</B></TD>
    <TD nowrap><B>%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">6.09</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Variable-rate notes payable
In US$(3)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>12,169</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>5,188</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,801</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,047</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>345</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2,924</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>23,474</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>23,474</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,327</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,327</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Average interest rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>4.57</B></TD>
    <TD nowrap><B>%</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>4.52</B></TD>
    <TD nowrap><B>%</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>4.44</B></TD>
    <TD nowrap><B>%</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>4.44</B></TD>
    <TD nowrap><B>%</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>4.46</B></TD>
    <TD nowrap><B>%</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>4.46</B></TD>
    <TD nowrap><B>%</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>4.57</B></TD>
    <TD nowrap><B>%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">2.40</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">In HKD(3)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>657</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,238</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,895</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,895</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,327</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,327</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Average interest rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>4.11</B></TD>
    <TD nowrap><B>%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>4.83</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>4.11</B></TD>
    <TD nowrap><B>%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">1.42</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">In RMB</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>302</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>52</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>52</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>122</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>100</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>552</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,180</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,180</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,547</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,547</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Average interest rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>5.06</B></TD>
    <TD nowrap><B>%</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>5.12</B></TD>
    <TD nowrap><B>%</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>5.12</B></TD>
    <TD nowrap><B>%</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>5.12</B></TD>
    <TD nowrap><B>%</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>5.12</B></TD>
    <TD nowrap><B>%</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>2.75</B></TD>
    <TD nowrap><B>%</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>4.15</B></TD>
    <TD nowrap><B>%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">5.04</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>These interest rates are calculated based on the year end indices.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>Fair value of debt instruments was estimated based on the interest rates applicable to
similar debt instruments as of December&nbsp;31, 2005 and 2004.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(3)</TD>
    <TD>&nbsp;</TD>
    <TD>Short term bank debts included certain debts of RMB2,611 million which were
renewed subsequent to December 31, 2005. The renewed debts are unsecured, bear interest
at floating rates ranging from 3-month HIBOR/6-month LIBOR + 0.55% to 0.60% per annum
and are repayable one year from their respective renewal dates.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table provides information regarding the Group&#146;s material foreign currency
sensitive financial instruments and capital commitments as of December&nbsp;31, 2005 and 2004:
</DIV>

<DIV align="center">
<TABLE style="font-size: 8pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="35%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="31" style="border-bottom: 1px solid #000000"><B>As of December 31, 2005</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>As of December 31, 2004</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="23" style="border-bottom: 1px solid #000000"><B>Expected maturity date</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Total</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Total</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>recorded</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>recorded</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2008</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2009</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2010</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Thereafter</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>amount</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Fair value(2)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>amount</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Fair value(2)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Fixed-rate notes
payable In US$</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>484</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>449</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>303</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>266</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>215</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>697</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2,414</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2,440</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,252</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,464</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Average interest rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>6.47</B></TD>
    <TD nowrap><B>%</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>6.47</B></TD>
    <TD nowrap><B>%</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>6.47</B></TD>
    <TD nowrap><B>%</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>6.62</B></TD>
    <TD nowrap><B>%</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>6.47</B></TD>
    <TD nowrap><B>%</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>6.47</B></TD>
    <TD nowrap><B>%</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>6.47</B></TD>
    <TD nowrap><B>%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">6.09</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Variable-rate notes
payable in US$(3)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>12,169</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>5,188</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,801</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,047</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>345</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2,924</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>23,474</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><b>23,474</b></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,327</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,327</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Average interest rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>4.57</B></TD>
    <TD nowrap><B>%</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>4.52</B></TD>
    <TD nowrap><B>%</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>4.44</B></TD>
    <TD nowrap><B>%</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>4.44</B></TD>
    <TD nowrap><B>%</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>4.46</B></TD>
    <TD nowrap><B>%</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>4.46</B></TD>
    <TD nowrap><B>%</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>4.57</B></TD>
    <TD nowrap><B>%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">2.40</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">In HKD(3)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>657</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,238</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,895</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><b>1,895</b></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,327</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,327</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Average interest rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>4.11</B></TD>
    <TD nowrap><B>%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>4.83</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>4.11</B></TD>
    <TD nowrap><B>%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">1.42</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Capital commitment in
US$</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>7,341</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>8,945</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>14,354</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>5,300</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>9,688</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>45,628</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><b>45,628</b></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,776</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,776</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">69
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>These interest rates are calculated based on the year end indices.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>Fair value of debt instruments was estimated based on the floating interest rates applicable
to similar debt instruments as of December&nbsp;31, 2005 and 2004.</TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(3)</TD>
    <TD>&nbsp;</TD>
    <TD>Short term bank debts included certain debts of RMB2,611 million which were
renewed subsequent to December 31, 2005. The renewed debts are unsecured, bear interest
at floating rates ranging from 3-month HIBOR/6-month LIBOR + 0.55% to 0.60% per annum
and are repayable one year from their respective renewal dates.</TD>
</TR>


</TABLE>


<DIV align="left">
<A name="160"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>
<DIV align="left">
<A name="161"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PART II</B>
</DIV>

<DIV align="left">
<A name="162"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None.
</DIV>
<DIV align="left">
<A name="163"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There were no material modifications affecting the rights of securities holders made during
the fiscal year ended December&nbsp;31, 2005.
</DIV>
<DIV align="left">
<A name="164"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Use of Proceeds</B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Effective date of the Securities Act registration statement for which the use of proceeds
information is being disclosed:</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>July&nbsp;23, 1997.<BR>
SEC file number assigned to such registration statement: 333-7114.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The offering commenced on July&nbsp;23, 1997.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The offering was not terminated prior to the sale of any securities registered under the
registration statement.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>(i)&nbsp;The offering was not terminated prior to the sale of all securities registered under the registration statement.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(ii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Name of the managing underwriter:
Goldman Sachs (Asia) L.L.C. (global coordinator).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(iii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>and (iv)</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Aggregate</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Aggregate</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Title of each</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>price of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>offering</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"> <B>class of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>offering</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>price of</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"> <B>securities</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Amount</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>amount</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Amount</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>amount</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"> <B>registered</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>registered(1)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>registered(2)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>sold(3)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>sold(4)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Ordinary H Shares of par
value RMB 1.00 per share
represented by American
Depositary Shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center"><FONT style="white-space: nowrap">861,823,000 shares</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right">US$</TD>
    <TD align="right">528,469,864</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center"><FONT style="white-space: nowrap">851,501,000 shares</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right">US$</TD>
    <TD align="right">522,140,413</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Notes:
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>The amount does not include 322,677,000 H Shares (some of which in the form of ADSs) which have
not been registered with the SEC, of which 290,477,000 H Shares were sold to certain corporate
investors in Hong Kong as part of the global offering of the Company in July&nbsp;1997 and 32,200,000 H
Shares were sold to certain limited partnership investment funds affiliated with Goldman, Sachs &#038;
Co. in a private placement in June&nbsp;1997 prior to the Company&#146;s global offering.</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt">70
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">





<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>Assumes that all H Shares were sold in the form of ADSs. The price to public for each ADS is
US$30.66. Each ADS represents 50 H Shares.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(3)</TD>
    <TD>&nbsp;</TD>
    <TD>The amount does not include 322,677,000 H Shares referred to in note (1)&nbsp;above.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(4)</TD>
    <TD>&nbsp;</TD>
    <TD>The amount does not include US$197,865,536 which represents the proceeds from the sale of
322,677,000 H Shares referred to in note (1)&nbsp;above. If the latter amount is included, the aggregate
amount of proceeds to the Company would be US$720,005,950. In addition, the aggregate amount is
calculated on the assumption that all H Shares were sold in the form of ADSs. Based on the actual
sale of H Shares and ADSs, the aggregate amount of proceeds to the Company was US$719,494,700. The
issue price per H Share was HK$4.70.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt">(v)
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Underwriting discounts and commissions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">US$</TD>
    <TD align="right">36,593,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Finder&#146;s fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expenses paid to or for underwriters</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">US$</TD>
    <TD align="right">2,958,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">US$</TD>
    <TD align="right">21,411,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">US$</TD>
    <TD align="right">60,962,000</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="6%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="92%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Note:
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">No direct or indirect payments were made to directors, officers, general partners of the
Company or their associates, or to persons owning ten percent or more of any class of equity
securities of the Company, or to affiliates of the Company. All payments were made to third
parties.</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">(vi)&nbsp;Net offering proceeds to the Company after deducting the total expenses in item (4)(v) above:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;US$658,532,700
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="6%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="92%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Note:
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The amount is calculated on the basis of the actual aggregate amount of proceeds to the
Company, and includes the proceeds from the sale of 322,677,000 H Shares referred to in note
(1)&nbsp;of item (4)(iv) above.</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">(vii)&nbsp;As
of December&nbsp;31, 2005, the net offering proceeds to the Company was used up as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Construction of plant, building and facilities
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US$41.9&nbsp;&nbsp;&nbsp;million</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Purchase and installation of machinery and equipment
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US$394.6&nbsp;million</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Purchase of real estate
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&#151;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Acquisition of other business(es)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&#151;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Repayment of indebtedness
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US$192.4&nbsp;million</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Working Capital
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US$29.6&nbsp;&nbsp;&nbsp;million</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="6%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="92%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Note:
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">No direct or indirect payments were made to directors, officers, general partners of the
Company or their associates, or to persons owning ten percent or more of any class of equity
securities of the Company, or to affiliates of the Company. All payments were made to third
parties.</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">(viii)&nbsp;The uses of proceeds do not represent a material change in the use of proceeds described in
the prospectus.
</DIV>

<DIV align="left">
<A name="165"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PART III</B>
</DIV>

<DIV align="left">
<A name="166"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 15. CONTROLS AND PROCEDURES.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our president and chief financial officer have evaluated the effectiveness of our disclosure
controls and procedures (as defined in the Exchange Act Rules&nbsp;13a-15(e) or 15d-15(e)), and
concluded that, based on their evaluation, our disclosure controls and procedures are effective as
of the end of the period covered by this Annual Report to ensure that material information required
to be included in this Annual Report would be made known to them by others on a timely basis.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There has been no significant change in our internal controls over financial reporting during
the period covered by this Annual Report that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
</DIV>

<P align="center" style="font-size: 10pt">71
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="167"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>ITEM 16. &#091;RESERVED&#093;</B>
</DIV>

<P align="center" style="font-size: 10pt">72
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="168"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Board of Directors has determined that Mr.&nbsp;Wei Ming Hai qualifies as an audit committee
financial expert in accordance with the terms of Item&nbsp;16. A of Form 20-F. See &#147;Item&nbsp;6 Directors,
Senior Management and Employees &#151; Directors and Senior Management&#148;.
</DIV>
<DIV align="left">
<A name="169"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 16B. CODE OF ETHICS.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of the date of this Annual Report, the Company does not have, in form, a code of ethics
that applies to the president, chief financial officer and principal accounting officer, or
collectively, the senior corporate officers. The senior executive officers, all of whom currently
serve as our directors, are subject to the director service contracts that they have with the
Company. Under the director service contracts, the directors, including the senior corporate
officers, agree that each director owes a fiduciary and diligence obligation to the Company and
that no such director shall engage in any activities in competition with the Company&#146;s business or
carry out any activities detrimental to the interests of the Company. Each of the directors, including
the senior corporate officers, also agreed to perform their respective duties as directors and
senior officers in accordance with the Company Law of the PRC, relevant rules and regulations
promulgated by China Securities Regulatory Commission and the Mandatory Provisions of Articles of
Association of Overseas Listed Companies.
</DIV>
<DIV align="left">
<A name="170"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 16C. PRINCIPAL ACCOUNTING FEES AND SERVICES.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth the aggregate audit fees, audit-related fees, tax fees of the
Company&#146;s principal accountants and all other fees billed for products and services provided by the
Company&#146;s principal accountants other than the audit fees, audit-related fees and tax fees for each
of the fiscal years 2004 and 2005:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Audit Fees</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Audit-Related Fees</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Tax Fees</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap>RMB8.9 million</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">RMB6.6 million</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap>RMB0.11 million</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap>RMB13.9 million</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap>RMB5.8 million</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap>RMB0.11 million</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Audit-related fees</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Services provided primarily consist of the following:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Review of the Group&#146;s 2005 interim financial report prepared under IFRS; and</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In connection with the Company&#146;s acquisition of the airline operations and related assets of
China Northern Airlines Company and Xinjiang Airlines Company;</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#150;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Audit of the financial statements of China Northern Airlines Company and Xinjiang Airlines Company;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#150;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Issuance of comfort letter on profit forecast;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#150;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Issuance of comfort letter on working capital forecast; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#150;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Issuance of report on statement of indebtedness.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Tax fees</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Services provided primarily consist of tax compliance services.
</DIV>


<P align="center" style="font-size: 10pt">73
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="171"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 16D. Exemptions from the Listing Standards for Audit Committee</B>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>
<DIV align="left">
<A name="172"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company and its affiliated companies have not purchased any issued common shares of the
Company during 2005 and up to the date of this Annual Report.
</DIV>
<DIV align="left">
<A name="173"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PART IV</B>
</DIV>

<DIV align="left">
<A name="174"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 17. FINANCIAL STATEMENTS.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>
<DIV align="left">
<A name="175"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>ITEM 18. FINANCIAL STATEMENTS.</B>
</DIV>



<DIV align="left">
<A name="176"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Index to Financial Statements</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="90%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="0" style="border-bottom: 1px solid #000000"><B>Page</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>CONSOLIDATED FINANCIAL STATEMENTS OF CHINA SOUTHERN AIRLINES COMPANY LIMITED</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Report of Independent Registered Public Accounting Firm</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consolidated Statements of Operations for the years ended December&nbsp;31, 2003, 2004 and 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consolidated Balance Sheets as of December&nbsp;31, 2004 and 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consolidated
Statements of Changes in Shareholders&#146; Equity for the years ended December&nbsp;31, 2003, 2004 and 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consolidated Statements of Cash Flows for the years ended December&nbsp;31, 2003, 2004 and 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Notes to Consolidated Financial Statements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-9</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<P align="center" style="font-size: 10pt">74
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<A name="177"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 19. EXHIBITS.</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="4%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="90%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Exhibit No.</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Description of Exhibit</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Director&#146;s Service Agreement is incorporated by
reference in Exhibit&nbsp;4(c).1 of Form&nbsp;20-F for the year of
2005.</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Non-Executive Director&#146;s Service Agreement is
incorporated by reference in Exhibit&nbsp;4(c).2 of Form&nbsp;20-F
for the year of 2005.</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">8
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Subsidiaries of the Company</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">12.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Section&nbsp;302 Certification of Chairman</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">12.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Section&nbsp;302 Certification of President</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">12.3
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Section&nbsp;302 Certification of Chief Financial Officer</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">13.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Section&nbsp;906 Certification of Chairman</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">13.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Section&nbsp;906 Certification of President</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">13.3
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Section&nbsp;906 Certification of Chief Financial Officer</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">75</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<A name="178"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SIGNATURES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F
and that it has duly caused and authorized the undersigned to sign this annual report on its
behalf.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="48%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="38%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="12%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD NOWRAP align="left" valign="top">CHINA SOUTHERN AIRLINES COMPANY LIMITED
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Liu Shao Yong</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Name: Liu Shao Yong</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Title: Chairman of the Board of Directors</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Date: June
30, 2006
</DIV>


<P align="center" style="font-size: 10pt">76
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>INDEX TO CONSOLIDATED FINANCIAL STATEMENTS</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="0" style="border-bottom: 1px solid #000000"><B>Page</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Report of Independent Registered Public Accounting Firm</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consolidated
Statements of Operations for the years ended December&nbsp;31, 2003,
2004 and 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consolidated
Balance Sheets as of December&nbsp;31, 2004 and 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consolidated
Statements of Changes in Shareholders&#146; Equity for the years ended December&nbsp;31, 2003,
2004 and 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consolidated
Statements of Cash Flows for the years
ended December&nbsp;31, 2003, 2004 and 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Notes to Consolidated Financial Statements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-9</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">The Board of Directors and Shareholders of
<BR>
China Southern Airlines Company Limited:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have audited the accompanying
consolidated balance sheets of China Southern Airlines Company
Limited (the &#147;Company&#148;) and its
subsidiaries (the &#147;Group&#148;) as of December 31, 2004 and 2005, and the related consolidated
statements of operations, cash flows and changes in shareholders&#146; equity for each of the three
years in the period ended December 31, 2005, all expressed in Renminbi. These consolidated
financial statements are the responsibility of the Company&#146;s management. Our responsibility
is to express an opinion on these consolidated financial statements based on our audits.</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We conducted our
audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects, the financial
position of China Southern Airlines Company Limited and its subsidiaries as of December 31, 2004
and 2005, and the results of their operations and their cash flows for each of the three years
in the period ended December 31, 2005 in conformity with International Financial Reporting
Standards promulgated by the International Accounting Standards Board.</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As more
fully described in Note 3 to the consolidated financial statements, the Group changed the
presentation of share of affiliated companies&#146; and jointly controlled entities&#146; taxation in the
consolidated statements of operations in order to comply with IAS 1, &#147;Presentation of financial
statements&#148;. In addition, the Group changed the manner in which it presents minority interests
in the consolidated balance sheets and consolidated statements of operations in order to comply
with IAS 1 and IAS 27, &#147;Consolidated and separate financial statements&#148;.</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;International
Financial Reporting Standards vary in certain significant respects from accounting principles
generally accepted in the United States of America. Information relating to the nature and
effect of such differences is presented in Note 51 to the consolidated financial statements.</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The accompanying
consolidated financial statements as of and for the year ended December 31, 2005 have been
translated into United States dollars solely for the convenience of readers. We have audited the
 translation, and in our opinion, the consolidated financial statements expressed in Renminbi
have been translated into United States dollars on the basis set forth in Note 1 to the
consolidated financial statements.</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Hong Kong, China<BR>
April 19, 2006, except as to Note 44, which is as of May 31, 2006.
</DIV>

<P align="center" style="font-size: 10pt">F-1
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 12pt"><B>CONSOLIDATED STATEMENTS OF OPERATIONS<BR>
For the years ended December&nbsp;31, 2003, 2004 and 2005</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>(Amounts in millions, except per share data)</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Note</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>U.S. dollars</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><I>(restated,</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><I>(restated,</I></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><I>Note 3)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><I>Note 3)</I></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating revenue:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Traffic revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,965</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,344</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,419</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,637</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other operating revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">505</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">630</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">874</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">108</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total operating revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,470</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,974</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,293</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,745</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating expenses:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Flight operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,070</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,418</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,394</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,403</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Maintenance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,589</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,459</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,589</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">569</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Aircraft and traffic servicing</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,767</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,503</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,759</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">714</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Promotion and sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,480</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,940</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,780</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">345</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">General and administrative</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,053</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,323</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,457</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">304</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,038</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,413</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,440</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">550</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Others</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">179</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total operating expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,014</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,065</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,598</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,907</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating income/(loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">456</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">909</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,305</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(162</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Non-operating income/(expenses):</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(824</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(691</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,616</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(200</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Equity income/(loss) of affiliated
companies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(285</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(35</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Equity (loss)/income of jointly
controlled entities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(46</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(16</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Loss on sale of property,
plant and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(22</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(32</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Exchange (loss)/gain, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(164</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(59</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,220</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">151</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Others, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total net non-operating expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(977</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(689</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(548</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(68</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Loss/(income) before taxation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(521</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">220</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,853</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(230</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax benefit/(expense)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">334</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(65</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">(Loss)/income for the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(187</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">155</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,846</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(229</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Attributable to:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Equity shareholders of the Company</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(358</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(48</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,848</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(229</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Minority interests</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">171</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">203</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net (loss)/income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(187</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">155</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,846</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(229</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Basic loss per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.09</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.01</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.42</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.052</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-left: 9%; margin-top: 6pt">See accompanying notes to consolidated financial statements.
</DIV>


<P align="center" style="font-size: 10pt">F-2
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 12pt"><B>CONSOLIDATED BALANCE SHEETS<BR>
As of December&nbsp;31, 2004 and 2005</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>(Amounts in millions)</B>

</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Note</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>U.S. dollars</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><I>(restated,</I></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><I>Note 3)</I></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD align="center"><DIV style="margin-left:60px; text-indent:-15px"><B>ASSETS</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">CURRENT ASSETS</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,083</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,901</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">360</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Trade receivables</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,203</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,518</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">188</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,302</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,382</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">171</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Short term investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">683</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other receivables</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">720</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">956</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">119</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Prepaid expenses and other current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">378</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">380</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Amounts due from related companies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">84</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 6pt">
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,369</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,221</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">895</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">NON-CURRENT ASSETS</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Property, plant and equipment, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,841</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54,266</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,725</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Construction in progress</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">565</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">674</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">84</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">272</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">320</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest in affiliated companies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">429</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">142</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest in jointly controlled entities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">782</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">805</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">99</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Lease prepayments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">346</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">333</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Lease and equipment deposits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,397</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,265</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">900</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred tax assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">331</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">302</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 6pt">
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total non-current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55,014</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64,181</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,953</TD>
    <TD>&nbsp;</TD>
</TR>


<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">TOTAL ASSETS</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62,383</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">71,402</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,848</TD>
    <TD>&nbsp;</TD>
</TR>


<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="center"><DIV style="margin-left:45px; text-indent:-15px"><B>LIABILITIES AND SHAREHOLDERS&#146; EQUITY</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">CURRENT LIABILITIES</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Notes payable, including current
installments of long-term
notes payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,518</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,223</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,010</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Current installments of obligations
under capital leases</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,144</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,373</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">418</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Trade and bills payables</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,690</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,929</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">487</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Sales in advance of carriage</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">874</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,413</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">175</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Amounts due to related companies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,434</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">116</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,551</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,250</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">527</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,974</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,796</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">471</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Taxes payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 6pt"><TD>&nbsp;</TD></TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,224</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,128</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,105</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-left: 9%; margin-top: 6pt">See accompanying notes to consolidated financial statements.
</DIV>


<P align="center" style="font-size: 10pt">F-3
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 12pt"><B>CONSOLIDATED BALANCE SHEETS<BR>
As of December&nbsp;31, 2004 and 2005</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>(Amounts in millions)</B>

</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Note</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>U.S. dollars</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><I>(restated,</I></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><I>Note 3)</I></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">NON-CURRENT LIABILITIES</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Notes payable, excluding current installments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,935</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,740</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,579</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Obligations under capital leases, excluding
current installments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,599</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,459</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,544</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Provision for major overhauls</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">284</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">301</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred tax liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">338</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">342</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred credits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">496</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 6pt">
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total non-current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,256</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,338</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,264</TD>
    <TD>&nbsp;</TD>
</TR>


<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 6pt"><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">TOTAL LIABILITIES</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48,480</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">59,466</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,369</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">

<TD><DIV style="margin-left:15px; text-indent:-15px">SHAREHOLDERS&#146;
EQUITY</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Equity attributable to equity shareholders of the Company</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,35</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,848</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,239</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Minority interests</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,055</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,936</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">240</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 6pt">
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">TOTAL
SHAREHOLDERS&#146; EQUITY</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,903</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,936</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,479</TD>
    <TD>&nbsp;</TD>
</TR>



<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>


<TR style="font-size: 6pt">
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">TOTAL
LIABILITIES AND TOTAL SHAREHOLDERS&#146; EQUITY</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62,383</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">71,402</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,848</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-4
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 12pt"><B>CONSOLIDATED STATEMENTS<BR>
OF CHANGES IN SHAREHOLDERS&#146; EQUITY<BR>
For the years ended December&nbsp;31, 2003, 2004 and 2005</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>(Amounts in millions)</B>

</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="23%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="19" style="border-bottom: 1px solid #000000"><B>Attributable to equity shareholders of the company</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Retained</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>earnings/</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Share</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Share</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Other</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(accumulated</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Minority</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Total</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>capital</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>premium</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>reserves</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>loss)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>interests</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>equity</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><I>(Note (i))</I></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><I>(Note (ii))</I></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">At December&nbsp;31, 2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,374</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,684</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">586</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,969</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,613</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,516</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,129</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Issue of A Shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,641</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,641</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,641</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(Loss)/income for the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(358</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(358</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">171</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(187</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Appropriations to reserves</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(25</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Capital contributions
from minority shareholders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Distributions to minority
shareholders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(15</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(15</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">At December&nbsp;31, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,374</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,325</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">611</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,586</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,896</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,673</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,569</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(Loss)/income for the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(48</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(48</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">203</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">155</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Appropriations to reserves</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(61</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Capital contributions
from minority shareholders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">71</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">71</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Distributions to minority
shareholders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(15</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(15</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Through the CNA/XJA
Acquisitions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">123</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">123</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 6pt">
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">At December&nbsp;31, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,374</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,325</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">672</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,477</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,848</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,055</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,903</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-5
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 12pt"><B>CONSOLIDATED STATEMENTS<BR>
OF CHANGES IN SHAREHOLDERS&#146; EQUITY<BR>
For the years ended December&nbsp;31, 2003, 2004 and 2005</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>(Amounts in millions)</B>

</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="23%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="19" style="border-bottom: 1px solid #000000"><B>Attributable to equity shareholders of the company</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Retained</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>earnings/</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Share</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Share</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Other</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(accumulated</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Minority</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Total</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>capital</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>premium</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>reserves</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>loss)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>interests</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>equity</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><I>(Note (i))</I></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><I>(Note (ii))</I></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">At December&nbsp;31, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,374</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,325</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">672</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,477</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,848</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,055</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,903</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(Loss)/income for the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,848</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,848</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,846</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Appropriations to reserves</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(19</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Capital contributions
from minority shareholders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Acquisition of equity interest
held by minority shareholders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(118</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(118</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Distributions to minority
shareholders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(20</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(20</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 6pt">
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">At December&nbsp;31, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,374</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,325</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">691</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(390</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,936</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,936</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total equity at December&nbsp;31, 2005
in U.S. dollars</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">542</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">660</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">85</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(48</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,239</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">240</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,479</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-left: 6%; margin-top: 6pt">See accompanying notes to consolidated financial statements.
</DIV>

<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 3pt">Notes:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 12pt; text-indent: -12pt">(i)&nbsp;Other reserves represent statutory surplus reserve, statutory public welfare fund and
discretionary surplus reserve. Details are set out in Note 35.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 14pt; text-indent: -14pt">(ii)&nbsp;Minority interests were presented separately from liabilities and equity at December&nbsp;31, 2003
and 2004. Minority interests are presented within the equity with effect from January&nbsp;1, 2005 and
the presentation of minority interests for the comparative years has been restated accordingly.
Details are set out in Note 3.
</DIV>


<P align="center" style="font-size: 10pt">F-6
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 12pt"><B>CONSOLIDATED STATEMENTS OF CASH FLOWS<BR>
For the years ended December&nbsp;31, 2003, 2004 and 2005</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>(Amounts in millions)</B>

</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Note</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>U.S. dollars</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><I>(restated,</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><I>(restated,</I></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><I>Note 3)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><I>Note 3)</I></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">(Loss)/income before taxation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(521</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">220</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,853</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(230</TD>
    <TD nowrap>)</TD>
</TR>


<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Adjustments to reconcile (loss)/income before taxation
to cash inflows from operations
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Depreciation of property, plant and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,998</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,363</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,420</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">548</TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Amortization of deferred credits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(78</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Equity (loss)/income of affiliated companies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(45</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">285</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Equity income/(loss) of jointly controlled entities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(36</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Loss on sale of property, plant and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(13</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(22</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(55</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(7</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">824</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">691</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,616</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">200</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net realised and unrealised gain on equity securities
held for trading</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(15</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Non-cash exchange loss/(gain), net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">177</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,164</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(144</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Decrease/(increase) in inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(29</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Increase in trade receivables</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(162</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(218</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(315</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(39</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Decrease/(increase) in other receivables</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(166</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(236</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(29</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Increase in prepaid expenses and other
current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(31</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Increase in deferred expenditure</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Increase/(decrease) in net amounts due from/(to)
related companies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">404</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(586</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(493</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(61</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(Decrease)/increase in trade and bills payables</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(466</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(30</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,239</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">277</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Increase in sales in advance of carriage</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">408</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">539</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Increase/(decrease) in accrued expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">203</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">541</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(399</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(49</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Increase in other liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">373</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,223</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">822</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">102</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Increase in provision for major overhauls</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">113</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash inflows from operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,075</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,555</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,419</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">672</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest received</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest paid</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(924</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(754</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,616</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(200</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Income tax paid</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(35</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(227</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(23</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash inflows from operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,129</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,596</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,835</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">476</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-left: 9%; margin-top: 6pt">See accompanying notes to consolidated financial statements.
</DIV>

<P align="center" style="font-size: 10pt">F-7
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 12pt"><B>CONSOLIDATED STATEMENTS OF CASH FLOWS<BR>
For the years ended December&nbsp;31, 2003, 2004 and 2005</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>(Amounts in millions)</B>

</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Note</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>U.S. dollars</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><I>(restated,</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><I>(restated,</I></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><I>Note 3)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><I>Note 3)</I></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Investing activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds from sale of property,
plant and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">238</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds from sale of other investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">689</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">85</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Increase in deferred credits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Dividends received from affiliated companies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Dividends received from jointly controlled entities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Dividends received from other non-current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Dividends received from equity securities held
for trading</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Decrease/(increase) in other non-current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(9</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Payment for the CNA/XJA Acquisitions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,959</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(243</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Payment for acquisition of equity interest held by
minority shareholders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(118</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(15</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Payment of lease and equipment deposits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,852</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,151</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,649</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(824</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Refund of lease and equipment deposits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,066</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,253</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,619</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">572</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Capital expenditures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,707</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,631</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,935</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(612</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Purchase of other investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(680</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Investments in an affiliated company</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(9</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Investments in jointly controlled entities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(72</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Effect of the CNA/XJA Acquisitions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">40 </TD>
    <TD nowrap>(a)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">398</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash used in investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,434</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(8,824</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(8,009</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(993</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash outflows before financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,305</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,228</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,174</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(517</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Financing activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds from A Shares issue, net of issuance costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,641</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds from notes payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,914</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,555</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,238</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,260</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Repayment of notes payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(8,371</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(7,108</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(12,193</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,511</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Repayment of principal under capital lease
obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,555</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,272</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,050</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(254</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Capital contributions received from minority
shareholders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">71</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Dividends paid to minority shareholders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(15</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(15</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(20</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash inflows from financing
activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,992</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">495</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Decrease/(increase) in cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,690</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(182</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(22</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents at January 1</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,770</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,080</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,083</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">382</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents at December 31</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,080</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,083</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,901</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">360</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-left: 9%; margin-top: 6pt">See accompanying notes to consolidated financial statements.
</DIV>



<P align="center" style="font-size: 10pt">F-8
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>1. BASIS OF PRESENTATION</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;China Southern Airlines Company Limited (the &#147;Company&#148;) and its subsidiaries (the &#147;Group&#148;)
are principally engaged in the provision of domestic, Hong Kong and Macau and international
passenger, cargo and mail airline services, with flights operating primarily from the Guangzhou
Baiyun International Airport, which is both the main hub of the Group&#146;s route network and the
location of its corporate headquarters.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company was established in the People&#146;s Republic of China (the &#147;PRC&#148;, &#147;China&#148; or the
&#147;State&#148;) on March&nbsp;25, 1995 as a joint stock limited company as part of the reorganization (the
&#147;Reorganization&#148;) of the Company&#146;s holding company, China Southern Air Holding Company (&#147;CSAHC&#148;).
CSAHC is a state-owned enterprise under the supervision of the PRC central government.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s H shares and American Depositary Shares (&#147;ADS&#148;) (each ADS representing 50 H
Shares) have been listed on The Stock Exchange of Hong Kong Limited and the New York Stock
Exchange, respectively since July&nbsp;1997. In July&nbsp;2003, the Company issued 1,000,000,000 A shares
which are listed on the Shanghai Stock Exchange.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company acquired the airline operations and certain related assets of China Northern
Airlines Company (&#147;CNA&#148;) and Xinjiang Airlines Company (&#147;XJA&#148;) from its parent company, CSAHC, on
December&nbsp;31, 2004 (the &#147;CNA/XJA Acquisitions&#148;) (Note 40).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The consolidated financial statements have been prepared in Renminbi (&#147;RMB&#148;), the national
currency of the PRC. Translation of amounts from RMB into United States dollar (&#147;US$&#148;) solely for
the convenience of readers has been made at the rate of US$1.00 to RMB8.0694, being the average of
the buying and selling rates as quoted by the People&#146;s Bank of China (the &#147;PBOC&#148;) at the close of
business on December&nbsp;31, 2005. No representation is made that the RMB amounts could have been, or
could be, converted into US$ at that rate or at any other certain rate on December&nbsp;31, 2005 or at
any other certain date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>2. PRINCIPAL ACCOUNTING POLICIES</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>(a)&nbsp;Statement of compliance</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;These consolidated financial statements have been prepared in accordance with International
Financial Reporting Standards (&#147;IFRSs&#148;) promulgated by the International Accounting Standards
Board (the &#147;IASB&#148;). IFRSs include International Accounting Standards (&#147;IAS&#148;) and interpretations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The IASB has issued a number of new and revised IFRSs that are effective for accounting
periods beginning on or after January&nbsp;1, 2005. Information on the changes in accounting policies
resulting from initial application of these new and revised IFRSs for the current and prior
accounting periods reflected in these financial statements is provided in Note 3.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Information relating to the nature and effect of the significant differences between IFRSs
and accounting principles generally accepted in the United States of America (''U.S. GAAP&#146;&#146;) are
set forth in Note 51.
</DIV>

<P align="center" style="font-size: 10pt">F-9
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(b)&nbsp;Basis of preparation</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, the Group&#146;s current liabilities exceeded its current assets by
RMB25,907, which includes current instalments of notes payable of
RMB16,223. In preparing the consolidated financial statements, the directors have considered
the Group&#146;s sources of liquidity and believe that adequate
funding is available to fulfil the Group&#146;s short term obligations and capital expenditure requirements. Accordingly, the consolidated financial statements have been prepared on
the basis that the Group will be able to continue as a going concern. Further details are set out
in Note 41.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The consolidated financial statements comprise the Company and its subsidiaries and the
Group&#146;s interest in affiliated companies and jointly controlled entities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The measurement basis used in the preparation of the consolidated financial statements is the
historical cost basis except that the following assets are stated at their fair value as explained
in the accounting policies set out below:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#150;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Certain property, plant and equipment (Note 2(d)); and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#150;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Short term investments (Note 2(h)).</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The preparation of financial statements in conformity with IFRSs requires management to make
judgements, estimates and assumptions that affect the application of policies and reported amounts
of assets and liabilities, income and expenses. The estimates and associated assumptions are based
on historical experience and various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making the judgements about carrying values
of assets and liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognized in the period in which the estimate is revised if the revision
affects only that period, or in the period of the revision and future periods if the revision
affects both current and future periods.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Judgements made by management in the application of IFRSs that have significant effect on the
financial statements and estimates with a significant risk of material adjustment in the next year
are disclosed in Note 47.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(c)&nbsp;Basis of consolidation</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">(i)&nbsp;Subsidiaries
</DIV>


<P align="center" style="font-size: 10pt">F-10
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A subsidiary is an entity controlled by the Company. Control exists when the Company has the
power, directly or indirectly, to govern the financial and operating policies of an entity so as
to obtain benefits from its activities. In assessing control, potential voting rights that
presently are exercisable or convertible are taken into account. The financial statements of
subsidiaries are included in the consolidated financial statements from the date that control
effectively commences until the date that control ceases.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Intra-group balances and transactions, and any unrealized income arising from intra-group
transactions, are eliminated in full in preparing the consolidated financial statements.
Unrealized losses resulting from intra-group transactions are eliminated in the same way as
unrealized income, but only to the extent that there is no evidence of impairment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Minority interests at the balance sheet date, being the portion of the net assets of
subsidiaries attributable to equity interests that are not owned by the Company, whether directly
or indirectly through subsidiaries, are prepared in the consolidated balance sheet and statement
of changes in shareholders&#146; equity within equity, separately from, equity attributable to the
equity shareholders of the Company. Minority interests in the results of the Group are presented
on the face of the consolidated statement of operations as an allocation of the total income or
loss for the year between minority interest and the equity shareholders of the Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Where losses applicable to the minority exceed the minority&#146;s interest in the equity of a
subsidiary, the excess, and any further losses applicable to the minority, are charged against the
Group&#146;s interest except to the extent that the minority has a binding obligation to, and is able
to, make additional investment to cover the losses. If the subsidiary subsequently reports
income, the Group&#146;s interest is allocated all such income until the minority&#146;s share of losses
previously absorbed by the Group has been recovered.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">(ii)&nbsp;Affiliated companies and jointly controlled entities
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An affiliated company is an entity in which the Group has significant influence, but not
control or joint control, over the financial and operating policies. The consolidated financial
statements include the Group&#146;s share of the total recognized gains and losses of affiliated
companies on an equity accounted basis, from the date that significant influence commences until
the date that significant influence ceases. When the Group&#146;s share of losses exceeds its interest
in an affiliated company, the Group&#146;s carrying amount is reduced to nil and recognition of further
losses is discontinued except to the extent that the Group has incurred legal or constructive
obligations or made payments on behalf of an affiliated company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A jointly controlled entity is an entity over whose activities the Group has joint control,
established by contractual agreement. The consolidated financial statements include the Group&#146;s
share of the total recognized gains and losses of jointly controlled entities on an equity
accounted basis, from the date that joint control commences until the date that joint control
ceases. When the Group&#146;s share of losses exceeds its interest in a jointly controlled entity, the
Group&#146;s carrying amount is reduced to nil and recognition of further losses is discontinued except
to the extent that the Group has incurred legal or constructive obligations or made payments on
behalf of a jointly controlled entity.
</DIV>

<P align="center" style="font-size: 10pt">F-11
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Unrealized income arising from transactions with affiliated companies and jointly controlled
entities are eliminated to the extent of the Group&#146;s interest in the entity. Unrealized losses are
eliminated in the same way as unrealized income, but only to the extent that there is no evidence
of impairment.
</DIV>

<P align="center" style="font-size: 10pt">F-12
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">(iii)&nbsp;Goodwill
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Goodwill represents the excess of the cost of a business combination or an investment in an
affiliated company or a jointly controlled entity over the Group&#146;s interest in the net fair value
of the acquiree&#146;s identifiable assets, liabilities and contingent liabilities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Goodwill is stated at cost less accumulated impairment losses. Goodwill is allocated to
cash-generating units and is tested annually for impairment (Note 2(l)). In respect of affiliated
companies or jointly controlled entities, the carrying amount of goodwill is included in the
carrying amount of the interest in the affiliated company or jointly controlled entity.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any excess of the Group&#146;s interest in the net fair value of the acquiree&#146;s identifiable
assets, liabilities and contingent liabilities over the cost of a business combination or an
investment in an affiliated company or a jointly controlled entity is recognized immediately in
income or loss.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On disposal of a cash generating unit, an affiliated company or a jointly controlled entity
during the year, any attributable amount of purchased goodwill is included in the calculation of
the gain or loss on disposal.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(d)&nbsp;Property, plant and equipment and depreciation</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>(i)&nbsp;Owned assets</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An item of property, plant and equipment is initially recorded at cost less accumulated
depreciation (see (iv)&nbsp;below) and impairment losses (Note 2(l)). The cost of an asset comprises
its purchase price and any directly attributable costs of bringing the asset to working condition
and location for its intended use and the initial estimate, where relevant, of the costs of
dismantling and removing the item and restoring the site on which it is located. Subsequent to
the revaluation (Note 21), which was based on depreciated replacement costs, property, plant and
equipment are carried at revalued amount, being the fair value at the date of the revaluation less
any subsequent accumulated depreciation and impairment losses. Revaluations are performed with
sufficient regularity to ensure that the carrying amount of these assets does not differ
materially from that which would be determined using fair value at the balance sheet date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gains or losses arising from the retirement or disposal of an item of property, plant and
equipment are determined as the difference between the estimated net disposal proceeds and the
carrying amount of the item and are recognized in the statement of operations on the date of
retirement or disposal. Any related revaluation surplus is transferred from the revaluation
reserve to retained earnings.
</DIV>

<P align="center" style="font-size: 10pt">F-13
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(ii)&nbsp;Leased assets</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Leases in terms of which the Group assumes substantially all the risks and rewards of
ownership are classified as capital leases.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Flight equipment acquired by way of capital leases is stated at an amount equal to lower of
its fair value and the present value of minimum lease payments at inception of the lease, less
accumulated depreciation (see (iv)&nbsp;below) and impairment losses (Note 2(l)) and the corresponding
liabilities, net of finance charges are recorded as obligations under capital leases. Subsequent
to the revaluation (Note 21), which was based on depreciated replacement costs, leased assets are
carried at revalued amount, being the fair value at the date of the revaluation less any
subsequent accumulated depreciation and impairment losses. Revaluations are performed with
sufficient regularity to ensure that the carrying amount of these assets does not differ
materially from that which would be determined using fair value at the balance sheet date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The finance charge is allocated to each period during the lease term so as to produce a
constant periodic rate of interest on the remaining balance of the liability. Contingent rentals
are written off as an expense of the period in which they are incurred.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gains or losses on aircraft sale and leaseback transactions which result in capital leases
are deferred and amortized over the terms of the related leases. Gains or losses on other
aircraft sale and leaseback transactions are recognized immediately if the transactions are
established at fair value. Any difference between the sales price over fair value is deferred and
amortized over the period the assets are expected to be used.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Where the Group has the use of assets held under operating leases, payments made under
operating leases are charged to the statement of operations in equal instalments over the
accounting periods covered by the lease term, except where an alternative basis is more
representative of the pattern of benefits to be derived from the leased asset. Lease incentives
received are recognized in the statement of operations as an integral part of the aggregate net
lease payments. Contingent rentals are charged to the consolidated statement of operations in the
accounting period in which they are incurred.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(iii)&nbsp;Subsequent costs</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group recognizes in the carrying amounts of an item of property, plant and equipment the
cost of replacing part of such an item when that cost is incurred if it is probable that the
future economic benefits embodied with the item will flow to the Group and the cost of the item
can be measured reliably. All other costs are recognized in the statement of operations as an
expense as incurred.
</DIV>

<P align="center" style="font-size: 10pt">F-14
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(iv)&nbsp;Depreciation</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation is calculated to write off the cost or revalued amount of items of property,
plant and equipment, less their estimated residual value, if any, using the straight line method
over their estimated useful lives as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="63%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="32%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Buildings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;15 to 40 years</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Owned and leased aircraft</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;15 to 20 years</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other flight equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Jet engines</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;8 to 15 years</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Others, including rotable spares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;8 to 15 years</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Machinery and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;5 to 10 years</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Vehicles</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;6 years</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation for assets acquired under capital leases is calculated to write off the cost of
the assets in equal annual amounts over the term of the relevant lease or, where it is likely the
Group will obtain ownership of the asset, the life of the asset, as set out above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Where parts of an item of property, plant and equipment have different useful lives, the cost
or valuation of the item is allocated on a reasonable basis between the parts and each part is
depreciated separately. Both the useful life of an asset and its residual value, if any, are
reviewed annually.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(e)&nbsp;Construction in progress</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Construction in progress represents office buildings, various infrastructure projects under
construction and equipment pending installation, and is stated at cost less impairment losses
(Note 2(l)). Cost comprises direct costs of construction and the initial estimate, where
relevant, of the costs of dismantling and removing the item and restoring the site on which it is
located as well as interest charges during the periods of construction and installation.
Capitalization of these costs ceases and the construction in progress is transferred to property,
plant and equipment when the asset is substantially ready for its intended use, notwithstanding
any delay in the issue of the relevant commissioning certificates by the relevant PRC authorities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No depreciation is provided in respect of construction in progress.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">(<B>f</B>) <B>Lease prepayments</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Lease prepayments represent land use rights paid to the PRC&#146;s governmental authorities. Land
use rights are carried at cost less impairment losses (Note 2(l)) and are charged to the statement
of operations on a straight-line basis over the respective periods of the rights which range from
30 to 50&nbsp;years.
</DIV>

<P align="center" style="font-size: 10pt">F-15
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(g)&nbsp;Deferred expenditure</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Custom duties and other direct costs in relation to modifying, introducing and certifying
certain operating leased aircraft are deferred and amortized over the terms of the related leases.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Lump sum housing benefits payable to employees of the Group are deferred and amortized on a
straight line basis over a period of 10&nbsp;years, which represents the benefit vesting period of the
employees.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred expenditure is carried at cost less impairment losses (Note 2(l)).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(h)&nbsp;Other investments in debt and equity securities</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group&#146;s policies for investments in debt and equity securities, other than investments in
subsidiaries, affiliated companies and jointly controlled entities, are as follows:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Investments in securities held for trading are classified as current assets and are initially
stated at fair value. At the balance sheet date the fair value is remeasured, with any resultant
gain or loss recognized in the statement of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dated debt securities that the Group has the positive ability and intention to hold to
maturity are classified as held-to-maturity securities. Held-to-maturity securities are initially
recognized in the balance sheet at fair value plus transaction costs. Subsequently, they are
stated in the balance sheet at amortized cost less impairment losses (Note 2(l)).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other financial instruments are stated at cost less impairment losses (Note 2(l)). Other
financial instruments represent unquoted available-for-sale equity securities of companies
established in the PRC. There is no quoted market price for such equity securities and accordingly
a reasonable estimate of the fair value could not be measured reliably.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(i)&nbsp;Inventories</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories, which consist primarily of expendable spare parts and supplies, are stated at
cost less any applicable provision for obsolescence, and are expensed when used in operations.
Cost represents the average unit cost. Inventories held for disposal are stated at the lower of
cost and net realizable value. Net realizable value represents estimated resale price.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(j)&nbsp;Trade and other receivables</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Trade and other receivables are initially recognized at fair value and thereafter stated at
amortized cost less impairment losses for bad and doubtful debts (Note 2(l)), except where the
effect of discounting would be immaterial. In such cases, the receivables are stated at cost less
impairment losses for bad and doubtful debts (Note 2(l)).
</DIV>

<P align="center" style="font-size: 10pt">F-16
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(k)&nbsp;Cash and cash equivalents</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and
other financial institutions having been within three months of maturity at acquisition. Bank
overdrafts that are repayable on demand and form an integral part of the Group&#146;s cash management
are also included as a component of cash and cash equivalents for the purposes of the consolidated
statement of cash flows.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>(l)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Impairment of assets</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>(i)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Impairment of investments in debt and equity securities and other receivables</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Investments in debt and equity securities and other current and non-current receivables that
are stated at cost or amortized cost are reviewed at each balance sheet date to determine whether
there is objective evidence of impairment. If any such evidence exists, any impairment loss is
determined and recognized as follows:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#150;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>For unquoted equity securities and current receivables that are
carried at cost, the impairment loss is measured as the
difference between the carrying amount of the financial asset
and the estimated future cash flows, discounted at the current
market rate of return for a similar financial asset where the
effect of discounting is material. Impairment losses for
current receivables are reversed if in a subsequent period the
amount of the impairment loss decreases. Impairment losses for
equity securities are not reversed.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#150;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>For financial assets carried at amortized cost, the impairment
loss is measured as the difference between the asset&#146;s carrying
amount and the present value of estimated future cash flows,
discounted at the financial asset&#146;s original effective interest
rate (i.e. the effective interest rate computed at initial
recognition of these assets).</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If in a subsequent period the amount of an impairment loss decreases and the decrease can be
linked objectively to an event occurring after the impairment loss was recognized, the impairment
loss is reversed through the statement of operations. A reversal of
an impairment loss shall not result in the asset&#146;s carrying amount exceeding that which would have
been determined had no impairment loss been recognized in prior years.
</DIV>

<P align="center" style="font-size: 10pt">F-17
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(ii)&nbsp;Impairment of other assets</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Internal and external sources of information are reviewed at each balance sheet date to
identify indications that the following assets may be impaired or an impairment loss previously
recognized no longer exists or may have decreased:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#150;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Property, plant and equipment;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#150;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Construction in progress;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#150;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Lease and equipment deposits;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#150;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Lease prepayments;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#150;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Deferred expenditure; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#150;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Interests in affiliated companies and jointly controlled entities.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">If any such indication exists, the asset&#146;s recoverable amount is estimated.
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#150;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Calculation of recoverable amount</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The recoverable amount of an asset is the greater of its net selling price and the value in
use. In assessing value in use, the estimated future cash flows are discounted to their present
value using a pre-tax discount rate that reflects current market assessments of time value of
money and the risks specific to the asset. Where an asset does not generate cash inflows largely
independent of those from other assets, the recoverable amount is determined for the smallest
group of assets that generates cash inflows independently (i.e. a cash-generating unit).
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#150;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Recognition of impairment losses</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An impairment loss is recognized in the statement of operations whenever the carrying amount
of an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount.
Impairment losses recognized in respect of cash-generating units are allocated first to reduce the
carrying amount of the other assets in the unit (or group of units) on a pro rata basis, except
that the carrying value of an asset will not be reduced below its individual fair value less costs
to sell, or value in use, if determinable.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#150;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Reversals of impairment losses</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">F-18
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An impairment loss is reversed if there has been a favorable change in the estimates used to
determine the recoverable amount.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A reversal of an impairment loss is limited to the asset&#146;s carrying amount that would have
been determined had no impairment loss been recognized in prior years. Reversals of impairment
losses are credited to the statement of operations in the year in which the reversals are
recognized.
</DIV>

<P align="center" style="font-size: 10pt">F-19
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(m)&nbsp;Interest- bearing borrowings</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest-bearing borrowings are recognized initially at fair value, less attributable
transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at
amortized cost with any difference between cost and redemption value being recognized in the
consolidated statement of operations over the period of the borrowings using the effective
interest method.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(n)&nbsp;Trade and other payables</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Trade and other payables are initially recognized at fair value and thereafter stated at
amortized cost unless the effect of discounting would be immaterial, in which case they are stated
at cost.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(o)&nbsp;Provisions and contingent liabilities</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Provisions are recognized for liabilities of uncertain timing or amount when the Group has a
present legal or constructive obligation as a result of a past event, and it is probable that an
outflow of economic benefits will be required to settle the obligations and a reliable estimate can
be made. Where the time value of money is material, provisions are stated at the present value of
the expenditures expected to settle the obligation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Where it is not probable that an outflow of economic benefits will be required, or the amount
cannot be estimated reliably, the obligation is disclosed as contingent liability, unless the
probability of outflow of economic benefits is remote. Possible obligations, whose existence will
only be confirmed by the occurrence or non-occurrence of one or more future events are also
disclosed as contingent liabilities unless the probability of outflow of economic benefits is
remote.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(p)&nbsp;Defeasance of long-term liabilities</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Where long-term liabilities have been defeased by the placement of security deposits, those
liabilities and deposits (and income and charge arising therefrom) are netted off in order to
reflect the overall commercial effect of the arrangements. Such netting off has been effected
where a right is held by the Group to insist on net settlement of the liability and deposit
including in all situations of default and where that right is assured beyond doubt.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(q)&nbsp;Deferred credits</B>
</DIV>


<P align="center" style="font-size: 10pt">F-20
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the acquisition or operating lease of certain aircraft and engines, the
Group receives various credits. Such credits are deferred until the aircraft and engines are
delivered, at which time they are either applied as a reduction of the cost of acquiring the
aircraft and engines, resulting in a reduction of future depreciation, or amortized as a reduction
of rental expense for aircraft and engines under operating leases.
</DIV>

<P align="center" style="font-size: 10pt">F-21
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(r)&nbsp;Income tax</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income tax for the year comprises current and movement in deferred tax assets and
liabilities. Current tax and movements in deferred tax assets and liabilities are recognized in
the statement of operations except to the extent that they relate to items recognized directly in
equity, in which case they are recognized in equity.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Current tax is the expected tax payable on the taxable income for the year, using tax rates
enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in
respect of previous years.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred tax assets and liabilities arise from deductible and taxable temporary differences
respectively, being the differences between the carrying amounts of assets and liabilities for
financial reporting purposes and their tax bases. Deferred tax assets also arise from unused tax
losses and unused tax credits.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Apart from certain limited exceptions, all deferred tax liabilities, and all deferred tax
assets to the extent that it is probable that future taxable income will be available against which
the asset can be utilized, are recognized. Future taxable income that may support the recognition
of deferred tax assets arising from deductible temporary differences include those that will arise
from the reversal of existing taxable temporary differences, provided those differences relate to
the same taxation authority and the same taxable entity, and are expected to reverse either in the
same period as the expected reversal of the deductible temporary difference or in periods into
which a tax loss arising from the deferred tax asset can be carried back or forward. The same
criteria are adopted when determining whether existing taxable temporary differences support the
recognition of deferred tax assets arising from unused tax losses and credits, that is, those
differences are taken into account if they relate to the same taxation authority and the same
taxable entity, and are expected to reverse in a period, or periods, in which the tax loss or
credit can be utilized.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The limited exceptions to the recognition of deferred tax assets and liabilities are those
temporary differences arising from goodwill not deductible for tax purposes, the initial
recognition of assets or liabilities that affect neither accounting nor taxable profit (provided
they are not part of a business combination), and temporary differences relating to investment in
subsidiaries to the extent that, in the case of taxable differences, the Group controls the timing
of the reversal and it is probable that the difference will not reverse in the foreseeable future,
or in the case of deductible differences, unless it is probable that they will reverse in the
future.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The amount of deferred tax recognized is measured based on the expected manner of realisation
or settlement of the carrying amount of the assets and liabilities, using tax rates enacted or
substantively enacted at the balance sheet date. Deferred tax assets and liabilities are not
discounted.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The carrying amount of a deferred tax asset is reviewed at each balance sheet date and is
reduced to the extent that it is no longer probable that sufficient taxable income will be
available to
</DIV>

<P align="center" style="font-size: 10pt">F-22
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">allow the related tax benefit to be utilized. Any such reduction is reversed to the
extent that it becomes probable that sufficient taxable income will be available.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Additional income taxes that arise from the distribution of dividends are recognized when the
liability to pay the related dividends is recognized.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Current tax balances and deferred tax balances, and movements therein, are presented
separately from each other and are not offset. Current tax assets are offset against current tax
liabilities, and deferred tax assets against deferred tax liabilities, if the Group has the legally
enforceable right to set off current tax assets against current tax liabilities and the following
additional conditions are met:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#150;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in the case of current tax assets and liabilities, the Group intends either to settle
on a net basis, or to realize the asset and settle the liability simultaneously; or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#150;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in the case of deferred tax assets and liabilities, if they relate to income taxes
levied by the same taxation authority on either:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the same taxable entity; or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>different taxable entities, which, in each future period in which
significant amounts of deferred tax liabilities or assets are expected to be settled or
recovered, intend to realize the current tax assets and settle the current tax
liabilities on a net basis or realize and settle simultaneously.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(s)&nbsp;Revenue recognition</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">(i)&nbsp;Passenger, cargo and mail revenues are recognized when the transportation is provided. Ticket
sales for transportation not yet provided are included in current liabilities as sales in advance
of carriage. Revenues from airline-related business are recognized when services are rendered.
Revenue is stated net of sales tax.
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(ii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Interest income is recognized as it accrues using the effective interest method.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(iii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Dividend income is recognized when the Group&#146;s right to receive dividend is established.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(iv)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Operating lease income is recognized on a straight line basis over the terms of the
respective leases.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(t)&nbsp;Traffic commissions</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Traffic commissions are expensed when the transportation is provided and the related revenue
is recognized. Traffic commissions for transportation not yet provided are recorded on the
balance sheet as a prepaid expense.
</DIV>

<P align="center" style="font-size: 10pt">F-23
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(u)&nbsp;Maintenance and overhaul costs</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Routine maintenance, repairs and overhauls are expensed in the statement of operations as and
when incurred.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In respect of owned and capital leased aircraft, components within the aircraft subject to
replacement during major overhauls are depreciated over the average expected life between major
overhauls. When each major overhaul is performed, its cost is recognized in the carrying amount
of property, plant and equipment and is depreciated over the estimated period between major
overhauls. Any remaining carrying amount of cost of previous major overhaul is derecognized and
charged to the statement of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In respect of aircraft held under operating leases, a provision is made over the lease term
for the estimated cost of overhauls required to be performed on the related aircraft prior to
their return to the lessors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(v)&nbsp;Borrowing costs</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Borrowing costs are expensed in the statement of operations as and when incurred, except to
the extent that they are capitalized as being directly attributable to the acquisition or
construction of an asset which necessarily takes a substantial period of time to get ready for its
intended use.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(w)&nbsp;Retirement benefits</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Contributions to retirement schemes and additional retirement benefits paid to retired
employees are accrued in the year in which the associated services are rendered by employees.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(x)&nbsp;Frequent flyer award programs</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group maintains two frequent flyer award programs, namely, the China Southern Airlines
Sky Pearl Club and the Egret Mileage Plus, which provide travel awards to members based on
accumulated mileage. The estimated incremental cost to provide free travel is recognized as an
expense and accrued as a current liability as members accumulate mileage. As members redeem awards
or their entitlements expire, the incremental cost liability is reduced accordingly to reflect the
acquittal of the outstanding obligations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenue from mileage sales to third parties under the frequent flyer award programs is
recognized when the related transportation services are provided.
</DIV>

<P align="center" style="font-size: 10pt">F-24
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(y)&nbsp;Translation of foreign currencies</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Transactions in foreign currencies are translated into Renminbi at the applicable rates of
exchange quoted by the PBOC prevailing on the transaction dates. Monetary assets and liabilities
denominated in foreign currencies at the balance sheet date are translated into Renminbi at the
PBOC exchange rates at the balance sheet date. Foreign exchange differences arising on
translation are recognized in the statement of operations. Non-monetary assets and liabilities
that are measured in terms of historical cost in a foreign currency are translated into Renminbi
at the PBOC exchange rates prevailing on the transaction dates. Non-monetary assets and
liabilities denominated in foreign currencies that are stated at fair value are translated into
Renminbi at the PBOC exchange rates at the dates the fair value was determined.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(z)&nbsp;Related parties</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the purposes of these consolidated financial statements, parties are considered to be
related to the Group if the Group has the ability, directly or indirectly, to control the party or
exercise significant influence over the party in making financial and operating decisions, or vice
versa, or where the Group and the party are subject to common control or common significant
influence. Related parties may be individuals (being members of key management personnel,
significant shareholders and/ or their close family members) or other entities and include entities
which are under the significant influence of related parties of the Group where those parties are
individuals, and post-employment benefit plans which are for the benefit of employees of the Group
or of any entity that is a related party of the Group.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(aa)&nbsp;Segmental reporting</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A segment is a distinguishable component of the Group that is engaged either in providing
products or services (business segment), or in providing products or services within a particular
economic environment (geographical segment), which is subject to risks and rewards that are
different from those of other segments.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>3. NEW AND REVISED IFRSs</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The IASB has issued a number of new and revised IFRSs that are effective for accounting
periods beginning on or after January&nbsp;1, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The accounting policies of the Group after the adoption of these new and revised IFRSs have
been summarized in Note 2. The following sets out information on the significant changes in
accounting policies for the current and prior accounting periods reflected in these financial
statements.
</DIV>

<P align="center" style="font-size: 10pt">F-25
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group has not applied any new standard or interpretation that is not yet effective for the
current accounting period (Note 48).
</DIV>

<P align="center" style="font-size: 10pt">F-26
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>(a)&nbsp;Changes in presentation of share of affiliated companies&#146; and jointly controlled entities&#146;
taxation (IAS 1, Presentation of Financial Statements)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In prior years, the Group&#146;s share of taxation of affiliated companies and jointly controlled
entities accounted for using the equity method was included as part of the Group&#146;s income tax in
the consolidated statement of operations. With effect from January&nbsp;1, 2005, in accordance with the
implementation guidance in IAS 1, the Group has changed the presentation and includes the share of
taxation of affiliated companies and jointly controlled entities accounted for using the equity
method in the respective shares of income or loss reported in the consolidated statement of
operations before arriving at the Group&#146;s income or loss before tax. These changes in presentation
have been applied retrospectively with comparatives restated.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a result of these changes in presentation, the Group&#146;s share of results of affiliated
companies and jointly controlled entities and income tax expense/benefit have been adjusted. Share
of income of affiliated companies for the years ended December&nbsp;31, 2003 and 2004 decreased by RMB3
and RMB2, respectively. Share of losses of affiliated companies for the year ended December&nbsp;31,
2005 decreased by RMB15. Share of losses of jointly controlled entities increased by RMB7 and
RMB11 for the years ended December&nbsp;31, 2003 and 2004, respectively, and decreased by RMB3 for the
year ended December&nbsp;31, 2005. The Group&#146;s income tax expense has decreased by RMB10 and RMB13
during the years ended December&nbsp;31, 2003 and 2004, respectively and income tax benefit has
decreased by RMB18 during the year ended December&nbsp;31, 2005. Accordingly, there is no effect on the
net results and net assets of the Group in periods presented.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>(b)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Changes in presentation of minority interests (IAS 1, Presentation of financial statements
and IAS 27, Consolidated and separate financial statements)</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In prior years, minority interests at the balance sheet date were presented separately from
liabilities and equity in the consolidated balance sheet. Minority interests in the results of the
Group for the year were also separately presented in the consolidated statement of operations as a
deduction before arriving at the results attributable to shareholders (the equity shareholders of
the Company).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With effect from January&nbsp;1, 2005, in order to comply with IAS 1 and IAS 27, the Group has
changed its accounting policy relating to presentation of minority interests. Under the new
policy, minority interests are presented as part of equity, separately from interests attributable
to the equity shareholders of the Company. Further details of the new policy are set out in Note
2(c). These changes in presentation have been applied retrospectively with comparatives restated.
</DIV>

<P align="center" style="font-size: 10pt">F-27
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a result of these changes in presentation, the Group&#146;s loss for the years ended December
31, 2003, 2004 and 2005 have decreased by RMB171, RMB203 and RMB2, respectively and the Group&#146;s
total equity as of December&nbsp;31, 2004 and 2005 have increased by RMB2,055 and RMB1,936,
respectively.
</DIV>

<P align="center" style="font-size: 10pt">F-28
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(c)&nbsp;Scope of related parties (IAS 24, Related party disclosures)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a result of the adoption of revised IAS 24, the definition of related parties as disclosed
in Note 2(z) has been expanded such that state-controlled entities are included. The revised IAS
24 also requires the compensation of key management personnel to be disclosed. The Group has
included these additional disclosures in these consolidated financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>4. TURNOVER</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Turnover comprises revenues from airline and airline-related business and is stated net of
sales tax. An analysis of turnover is as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year ended December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Traffic revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Passenger</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,328</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cargo and mail</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,955</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,244</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,091</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,965</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,344</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,419</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other operating revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Commission income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">140</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">203</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">237</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">General aviation income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Ground services income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">99</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">146</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">195</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Air catering income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net income from lease arrangements (Note 21)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Rental income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Aircraft lease income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Others</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">86</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">117</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">270</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">505</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">630</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">874</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,470</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,974</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,293</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to various sales tax rules and regulations, the Group is required to pay sales tax
to national and local tax authorities at the rate of approximately 3% of the traffic revenue in
respect of domestic flights and outbound international/Hong Kong and Macau flights. Sales tax
incurred by the Group for the years ended December&nbsp;31, 2003, 2004 and 2005, netted off against
revenue, amounted to RMB206, RMB716, and RMB1,111, respectively.
</DIV>

<P align="center" style="font-size: 10pt">F-29
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, the Group is required to pay contributions to the CAAC Infrastructure Development
Fund. Prior to May&nbsp;1, 2003, contributions to CAAC Infrastructure Development Fund were payable at
5% and 2%, respectively, of the domestic and international/ Hong Kong and Macau traffic revenue.
For the period from May&nbsp;1, 2003 to March&nbsp;31, 2004, the Group was exempted from paying any
contributions. Effective from April&nbsp;1, 2004, contributions to the CAAC Infrastructure Development
Fund are payable based on the traffic capacity deployed by the Group on its routes. The
contributions now form part of the flight operations expenses and amounted to RMB466 and RMB978 for
the years ended December&nbsp;31, 2004 and 2005, respectively (Note 5). The contributions for the year
ended December&nbsp;31, 2003 amounted to RMB251 were netted off against traffic revenue.
</DIV>


<P align="center" style="font-size: 10pt">F-30
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>5. FLIGHT OPERATIONS EXPENSES</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year ended December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Jet fuel costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,867</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,050</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,929</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating lease rentals</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">- Aircraft and flight equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,536</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,665</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,497</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">- Land and buildings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">136</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">109</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">302</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Air catering expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">474</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">705</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,196</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Aircraft insurance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">196</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">185</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">105</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Flight personnel payroll and welfare</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">728</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,026</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,619</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Training expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">123</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">183</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">373</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">CAAC Infrastructure Development
Fund contributions (Note 4)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">466</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">978</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Others</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">395</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,070</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,418</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,394</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>6. MAINTENANCE EXPENSES</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year ended December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Repairing and maintenance charges</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,289</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,247</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,153</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Maintenance materials</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">212</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">436</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,589</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,459</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,589</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-31
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>7. AIRCRAFT AND TRAFFIC SERVICING EXPENSES</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year ended December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Landing and navigation fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,562</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,222</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,891</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Ground service charges</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">205</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">281</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">868</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,767</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,503</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,759</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>8. PROMOTION AND SALES EXPENSES</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year ended December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sales commissions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">757</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,062</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,503</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Ticket office expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">504</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">552</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">659</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Computer reservation services</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">175</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">233</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">417</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Advertising and promotion</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Others</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">169</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,480</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,940</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,780</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>9. GENERAL AND ADMINISTRATIVE EXPENSES</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year ended December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">General corporate expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,011</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,260</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,408</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Impairment losses for trade and
other receivables (Note 17)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Auditors&#146; remuneration</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other taxes and levies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,053</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,323</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,457</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-32
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>10. DEPRECIATION AND AMORTIZATION</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year ended December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">- Owned assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,502</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,891</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,292</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">- Assets acquired under capital leases</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">496</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">472</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,128</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Amortization of deferred credits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(20</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,038</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,413</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,440</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation of property, plant and equipment leased out under operating leases amounted to
RMB55, RMB55 and RMB35 for the years ended December&nbsp;31, 2003, 2004 and 2005, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>11. STAFF COSTS</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year ended December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Salaries, wages and welfare</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,496</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,260</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,515</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Retirement schemes contributions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">168</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">472</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,646</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,428</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,987</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Staff costs relating to flight operations, maintenance, aircraft and traffic servicing,
promotion and sales and general and administrative expenses are also included in the respective
total amounts disclosed separately in Notes 5 to 9 above.
</DIV>

<P align="center" style="font-size: 10pt">F-33
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>12. INTEREST EXPENSE</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year ended December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest on bank and other notes payable wholly
repayable within five years</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">288</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">221</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">211</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest on other notes payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">176</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">156</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">877</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Finance charges on obligations under capital
leases</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">443</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">348</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">626</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less: borrowing costs capitalized</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(83</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(34</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(98</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">824</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">691</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,616</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The borrowing costs have been capitalized at rates ranging from 1.62% to 5.46% per annum,
1.51% to 3.48% per annum, and 4.14% to 5.27% per annum for the years ended December&nbsp;31, 2003, 2004
and 2005, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>13. INCOME TAX (BENEFIT)/EXPENSE</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">a) Income tax (benefit)/expense in the consolidated statements of operations
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year ended December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><I>(restated,</I></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><I>(restated,</I></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><I>Note 3)</I></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><I>Note 3)</I></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">PRC income tax</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">176</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred tax (Note 25)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">- current year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(111</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(19</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">- adjustment for change in enacted tax rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(392</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(334</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(7</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On October&nbsp;17, 2003, the Company&#146;s registered address was moved to Guangzhou Economic &#038;
Technology Development Zone. In accordance with the Rules and Regulations for Implementation of
Income Tax for Foreign Investment Enterprises and Foreign Enterprises of the PRC and a taxation
approval document &#147;Guangzhou Municipal State Tax Bureau Suo De Shui Zi Que 020043&#148;, the Company is
entitled to enjoy the preferential tax policy implemented in the
Guangzhou Economic &#038; Technology Development Zone effective October&nbsp;1, 2003. As a result, the
Company&#146;s income tax rate has been changed from 33% to 15% beginning from that date.
</DIV>

<P align="center" style="font-size: 10pt">F-34
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a result of the reduction in income tax rate, the Company&#146;s net deferred tax liability
balance at January&nbsp;1, 2003 of RMB507 was reduced by RMB392. Accordingly, a net deferred tax credit
of RMB392 was recognized in the consolidated statement of operations for the year ended December
31, 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In respect of the Group&#146;s overseas airline activities, the Group has either obtained
exemptions from overseas taxation pursuant to the bilateral aviation agreements between the
overseas governments and the PRC government, or has sustained tax losses in these overseas
jurisdictions. Accordingly, no provision for overseas tax has been made for the years ended
December&nbsp;31, 2003, 2004 and 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">b) Reconciliation between tax (benefit)/expense and accounting (loss)/income at applicable tax
rates
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year ended December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><I>(restated,</I></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><I>(restated,</I></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><I>Note 3)</I></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><I>Note 3)</I></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">(Loss)/income before tax</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(521</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">220</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,853</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expected tax on (loss)/income before tax
calculated at 15% for the years ended
December&nbsp;31, 2003, 2004 and 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(78</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(278</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Adjustments:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Effect on change in income tax rate on
deferred taxation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(392</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Rate differential on subsidiaries/branches</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Tax effect of non-deductible expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">82</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Tax effect of non-taxable income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(8</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Tax effect of share of results of affiliated
companies and jointly controlled entities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(9</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Tax effect of unused tax losses not recognized</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">135</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Expired tax losses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Others</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Actual tax (benefit)/expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(334</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(7</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All but an insignificant amount of (loss)/income before taxation is from domestic sources.
</DIV>

<P align="center" style="font-size: 10pt">F-35
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In accordance with relevant PRC tax regulations, a PRC lessee is liable to pay PRC withholding
tax in respect of any lease payments regularly made to an overseas lessor. Depending on the
circumstances, this tax is generally imposed at a fixed rate ranging from 10% to 20% of the lease
payments, or in certain cases, the interest components of such payments. Pursuant to an approval
document from the State Tax Bureau, lease arrangements executed prior to September&nbsp;1, 1999 were
exempted from PRC withholding tax.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The PRC withholding tax payable by the Group for the years ended December&nbsp;31, 2003, 2004 and
2005 of RMB8, RMB23 and RMB55, respectively, in respect of the operating leases executed after
September&nbsp;1, 1999 has been included as part of the operating lease rentals.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>14. DIVIDENDS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No interim dividend was paid during the years ended December&nbsp;31, 2003, 2004 and 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The board of directors of the Company does not recommend the payment of a final dividend in
respect of the year ended December&nbsp;31, 2005. No final dividend was paid in respect of the years
ended December&nbsp;31, 2003 and 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>15. BASIC LOSS PER SHARE</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The calculation of basic loss per share for the years ended December&nbsp;31, 2003, 2004 and 2005
is based on the loss attributable to equity shareholders of the Company of RMB358, RMB48, and
RMB1,848, respectively, and the weighted average number of shares in issue of 3,831,712,000,
4,374,178,000, and 4,374,178,000, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The amount of diluted loss per share is not presented as there were no dilutive potential
ordinary shares in existence during the years ended December&nbsp;31, 2003, 2004 and 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>16. CASH AND CASH EQUIVALENTS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2004 and 2005, cash and cash equivalents comprise cash at bank and in hand
and deposits with China Southern Airlines Group Finance Company Limited (&#147;SA Finance&#148;), a PRC
authorized financial institution controlled by CSAHC and an affiliated company of the Group. In
accordance with the financial agreement dated May&nbsp;22, 1997 and subsequently revised on December
31, 2004 between the Company and SA Finance, all the Group&#146;s deposits accepted by SA Finance were
simultaneously placed with several designated major PRC banks by SA Finance. As of December&nbsp;31,
2004 and 2005, the Group&#146;s deposits with SA Finance amounted to RMB406 and RMB544, respectively.
</DIV>

<P align="center" style="font-size: 10pt">F-36
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Included in cash and cash equivalents are the following amounts denominated in a currency
other than the functional currency of the entity to which they relate:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">United States Dollars</DIV></TD>
    <TD>&nbsp;</TD>

<TD nowrap align="right" colspan="2" >US$&nbsp;&nbsp;&nbsp;&nbsp;37</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
<TD nowrap align="right" colspan="2" >US$&nbsp;&nbsp;&nbsp;&nbsp;24</TD>
    <TD>&nbsp;</TD>

</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Japanese Yen</DIV></TD>
    <TD>&nbsp;</TD>

<TD nowrap align="right" colspan="2" style="border-bottom: 3px double #000000">JPY1, 272</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="right" colspan="2" style="border-bottom: 3px double #000000">JPY1, 161</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">F-37
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>17. TRADE RECEIVABLES</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Trade receivables, principally traffic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,295</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,562</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less: Impairment losses for bad and doubtful accounts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(92</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(44</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,203</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,518</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Credit terms granted by the Group to sales agents and other customers generally range from one
to three months. An ageing analysis of trade receivables, net of impairment losses for bad and
doubtful accounts, is set out below:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Within 1&nbsp;month</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">998</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,366</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">More than 1&nbsp;month but less than 3&nbsp;months</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">163</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">137</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">More than 3&nbsp;months but less than 12&nbsp;months</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">More than 12&nbsp;months</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,203</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,518</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2004 and 2005, the Group had an amount due from a fellow subsidiary of
RMB52 and RMB42, respectively, which was included in trade receivables.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All of the trade receivables are expected to be recovered within one year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Included in trade receivables are the following amounts denominated in a currency other than
the functional currency of the entity to which they relate:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">United States Dollars</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">US$</TD>
    <TD align="right">11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">US$</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-38
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Movements in impairment losses for bad and doubtful accounts comprise:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>Year ended December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">At January 1</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">70</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Impairment losses for bad and doubtful accounts (Note 9)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Through the
CNA/XJA Acquisitions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Bad and doubtful accounts written off</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(49</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(48</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">At December 31</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>18. INVENTORIES</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expendable spare parts and maintenance materials</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,175</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,241</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other supplies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">127</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">141</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,302</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,382</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The analysis of the amount of inventories recognized as an expense is as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consumption</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">596</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">720</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Write-down of inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">209</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">596</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">929</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">As a result of fleet adjustment, inventories have been written down by RMB209 at
December&nbsp;31, 2005.
</DIV>

<P align="center" style="font-size: 10pt">F-39
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>19. OTHER INVESTMENTS</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Non-current investments</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unlisted equity securities available for sale, at cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">272</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">320</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Current investments</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Listed equity securities held for trading</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">523</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Listed debt securities held-to-maturity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">160</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">683</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Market value of listed securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">683</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The current investments at December&nbsp;31, 2004 were listed outside Hong Kong.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net realized and unrealized gain on trading securities of the Group amounted to RMBNil, RMB15
and RMB6 during the years ended December&nbsp;31, 2003, 2004 and 2005, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dividend income from unlisted securities of the Group amounted to RMBNil, RMB14 and RMB4
during the years ended December&nbsp;31, 2003, 2004 and 2005, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The amortized cost, gross unrealized holding gains, gross unrealized holding losses, and fair
value of debt security held-to-maturity as of December&nbsp;31, 2004 and 2005 were as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Gross</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Gross</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>unrealized</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>unrealized</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Amortized</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>holding</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>holding</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>cost</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>gains</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>losses</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Fair value</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">As of December&nbsp;31, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Debt securities held-to-maturity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">160</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">160</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">As of December&nbsp;31, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Debt securities held-to-maturity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-40
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>20. OTHER RECEIVABLES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2004 and 2005, other receivables of the Group included an amount due from
Zhongyuan Airlines Company Limited (&#147;Zhongyuan Airlines&#148;) of RMB104 and RMB98, respectively. As
of December&nbsp;31, 2005 and up to date of approval of these consolidated financial statements, the
Group is in the process of applying for transfer of certain properties held by Zhongyuan Airlines
for settlement of the balance.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>21. PROPERTY, PLANT AND EQUIPMENT, NET</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Other flight</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>Aircraft</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>equipment,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Machinery,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Held</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>including</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>equipment</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>under capital</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>rotable</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>and</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Buildings</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Owned</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>leases</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>spares</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>vehicles</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Cost or valuation:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">At January&nbsp;1, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,288</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,222</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,463</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,842</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,930</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,745</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Exchange adjustments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Reclassification on exercise
of purchase options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">550</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(550</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Additions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">336</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,156</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">525</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,022</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Transfer from construction
in progress</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,472</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">235</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,707</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Through the CNA/XJA
Acquisitions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">915</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,206</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,616</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,753</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">490</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,980</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Disposals</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(28</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(76</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(73</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(177</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">At December&nbsp;31, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,988</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,134</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,529</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,044</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,599</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60,294</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Representing:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,633</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,905</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,189</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,870</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,115</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,712</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Valuation - 1996 (Note (b))</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">355</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,229</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,340</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,174</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">484</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,582</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,988</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,134</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,529</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,044</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,599</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60,294</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">At January&nbsp;1, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,988</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,134</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,529</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,044</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,599</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60,294</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Exchange adjustments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(14</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(20</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Additions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,827</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,146</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,336</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">307</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,680</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Transfer from construction
in progress</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">513</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">569</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Transfer to inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(126</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(126</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Disposals</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(256</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(207</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(81</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(544</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">At December&nbsp;31, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,303</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,961</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,675</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,047</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,867</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">71,853</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Representing:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,948</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,732</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,335</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,873</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,383</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58,271</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Valuation - 1996 (Note (b))</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">355</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,229</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,340</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,174</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">484</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,582</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,303</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,961</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,675</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,047</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,867</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">71,853</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-41
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>

</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Other flight</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>Aircraft</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>equipment,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Machinery,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Held</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>including</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>equipment</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>under capital</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>rotable</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>and</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Buildings</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Owned</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>leases</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>spares</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>vehicles</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Accumulated depreciation:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">At January&nbsp;1, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">594</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,192</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,605</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,644</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,174</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,209</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Exchange adjustments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Reclassification on exercise
of purchase options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">183</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(183</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Charge for the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">179</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">956</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">472</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">544</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">212</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,363</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Disposals</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(17</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(51</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(61</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(129</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">At December&nbsp;31, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">757</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,331</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,894</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,137</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,334</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,453</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">At January&nbsp;1, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">757</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,331</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,894</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,137</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,334</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,453</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Exchange adjustments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(11</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(12</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Charge for the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">227</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,546</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,108</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,121</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">418</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,420</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Disposals</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(74</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(145</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(55</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(274</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">At December&nbsp;31, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">909</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,877</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,113</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,686</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,587</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Net book value:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">At December&nbsp;31, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,803</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,635</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,907</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,265</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,841</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">At December&nbsp;31, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,394</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,084</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,673</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,934</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,181</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54,266</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">(a)&nbsp;Substantially all of the Group&#146;s buildings are located in the PRC. The Group was formally
granted the rights to use the twenty one parcels of land in Guangzhou, Shenzhen, Zhuhai, Beihai,
Changsha, Shantou, Haikou, Zhengzhou, Guiyang and Wuhan by the relevant PRC authorities for periods
of 30 to 70&nbsp;years, which expire between 2020 and 2068. For other land in the PRC on which the
Group&#146;s buildings are erected, the Group was formally granted the rights to use such land for
periods of one to five years pursuant to various lease agreements between the Company and CSAHC.
In this connection, rental payments totaling RMB2, RMB2 and RMB24 were paid to CSAHC for each of
the years ended December&nbsp;31, 2003, 2004 and 2005, respectively in respect of these leases (Note
36).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">(b)&nbsp;In compliance with the PRC rules and regulations governing initial public offering of shares by
PRC joint stock limited companies, the property, plant and equipment of the Group as of December
31, 1996 were revalued. This revaluation was conducted by Guangzhou Assets Appraisal Corp., a firm
of independent valuers registered in the PRC, on a depreciated replacement cost basis, and approved
by the China State-owned Assets Administration Bureau.
</DIV>


<P align="center" style="font-size: 10pt">F-42
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subsequent to the 1996 revaluation, the property, plant and equipment of the Group are carried
at revalued amount, being the fair value at the date of the revaluation less any subsequent
accumulated depreciation and impairment losses. Revaluation is performed with sufficient regularity
to ensure that the carrying amount does not differ materially from that which would be determined
using fair value at the balance sheet date. Based on a revaluation performed as of September&nbsp;30,
2005, by Savills Valuation &#038; Professional Services Limited, a firm of independent valuers, on a
depreciated replacement cost basis, the carrying value of property, plant and equipment did not
differ materially from their fair value. Consequently, no additional fair value adjustment was
recorded during the year ended December&nbsp;31, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2005, the carrying amount of such revalued property, plant and equipment
approximated the historical carrying value of such assets had they been stated at cost less
accumulated depreciation and impairment losses.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">(c)&nbsp;As of December&nbsp;31, 2004 and 2005, certain aircraft of the Group with an aggregate carrying
amount of approximately RMB23,562 and RMB30,408, respectively, were mortgaged under certain notes
payable and lease agreements (Notes 27 and 28).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">(d)&nbsp;In 2003, the Group entered into operating lease arrangements to lease certain flight training
facilities and buildings to Zhuhai Xiang Yi Aviation Technology Company Limited (&#147;Zhuhai Xiang
Yi&#148;), a jointly controlled entity of the Group. The leases with initial one-year term are
automatically renewable for additional subsequent one year unless either party gives appropriate
notice of termination. In this connection, rental income totaling RMB31, RMB31 and RMB31 was
received by the Group for each of the years ended December&nbsp;31, 2003, 2004 and 2005 in respect of
the leases (Note 36). The carrying amount and accumulated depreciation of the relevant property,
plant and equipment totaled RMB787 and RMB514 at December&nbsp;31, 2004, and RMB862 and RMB664 at
December&nbsp;31, 2005, respectively. Depreciation of relevant property, plant and equipment recognized
for each of the years ended December&nbsp;31, 2003, 2004 and 2005 amounted to RMB55, RMB55 and RMB35,
respectively. As of December&nbsp;31, 2005, the Group&#146;s total future minimum lease payments under
non-cancellable operating leases were receivable within one year and amounted to RMB31.
</DIV>


<P align="center" style="font-size: 10pt">F-43
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">(e)&nbsp;The Group entered into two separate arrangements (the &#147;Arrangements&#148;) with certain independent
third parties during each of 2002 and 2003. Under each of the Arrangements, the Group sold an
aircraft and then immediately leased back the aircraft for an agreed period. The lease payment
obligations, with pre-determined net present value, are to be satisfied solely out of the sale
proceeds and such amount has been placed irrevocably by the Group in form of deposits and debt
securities in favor of the lessor. The Group has an option to purchase the aircraft at a
pre-determined date and an agreed purchase price to be satisfied by the balances of the deposits
and debt securities outstanding at that date. In the event that the lease agreement is early
terminated by the Group, the Group is liable to pay a pre-determined penalty to the lessor.
Provided that the Group complies with the lease agreements, the Group is entitled to the continued
possession and operation of the aircraft. Since the Group retains substantially all risks and
rewards incident to ownership of the aircraft and enjoys substantially the same rights to their use
as before the Arrangements, no adjustment has been made to the property, plant and equipment. As
of December&nbsp;31, 2004 and 2005, the net present value of the lease commitments and the corresponding
defeased deposits and debt securities amounted to RMB2,462 and RMB2,376, respectively. As a result
of the Arrangements, the Group received net cash benefit of RMB69 in 2003, which was recognized as
income for 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">(f)&nbsp;As of December&nbsp;31, 2005 and up to the date of approval of these consolidated financial
statements, the Group is in the process of applying for the land use right certificates and
property title certificates in respect of the properties located in the Guangzhou Baiyun
International Airport, in which the Group has interests and for which such certificates have not
been granted. As of December&nbsp;31, 2004 and 2005, carrying value of such properties of the Group
amounted to RMB2,319 and RMB2,316, respectively. The directors of the Company are of the opinion
that the use of and the conduct of operating activities at the properties referred to above are not
affected by the fact that the Group has not yet obtained the relevant land use right certificates
and property title certificates.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>22. CONSTRUCTION IN PROGRESS</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">At January 1</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,630</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">565</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Additions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,616</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">678</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Through the CNA/XJA Acquisitions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Transfer to property, plant and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,707</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(569</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">At December 31</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">565</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">674</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The construction in progress as of December&nbsp;31, 2005 mainly related to projects at the
Guangzhou, Jilin and Fuzhou airports, Shenzhen cargo centre and Beijing branch.
</DIV>

<P align="center" style="font-size: 10pt">F-44
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>23. INTEREST IN AFFILIATED COMPANIES</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Share of net assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">429</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">142</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Details
of the Group&#146;s principal affiliated companies are set out in
Note 50, all of which
are unlisted corporate entities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Summary financial information on affiliated companies:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>100%</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>Group&#146;s effective interest</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Non-current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,254</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,334</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,672</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,081</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,165</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,275</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,049</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">455</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Non-current
liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,918</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,897</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,290</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,520</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,568</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,318</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,002</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(874</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">933</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">394</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">429</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">142</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,756</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,676</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,314</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">682</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,042</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,318</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,637</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,633</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,798</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(634</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,030</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,618</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Taxation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(39</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income/(loss)
for the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">113</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(523</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(285</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>24. INTEREST IN JOINTLY CONTROLLED ENTITIES</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Share of net assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">782</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">805</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Details
of the Group&#146;s principal jointly controlled entities are set out
in Note 50, all of
which are unlisted corporate entities.
</DIV>

<P align="center" style="font-size: 10pt">F-45
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Summary financial information on jointly controlled entities:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>Group&#146;s effective interest</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Non-current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">845</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">920</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">794</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">877</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Non-current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(389</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(524</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(468</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(468</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 6pt"><TD>&nbsp;</TD></TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">782</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">805</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">545</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">762</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,115</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(585</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(767</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,082</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Taxation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(11</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 6pt"><TD>&nbsp;</TD></TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">(Loss)/income for the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(46</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(16</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>25. DEFERRED TAX ASSETS/LIABILITIES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Movements of net deferred tax (liabilities)/assets are as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">At January 1</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(398</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(287</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Credited to consolidated statements of operations (Note
13)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">111</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 6pt"><TD>&nbsp;</TD></TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">At December 31</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(287</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(268</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-46
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The deferred tax (liabilities)/assets as of December&nbsp;31, 2004 and 2005 were made up of the
following tax effects:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred tax assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Tax losses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">159</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Repair charges capitalized</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">254</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">275</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">275</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">175</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Others</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total deferred tax assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">589</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">638</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 6pt"><TD>&nbsp;</TD></TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred tax liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Depreciation allowances in excess of the related depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">752</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">832</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Others</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 6pt"><TD>&nbsp;</TD></TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total deferred tax liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">876</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">906</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(287</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(268</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net deferred tax asset recognized on the consolidated balance sheet</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net deferred tax liability recognized on the consolidated balance sheet</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(338</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(342</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(287</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(268</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">F-47
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2004 and 2005, the Group had tax losses for PRC income tax purposes
totaling approximately RMB260 and RMB1,601. Such tax losses are available for carry forward to set
off against future PRC assessable income for a maximum period of five years and will expire in
2011. In accordance with accounting policy set out in Note 2(r), as of December&nbsp;31, 2004 and 2005,
the Group has not recognized deferred tax assets in respect of tax losses to the extent of
approximately Nil and RMB710 as it was determined by management that it is not probable that future
taxable income against which the losses can be utilized will be available before they expire.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2004 and 2005, the Group has also not recognized deferred tax assets in
respect of cumulative tax losses from operations in Hong Kong of approximately RMB303, as it is not
probable that future taxable income against which the losses can be utilized will be available. The
tax losses do not expire under current tax legislation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>26. OTHER ASSETS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2004 and 2005, other assets of the Group include lump sum housing benefits
of RMB197 and RMB171, respectively. Further details are set out in Note 37.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Movements of lump sum housing benefits are as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">At January 1</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">223</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">197</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Amortization for the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(26</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(26</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">At December 31</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">197</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">171</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>27.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>DEBT</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Short-term notes payable</B></TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Short-term notes payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,925</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,346</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current installments of long-term notes payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,593</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,877</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,518</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,223</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Borrowings under short-term notes payable are used primarily to finance working capital needs
and are repayable in full on the respective due dates with interest rates ranging from 3.15% to
5.34% per annum. The Group&#146;s weighted average interest rate on short-term notes payable was 1.60%
and 4.83% per annum, respectively, as of December&nbsp;31, 2004 and 2005.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Short-term notes payable include certain notes payable of RMB2,611 which were
renewed subsequent to December 31, 2005. The renewed notes payable are unsecured, bear
interest at floating rates ranging from 3-month HIBOR/6-month LIBOR + 0.55% to 0.60%
per annum and are repayable within one year from their respective renewal dates.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;	In addition, the Group entered into new notes payable agreements totalling RMB2,671
subsequent to December 31, 2005.  These new notes payable are unsecured and bear interest
at floating rates ranging from 6-month LIBOR + 0.55% to 0.70% per annum with maturities
through 2008.
</DIV>

<P align="center" style="font-size: 10pt">F-48
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Long-term notes payable</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Interest rate and final maturity</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Renminbi denominated notes payable</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Non-interest bearing loan from a municipal
government authority repayable on demand</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Floating interest rates ranging from 5.02%
to 5.51% per annum as of December&nbsp;31, 2005,
with maturities through 2011</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,217</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">877</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>United States Dollars denominated notes payable</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Fixed interest rates ranging from 4.43%
to 7.73% per annum as of December&nbsp;31, 2005,
with maturities through 2015</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,676</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,414</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Floating interest rates ranging from 3&nbsp;months LIBOR
&#043; 0.70% to 0.90% per annum as of December&nbsp;31, 2005,
with maturities through 2012</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,426</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,610</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Floating interest rates ranging from 6&nbsp;months LIBOR
&#043; 0.3% to 1.20% per annum as of December&nbsp;31, 2005,
with maturities through 2013</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,206</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,713</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,528</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,617</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 0px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 0px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less: current installments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,593</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,877</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,935</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,740</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2004 and 2005, bank and other notes payable of the Group totaling
RMB8,620 and RMB8,116, respectively, were secured by mortgages over certain of the Group&#146;s aircraft
with carrying amount of RMB11,927 and RMB11,735, respectively.
</DIV>

<P align="center" style="font-size: 10pt">F-49
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2004 and 2005, certain bank and other notes payable were guaranteed by the
following parties:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Guarantors</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B><I>Short-term notes payable</I></B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">CSAHC</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">411</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">300</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B><I>Long-term notes payable</I></B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Industrial Commercial Bank of China</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">149</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">111</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Export-Import Bank of the United States</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,732</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,171</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Bank of China</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">291</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">155</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">CSAHC</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,041</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,608</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD nowrap><DIV style="margin-left:30px; text-indent:-15px">Shenzhen
Yingshun Investment Development Company Limited</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">SA Finance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
</TR>


<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,633</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,374</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, the Group had banking facilities with several PRC commercial banks
for providing loan finance up to an approximate amount of RMB39,294. As of December&nbsp;31, 2005, an
approximate amount of RMB28,242 was utilized.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2004 and 2005, loans to the Group from SA Finance amounted to RMB256 and
RMB300, respectively (Note 36(b)).
</DIV>

<P align="center" style="font-size: 10pt">F-50
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The aggregate annual maturities of long-term notes payable for each of the five years
subsequent to December&nbsp;31, 2005 and thereafter are as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Year ending December&nbsp;31,</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,877</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,316</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,156</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,435</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">660</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Thereafter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,173</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,617</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Included in bank and other loans are the following amounts denominated in a currency other
than the functional currency of the entity to which they related:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">United States Dollars</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="right">US$1,969</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="right">US$3,208</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Hong Kong Dollars</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="right">HK$2,678</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="right">HK$1,821</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top" colspan="3" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD style="border-top: 3px double #000000">&nbsp;</TD>
    <TD align="right" valign="top" colspan="3" style="border-top: 3px double #000000">&nbsp;</TD>

</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-51
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>28. LEASE OBLIGATIONS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Capital leases</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group has commitments under capital lease agreements in respect of aircraft and related
equipment. The majority of these leases have terms of 10 to 15&nbsp;years expiring during the years
2006 to 2017.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, future payments under these capital leases are as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Payments</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>*Interest</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Obligations</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Year ending December&nbsp;31,</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,030</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">657</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,373</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,423</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">493</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,930</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,016</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">408</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,608</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,684</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">307</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,377</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,050</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">238</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">812</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Thereafter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,412</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">680</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,732</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,783</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,832</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less: current
installments
of obligations
under capital
leases</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,373</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,459</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD>Interest rates ranging from 1.44% to 8.01% per annum</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2004, future payments under these capital leases are as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Payments</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>*Interest</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Obligations</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Year ending December&nbsp;31,</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,580</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">436</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,144</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,213</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">350</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,863</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,844</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">279</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,565</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,699</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">146</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,553</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">997</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">71</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">926</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Thereafter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">722</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">692</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,055</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,312</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,743</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less: current installments of
obligations
under capital leases</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,144</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,599</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD>Interest rates ranging from 1.92% to 8.48% per annum</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt">F-52
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">






<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the terms of the leases, the Group has an option to purchase, at or near the end
of the lease term, certain aircraft and flight equipment at either fair market value or a
percentage of the respective lessor&#146;s defined cost of the aircraft.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Security, including charges over the assets concerned and relevant insurance policies, is
provided to the lessors. As of December&nbsp;31, 2004 and 2005, certain of the Group&#146;s aircraft with
carrying amount of RMB11,635 and RMB18,673, respectively were mortgaged to secure finance lease
obligations RMB11,743 and RMB15,832, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Included in obligations under capital leases are the following amounts denominated in a
currency other than the functional currency of the entity to which they relate:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">United States Dollars</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top" colspan="3">US$958</TD>
    <TD valign="top">&nbsp;</TD>
    <TD align="right" valign="top" colspan="3">US$1,556</TD>

</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Japanese Yen</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="right">JPY47,840</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="right">JPY47,795</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>

    <TD align="right" valign="top"  colspan="3" style="border-top: 3px double #000000">&nbsp;</TD>
   <TD valign="top">&nbsp;</TD>
    <TD align="right" valign="top"  colspan="3" style="border-top: 3px double #000000">&nbsp;</TD>

</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Operating leases</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, future minimum lease payments under non-cancellable aircraft and
flight equipment operating leases were as follows (principally denominated in U.S. dollars):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Year ending December&nbsp;31,</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,340</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,881</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,785</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,609</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,523</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Thereafter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,456</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 6pt"><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total minimum lease payments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,594</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-53
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2004, future minimum lease payments under non-cancellable aircraft and
flight equipment operating leases were as follows (principally denominated in U.S. dollars):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Year ending December&nbsp;31,</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,761</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,622</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,562</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,259</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">764</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Thereafter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,782</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 6pt"><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total minimum lease payments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,750</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>29.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>TRADE AND BILLS PAYABLES</B></TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Trade payables</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,554</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,033</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Bills payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">136</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">896</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,690</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,929</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following is the ageing analysis of trade and bills payables:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Within 1&nbsp;month</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">735</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">More than 1&nbsp;month but less than 3&nbsp;months</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">431</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,225</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">More than 3&nbsp;months but less than 6&nbsp;months</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">524</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">704</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,690</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,929</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2004 and 2005, the Group had an amount due to a fellow subsidiary of
RMB838 and RMB859, respectively, which was included in trade and bills payables.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All of the trade and bills payables are expected to be settled within one year.
</DIV>

<P align="center" style="font-size: 10pt">F-54
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Included in trade and bills payables are the following amounts denominated in a currency other
than the functional currency of the entity to which they relate:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">United States Dollars</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-bottom: 3px double #000000">US$</TD>
    <TD align="right" style="border-bottom: 3px double #000000">108</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-bottom: 3px double #000000">US$</TD>
    <TD align="right" style="border-bottom: 3px double #000000">147</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>30.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>AMOUNTS DUE FROM/TO RELATED COMPANIES</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Amounts due from related companies</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Jointly controlled entities</DIV></TD>
    <TD>&nbsp;</TD>

<TD colspan="3" align="center" style="border-bottom: 3px double #000000">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" style="border-bottom: 3px double #000000">84</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The amounts due from related companies were unsecured, interest free and have no fixed terms
of repayment.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Amounts due to related companies</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">CSAHC and its subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,094</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">An affiliated company</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Jointly controlled entities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">340</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">99</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,434</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">116</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The amounts due to related companies were unsecured, interest free and have no fixed terms of
repayment.
</DIV>

<P align="center" style="font-size: 10pt">F-55
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>31.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>ACCRUED EXPENSES</B></TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Jet fuel costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">743</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">686</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating lease charges</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">86</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Air catering expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">132</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Salaries and welfare</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">349</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">193</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Lump sum housing benefits payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">108</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Repairs and maintenance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">976</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">996</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Provision for major overhauls (Note 33)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">151</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Landing and navigation fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,331</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,129</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Computer reservation services</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">195</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">190</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">240</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">338</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Duties and levies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">71</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Property management fee</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Others</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">242</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">208</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,551</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,250</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>32.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>OTHER LIABILITIES</B></TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">CAAC Infrastructure Development fund</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">161</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">177</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Airport construction surcharge</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">316</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">542</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Airport tax</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">112</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">198</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Construction cost payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">864</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">793</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Advance payment on chartered flights</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">119</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">104</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sales agent deposits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">182</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">198</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other tax payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">332</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">441</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Others</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">888</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,343</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,974</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,796</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-56
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>33.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>PROVISION FOR MAJOR OVERHAULS</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Details of provision for major overhauls in respect of aircraft held under operating leases
are as follows:</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>Year ended December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">At January 1</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">359</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Provision for the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">89</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">129</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Through the CNA/XJA Acquisitions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">70</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Amount utilized</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(36</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">At December 31</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">359</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">452</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less: current portion included in accrued
expenses (Note 31)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(75</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(151</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">284</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">301</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>34.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>SHARE CAPITAL</B></TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Registered, issued and paid up capital:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD nowrap><DIV style="margin-left:30px; text-indent:-15px">2,200,000,000 domestic state-owned shares of RMB1.00 each</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,200</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">1,174,178,000 H shares of RMB1.00 each</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,174</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,174</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">1,000,000,000 A shares of RMB1.00 each</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,374</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,374</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All the domestic state-owned, H and A shares rank pari passu in all material respects.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2004 and 2005, the retained earnings/accumulated loss of the Group included
RMB81 and RMB(200), respectively, of undistributed earnings/losses of companies which are 50% or
less owned by the Group and accounted for under the equity method.
</DIV>


<P align="center" style="font-size: 10pt">F-57
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>35. RESERVES</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center"><B>RMB</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Share premium</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">At January 1 and December 31</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,325</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,325</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="top"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Statutory surplus reserve (Note (a))</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">At 1 January</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">361</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">402</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Transfer from retained earnings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">At December 31</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">402</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">410</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="top"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Statutory public welfare fund (Note (b))</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">At 1 January</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">173</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">193</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Transfer from retained earnings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">At December 31</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">193</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">198</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="top"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Discretionary surplus reserve (Note (c))</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">At 1 January</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Transfer from retained earnings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">At December 31</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">83</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="top"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Retained earnings/(accumulated loss)</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">At 1 January</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,586</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,477</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Loss for the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(48</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,848</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Appropriations to reserves</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(61</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(19</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">At December 31</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,477</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(390</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="top"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Total</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,474</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,626</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 0pt; margin-left:18px; text-indent:-18px">(a)&nbsp;According to the PRC Company Law and the Articles of Association of the Company and certain of
its subsidiaries, the Company and the relevant subsidiaries are required to transfer 10% of their
annual net income after taxation, as determined under relevant PRC accounting rules and
regulations, to a statutory surplus reserve until the reserve balance reaches 50% of the registered
capital. The transfer to this reserve must be made before distribution of a dividend to
shareholders.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%; text-indent: -2%" >&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Statutory surplus reserve can be used to offset prior years&#146; losses, if any, and may be
converted into share capital by the issue of new shares to shareholders in proportion to their
existing shareholding or by increasing the par value of the shares currently held by them, provided
that the balance after such issue is not less than 25% of the registered capital.
</DIV>

<P align="center" style="font-size: 10pt">F-58
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left:18px; text-indent:-18px">(b)&nbsp;According to the PRC Company Law and the Articles of Association of the Company and certain of
its subsidiaries, the Company and the relevant subsidiaries are required to transfer between 5% to
10% of their annual net income after taxation, as determined under PRC accounting rules and
regulations, to the statutory public welfare fund. This fund can only be utilized on capital items
for the collective benefits of the Company&#146;s and the relevant subsidiaries&#146; employees such as the
construction of dormitories, canteen and other staff welfare facilities. This fund is
non-distributable other than in liquidation. The transfer to this fund must be made before
distribution of a dividend to shareholders and is subject to respective shareholders&#146; approval.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left:18px; text-indent:-18px">(c)&nbsp;The appropriation of this reserve is subject to shareholders&#146; approval. The usage of this
reserve is similar to that of statutory surplus reserve.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left:18px; text-indent:-18px">(d)&nbsp;Dividend distributions may be proposed at the discretion of the Company&#146;s board of directors,
after consideration of the transfers referred to above and making up cumulative prior years&#146;
losses. Pursuant to the Articles of Association of the Company, the net income of the Company for
the purpose of dividend distribution is deemed to be the lesser of (i)&nbsp;net income determined in
accordance with the PRC accounting rules and regulations, and (ii)&nbsp;the net income determined in
accordance with IFRSs; or if the financial statements of the Company are not prepared in accordance
with IFRSs, the accounting standards of one of the countries in which its shares are listed. As of
December&nbsp;31, 2005, the Company did not have any distributable reserves.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>36. RELATED PARTY TRANSACTIONS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition to the balances discussed in Notes 16, 17, 21, 27, 29 and 30 to these consolidated
financial statements, the Group entered into the following material related party transactions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(a)&nbsp;Significant transactions with related companies</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group obtained various operational and financial services provided by CSAHC and its
affiliates, and the Group&#146;s affiliated companies and jointly controlled entities during the normal
course of its business. In the past, CSAHC was under the direct control of the Civil Aviation
Administration of China (the &#147;CAAC&#148;). However, such control has been shifted to the China
State-owned Assets Administration Bureau since early 2003. Consequently, transactions with the
CAAC and its affiliates beginning from 2003 are no longer presented as related party transactions
of the Group.
</DIV>

<P align="center" style="font-size: 10pt">F-59
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Details of the significant transactions carried out are as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">Note</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Expenses paid to CSAHC and its affiliates</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Handling charges</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(i)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Air catering supplies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(ii)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">90</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">170</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">173</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Wet lease rentals</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(iii)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Commission expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(iv)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sundry aviation supplies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(v)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">66</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">88</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Lease charges for aircraft</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(vi)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Lease charges for land and buildings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(vii)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">90</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Property management fee</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(viii)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Housing benefits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(ix)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">85</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">85</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Expenses paid to affiliated companies and
jointly controlled entities</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Ground service expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(x)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Repairing charges</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(xi)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">693</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,159</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,118</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Flight simulation service charges</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(xii)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">101</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">126</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(xiii)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Income received from affiliated companies
and jointly controlled entities</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Rental income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(xii)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(xiii)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Others</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">CNA/XJA Acquisitions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(xiv)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,522</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating expenses recharged to related
companies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(xv)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Short term advances from CSAHC</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(xvi)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">166</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Refund of medical benefit payments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(xvii)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(i)</TD>
    <TD>&nbsp;</TD>
    <TD>The Group acquires aircraft, flight equipment and other airline-related facilities
through Southern Airlines (Group) Import and Export Trading Company (&#147;SAIETC&#148;), a
wholly-owned subsidiary of CSAHC.</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt">F-60
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">






<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>

</DIV>


<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 0px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(ii)</TD>
    <TD>&nbsp;</TD>
    <TD>The Group purchases certain inflight meals and related services from Shenzhen Air
Catering Company Limited, a co-operative joint venture established in the PRC, in respect
of which CSAHC is entitled to 33% of its income after tax, and Southern Airlines (Group)
Catering Co., Ltd, a wholly owned subsidiary of CSAHC.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(iii)</TD>
    <TD>&nbsp;</TD>
    <TD>During 2003, wet lease rentals totaling RMB36, were paid to XJA, pursuant to a wet
lease agreement in respect of a Boeing 757-200 aircraft effective October&nbsp;2002. The wet
lease agreement was terminated in April&nbsp;2003.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(iv)</TD>
    <TD>&nbsp;</TD>
    <TD>Commission is earned by certain subsidiaries of CSAHC in connection with the air
tickets sold by them on behalf of the Group. Commission is calculated based on a fixed
rate ranging from 1.5% to 12% on the ticket value.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(v)</TD>
    <TD>&nbsp;</TD>
    <TD>Certain sundry aviation supplies are purchased from Southern Airlines (Group)
Economic Development Company (&#147;SAGEDC&#148;), a subsidiary of CSAHC.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(vi)</TD>
    <TD>&nbsp;</TD>
    <TD>The Group leases an aircraft from China Southern Airlines (Group) Hainan Co., Ltd,
a subsidiary of CSAHC.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(vii)</TD>
    <TD>&nbsp;</TD>
    <TD>The Group leases certain land and buildings in the PRC from CSAHC. Rental
payments for land and buildings amounted to RMB2 (Note 21(a)) and RMB13, respectively,
RMB2 (Note 21(a)) and RMB16, respectively, and RMB24 (Note 21(a)) and RMB66, respectively
were paid to CSAHC in 2003, 2004 and 2005, respectively.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(viii)</TD>
    <TD>&nbsp;</TD>
    <TD>China Southern Airlines (Group) Property Management Co., Ltd, a subsidiary of CSAHC,
provides property management services to the Group.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(ix)</TD>
    <TD>&nbsp;</TD>
    <TD>The Group paid a fixed annual fee of RMB85 to CSAHC from 1995 to 2004 in respect of
the provision of quarters to the eligible employees of the Group (Note 37). No such
payment was made in 2005.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(x)</TD>
    <TD>&nbsp;</TD>
    <TD>Airport ground service was provided by Beijing Southern Airlines Ground Services
Company Limited, a jointly controlled entity of the Company.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(xi)</TD>
    <TD>&nbsp;</TD>
    <TD>The Group has a 50% equity interest in both Guangzhou Aircraft Maintenance
Engineering Company Limited (&#147;GAMECO&#148;) and MTU Maintenance Zhuhai Co., Ltd (&#147;MTU
Zhuhai&#148;), which provide comprehensive maintenance services to the Group.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(xii)</TD>
    <TD>&nbsp;</TD>
    <TD>The Group has a 51% equity interest in Zhuhai Xiang Yi, which provides flight
simulation services to the Group. In addition, the Group entered into operating lease
agreements to lease certain flight training facilities and buildings to Zhuhai Xiang Yi
(Note 21(d)).</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt">F-61
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">






<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>

</DIV>


<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 0px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(xiii)</TD>
    <TD>&nbsp;</TD>
    <TD>Interest income was received from deposits with SA Finance. The applicable interest
rates are determined in accordance with the deposit rates published by the PBOC (Note
16).</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>The Group obtained loans from SA Finance. The interest rates ranged from 3.30% to
5.02% per annum during the year ended December&nbsp;31, 2005.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(xiv)</TD>
    <TD>&nbsp;</TD>
    <TD>On December&nbsp;31, 2004, the Group acquired the airline operations and certain
related assets of CNA and XJA at a total consideration of RMB15,522, which was partly
satisfied by assumption of debts and liabilities of CNA and XJA totalling RMB13,563
outstanding as of that date. The remaining consideration of RMB1,959 was fully paid in
cash during 2005.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(xv)</TD>
    <TD>&nbsp;</TD>
    <TD>In 2004, the Group provided administrative services to CNA and XJA. Operating
expenses amounted to RMB65&nbsp;million were recharged to CNA and XJA on a cost basis.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(xvi)</TD>
    <TD>&nbsp;</TD>
    <TD>In 2003, CSAHC made short term advances to the Group. These advances were
unsecured, interest free and fully repaid in 2004.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(xvii)</TD>
    <TD>&nbsp;</TD>
    <TD>Prior to January&nbsp;1, 2002, the Group paid a fixed annual fee to CSAHC in return for
CSAHC providing medical benefit, transportation subsidies and other welfare facilities to
the retirees of the Group. Such arrangement was terminated on January&nbsp;1, 2002. In 2003,
CSAHC refunded RMB58 to the Group which represented the difference between the aggregate
fixed annual fees received from the Group and the aggregate cost of services incurred by
CSAHC under the above agreement.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to the above, certain subsidiaries of CSAHC also provided hotel and other services
to the Group during the year. The total amount involved is not material to the results of the Group
for the year.
</DIV>

<P align="center" style="font-size: 10pt">F-62
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>

</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>(b)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Loans from SA Finance</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Loans from SA Finance are unsecured and have the following terms:</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Interest rate</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Guarantee</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Floating interest rate at 90% of
interest rates as published by the PBOC,
repayable within 1&nbsp;year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center"><FONT style="white-space: nowrap">No guarantee</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Floating interest rate at 90% of
interest rates as published by the PBOC,
repayable within 1&nbsp;year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center"><FONT style="white-space: nowrap">Guaranteed by CSAHC</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">180</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">300</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">256</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">300</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>(c)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Key management personnel remuneration</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Remuneration for key management personnel is as follows:</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Short-term employees benefits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,748</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,926</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Post-employment benefits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">182</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">221</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,930</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,147</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Directors and supervisors</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,684</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,461</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Senior management</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,246</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,686</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,930</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,147</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Total remuneration is included in &#147;staff costs&#148; (Note 11).
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>(d)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Group participates in various defined contribution retirement plans organized by
municipal and provincial governments for its staff. Details of the Group&#146;s employee benefits
plan are disclosed in Note 37.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">F-63
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(e)&nbsp;Transactions with other state-owned enterprises</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group is a state-owned entity and operates in an economic regime currently predominated by
state-owned entities. Apart from transactions with CSAHC and its affiliates, the Group conducts a
majority of its business activities with entities directly or indirectly owned or controlled by the
PRC government and numerous government authorities and agencies (collectively referred to as
&#147;state-owned entities&#148;) in the ordinary course of business. These transactions, which include
sales and purchase of goods and ancillary materials, rendering and receiving services, lease of
assets, purchase of property, plant and equipment and obtaining finance, are carried out at terms
similar to those that would be entered into with non-state-owned entities and have been reflected
in these financial statements. The management believes that it has provided meaningful disclosure
of related party transactions as summarized above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>37. RETIREMENT AND HOUSING BENEFITS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Employees of the Group participate in several defined contribution retirement schemes
organized separately by PRC municipal governments in regions where the major operations of the
Group are located. The Group is required to contribute to these schemes at the rates ranging from
14% to 20% during the year ended December&nbsp;31, 2004 and 9% to 20% during the year ended December&nbsp;31,
2005, respectively, of salary costs including certain allowances. A member of the retirement
schemes is entitled to pension benefits equal to a fixed proportion of the salary at the retirement
date. The retirement benefit obligations of all existing and future retired staff of the Group are
assumed by these schemes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, the Group was selected as one of the pilot enterprises to establish a
supplementary defined contribution retirement scheme for the benefit of employees. In this
connection, employees of the Group participate in a supplementary defined contribution retirement
scheme whereby the Group is required to make defined contributions at rates ranging from 3% to 5%
of total salaries. The Group has no obligation for the payment of pension benefits beyond the
contributions described above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Furthermore, pursuant to the comprehensive services agreement (the &#147;Services Agreement&#148;) dated
May&nbsp;22, 1997 between the Company and CSAHC, CSAHC provided quarters to eligible employees of the
Group. In return, the Group paid a fixed annual fee of RMB85 to CSAHC for a ten-year period from
1995 to 2004. The agreement expired by December&nbsp;31, 2004 and no further payment was made in 2005.
</DIV>

<P align="center" style="font-size: 10pt">F-64
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to an additional staff housing benefit scheme effective September&nbsp;2002, the Group
agreed to pay lump sum housing allowances to certain employees who have not received quarters from
CSAHC or the Group according to the relevant PRC housing reform policy, for subsidizing their
purchases of houses. An employee who quits prior to the end of the vesting benefit period is
required to pay back a portion of the lump sum housing benefits determined on a pro-rata basis of
the benefit vesting period. The Group has the right to effect a charge on the employee&#146;s house and
to enforce repayment through selling the house in the event of default in repayment. Any shortfall
in repayment would be charged against consolidated statements of operations. As at December&nbsp;31,
2004 and 2005, the Group had made payments totaling RMB152 and RMB168, respectively, under the
scheme and recorded its remaining contractual liabilities totaling RMB108 and RMB92, respectively,
as accrued expenses on the consolidated balance sheets. Housing allowances are payable when
applications are received from eligible employees.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>38. SEGMENTAL INFORMATION</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group operates principally as a single business segment for the provision of air
transportation services. The analysis of turnover and operating income/(loss) by geographical
segment is based on the following criteria:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(i)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Traffic revenue from domestic services within the PRC (excluding Hong Kong and Macau) is
attributed to the domestic operation. Traffic revenue from inbound/outbound services between
the PRC and Hong Kong/Macau, and the PRC and overseas destinations is attributed to the Hong
Kong and Macau operation and international operation respectively.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(ii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Other revenue from ticket selling, general aviation and ground services, air catering and
other miscellaneous services is attributed on the basis of where the services are performed.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Hong Kong</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Domestic</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>and Macau</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>International*</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>2003</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Traffic revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,087</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">808</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,070</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,965</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other operating revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">436</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">505</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Turnover</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,523</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">808</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,139</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,470</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating income/(loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">440</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(29</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">456</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,581</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">85</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">372</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,038</TD>
    <TD>&nbsp;</TD>
</TR>

<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom" style="background: #cceeff">
    <TD nowrap><DIV style="margin-left:15px; text-indent:-15px">Significant non-cash items other than
depreciation and amortization:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Impairment losses for trade and
other receivables</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-65
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>

</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Hong Kong</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Domestic</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>and Macau</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>International*</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>2004</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Traffic revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,742</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,180</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,422</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,344</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other operating revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">630</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">630</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Turnover</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,372</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,180</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,422</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,974</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">650</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">909</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,876</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">99</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">438</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,413</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Significant non-cash items other than
depreciation and amortization:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Impairment losses for trade and
other receivables</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>2005</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Traffic revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,533</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,298</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,588</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,419</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other operating revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">874</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">874</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Turnover</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,407</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,298</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,588</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,293</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 6pt"><TD>&nbsp;</TD></TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(282</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(97</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(926</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,305</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,663</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">139</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">638</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,440</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 6pt"><TD>&nbsp;</TD></TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Significant non-cash items other than
depreciation and amortization:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Write-down of inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">209</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">209</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD>Asian market accounted for approximately 70%, 67% and 74%, respectively, of
the Group&#146;s total international traffic revenue for the years ended December&nbsp;31,
2003, 2004 and 2005. The remaining portion was mainly derived from the Group&#146;s
flights to/from European, North American and Australian regions.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The major revenue-earning assets of the Group are its aircraft fleet, all are registered
in the PRC. Since the Group&#146;s aircraft fleet is employed flexibly across its route network, there
is no suitable basis of allocating such assets to geographic segments. Most of the Group&#146;s
non-aircraft assets are located in the PRC.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>39. MATERIAL NON-CASH TRANSACTIONS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 2004, the Group acquired the airline operation and related assets of CNA and XJA at a
total consideration of RMB15,522, which was partially satisfied by assumption of debts and
liabilities of CNA and XJA totalling RMB13,563 outstanding as of December&nbsp;31, 2004. Details are
set out in Note 40.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
2005, aircraft acquired under capital leases amounted to RMB6,938.
</DIV>

<P align="center" style="font-size: 10pt">F-66
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>40. EFFECT OF THE CNA/XJA ACQUISITIONS</B>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">(a)&nbsp;Supplementary information for consolidated statements of cash flows
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 0px solid #000000"><B>Year ended December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Assets acquired:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Property, plant and equipment, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,980</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">729</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Trade receivables</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">314</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">398</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,101</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,522</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Liabilities assumed:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Notes payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,587</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Obligations under capital leases</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,125</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Trade payables</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">343</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accrued expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,475</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,033</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,563</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net identifiable assets and liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,959</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash consideration payable and not yet
settled at December&nbsp;31, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,959</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash inflow from acquisitions
- cash and cash equivalents acquired</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">398</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">F-67
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;Had the CNA/XJA Acquisitions been effected on January&nbsp;1, 2004, results of operations
of the Group for the year ended December&nbsp;31, 2004 are as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>The Group</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Results of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>(without effect</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>airline</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>of CNA/XJA</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>operations</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Acquisitions)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>of CNA/XJA</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Combined</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Turnover</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,974</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,057</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,031</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income for the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">155</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">170</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">325</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>41.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>FINANCIAL INSTRUMENTS</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Financial assets of the Group include cash and cash equivalents, other investments, trade
receivables, other receivables, other current assets and amounts due from related companies.
Financial liabilities of the Group include notes payable, obligations under capital leases, trade
and bills payables, amounts due to related companies, taxes payable and other liabilities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Liquidity risk</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As at December&nbsp;31, 2005, the Group&#146;s current liabilities exceeded its current assets by
RMB25,907. For the year ended December&nbsp;31, 2005, the Group recorded a net cash inflow from
operating activities of RMB3,835, a net cash outflow from investing activities and financing
activities of RMB4,017, and a decrease in cash and cash equivalents of RMB182.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2006 and thereafter, the liquidity of the Group is primarily dependent on its ability to
maintain adequate cash inflow from operations to meet its debt obligations as they fall due, and on
its ability to obtain adequate external finance to meet its committed future capital expenditures.
The Group has obtained firm commitments from its principal bankers to renew its short-term notes
payable outstanding at December&nbsp;31, 2005 when they fall due
during 2006. Subsequent to December 31, 2005, the Group renewed
short-term notes payable outstanding of RMB2,611 (Notes 27). The directors of the Company
believe that sufficient financing will be available to the Group.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The directors of the Company have carried out a detailed review of the cash flow forecast of
the Group for the twelve months ending December&nbsp;31, 2006. Based on such forecast, the directors
have determined that adequate liquidity exists to finance the working capital and capital
expenditure requirements of the Group during that period. In preparing the cash flow forecast, the
directors have considered historical cash requirements of the Group as well as other key factors,
including the availability of the above-mentioned loan finance which may impact the operations of
the Group during the next twelve-month period. The directors are of the opinion that the
assumptions and sensitivities which are included in the cash flow forecast are reasonable. However,
as with all assumptions in regard to future events, these are subject to inherent limitations and
uncertainties and some or all of these assumptions may not be realized.
</DIV>

<P align="center" style="font-size: 10pt">F-68
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Interest rate risk</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The interest rates and maturity information of the Group&#146;s notes payable, and maturity
information of the Group&#146;s capital leases obligations are disclosed in Notes 27 and 28,
respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Foreign currency risk</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Renminbi is not freely convertible into foreign currencies. All foreign exchange
transactions involving Renminbi must take place either through the PBOC or other institutions
authorized to buy and sell foreign exchange or at a swap center.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group currently maintains bank accounts in currencies other than the Renminbi to engage in
foreign exchange transactions. The amount of foreign exchange that can be retained by the Group
under this system is determined by the State Administration of Foreign Exchange (&#147;SAFE&#148;) based on
the Group&#146;s expected payment obligations in foreign currencies for lease and debt payments and for
dividends. Any amounts of foreign exchange that the Group receives in excess of such amount must be
converted into Renminbi at the rate prevailing in the PRC inter-bank market. The Group will have
access to foreign currency through the inter-bank system, subject to the approval of the SAFE, to
satisfy its foreign exchange requirements where these exceed the amount of foreign exchange that
the Group has retained.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group has significant exposure to foreign currency as substantially all of the Group&#146;s
lease obligations and notes payable are denominated in foreign currencies, principally US dollars,
and to a lesser extent, Japanese Yen. Depreciation or appreciation of the Renminbi against foreign
currencies affects the Group&#146;s results significantly because the Group&#146;s foreign currency payments
generally exceed its foreign currency receipts. The Group is not able to hedge its foreign
currency exposure effectively other than by retaining its foreign currency denominated earnings and
receipts to the extent permitted by the SAFE, or subject to certain restrictive conditions,
entering into forward foreign exchange contracts with authorized PRC banks.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On July&nbsp;21, 2005, the PBOC announced that the PRC government reformed the exchange rate regime
by moving into a managed floating exchange rate regime based on market supply and demand with
reference to a basket of foreign currencies. In particular, the exchange rate of US dollar against
Renminbi was adjusted upward to 8.11 yuan per US dollar with effect from the close of business on
July&nbsp;21, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Credit risk</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Substantially all of the Group&#146;s cash and cash equivalents are deposited with PRC financial
institutions, which management believes are of high credit quality.
</DIV>

<P align="center" style="font-size: 10pt">F-69
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A significant portion of the Group&#146;s air tickets are sold by agents participating in the
Billing and Settlement Plan (&#147;BSP&#148;), a clearing scheme between airlines and sales agents organized
by International Air Transportation Association which has insignificant credit risk to the Group.
As of December&nbsp;31, 2004 and 2005, the balance due from BSP agents amounted to RMB411 and RMB782,
respectively. The credit risk exposure to BSP and the remaining trade receivables balance has been
monitored by the Group on an ongoing basis and the impairment losses for bad and doubtful accounts
have been within management&#146;s expectations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Fair value</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">(a)&nbsp;All financial instruments are carried at amounts not materially different from their fair
values as of December&nbsp;31, 2004 and 2005 except the following:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="14" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Carrying</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Fair</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Carrying</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Fair</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>amount</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>value</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>amount</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>value</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Notes payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,453</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,665</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,963</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,989</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following methods and assumptions were used to estimate the fair value for each class of
financial instrument:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><I>(i)</I></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Cash and cash equivalents, short term investments, trade receivables, other receivables and
other current assets. Obligation under capital leases, trade and bills payables, taxes payable
and other liabilities.</I></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The carrying values approximate their fair values because of the short maturities of these
instruments.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>(ii)&nbsp;Notes payable</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The fair value has been estimated by applying a discounted cash flow approach using interest
rates available to the Group for similar indebtedness.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>(iii) </I>Fair value estimates are made at a specific point in time and based on relevant market
information about the financial instruments. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">(b)&nbsp;The economic characteristics of the Group&#146;s capital leases vary from lease to lease. It is
impractical to compare such leases with those prevailing in the market within the constraints of
timeliness and cost for the purpose of estimating the fair value of such leases.
</DIV>


<P align="center" style="font-size: 10pt">F-70
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>42.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>COMMITMENTS</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>(a)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Capital commitments</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2005, the Group had capital commitments as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Commitments in respect of aircraft and flight equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; authorized and contracted for</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,776</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45,628</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; authorized but not contracted for</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,571</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,347</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45,628</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD nowrap><DIV style="margin-left:15px; text-indent:-15px">Commitments
in respect of investments in the Guangzhou new airport</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; authorized and contracted for</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">110</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">79</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; authorized but not contracted for</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">714</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">761</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">824</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">840</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other commitments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; authorized and contracted for</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">132</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; authorized but not contracted for</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">568</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,324</TD>
    <TD>&nbsp;</TD>
</TR>


<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">700</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,335</TD>
    <TD>&nbsp;</TD>
</TR>


<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,871</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47,803</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-71
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2005, the Group had on order 82 aircraft and certain flight equipment,
scheduled for deliveries in 2006 to 2010. Deposits of RMB6,351&nbsp;million have been made towards the
purchase of these aircraft and related equipment. As of December&nbsp;31, 2005, the approximate total
future payments, including estimated amounts for price escalation through anticipated delivery
dates for these aircraft and flight equipment are as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,748</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,996</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,341</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,945</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,354</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,300</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,688</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,776</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45,628</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2005, the Group&#146;s attributable share of the capital commitments of jointly
controlled entities was as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Authorized and contracted for</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Authorized but not contracted for</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">156</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">156</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(b)&nbsp;Investing commitments</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2005, the Group committed to make capital contributions in respect of:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">181</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Jointly controlled entities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">83</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">83</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">264</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">83</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-72
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>43.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>CONTINGENCIES</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;Pursuant to the Reorganization of CSAHC effected in 1995 (Note 1), the Company assumed the
airline and airline-related businesses together with the relevant assets and liabilities from
CSAHC. The Company has been advised by its PRC lawyers that, except for liabilities constituting or
arising out of or relating to the businesses assumed by the Company in the Reorganization, no other
liabilities were assumed by the Company, and the Company is not jointly and severally liable for
other debts and obligations incurred by CSAHC prior to the Reorganization. There are not, however,
any definitive PRC regulations or other pronouncements confirming such conclusion.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;The Group leases from CSAHC certain land in Guangzhou and certain land and buildings in
Wuhan and Haikou. The Group has a significant investment in buildings and other leasehold
improvements located on such land. However, such land in Guangzhou and such land and buildings in
Wuhan and Haikou lack adequate documentation evidencing CSAHC&#146;s rights thereto.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group cannot predict the magnitude of the effect on its financial condition or results of
operations to the extent that their uses of one or more of the above parcels of land or the related
facilities were successfully challenged. Pursuant to an indemnification agreement dated May&nbsp;22,
1997 entered into between the Company and CSAHC, CSAHC has agreed to indemnify the Group against
any loss or damage caused by any challenge or interference with the Group&#146;s use of any of its land
and buildings.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>44.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>SUBSEQUENT EVENT</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;	From April 20, 2006 to May 31, 2006, the Group entered into additional new notes
payable agreements totalling RMB3,808.  These additional new notes payable are unsecured,
bear interest at floating rates ranging from 6-month LIBOR + 53% to 55% per annum and
repayable one year from their respective origination dates.

</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>45.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>COMPARATIVE FIGURES</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain comparative figures have been adjusted or re-classified as a result of the changes in
accounting policies. Further details are disclosed in Note 3.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>46.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>PARENT AND ULTIMATE HOLDING COMPANY</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, the directors of the Company consider the parent and ultimate holding
company of the Group to be CSAHC, a state-owned enterprise established in the PRC. This entity does
not produce financial statements available for public use.
</DIV>

<P align="center" style="font-size: 10pt">F-73
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>




<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>47.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>ACCOUNTING ESTIMATES AND JUDGMENTS</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Groups&#146; financial position and results of operations are sensitive to accounting methods,
assumptions and estimates that underlie the preparation of the financial statements. The Group
bases the assumptions and estimates on historical experience and on various other assumptions that
the Group believes to be reasonable and which form the basis for making judgments about matters
that are not readily apparent from other sources. On an on-going basis, management evaluates its
estimates. Actual results may differ from those estimates as facts, circumstances and conditions
change.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The selection of critical accounting policies, the judgments and other uncertainties affecting
application of those policies and the sensitivity of reported results to changes in condition and
assumptions are factors to be considered when reviewing the financial statements. The principal
accounting policies are set forth in Note 2. The Group believes the following critical accounting
policies involve the most significant judgments and estimates used in the preparation of the
financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Impairments</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If circumstances indicate that the net book value of a long-lived asset may not be
recoverable, this asset may be considered &#147;impaired&#148;, and an impairment loss may be recognized in
accordance with IAS 36 &#147;Impairment of Assets&#148;. The carrying amounts of long-lived assets are
reviewed periodically in order to assess whether the recoverable amounts have declined below the
carrying amounts. These assets are tested for impairment whenever events or changes in
circumstances indicate that their recorded carrying amounts may not be recoverable. When such a
decline has occurred, the carrying amount is reduced to recoverable amount. The recoverable amount
is the greater of the net selling price and the value in use. In determining the value in use,
expected cash flows generated by the asset are discounted to their present value, which requires
significant judgment relating to level of traffic revenue and amount of operating costs. The Group
uses all readily available information in determining an amount that is a reasonable approximation
of recoverable amount, including estimates based on a reasonable and supportable assumptions and
projections of traffic revenue and amount of operating costs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Depreciation</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Property, plant and equipment are depreciated on a straight-line basis over the estimated
useful lives, after taking into account the estimated residual value. The Group reviews the
estimated useful lives of the assets regularly in order to determine the amount of depreciation
expense to be recorded during any reporting period. The useful lives are based on the Group&#146;s
historical experience with similar assets and taking into account anticipated technological
changes. The depreciation expense for future periods is adjusted if there are significant changes
from previous estimates.
</DIV>

<P align="center" style="font-size: 10pt">F-74
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Impairment loss for doubtful accounts</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group maintains an impairment loss for doubtful accounts for estimated losses resulting
from the inability of the debtors to make required payments. The Group bases the estimates of
future cash flows on the ageing of the trade receivables balance, debtors&#146; credit-worthiness, and
historical write-off experience. If the financial condition of the debtors were to deteriorate,
actual write-offs would be higher than estimated.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>48.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>RECENTLY ISSUED ACCOUNTING STANDARDS</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;New standards and interpretations which are not yet effective for the accounting period ending
December&nbsp;31, 2005 and which have not been adopted in these consolidated financial statements are as
follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="80%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="LEFT">Effective for</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="LEFT">accounting periods</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="LEFT">beginning on or after</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">IFRS 6, Exploration for and evaluation of mineral
resources</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">January 1, 2006</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">IFRS 7, Financial instruments: disclosure</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">January 1, 2007</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">IFRIC 4, Determining whether an arrangement contains
a
lease</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">January 1, 2006</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">IFRIC 5, Rights to interests arising from
decommissioning,
restoration environmental rehabilitation funds</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">January 1, 2006</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">IFRIC 6, Liabilities arising from participating in a
specific
market &#150; Waste electrical and electronic equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">December 1, 2005</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">IFRIC 7, Applying the restatement approach under IAS
29,
Financial reporting in hyperinflationary economies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">March 1, 2006</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">IFRIC 8, Scope of IFRS 2</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">May 1, 2006</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">IFRIC 9, Reassessment of embedded derivatives</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">June 1, 2006</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-75
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>




<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="77%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="LEFT">Effective for</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">accounting periods</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">beginning on or after</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Amendments to IAS 1, Presentation of financial
statements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">January 1, 2007</TD>
</TR>
<TR style="font-size: 6pt"><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; capital disclosures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Amendments
to IAS 19, Employee benefits &#151; actuarial
gains and losses, group plans and disclosures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">January 1, 2006</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Amendments
to IAS 39, Financial instruments: recognition and measurement</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">January 1, 2006</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&#151; Cash flow hedge accounting of forecast intragroup
transactions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 6pt"><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&#151; The fair value option</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Amendments
to IAS 39, Financial instruments: recognition and measurement, and IFRS 4, Insurance
contracts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">January 1, 2006</TD>
</TR>
<TR style="font-size: 6pt"><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&#151; Financial guarantee contracts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Amendment to IAS 21, The effects of changes in
foreign exchange rates</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">January 1, 2006</TD>
</TR>
<TR style="font-size: 6pt"><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&#151; Net investment in a foreign operation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Amendments to IFRS 1, First-time adoption</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">January 1, 2006</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"></TD>
</TR>

<TR valign="TOP">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Amendments to IFRS 1, First-time adoption and IFRS 6, Exploration for
and evaluation of mineral resources</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">For entities that adopt IFRSs for the first time before 1 January 2006 and choose to apply IFRS 6 before that date</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"></TD>
</TR>


<TR valign="top" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Revised guidance on implementing IFRS 4, Insurance contracts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">For entities that begin to apply IFRS 7 on or after 1 January 2007 or choose to apply IFRS 7 before that date </TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">F-76
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group is in the process of making an assessment of what the impact of these amendments,
new standards and new interpretations is expected to be in the period of initial application. So
far it has concluded that the adoption of these amendments and new standards and new
interpretations in future periods is unlikely to have a significant impact on the Group&#146;s results
of operations and financial position.
</DIV>

<P align="center" style="font-size: 10pt">F-77
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>49. SUBSIDIARIES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The particulars of the Group&#146;s principal subsidiaries as of December
31, 2005 are as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="23%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Proportion of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Place of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>ownership</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>establishment</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>interest held by</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Principal</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Name of company</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>/operation</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Registered capital</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>the Company</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>activities</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Guangxi Airlines Company Limited (a)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">PRC</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="right">RMB170,900,000</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">95</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Airline</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Southern Airlines (Group) Shantou
Airlines Company Limited (a)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">PRC</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="right">RMB280,000,000</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">60</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Airline</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Zhuhai Airlines Company Limited (a)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">PRC</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="right">RMB250,000,000</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">60</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Airline</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Xiamen Airlines Company Limited (a)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">PRC</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="right">RMB700,000,000</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">60</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Airline</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Guizhou Airlines Company Limited (a)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">PRC</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="right">RMB80,000,000</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">60</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Airline</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Guangzhou Air Cargo Company
Limited (a)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">PRC</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="right">RMB238,000,000</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">70</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Cargo services</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Guangzhou Baiyun International
Logistic Company Limited (a)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">PRC</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="right">RMB50,000,000</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">61</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Logistics operations</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Guangzhou Nanland Air Catering
Company Limited (b)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">PRC</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="right">RMB120,000,000</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">75</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Air catering</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">China Southern West Australian Flying
College Pty Limited</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Australia</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="right">AUD100,000</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">65</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Pilot training services</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Xinjiang Civil Aviation Property
Management<BR>
 Limited (a)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">PRC</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="right">RMB251,332,832</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">51.8</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Property management</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(a)</TD>
    <TD>&nbsp;</TD>
    <TD>These subsidiaries are PRC limited liabilities companies.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(b)</TD>
    <TD>&nbsp;</TD>
    <TD>This subsidiary is a Sino-foreign equity joint venture company established in the PRC.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(c)</TD>
    <TD>&nbsp;</TD>
    <TD>Certain of the Group&#146;s subsidiaries are PRC joint ventures which have limited lives
pursuant to the PRC law.</TD>
</TR>

</TABLE>



<P align="center" style="font-size: 10pt">F-78
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>50. AFFILIATED COMPANIES AND JOINTLY CONTROLLED ENTITIES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The particulars of the Group&#146;s principal affiliated companies and jointly controlled entities
as of December&nbsp;31, 2005 are as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="35%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="21%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="21%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>Proportion of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>ownership interest held by</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Place of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Group&#146;s</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>establishment</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>effective</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>The</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Principal</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Name of company</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>/operation</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>interest</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Company</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>subsidiaries</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>activities</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Guangzhou Aircraft Maintenance
Engineering Company Limited (a)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">PRC</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">50</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">50</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="LEFT">Provision of aircraft repair and maintenance services</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">China Southern Airlines Group
Finance Company Limited</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">PRC</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">49.3</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">32</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">26</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" nowrap align="left">Provision of  financial services</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sichuan Airlines Corporation Limited</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">PRC</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">39</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">39</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="LEFT">Airline</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">MTU Maintenance Zhuhai Co. Ltd. (a)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">PRC</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">50</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">50</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="LEFT">Provision of engine repair and maintenance services</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">China Postal Airlines Limited (a)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">PRC</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">49</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">49</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="LEFT">Airline</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Zhuhai Xiang Yi Aviation
Technology Company Limited (a)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">PRC</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">51</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">51</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="LEFT">Provision of flight simulation services</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Beijing Southern Airlines Ground
Services Company Limited (a)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">PRC</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">50</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">50</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="LEFT">Provision of airport ground services</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(a)</TD>
    <TD>&nbsp;</TD>
    <TD>These are jointly controlled entities.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(b)</TD>
    <TD>&nbsp;</TD>
    <TD>Certain of the Group&#146;s jointly controlled entities are PRC joint ventures which have limited lives
pursuant to the PRC law.</TD>
</TR>

</TABLE>



<P align="center" style="font-size: 10pt">F-79
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>51. SIGNIFICANT DIFFERENCES BETWEEN IFRS AND U.S. GAAP</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group&#146;s accounting policies conform with IFRSs which differ in certain significant
respects from U.S. GAAP. Information relating to the nature and effect of such differences is set
out below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(a)&nbsp;CNA/XJA Acquisitions</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As disclosed in Note 1 to the consolidated financial statements prepared under IFRSs, the
Group acquired the airline operations and certain related assets and liabilities of CNA and XJA
with effect from December&nbsp;31, 2004. Under IFRSs, the purchase method of accounting was applied to
such business combination such that at December&nbsp;31, 2004 only the acquired assets and assumed
liabilities are included in the consolidated financial statements of the Group. The results of the
acquired operations and their related cash flows were included in the consolidated financial
statement of the Group beginning January&nbsp;1, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under U.S. GAAP, such transaction is considered to be &#147;a combination of entities under common
control&#148;. A combination of entities under common control is accounted for in a manner similar to a
&#147;pooling-of-interests&#148;. Consequently, the assets and liabilities of CNA and XJA are reflected at
their historical net asset carrying values and the U.S. GAAP consolidated financial statements of
the Group are restated to include the historical carrying values of assets and liabilities of CNA
and XJA, and their results of operations and cash flows for all the periods presented.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(b)&nbsp;Sale and leaseback accounting</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under IFRSs, gains on sale and leaseback transactions where the subsequent lease is an
operating lease are recognized as income immediately, if the transactions are established at fair
value. Differences between the sale price and fair value are deferred and amortized over the period
for which the assets are expected to be used. Under U.S. GAAP, such gains are deferred and
amortized over the term of the lease.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(c)&nbsp;Lease arrangements</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As disclosed in Note 21 to the consolidated financial statements, during 2002 and 2003, the
Group entered into two separate arrangements with certain independent third parties under which the
Group sold aircraft and then immediately leased back the aircraft for a pre-determined period.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a result of the Arrangements, the Group received a net cash benefit of RMB52 and RMB69 in
2002 and 2003, respectively, which were recognized as income under IFRSs. Under U.S. GAAP, such
benefits are deferred and amortized over the minimum lease period.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, under the lease arrangements, the commitments by the Group to make long-term
lease payments are defeased by the placement of security deposits. As such, under IFRSs, such
commitments and deposits are not recognized on the consolidated balance sheets. Under U.S. GAAP,
such commitments and deposits amounting to RMB2,462 and RMB2,376 as of December&nbsp;31, 2004 and 2005,
respectively, would be recognized on the consolidated balance sheets, as such commitments are not
deemed as extinguished by the placement of security deposits.
</DIV>

<P align="center" style="font-size: 10pt">F-80
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(d)&nbsp;Capitalized interest</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under IFRSs, the Group capitalizes interest costs to the extent the related borrowings are
directly attributable to the acquisition or construction of an asset.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under U.S. GAAP, interest costs capitalized are determined based on specific borrowings
related to the acquisition or construction of an asset, if an entity&#146;s financing plans associate a
specific new borrowing with a qualifying asset. If average accumulated expenditures for the asset
exceed the amounts of specific new borrowings associated with the asset, additional interest costs
capitalized are based on the weighted average interest rate applicable to other borrowings of the
entity.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(e)&nbsp;Revaluation of property, plant and equipment</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the Reorganization in 1996, the property, plant and equipment of the Group
were revalued as of December&nbsp;31, 1996 (see Notes 1 and 21 to the consolidated financial
statements). Such revaluation resulted in an increase in shareholders&#146; equity with respect to the
increase in carrying amount of certain property, plant and equipment above their historical cost
bases, while a charge to the consolidated statement of operations was recorded with respect to the
reduction in carrying amount of certain property, plant and equipment below their historical cost
bases. In addition, the revalued property, plant and equipment amounts serve as the tax bases of
property, plant and equipment for years beginning in 1997. Accordingly, the revaluation eliminated
certain of the temporary differences which gave rise to a deferred tax asset as of December&nbsp;31,
1996. Such tax asset was offset against the revaluation surplus.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under U.S. GAAP, property, plant and equipment are stated at their historical cost unless an
impairment loss has been recorded. An impairment loss on property, plant and equipment is recorded
under U.S. GAAP if the carrying amount of such asset exceeds its future undiscounted cash flows,
excluding finance costs. The future undiscounted cash flows, excluding finance costs, of the
Group&#146;s property, plant and equipment whose carrying amount was reduced in connection with the
Reorganization, exceed their historical cost carrying amount and, therefore, impairment of such
assets is not appropriate under U.S. GAAP. Accordingly, the revaluation reserve recorded directly
to shareholders&#146; equity and the charge recorded under IFRSs in 1996 and the additional depreciation
charges recorded in the nine years ended December&nbsp;31, 2005, as a result of the Reorganization are
reversed for U.S. GAAP purposes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;However, as a result of the tax deductibility of the net revaluation reserve, a deferred tax
asset related to the reversal of the net revaluation reserve is created under U.S. GAAP with a
corresponding increase in shareholders&#146; equity as of December&nbsp;31, 1996. Such deferred tax asset
will be reversed upon depreciation of the net revaluation surplus included in the property, plant
and equipment beginning 1997.
</DIV>

<P align="center" style="font-size: 10pt">F-81
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(f)&nbsp;Investments in affiliated company and jointly controlled entity</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 2002, the Group invested in an affiliated company and a jointly controlled entity,
which were PRC state-owned enterprises. Under IFRSs, such investments are initially recorded on a
fair value basis at the cost of purchases borne by the Group. In the consolidated statements of
operations, the equity share of results of the investees are measured based on the fair value of
underlying net assets determined on the dates of acquisitions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under U.S. GAAP, such transactions are considered to be &#147;combinations of businesses under
common control&#148;. Consequently, such investments are initially recorded at the Group&#146;s equity share
of net assets of the investees determined on a historical cost basis. The differences between such
amounts and the cost of purchases are reflected as movements in the shareholders&#146; equity. In the
consolidated statements of operations, the equity share of results of the investees are measured
based on the historical cost basis.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(g)&nbsp;Provision for major overhauls</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As disclosed in Notes 2(u) and 33 to the consolidated financial statements prepared under
IFRS, in respect of aircraft held under operating leases, a provision is made over the lease term
for the estimated cost of overhauls required to be performed on the related aircraft prior to their
return to the lessors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under U.S. GAAP, a liability is recorded at the outset of the operating leases for the fair
value of contractual obligations to perform the overhauls and a deferred asset is recorded for the
corresponding amount, which is amortized over the term of the operating lease. The carrying
amounts of such liability and asset amounted to approximately RMB749 and RMB390 respectively as of
December&nbsp;31, 2004 and RMB941 and RMB489 respectively as of December&nbsp;31, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The effect of above difference on the net income/(loss) and shareholders&#146; equity reported
under U.S. GAAP was not material for the years presented.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(h)&nbsp;Classification of short-term obligations expected to be refinanced</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As described in Note 27 to the consolidated financial statements prepared under IFRSs,
the short-term notes payable included certain notes payable of RMB2,611 which were
renewed subsequent to December 31, 2005.   The maturity dates of these notes payable are
extended for twelve months to after December 31, 2006.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under U.S. GAAP, such short-term obligations which were refinanced on a long-term
basis after the balance sheet date but before issuance of financial statements are classified as
non-current liabilities.  Consequently, under U.S. GAAP, short-term notes payable and
consolidated current liabilities would be RMB18,834 and RMB35,739, respectively, at
December 31, 2005.
</DIV>

<P align="center" style="font-size: 10pt">F-82
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)</B><BR>
<B>(Amounts in millions, except share data)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(i)&nbsp;Financial statements presentation and disclosure</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">(i)&nbsp; Gain/(loss) on sale of property, plant and equipment
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the consolidated statements of operations presented under IFRSs, gain/(loss) on sale of
property, plant and equipment is classified under &#147;Non-operating income/(expenses)&#148;. Under U.S.
GAAP, such gain/(loss) is classified under &#147;Operating income/(expenses) &#150; General and
administrative&#148;.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">(ii)&nbsp;Presentation
of dividends received in the consolidated statements of cash flows
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the consolidated statements of cash flows presented under IFRSs, dividends received are
classified within investing activities. Under U.S. GAAP, such dividends received are classified
within operating activities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">(iii)&nbsp;Deferred tax assets/liabilities
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As disclosed in Note 25 to the consolidated financial statements, deferred tax assets are
presented on a net basis under IFRSs. Under U.S. GAAP, the gross amounts of such deferred tax
assets and any applicable valuation allowances are separately disclosed.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, deferred tax liabilities and assets should be classified as non-current when a
classified balance sheet is presented under IFRSs. Under U.S. GAAP, an enterprise shall separate
deferred tax liabilities and assets into a current amount and a non-current amount based on the
classification of the related asset or liability for financial reporting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The U.S. GAAP presentation of deferred tax assets/(liabilities) as of December&nbsp;31, 2004 and
2005 are as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred tax assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Tax losses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">347</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Repair charges capitalized</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">254</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">275</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">275</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">175</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Others</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total deferred tax assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">642</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">826</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Less: valuation allowance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(53</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(188</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">589</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">638</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred tax liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Depreciation allowances in excess of the related depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">752</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">832</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Others</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total deferred tax liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">876</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">906</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(287</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(268</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Representing:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred tax assets &#151; current portion</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">161</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred tax assets &#151; non-current portion</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">428</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">577</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred tax liabilities &#151; current portion</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(75</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(58</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred tax liabilities &#151; non-current portion</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(801</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(848</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(287</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(268</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The valuation allowance was RMB48 as of January&nbsp;1, 2003. During the years ended
December&nbsp;31, 2003, 2004 and 2005, the valuation allowance increased by RMB5, RMBNil and RMB135,
respectively.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">(iv)&nbsp; Minority interests
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under IFRS, minority interests at the balance sheet date are presented in the consolidated
balance sheet within equity, separately from the equity attributable to the equity shareholders of
the Company, and minority interests in the results of the Group for the year are presented in the
consolidated statement of operations as an allocation of the total net income for the year between
the minority interests and the equity shareholders of the Company. Under US GAAP, minority
interests at the balance sheet date are presented in the consolidated balance sheet either as
liabilities or separately from liabilities and equity. Minority interests in the results of the
Group for the year are also separately presented in the consolidated statement of operations as a
component of net income.
</DIV>


<P align="center" style="font-size: 10pt">F-83
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">(v)&nbsp;
Share of taxation of affiliated companies and jointly controlled entities
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the years ended December&nbsp;31, 2003 and 2004, the Group&#146;s share of taxation of affiliated
companies and jointly controlled entities accounted for using the equity method was included as
part of the Group&#146;s income tax in the consolidated statements of operations under both IFRS and
U.S. GAAP. As discussed in Note 3, with effect from January&nbsp;1, 2005, the Group has changed the
presentation and includes the share of taxation of affiliated companies and jointly controlled
entities accounted for using the equity method in the respective shares of income or loss reported
in the consolidated statements of operations before arriving at the Group&#146;s income or loss before
tax. These changes in presentation have been applied retrospectively with comparatives restated
for both IFRS and U.S. GAAP.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income
tax (benefit)/expense under U.S. GAAP for the years ended December
31, 2003 and 2004 have been restated as follows:
</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax
(benefit)/expense as previously reported under U.S. GAAP
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">(526</TD>
    <TD>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">274</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Reclassification for share of taxation of affiliated companies and
jointly controlled entities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">(10</TD>
    <TD>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">(13</TD>
    <TD>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD align="right" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD align="right" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax
(benefit)/expense as restated under U.S. GAAP
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">(536</TD>
    <TD>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">261</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-bottom: 3px double #000000">&nbsp;</TD>
    <TD align="right" style="border-bottom: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-bottom: 3px double #000000">&nbsp;</TD>
    <TD align="right" style="border-bottom: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>


</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effect on net income/(loss) of significant differences between IFRS and U.S. GAAP is as
follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Reference</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15" style="border-bottom: 1px solid #000000"><B>Year ended December 31,</B></TD>

</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>in Note</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 0px solid #000000"><B>above</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>U.S. dollars</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Loss attributable to equity shareholders
of the Company under IFRSs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(358</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(48</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,848</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(229</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">U.S. GAAP adjustments:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net (loss)/income before tax attributable
to airline operations of CNA and XJA</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">(a)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,042</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">354</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">159</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sale and leaseback accounting</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">(b)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">115</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">115</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">115</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Lease arrangements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">(c)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(64</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Capitalized interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">(d)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(33</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(13</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(9</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Reversal of additional depreciation
arising from revaluation of property,
plant and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">(e)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Investments in affiliated company and jointly
controlled entity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">(f)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred tax effects</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; current year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(8</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(16</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(17</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; effect on change in the Company&#146;s
income tax rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(51</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; tax effect of acquisitions of
airline operations of CNA and XJA</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">261</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(81</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(23</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; effect on change in income tax
rate applicable to airline operations
of CNA and XJA</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(99</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">79</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net (loss)/income under U.S. GAAP</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,140</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">239</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,530</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(190</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Basic (loss)/earnings per share under U.S. GAAP</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.298</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.055</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.350</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.043</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Basic (loss)/earnings per ADS under U.S. GAAP*</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(14.876</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.732</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(17.489</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2.172</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD>Basic (loss)/earnings per ADS is calculated on the basis that one ADS is equivalent to 50 H shares.</TD>
</TR>

</TABLE>



<P align="center" style="font-size: 10pt">F - 84
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effect on shareholders&#146; equity of significant differences between IFRSs and U.S. GAAP is
as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Reference</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>in Note</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>above</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>U.S. Dollars</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total
shareholders&#146; equity under IFRSs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,903</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,936</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,479</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">U.S. GAAP adjustments:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shareholders&#146; equity attributable
to airline operations of CNA and XJA</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">(a)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(531</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(372</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(46</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sale and leaseback accounting</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">(b)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(357</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(242</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(30</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Lease arrangements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">(c)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(107</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(100</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(13</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Capitalized interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">(d)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">335</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">326</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Investments in affiliated company
and jointly controlled entity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">(f)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(104</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(97</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(12</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred tax effect on airline
operations of CNA and XJA</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">66</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">122</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred tax effects</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Minority interests</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">(h)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,055</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,936</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(240</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net shareholders&#146; equity under US GAAP</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,169</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,639</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,194</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">F - 85
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES </B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following are condensed consolidated statements of operations, cash flows and changes
in total shareholders&#146; equity under U.S. GAAP for each of the two years ended December&nbsp;31, 2003 and
2004, and additional financial information restated to reflect the impact of the effects of the
combination of CNA and XJA and the Group in a manner similar to a pooling of interests prepared on
a U.S. GAAP basis. As the CNA/XJA Acquisitions were completed on December&nbsp;31, 2004, condensed
consolidated balance sheets under U.S. GAAP at December&nbsp;31, 2004 and 2005 and condensed
consolidated statements of operations, cash flows and changes in total shareholders&#146; equity under
U.S. GAAP for the year ended December&nbsp;31, 2005 are not presented in these consolidated financial
statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Condensed consolidated statements of operations</I></B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating revenue:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Traffic revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,897</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,235</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other operating revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">586</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">930</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total operating revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,483</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,165</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating expenses:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Flight operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,351</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,016</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Maintenance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,878</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,578</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Aircraft and traffic servicing</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,803</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,789</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Promotion and sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,043</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,606</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">General and administrative</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,397</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,759</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,042</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,523</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Asset impairment charges</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">510</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Others</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">93</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>


<TR style="font-size: 6pt"><TD>&nbsp;</TD></TR>


<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total operating expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,117</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32,288</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 6pt"><TD>&nbsp;</TD></TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">366</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,877</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Non-operating income/(expenses):</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,604</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,184</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Equity income/(loss) of affiliated companies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Equity (loss)/income of jointly controlled entities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(44</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(14</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Investment income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Exchange (loss)/gain, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(381</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(124</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Others, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">85</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 6pt"><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total net non-operating expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,915</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,184</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">(Loss)/income before income tax and minority interests</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,549</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">693</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax benefit/(expense)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">536</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(261</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">(Loss)/income before minority interests</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,013</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">432</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Minority interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(127</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(193</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">(Loss)/income for the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,140</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">239</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-86
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>



<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>

</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group has changed the presentation and includes the share of taxation of affiliated
companies and jointly controlled entities accounted for using the equity method in the respective
shares of income or loss reported in the consolidated statements of operations before arriving at
the Group&#146;s income or loss before tax. These changes in presentation have been applied
retrospectively with comparatives restated for both IFRS and U.S. GAAP. Further details are set
out in Note 3 and Note 51(i).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Condensed consolidated statements of cash flows</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group applies IAS 7 &#147;Cash Flow Statements&#148;. Its objectives and principles are similar to
those set out in Statement of Financial Accounting Standards No.&nbsp;95, &#147;Statement of Cash Flows&#148;
(&#147;SFAS 95&#148;) for U.S. GAAP. The principal differences between the standards relate to
classification. Dividend received classified as investing activities under IAS 7 are classified as
operating activities under SFAS 95. Summarized cash flows data by operating, investing and
financing activities in accordance with SFAS 95 are as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash inflow/(outflow) from</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,965</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,419</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(7,558</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(9,507</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,820</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,172</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 6pt"><TD>&nbsp;</TD></TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">(Decrease)/increase in cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,773</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">84</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents at January 1</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,772</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,999</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents at December 31</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,999</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,083</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Condensed consolidated statements of changes in total shareholders&#146; equity</I></B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shareholders&#146; equity at December&nbsp;31, 2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,796</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Issue of A shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,641</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,140</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net liabilities assumed by CSAHC (note a)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,552</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Recognition of deferred tax assets (note b)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">246</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Contributions from CSAHC</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 6pt"><TD>&nbsp;</TD></TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shareholders&#146; equity at December&nbsp;31, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,098</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">239</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net assets distributed to CSAHC (note a)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(28</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Elimination of net deferred tax assets (note c)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(181</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Distributions to CSAHC</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,959</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 6pt"><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shareholders&#146; equity at December&nbsp;31, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,169</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-87
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>

</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Notes:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In connection with the CNA/XJA Acquisitions, certain assets and liabilities of CNA and XJA
which were not to be acquired by the Company were transferred to CSAHC, the owner of CNA and
XJA during 2003 and 2004.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In connection with the CNA/XJA Acquisitions, the property, plant and equipment of CNA and XJA
were revalued as of December&nbsp;31, 2003 according to the relevant PRC rules and regulations.
The revalued amount serves as the tax base for future years. Such revaluation is not recorded
under U.S. GAAP. However, a deferred tax asset is recognized for the tax deductibility of the
resulting net revaluation surpluses with a corresponding credit to the equity under U.S. GAAP.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(c)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>As a result of the CNA/XJA Acquisitions, the tax losses attributable to the airline
operations of CNA and XJA are no longer available for utilization against future taxable
income of such operations. Accordingly, the deferred tax assets arising from such tax losses
and related valuation allowance was eliminated against equity.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">F-88
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>

</DIV>



<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following additional financial statement disclosures are required under U.S. GAAP and are
presented on a U.S. GAAP basis.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Operating revenue</I></B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>Year ended December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Traffic revenue</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Passenger</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,438</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,443</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cargo and mail</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,459</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,792</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,897</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,235</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Other operating revenue</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Commission income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">157</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">227</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">General aviation income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Ground services income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">123</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">202</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Air catering income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Rental income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Aircraft lease income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">145</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Gain on disposal of property,
plant and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Maintenance services income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Income on transfer of
surplus pilot trainees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Utility services income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">115</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">152</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">586</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">930</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Total operating revenue</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,483</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,165</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Income tax</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company was subject to PRC income tax at 33% for the period from January 1 to September
30, 2003. The Company is subject to PRC income tax at 15% beginning October&nbsp;1, 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The airline operations of CNA and XJA were subject to PRC income tax at 33% during 2003 and up
to December&nbsp;30, 2004. As a result of the CNA/XJA Acquisitions having been effective December&nbsp;31,
2004, the airline operations of CNA and XJA have become divisions of the Company and are subject to
PRC income tax at the applicable rate of 15% at December&nbsp;31, 2004.
</DIV>

<P align="center" style="font-size: 10pt">F-89
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>

</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Taxation (expense)/benefit consisted of:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>Year ended December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">PRC income tax</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(47</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(259</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 6pt"><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred tax</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; current year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">242</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">97</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; adjustment for change in
the Company&#146;s enacted tax rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">341</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&#151; adjustment for change in applicable tax rate
for airline operations of CNA and XJA</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(99</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">536</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(261</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Additional income taxes were allocated as follows:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shareholders&#146; equity, for deferred tax asset
recognized in connection with the tax
deductibility
resulting from net revaluation surpluses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">246</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shareholders&#146; equity, for elimination of deferred
tax assets of the airline operations of
CNA and XJA no longer available</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(181</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">246</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(181</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-90
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>

</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Actual taxation amount in the consolidated statements of operations for the years ended
December&nbsp;31, 2003 and 2004 differed from the amounts computed by applying the PRC income tax rate
of 15% to income/(loss) before taxation and minority interests as a result of the following:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>Year ended December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expected PRC taxation (expense)/benefit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">232</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(104</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Adjustments:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Effect of change in the Company&#146;s income tax rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">341</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Effect of change in the income tax rate applicable to
the airline operations of CNA and XJA</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(99</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Rate differential on subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Rate differential on airline operations
of CNA and XJA</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">196</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(43</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Non-deductible expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(90</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(37</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Increase in deferred tax valuation allowance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(110</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Expired tax losses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(34</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Non-taxable income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Effect of share of results of affiliated companies and
jointly controlled entities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">536</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(261</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All but an insignificant amount of income/(loss) before taxation is from domestic sources.
</DIV>

<P align="center" style="font-size: 10pt">F-91
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA SOUTHERN AIRLINES COMPANY LIMITED<BR>
AND SUBSIDIARIES</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; (Continued)<BR>
(Amounts in millions, except share data)</B>

</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Related party transactions</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to the related party transactions disclosed in Note 36, the Group and the airline
operations of CNA and XJA had entered into the following material related party transactions.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>For the years ended December&nbsp;31, 2003 and 2004, repairing charges of RMB701 and RMB1,159,
respectively, was incurred by the Group and the airline operations of CNA and XJA in
connection with aircraft repair and maintenance services rendered by GAMECO and MTU Zhuhai.
GAMECO and MTU Zhuhai are jointly controlled entities of the Company.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Operating lease charges of RMB15 and RMB82, respectively, were paid by the Group and the
airline operations of CNA and XJA to CSAHC under lease arrangement for certain land and
buildings in the PRC for the years ended December&nbsp;31, 2003 and 2004.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(c)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Aircraft lease income of RMBNil and RMB111, respectively, for the years ended December&nbsp;31,
2003 and 2004, represents rental receivables in respect of short term leasing of aircraft by
the Group and the airline operations of CNA and XJA to certain airlines controlled by the
CSAHC.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Post-retirement benefit</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Employees of the Group and the airline operations of CNA and XJA participate in several
defined contribution retirement schemes organized separately by PRC municipal governments in
regions where the major operations of the Group and the airline operations of CNA and XJA are
located. The Group and the airline operations of CNA and XJA are required to contribute to these
schemes at the rates ranging from 14% to 20% of salary costs including certain allowances. A
member of the retirement schemes is entitled to pension benefits equal to a fixed proportion of the
salary at the retirement date. The retirement benefit obligations of all the existing and future
retired staff are assumed by these schemes. Contributions to the retirement schemes are charged to
consolidated statements of operations as and when incurred.
Contributions to the retirement schemes amounted to RMB231 and RMB243, respectively, during 2003 and 2004.
</DIV>

<P align="center" style="font-size: 10pt">F-92
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="179"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>EXHIBIT INDEX</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="94%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Exhibit No.</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Description of Exhibit</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Director&#146;s Service Agreement is incorporated by reference in Exhibit&nbsp;4(c).1 of
Form&nbsp;20-F for the year of 2005.</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Non-Executive Director&#146;s Service Agreement is incorporated by reference in
Exhibit&nbsp;4(c).2 of Form&nbsp;20-F for the year of 2005.</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">8
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Subsidiaries of the Company</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">12.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Section&nbsp;302 Certification of Chairman</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">12.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Section&nbsp;302 Certification of President</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">12.3
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Section&nbsp;302 Certification of Chief Financial Officer</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">13.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Section&nbsp;906 Certification of Chairman</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">13.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Section&nbsp;906 Certification of President</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">13.3
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Section&nbsp;906 Certification of Chief Financial Officer</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

</BODY>
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CHINA SOUTHERN AIRLINES 20-F
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
o
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT
OF 1934
OR
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2005
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
o
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report.....................
For the transition period from
to
Commission
file number 1-14660
(Exact name of Registrant as specified in its charter)
CHINA SOUTHERN AIRLINES COMPANY LIMITED
(Translation of Registrant's name into English)
THE PEOPLE'S REPUBLIC OF CHINA
(Jurisdiction of incorporation or organization)
278 JI CHANG ROAD
GUANGZHOU
PEOPLE'S REPUBLIC OF CHINA, 510405
(Address of principal executive offices)
Securities
registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class
Name of each exchange on which registered
Ordinary H Shares of par value
New York Stock Exchange, Inc.
RMB 1.00 per share
represented by American
Depositary Shares
Securities
registered or to be registered pursuant to Section 12(g) of the Act.
None
(Title of Class)
(Title of Class)
SEC 1852 (05-06)
Persons who respond to the collection of information contained in
this form are not required to
respond unless the form displays a currently valid OMB control number.
Securities
for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer's classes of capital or common
stock as of the close of the period covered by the annual report. 2,200,000,000 ordinary Domestic
Shares of par value RMB 1.00 per share and 1,174,178,000 ordinary H
Shares of par value RMB 1.00 per
share and 1,000,000 ordinary A Shares of par value RMB 1.00 per share were issued and outstanding as
of December 31, 2005.
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
o
Yes
þ
No
If this report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
o
Yes
þ
No
Note — Checking the box above will not relieve any registrant required to file reports
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations
under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file such
reports), and (2) has been
subject to such filing requirements for the past 90 days.
þ
Yes
o
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a
non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule
12b-2 of the Exchange Act. (Check one):
Large accelerated filer
o
Accelerated filer
þ
Non-accelerated filer
o
Indicate by check mark which financial statement item the Registrant has elected to follow.
o
Item 17
þ
Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
o
Yes
þ
No
Table of Contents
TABLE OF CONTENTS
China Southern Airlines Company Limited
Page
Forward-Looking Statements
4
Introductory Note
4
Glossary of Airline Industry Terms
5
PART I
Item 1. Identity of Directors, Senior Management and Advisers
6
Item 2. Offer Statistics and Expected Timetable
6
Item 3. Key Information
6
Selected Financial Data
6
Capitalization and Indebtedness
9
Reasons for the Offer and Use of Proceeds
10
Risk Factors
10
Item 4. Information on the Company
13
History and Development of the Company
13
CNA/XJA Acquisitions
15
Business Overview
15
Organizational Structure
31
Property, Plant and Equipment
32
Item 5. Operating and Financial Review and Prospects
33
Critical Accounting Policies
34
Overview
35
Certain Financial Information and Operating Data by Geographic Region
36
Operating Results
37
Additional Information under U.S. GAAP
42
Liquidity and Capital Resources
47
Contractual Obligations and Commercial Commitments
49
Item 6. Directors, Senior Management and Employees
49
Directors and Senior Management
49
Compensation
54
Board Practices
54
Remuneration Committee
54
Employees
54
Share Ownership
56
Item 7. Major Shareholders and Related Party Transactions
56
Major Shareholders
56
Related Party Transactions
56
Interests of Experts and Counsel
60
Item 8. Financial Information
60
Consolidated Statements and Other Financial Information
60
Significant Changes
60
Dividend Information
60
Item 9. The Offer and Listing
61
Offer and Listing Details
61
Plan of Distribution
61
Markets
62
Selling Shareholders
62
Dilution
62
Expenses of the Issue
62
Item 10. Additional Information
62
Share Capital
62
Memorandum and Articles of Association
62
Material Contracts
66
Exchange Controls
67
Taxation
67
2
Table of Contents
Page
Dividends and Paying Agents
68
Statement by Experts
68
Documents on Display
68
Subsidiary Information
68
Comparison of New York Stock Exchange Corporate Governance Rules and China
Corporate Governance Rules for Listed Companies
68
Item 11. Quantitative and Qualitative Disclosures About Market Risk
69
Item 12. Description of Securities other than Equity Securities
70
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
70
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
70
Use of Proceeds
PART III
Item 15. Controls and Procedures
71
Item 16. [Reserved]
72
Item 16 A. Audit Committee Financial Expert
73
Item 16 B. Code of Ethics
73
Item 16 C. Principal Accounting Fees and Services
73
Item 16
D. Exemptions from the Listing Standards for Audit Committee
74
Item 16 E. Purchases of Equity Securities By the Issuer and Affiliated Purchasers
74
PART IV
Item 17. Financial Statements
74
Item 18. Financial Statements
74
Index to Financial Statements
74
Item 19. Exhibits
75
Signatures
76
EX-4.1 FORM OF DIRECTOR'S SERVICE AGREEMENT
EX-4.2 FORM OF NON-EXECUTIVE DIRECTOR'S SERVICE AGREEMENT
EX-8 SUBSIDIARIES OF THE COMPANY
EX-12.1 SECTION 302 CERTIFICATION OF CHAIRMAN
EX-12.2 SECTION 302 CERTIFICATION OF PRESIDENT
EX-12.3 SECTION 302 CERTIFICATION OF CHIEF FINANCIAL OFFICER
EX-13.1 SECTION 906 CERTIFICATION OF CHAIRMAN
EX-13.2 SECTION 906 CERTIFICATION OF PRESIDENT
EX-13.3 SECTION 906 CERTIFICATION OF CHIEF FINANCIAL OFFICER
3
Table of Contents
FORWARD-LOOKING STATEMENTS
This Annual Report contains forward-looking statements. These statements appear in a number of
different places in this Annual Report. A forward looking statement is usually identified by the
use in this Annual Report of certain terminology such as "estimates", "projects", "expects",
"intends", "believes", "plans", "anticipates", or their negatives or other comparable words. Also
look for discussions of strategy that involve risks and uncertainties. Forward-looking statements
include statements regarding the outlook for the Company's future operations, forecasts of future
costs and expenditures, evaluation of market conditions, the outcome of legal proceedings (if any),
the adequacy of reserves, or other business plans. You are cautioned that such forward-looking
statements are not guarantees and involve risks, assumptions and uncertainties. The Company's
actual results may differ materially from those in the forward-looking statements due to risks
facing the Company or due to actual facts differing from the assumptions underlying those
forward-looking statements.
Some of these risks and assumptions, in addition to those identified under Item 3, "Key Information
– Risk Factors," include:
•
general economic and business conditions, including changes in interest rates;
•
prices and other economic conditions;
•
natural phenomena;
•
actions by government authorities, including changes in government regulation;
•
the Company's relationship with CSAHC;
•
uncertainties associated with legal proceedings;
•
technological development;
•
future decisions by management in response to changing conditions;
•
the Company's ability to execute prospective business plans; and
•
misjudgments in the course of preparing forward-looking statements.
The Company advises you that these cautionary remarks expressly qualify in their entirety all
forward-looking statements attributable to the Company, the Group, and persons acting on their
behalf.
INTRODUCTORY NOTE
In this Annual Report, unless the context indicates otherwise, the "Company" means China Southern
Airlines Company Limited, a joint stock company incorporated in China on March 25, 1995, the
"Group" means the Company and its consolidated subsidiaries, and "CSAHC" means China Southern Air
Holding Company, the Company's parent company which holds a 50.3% controlling interest in the
Company.
References to "China" or the "PRC" are to the People's Republic of China, excluding Hong Kong,
Macau and Taiwan. References to "Renminbi" or "RMB" are to the currency of China, references to
"U.S. dollars", "$" or "US$" are to the currency of the United States of America (the "U.S." or
"United States"), and reference to "HK$" is to the currency of Hong Kong. Reference to the "Chinese
Government" is to the national government of China. References to "Hong Kong" or "Hong Kong SAR"
are to the Hong Kong Special Administrative Region of the People's Republic of China. References to
"Macau" or "Macau SAR" are to the Macau Special Administrative Region of the People's Republic of
China.
The Company presents its consolidated financial statements in Renminbi. The consolidated financial
statements of the Company as of December 31, 2004 and 2005 (the "Financial Statements") have been
prepared in accordance with International Financial Reporting Standards ("IFRS") promulgated by the
International Accounting Standards Board. IFRS includes International Accounting Standards ("IAS")
and related interpretations. IFRS differs in certain significant respects from accounting
principles generally accepted in the United States of
4
Table of Contents
America ("U.S. GAAP"). Information relating to the nature and effect of such
differences is presented in Note 50 to the Financial Statements.
Solely for the convenience of the readers, this Annual Report contains translations of certain
Renminbi amounts into U.S. dollars at the rate of US$1.00 = RMB8.0694, which is the average of the
buying and selling rates as quoted by the People's Bank of China at the close of business on
December 31, 2005. No representation is made that the Renminbi amounts or U.S. dollar amounts
included in this Annual Report could have been or could be converted into U.S. dollars or Renminbi,
as the case may be, at any particular rate or at all. Any discrepancies in the tables included
herein between the amounts listed and the totals are due to rounding.
GLOSSARY OF AIRLINE INDUSTRY TERMS
In this Annual Report, unless the context indicates otherwise, the following terms shall have the
respective meanings set forth below.
Capacity Measurements
"available seat kilometers" or "ASKs"
the number of seats made available for sale multiplied by the kilometers
flown
"available ton kilometers" or "ATKs"
the number of tons of capacity available for the transportation of revenue
load (passengers and cargo) multiplied by the kilometers flown
Traffic Measurements
"revenue passenger kilometers" or "RPKs"
the number of revenue passengers carried multiplied by the kilometers flown
"cargo ton kilometers"
the cargo load in tons multiplied by the kilometers flown
"revenue ton kilometers" or "RTKs"
the load (passenger and cargo) in tons multiplied by the kilometers flown
Yield Measurements
"passenger yield"
revenue from passenger operations divided by RPKs
"cargo yield"
revenue from cargo operations divided by cargo ton kilometers
"average yield"
revenue from airline operations (passenger and cargo) divided by RTKs
"ton"
a metric ton, equivalent to 2,204.6 pounds
Load Factors
"passenger load factor"
RPKs expressed as a percentage of ASKs
"overall load factor"
RTKs expressed as a percentage of ATKs
"breakeven load factor"
the load factor required to equate scheduled traffic revenue with
operating costs assuming that total operating surplus is attributable to
scheduled traffic operations
Utilization
"utilization rate"
the actual number of flight hours per aircraft per operating day
Equipment
"rotables"
aircraft parts that are ordinarily repaired and reused
"expendables"
aircraft parts that are ordinarily used up and replaced with new parts
5
Table of Contents
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE.
Not applicable.
ITEM 3. KEY INFORMATION.
Selected Financial Data
The following tables present selected financial data of the Company as of and for each of the
years in the five-year period ended December 31, 2005. The selected data of consolidated statements
of operations for each of the years in the three-year period ended December 31, 2005 and
consolidated balance sheets as of December 31, 2004 and 2005 have been derived from the
consolidated financial statements of the Company, including the related notes, included elsewhere
in this Annual Report. The selected IFRS data of consolidated statements of operations for the
years ended December 31, 2001 and 2002 and IFRS consolidated balance sheets of December 31, 2001,
2002 and 2003 are derived from the Company's audited consolidated financial statements that are not
included in this Annual Report.
The consolidated financial statements of the Company are prepared
and presented in accordance with IFRS.
With effect from January 1, 2005, in
order to comply with IAS1 and IAS27, the Group has changed its accounting policy relating to
the presentation of minority interests.  In prior years, minority interests at the balance sheet
date were presented separately from liabilities and equity in the consolidated balance sheet.
Minority interests in the results of the Group for the year were also separately presented in the
consolidated statements of operations as a deduction before arriving at the profit attributable to
shareholders (the equity shareholders of the Company). Under the new policy, minority interests
are presented as part of equity, separately from interests attributable to the equity shareholders
of the Company. Minority interests in the results of the Group for the period are presented on
the face of the consolidated statements of operations as an allocation of the total profit or
loss for the period between the minority interests and the equity shareholders of the Company.
These changes in presentation have been applied retrospectively with comparatives restated.
In addition, with effect from January 1, 2005,
the Group has changed its presentation of shares of affiliated companies and jointly controlled
entities' taxation in order to comply with IAS 1.  In prior
years, the Group's share of taxation
of affiliated companies and jointly controlled entities accounted for using the equity method
was included as part of the Group's income tax in the consolidated statements of operations.
In accordance with the implementation guidance in IAS 1, the Group has changed the presentation
and includes the share of taxation of affiliated companies and jointly controlled entities
accounted for using the equity method in the respective shares of profit or loss reported in
the consolidated statements of operations before arriving at the
Group's profit or loss before tax. These changes in presentation have been applied
retrospectively with comparatives restated.
Under IFRS, the purchase method of accounting was applied to
account for the acquisition of the airline operations and certain related assets of China Northern
Airlines Company ("CNA") and Xinjiang Airlines Company ("XJA") ("CNA/XJA Acquisitions") (details of
which are disclosed in "Item 4. Information on the Company — History and Development of the
Company") such that at December 31, 2004 only the acquired assets and liabilities are included inthe consolidated financial statements. The results of the acquired operations and their related
cash flows was included in the consolidated financial statements of the Group beginning January 1,
2005. Under U.S. GAAP, such transaction is considered to be "a combination of entities under common
control". A combination of entities under common control is accounted for in a manner similar to a
"pooling-of-interests". Consequently, the assets and liabilities of CNA and XJA are reflected at
their U.S. GAAP carrying values and the U.S. GAAP consolidated financial statements are restated to
include the assets and liabilities of CNA and XJA, and their results of operations and cash flows
for all periods presented. See Note 50 to the consolidated financial statements for the nature and
effect of such differences and other significant differences related to the Group between IFRS and
U.S. GAAP as of December 31, 2004 and 2005 and for each of the years in the three-year period ended
December 31, 2005 and the condensed consolidated financial statements prepared and presented in
accordance with U.S. GAAP for the relevant periods. The following information should be read in
conjunction with, and is qualified in its entirety by, the Financial Statements of the Group.
Year ended December 31,
2001
2002
2003
2004
2005
2005
RMB
RMB
RMB
RMB
RMB
US$
(in million, except per share data)
Income Statement Data:
IFRS:
(Restated)
(Restated)
(Restated)
(Restated)
Operating revenue
16,880
18,019
17,470
23,974
38,293
4,745
Operating expenses
15,479
15,993
17,014
23,065
39,598
4,907
Operating income/(loss)
1,401
2,026
456
909
(1,305
)
(162
)
Interest expense
(934
)
(959
)
(824
)
(691
)
(1,616
)
(200
)
Exchange gain/(loss), net
297
(176
)
(164
)
(59
)
1,220
151
Income/(loss) before taxation
788
1,130
(521
)
220
(1,853
)
(230
)
Taxation
(expense)/benefit
(313
)
(389
)
334
(65
)
7
1
Income/ (loss) for the year
475
741
(187
)
155
(1,846
)
(229
)
Income/(loss) attributable to :
Equity
shareholders of the Company
340
576
(358
)
(48
)
(1,848
)
(229
)
Minority interests
135
165
171
203
2
—
Basic earnings/(loss) per share
0.10
0.17
(0.09
)
(0.01
)
(0.42
)
(0.052
)
Basic earnings/(loss) per ADS
5.04
8.53
(4.68
)
(0.55
)
(21.12
)
(2.62
)
6
Table of Contents
Year ended December 31,
2001
2002
2003
2004
2005
2005
RMB
RMB
RMB
RMB
RMB
US$
(in million, except per share data)
Cash dividends declared per share
—
0.02
—
—
—
—
U.S. GAAP:
Traffic revenue
23,615
24,854
24,897
33,235
37,419
4,637
Other operating revenue
657
904
586
930
874
108
Operating income/(loss)
1,584
1,948
366
1,877
(1,092
)
(135
)
Interest expense
(1,800
)
(1,820
)
(1,604
)
(1,184
)
(1,589
)
(197
)
Foreign currency exchange gain/(loss), net
532
(327
)
(381
)
(124
)
1,220
151
Income/(loss)
before income taxes and minority interests
468
(145
)
(1,549
)
693
(1,574
)
(193
)
Income tax (expense)/benefit
(401
)
(356
)
536
(261
)
46
4
Minority interests
(97
)
(154
)
(127
)
(193
)
(2
)
—
Net
(loss)/income
(30
)
(655
)
(1,140
)
239
(1,530
)
(189
)
Basic (loss)/earnings per share
(0.009
)
(0.194
)
(0.298
)
0.055
(0.350
)
(0.043
)
Basic (loss)/earnings per ADS
(0.432
)
(9.706
)
(14.876
)
2.732
(17.489
)
(2.172
)
Cash dividend declared per share
—
0.02
—
—
—
—
December 31,
2001
2002
2003
2004
2005
2005
RMB
RMB
RMB
RMB
RMB
US$
(in million)
Balance Sheet Data:
IFRS:
(Restated)
(Restated)
(Restated)
(Restated)
Cash and cash equivalents
2,818
3,771
2,080
3,083
2,901
360
Other current assets
1,561
1,835
1,922
4,286
4,320
535
Property, plant and equipment, net
22,352
26,921
28,536
46,841
54,266
6,725
Total assets
30,653
37,188
39,062
62,383
71,402
8,848
Notes payable, including current installments of long term notes payable
2,178
5,241
7,097
11,518
16,223
2,010
Current installments of obligations under capital leases
1,452
1,567
1,298
2,144
3,373
418
Notes payable, excluding current installments
3,628
5,835
4,522
11,935
12,740
1,579
Obligations under capital leases, excluding current installments
7,692
6,632
5,543
9,599
12,459
1,544
Total equity
10,600
11,130
13,569
13,903
11,936
1,479
U.S. GAAP:
Cash and cash equivalents
4,384
4,772
2,999
3,083
2,901
360
Other current assets
3,065
3,391
3,034
4,505
4,551
561
Property, plant and equipment, net
35,676
40,277
41,012
46,202
53,759
6,662
Total assets
48,456
54,860
58,610
65,144
74,906
9,283
Notes payable, including current portion of long term notes payable
5,359
10,304
8,600
11,518
16,223
2,010
Current installments of obligations under capital leases
2,428
2,591
2,368
2,106
3,401
421
Notes payable, excluding current portion
8,856
9,179
8,634
11,935
12,740
1,579
Obligations under capital leases, excluding current installments
14,167
13,333
13,849
11,975
14,807
1,835
Net shareholders' equity
7,315
6,796
13,098
11,169
9,639
1,194
Selected Operating Data
The following selected operating data of the Group for the five years ended December 31, 2005
have been derived from consolidated financial statements prepared in accordance with IFRS and other
data provided by the Group and have not been audited.
The operating data and the profit analysis and comparison for other years below is calculated
and disclosed in accordance with the statistical standards, which has been implemented since
January 1, 2001. See "Glossary of Airline Industry Terms" at the front of this Annual Report for
definitions of certain terms used herein.
7
Table of Contents
Year ended December 31,
2001
2002
2003
2004
2005
Capacity
ASK (million)
— Domestic
31,393
33,753
32,590
41,330
72,107
— Hong Kong and Macau
1,690
1,746
1,347
1,896
2,656
— International
6,981
8,746
6,930
10,543
13,598
Total
40,064
44,245
40,867
53,769
88,361
ATK (million)
— Domestic
3,622
3,924
3,772
4,773
8,352
— Hong Kong and Macau
185
193
150
211
315
— International
1,317
1,798
1,999
2,462
2,842
Total
5,124
5,915
5,921
7,446
11,509
Kilometers flown (thousand)
234,051
258,379
249,068
324,827
539,844
Hours flown (thousand)
365
405
385
501
846
Number of landing and take-offs
— Domestic
183,651
194,776
191,460
243,410
394,069
— Hong Kong and Macau
13,712
13,891
11,400
15,380
17,807
— International
10,698
13,990
11,330
15,790
26,798
Total
208,061
222,657
214,190
274,580
438,674
Traffic
RPK (million)
— Domestic
19,447
22,092
21,294
29,121
51,472
— Hong Kong and Macau
1,060
1,081
778
1,203
1,549
— International
4,550
5,767
4,315
6,872
8,902
Total
25,057
28,940
26,387
37,196
61,923
RTK (million)
— Domestic
2,217
2,532
2,424
3,206
5,571
— Hong Kong and Macau
105
108
78
120
159
— International
712
974
1,059
1,337
1,554
Total
3,034
3,614
3,561
4,663
7,284
Passengers carried (thousand)
— Domestic
16,499
18,535
18,259
25,002
39,545
— Hong Kong and Macau
1,409
1,369
1,019
1,394
1,556
— International
1,213
1,589
1,192
1,811
3,018
Total
19,121
21,493
20,470
28,207
44,119
Cargo and mail carried (tons)
398,000
470,000
464,000
545,000
775,000
Load Factors
Passenger load factor (RPK/ASK) (%)
— Domestic
61.9
65.5
65.3
70.5
71.4
— Hong Kong and Macau
62.7
61.9
57.8
63.4
58.3
— International
65.2
65.9
62.3
65.2
65.5
Total
62.5
65.4
64.6
69.2
70.1
Overall load factor (RTK/ATK) (%)
— Domestic
61.2
64.5
64.2
67.2
66.7
— Hong Kong and Macau
56.8
55.8
52.2
56.9
50.4
— International
54.1
54.2
53.0
54.3
54.7
Total
59.2
61.1
60.1
62.6
63.3
Breakeven load factor (%)
55.6
55.9
61.6
61.9
67.0
Year ended December 31,
2001
2002
2003
2004
2005
Yield
Yield per RPK (RMB)
— Domestic
0.62
0.55
0.57
0.58
0.55
— Hong Kong and Macau
1.06
0.98
0.96
0.92
0.77
— International
0.41
0.42
0.47
0.46
0.56
Total
0.60
0.54
0.57
0.57
0.55
Yield per cargo and mail ton kilometers (RMB)
1.76
1.73
1.62
1.67
1.75
8
Table of Contents
Year ended December 31,
2001
2002
2003
2004
2005
Yield per RTK (RMB)
— Domestic
5.83
5.21
5.40
5.53
5.30
— Hong Kong and Macau
11.26
10.36
10.35
9.83
8.18
— International
3.31
3.25
2.90
3.31
4.24
Total
5.43
4.84
4.76
5.01
5.14
Fleet
— Boeing
91
102
108
137
140
— Airbus
20
20
24
46
71
— McDonnell Douglas
—
—
—
35
36
— Others
—
—
—
13
14
Total aircraft in service at period end
111
122
132
231
261
Overall utilization rate (hours per day)
9.1
9.8
8.5
9.9
9.6
Financial
Operating cost per ASK (RMB)
0.39
0.36
0.42
0.43
0.45
Operating cost per ATK (RMB)
3.02
2.70
2.87
3.10
3.44
Exchange Rate Information
The following table sets forth certain information concerning exchange rates, based on the
noon buying rates in New York City for cable transfers in foreign currencies, as certified for
customs purposes by the Federal Reserve Bank of New York (the "Noon Buying Rate"), between Renminbi
and U.S. dollars for the five most recent financial years.
Average(1)
Period
Period End
(RMB per US$)
High
Low
Annual Exchange Rate
2001
8.2766
8.2766
8.2910
8.2642
2002
8.2773
8.2773
8.2897
8.2152
2003
8.2767
8.2772
8.2800
8.2769
2004
8.2765
8.2765
8.2889
8.2641
2005
8.0694
8.1825
8.2767
8.0702
The following table sets out the range of high and low exchange rates, based on the Noon
Buying Rate, between Renminbi and U.S. dollars, for the following periods.
Period
High
Low
Monthly Exchange Rate
December 2005
8.0808
8.0702
January 2006
8.0702
8.0601
February 2006
8.0616
8.0402
March 2006
8.0505
8.0172
April 2006
8.0240
8.0050
May 2006
8.0265
8.0025
June 2006
(up to June 28, 2006)
8.0230
7.9964
(1)
Determined by averaging the rates on the last business day of each month during the relevant
period.
Dividend Payments
No interim dividends were paid during the year ended December 31, 2005. The Board of Directors
of the Company ("Board of Directors") has not recommended payment of a final dividend in respect of
the year ended December 31, 2005.
Capitalization and Indebtedness
Not applicable.
9
Table of Contents
Reasons for the Offer and Use of Proceeds
Not applicable.
Risk Factors
Risks Relating to the Company
Government ownership and control of the Company
All Chinese airlines are wholly- or majority-owned either by the Chinese Government or by
provincial or municipal governments in China. CSAHC, an entity wholly-owned by the Chinese
Government, holds and exercises the rights of ownership of all of the Domestic Shares or 50.3% of
the equity of the Company. The interests of the Chinese Government in the Company and in other
Chinese airlines may conflict with the interests of the holders of the ADSs, H Shares and A Shares.
The public policy considerations of the Chinese Government in regulating the Chinese commercial
aviation industry may also conflict with its indirect ownership interest in the Company.
High operating leverage and foreign exchange exposure
The airline industry is generally characterized by a high degree of operating leverage. In
addition, due to high fixed costs, the expenses relating to the operation of any flight do not vary
proportionately with the number of passengers carried, while revenues generated from a flight are
directly related to the number of passengers carried and the fare structure of such flight.
Accordingly, a decrease in revenues could result in a proportionately higher decrease in net
income. Moreover, as the Group has substantial obligations denominated in foreign currencies, its
results of operations are significantly affected by fluctuations in foreign exchange rates,
particularly for the U.S. dollar and the Japanese Yen. The Company incurred a net exchange loss of
RMB59 million for 2004 and a net exchange gain of RMB1,220 million for 2005, mainly as a result of
Japanese Yen fluctuation in 2004 and Renminbi appreciation in July 2005, respectively. A majority of
this exchange loss or gain was unrealized in nature.
Potential conflicts of interest
CSAHC will continue to be the controlling shareholder of the Company. CSAHC and certain of its
affiliated companies will continue to provide certain important services to the Company, including
the import and export of aircraft spare parts and other flight equipment, housing services and
financial services. In addition, Mr. Liu Shao Yong, the Chairman of the Board of Directors, also
serves as the General Manager of CSAHC. The interests of CSAHC may conflict with those of the
Company. In addition, any disruption of the provision of services by CSAHC's affiliated companies
or a default by CSAHC of its obligations owed to the Company could affect the Company's operations
and financial conditions. In particular, as part of its cash management system, the Company
periodically places significant amount of demand deposits with China Southern Airlines Group Finance
Company Limited ("SA Finance"), a PRC authorized financial institution controlled by CSAHC and an
affiliated company of the Company. As a result, the Company's deposits with SA Finance are subject
to the risks associated with the business of SA Finance over which the Company does not exercise
control. As of December 31, 2004 and 2005, the Group had short-term deposits of RMB406 million and
RMB544 million, respectively, with SA Finance.
Certain transactions between the Company and CSAHC or its affiliates (as defined in the Rules
Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (the "Hong Kong
Listing Rules")) will constitute connected transactions of the Company under the Hong Kong Listing
Rules and, unless exemptions are applicable or waivers are granted, will be subject to disclosure
requirements and/or independent shareholders' approval in a general meeting.
Risks relating to certain real property
Although systems for registration and transfer of land use rights and related real property
interests in China have been implemented, such systems do not yet comprehensively account for all
land and related property interests. The land in Guangzhou on which the Company's headquarters
buildings and other facilities are located and the buildings that the Company uses at its route
base in Wuhan and Haikou are leased by the Company from CSAHC. However, CSAHC lacks
adequate documentation evidencing CSAHC's rights to such land and buildings, and, as a consequence,
the lease agreements between CSAHC and the Company for such land have not been registered with the
relevant authorities. As a result, such lease agreements may not be enforceable. Lack of adequate
documentation for land use rights and ownership of buildings subjects the Company to challenges and
claims by third parties with respect to the Company's use of such land and buildings.
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The Company has been occupying all of the land and buildings described above without challenge
or claim by third parties. CSAHC has received written assurance from the General Administration of
Civil Aviation of China ("CAAC") to the effect that CSAHC is entitled to continued use and
occupancy of the land and certain related buildings and facilities. However, such assurance does
not constitute formal evidence of CSAHC's right to occupy such lands, buildings and facilities, or
the right to transfer, mortgage or lease such real property interests. The Company cannot predict
the magnitude of the adverse effect on its operations if its use of any one or more of these
parcels of land or buildings were successfully challenged. CSAHC has agreed to indemnify the
Company and Guangzhou Aircraft Maintenance Engineering Company Limited ("GAMECO"), the Company's
jointly controlled entity, against any loss or damage caused by any challenge of, or interference
with, the use by the Company and GAMECO of any of their respective land and buildings.
Risks associated with Hong Kong and Macau routes
The Company's Hong Kong regional routes benefit from traffic originating in Taiwan. The
Company's Hong Kong regional routes might be materially adversely affected if direct flights
between Taiwan and Mainland China were permitted in the future. In such event, Xiamen Airlines
Company Limited ("Xiamen Airlines"), the Company's subsidiary, might apply for route rights for
direct flights between Taiwan and Mainland China, due partly to the proximity to Taiwan of Fujian
province, where Xiamen Airlines is based. However, there can be no assurance that sufficient routes
and flights between destinations in Taiwan and Mainland China could be obtained by Xiamen Airlines,
if at all, or that adequate yields will be generated on these routes and flights.
Internal
controls and management system
The Company will become subject to Section 404
of the Sarbanes-Oxley Act of 2002 in the fiscal year ending December 31, 2006, which requires the Company to set out a management report
containing an assessment on its internal controls over financial reporting in its annual report. It also requires an independent registered
public accounting firm attest to and report on management's
assessment of the effectiveness of the Company's internal controls over financial
reporting. If the Company cannot implement the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 in a timely manner or with
adequate compliance, its independent auditors may not be able to provide a written attestation as to the effectiveness of its internal controls
over financial reporting and it may be subject to sanctions or investigation by regulatory authorities, such as the Securities and Exchange
Commission. It could also result in the loss of investor confidence in the Company, in particular the reliability of financial statements,
which in turn could harm the Company's business and negatively affect
the market price of the Company's ADSs or H Shares. Furthermore,
the Company may be required to incur significant costs for compliance
with Section 404, and thereby increasing its costs relative to its
revenues and decreasing its operating margins.
Risks Relating to the Chinese Commercial Aviation Industry
Government regulation
The Company's ability to implement its business strategy will continue to be affected by
regulations and policies issued or implemented by the CAAC, which encompasses substantially all
aspects of the Chinese commercial aviation industry, including the approval of domestic, Hong Kong
regional and international route allocation, air fares, aircraft acquisition, jet fuel prices and
standards for aircraft maintenance, airport operations and air traffic control. Such regulations
and policies limit the flexibility of the Company to respond to market conditions, competition or
changes in the Company's cost structure. The implementation of specific CAAC policies could from
time to time adversely affect the Company's operations. The CAAC has confirmed in writing that the
Company will be treated equally with other Chinese airlines with respect to certain matters
regulated by the CAAC. Nevertheless, there can be no assurance that the CAAC will, in all
circumstances, apply its regulations and policies in a manner that results in equal treatment of
all airlines.
Jet fuel supply and costs
The availability and cost of jet fuel have a significant impact on the Group's results of
operations. The Group's jet fuel costs for 2005 accounted for 30.1% of its operating expenses. All
of the domestic jet fuel requirements of Chinese airlines (other than at the Shenzhen, Zhuhai and
Sanya airports) must be purchased from the exclusive providers, China Aviation Oil Supplies Company
("CAOSC") and Bluesky Oil Supplies Company, companies controlled and supervised by the CAAC.
Chinese airlines may also purchase their jet fuel requirements at the Shenzhen, Zhuhai and Sanya
airports from joint ventures in which the CAOSC is a partner. Jet fuel obtained from the CAOSC's
regional branches is purchased at uniform prices throughout China that are determined and adjusted
by the CAOSC from time to time with the approval of the CAAC and the pricing department of the
State Planning Commission based on market conditions and other factors. As a result, the costs of
transportation and storage of jet fuel in all regions of China are spread among all domestic
airlines. Prior to 1994, domestic jet fuel prices were generally below international jet fuel
prices. Since then, however, domestic jet fuel price from CAOSC has always been higher than
international jet fuel prices, sometimes creating tension in fuel supply. In addition, jet fuel
shortages have occurred in China and, on limited occasions before 1993, required the Company to
delay or cancel flights. Although such shortages have not materially affected the Company's results
of operations since 1993, there can be no assurance that such shortage will not occur in the
future. If such shortage occurs in the future and the Company is forced to delay or cancel flights
due to fuel shortage, its operational reputation among passengers and results of operations may
suffer.
Infrastructure limitations
The rapid increase in air traffic volume in China in recent years has put pressure on many
components of the Chinese commercial aviation industry, including China's air traffic control
system, the availability of qualified flight personnel and airport facilities. Airlines, such as
the Company, which have route networks that emphasize short- to medium-haul routes are generally
more affected by insufficient aviation
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infrastructure in terms of on-time performance and high operating
costs due to fuel inefficiencies resulting from the relatively short segments flown, as well as the
relatively high proportion of time on the ground during turnaround. All of these factors may
adversely affect the perception of the service provided by an airline and, consequently, the
airline's operating results. In recent years, the CAAC has placed increasing emphasis on the safety
of Chinese airline operations and has implemented measures aimed at improving the safety record of
the industry. The ability of the Company to increase utilization rates and to provide safe and
efficient air transportation in the future will depend in part on factors such as the improvement
of national air traffic control and navigation systems and ground control operations at Chinese
airports, which factors are beyond the control of the Company.
Competition
The CAAC's extensive regulation of the Chinese commercial aviation industry has had the effect
of managing competition among Chinese airlines. Nevertheless, competition has become increasingly
intense in recent years due to a number of factors, including relaxation of certain regulations by
the CAAC, and an increase in the capacity, routes and flights of Chinese airlines. Competition in
the Chinese commercial aviation industry has led to widespread price-cutting practices that do not
in all respects comply with applicable regulations. Until the interpretation, if it occurs, of CAAC
regulations limiting or prohibiting such price-cutting has been finalized and strictly enforced,
discounted tickets from competitors will continue to have an adverse effect on the Company's sales.
The Company faces varying degrees of competition on its Hong Kong regional routes from certain
Chinese airlines and Hong Kong Dragon Airlines Limited and on its international routes, primarily
from non-Chinese airlines, most of which have significantly longer operating histories,
substantially greater financial and technological resources and greater name recognition than the
Company. In addition, the public's perception of the safety and service records of Chinese airlines
could adversely affect the Company's ability to compete against its Hong Kong regional and
international competitors. Many of the Company's international competitors have larger sales
networks and participate in reservation systems that are more comprehensive and convenient than
those of the Company, or engage in promotional activities, such as International Alliance programs,
that may enhance their ability to attract international passengers.
Limitation on foreign ownership
Chinese Government policies limit foreign ownership in Chinese airlines. Under these policies,
the percentage ownership of the Company's total outstanding ordinary shares held by investors in
Hong Kong and any country outside China ("Foreign Investors") may not in the aggregate exceed 49%.
Currently, 26.8% of the total outstanding ordinary shares of the Company is held by
Foreign Investors. For so long as the limitation on foreign ownership is in force, the Company will
have no meaningful access to the international equity capital markets.
Consolidation and Restructuring
In 2000, the CAAC announced a restructuring plan with respect to the PRC aviation industry.
Pursuant to such restructuring plan, each domestic airline is directed to consolidate into one of
the three major airline groups in China: CSAHC, China National Aviation Holding Company and China
Eastern Air Holding Group. As approved by the Company's shareholders in an extraordinary general
meeting on December 31, 2004, the Company acquired the airline operations and certain related
assets of CNA and XJA. These consolidation and restructuring pursuant to the CAAC restructuring
plan may involve uncertainties and risks over a long period of time, including the following:
•
failure to achieve the anticipated synergies, cost savings or revenue enhancing
opportunities resulting from the restructuring activities;
•
diversion of management's attention from existing business concerns and other
business opportunities of the Group;
•
difficulty in integrating the assets and business of other airlines, including its
employees, corporate culture, managerial systems and processes, business information
systems and services;
•
difficulty in exercising control and supervision over various new operations within the Group;
•
failure to retain key personnel; and
•
increase in financial pressure due to assumption of recorded / unrecorded liabilities of the acquired businesses.
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The inability to manage additional businesses or integrate successfully the acquired
businesses without substantial expense, delay or other operational or financial problems, or the
occurrence of one or more of the events enumerated above, could materially adversely affect the
Group's financial condition and results of operations.
Risks relating to the PRC
Foreign exchange risks
Under
current Chinese foreign exchange regulations, Renminbi is fully
convertible for current account transactions, but is not freely
convertible for capital account transactions. Current account foreign
exchange transactions can be undertaken without prior approval from the relevant Chinese Government
agencies by producing commercial documents evidencing such transactions,
provided that they are processed through Chinese banks licensed to engage in foreign exchange transactions. Conversion from Renminbi into a foreign currency or vice versa for purposes of capital account transactions requires prior
approvals of relevant Chinese Government agencies. This restriction on capital account transactions could affect the ability of the Company to acquire foreign
currency for capital expenditures.  It could also have a material adverse effect on the Company's operations and financial conditions, given the Company's substantial foreign currency obligations.
The value of the Renminbi against the US dollar and other foreign currencies may fluctuate and is affected by,
among other things, changes in China's political and economic
conditions. On July 21, 2005, the PRC government changed its policy of pegging the value of the Renminbi to the U.S. dollar so that the Renminbi is now permitted to fluctuate within a band against a basket of certain foreign currencies. As a result, the value of the Renminbi against the U.S. dollar has appreciated by approximately 2%. Under the new
policy, the value of Renminbi against the U.S. dollar has fluctuated on a daily basis within narrow ranges, but overall has further strengthened against the U.S.
dollar. The PRC government has stated publicly that it intends to further liberalize its currency policy, which could result in a further and more significant change in
the value of the Renminbi against the U.S. dollar. As the Company is not able to hedge effectively against the revaluation of the Reminbi other than by retaining its foreign currencies which it receives from its business and operational activities to the extent permitted by applicable law, any significant revaluation of the
Renminbi may have a material adverse effect on the Company's
financial performance, and the value of, and any dividends payable on, the Company's H Shares and ADSs in foreign currency terms.
Developing legal system
The Chinese legal system is based on written statutes and is a system, unlike common law
systems, in which decided legal cases have little precedential value. In 1979, China began to
promulgate a more comprehensive system of laws. On December 29, 1993, the Chinese National People's
Congress promulgated the Company Law, which became effective on July 1, 1994. In August 1994,
pursuant to the Company Law, the PRC State Council issued the PRC Special Regulations on Overseas
Offering and Listing of Shares by Companies Limited by Shares to regulate joint stock companies
that offer and list their shares overseas. These laws, regulations and legal requirements are
relatively recent, and, like other laws, regulations and legal requirements applicable in China
(including with respect to the commercial aviation industry), their interpretation and enforcement
involve significant uncertainties.
Taxation of holders of H Shares or ADS by China
Chinese tax law generally provides for the imposition of a withholding tax on dividends paid
by a Chinese company to a non-Chinese shareholder at a rate of 20%. In a notice and a letter issued
by the State Taxation Bureau of the PRC, however, the Chinese tax authorities confirmed that the
imposition of this withholding tax on dividends paid by joint stock companies, such as the Company,
had been suspended. Accordingly, for so long as this imposition is suspended and not replaced or
supplemented with similar requirements, any future dividends to be paid by the Company to holders
of H Shares or ADS who are foreign individuals not resident in China or which are foreign
enterprises with no permanent establishment in China will not be subject to a Chinese withholding
tax. In the event that the suspension of the withholding tax is lifted, such payments will be
subject to withholding tax at the 20% rate unless the holder is entitled to a tax waiver or a lower
tax rate under an applicable double-taxation treaty. See Item 10 "Additional Information —
Taxation".
ITEM 4. INFORMATION ON THE COMPANY.
History and Development of the Company
The Company is a joint stock company incorporated in China on March 25, 1995, and is 50.3%
owned by CSAHC. The registered address of the Company is Guangzhou Economic & Technology
Development Zone, People's Republic of China (telephone no: (86)20-8612-4738, website:
www.cs-air.com).
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On March 13, 2003, the Company obtained an approval certificate from the Ministry of Commerce
to change to a permanent limited company with foreign investments and on October 17, 2003 obtained
a business license for its new status, as a permanent limited company with foreign investments
issued by the State Administration of Industry and Commerce of the People's Republic of China.
Pursuant to an extraordinary general meeting of shareholders held on May 21, 2002, a
resolution was passed authorizing the Company to issue not more than 1,000,000,000 A Shares of par
value of RMB1.00 each. The Company issued and listed its 1,000,000,000 A Shares with a par value of
RMB1.00 each on the Shanghai Stock Exchange in July 2003.
On October 17, 2003, the Company's registered address was moved to Guangzhou Economic &
Technology Development Zone. In accordance with the Rules and Regulations for Implementation of
Income Tax for Foreign Investment Enterprises and Foreign Enterprises of the PRC and a taxation
approval document "Guangzhou Municipal State Tax Bureau Suo De Shui Zi Que 020043", the Company is
entitled to enjoy the preferential tax policy implemented in the Guangzhou Economic & Technology
Development Zone effective October 1, 2003. As a result, the Company's income tax rate has been
changed from 33% to 15% beginning from that date.
Flight safety is a perennial concern to airlines. In this regard, the Group is committed to
flight safety by strengthening internal safety checks, pilot training and aircraft maintenance. As
a result, the Group was awarded the Golden Roc Cup, the highest award for flight safety in the
Chinese civil aviation industry, for the fourth time in 2004.
The acquisition of the airline operations of CNA and XJA was approved at the general meeting
of the Company held on December 31, 2004. Such acquisition provides a robust platform for the Group
to consolidate its market leadership and financial results. It also brought in various benefits to
the Group by expanding its flight service network, fleet size and transport capacity, as well as
lowering costs and improving overall efficiency. Given the investment incentive policies such as
"Go West" and "Revitalising the Old Industrial Bases in the North-eastern Region" promulgated by
the Chinese government, the economy in the western and north-eastern regions of China is expected
to grow at a rapid pace in the coming decades, which in turn provides substantial growth potential
for the Group. Ultimately, the acquisition will strengthen the Group's position as the largest
airline in China and will create positive value to its investors. At present, the management of the
Group focuses on harnessing the expanded business capacity and operation scale of the Group, and on
enhancing its overall management standards through an integration of corporate culture, innovation
and development, thereby realizing the ultimate goal of the
Group's reorganization.
Pursuant to "Pricing Reform of Domestic Civil Aviation" as approved by the State Council of
China effective on April 20, 2004, prices on domestic routes now fluctuate freely within a
predetermined range. Instead of direct supervision by setting prices of air tickets through local
price bureau, the government now provides guidance on domestic flights and domestic civil aviation
is controlled by the government indirectly. Market-oriented pricing policy was introduced and
pricing system has been adjusted as a result of the above pricing reform.
During 2005, the economy of the PRC maintained its rapid growth, which in turn gave the civil
aviation industry a powerful boost. In particular, the fast expansion of the fleet capacity of the
industry encouraged market demand through a number of factors, including improvement of civil
aviation facilities and service quality as well as favorable price offers, which in turn drove up
the passenger and cargo carried volume, the passenger load factor and overall load factor. On the
other hand, as the PRC government expedited the process of 'open sky' policy and relaxed
restrictions for investment in domestic airlines, the fleet capacity and number of flights provided
have significantly increased, which in turn intensified the competition in domestic and
international routes. Together with the soaring jet fuel prices, these have exerted strong pressure
on the operating costs for domestic airlines.
In 2005, with the persistent joint efforts of the Company's management and staff, the Group
secured an exceptional safe flight operation record, and the enlarged operations after the joint
recombination had undergone a smooth transition and gradually began to achieve the benefits from
economies of scale. To cope with the increasing competition and the ever-changing demands of the
aviation market, the Company is taking advantage of its own economies of scale and the potential
market demands to stage a strategic transition from a city-pair operation model to a hubbing
network operation model, so as to enhance the operational efficiency of the overall service
network, and to maintain and increase its competitive edge in the market.
With the approval of the Board, the Company established a branch company in Beijing and will
add wide-body airplanes to the operation base in Beijing from the summer of 2006, with the view to
expanding its Beijing aviation business and building another main hub there in addition to its
Guangzhou base. The Board believes that the establishment of Guangzhou and Beijing hubs will
facilitate the Group's strategic refinement and enhancement of its route network operations in
order to better position the Group to explore and seize the opportunities in the regional aviation
market to be brought about by the 2008 Beijing Olympic Games.
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The Group had RMB4,707 million, RMB6,631 million and RMB11,873 million capital expenditures in
2003, 2004 and 2005 respectively. Of such capital expenditures in 2005, RMB6,938 were financed by
capital lease, RMB4,325 million were financed by bank borrowings while the remaining RMB610 million
were financed by internal resources. The capital expenditures were primarily incurred on the
additional investments in aircraft and flight equipment under the Group's fleet expansion plans and
Guangzhou new airport, and, to a small extent, additional investments in other facilities and
buildings for operations.
CNA/XJA Acquisitions
Pursuant to a sale and purchase agreement dated November 12, 2004 between the Company, China
Southern Airlines Holding Company, CNA and XJA which was approved by the Company's shareholders in
an extraordinary general meeting held on December 31, 2004, the Company acquired the airline
operations and certain related assets of CNA and XJA with effect from December 31, 2004 (the
"CNA/XJA Acquisitions"). The consideration payable for the CNA/XJA Acquisitions amounting to
RMB15,522 million was determined based on the fair value of the acquired assets. Such consideration
was partly satisfied by assumption of debts and liabilities of CNA and XJA totaling RMB13,563
million outstanding as of December 31, 2004 and the remaining balance of RMB1,959 million was fully
paid in cash during 2005.
The CNA/XJA Acquisitions have significantly expanded the fleet size and flight service network
as well as the market share of the Group. Presently, the Group is implementing various measures to
harnessing the expanded flight capacity and operations and integrating the business cultures and
goals of the acquired operations with those of the Group.
Business Overview
General
The Group provides commercial airline services throughout China, Hong Kong and Macau regions,
Southeast Asia and other parts of the world. The Group is one of the three largest Chinese airlines
and, as of year end 2005, ranked first in terms of passengers carried, number of scheduled flights
per week, number of hours flown and size of route network and aircraft fleet. During the three
years ended December 31, 2005, the Group's RPKs increased at a compound annual rate of 53.2%, from
26,387 million in 2003 to 61,923 million in 2005, while its capacity, measured in terms of ASKs,
increased at a compound annual rate of 47.1%, from 40,867 million in 2003 to 88,361 million in
2005. In 2005, the Group carried 44.12 million passengers and had passenger revenue of RMB34,328
million (US$4,254 million). The loss for 2005 attributable to
equity shareholders of the Company was RMB1,848
million (US$229 million).
The Group conducts a portion of its airline operations through its airline subsidiaries namely
Xiamen Airlines, Southern Airlines (Group) Shantou Airlines Company Limited ("Shantou Airlines"),
Guangxi Airlines Company Limited ("Guangxi Airlines"), Zhuhai Airlines Company Limited ("Zhuhai
Airlines") and Guizhou Airlines Company Limited ("Guizhou Airlines") (collectively, the "Airline
Subsidiaries"). In 2005, the Airline Subsidiaries carried 11.30 million passengers and had
operating revenue of RMB8,019 million (US$994 million) and
accounted for 25.6% and 20.9% of the
Group's passengers carried and operating revenue, respectively.
The Group also provides air cargo and mail services. The cargo and mail revenue of the Group
increased by 37.7% to RMB3,091 million (US$383 million) in 2005 as compared with 2004. The Group's
airline operations are fully integrated with its airline-related businesses, including aircraft and
engine maintenance, flight simulation and air catering operations.
As of the year end of 2005, the Group operated 559 routes, of which 452 were domestic, 78 were
international and 29 were Hong Kong and Macau. The Group operates the most extensive domestic route
network among all Chinese airlines. In 2005, the Group operated an average of 8,436 landings and
take-offs per week, serving 142 destinations. Its route network covers commercial centres or
rapidly developing economic regions in Mainland China.
The Group's corporate headquarters and principal base of operations are located in Guangzhou,
which is the capital of Guangdong Province and the largest city in southern China. Located in the
rapidly developing Pearl River Delta region, Guangzhou is also the transportation hub of southern
China and one of China's major gateway cities. Guangzhou's significance has increased as the
transportation infrastructure of Guangdong Province has developed through the construction and
development of expressways, an extensive rail network and the port cities of Yantian, Shekou,
Chiwan, Mawan, Huangpu and Zhuhai.
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In addition to its main route base in Guangzhou, the Group also maintains certain regional
route bases in Beijing, Zhengzhou, Wuhan, Changsha, Shenzhen, Shenyang, Changchun, Dalian, Harbin,
Urumqi, Haikou, Zhuhai, Xiamen, Fuzhou, Guilin, Shantou, Guiyang, Sanya and Beihai. Most of its
regional route bases are located in provincial capitals or major commercial centers in China.
The Group's operations primarily focus on the domestic market. In addition, the Group also
operates Hong Kong and Macau and international flights. As of year end of 2005, the Group had 29
Hong Kong and Macau routes and 78 international routes. The Group's Hong Kong and Macau operations
include flights between destinations in China and Hong Kong and Macau. The Group's international
operations include scheduled services to Tokyo, Osaka, Amsterdam, Sharjah, Los Angeles, Fukuoka,
Seoul, Sydney, Dubai, Paris and 11 Southeast Asian destinations. The Group operates the most
extensive Southeast Asian route network among Chinese airlines.
As of December 31, 2005, the Group operated a fleet of 261 aircraft, consisting primarily of
Boeing 737 series, 747, 757, 777, Airbus 300, 319, 320, 330, McDonnell Douglas 82, 90 and etc. The
average age of the Group's fleet was 7.19 years as of the year end of 2005.
Restructuring and Initial Public Offering
As part of China's economic reforms in the 1980's, the PRC State Council directed the CAAC to
separate its governmental, administrative and regulatory role from the commercial airline
operations that were being conducted by the CAAC and its regional administrators. As a result,
CSAHC was established on January 26, 1991 for the purpose of assuming the airline and
airline-related commercial operations of the Guangzhou Civil Aviation Administration, one of the
six regional bureaus of the CAAC. CSAHC was one of the 55 large-scale enterprises designated by the
Chinese Government to play a leading role in their respective industries.
CSAHC was restructured in 1994 and 1995 in anticipation of the initial public offering of the
Company. The restructuring was effected through the establishment of the Company and the execution
of the Demerger Agreement, dated as of March 25, 1995, as amended (the "Demerger Agreement"),
between CSAHC and the Company. Upon the restructuring, the Company assumed substantially all of the
airline and airline-related businesses, assets and liabilities of CSAHC, and CSAHC retained its
non-airline and non-airline-related businesses, assets and liabilities, and the non-business assets
and liabilities. Upon this separation, all interests, rights, duties and obligations of CSAHC,
whenever created or accrued, were divided between the Company and CSAHC based on the businesses,
assets and liabilities assumed by each of them under the Demerger Agreement. Under the Demerger
Agreement, CSAHC agreed not to conduct or participate or hold any interest in, either directly or
indirectly, any business, activity or entity in or outside China that competes or is likely to
compete with the commercial interests of the Group, although CSAHC may continue to hold and control
the affiliates of CSAHC existing on the date of the Demerger Agreement and may continue to operate
the businesses of such affiliates.
In July 1997, the Company completed a private placement of 32,200,000 H Shares to certain
limited partnership investment funds affiliated with Goldman Sachs & Co. and an initial public
offering of 1,141,978,000 H Shares, par value RMB 1.00 per share, and listing of the H Shares on
The Stock Exchange of Hong Kong Limited (the "Hong Kong Stock Exchange") and American Depositary
Shares ("ADSs", each ADS representing 50 H Shares) on the New York Stock Exchange. Prior to the
private placement and the initial public offering, all of the issued and outstanding shares of
capital stock of the Company, consisting of 2,200,000,000 Domestic Shares, par value RMB 1.00 per
share, were owned by CSAHC, which owns and exercises, on behalf of the Chinese Government and under
the supervision of the CAAC, the rights of ownership of the Domestic Shares held by CSAHC. After
giving effect to the private placement and the initial public offering, CSAHC's continued ownership
of the 2,200,000,000 Domestic Shares, represented approximately 65.2% of the total share capital of
the Company, and will be entitled to elect all the directors of the Company and to control the
management and policies of the Group. Domestic Shares and H Shares are both ordinary shares of the
Company.
Pursuant to an extraordinary general meeting of shareholders held on May 21, 2002, a
resolution was passed authorizing the Company to issue not more than 1,000,000,000 A Shares of par
value of RMB1.00 each. The Company issued 1,000,000,000 A Shares with a par value of RMB1.00 each
in July 2003 and listed these shares on the Shanghai Stock Exchange. Subsequent to the A Share
issue, the shareholding of CSAHC on the Company was reduced from 65.2% to 50.3%.
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Traffic
The following table sets forth certain statistical information with respect to the Group's
passenger and cargo and mail traffic for the years indicated.
Passenger carried
Cargo and Mail Carried (tons)
Total traffic (tons kilometers)
Increase
Increase
Increase
(decrease)
(decrease)
(decrease)
over
over
over
Year
Total
previous year
Total
previous year
Total
previous year
(in million)
(%)
(in thousand)
(%)
(in million)
(%)
2001
19.12
13.5
398.0
12.7
3,034.0
16.1
2002
21.49
12.4
470.0
18.1
3,614.0
19.1
2003
20.47
(4.7
)
464.0
(1.3
)
3,561.0
(1.5
)
2004
28.21
37.8
545.0
17.5
4,663.0
30.9
2005
44.12
56.4
775.0
42.2
7,284.0
56.2
Route Network
Overview
The Group operates the most extensive route network among the Chinese airlines. As of December
31, 2005, the Group operated 559 routes consisting of 452 domestic routes, 29 Hong Kong and Macau
routes and 78 international routes. In 2005, the Group conducted an average of 8,436 landings and
take-offs per week, serving 142 destinations.
The Group continually evaluates its network of domestic, Hong Kong and Macau and international
routes in light of its operating profitability and efficiency. The Group seeks to coordinate flight
schedules with the Airline Subsidiaries on shared routes to maximize load factors and utilization
rates. The acquisition of domestic, Hong Kong and Macau and international routes is subject to
approval of the CAAC, and the acquisition of Hong Kong and Macau and international routes is also
subject to the existence and the terms of agreements between the Chinese Government and the
government of the Hong Kong SAR, the government of Macau Special Administrative Region of the
People's Republic of China ("Macau SAR") and the government of the proposed foreign destination.
In order to expand the Group's international route network, the Group has entered into
code-sharing agreements with several international airlines, including Delta Airlines, Asiana
Airlines, Japan Air System, Vietnam Airlines, Royal Dutch Airlines and Garuda Indonesian. Under the
code sharing agreements, the participating airlines are permitted to sell tickets on certain
international routes operated by the Group to passengers using the Group's codes. Similarly, the
Group is permitted to sell tickets for the other participating airlines using its "CZ" code. The
code sharing agreements help increase the number of the Group's international sales outlets.
Route Bases
In addition to its main route base in Guangzhou, the Group maintains certain regional route
bases in Beijing, Zhengzhou, Wuhan, Changsha, Shenzhen, Shenyang, Changchun, Dalian, Harbin,
Urumqi, Haikou, Zhuhai, Xiamen, Fuzhou, Guilin, Shantou, Guiyang, Sanya and Beihai. Most of its
regional route bases are located in provincial capitals or major commercial centres in the PRC.
The Group believes that its extensive network of route bases enables it to coordinate flights
and deploy its aircraft more effectively and to provide more convenient connecting flight schedules
and access service and maintenance facilities for its aircraft. The Group believes that the number
and location of these route bases may enhance the Group's ability to obtain the CAAC's approval of
requests by the Group to open new routes and provide additional flights between these bases and
other destinations in China. Current regulations of the CAAC generally limit airlines to operations
principally conducted from their respective route bases.
The Chinese Government approved a new Guangzhou airport project, which commenced construction
in 2000 and completed in August 2004. The commencement of operation of the new Guangzhou Baiyun
International Airport which is the main hub of the Group, provides a wider platform of development
for the operations of the Company.
Moreover, the Group has successfully secured the exclusive right to use Terminal No. 1 of the
Beijing Capital International Airport, marking a substantial step in carrying out the strategy of
the Group to improve its flight routes network.
17
Table of Contents
Domestic Routes
The Group's domestic routes network serves substantially all provinces and autonomous regions
in China, including Guangdong, Fujian, Hubei, Hunan, Hainan, Guangxi, Guizhou, Henan, Heilongjiang,
Jilin, Liaoning and Xinjiang, and serves all four centrally-administered municipalities in China,
namely, Beijing, Shanghai, Tianjin, and Chongqing. In 2005, the Group's most profitable domestic
routes were the routes between Guangzhou and Beijing, Guangzhou and
Shanghai, Shenzhen and Beijing, Shanghai and Guangzhou, Shenzhen and
Shanghai, Beijing and Guangzhou, Urumqi and Beijing, Beijing and
Urumqi, Shanghai and Shenzhen, Beijing and Changchun.
Hong Kong and Macau Routes
The Group offers scheduled service between Hong Kong and Guangzhou, Kunming, Xiamen, Shantou,
Beijing, Guilin, Meixian, Haikou, Wuhan, Zhengzhou, Nanning, Changsha, Quanzhou and Sanya; and
between Macau and Fuzhou, Hangzhou and Xiamen. The Group's Hong Kong regional routes also include
routes between Hong Kong and Zhanjiang, which the Group operates on a "charter" flight basis, as explained below. The Group
believes that the routes on which it operates these "charter" flights are among its highest
yielding routes, primarily because the Group faces limited competition on such routes and is
consequently less subject to downward pricing pressures. In 2005, the most profitable Hong Kong
regional routes (other than these "charter" flights) were
those between Hong Kong and each of Wuhan,
Guangzhou, Beijing, Shantou, Guilin, Kunming and Zhengzhou.
The Group's "charter" flights are regularly scheduled flights, but permission to operate these
flights is subject to monthly review by the CAAC and the Civil Aviation Department of the Hong Kong
SAR. The CAAC has informally indicated that it primarily considers market demand and airline
capability in granting permission for such flights. The Group has been able to maintain all of the
Hong Kong regional routes which it operates on a "charter" flight basis and believes that demand on
such routes will continue. In 2005, the Group conducted a total of 17,807 flights on its Hong Kong
and Macau routes, accounting for approximately 34.4% of all passengers carried by
Chinese airlines on routes between Hong Kong or Macau and destinations in China.
International Routes
The Group is the principal Chinese airline connecting the rapidly developing Pearl River Delta
region of China to Southeast Asia, with 29 routes serving 11 Southeast Asian destinations,
including Singapore and major cities in Indonesia, Thailand, Malaysia, the Philippines, Vietnam and
Laos. In 2005, the Group's most profitable international routes were those between Seoul and Dalian, Guangzhou and Tokyo. The Group believes that, among Chinese airlines, it is
well-positioned to benefit from the business opportunities arising out of increased air traffic and
the growing economic relationships between China and Southeast Asian countries.
In addition to the 29 routes serving 11 Southeast Asian destinations, the Group operates 45
other international routes providing scheduled services to Amsterdam, Sharjah, Osaka, Tokyo,
Fukuoka, Seoul, Los Angeles, Sydney, Melbourne, Dubai and Paris.
Aircraft Fleet
The Group's fleet plan in recent years has emphasized expansion and modernization through the
acquisition of new aircraft, the acquisition of existing aircraft in conjunction with our
acquisition of CNA and XJA, and the retirement of less efficient, older aircraft. As of December
31, 2005, the Group operated a fleet of 261 aircraft with an average age of 7.19 years. Most
aircraft of the Group are Boeing and Airbus aircraft. The Group has the largest fleet among Chinese
airline companies. Most of the aircraft operated by the Group are leased pursuant to various types
of leasing arrangements.
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Table of Contents
The following table sets forth certain information regarding the Group's fleet of 261 aircraft
as of December 31, 2005.
Average
Number of
Average age
Passenger
Model
Aircraft
(years)
Capacity
Boeing 777-200
4
9.53
380
Boeing 777-21B
6
7.20
292
Boeing 757-200
38
11.12
200
Boeing 747F
2
3.42
n/a
Boeing 737-800
15
2.32
167
Boeing 737-700
29
2.85
138
Boeing 737-500
15
12.80
130
Boeing 737-300
31
11.89
145
Airbus 300-600
6
10.96
272
Airbus 319-100
21
1.05
128
Airbus 320-200
30
5.38
158
Airbus 321-100
10
2.50
182
Airbus 330-200
4
0.72
264
McDonnell Douglas 82
23
14.63
144
McDonnell Douglas 90
13
7.85
157
Embraer 145 Jet
6
1.23
50
Cessna 208B
3
3.50
14
ATR-72
5
7.95
72
261
During 2005, the Group continued to expand and modernize its aircraft fleet. In 2005, the
Group's major aircraft transactions included:
The addition of seven Airbus 319-100, two Boeing 737-700 and three Boeing 737-800 aircraft
under operating lease and addition of one McDonnell Douglas 82 aircraft under wet lease agreement
and the return of two Boeing 737-300, three Boeing 737-500 and two Boeing 737-300 QC under
operating lease ; and
The acquisition of five Boeing 737-700 aircraft, six Airbus 320-200, four Airbus 330-200, six
Airbus 319-100, two Airbus 321-200 and one Embraer 145 Jet financed by a combination of internal
funds and long term bank loans.
In January 2005, the Company, as a lessee, entered into an agreement with an independent
lessor for operating leases of nine Boeing 737-800 aircraft for a term of seven years with total
future lease payments totalling approximately RMB1,721 million, scheduled for deliveries in 2005
and 2006.
In January 2005, China Aviation Supplies Import and Export Corporation, as a sole importing
agent, entered into, on behalf of several PRC airlines including the Group, a general purchase
agreement with the Boeing Company for the import of Boeing B7E7 aircraft. The Company, being one of
the ultimate users for thirteen of the Boeing B7E7 aircraft, endorsed the general purchase
agreement. The Company is currently in negotiation with the Boeing Company regarding the purchase
agreements on such aircraft.
In March 2005, the Company, as a lessee, entered into another agreement with an independent
lessor for operating leases of a total of twenty-five aircraft comprising five Boeing 737-700
aircraft, five Boeing 737-800 aircraft, five Airbus 320-200 aircraft and ten Airbus 321-200
aircraft with scheduled deliveries in 2006 and 2007. The terms of the
leases range from ten to
twelve years with total future lease payments totalling approximately RMB8,243 million.
In April 2005, the Company entered into a purchase agreement with Airbus SNC for the purchase
of five Airbus A380 aircraft, scheduled for deliveries in 2007 to 2010.
In August 2005, CSA as a lessee, entered into an agreement with an independent lessor for
operating leases of three 737-800 aircraft for a term of 138 months, with total future lease payments
totalling approximately Rmb986 million, scheduled for deliveries in 2006.
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Table of Contents
In November 2005, CSA, as a lessee, entered into an agreement with an independent lessor for
operating leases of five A320-200 aircraft for a term of 140 months with total future lease payments
totalling approximately Rmb1,694 million, scheduled for deliveries in 2006; and
In
August 2005, CSA entered into two separate purchase agreements with Boeing and Airbus SNC
respectively for the purchase of ten B787 aircraft, which are scheduled for deliveries in 2008 to
2010, and ten A330 aircraft, which are scheduled for deliveries in
2007 and 2008.
Aircraft Financing Arrangements
Overview
A significant portion of the Group's aircraft is acquired under long-term capital or operating
leases or long-term mortgage loans with remaining terms to maturity ranging from one to fifteen
years. As of December 31, 2005, 65 of the Group's 261 aircraft were operated under capital leases,
86 were operated under operating leases, 51 were financed by long-term mortgage loans, while the
remaining were acquired either with cash proceeds or acquired by exercising the purchase options
upon expiry of the respective capital leases. The Group's planned acquisition of aircraft in the
foreseeable future will generally be made pursuant to operating
leases or capital leases. The Group's determination as to its acquisition strategy depends on the Group's
evaluation at the time of its capacity requirements, anticipated deliveries of aircraft, the
Group's capital structure and cash flow, prevailing interest rates and other general market
conditions.
The following table sets forth, as of December 31, 2005, the number of aircraft operated by
the Group pursuant to capital and operating leases and the remaining terms, expressed in years, of
such leases.
Average
Capital
Operating
Remaining
Model
Lease
Lease
Lease Term
Boeing 777-200 and 777-21B
5
4
4.48
Boeing 757-200
—
15
3.10
Boeing 737-700
—
10
5.60
Boeing 737-800
—
3
8.17
Boeing 737-500
—
15
0.99
Boeing 737-300
4
10
1.32
Airbus 300-600
6
—
1.20
Airbus 319-100
6
15
9.05
Airbus 320-200
24
6
4.35
Airbus 321-100
6
—
8.02
Airbus 330-200
4
—
11.28
McDonnell Douglas 82
—
8
2.17
McDonnell Douglas 90
10
—
1.69
65
86
Capital Leases
As of December 31, 2005, the Group's aggregate future minimum lease payments (including future
finance charges) required under its capital leases were RMB18,615 million (US$2,307 million). As of
year end 2005, a majority of the Group's capital leases had original terms ranging from ten to
fifteen years from the date of delivery of the relevant aircraft, and the remaining terms of these
leases ranged from one to twelve years. The Group's capital leases typically cover a significant
portion of the relevant aircraft's useful life and transfer the benefits and risks of ownership to
the Group. Under its capital leases, the Group generally has an option to purchase the aircraft at
or near the end of the lease term. As a customary in the case of capital leases, the Group's
obligations are secured by the related aircraft, as well as other collateral.
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Operating Leases
As of December 31, 2005, the Group's aggregate future minimum lease payments required under
its operating leases were RMB24,594 million (US$3,048 million). As of year end 2005, the Group's
operating leases had original terms generally ranging from eight to ten years from the date of
delivery of the relevant aircraft, and the remaining terms of these leases generally ranged from
one to ten years. Pursuant to the terms of the operating leases, the Group is obligated to make
rental payments based on the lease term, with no termination payment obligations or purchase
option, and the lessor bears the economic benefits and risks of ownership. Under its operating
leases, the Group has no option to purchase the aircraft and is required to return the aircraft in
the agreed condition at the end of the lease term. Although title to the aircraft remains with the
lessor, the Group is responsible during the lease term for the maintenance, servicing, insurance,
repair and overhaul of the aircraft.
Pursuant to capital or operating leases, the Group is obligated to indemnify the lessors
against any withholding or similar taxes that may be imposed on the lessors by taxing authorities
in China with regard to payments made pursuant to such leases. In accordance with relevant PRC tax
regulations, a PRC lessee is liable to pay PRC withholding tax in respect of any lease payments
regularly made to an overseas lessor. Depending on the circumstances, this tax is generally imposed at a fixed rate ranging from 10%
to 20% of the lease payments, or in certain cases, the interest components of such payments.
Pursuant to an approval document from the State Taxation Bureau, lease arrangements executed prior
to September 1, 1999 are exempt from PRC withholding tax. The PRC withholding tax payable in
respect of the operating leases executed after September 1, 1999
of RMB8 million, RMB23 million and
RMB55 million during 2003, 2004 and 2005 respectively, have been included as part of the operating
lease charges.
Aircraft Flight Equipment
The jet engines used in the Group's aircraft fleet are manufactured by General Electric
Corporation, Rolls-Royce plc, United Technologies International, Inc., CFM International, Inc. and
International Aviation Engines Corporation. As of year end 2005, the
Group had 67 spare jet engines for its fleet. The Group determines its requirements for jet engines based on all
relevant considerations, including manufacturers' recommendations, the performance history of the
jet engines and the planned utilization of its aircraft. Rotables and certain of the expendables
for the Group's aircraft are generally purchased by Southern Airlines (Group) Import & Export
Trading Corporation ("SAIETC"), a subsidiary of CSAHC acting as agent for the Group, in
consideration of an agency fee. The Group arranges the ordering of aircraft, jet engines and other
flight equipment for the Airline Subsidiaries and keeps an inventory of rotables and expendables
for the Airline Subsidiaries.
Aircraft Maintenance
A major part of the maintenance for the Group's fleet other than overhauls of jet engines is
performed by GAMECO, a jointly controlled entity established by the Company, Hutchison Whampoa
("Hutchison") and South China International Aircraft Engineering Company Limited, consistent with
the Group's strategy to achieve fully integrated airline operations and to assure continued access
to a stable source of high quality maintenance services. The remaining part of the maintenance for
the Group's fleet other than overhauls of jet engines is performed by service providers in China
and overseas. GAMECO performs all types of maintenance services, ranging from maintenance
inspections performed on aircraft before, after and between flights ("line maintenance services")
to major overhaul performed at specified intervals. GAMECO was the first of three aircraft
maintenance facilities in China having been certified as a repair station by both the CAAC and the
FAA. In March 1998, GAMECO received an approval certificate from the United Kingdom Civil Aviation
Authority for the repair and maintenance of aircraft and aircraft engines.
The Group believes that GAMECO performs major maintenance checks on the Group's aircraft
within time periods generally consistent with those of large international airline maintenance
centers. GAMECO's repair and maintenance capabilities include overhaul of more than 90% of the
Group's aircraft. Although rotables for the Group's aircraft are generally imported through SAIETC,
a portion of expendables and other maintenance materials are directly imported by GAMECO. GAMECO
also provides line maintenance services to 7 other Chinese airlines and 19 international
airlines. GAMECO provides heavy maintenance services to 5 other Chinese airlines and 11
international airlines.
The Company and GAMECO had entered into an Aircraft Maintenance and Engineering Agreement for
the provision of aircraft repair and maintenance services. On
May 17, 1996, the Company and GAMECO
entered into an agreement regarding the fee arrangement for the provision of such repair and
maintenance services (the "Fee Agreement"). Pursuant to the Fee Agreement and subsequent
agreements, GAMECO charged the Company for expendables at cost plus 16%, and labour costs at
US$30 per hour during 2005. For the year ended December 31, 2005, the amount incurred by the
Group for such repair and maintenance services was RMB535 million.
Overhauls of jet engines are performed by overseas qualified service providers in Germany,
Malaysia, Canada and England. Starting from 2003, MTU Maintenance Zhuhai Co., Ltd., ("MTU Zhuhai")
a jointly controlled entity of the Company and MTU Aero Engines Gmbh., also performed overhauls of
certain jet engines for the Group. For the year ended December 31, 2005, repair fees amounting to
RMB583 million were paid to MTU Zhuhai.
21
Table of Contents
Safety
The Group endeavors to maintain strict compliance with all laws and regulations applicable to
flight safety. In addition, the Group has adopted measures to eliminate or minimize factors that
may impair flight safety, including specialized training programs and safety manuals. The Air
Safety Management Department of the Company implements safety-related training programs on an
ongoing basis in all of the Group's operations to raise the safety awareness of all employees. As a
result, overall flight safety has gradually improved. There were no serious incidents involving
casualty or flight damage throughout the three years ended December 31, 2005. For minor "incidents"
which include various events and conditions prescribed by the CAAC which do not involve serious
personal injury or material damage to flight equipment, the Group has kept the number consistently
below the standard prescribed by the CAAC. For example, the Company's "flight incident" ratio was
0.13, 0.13 and 0.13 in 2003, 2004 and 2005, respectively. In comparison, CAAC's
published maximum acceptable flight incident ratio was 1.3 in 2003
and 0.9 in 2004 and 0.29 in 2005. This ratio is defined as the occurrence of one incident for every 10,000 hours of
flight time.
Jet Fuel
Jet fuel costs typically represent a major component of an airline's operating expenses. The
Group's jet fuel costs for 2005 accounted for 30.1% of the Group's operating expenses. Like all
Chinese airlines, the Group is generally required by the Chinese Government to purchase its jet
fuel requirements from regional branches of CAOSC and Bluesky Oil Supplies Company, except at the
Shenzhen, Zhuhai and Sanya airports which are supplied by Sino-foreign joint ventures in which
CAOSC is a joint venture partner. CAOSC is a State-owned organization controlled and supervised by
the CAAC that controls the importation and distribution of jet fuel throughout China.
Jet fuel obtained from CAOSC's regional branches is purchased at uniform prices throughout
China that are determined and adjusted by CAOSC from time to time with the approval of the CAAC and
the pricing department of the National Development and Reform Commission ("NDRC") based on market
conditions and other factors. As a result, the costs of transportation and storage of jet fuel in
all regions of China are spread among all domestic airlines. Jet fuel costs in China are influenced
by costs at State-owned oil refineries and limitations in the transportation infrastructure, as
well as by insufficient storage facilities for jet fuel in certain regions of China.
Prior to 1994, domestic jet fuel prices were generally below international jet fuel prices.
The Chinese Government had gradually increased domestic jet fuel prices in order to reflect more
accurately the costs of supplying jet fuel in China. As a result, domestic jet fuel prices have
become higher than those in the international market since the beginning of 1994. With the WTO
entry, the jet fuel price in China will probably be trimmed by the market force to be in line with
the international market.
CAOSC's maximum fuel price in 2005 was RMB5,220 per ton. The average price paid by the Group
in 2005 was RMB4,846 per ton, which represents a 28.47% increase from that of 2004.
According
 to the Notice of the National Development and Reform Commission
("NDRC") and the Civil Aviation
Administration of China ("CAAC") on Issues Relating to Introduction of the Fuel Surcharge for
Domestic Routes, domestic airlines imposed fuel surcharges for all the domestic routes (excluding
those from the mainland PRC to Hong Kong and Macau) with effect from
August 1, 2005 (based on
flight time). On February 16, 2006, the NDRC and CAAC released a supplementary document on Issues
Relating to the Introduction of Fuel Surcharge for Domestic Routes, stating that due to the rising
 jet fuel price, the period of imposition of fuel surcharge by airlines was extended. On 28 March
2006, the NDRC and CAAC released another supplementary document on Issues Relating to the
Introduction of Fuel Surcharge for Domestic Routes, thereby adjusting the amount of fuel
surcharges from RMB20 to RMB30 per passenger for distance flown being less than 800 kilometres,
and from RMB40 to RMB60 for distance exceeding 800 kilometres, during the period temporarily
from April 10, 2006 to October 10, 2006. The introduction of fuel surcharge and the extension of
the duration of the same will help relieve, to a certain extent, the
burden of high jet fuel cost on
the Group.
In addition to purchases of jet fuel from CAOSC, the Group is also permitted by the Chinese
Government to purchase a portion of its jet fuel requirements for its international flights from
foreign fuel suppliers located outside China at prevailing international market prices. Jet fuel
purchased from such sources outside China accounted for approximately 20% of the Group's total jet
fuel consumption in 2005.
Flight Operations
Flight operations for the Group's flights originating in Guangzhou are managed by the
Company's flight operations and marketing divisions, which are responsible for formulating flight
plans and schedules consistent with route and flight approvals received from the CAAC. The
Company's flight operations center in Guangzhou is responsible for the on-site administration of
flights, including the dispatch and coordination of flights, deployment of aircraft, ground
services and crew staffing. In addition, each of the Airline Subsidiaries maintains flight
operations centers at all servicing airports for on-site administration of their flights. The
Company's general dispatch offices are responsible for monitoring conditions on the Group's route
network, administering the Group's flight plans, collecting and monitoring navigation data and
analyzing and monitoring airport conditions.
22
Table of Contents
To enhance its management of flight operations, the Group's computerized flight operations
control system (SOC) began operation in May 1999. The system utilizes advanced computer and
telecommunications technology to manage the Group's flights on a centralized, realtime basis. The
Group believes that the system will assist it to (i) compile flight schedules more efficiently;
(ii) increase the utilization of aircraft; (iii) allow real-time tracking of all of the Group's
flights; and (iv) improve coordination of the Group's aircraft maintenance and ground servicing
functions.
Training of Pilots and Flight Attendants
The Group believes that its pilot training program which was established in cooperation with
the CAAC affiliated Beijing Aeronautics and Aviation University (the "BAAU") has significantly
improved the quality of the training received by the Group's pilots and has helped maintain the
quality of the Group's staff of pilots at a level consistent with the expansion of operations
called for by the Group's business strategy.
In the Group's pilot training program, trainees have two years of theoretical training at the
BAAU. After successful completion of academic and physical examinations, students receive flight
training for a period of approximately 20 months at China Southern West Australian Flying College
Pty Ltd. (the "Australian Pilot College"), a company that is 65% owned by the Company and 35% owned
by CSAHC. Each student at the Australian Pilot College is required to fly at least 230 hours before
being awarded a flight certificate. Graduates of the BAAU and the Australian Pilot College are
hired by the Group as trainee pilots after passing a CAAC-administered examination to obtain a
pilot license. The total training period for the Group's trainee pilots is approximately five
years. About 110 trainee pilots graduated from the Australian Pilot College each year.
Prior to January 2003, as part of the pilot training program, the Group also operated a flight
simulator training center in Zhuhai, Guangdong Province (the "Zhuhai Training Center"), which was
equipped with simulators for all models of aircraft currently operated by the Group. Trainee pilots
received their initial training in the operation of a specific aircraft at the Zhuhai Training
Center, which also provided training to pilots from other Chinese airlines. Such flight simulation
training has been shifted to Zhuhai Xiang Yi Aviation Technology Company Limited ("Zhuhai Xiang
Yi), a jointly controlled entity between the Company and CAE International Holdings Limited, since
January 2003. Zhuhai Xiang Yi currently leases the flight simulation facilities of Zhuhai Training
Center from the Group and provides flight simulation training services to the Group.
The Group's pilots are required to be licensed by the CAAC, which requires an annual
recertification examination. The Group's pilots attend courses in simulator training twice annually
and in simulator emergency procedures annually. The Group also conducts regular advanced training
courses for captains and captain candidates. Pilots advance in rank based on number of hours flown,
types of aircraft flown and their performance history.
The Group conducts theoretical and practical training programs for its flight attendants at
its Flight Attendants Training Center in Guangzhou (the "Guangzhou Training Center"). The Guangzhou
Training Center is equipped with computerized training equipment, as well as simulator cabins for
all models of aircraft currently operated by the Group. At the Guangzhou Training Center, flight
attendants of the Group receive comprehensive training in areas such as in-flight service,
emergency evacuation and water rescue.
Ground Services
The Group makes arrangements with airport authorities, other airlines or ground services
companies for substantially all ground facilities, including jet-ways, waiting areas, ticket
counters and support services buildings, at each airport that it serves. The Group pays landing,
parking and other fees to such airports, including Baiyun International Airport in Guangzhou. At
domestic airports, such fees are generally determined by the CAAC.
At new Baiyun International Airport in Guangzhou, the Group operates its own passenger
check-in, cargo, mail and baggage handling, aircraft maintenance and cleaning services. The Group
also provides such services to other airlines that operate in new Baiyun International Airport.
Ground services at the airports in Shenzhen, Changsha,Wuhan, Zhengzhou, Haikou, Zhuhai,
Xiamen, Fuzhou, Guilin, Shantou, Guiyang and Beihai are primarily operated directly by the Group.
Ground services at other airports in China are provided to the Group by local airport authorities
or local airlines pursuant to various service agreements. Ground services and other services at
airports outside China are provided to the Group by foreign services providers pursuant to various
service agreements with such parties. All such agreements of the Group are short term and otherwise
on terms that are customary in the industry.
23
Table of Contents
Air Catering
The
Company owns a 75% equity interest in Guangzhou Nanland Air Catering Company Limited
("Nanland"). Nanland provides in-flight meals, snacks, drinks and related services for all of the
Group's flights originating in Guangzhou and substantially all other flights departing from new
Baiyun International Airport. The Group contracts with various air catering suppliers with respect
to in-flight catering services for flights originating from other airports, generally on an annual
basis and otherwise on terms that are customary in the industry.
Cargo and Mail
The Group also provides air cargo and mail services. A significant portion of these services
is combined with passenger flights services. Currently, the Group also has two Boeing 747-400
freighters servicing three international cargo routes, Shenzhen to
Chicago and Shenzhen to Shanghai to Belgium and Shanghai
to Amsterdam.
Currently, the Group conducts its cargo business primarily through its cargo division in
Shenzhen. To further tap into the growing cargo market, the Group has commenced the construction of
a cargo centre in the Guangzhou new airport in 2004 and the construction was completed in 2005.
Sales, Reservations and Marketing
Passenger Ticket Sales and Reservations
The Group's ticket sales and reservations are conducted by or through independent sales agents
and the Group's own network of exclusive sales offices as well as the CAAC's sales offices and
CSAHC's affiliates. The Group has sales offices in Guangzhou and its other route bases. In
addition, the Group maintains regional sales offices in other cities in China, including Beijing
and Shanghai. The Group maintains international sales offices in Bangkok, Manila, Hanoi, Ho Chi
Minh City, Singapore, Kuala Lumpur, Penang, Jakarta and Phnom Penh in Southeast Asia, as well as in
Sendai, Toyame, Hiroshima, Nagoya, Niigata, Osaka, Fukuoka, Tokyo,
Seoul, Daejeon, Daegu, Busan Amsterdam, Los Angeles, Sydney,
Paris, Melbourne and Sharjah.
In Hong Kong, ticket sales and reservations services are provided to the Group by China
National Aviation Corporation and Nanlung Travel Agency Limited (a subsidiary of CSAHC) for a
commission of 3% – 9% of the ticket price. The Group also has agency agreements
with airlines in the Asia-Pacific region, Europe, the United States and Africa for the processing
of ticket sales and reservations on a reciprocal basis. In 2005,
approximately 30%
of all ticket sales for the Group's scheduled flights were made by the Group's and CAAC's network
of sales offices and CSAHC's affiliates. The Group also sells tickets and accepts reservations
through an extensive network of non-exclusive independent sales agents, substantially all of whom
operate in cities throughout China, with the remainder operating principally in Hong Kong and other
Southeast Asian destinations served by the Group. Under the agency agreements with these sales
agents, the Group pays commissions based on the value of tickets sold. The Group pays independent
sales agents in China a commission of 3% of the ticket price, and pays independent
sales agents outside China a commission ranging from 5% – 9% of the ticket price.
Sales agents are typically permitted to withhold their commission from the proceeds of ticket sales
that are remitted to the Group. In 2005, independent sales agents
accounted for approximately 70% of the Group's ticket sales for its scheduled flights.
Substantially all of the Group's sales offices and agents in China are linked electronically
to the CAAC's computerized ticketing and reservations system, which is in turn linked to all
domestic airlines for flights throughout China. The Group has also entered into membership
agreements with several international reservation systems, including ABACUS in Southeast Asia,
SABRE and GALILEO in the United States, AMADEUS in Europe and INFINI in Japan. These systems
facilitate reservations and sales of tickets for the Group's international flights.
Cargo
The Group's cargo and mail services are promoted through its own cargo divisions and
independent cargo agents both within and outside China that track available space among all
airlines. In particular, the Group employs a number of cargo agents in the Pearl River delta
region. The Group generally pays such agents a commission of 4% – 5% of the
relevant cargo freight rate for domestic and international services, respectively.
24
Table of Contents
Promotional and Marketing Activities
The Group engages in regular promotional and marketing activities in an effort to increase its
market share. The Group's promotional and marketing activities for domestic routes emphasize
safety, passenger comfort and the frequency of the Group's flights. The Group's promotional and
marketing activities for international and Hong Kong regional passengers emphasize the Group's
quality of service, extensive route network in China and greater frequency of flights relative to
other Chinese airlines. In addition, the Group also promotes and markets its Hong Kong regional and
international routes on the basis of price.
The Group has been seeking to increase its name recognition by offering new services to
passengers. For example, the Group was the first Chinese airline to provide off-airport check-in
services. The Group also offers transfer and baggage "through-handling" services to passengers
connecting to other airlines, including passengers connecting in Hong Kong for flights to Taiwan.
To enhance relationships with its passengers, the Group has launched two frequent flyer
programs, namely the "China Southern Airlines Sky Pearl Club", and the "Egret Mileage Plus". By the
end of 2005, the Group had approximately 4,055,600 members under these programs.
Regulation
The Chinese commercial aviation industry is subject to a high degree of regulation and
oversight by the CAAC. Regulations and policies issued or implemented by the CAAC encompass
substantially all aspects of airline operations, including the approval of domestic, Hong Kong
and Macau and international route allocation, published airfares, aircraft acquisition, jet fuel
prices and standards for aircraft maintenance, airport operations and air traffic control. The
Civil Aviation Law, which became effective in March 1996, provides a framework for regulation of
many of these aspects of commercial aviation activities. Although China's airlines operate under
the supervision and regulation of the CAAC, they are accorded an increasingly significant degree of
operational autonomy, including with respect to the application for domestic, Hong Kong and Macau
and international routes, the allocation of aircraft among routes, the purchase of flight
equipment, the pricing of air fares within a certain range, the training and supervision of
personnel and their day-to-day operations.
As an airline providing services on international routes, the Group is also subject to a
variety of bilateral civil air transport agreements that provide for the exchange of air traffic
rights between China and various other countries. In addition, China is a contracting state, as
well as a permanent member, of the International Civil Aviation Organization (the "ICAO"), an
agency of the United Nations established in 1947 to assist in the planning and development of
international air transport, and is a party to many other international aviation conventions. The
ICAO establishes technical standards for the international aviation industry. The Group believes
that it, in all material respects, complies with all such technical standards.
Route Rights
Domestic Routes
. The right of any Chinese airline to carry passengers or cargo on any domestic
route must be obtained from the CAAC. Non-Chinese airlines are not permitted to provide domestic
air service between destinations in China. The CAAC's policy is to assign a domestic route to the
Chinese airline that is best suited to serve the route based, in part, on the location of the
airline's main or regional base at the point of origin. Under current regulations, airlines are
generally expected to operate mainly from their route bases, and flights within a particular region
are expected to be served by airlines based in that region. The Group believes that these
regulatory parameters benefit airlines, such as the Group, that have a large number of regional
route bases. The CAAC also considers other factors that may make a particular airline suitable to
operate a domestic route, including the applicant's general operating authority, compliance with
pricing regulations and regulations applicable to safety and service quality, market demand, the
ability of the applicant in terms of its existing routes, and airport facilities and related
support services.
The CAAC considers market conditions for a domestic route in determining whether the route
should be allocated to one or more airlines. The CAAC requires the passenger load factor on a
particular route to reach 75% before additional flights may be added on that route. Airlines
serving the route are given priority for such additional flights, and only if such airlines cannot
operate more flights will the CAAC permit another airline to commence service.
Hong
Kong and Macau Routes
. Hong Kong and Macau routes and landing rights are derived from
agreements between the Chinese Government and the government of the Hong Kong SAR, and between the
Chinese Government and the government of Macau SAR. Such rights are allocated by the CAAC among the
four Chinese airlines permitted to fly to Hong Kong or Macau. The Group understands that the criteria for determining whether a Hong Kong and Macau route
will be allocated to a particular airline, include market demand, the ability of the airline to
service the route and the appropriateness of the airline's aircraft for such route.
25
Table of Contents
A number of
Hong Kong routes are operated by Chinese airlines on a "charter" flight basis. Permission
to operate these flights is in theory subject to monthly review by the CAAC and the Hong Kong Civil
Aviation Department. The CAAC has informally indicated that it primarily considers market demand
and airline capability in granting permission for such flights.
International Routes
. International route rights, as well as the corresponding landing rights,
are derived from air services agreements negotiated between the Chinese Government, through the
CAAC, and the government of the relevant foreign country. Each government grants to the other the
right to designate one or more domestic airlines to operate scheduled service between certain
destinations within each of such countries. Upon entering into an air services agreement, the CAAC
determines the airline to be awarded such routes based on various criteria, including the
availability of appropriate aircraft, flight and management personnel, safety record, the overall
size of the airline, financial condition and sufficiency of assets to bear civil liabilities in
international air services. These route rights may be terminated by the CAAC under special
circumstances.
The criteria for determining whether an international route will be allocated to a second
airline generally include (i) the terms of the relevant bilateral civil aviation agreement; (ii)
consistency with overall national plans and the national interest and the enhancement of reasonable
competition; and (iii) whether the international airports to be used are sufficient for the
aircraft flown and employ security measures consistent with international standards.
In addition, if the relevant bilateral civil aviation agreement permits more than one Chinese
airline to operate a particular international route, the CAAC will only permit a second airline to
operate on such route if the number of passengers carried annually exceeds 100,000 and if there is
a minimum average load factor of 68% for routes with at least five weekly flights by Chinese
airlines, or 80% for routes with four or fewer weekly flights by Chinese airlines.
Air Fare Pricing Policy
Pursuant to "Pricing Reform of Domestic Civil Aviation" as approved by the State Council of
the PRC effective on April 20, 2004, prices on domestic routes now fluctuate freely within a
predetermined range. Instead of direct supervision by setting prices of air tickets through local
price bureau, the government now provides guidance on domestic flights and domestic civil aviation
is controlled by the government indirectly. Market-oriented pricing policy was introduced and
pricing system has been adjusted as a result of the above pricing reform.
Published air fares of Chinese airlines for the Hong Kong and Macau routes are determined by
the CAAC and the relevant civil aviation authorities in Hong Kong or Macau, subject to consultation
between the relevant Chinese airlines and Hong Kong or Macau airlines. Airlines may offer discounts
on flights on their Hong Kong regional routes.
Published air fares of Chinese airlines for international routes are determined through
consultation between the relevant Chinese airlines and foreign airlines in accordance with the
civil aviation agreements between the Chinese Government and the relevant foreign government,
taking into account the international air fare standards established through the International Air
Transport Association. All air fares for international routes must be approved by the CAAC.
Discounting of published international air fares is permitted.
Acquisition of Aircraft and Flight Equipment
The CAAC requires all Chinese airlines to acquire their aircraft through China Aviation
Supplies Import and Export Corporation ("CASC"), an entity controlled by the CAAC. If a Chinese
airline plans to acquire an aircraft, the airline must first seek approval from the CAAC and NDRC.
The airline must, as a condition of approval, provide specific acquisition plans, which are subject
to modification by the CAAC and NDRC. If the CAAC and NDRC approve an aircraft acquisition, the
airline negotiates the terms of the acquisition with the manufacturer together with CASC because
CASC possesses the license required to import or export aircraft, and CASC receives a commission in
respect thereof. Most Chinese airlines are also required to acquire their aircraft engines, spare
parts and other flight equipment through CASC. The Company and a few other Chinese airlines are
permitted to import jet engines and other flight equipment for their own use without the
participation of CASC. In the case of the Company, SAIETC acts as its importer agent and is paid an
agency fee for its services.
Jet Fuel Supply and Pricing
26
Table of Contents
CAOSC and Bluesky Oil Supplies Company, companies controlled and supervised by the CAAC, are
the only jet fuel supply companies in China, with the exception of the joint venture jet fuel
supply companies that supply the Shenzhen, Zhuhai and Sanya airports, in each of which CAOSC is a
partner. Airlines are generally not permitted to buy jet fuel from other suppliers in their
domestic operations, since the direct import of jet fuel for domestic purposes is prohibited. As a
result, all Chinese airlines purchase their domestic jet fuel supply requirements (other than in
respect of their Shenzhen, Zhuhai or Sanya operations) from the seven regional branches of CAOSC.
Jet fuel obtained from such regional branches is purchased at uniform prices throughout China that
are determined and adjusted by CAOSC from time to time with the approval of the CAAC and the
pricing department of the NDRC based on market conditions and other factors.
Safety
The CAAC has made the improvement of air traffic safety in China a high priority and is
responsible for the establishment of operational safety, maintenance and training standards for all
Chinese airlines. The Chinese airlines are required to provide monthly flight safety reports to the
CAAC, including reports of flight or other incidents or accidents and other safety related problems
involving such airline's aircraft occurring during the relevant reporting period. The CAAC
periodically conducts safety inspections on individual airlines.
The CAAC oversees the standards of all Chinese airline pilots through its operation of the
CAAC Aviation College. The CAAC Aviation College is a monitoring unit located in Tianjin which
implements a uniform pilot certification process applicable to all Chinese airline pilots and is
responsible for the issuance, renewal, suspension and cancellation of pilot licenses. Every pilot
is required to pass CAAC-administered examinations before obtaining a pilot license and is subject
to an annual recertification examination.
All aircraft operated by Chinese airlines, other than a limited number of leased aircraft
registered in foreign countries, are required to be registered with the CAAC. All aircraft operated
by Chinese airlines must have a valid certificate of airworthiness, which is issued annually by the
CAAC. In addition, maintenance permits are issued to a Chinese airline only after its maintenance
capabilities have been examined and assessed by the CAAC. Such maintenance permits are renewed
annually. All aircraft operated by Chinese airlines may be maintained and repaired only by
CAAC-certified maintenance facilities, whether located within or outside China. Aircraft
maintenance personnel must be certified by the CAAC before assuming aircraft maintenance posts.
Security
The CAAC establishes and supervises the implementation of security standards and regulations
for the Chinese commercial aviation industry. Such standards and regulations are based on Chinese
laws, as well as standards developed by international commercial aviation organizations. Each
airline and airport in China is required to submit to the CAAC an aviation security handbook
describing specific security procedures established by such airline or airport for the day-to-day
operations of commercial aviation and procedures for staff training on security. Such security
procedures must be based on relevant CAAC regulations and international commercial aviation
treaties. Chinese airports and airlines that operate international routes must also adopt security
measures in accordance with the requirements of the relevant international agreements.
Noise and Environmental Regulation
All airlines in China must comply with the noise and environmental regulations of the PRC
State Environmental Protection Agency. Applicable regulations of the CAAC permit Chinese airports
to refuse take-off and landing rights to any aircraft that does not comply with noise regulations.
Chinese Airport Policy
The CAAC supervises and regulates all civilian airports in China. The local government of the
PRC manages the administration of most civilian airports in China, including the new Baiyun
International Airport as of 2005, with limited exceptions. Airports in China are also subject to
regulation and ongoing review by the CAAC, which determines take-off and landing charges, as well
as charges for the use of airports and airport services.
Competition
The CAAC's extensive regulation of the Chinese commercial aviation industry has had the effect
of managing competition among Chinese airlines. Nevertheless, competition has become increasingly
intense in recent years due to a number of factors, including relaxation of certain regulations by the CAAC, an increase in the number of Chinese airlines
and an increase in the capacity, routes and flights of Chinese airlines.
27
Table of Contents
In the Chinese aviation industry, the three dominant airlines are the Group, Air China and
China Eastern Airlines ("China Eastern"). In 2005, these three airlines together controlled
approximately 74.84% of the commercial aviation market in China as measured by
passengers carried.
Most major Chinese airlines have in recent years significantly expanded their fleets, while at
the same time, passenger traffic has not increased proportionately. This has resulted in a
reduction in the passenger load factors for most Chinese airlines. As a result, Chinese airlines
are required to be more competitive with respect to, for example, quality of service, including
ticketing and reservations, in-flight services, flight scheduling and timeliness.
The Group expects that competition in China's commercial aviation industry will continue to be
intense. The Group will also face increasing competition from alternative means of transport, such
as highway and rail, as China's transportation infrastructure improves.
Relative to other Chinese airlines, however, the Group believes that it possesses certain
competitive advantages. The Group has the most extensive route network and the largest number of
regional route bases among Chinese airlines, which the Group believes places it in a favorable
position in the route allocation process. The Group also has the largest aircraft fleet of any
Chinese airline, which, together with the Group's planned aircraft acquisitions, will permit the
Group to expand its operations and to improve the deployment of the aircraft in its fleet. The
Group also believes that its dominant presence in the populous and economically developed southern
and central regions of China provides it with a competitive advantage in attracting new customers
and that its fully integrated flight training, aircraft and engine maintenance, and air catering
operations enable it to achieve and maintain high quality service to its customers.
The following table sets forth the Group's market share of passengers carried, cargo and mail
carried and total traffic of Chinese airlines for the years indicated.
Total traffic
Passenger carried
Cargo and Mail Carried (tons)
(ton kilometers)
Industry
Group's
Industry
Group's
Industry
Group's
Year
Total
Share
Total
Share
Total
Share
(in million)
(% of total)
(in thousand)
(% of total)
(in billion)
(% of total)
1999
60.9
24.8
1,704
22.9
10.6
18.9
2000
67.2
24.9
1,967
22.5
12.3
20.0
2001
75.2
25.4
1,709
23.3
14.1
21.5
2002
85.9
25.0
2,021
23.3
16.5
21.9
2003
87.6
23.4
2,190
21.2
17.1
20.8
2004
121.2
23.3
2,770
19.7
23.1
20.2
2005
138.3
31.8
3,067
25.3
26.1
27.9
Domestic Routes
The Group competes against its domestic competitors primarily on the basis of flight schedule,
route network, quality of service, safety, type and age of aircraft and, to a lesser extent and
until recently, price. The Group competes against 10 other Chinese airlines in its various domestic
route markets. Of these competitors, the largest are two airlines owned or controlled by the
Chinese Government, and the remaining eight airlines are operated by or under the control of
various Chinese provincial or municipal governments.
28
Table of Contents
The following table sets forth the Group's market share of the passengers carried, cargo and
mail carried on departing flights and total departing flights at the ten busiest airports in China,
based on passenger volume, in 2005.
Cargo and Mail
Passenger carried
Carried
Departing flight
Airport
(% of total)
(% of total)
(% of total)
Beijing
19.14
%
19.06
%
17.95
%
Shanghai Pudong
9.86
%
5.13
%
10.38
%
Guangzhou
54.71
%
45.10
%
53.75
%
Shanghai Hongqiao
18.18
%
18.41
%
16.95
%
Shenzhen
33.08
%
31.59
%
29.98
%
Chengdu
13.99
%
17.07
%
10.72
%
Kunming
21.71
%
18.27
%
18.24
%
Hangzhou
38.31
%
32.91
%
35.00
%
Xian
14.75
%
19.69
%
10.18
%
Haikou
30.26
%
33.19
%
23.73
%
The following table sets forth the Group's market share of the passengers carried, cargo and
mail carried on departing flights and total departing flights at 8 busiest airports in southern and
central China (excluding Guangzhou, Shenzhen and Haikou, which are included in the table above),
based on passenger volume, in 2005.
Cargo and Mail
Passenger carried
Carried
Departing flight
Airport
(% of total )
(% of total)
(% of total)
Changsha
51.60
%
71.54
%
47.39
%
Wuhan Tianhe
39.60
%
43.56
%
33.79
%
Guilin
38.90
%
38.26
%
38.69
%
Sanya
43.45
%
29.70
%
40.33
%
Zhengzhou
71.79
%
61.78
%
59.17
%
Nanning
43.60
%
40.67
%
35.27
%
Zhang Jia Jie
40.45
%
80.56
%
38.33
%
Shantou
81.64
%
80.67
%
69.55
%
Hong Kong and Macau Routes
The Group dominates the routes operated by Chinese airlines between Hong Kong and Macau and
China. In 2005, the Group operated an average of more than 17,807 "charter" and
other scheduled flights per week between China and Hong Kong or Macau, accounting for approximately
34.4% of the total number of passengers carried by all Chinese airlines on the Hong
Kong and Macau routes. The Group believes that the routes on which it operates "charter" flights
are among its highest yielding routes, primarily because the Group faces limited competition on
such routes and is consequently less subject to downward pricing pressures. Dragon Air, which is a
Hong Kong-based airline, competes with the Group on many of the Group's Hong Kong and Macau routes.
Air Macau Group Ltd. ("Air Macau"), a Macau-based airline, started to operate routes in 1996
between Macau and China, including destinations such as Beijing, Shanghai, Xiamen and Wuhan. Air
Macau also operates routes between Macau and Taiwan, including flights which allow passengers to
travel between Taiwan and China through Macau. The air fares on some of Air Macau's routes are
significantly less than air fares on comparable routes of the Group. Air Macau's routes provide an
alternative to and compete with the Group's Hong Kong and Macau routes for passengers travelling
between Taiwan and China.
International Routes
The Group competes with Air China, China Eastern and many well-established foreign airlines on
its international routes. Most of these international competitors have significantly longer
operating histories, substantially greater financial and technological resources and greater name
recognition than the Group. In addition, the public's perception of the safety and service records
of Chinese airlines may adversely affect the Group's ability to compete against its Hong Kong
and Macau and international competitors. Many of the Group's international competitors have larger
sales networks and participate in reservation systems that are more comprehensive and convenient
than those of the Group, or engage in promotional activities that may enhance their ability to
attract international passengers.
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Table of Contents
Air China has the most extensive international route network among Chinese airlines. Beijing,
the hub of Air China's operations, has been the destination for most international flights to
China. The Group competes against, among other airlines, Thai Airways International, Singapore
Airlines, Malaysian Airlines System, Air China and China Eastern on flights to Southeast Asian
destinations. In the case of its European routes, the Group's competitors include Air France — KLM.
The Group faces competition on its international route from Air China and China Eastern, each of
which operates several routes between destinations in China and the United States, as well as
international airlines that fly to Los Angeles from Hong Kong. The Group competes in the
international market primarily on the basis of safety, price, timeliness and convenience of
scheduling.
Airline Subsidiaries
The Airline Subsidiaries are joint ventures established by the Company and local companies in
the provinces or special economic zones where the Airline Subsidiaries are based and are engaged in
providing airline and related services. Except for Guangxi Airlines, of which the Company has 95% equity interest, the Company owns 60% equity interest in each of the remaining Airline
Subsidiaries.
As of December 31, 2005, Xiamen Airlines operated under its own "MF" code a fleet of 34
aircraft on 96 domestic routes, 9 international route and 7 Hong Kong and Macau routes. In 2005, Xiamen Airlines carried a total of about 6.92 million
passengers, or approximately 15.7% of the passengers carried by the Group in that year, and had
RMB4,852 million in operating revenue.
As
of December 31, 2005, Shantou Airlines operated under the Group's "CZ" code 6 aircraft on
12 domestic routes, 1 international route and 1 Hong
Kong and Macau route. In 2005, Shantou Airlines carried a total of about 1.17 million passengers, or
2.7% of the passengers carried by the Group in that year. Total operating revenue of Shantou
Airlines for the year ended December 31, 2005 was RMB844 million.
As
of December 31, 2005, Guangxi Airlines operated under the
"CZ" code 5 aircraft on 15 domestic routes, 4 international
routes and 2 Hong Kong
and Macau routes. In 2005, Guangxi Airlines carried a total of about 1.03 million passengers, or
2.3% of the total number of passengers carried by the Group in that year. Total operating revenue
of Guangxi Airlines for the year ended December 31, 2005 was RMB722 million.
As
of December 31, 2005, Zhuhai Airlines operated under the
"CZ" code 5 aircraft on 10 domestic routes. In 2005, Zhuhai Airlines carried a total of about 834,000 passengers, or
approximately 1.9% of the total number of passengers carried by the Group in that year. Total
operating revenue of Zhuhai Airlines for the year ended December 31, 2005 was RMB719 million.
As
of December 31, 2005, Guizhou Airlines operated under the
"CZ" code 6 aircraft on 14 domestic routes. In 2005, Guizhou Airlines carried a total of about 1.34 million
passengers, or approximately 3.0% of the total number of passengers carried by the Group in 2005.
Total operating revenue of Guizhou Airlines was approximately RMB882 million for the year ended
December 31, 2005.
Insurance
The CAAC maintains fleet and legal liability insurance on behalf of the Group and all other
Chinese airlines with the People's Insurance Company of China ("PICC") under the PICC master
policy. The Group maintains aviation hull all risks, spares and airline liability insurance,
aircraft hull all risks and spare engines deductible insurance, aviation hull war and allied perils
policy of the type and in the amount customary in the Chinese aviation industry.
Under Chinese law, civil liability of Chinese airlines for injuries suffered by passengers on
domestic flights is limited to RMB70,000 (approximately US$8,455)
per passenger. Under the Convention for the Unification of Certain Rules Relating to International
Transportation by Air of 1929 (as amended by the protocol of 1955, the "Warsaw Convention"), unless
a separate agreement has been entered into between China and a specific country, civil liability
for injuries suffered by passengers on international flights is
limited to US$135,000 per passenger. The Group believes that it maintains adequate insurance coverage for the
maximum civil liability that can be imposed in respect of injuries to passengers under Chinese law,
the Warsaw Convention or any separate agreement applicable to the Group.
The CAAC allocates insurance premiums payable in respect of the PICC master policy to each
participating airline based on the value of the airline's insured aircraft or, in the case of
leased aircraft, based on the amount required by the terms of the lease. Insurance claims made by
any participating airline may cause the premiums paid by the Group
under the PICC master policy to increase. PICC's practice has
been to reinsure a substantial portion of its aircraft insurance
business through reinsurance brokers on the London reinsurance market.
30
Table of Contents
Intellectual Property
The Group's businesses and operations, other than the businesses and operations of Xiamen
Airlines, are conducted under the names "China Southern" and "China Southern Airlines" in both
English and Chinese. The Group uses as its logo a stylized rendition of a kapok plant. Xiamen
Airlines conducts its businesses and operations under the name of "Xiamen Airlines" in English and
Chinese and uses its own logo depicting a stylized rendition of an egret.
The names "China Southern" and "China Southern Airlines" contain Chinese words of common usage
and are therefore not eligible for registration as tradenames under current Chinese law. The kapok
logo is a trademark registered in China and recorded with the International Air Transport
Association ("IATA"), the rights to which are owned by CSAHC. The Company and CSAHC have entered
into a trademark license agreement (the "Trademark License Agreement"), pursuant to which CSAHC has
licensed to the Group the right to use the names "China Southern" and "China Southern Airlines" in
both English and Chinese and granted the Company a 10-year renewable license from 1997 to use the
kapok logo on a world-wide basis. CSAHC has retained the right to use the kapok logo in connection
with its non-airline related businesses conducted as of the date of the Trademark License Agreement
and to permit its affiliates that do not compete, directly or indirectly, with the Group to use the
kapok logo. Xiamen Airlines owns all rights to its egret logo, which is a trademark registered in
China, and recorded with the IATA.
The Company owns all rights to three trademarks, being SKY PEARL CLUB, the logo relating to
Easy Cargo 5000 and "SKY PEARL CARD" which are registered in China, and recorded with Trademark
Office of the State Administration for Industry and Commerce. Zhuhai Airlines Company Limited owns
all rights to the airline logo which is registered with the Trademark Office of the State
Administration for Industry and Commerce.
Organizational Structure
The following chart illustrates the corporate structure of the Group as of year end 2005 and
the aggregate effective equity interest of the Company in each of its principal subsidiaries,
affiliated companies and jointly controlled entities.
Note a:
Another 26% ownership interest is held by CSA's subsidiaries.
31
Table of Contents
The particulars of the Company's principal subsidiaries as of December 31, 2005 are as
follows:
Place and date of
establishment
Proportion of ownership
Name of company
/operation
interest held by the Company
Guangxi Airlines Company Limited
PRC
April 28, 1994
95
Southern Airlines (Group) Shantou Airlines Company Limited
PRC
July 20, 1993
60
Zhuhai Airlines Company Limited
PRC
May 8, 1995
60
Xiamen Airlines Company Limited
PRC
August 11, 1984
60
Guizhou Airlines Company Limited
PRC
November 12, 1991
60
Guangzhou Air Cargo Company Limited
PRC
March 31, 2004
70
Guangzhou Nanland Air Catering Company Limited
PRC
November 21, 1989
75
China Southern West Australian Flying College Pty Ltd.
Australia
January 26, 1971
65
Guangzhou Baiyun International Logistic Company Ltd
PRC
July 23, 2002
61
Xinjiang Civil Aviation Property Management Limited
PRC
February 12, 2002
51.8
Affiliated Companies and Jointly Controlled Entities
The particulars of the Group's principal affiliated companies and jointly controlled entity as
of December 31, 2005 are as follows:
Proportion of ownership
Place and date of
interest held by
establishment
Group
Name of company
/operation
effective interest
The Company
Subsidiaries
Guangzhou Aircraft Maintenance Engineering Company Limited
PRC
October 28, 1989
50
50
—
China Southern Airlines Group Finance Company Limited
PRC
June 28, 1995
49.3
32
26
Sichuan Airlines Corporation Limited
PRC
August 28, 2002
39
39
—
China Postal Airlines Limited
PRC
November 25, 1996
49
49
—
MTU Maintenance Zhuhai Co. Ltd
PRC
April 6, 2001
50
50
—
Zhuhai Xiang Yi Aviation Technology Company Limited
PRC
July 10, 2002
51
51
—
Beijing Southern Airlines Ground Service Company Limited
PRC
April 1, 2004
50
50
Certain of the Company's subsidiaries, affiliated companies and jointly controlled entities
are PRC joint ventures which have limited duration pursuant to PRC law.
Property, Plant and Equipment
For a discussion of the Group's aircraft, see Item 4, "Information on the Company — History
and development of the Company — Aircraft Fleet."
32
Table of Contents
The
Group's headquarters in Guangzhou occupy an area of approximately 149,000 square meters of land and a total gross floor area of approximately
149,000 square
meters. The Group leases from CSAHC the land in Guangzhou on which the Group's headquarters and
other facilities are located. The Group also leases from CSAHC
certain buildings at the Wuhan and
Haikou airports.
The Company's principal properties are located at its headquarters site and at its route
bases. The following table sets forth certain information with respect to the Company's properties
at its headquarters in Guangzhou and certain route bases as of the date hereof.
Land
Buildings
(in square meters)
(in square meters)
Owned
Leased
Owned
Leased
Guangzhou
9,797
80,809
514,957
1,755
Shenzhen
208,740
—
54,093
—
Zhuhai
170,062
—
18,791
—
Changsha
138,949
—
47,190
—
Zhengzhou
290,841
—
60,582
—
Haikou
5,265
—
63,570
19,633
Wuhan
—
31,061
17,335
—
Nanyang
—
—
12,156
—
The following table sets forth certain information with respect to the properties of the Airline
Subsidiaries as of the date hereof.
Land
Buildings
(in square meters)
(in square meters)
Owned
Leased
Owned
Leased
Xiamen
451,121
—
355,038
12,509
Shantou
36,931
55,407
40,624
—
Zhuhai
68,186
—
54,398
2,135
Guilin
72,563
—
73,379
139
Guizhou
259,879
—
93,390
3,533
As systems for registration and transfer of land use rights and related real property
interests in China have been implemented relatively recently, such systems do not yet
comprehensively account for all land and related property interests. The land in Guangzhou on which
the Group's headquarters and other facilities are located and the buildings that the Group uses at
its route base in Wuhan and Haikou are leased by the Company from CSAHC. However, CSAHC lacks
adequate documentation evidencing CSAHC's rights to such land and buildings, and, as a consequence,
the lease agreements between CSAHC and the Company for such land may not be registered with the
relevant authorities. Lack of registration may affect the validity of such lease agreements. There
are certain other parcels of land and buildings owned or used by the Group that lack adequate
documentation. Lack of adequate documentation for land use rights and ownership of buildings may
impair the ability of the Group to dispose of or mortgage such land use rights and buildings.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS.
The following discussion and analysis should be read in conjunction with the Financial
Statements of the Group contained elsewhere in this Annual Report. The Group maintains its books
and accounts in accordance with PRC Accounting Rules and Regulations ("PRC GAAP") and prepares its
financial statements in accordance with both PRC GAAP and IFRS. The Financial Statements contained
elsewhere in this Annual Report have been prepared in accordance with IFRS. IFRS differs in certain
significant respects from U.S. GAAP. Information relating to the nature and effect of such
differences is presented in Note 51 to the Financial Statements.
Certain
IFRS comparative figures have been restated as a result of the
changes in accounting policies. For details, please refer to item 3.
33
Table of Contents
Critical Accounting Policies
The discussion and analysis of the Group's financial condition and results of operations are
based upon the consolidated financial statements, which have been prepared in accordance with IFRS.
The preparation of such consolidated financial statements requires the Group to make estimates and
judgments that affect the reported amount of assets and liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities at the date of the consolidated financial
statements. Actual results may differ from these estimates under different assumptions or
conditions.
Critical accounting policies are defined as those that are reflective of significant judgments
and uncertainties, and potentially result in materially different results under different
assumptions and conditions. The Group believes that its critical accounting policies are limited to
those described below. For a detailed discussion on the application of these and other accounting
policies, see Note 2 to the Financial Statements.
Revenue Recognition
The Group records sales of passenger, cargo and mail tickets as "Sales in advance of
carriage", a current liability, on the consolidated balance sheet. Passenger, cargo and mail
revenues are recognized and the related current liability is reduced when the transportation is
provided. Sales in advance of carriage therefore represents ticket sold for future travel dates and
estimated future refunds and exchanges of tickets sold for past travel dates. The Group's balance of sales in
advance of carriage as of December 31, 2005 was RMB1,413 million.
Property, plant and equipment
The
Group has approximately RMB54,266 million fixed assets as of December 31, 2005. In
addition to the original cost of these assets, their recorded value is impacted by a number of
policy elections, including the estimation of useful lives and residual values and when necessary,
impairment charges.
There were no significant changes to the original estimated useful lives or residual values of
the property, plant and equipment of the Group during 2003, 2004 and 2005. The Group records
aircraft at acquisition cost. Depreciable life is determined through economic analysis, reviewing
existing fleet plans, recommendations from manufacturers and comparing estimated lives to other
airlines that operate similar fleets. Residual values are estimated based on our historical
experience with regards to the sale of aircraft and are established in conjunction with the
estimated useful lives of the aircraft. Residual values are based on current dollars when the
aircraft are acquired and typically reflect asset values that have not reached the end of their
physical life. Both depreciable lives and residual values are reviewed periodically to recognize
changes in our fleet plan and changes in conditions.
In addition, the Group evaluates fixed assets used in operations for impairment. Under IFRS,
if circumstances indicate that the net book value of an asset may not be recoverable, this asset
may be considered "impaired", and an impairment loss may be recognized in accordance with IAS 36
"Impairment of Assets". The amount of impairment loss is the difference between the carrying amount
of the asset and its recoverable amount. The recoverable amount is the greater of the net selling
price and the value in use. In determining the value in use, the Group utilizes certain
assumptions, including, but not limited to: (i) estimated fair market value of the assets, and (ii)
estimated future cash flows expected to be generated by these assets, which are based on additional
assumptions such as asset utilization, length of service the asset will be used in the Group's
operations and estimated residual values. The Group will use all readily available information in
determining an amount that is a reasonable approximation of recoverable amounts, including
estimates based on industry trends and reference to market rates and transactions. Changes to the
above estimates may have a material effect on the Group's Financial Statements. As of December 31,
2005, based on the result of evaluation, the Group considered that no impairment is required. Under
U.S. GAAP, property, plant, and equipment of the Group are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of
an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the
carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is
recognized by the amount by which the carrying amount of the asset exceeds the fair value of the
asset. During 2003, the impairment losses of RMB510 million was recognized on certain aircraft of
CNA.
Impairment loss for doubtful accounts
The
Group maintains an impairment loss for doubtful accounts for
estimated losses resulting from the inability of the debtors to make
required payments. The Group bases the  estimates of future cash
flows on the ageing of the trade receivables balance, debtors' credit-worthiness, and historical write-off experience. If the financial condition of the debtors were to deteriorate, actual write-offs would be higher than estimated.
Movements
in impairment losses for doubtful accounts are as follows:
Year ended December 31,
2004
2005
RMB
RMB
At January 1
70
92
Impairment
losses for bad and doubtful accounts
27
—
Through the
CNA/XJA Acquistions
44
—
Bad and
doubtful accounts written off
(49
)
(48
)
At December 31
92
44
34
Table of Contents
Overview
As a result of the growth in airline market, and acquisition of the airline
operations and related assets of China Northern Airlines Company ("CNA") and Xinjiang Airlines
Company ("XJA"), the Group's business benefited from the increase of transport capacity, passenger
volume and cargo and mail carried. Nevertheless, the Group is facing pressure on its operation due
to continuing increase of jet fuel cost and intensified competition.
With effect from July 21, 2005, China began to adopt a managed floating exchange rate system
based on market supply and demand of currencies, which is subject to adjustments with reference to
a basket of currencies. The exchange rate of Renminbi
("RMB") would no longer be pegged to the US
dollar only and a more flexible exchange rate system was established. The exchange rate of U.S. dollar and RMB was at USD1.00: RMB8.11. Because the Group finances its aircraft acquisitions
mainly through finance leases or bank loans in U.S. dollars, and there are a substantial amount of
transactions and obligations denominated in U.S. dollars in relation to its global purchase of jet
fuel, lease and purchase of aviation equipment as well as major repairs, in addition to the
landing fees of its international flights in the airports of other countries, the Group benefited
from the RMB appreciation. RMB appreciation has brought a one-off exchange gain to the Group and
reduced its operating costs which are denominated in foreign currencies. On the other hand, RMB
appreciation will also present the Group with a challenge in price competition in international
route operations.
According to the Notice of the National Development and Reform Commission ("NDRC") and the
Civil Aviation Administration of China ("CAAC") on Issues Relating to Introduction of the Fuel
Surcharge for Domestic Routes, domestic airlines imposed fuel surcharges for all the domestic
routes (excluding those from the mainland PRC to Hong Kong and Macau) with effect from August 1,
2005 (based on flight time). On February 16, 2006, the NDRC and CAAC released a supplementary
document on Issues Relating to the Introduction of Fuel Surcharge for Domestic Routes, stating
that due to the rising jet fuel price, the period of imposition of fuel surcharge by airlines was
extended. On March 28, 2006, the NDRC and CAAC released another supplementary document on Issues
Relating to the Introduction of Fuel Surcharge for Domestic Routes, thereby adjusting the amount
of fuel surcharges from RMB20 to RMB30 per passenger for distance flown being less than 800
kilometres, and from RMB40 to RMB60 for distance exceeding 800 kilometres, during the period
temporarily from April 10, 2006 to October 10, 2006. The introduction of fuel surcharge and the
extension of the duration of the same will help relieve, to a certain extent, the burden of high
jet fuel cost on the Group.
The Group's operating revenue is substantially dependent on the passenger and cargo traffic
volume carried, which is subject to seasonal and other changes in traffic patterns, the
availability of appropriate time slots for the Group's flights and alternative routes, the degree
of competition from other airlines and alternate means of transportation, as well as other factors
that may influence passenger travel demand and cargo and mail volume. In particular, the Group's
airline revenue is generally higher in the second and third quarters than in the first and fourth
quarters.
Like most airlines, the Group is subject to a high degree of financial and operating leverage.
A significant percentage of the Group's operating expenses is fixed costs that do not vary
proportionally based on the Group's yields or the load factors. These fixed costs include
depreciation expense, jet fuel costs, landing and navigation fees, financing costs, operating lease
payments, aircraft maintenance costs and labor for flight crew, cabin crew and ground personnel.
Thus, a minor change in the Group's yields or load factors would have a material effect on the
Group's results of operations. In addition, certain of these expenses, primarily financing costs
and operating lease payments, labor costs and depreciation do not vary based on the number of
flights flown. Thus, the Group's operating results can also be substantially affected by minor
changes in aircraft utilization rates. The Group is and will continue to be highly leveraged with
substantial obligations denominated in foreign currencies and, accordingly, the results of its
operations are significantly affected by fluctuations in foreign exchange rates, particularly for
the U.S. dollar and the Japanese yen. The Group recognized a net exchange loss of RMB59 million and
net exchange gain of RMB1,220 million in 2004 and 2005, respectively. These amounts represented
mainly unrealized exchange differences resulting from the retranslation of the foreign currency
borrowings.
A number of other external variables, including political and economic conditions in China,
tend to have a major impact on the Group's performance. The Group's financial performance is also
significantly affected by factors arising from operating in a regulated industry. As substantially
all aspects of the Group's airline operations are regulated by the PRC government, the Group's
operating revenues and expenses are directly affected by the PRC government's policies with respect
to domestic airfares, jet fuel prices and landing and navigation fees, among others. The nature and
extent of airline competition and the ability of Chinese airlines to
expand are also affected by
CAAC's control
35
Table of Contents
over route allocations. Any changes in the PRC government's regulatory policies, or
any implementation of such policies could have a significant impact on the Group's future
operations and its ability to implement its operating strategy.
Certain Financial Information and Operating Data by Geographic Region
The following table sets forth certain financial information and operating data by geographic
region for the years ended December 31, 2003, 2004 and 2005:
Year ended
2004 vs. 2003
2005 vs. 2004
December 31,
% increase/
% increase/
2003
2004
2005
(decrease)
(decrease)
Traffic
RPK (million)
Domestic
21,294
29,121
51,472
36.8
76.8
Hong Kong and Macau
778
1,203
1,549
54.6
28.8
International
4,315
6,872
8,902
59.3
29.5
Total
26,387
37,196
61,923
41.0
66.5
RTK (million)
Domestic
2,424
3,206
5,571
32.3
73.8
Hong Kong and Macau
78
120
159
53.8
32.5
International
1,059
1,337
1,554
26.3
16.2
Total
3,561
4,663
7,284
30.9
56.2
Passengers carried (thousand)
Domestic
18,259
25,002
39,545
36.9
58.2
Hong Kong and Macau
1,019
1,394
1,556
36.8
11.6
International
1,192
1,811
3,018
51.9
66.6
Total
20,470
28,207
44,119
37.8
56.4
Cargo and mail carried (thousand tons)
Domestic
379
442
639
16.6
44.6
Hong Kong and Macau
12
15
19
25.0
26.7
International
73
88
117
20.5
33.0
Total
464
545
775
17.5
42.2
Year ended
2004 vs. 2003
2005 vs. 2004
December 31,
% increase/
% increase/
2003
2004
2005
(decrease)
(decrease)
Capacity
ASK (million)
Domestic
32,590
41,330
72,107
26.8
74.5
Hong Kong and Macau
1,347
1,896
2,656
40.8
40.1
International
6,930
10,543
13,598
52.1
29.0
Total
40,867
53,769
88,361
31.6
64.3
ATK (million)
Domestic
3,772
4,773
8,352
26.5
75.0
Hong Kong and Macau
150
211
315
40.7
49.3
International
1,999
2,462
2,842
23.2
15.4
Total
5,921
7,446
11,509
25.8
54.6
Load Factors
Passenger load factor (RPK/ASK) (%)
Domestic
65.3
70.5
71.4
8.0
1.3
Hong Kong and Macau
57.8
63.4
58.3
9.7
(8.0
)
International
62.3
65.2
65.5
4.7
0.5
Overall
64.6
69.2
70.1
7.1
1.3
Overall load factor (RTK/ATK) (%)
Domestic
64.2
67.2
66.7
4.7
(0.7
)
Hong Kong and Macau
52.2
56.9
50.4
9.0
(11.4
)
International
53.0
54.3
54.7
2.5
0.7
Overall
60.1
62.6
63.3
4.2
1.1
Yield
Yield per RPK (RMB)
Domestic
0.57
0.58
0.55
1.8
(5.2
)
36
Table of Contents
Year ended
2004 vs. 2003
2005 vs. 2004
December 31,
% increase/
% increase/
2003
2004
2005
(decrease)
(decrease)
Hong Kong and Macau
0.96
0.92
0.77
(4.2
)
(16.3
)
International
0.47
0.46
0.56
(2.1
)
21.7
Overall
0.57
0.57
0.55
—
(3.5
)
Yield per RTK (RMB)
Domestic
5.40
5.53
5.30
2.4
(4.2
)
Hong Kong and Macau
10.35
9.83
8.18
(5.0
)
(16.8
)
International
2.90
3.31
4.24
14.1
28.1
Overall
4.76
5.01
5.14
5.3
2.6
Financial IFRS
Passenger revenue (RMB million)
Domestic
12,242
16,869
28,182
37.8
67.1
Hong Kong and Macau
750
1,104
1,194
47.2
8.2
International
2,018
3,127
4,952
55.0
58.4
Total
15,010
21,100
34,328
40.6
62.7
Cargo and mail revenue (RMB million)
1,955
2,244
3,091
14.8
37.7
U.S. GAAP
Passenger revenue (RMB million)
Domestic
18,679
24,773
28,182
32.6
13.8
Hong Kong and Macau
781
1,151
1,194
47.4
3.7
International
2,978
4,519
4,952
51.7
9.6
Total
22,438
30,443
34,328
35.7
12.8
Cargo and mail revenue (RMB million)
2,459
2,792
3,091
13.5
10.7
Operating Results
The historical results of operations discussed below may not be indicative of the Group's
future operating performance. In addition to the factors discussed under "Overview" above, the
Group's future operations will be affected by, among other things, changes in the aviation market,
the cost of jet fuel, aircraft acquisition and leasing costs, aircraft maintenance expenses,
take-off and landing charges, wages, salaries and benefits and other operating expenses, foreign
exchange rates and the rates of income taxes paid.
2005 Compared with 2004
The loss for 2005 attributable to equity shareholders of the Company is RMB1,848 million, as
compared to a loss of RMB48 million for 2004. The scale of operations increased as a result of
acquisition of the airline operations and related assets of CNA and XJA on December 31, 2004. The
Group's operating revenue increased by RMB14,319 million or 59.7% from RMB23,974 million in 2004 to
RMB38,293 million in 2005. Passenger load factor increased by 0.9 percentage point from 69.2% in
2004 to 70.1% in 2005. Passenger yield (in passenger revenue per RPK) decreased slightly by 3.5% to
RMB0.55. Average yield (in traffic revenue per RTK) increased by 2.6% from RMB5.01 in 2004 to
RMB5.14 in 2005. Operating expenses increased by RMB16,533 million or 71.7% from RMB23,065 million
in 2004 to RMB39,598 million in 2005. As the increase in operating revenue is smaller than the
increase in operating expenses, operating profit decreased by 243.6% from an operating profit of
RMB909 million in 2004 to an operating loss of RMB1,305 million in 2005. The Group's net
non-operating expenses decreased by 20.5%, from RMB689 million in 2004 to RMB548 million in 2005,
mainly attributable to the combined effect of increase in exchange gain of RMB1,279 million,
increase in interest expense of RMB925 million and a decrease in share of results of associates of
RMB295 million.
Operating revenue
Substantially all of the Group's operating revenue is attributable to airline and airline
related operations. Traffic revenue accounted for 97.7% and 97.4% of total operating revenue in
2005 and 2004 respectively. Passenger revenue and, cargo and mail revenue accounted for 91.7% and
8.3% respectively of total traffic revenue in 2005. The other operating revenue is mainly derived
from commission income, income from general aviation operations, fees charged for ground services
rendered to other Chinese airlines and air catering services.
Operating revenue increased by 59.7% from RMB23,974 million in 2004 to RMB38,293 million in
2005. The increase was primarily due to a 62.7% rise in passenger revenue from RMB21,100 million in
2004 to RMB34,328 million in 2005 resulting from increased traffic volume. The total number of
passengers carried increased by 56.4% to 44.12 million passengers and the ASKs increased by 64.3%
to 88,361 million in 2005. The increase in 2005 compared to 2004 was attributable to the general
increasing traffic demand in the PRC airline market and deliveries of 108 aircraft during 2005
which caused an increase in passenger capacity of 68.1%.
37
Table of Contents
Passenger yield decreased slightly by RMB0.02. RPKs increased by 66.5% from 37,196 million in
2004 to 61,923 million in 2005, primarily as a result of the increase in passengers carried.
Domestic passenger revenue, which accounted for 82.1% of the total passenger revenue in 2005,
increased by 67.1% from RMB16,869 million in 2004 to RMB28,182 million in 2005. Domestic passenger
traffic in RPKs increased by 76.8%, mainly due to an increase in passengers carried. Domestic
passenger yield decreased slightly by RMB0.03 to RMB0.55 in 2005.
Hong Kong and Macau passenger revenue, which accounted for 3.5% of total passenger revenue,
increased by 8.2% from RMB1,104 million in 2004 to RMB1,194 million in 2005. For Hong Kong and
Macau flights, passenger traffic in RPKs increased by 28.8%, while passenger capacity in ASKs
increased by 40.1%, resulting in a 5.1 percentage point decrease in passenger load factor from
2004. Passenger yield decreased from RMB0.92 in 2004 to RMB0.77 in 2005 mainly due to intensified
competition among airlines.
International passenger revenue, which accounted for 14.4% of total passenger revenue,
increased by 58.4% from RMB3,127 million in 2004 to RMB4,952 million in 2005. For international
flights, passenger traffic in RPKs increased by 29.5%, while passenger capacity in ASKs increased
by 29.0%, resulting in a 0.3 percentage point rise in passenger load factor from 2004. Passenger
yield increased by 21.7% from RMB0.46 in 2004 to RMB0.56 in 2005 mainly resulted from higher ticket
price and the increases in traffic derived from short haul routes which generally had a higher
yield than long haul routes.
Cargo and mail revenue, which accounted for 8.3% of the Group's total traffic revenue and 8.1%
of total operating revenue, increased by 37.7% from RMB2,244 million in 2004 to RMB3,091 million in
2005. The increase was attributable to the increasing traffic demand.
Other operating revenue increased by 38.7% from RMB630 million in 2004 to RMB874 million in
2005. The increase was primarily due to the general growth in income from various auxiliary
operations.
Operating expenses
Total operating expenses in 2005 amounted to RMB39,598 million, representing an increase of
71.7% or RMB16,533 million over 2004, primarily due to the total effect of increases in jet fuel
costs, maintenance expenses and aircraft and traffic servicing expenses. Total operating expenses
as a percentage of total operating revenue increased from 96.2% in 2004 to 103.4% in 2005.
Flight operations expenses, which accounted for 49.0% of total operating expenses, increased
by 86.2% from RMB10,418 million in 2004 to RMB19,394 million in 2005, primarily as a result of
increases in jet fuel costs, operating lease payments, catering expenses and labour costs for
flight personnel. Jet fuel costs, which accounted for 61.5% of flight operations expenses,
increased by 97.2% from RMB6,050 million in 2004 to RMB11,929 million in 2005 mainly as a result of
increased fuel prices and fuel consumption. Operating lease payments increased by 50.0% from
RMB1,665 million in 2004 to RMB2,497 million in 2005 primarily due to the additional rental
payments for new aircraft under operating leases. Catering expenses increased by 69.6% from RMB705
million in 2004 to RMB1,196 million in 2005 due to the increase in number of passengers carried.
Aircraft insurance costs decreased by 43.2% from RMB185 million in 2004 to RMB105 million in 2005,
mainly because of the decrease in insurance premiums in 2005. Labour costs for flight personnel
increased by 57.8% from RMB1,026 million in 2004 to RMB1,619 million in 2005, largely due to the
increase in flying hours and allowance standard.
Maintenance expenses which accounted for 11.6% of total operating expenses, increased by 32.7%
from RMB3,459 million in 2004 to RMB4,589 million in 2005. The increase was mainly attributable to
the fleet expansion in recent years.
Aircraft and traffic servicing expenses, which accounted for 14.5% of total operating
expenses, increased by 64.4% from RMB3,503 million in 2004 to RMB5,759 million in 2005. The
increase primarily resulted from a 51.8% rise in landing and navigation fees from RMB3,222 million
in 2004 to RMB4,891 million in 2005, due to an increase in number of landing and takeoffs.
38
Table of Contents
Promotional and marketing expenses, which accounted for 7.0% of total operating expenses,
increased by 43.3% from RMB1,940 million in 2004 to RMB2,780 million in 2005. The increase was
mainly resulted from the increase in sales volume, resulting in a 41.5% increase in sales
commission expenses from RMB1,062 million in 2004 to RMB1,503 million in 2005.
General and administrative expenses, which accounted for 6.2% of the total operating expenses,
increased by 85.7% from RMB1,323 million in 2004 to RMB2,457 million in 2005. This was mainly
attributable to increased scale of operations.
Depreciation and amortisation, which accounted for 11.2% of total operating expenses,
increased by 84.0% from RMB2,413 million in 2004 to RMB4,440 million in 2005, mainly resulting from
the additional depreciation charge on aircraft delivered in 2004 and 2005.
Operating(loss))/Profit
There is an operating loss of RMB1,305 million in 2005 as compared to an
operating profit of RMB909 million in 2004. This was mainly because operating revenue increased by
RMB14,319 million or 59.7% in 2005 while operating expenses increased by RMB16,533 million or 71.7%
in the same period.
Non-operating income/(expenses)
Interest expense increased by 133.9% from RMB691 million in 2004 to RMB1,616 million in 2005,
mainly due to the increase in loans and lease obligations and interest rate. Interest income
increased by 150.0% from RMB22 million in 2004 to RMB55 million in 2005, mainly attributable to the
increase of interest rate.
During 2005, the Group recorded a net exchange gain of RMB1,220 million (2004: Net exchange
loss of RMB59 million) mainly resulted from Renminbi appreciation in July 2005. Such amount
represents mainly unrealised translation exchange gain, resulting from exchange gains on translated
year end foreign currency denominated liabilities, rather than foreign exchange transactions
incurred during the year.
Taxation
The statutory income tax rate in the PRC is 33%. Except for certain branches and subsidiaries,
the Company and its subsidiaries are entitled to enjoy a preferential tax rate of 15% pursuant to
approval documents issued by the relevant tax authorities.
In 2005,
the Group recorded an income tax benefit of RMB7 million and actual effective tax rate was 0.4%
while the Group's enacted tax rate is 15%. The difference is mainly due to the fact that a
portion of tax loss is not recognized, the deferred tax effect of which is RMB135 million. In
2004, income tax expense of RMB65 million was recorded and actual effective tax rate was 30%
while the Group's enacted tax rate in 2004 was 15%. The difference is mainly due to the tax
effect of non-deductible expenses of RMB29 million.
2004 Compared with 2003
The Group recorded a net loss of RMB48 million attributable to equity shareholder for 2004, as
compared to a net loss of RMB358 million attributable to equity shareholder for 2003. The Group's
operating revenue increased by RMB6,504 million or 37.2% from RMB17,470 million in 2003 to
RMB23,974 million in 2004. Passenger load factor increased by 4.6 percentage point from 64.6% in
2003 to 69.2% in 2004. Passenger yield (in passenger revenue per RPK) remain steady and at RMB0.57
in both years. Average yield (in traffic revenue per RTK) increased by 5.3% from RMB4.76 in 2003 to
RMB5.01 in 2004. Operating expenses increased by RMB6,051 million or 35.6% from RMB17,014 million
in 2003 to RMB23,065 million in 2004. As operating revenue increased more than operating expenses,
operating profit increased by 99.3% from RMB456 million in 2003 to RMB909 million in 2004. The
Group's net non-operating expenses decreased by 30.1%, from RMB967 million in 2003 to RMB676
million in 2004, mainly attributable to a decrease in unfavourable movement in foreign exchange
differences of RMB105 million and a decrease in interest expense of RMB133 million. Overall, the
Group recorded a net loss of RMB48 million in 2004, as compared to a net loss of RMB358 million in
2003.
Operating revenue
Substantially all of the Group's operating revenue is attributable to airline and airline
related operations. Traffic revenue in 2004 and 2003 accounted for 97.4% and 97.1% respectively of
total operating revenue. Passenger revenue and, cargo and mail revenue accounted for 90.4% and 9.6%
respectively of total traffic revenue in 2004. The balance of the Group's operating revenue is
derived
39
Table of Contents
from commission income, income from general aviation operations, fees charged for ground
services rendered to other Chinese airlines and air catering services.
Operating revenue increased by 37.2% from RMB17,470 million in 2003 to RMB23,974 million in
2004. This increase was primarily due to a 40.6% rise in passenger revenue from RMB15,010 million
in 2003 to RMB21,100 million in 2004 resulting from increased traffic volume. The PRC airline
industry has fully recovered from the outbreak of severe acute respiratory syndrome ("SARS") in
China since August 2003. Coupling with the continued growth in domestic economic conditions, the
aviation traffic volume in China attained a new highest record in 2004. The total number of
passengers carried increased by 37.8% to 28.2 million passengers in 2004. The increase in 2004
compared to 2003 was attributable to the general increasing traffic demand in the PRC airline
market and deliveries of 20 aircraft (excluding effect of CNA/XJA Acquisitions) during 2004 which
caused an increase in passenger capacity of 31.6%. RPKs increased by 41.0% from 26,387 million in
2003 to RMB37,196 million in 2004, primarily as a result of an increase in passengers carried.
Passenger yield remained constant at RMB0.57.
Domestic passenger revenue, which accounted for 79.9% of the total passenger revenue in 2004,
increased by 37.8% from RMB12,242 million in 2003 to RMB16,869 million in 2004. Domestic passenger
traffic in RPKs increased by 36.8%, mainly due to an increase in passengers carried. Passenger
yield remained steady in 2004 and at RMB0.58. Included in the 2004 domestic passenger revenue was
fuel surcharge imposed on domestic flights of approximately RMB281 million (2003: RMB716 million).
Excluding the effect of fuel surcharge revenue, the passenger yield increased from RMB0.54 in 2003
to RMB0.57 in 2004 as a combined result of the growth in traffic demand and fleet expansion during
2004.
Hong Kong passenger revenue, which accounted for 5.3% of total passenger revenue, increased by
47.2% from RMB750 million in 2003 to RMB1,104 million in 2004. For Hong Kong regional flights,
passenger traffic in RPKs increased by 54.6%, while passenger capacity in ASKs increased by 40.8%,
resulting in a 5.6 percentage point increase in passenger load factor from 2003. Passenger yield
decreased from RMB0.96 in 2003 to RMB0.92 in 2004 mainly due to intensified competition among
airlines. Included in 2004 Hong Kong passenger revenue was fuel surcharge imposed on Hong Kong
regional flights of approximately RMB67 million (2003: RMB24 million). Excluding the effect of fuel
surcharge revenue, the passenger yield decreased from RMB0.93 in 2003 to RMB0.86 in 2004.
International passenger revenue, which accounted for 14.8% of total passenger revenue,
increased by 55.0% from RMB2,018 million in 2003 to RMB3,127 million in 2004. For international
flights, passenger traffic in RPKs increased by 59.3%, while passenger capacity in ASKs increased
by 52.1%, resulting in a 2.9 percentage point rise in passenger load factor from 2003. Passenger
yield decreased by 2.1% from RMB0.47 in 2003 to RMB0.46 in 2004 mainly resulted from the increases
in traffic derived from long haul routes which generally had a lower yield than short haul routes.
Cargo and mail revenue, which accounted for 9.6% of the Group's total traffic revenue and 9.4%
of total operating revenue, increased by 14.8% from RMB1,955 million in 2003 to RMB2,244 million in
2004. The increase was attributable to the increasing traffic demand.
Other operating revenue increased by 24.8% from RMB505 million in 2003 to RMB630 million in
2004. The increase was primarily due to the general growth in income from various auxiliary
operations.
Operating expenses
Substantially all of the Group's operating expenses result from its airline operations. The
vast majority of such expenses relate directly to flight operations, aircraft and traffic
servicing, aircraft repair and maintenance and to depreciation and amortisation in respect of
aircraft and flight equipment. Expenses associated directly with the Group's flight operations
(collectively, "flight operations expenses") include fuel costs, operating lease payments, catering
expenses, aircraft insurance, flight personnel payroll and welfare and training expenses. Expenses
associated directly with repairs and maintenance in respect of the Group's aircraft (collectively,
"repairs and maintenance expenses") include repairs and maintenance and overhaul charges, the costs
of consumables and other maintenance materials and labour costs for maintenance personnel. Expenses
associated directly with the Group's aircraft and traffic servicing operations (collectively
"aircraft and traffic servicing expenses") include landing and navigation fees, rental payments and
charges in respect of terminal and other ground facilities and labour costs for ground personnel.
The balance of the Group's operating expenses result from promotional and marketing activities
(collectively, "promotional and marketing expenses") such as sales commissions, fees for use of the
CAAC's reservation system, ticket-printing and sales office expenses, advertising and promotional
expenses, and from general and administrative expenses, such as administrative salaries and welfare
and other personnel benefits and office expenses.
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Table of Contents
Total operating expenses in 2004 amounted to RMB23,065 million, representing an increase of
35.6% or RMB6,051 million over 2003, primarily due to the combined effect of increases in jet fuel
costs, maintenance expenses and aircraft and traffic servicing expenses. Total operating expenses
as a percentage of total operating revenue decreased from 97.4% in 2003 to 96.2% in 2004.
Flight operations expenses, which accounted for 45.2% of total operating expenses, increased
by 47.4% from RMB7,070 million in 2003 to RMB10,418 million in 2004, primarily as a result of
increases in jet fuel costs, operating lease payments, catering expenses, labour costs for flight
personnel and inclusion of CAAC Infrastructure Development Fund of RMB466 million in operating
expenses which is an usage charge since 2004 but was a turnover-based levy and deducted against the
traffic revenue in 2003. Jet fuel costs, which accounted for 58.1% of flight operations expenses,
increased by 56.5% from RMB3,867 million in 2003 to RMB6,050 million in 2004 mainly as a result of
increased fuel prices and fuel consumption. Operating lease payments increased by 8.4% from
RMB1,536 million in 2003 to RMB1,665 million in 2004, primarily due to the additional rental
payments for new aircraft under operating leases. Catering expenses increased by 38.2% from RMB510
million in 2003 to RMB705 million in 2004, primarily due to increased passenger carried. Aircraft
insurance costs decreased by 5.6% from RMB196 million in 2003 to RMB185 million in 2004, primarily
because of a decrease in insurance premiums prescribed by the PRC insurance company. Labour costs
for flight personnel increased by 40.9% from RMB728 million in 2003 to RMB1,026 million in 2004,
largely due to the increase in flying hours.
Maintenance expenses which accounted for 15.0% of total operating expenses, increased by 33.6%
from RMB2,589 million in 2003 to RMB3,459 million in 2004. The increase was primarily attributable
to an 32.9% increase in aircraft overhaul charges from RMB2,377 million in 2003 to RMB3,158 million
in 2004, as resulted from fleet expansion in recent years.
Aircraft and traffic servicing expenses, which accounted for 15.2% of total operating
expenses, increased by 26.6% from RMB2,767 million in 2003 to RMB3,503 million in 2004. The
increase primarily resulted from an 25.7% rise in landing and navigation fees from RMB2,563 million
in 2003 to RMB3,222 million in 2004, due to an increase in number of landing and takeoffs.
Promotional and marketing expenses, which accounted for 8.4% of total operating expenses,
increased by 31.1% from RMB1,480 million in 2003 to RMB1,940 million in 2004. The increase was due
to 44.4% increase in labour costs from RMB225 million in 2003 to RMB325 million in 2004, as more
payments of performance bonus were made because of the increased traffic volume.
General and administrative expenses, which accounted for 5.7% of the total operating expenses,
increased by 25.6% from RMB1,053 million in 2003 to RMB1,323 million in 2004. This was mainly
attributable to increased scale of operations.
Depreciation and amortisation, which accounted for 10.5% of total operating expenses,
increased by 18.4% from RMB2,038 million in 2003 to RMB2,413 million in 2004. This increase was
primarily as a result of the additions of aircraft during 2004.
Operating profit
Operating profit increased by 99.3% from RMB456 million in 2003 to RMB909 million in 2004.
This was mainly because operating revenue increased by RMB6,504 million or 37.2% from 2003 and
operating expenses increased by RMB6,051 million or 35.6% over the same period.
Non-operating income/(expenses)
Interest expense decreased by 16.1% from RMB824 million in 2003 to RMB691 million in 2004,
mainly reflecting the combined effect of scheduled debt repayments and the replacement of certain
RMB denominated bank loans of higher interest rates with US$ denominated bank loans of lower
interest rates.
Interest income increased by 69.2% from RMB13 million in 2003 to RMB22 million in 2004. This
was mainly attributable to an increase in average cash balances.
During 2004, the Group recorded a net exchange loss of RMB59 million (2003:RMB164 million)
mainly from its Japanese yen denominated borrowings as a result of the Japanese yen appreciation.
Such amount comprised mostly unrealised translational exchange loss.
Taxation
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Table of Contents
On October 17, 2003, the Company's registered address was moved to Guangzhou Economic &
Technology Development Zone, Guangzhou, China. In accordance with the Rules and Regulations for
Implementation of Income Tax for Foreign Investment Enterprises and Foreign Enterprises of the PRC
and a taxation approval document "Guangzhou Municipal State Tax Bureau Suo De Shui Zi Que 020043",
the Company is entitled to enjoy the preferential tax policy implemented in the Guangzhou Economic
& Technology Development Zone effective from October 1, 2003. As a result, the Company's income tax
rate has been changed from 33% to 15% beginning from that date.
In 2003, the Group recorded an income tax benefit of RMB334 million resulting from reduction in
net deferred taxation liability balance of RMB392 million. In
2004, income tax expense of RMB65 million was recorded.
Minority interests
Minority interests increased by 18.7% from RMB171 million in 2003 to RMB203 million in 2004,
primarily reflecting the increased net profits earned by certain of the Group's airline
subsidiaries for the year.
Additional information under U.S. GAAP
2005 Compared with 2004
The loss for 2005 attributable to equity shareholders of the Company is RMB1,530 million, as
compared to an income of RMB239 million for 2004. The scale of operations increased as a result of
acquisition of the airline operations and related assets of CNA and XJA on December 31, 2004. The
Group's operating revenue increased by RMB4,128 million or 12.1% from RMB34,165 million in 2004 to
RMB38,293 million in 2005. Passenger load factor increased by 1.2 percentage point from 68.9% in
2004 to 70.1% in 2005. Passenger yield (in passenger revenue per RPK) decreased slightly by 3.1% to
RMB0.55. Average yield (in traffic revenue per RTK) decreased by 1.6% from RMB5.22 in 2004 to
RMB5.14 in 2005. Operating expenses increased by RMB7,097 million or 22.0% from RMB32,288 million
in 2004 to RMB39,385 million in 2005. As the increase in operating revenue is smaller than the
increase in operating expenses, operating income decreased by 158.2% from an operating profit of
RMB1,877 million in 2004 to an operating loss of RMB1,092 million in 2005. The Group's net
non-operating expenses decreased by 60.8%, from RMB1,184 million in 2004 to RMB464 million in 2005,
mainly attributable to the combined effect of increase in exchange gain of RMB1,344 million,
increase in interest expense of RMB405 million and a decrease in share of results of associates of
RMB280 million.
Operating revenue
Substantially all of the Group's operating revenue is attributable to airline and airline
related operations. Traffic revenue accounted for 97.7% and 97.3% of total operating revenue in
2005 and 2004 respectively. Passenger revenue and, cargo and mail revenue accounted for 91.7% and
8.3% and 91.6% and 8.4% respectively of total traffic revenue in 2005 and 2004 respectively. The
other operating revenue is mainly derived from commission income, income from general aviation
operations, fees charged for ground services rendered to other Chinese airlines and air catering
services.
Operating revenue increased by 12.1% from RMB34,165 million in 2004 to RMB38,293 million in
2005. The increase was primarily due to a 12.8% rise in passenger revenue from RMB30,443 million in
2004 to RMB34,328 million in 2005 resulting from increased traffic volume. The total number of
passengers carried increased by 14.0% to 44.12 million passengers and the ASKs increased by 14.3%
to 88,361 million in 2005. The increase in 2005 compared to 2004 was attributable to the general
increasing traffic demand in the PRC airline market and deliveries of 30 aircraft during 2005 which
caused an increase in passenger capacity of 12.4%. RPKs increased by 16.3% from 53,233 million in
2004 to RMB61,923 million in 2005, primarily as a result of the increase in passengers carried.
Passenger yield decreased slightly by RMB0.02 to RMB0.55.
Domestic passenger revenue, which accounted for 82.1% of the total passenger revenue in 2005,
increased by 13.8% from RMB24,773 million in 2004 to RMB28,182 million in 2005. Domestic passenger
traffic in RPKs increased by 17.8%, mainly due to an increase in passengers carried. Domestic
passenger yield decreased slightly by RMB0.02 to RMB0.55 in 2005.
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Hong Kong and Macau passenger revenue, which accounted for 3.5% of total passenger revenue,
increased by 3.7% from RMB1,151 million in 2004 to RMB1,194 million in 2005. For Hong Kong and
Macau flights, passenger traffic in RPKs increased by 18.5%, while passenger capacity in ASKs
increased by 26.5%, resulting in a 4.0 percentage point decrease in passenger load factor from
2004. Passenger yield decreased from RMB0.88 in 2004 to RMB0.77 in 2005 mainly due to intensified
competition among airlines.
International passenger revenue, which accounted for 14.4% of total passenger revenue,
increased by 9.6% from RMB4,519 million in 2004 to RMB4,952 million in 2005. For international
flights, passenger traffic in RPKs increased by 8.3%, while passenger capacity in ASKs increased by
5.4%, resulting in a 1.8 percentage point rise in passenger load factor from 2004. Passenger yield
increased by 1.1% from RMB0.55 in 2004 to RMB0.56 in 2005.
Cargo and mail revenue, which accounted for 8.3% of the Group's total traffic revenue and 8.1%
of total operating revenue, increased by 10.7% from RMB2,792 million in 2004 to RMB3,091 million in
2005. The increase was attributable to the increasing traffic demand.
Other operating revenue decreased by 6.0% from RMB930 million in 2004 to RMB874 million in
2005. The decrease was primarily due to the reduced scale of other operation.
Operating expenses
Total operating expenses in 2005 amounted to RMB39,385 million, representing an increase of
22.0% or RMB7,097 million over 2004, primarily due to the total effect of increases in jet fuel
costs, maintenance expenses and aircraft and traffic servicing expenses. Total operating expenses
as a percentage of total operating revenue increased from 94.5% in 2004 to 102.9% in 2005.
Flight operations expenses, which accounted for 48.7% of total operating expenses, increased
by 27.8% from RMB15,016 million in 2004 to RMB19,183 million in 2005, primarily as a result of
increases in jet fuel costs, operating lease payments, catering expenses and labour costs for
flight personnel. Jet fuel costs, which accounted for 62.2% of flight operations expenses,
increased by 39.4% from RMB8,555 million in 2004 to RMB11,929 million in 2005 mainly as a result of
increased fuel prices and fuel consumption. Operating lease payments increased by 12.6% from
RMB2,109 million in 2004 to RMB2,375 million in 2005 primarily due to the additional rental
payments for new aircraft under operating leases. Catering expenses increased by 21.2% from RMB987
million in 2004 to RMB1,196 million in 2005 due to the increase in number of passengers carried.
Aircraft insurance costs decreased by 60.8% from RMB268 million in 2004 to RMB105 million in 2005,
mainly because of the decrease in insurance premiums in 2005. Labour costs for flight personnel
increased by 4.8% from RMB1,545 million in 2004 to RMB1,619 million in 2005, largely due to the
increase in flying hours and allowance standard.
Maintenance expenses which accounted for 11.7% of total operating expenses, increased by 0.2%
from RMB4,578 million in 2004 to RMB4,589 million in 2005.
Aircraft and traffic servicing expenses, which accounted for 14.6% of total operating
expenses, increased by 20.3% from RMB4,789 million in 2004 to RMB5,759 million in 2005. The
increase primarily resulted from a 10.0% rise in landing and navigation fees from RMB4,447 million
in 2004 to RMB4,891 million in 2005, due to an increase in number of landing and takeoffs.
Promotional and marketing expenses, which accounted for 7.1% of total operating expenses,
increased by 6.7% from RMB2,606 million in 2004 to RMB2,780 million in 2005. The increase was
mainly resulted from the increase in sales volume, resulting in a 17.0% increase in sales
commission expenses from RMB1,285 million in 2004 to RMB1,503 million in 2005.
General and administrative expenses, which accounted for 6.2% of the total operating expenses,
increased by 39.7% from RMB1,759 million in 2004 to RMB2,457 million in 2005. This was mainly
attributable to increased scale of operations.
Depreciation and amortisation, which accounted for 11.2% of total operating expenses,
increased by 25.1% from RMB3,523 million in 2004 to RMB4,406 million in 2005, mainly resulting from
the additional depreciation charge on aircraft delivered in 2004 and 2005.
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Table of Contents
Operating (loss)/income
There is an operating loss of RMB1,092 million in 2005 as compared to an operating profit of
RMB1,877 million in 2004. This was mainly because operating revenue increased by RMB4,128 million
or 12.1% in 2005 while operating expenses increased by RMB7,097 million or 22.0% in the same
period.
Non-operating income/(expenses)
Interest expense increased by 34.2% from RMB1,184 million in 2004 to RMB1,589 million in 2005,
mainly due to the increase in loans and lease obligations and interest rate. Interest income
increased by 66.7% from RMB33 million in 2004 to RMB55 million in 2005, mainly attributable to the
increase of interest rate.
During 2005, the Group recorded a net exchange gain of RMB1,220 million (2004: net exchange
loss of RMB124 million) mainly resulted from Renminbi appreciation in July 2005. Such amount
represented mainly unrealised translation exchange gain, resulting from exchange gains on translated
year end foreign currency denominated liabilities, rather than foreign exchange transactions
incurred during the year.
Taxation
The statutory income tax rate in the PRC is 33%. Except for certain branches and
subsidiaries, the Company and its subsidiaries are entitled to enjoy a preferential tax rate of 15%
pursuant to approval documents issued by the relevant tax authorities.
Income
tax benefit for the year amounted to RMB46 million and actual effective tax rate was 3% in 2005
 while the Group's enacted tax rate is 15%. The difference is mainly due to a portion of tax loss
with a deferred tax effect of RMB135 million not recognized as well as the effect of change in
enacted income tax rate applicable to airline operations of CNA and XJA of RMB79 million.
In 2004, income tax expense of RMB261 million was recorded and actual effective tax rate was 38%
while the Group's enacted tax rate in 2004 was 15%.  The difference is mainly due to the effect
of change in enacted income tax rate applicable to airline operations of CNA and XJA of RMB99
million, rate differential on airline operations of CNA and XJA of RMB43 million and non-deductible
expenses of RMB37 million.
2004 Compared with 2003
The Group's operating revenue increased by RMB8,682 million or 34.1% from RMB25,483 million in
2003 to RMB34,165 million in 2004. Such growth was primarily attributable to growth in volume of
passenger traffic carried by the Group as a result of the recovery of the Group's traffic
operations from SARS and flight capacity. Operating expenses increased by RMB7,171 million or
28.6% from RMB25,117 million in 2003 to RMB32,288 million in 2004. As operating revenue increased
more than operating expenses, operating profit increased by 412.8% from RMB366 million in 2003 to
RMB1,877 million in 2004. The Group's net non-operating expenses decreased by 38.5%, from RMB1,905
million in 2003 to RMB1,171 million in 2004, primarily attributable to a decrease in unfavourable
movement in foreign exchange differences of RMB257 million and a decrease in interest expense of
RMB420 million. Overall, the Group recorded a net income of RMB239 million in 2004, as compared to
a net loss of RMB1,140 million in 2003.
Operating revenue
Substantially all of the Group's operating revenue is attributable to airline and airline
related operations. Traffic revenue in 2004 and 2003 accounted for 97.3% and 97.7% respectively of
total operating revenue. Passenger revenue and, cargo and mail revenue accounted for 91.6% and 8.4%
respectively of total traffic revenue in 2004. The balance of the Group's operating revenue is
derived from commission income, income from general aviation operations, fees charged for ground
services rendered to other Chinese airlines and air catering services.
Operating revenue increased by 34.1% from RMB25,483 million in 2003 to RMB34,165 million in
2004. This increase was primarily due to a 35.7% rise in passenger revenue from RMB22,438 million
in 2003 to RMB30,443 million in 2004 resulting from increased traffic volume. The total number of
passengers carried increased by 33.0% to 38.7 million passengers in 2004. RPKs increased by 34.3%
from 39,626 million in 2003 to RMB53,233 million in 2004, primarily as a result of an increase in
passengers carried. Passenger yield increased to RMB0.57.
Domestic passenger revenue, which accounted for 81.4% of the total passenger revenue in 2004,
increased by 32.6% from RMB18,679 million in 2003 to RMB24,773 million in 2004. Domestic passenger
traffic in RPKs increased by 30.6%, mainly due to an increase in passengers carried. Passenger
yield increased to RMB0.57 in 2004.
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Hong Kong passenger revenue, which accounted for 3.8% of total passenger revenue, increased by
47.4% from RMB781 million in 2003 to RMB1,151 million in 2004. For Hong Kong regional flights,
passenger traffic in RPKs increased by 68.0%, while passenger capacity in ASKs increased by 55.8%,
resulting in a 4.5 percentage point increase in passenger load factor from 2003. Passenger yield
decreased from RMB1.00 in 2003 to RMB0.88 in 2004 mainly due to intensified competition among
airlines.
International passenger revenue, which accounted for 14.8% of total passenger revenue,
increased by 51.7% from RMB2,978 million in 2003 to RMB4,519 million in 2004. For international
flights, passenger traffic in RPKs increased by 52.8%, while passenger capacity in ASKs increased
by 44.1%, resulting in a 3.6 percentage point rise in passenger load factor from 2003. Passenger
yield remain steady in 2004 and at RMB0.55.
Cargo and mail revenue, which accounted for 8.4% of the Group's total traffic revenue and 8.2%
of total operating revenue, increased by 13.5% from RMB2,459 million in 2003 to RMB2,792 million in
2004. The increase was attributable to the increasing traffic demand.
Other operating revenue increased by 58.7% from RMB586 million in 2003 to RMB930 million in
2004. The increase was primarily due to the general growth in income from various auxiliary
operations.
Operating expenses
Substantially all of the Group's operating expenses result from its airline operations. The
vast majority of such expenses relate directly to flight operations, aircraft and traffic
servicing, aircraft repair and maintenance and to depreciation and amortisation in respect of
aircraft and flight equipment. Expenses associated directly with the Group's flight operations
(collectively, "flight operations expenses") include fuel costs, operating lease payments, catering
expenses, aircraft insurance, flight personnel payroll and welfare and training expenses. Expenses
associated directly with repairs and maintenance in respect of the Group's aircraft (collectively,
"repairs and maintenance expenses") include repairs and maintenance and overhaul charges, the costs
of consumables and other maintenance materials and labour costs for maintenance personnel. Expenses
associated directly with the Group's aircraft and traffic servicing operations (collectively
"aircraft and traffic servicing expenses") include landing and navigation fees, rental payments and
charges in respect of terminal and other ground facilities and labour costs for ground personnel.
The balance of the Group's operating expenses result from promotional and marketing activities
(collectively, "promotional and marketing expenses") such as sales commissions, fees for use of the
CAAC's reservation system, ticket-printing and sales office expenses, advertising and promotional
expenses, and from general and administrative expenses, such as administrative salaries and welfare
and other personnel benefits and office expenses, and from asset impairment charges.
Total operating expenses in 2004 amounted to RMB32,288 million, representing an increase of
28.6% or RMB7,171 million over 2003, primarily due to the combined effect of increases in jet fuel
costs, maintenance expenses and aircraft and traffic servicing expenses. In addition, in 2003, the
Group recorded an asset impairment charge of RMB510 million on certain aircraft of CNA. The Group
did not incur any asset impairment charges on its aircraft in 2004. Total operating expenses as a
percentage of total operating revenue decreased from 98.6% in 2003 to 94.5% in 2004.
Flight operations expenses, which accounted for 46.5% of total operating expenses, increased
by 45.1% from RMB10,351 million in 2003 to RMB15,016 million in 2004, primarily as a result of
increases in jet fuel costs, operating lease payments, catering expenses, labour costs for flight
personnel and inclusion of CAAC Infrastructure Development Fund of RMB632 million in operating
expenses which is an usage charge since 2004 but was a turnover-based levy and deducted against the
traffic revenue in 2003. Jet fuel costs, which accounted for 57.0% of flight operations expenses,
increased by 51.1% from RMB5,662 million in 2003 to RMB8,555 million in 2004 mainly as a result of
increased fuel prices and fuel consumption. Operating lease payments increased by 16.6% from
RMB1,808 million in 2003 to RMB2,109 million in 2004, primarily due to the additional rental
payments for new aircraft under operating leases. Catering expenses increased by 30.9% from RMB754
million in 2003 to RMB987 million in 2004, primarily due to increase in number of passengers carried. Aircraft
insurance costs decreased by 7.9% from RMB291 million in 2003 to RMB268 million in 2004, primarily
because of a decrease in insurance premiums prescribed by the PRC insurance company. Labour costs
for flight personnel increased by 37.2% from RMB1,126 million in 2003 to RMB1,545 million in 2004,
largely due to the increase in flying hours.
Maintenance expenses which accounted for 14.2% of total operating expenses, increased by 18.1%
from RMB3,878 million in 2003 to RMB4,578 million in 2004. The increase was primarily attributable
to an 16.7% increase in aircraft overhaul charges from RMB2,913 million in 2003 to RMB3,399 million
in 2004, which was resulted from fleet expansion in recent years.
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Table of Contents
Aircraft and traffic servicing expenses, which accounted for 14.8% of total operating
expenses, increased by 25.9% from RMB3,803 million in 2003 to RMB4,789 million in 2004. The
increase primarily resulted from an 25.7% rise in landing and navigation fees from RMB3,539 million
in 2003 to RMB4,447 million in 2004, and an increase in number of landing and takeoffs.
Promotional and marketing expenses, which accounted for 8.1% of total operating expenses,
increased by 27.6% from RMB2,043 million in 2003 to RMB2,606 million in 2004. The increase was due
to 40.0% increase in labour costs from RMB305 million in 2003 to RMB427 million in 2004, as more
payments of performance bonus were made because of the increased traffic volume.
General and administrative expenses, which accounted for 5.4% of the total operating expenses,
increased by 25.9% from RMB1,397 million in 2003 to RMB1,759 million in 2004. This was mainly
attributable to increased scale of operations.
Depreciation and amortisation, which accounted for 11.0% of total operating expenses,
increased by 15.8% from RMB3,042 million in 2003 to RMB3,523 million in 2004. This increase was
primarily as a result of the additions of aircraft during 2004.
Operating income
Operating income increased by 412.8% from RMB366 million in 2003 to RMB1,877 million in 2004.
This was mainly because operating revenue increased by RMB8,682 million or 34.1% from 2003 and
operating expenses increased by RMB7,171 million or 28.6% over the same period.
Non-operating income/(expenses)
Interest expense decreased by 26.2% from RMB1,604 million in 2003 to RMB1,184 million in 2004,
mainly reflecting the combined effect of scheduled debt repayments and the replacement of certain
RMB denominated bank loans of higher interest rates with US$ denominated bank loans of lower
interest rates.
Interest income increased by 22.2% from RMB27 million in 2003 to RMB33 million in 2004. This
was mainly attributable to an increase in average cash balances.
During 2004, the Group recorded a net exchange loss of RMB124 million (2003: RMB381 million)
mainly from its Japanese yen denominated borrowings as a result of the Japanese yen appreciation.
Such amount comprised mostly unrealised translational exchange loss.
Taxation
On 17 October, 2003, the Company's registered address was moved to Guangzhou Economic &
Technology Development Zone, Guangzhou, China. In accordance with the Rules and Regulations for
Implementation of Income Tax for Foreign Investment Enterprises and Foreign Enterprises of the PRC
and a taxation approval document "Guangzhou Municipal State Tax Bureau Suo De Shui Zi Que 020043",
the Company is entitled to enjoy the preferential tax policy implemented in the Guangzhou Economic
& Technology Development Zone effective from 1 October, 2003. As a result, the Company's income tax
rate has been changed from 33% to 15% beginning from that date. In 2003, the Group recorded an
income tax benefit of RMB536 million resulting from a reduction in net deferred taxation liability
balance of RMB341 million.
The airline operations of CNA and XJA were subject to PRC income tax at 33% during 2003 and up
to December 30, 2004. As a result of the CNA/XJA Acquisitions having been effective December 31,
2004, the airline operations of CNA and XJA have become divisions of the Company and are subject to
PRC income tax at the applicable rate of 15% beginning that date. Consequently, the airline
operations of CNA and XJA recorded an income tax benefit of RMB99 million. Overall, net income tax
expenses of the airline operations of CNA and XJA amounted to RMB274 million for 2004.
Minority interests
Minority interests increased by 52.0% from RMB127 million in 2003 to RMB193 million in 2004,
primarily reflecting the increased net profits earned by certain of the Group's airline
subsidiaries for the year.
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Table of Contents
Liquidity and Capital Resources
Prior to the initial public offering of the Company, the Group met its working capital and
capital expenditure requirements through cash from its operations, the proceeds of certain
long-term and short-term bank loans, capital lease financing and rebates available under certain of
the Group's aircraft leases. In July 1997, the Company received net proceeds of RMB5,459 million
from its initial public offering.
A majority part of these net proceeds was utilized to finance the Group's working capital and
capital expenditure requirements. In July 2003, the Company issued 1,000,000,000 A Shares with a
par value of RMB1.00 each at issue price of RMB2.70 by way of a public offering to natural persons
and institutional investors in the PRC. The proceeds received by the Company, net of the issuance
costs of RMB59,233, amounted to RMB2,641 million and have been used for the purchase of Boeing
737-800 aircraft in accordance with the disclosure in the Prospectus for Offering of the A Shares.
As of December 31, 2005, the Group had banking facilities with several PRC commercial banks
for providing loan finance up to an approximate amount of RMB39,294 million to the Group. As of
December 31, 2005, an approximate amount of RMB28,242 million was utilized. As of December 31, 2004
and 2005, the Group's cash and cash equivalents totaled RMB3,083 million and RMB2,901 million,
respectively.
Net cash inflows from operating activities in 2003, 2004 and 2005 were RMB2,129 million,
RMB3,596 million and RMB3,835 million, respectively.
Net cash used in investing activities in 2003, 2004 and 2005 was RMB5,434 million, RMB8,824
million and RMB8,009 million, respectively. Cash capital expenditures in 2003, 2004 and 2005 were
RMB4,707 million, RMB6,631 million and RMB4,935 million, respectively, reflecting predominantly
additional investments in aircraft and flight equipment under the Group's fleet expansion plans and
Guangzhou new airport, and, to a small extent, additional investments in other facilities and
buildings for operations.
Financing activities resulted in net cash inflows of RMB1,615 million, RMB6,231 million and
RMB3,992 million in 2003, 2004 and 2005, respectively.
As of December 31, 2005, the Group's aggregate long-term debt and obligations under capital
leases totaled RMB30,449 million. Based on such amount, in 2006, 2007, 2008, 2009, 2010 and
thereafter, amounts payable under such debt and obligations will be RMB5,250 million, RMB7,246
million, RMB4,764 million, RMB2,812 million, RMB1,472 million and RMB8,905 million. Such borrowings
were denominated, to a larger extent, in United States dollars and, to a smaller extent, in
Japanese yen and Hong Kong dollars, with a significant portion being fixed interest rate
borrowings. In the normal course of business, the Group is exposed to fluctuations in foreign
currencies. The Group's exposure to foreign currencies was primarily as a result of its foreign
currency debts. Depreciation or appreciation of the Renminbi against foreign currencies affects the
Group's results significantly because the Group's foreign currency payments generally exceed its
foreign currency receipts. The Group is not able to hedge its foreign currency exposure effectively
other than by retaining its foreign currency denominated earnings and receipts to the extent
permitted by the State Administration of Foreign Exchange, or subject to certain restrictive
conditions, entering into forward foreign exchange contracts with authorised PRC banks.
As of December 31, 2005, the Group's short term bank debt was RMB14,346 million with interest
rates ranging from 3.15% to 5.34% per annum. The Group's weighted average interest rate on short-term bank
notes payable was 4.83% per annum as of December 31, 2005. The primary use of the proceeds of the Group's
short-term debt is to finance working capital needs. The Group has generally been able to arrange
short-term bank loans with domestic banks in China as necessary and believes it can continue to
obtain them based on its well-established relationships with various lenders.
Through April 19, 2006, the Group
renewed certain short-term bank debts of RMB2,611 million. The renewed debts are unsecured,
bear interest at floating rates ranging from 3-month HIBOR/6-month LIBOR + 0.55% to 0.60% per
annum and are repayable one year from their respective renewal dates.  In addition, the Group
 entered into new short term bank debts agreement totalling RMB2,671 million subsequent to
December 31, 2005.  These new short term bank debts are unsecured and bear interest at floating
rates ranging from 6-month LIBOR + 0.55% to 0.70% per annum with maturities through 2008.
From April 20, 2006 to May 31, 2006,
the Group entered into additional new bank debts agreements totalling RMB3,808 million. These
additional bank debts are unsecured, bear interest at floating rates ranging from 6-month
LIBOR + 0.53% to 0.55% per annum and repayable one year from these respective origination
dates.
As of December 31, 2005, the Group had obligations under operating leases totaling RMB24,594
million, predominately for aircraft. Of such amount, RMB3,340 million, RMB2,881 million, RMB2,785
million, RMB2,609 million, RMB2,523 million and RMB10,456 million, respectively, was due in 2006,
2007, 2008, 2009, 2010 and thereafter.
47
Table of Contents
As of December 31, 2005, the Group had a working capital deficit of RMB25,907 million, as
compared to a working capital deficit of RMB18,855 million as of December 31, 2004. Historically,
the Group operated in a negative working capital position, relying on cash inflow from operating
activities and short-term bank debt refinancings to meet its short-term liquidity and working
capital needs. The increase in the Group's working capital deficit from 2004 to 2005 was mainly
because the Group sought increased short term debts to finance its aircraft acquisitions. Upon
deliveries of the aircraft, the Group continued to seek renewal of its short-term debts instead of replacing
such debts with long-term debts, as the interest rates for short-term
debts are lower. The liquidity of the Group in the future will primarily be dependent on its
ability to maintain adequate cash inflow from operations to meet its debt obligations as they
become due and, on its ability to obtain adequate external financing to meet its committed future
capital expenditures. The Group has obtained firm commitments from its principal bankers to renew
its short-term bank loans outstanding at December 31, 2005 when
they fall due during 2006. Subsequent to December 31, 2005, the Group
renewed short-term debts of RMB2,611 million.
As the Group is subject to a
high degree of operating leverage, a minor decrease in the Group's yield and/or load factor could
result in a significant decrease in its operating revenue and hence its operating cashflows. This
could arise in such circumstances as where competition between Chinese airlines increases or where
PRC aviation demand decreases. Similarly, a minor increase in the jet fuel prices, particularly
those in domestic market, could result in a significant increase in the Group's operating expenses
and hence a significant decrease in its operating cashflows. This could be caused by fluctuations
in supply and demand in international oil market. Currently, the Group's existing debt and lease
facilities do not contain any financial covenants. Nevertheless, as the Group is subject to a high
degree of financial leverage, an adverse change in the Group's operating cashflows could adversely
affect its financial health and hence weaken its ability to obtain additional debt and lease
facilities and to renew its short-term debt facilities as they fall due.
As of December 31, 2005, the Group had capital commitments in 2006, 2007, 2008, 2009 and 2010 of
approximately RMB8,933 million, RMB9,445 million, RMB14,437 million, RMB5,300 and RMB9,688 respectively. Of such
amounts, RMB7,341 million in 2006, RMB8,945 million in 2007 and RMB14,354 million in 2008, RMB5,300
million in 2009 and RMB9,688 million in 2010 are related to the acquisition of aircraft and related
flight equipment, and RMB840 million in 2006 is related to the Group's facilities and equipment to
be constructed and installed at the Guangzhou new airport. The remaining amounts of RMB752 million
in 2006, RMB500 million in 2007 and RMB83 million in 2008 are related to the Group's other airport
and office facilities and equipment, overhaul and maintenance bases and training facilities.
As of December 31, 2005, the Group undertook to make a capital contribution of approximately
RMB83 million to jointly controlled entities.
As of December 31, 2005, the cash and cash equivalents of the Group totaled RMB2,901 million.
Of such balance, 20.4% was denominated in foreign currencies.
No interim dividend was paid during the year ended December 31, 2005. The Board of Directors
does not recommend the payment of a final dividend in respect of the year ended December 31, 2005.
The Group expects that the Group's cash from operations and short-term and long-term bank
borrowings will be sufficient to meet its cash requirements in the foreseeable future.
48
Table of Contents
Contractual Obligations and Commercial Commitments
The following table sets forth the Group's obligations and commitments to make future payments
under contracts and under contingent commitments as of December 31, 2005.
As of December 31, 2005
As of December
Payment due by period
31, 2004
less than
Total
1 year
1-3 years
4-5 years
After 5 years
Total
(RMB million)
Contractual obligations
Short-term
debt (Note 2)
14,346
11,735
2,611
—
—
9,925
Long-term debt
14,617
1,877
6,472
2,095
4,173
13,528
Capital lease obligations
15,832
3,373
5,538
2,189
4,732
11,743
Cash payable for CNA/ XJA Acquisitions
—
—
—
—
—
1,959
Total contractual obligations
44,795
16,985
14,621
4,284
8,905
37,155
Other commercial commitments
Operating lease commitments
24,594
3,340
5,666
5,132
10,456
12,750
Aircraft purchase commitments (Note 1)
45,628
7,341
23,299
14,988
—
11,776
Capital commitments in respect of
investments in the Guangzhou new
airport
840
840
—
—
—
824
Other capital commitments
1,335
752
583
—
—
700
Investing commitments
83
83
—
—
—
83
Total commercial obligations
72,480
12,356
29,548
20,120
10,456
26,133
Estimated future interest payments on
short term debt and long term debt
Fixed rates
3,285
785
1,071
640
789
2,388
Variable rates
2,171
935
635
369
232
939
5,456
1,720
1,706
1,009
1,021
3,327
Note 1 Amounts shown are net of previously paid purchase deposits.
Note 2 Short term bank debts included certain debts of RMB2,611 million which
were renewed subsequent to December 31, 2005. The renewed debts are unsecured, bear
interest at floating rates ranging from 3-month HIBOR/6-month LIBOR + 0.55% to 0.60%
per annum and are repayable one year from their respective renewal dates.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.
Directors, Senior Management and Employees
The following table sets forth certain information concerning directors ("Directors"), senior
management ("Senior Management") and supervisors ("Supervisors") of the Company in 2005. There were
certain changes in the Company's Directors, Senior Management and Supervisors subsequent to
December 31, 2005, details of which are set forth below.
Name
Position
Gender
Age
Liu Shao Yong
Chairman of the Board
Male
48
Liu Ming Qi(1)
Vice Chairman of the Board
Male
62
Peng An Fa(2)
Director
Male
58
Wang Quan Hua
Director
Male
52
Zhao Liu An
Director
Male
58
Zhou Yong Qian(3)
Director
Male
61
Si Xian Min
Director, President
Male
49
Zhou Yong Jin(1)
Director
Male
63
Xu Jie Bo
Director, Chief Financial Officer and Vice President
Male
41
Wu Rong Nan(1)
Director
Male
64
Simon To(4)
Independent Non-executive Director
Male
55
Peter Lok
Independent Non-executive Director
Male
70
Wei Ming Hai
Independent Non-executive Director
Male
42
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Name
Position
Gender
Age
Wang Zhi
Independent Non-executive Director
Male
64
Sui Guang Jun
Independent Non-executive Director
Male
45
Sun Xiao Yi
Chairman of the Supervisory Committee
Male
52
Yang Guang Hua
Supervisor
Male
53
Yang Yi Hua
Supervisor
Female
46
Li Kun(5)
Vice President
Male
46
Yuan Xin An
Vice President
Male
49
Zheng En Ren(6)
Vice President
Male
61
Hao Jian Hua
Vice President
Male
55
Ren Ji Dong(7)
Vice President
Male
41
He Zong Kai(7)
Vice President
Male
55
Liu Qian
Chief Pilot
Male
40
Su Liang
Company Secretary
Male
44
Chen Wei Hua
General Counsel
Male
40
(1)
The resignation of Liu Ming Qi, Zhou Yong Jin and Wu Rong Nan as Directors due to their
retirement was approved at the first and second extraordinary general meetings of the Company on
December 16, 2005.
(2)
The removal of Peng An Fa as Director of the Company owing to
suspicion that he had committed a crime was
discussed and approved at the first extraordinary general meeting of the Company on December 16,
2005.
(3)
The resignation of Zhou Yong Qian as Director of the Company
due to his retirement was approved at the 2005 annual general meeting of the Company on June 15, 2006.
(4)
The resignation of Simon To as independent non-executive Director upon the expiry of his
six years' term was approved at the second extraordinary general meeting of the Company on December
16, 2005.
(5)
Li Kun was relocated to another position and his resignation as Vice President of the
Company was approved by the Board of the Company on December 13, 2005.
(6)
The resignation of Zheng En Ren as Vice President of the Company due to his retirement was
approved by the Board of the Company on April 19, 2006.
(7)
The appointment of Ren Ji Dong and He Zong Kai as Vice Presidents of the Company were
approved by the Board on March 29, 2005.
BOARD OF DIRECTORS
Mr. Liu Shao Yong
is the chairman of the Board. He is a qualified class one pilot. He joined
the Company in November 2004. Mr. Liu graduated from China Civil Aviation Flying College and
obtained an EMBA from Tsinghua University in 2005. He joined the civil aviation industry in 1978.
He held the positions of Captain of the Flying Squadron of China General Aviation Corporation and
was appointed as the Deputy General Manager of China General Aviation Corporation, Deputy Director
of Shanxi Provincial Civil Aviation Administration, General Manager of the Shanxi branch of China
Eastern Airlines Corporation Limited and the Chief of the Flying Model Division of the Civil
Aviation Administration of China. He served as the General Manager of China Eastern Airlines
Corporation Limited and was appointed as the Vice Minister of Civil Aviation Administration of
China. Since August 2004, Mr. Liu has served as the General Manager of China Southern Air Holding
Company. Mr. Liu became the chairman of the Board on  November
29 2004.
Mr. Wang Quan Hua
is currently a Director of the Company and Vice President of CSAHC and
became the employee of the Company in March 1995 after the establishment of the Company. Mr.
Wang graduated from the Economic Management Department of Central Communist Party College. Mr. Wang
began his career in civil aviation in 1972, and successively served as the Director of Planning
Department of Guangzhou Civil Aviation Administration, the Office Director of China Southern
Airlines Shenzhen Co., the Director of the Planning and Operation Division of CSAHC, the President
of Strategy and Development Department of China Southern Airlines
50
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Company
Limited and the Vice President of CSAHC. Mr. Wang became a Director
of the Company on May 13, 2003.
Mr. Zhao Liu An
is a Director of the Company and the Vice President of CSAHC. Mr. Zhao joined
the Company in May 2003. Mr. Zhao began his career in civil aviation in 1966, and successively
served as the Director of Flight Meteorology and Flight Safety Monitoring Division, Director of
Science Education Division, the Director of Flying Model Division of Urumqi Civil Aviation
Administration, Captain of the Ninth Squadron of the Civil Aviation Administration, the Vice
President and President of Urumqi Civil Aviation Administration and
Xinjiang Airlines.  Mr. Zhao became a Director of the Company on May
13, 2003.
Mr. Si Xian Min
is a Director and President of the Company. Mr. Si graduated from No. 14
Aviation College as an aircraft piloting major with an associate degree. Mr. Si, a professional
political tutor, he began his career in civil aviation in 1975. He held positions as Director of
the political division of China Southern Airlines Henan Branch, Party Secretary and Vice President
of Guizhou Airlines, Deputy Party Secretary of China Southern Airlines Company Limited, Secretary
of the Disciplinary Department of China Southern Airlines Company Limited and Party Secretary of
China Northern Airlines and has been the President of the Company
since October 2004.  Mr. Si became a Director of the Company on
December 31, 2004.
Mr. Xu
Jie Bo
is a Director, Vice President and Chief Financial Officer of
the Company. Mr. Xu joined the Company in July 1998. He graduated from the Management Department of
Tianjin University and was subsequently awarded with a master degree in business administration
from Hong Kong Baptist University. A qualified senior accountant by profession, Mr. Xu started his
career in August 1986 and worked as Supervisor of the Financial Management Office for
Infrastructure Projects of Guangzhou Civil Aviation Administration. In December 1992, he took up
the posts of Deputy Director and Director of the Financial Department of Central and Southern China
Civil Aviation Administration. In July 1998, he became General Manager of the Financial Department
and Chief Financial Officer of the Company. Currently, he is a
Director and the Vice President and Chief Financial Officer of the Company. He is also a Director of Guizhou Airlines
Company Limited, Vice Chairman of Sichuan Airlines Corporation Limited, and Vice Chairman of Xiamen
Airlines Company Limited.  Mr. Xu became a Director of the Company on
April 16, 2001.
Mr. Peter Lok
has been an Independent Non-Executive Director of the Company since
April 16, 2001. He is also a veteran in the civil aviation industry. Mr. Lok joined the Civil Aviation
Department of Hong Kong in 1956 and became its Assistant Director in 1982, Deputy Director in 1988,
and Director from 1990 to 1996. From 1997 to 2000, Mr. Lok was an advisor and president of Hong
Kong Commercial Airlines Center. Mr. Lok has sat on various Committees such as the Evaluation
Committees for the Design of Shanghai's Pudong Airport, Committee for China's Zhuhai Aviation and
Spaceflight Fair, Evaluation Committees for the IATA Eagle Award. He is also independent director
of several listed airline companies.
Mr. Wei Ming Hai
has been an Independent Non-Executive Director of the Company since
April 16, 2001. Professor Wei has worked in Jiangxi Provincial Accounting Association, and he started
working in Zhongshan University from 1991. In 1993 he became the chairman of the Accounting
Department in the School of Management of Zhongshan University. In 1996 he became the Deputy Dean
of the School of Management in Zhongshan University. In January 2000, he became Dean of the School
of Management in Zhongshan University. Since 1998, Professor Wei has been a doctorate advisor for
Accounting Information and Investment Analysis. Professor Wei is also on the board of directors of
China Accountants Association, Vice Chairman of Accountants Association of Guangdong Province, Vice
Chairman of Auditors Association of Guangzhou , Executive Member of the Research Institute of
Financial Costs for Young and Middle-aged Accountants, member of American Accounting Association.
Professor Wei holds a Ph.D degree in economics and has an MBA degree from Tulane University in the
United States of America. He has published over 7 academic books or textbooks, and over 80 academic papers.
51
Table of Contents
Mr. Wang Zhi
has been an Independent Non-Executive Director of the Company since May
2003. Mr. Wang graduated from the Aircraft Design Department of Harbin Institute of Technology. Mr.
Wang began his career in 1965, and has successively served as the Director and Senior Engineer of
Aeronautics Research Institute of China, the Vice Director and Vice secretary of the First Research
Institute of Civil Aviation, the Vice Director and Director of the Planning Bureau of CAAC and the
Director of the Planning Technology System Reform Department and the Planning Technology Department
of CAAC. Mr. Wang is also a professor in several universities.
Mr. Sui Guang Jun
has been an Independent Non-Executive Director of the Company since
May 2003. Mr. Sui graduated from the Economic Department of Jinan University and obtained a master
degree. Mr. Sui obtained a doctor degree in the Management of Organizations of Jinan University. He
has successively served as the Vice Director of the Research Institute of Hong Kong and Macao
Economies, the Dean of corporate administration department of Jinan University and the Chief of the
Post-doc Committee of Applied Economics and the Dean of Management College in Jinan University. Mr.
Sui is currently the Deputy Vice Chancellor of Guangdong University of Foreign Studies.
The independent non-executive Directors of the Company are nominated by the Board of Directors, and
their appointment must be approved by the shareholders of the Company in a general meeting. The
executive Directors of the Company are nominated by CSAHC, the controlling shareholder of the
Company, and their appointment must be approved by the shareholders of the Company in a general
meeting.
SUPERVISORY COMMITTEE
As required by the Company Law and the Articles of Association, the Company has a supervisory
committee (the "Supervisory Committee") which is primarily responsible for the supervision of
senior management of the Company, including the Board of Directors, executive officers and other
senior management personnel, to ensure that they act in the interests of the Company, its
shareholders and employees, as well as in compliance with applicable law. The Supervisory Committee
consists of three Supervisors. Two of the Supervisors are shareholder representatives appointed by
shareholders, and one Supervisor is a representative of the Company's employees. The Supervisors
serve terms of three years and may serve consecutive terms.
Mr. Sun Xiao Yi
is a member of Party Committee and head of Discipline Supervision Team of
China Southern Air Holding Company. Mr. Sun graduated from the Civil Aviation University of China
with a degree in Economics and Administration and is currently a postgraduate law student of
Central Communist Party College. Mr. Sun is a senior expert of Political Science and Economics with
an associate degree. Mr. Sun has successively served as Vice Party Secretary of the Hubei branch of
the Company, Party Secretary of the Flight Operations Department of the Company, and Vice Party
Secretary of China Southern Air Holding Company. Mr. Sun became a
Supervisor on June 16, 2004.
Mr. Yang Guang Hua
is the Vice Party Secretary and Discipline Supervision Secretary of the
Company. Mr. Yang is an engineer with university qualification. Mr. Yang has successively served as
Deputy General Manager of the Hunan branch of the Company, General Manager of Southern Airlines
(Group) Zhuhai Helicopters Company Limited, General Manager of the Hunan branch of the Company, and
Deputy General Manager of the Company. Mr. Yang became a Supervisor
on June 16, 2004.
Ms. Yang Yi Hua
is the General Manager of the Audit Department of the Company. Ms. Yang is an
internationally qualified internal auditor. She has successively served as Deputy Manager of the
Clearance and Settlement Office of the Financial Division of the Guangzhou Civil Aviation
Administration, Manager of the Financial Office of the Company's Financial Division, and Deputy
General Manager of the Company's Audit Department. She has been the President of Xiamen Airlines
since September 2005. Ms. Yang became a Supervisor on June 16,
2004.
52
Table of Contents
SENIOR ADMINISTRATIVE OFFICERS
Mr. Yuan Xin An
is a Vice President of the Company. He graduated from the Air
Engineering College. Mr. Yuan has over 25 years of experience in the Chinese aviation industry. He
has been the Manager of Quality Assurance and Deputy Controller of Quality Control of Guangzhou
Aircraft Maintenance Engineering Company Limited, Deputy General Manager of the Aircraft
Engineering Department of the Company, and Vice President of Guangzhou Aircraft Maintenance
Engineering Company Limited. Mr. Yuan became the Chief Engineer of the Company in 2000, and
a Vice President of the Company in April 2002.
Mr. Hao Jian Hua
is currently the Vice President of the Company. He completed his
pilot training at the CAAC Advanced Flying College. Mr. Hao has held positions as Captain, then Deputy
Chief Captain, and subsequently Chief Captain of the Sixth Squadron of the Civil Aviation
Administration during the period from 1989 to 1994. He then became a Deputy General Manager, from
1994 to 1998, and the General Manager, from 1998 to 1999, of the Flying Aviation Department of the
Company. He became a Vice President of the Company in July 2003.
Mr. Ren Ji Dong
is a Vice President of the Company who graduated from the College of
Energy and Power Engineering Department of Nanjing University of Aeronautics and Astronautics with
a major degree in motor design, is a senior engineer. Mr. Ren assumed various offices in the
aircraft maintenance workshop of Xinjiang Airlines Company, including Head of Workshop, Deputy
Director of Workshop and President of the Engineering Department. Mr. Ren served as the Deputy
Director of Urumqi Civil Aviation Administration and Vice President of Xinjiang Airlines Company.
He was the Vice President of Xinjiang Airlines from 2002 to 2004. Mr. Ren became a Vice President of the Company in March 2005.
Mr. He Zong Kai
is a Vice President of the Company who graduated from Bejing Foreign
Language Institute with a major degree in French, is a senior economist. Mr. He served as the
Deputy Manager of the Operation Department of the Company, Manager of Passenger Transportation
Department, Head of Seats Arrangement Department, Vice General Manager of the Marketing Department
and General Manager of the Ground Services Department. He assumed the offices of the President and
Deputy Party Secretary of Hubei branch of the Company since 2003 and became a Vice President of
the Company in March 2005.
Mr. Liu Qian
is the Chief Pilot of the Company who graduated from China Civil
Aviation Flying College with specialty in aircraft piloting. Mr. Liu served the Civil Aviation
Administration of China as assistant researcher of the piloting skills supervision division of the
piloting standards department, as assistant researcher of the operation supervision division of the
piloting standards department, as assistant researcher of the freight transportation piloting
standards division of the piloting standards department, and as the Deputy Head of the Piloting
Standards Division of the Piloting Standards Department. He assumed the offices of the Deputy
Chief Pilot and Chief Pilot of the Company in November 2004.
Mr. Su Liang
is currently holding the position as Company Secretary. He was a graduate of the
Cranfield College of Aeronautics, University of Cranfield, United Kingdom, specialising in Air
Transport Management Engineering. Mr. Su is a holder of master degree. During the period from 1998
to 1999, Mr. Su held the position as Deputy Manager of the Flight Operations Department, China
Southern Airlines Shenzhen Co. and from 1999 to 2000, he was the Manager of the Planning and
Administration Department of China Southern Airlines Shenzhen Co.. Mr. Su was in charge of the
international cargo project of the Company, responsible for the planning and development of the
Company's North American cargo business. Mr. Su became the
Company Secretary on June 26, 2000.
Mr. Chen Wei Hua
is the Chief Legal Adviser to the Company. Mr. Chen graduated from the school
of law of Peking University. He is a qualified solicitor and a qualified corporate legal
counsellor. Mr. Chen joined the Civil Aviation Administration of China in 1998. He then joined the
CSAHC in January 1991. From 1997 to 2003, he served as Vice Director and Director of the Legal
Affairs Office of the Company. Currently, he is President of the Legal Department of the Company.
Since December 2003, Mr. Chen has been the Chief Legal Adviser to the Company. He is also a
Director of Xiamen Airlines Company Limited.
53
Table of Contents
Compensation
A total of RMB232,000 has been paid to independent non-executive Directors for the year ended December
31, 2005. The aggregate compensation paid by the Company to all Directors (excluding non-executive
Directors), Supervisors and Senior Management for 2005 was RMB5.9 million. For the year ended
December 31, 2005, the Company accrued an aggregate of approximately RMB132,000 on behalf of its
executive Directors, Supervisors and Senior Management pursuant to the SA Pension Scheme and the
retirement plans operated by various municipal governments in which the Company participates.
Details of Directors' and Supervisors' emoluments for the year ended December 31, 2005 are set out below:
Salaries,
allowances
Retirement
Directors'
and benefits
Discretionary
scheme
Name
fees
in kind
bonuses
contributions
Total
Note
RMB'000
RMB'000
RMB'000
RMB'000
RMB'000
Executive directors
Liu Shao Yong
(i
)
—
299
—
12
311
Liu Ming Qi
—
242
—
10
252
Peng An Fa
—
101
—
6
107
Wang Quan Hua
—
237
—
12
249
Zhao Liu An
(i
)
—
237
—
12
249
Zhou Yong Qian
—
237
—
12
249
Si Xian Min
—
281
—
12
293
Zhou Yong Jin
—
127
—
2
129
Xu Jie Bo
—
226
—
12
238
Wu Rong Nan
—
368
162
7
537
Supervisors
Sun Xiao Yi
—
237
—
12
249
Yang Guang Hua
—
225
—
12
237
Yang Yi Hua
—
48
70
11
129
Independent non-executive
directors
Simon To
(ii
)
—
—
—
—
—
Peter Lok
58
—
—
—
58
Wei Ming Hai
58
—
—
—
58
Wang Zhi
58
—
—
—
58
Sui Guang Jun
58
—
—
—
58
232
2,865
232
132
3,461
Notes:
(i)
The above amounts included the salaries paid to these
Directors as pilots of the Company.
(ii)
Simon To received director's fee of RMB1 during the
year ended December 31, 2005.
Board Practices
Each Directors' service contract with the Company or any of its subsidiaries provide prorated
monthly salary upon termination of employment in accordance with his contract. The Director is
entitled to paid leave in accordance with his contract. The term of
office of a Director is three years. The term of office of the
current Directors will end in 2007. A Director may serve consecutive
terms upon re-election.
Audit Committee
The audit committee is appointed by the Board of Directors and consists of three independent
non-executive Directors. The current members of the audit committee are Wei Ming Hai, Wang
Zhi and Sui Guang Jun. Wei Ming Hai is the chairman of the audit
committee. The term of office of each member is three years. The term
of office of the current members will end in 2007. A member may serve
consecutive terms upon re-election. At least once a year, the committee is required to meet with the
Company's external auditors without any executive members of the Board in attendance. The quorum necessary
for the transaction of any business is two committee members. The Audit Committee held nine
meetings in 2005, which were attended by all members. The external auditors or the Chief Financial
Officer of the Company may request a meeting of the audit committee.
The audit committee selects and engages, on behalf of the Company, external auditors to audit
the Company's annual financial statements and considers questions regarding the audit fees and the
resignation or dismissal of the external auditors. The audit committee also reviews and approves
the planned scope of the Company's annual audit. In addition, the audit committee reviews the
annual and interim financial statements, the preliminary announcement of results and any other
announcement regarding the Company's results or other financial information to be made public,
before submission to the Board of Directors. Moreover, the committee discusses problems arising
from the audit and reviews the external auditors' management letter and management's response.
Furthermore, the audit committee reviews the effectiveness of the system of internal financial
controls from information provided by the Executive Directorate and management of the Company and
ensures adherence to the Company's control policies so that the Company's assets are safeguarded
and financial records are complete and accurate. The audit committee meets regularly with
the Company's senior positions from finance department and
internal audit department and the external auditors to consider the Company's
financial reporting, the nature and scope of audit review and the effectiveness of the systems of
internal control. The audit committee also reviews any significant transactions that are not in the
ordinary course of business.
The Company has an internal audit department which reviews procedures in all major financial
and operational activities. This department is led by the head of internal audit who is directly
responsible to the Chairman of the Board and submits regular reports to the audit committee.
Remuneration Committee
The remuneration committee comprises three members. Currently, the remuneration committee is chaired by
independent non-executive Director Sui Guang Jun with independent non-executive Director Wei Ming
Hai and executive Director Wang Quan Hua as members. The term of
office of each member is three years. The term of office of the
current members will end in 2007. A member may serve consecutive terms
upon re-election. The remuneration committee met once in 2005,
which meeting was attended by all members. In addition, the remuneration committee also meets as and when
required to consider remuneration related matters.
The responsibilities of the remuneration committee are to approve the remuneration packages of
Directors and Senior Management of the Group, and the Company's "preliminary proposals on annual
emoluments of the directors and senior management of the Group". The remuneration committee is also
responsible for assessing performance of executive Directors and approving the terms of executive
Directors' service contracts.
Employees
As of December 31, 2005, the Group had 34,417 employees, including 2,567 pilots, 4,539 flight
attendants, 5,076 maintenance personnel, 10,445 sales and marketing
personnel, 3,243 administrative personnel and 8,547 temporary
employees. All of the Group's pilots, flight attendants,
maintenance personnel,
administrative personnel and sales and marketing personnel are contract employees, and most of the
Group's ancillary service workers are temporary employees. Contract employees are hired by the
Group pursuant to renewable employment contracts with terms ranging from
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three to five years. Temporary employees generally are hired
by the Group pursuant to at-will employment contracts or employment contracts with a term of one
year.
The Company's employees are members of a trade union organized under the auspices of the
All-China's Federation of Trade Unions, which is established in accordance with the Trade Union Law
of China. A representative of the Company labor union currently serves on the Supervisory Committee
of the Company. Each of the Company's subsidiaries has its own trade union. The Group has not
experienced any strikes, slowdowns or labor disputes that have interfered with its operations, and
the Group believes that its relations with its employees are good.
All employees of the Group receive cash remuneration and certain non-cash benefits. Cash
remuneration consists of salaries, bonuses and cash subsidies provided by the Group. Salaries are
determined in accordance with the national basic wage standards. The total amount of wages payable
by the Group to its employees is subject to a maximum limit based on the profitability of the Group
and other factors. Bonuses are based on the profitability of the Group. Cash subsidies are intended
as a form of cost-of-living adjustment. In addition to cash compensation, the Group's contract
employees receive certain non-cash benefits, including housing, education and health services, and
the Group's temporary employees receive limited health services, but not housing or education.
CSAHC provides certain services in respect of these benefits to the Group's employees in
consideration of certain fees and other charges.
Retirement And Housing Benefits
Employees of the Group participate in several defined contribution retirement schemes
organised separately by PRC municipal governments in regions where the major operations of the
Group are located. The Group is required to contribute to these schemes at the rates ranging from
9% to 20% of salary costs including certain allowances. A member of the retirement schemes is
entitled to pension benefits equal to a fixed proportion of the salary at the retirement date. The
retirement benefit obligations of all existing and future retired staff of the Group are assumed by
these schemes.
In addition, the Group was selected as one of the pilot enterprises to establish a
supplementary defined contribution retirement scheme for the benefit of employees. In this
connection, employees of the Group participate in a supplementary defined contribution retirement
scheme whereby the Group is required to make defined contributions at rates ranging from 3% to 5%
of total salaries. The Group has no obligation for the payment of pension benefits beyond the
contributions described above.
Furthermore, pursuant to the comprehensive services agreement (the "Services Agreement") dated
May 22, 1997 between the Company and CSAHC, CSAHC provided quarters to eligible employees of the
Group. In return, the Group paid a fixed annual fee of RMB85 million to CSAHC for a ten-year period
from 1995 to 2004. The agreement expired by December 31, 2004 and no further payment was made in
2005.
Pursuant to an additional staff housing benefit scheme effective September 2002, the Group
agreed to pay lump sum housing allowances to certain employees who have not received quarters from
CSAHC or the Group according to the relevant PRC housing reform policy, for subsidising their
purchases of houses. An employee who quits prior to the end of the vesting benefit period is
required to pay back a portion of the lump sum housing benefits determined on a pro-rata basis of
the vesting benefit period. The Group has the right to effect a charge on the employee's house and
to enforce repayment through selling the house in the event of default in repayment. Any shortfall
in repayment would be charged against income statement. As of December 31, 2005, the Company and
the Group had made payments totalling RMB168 million under the scheme and recorded its remaining
contractual liabilities totalling RMB92 million as accrued expenses on the balance sheets. Housing
allowances are payable when applications are received from eligible employees.
Workers' Compensation
There is no workers' compensation or other similar compensation scheme under the Chinese labor
and employment system. As required by Chinese law, however, the Group, subject to certain
conditions and limitations, pays for the medical expenses of any contract employee who suffers a
work-related illness, injury or disability and continues to pay the full salary of, and provides
all standard cash subsidies to, such employee during the term of such illness, injury or
disability. The Group also pays for certain medical expenses of its temporary employees.
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Share Ownership
As of the date of this Annual Report, no Director, Senior Management or Supervisor of the
Company is a beneficial owner of any shares of the Company's capital stock. As of the date of this
Annual Report, no arrangement has been put in place involving issue or grant of options or shares
or securities of the Company to any of the Director, Senior Management, Supervisor or employees of
the Company.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.
Major Shareholders
Share Capital Structure
As
of May 31, 2006, the total share capital of the Company was divided
into 4,374,178,000 shares, of
which approximately 50.3% (2,200,000,000 domestic shares) was held by CSAHC, approximately 26.84%
(1,174,178,000 H shares) was held by Hong Kong and overseas shareholders and approximately 22.86%
(1,000,000,000 A shares) was held by domestic shareholders. CSAHC owns 50.30% of the total share capital of the Company, therefore it is entitled to exercise all the
rights of a controlling shareholder, including the election of executive Directors.
Substantial Shareholders
As
of May 31, 2006, the following shareholders had an interest of 5% or more in the
Company's shares:
Approximate
Percentage
of the Total
Name
Number of Shares
Number of Shares
CSAHC
2,200,000,000 domestic shares
50.30%
HKSCC Nominees Limited
1,150,854,998 H shares
26.31%
The
table below sets forth, as of May 31, 2006, the following entities hold 5% or more of
the total number of H shares issued by the Company.
Approximate
Percentage of
the Total
Number of H
Name
Number of H Shares
Shares
HKSCC Nominees Limited
1,150,854,998
98.01%
Domestic shares and H shares have identical voting rights.
Related Party Transactions
The Company enters into transactions from time to time with CSAHC and its affiliates. For a
description of such transactions, see Note 36 to the Financial Statements. In particular, the
following arrangements, which the Company believes are material to its operations, have been made
between the Company and CSAHC and its affiliates. The Company believes that these arrangements have
been entered into by the Group in the ordinary course of business and
in accordance with the agreements governing such transactions.
Arrangements with CSAHC
Trademark License Agreement
The Company and CSAHC entered into a ten year trademark licence agreement dated May 22, 1997
pursuant to which CSAHC acknowledges that the Company has the right to use the name "China
Southern" and "China Southern Airlines" in both Chinese and English, and grants the Company a
renewable royalty free license to use the kapok logo on a worldwide basis in connection with the
Company's airline and airline-related businesses. Unless CSAHC gives a written notice of
termination three months before the expiration of the agreement, the agreement will be
automatically renewed for another ten-year term.
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Leases
The Company as lessee and CSAHC as lessor have entered into the following lease agreements:
The Company and CSAHC entered into a land lease agreement dated May 22, 1997, in respect
of the land used by the Company within Guangzhou Baiyun International Airport. The rental payment
is RMB2,651,000 per year. The term of the lease is five years commencing April 1, 1997, renewable
by both parties thereafter (subject to mutual agreement with respect to rental terms).
The Company and CSAHC separately entered into four lease agreements dated May 22, 1997,
in respect of office premises located at the east wing of the Guangzhou Railway Station on
Guangzhou Huanshi Dong Road, office premises at Haikou Airport, office premises in Haikou City, and
office premises at Tianhe Airport in Wuhan, Hubei Province. The aggregate rental payment under the
four leases is RMB15,745,000 per year. The term of each lease is one year, renewable by the parties
thereafter (subject to mutual agreement with respect to rental terms).
The Company and CSAHC entered into an indemnification agreement dated May 22, 1997 in
which CSAHC has agreed to indemnify the Company against any loss or damage caused by or arising
from any challenge of, or interference with, the Company's right to use certain land and buildings.
The Company and CSAHC entered into a lease agreement dated November 12, 2004, under which
CSAHC leases to the Company certain lands by leasing the land use rights of such lands to the
Company. These lands had been administratively allocated to Xinjiang Airlines and Northern Airlines
for the purposes of their civil aviation and related businesses. Subsequently, CSAHC was authorised
to deal with the land use rights of such lands, including leasing, but not transferring, such land
use rights. Total area of the lands leased is 1,182,297 square metres, and the locations of such
lands are in Urumqi, Shenyang, Dalian and Harbin. The lease is for a fixed term of three years,
commencing from the effective date of the lease, and is renewable, subject to compliance with the
relevant requirements of the Hong Kong Listing Rules by the Company, by an application in writing by the
Company to the lessor three months before the end of the fixed term. The rent for the land use
rights of the designated lands under lease agreement is RMB22,298,000 per year, payable in arrear by
cheque, in cash or by bank transfer on or before the 10th day of each calendar month, and is
determined after arm's length negotiation between the parties.
The maximum aggregate annual limit ("Cap") for the lease agreement is
set at RMB22,298,000 per year. The lease agreement was approved by the shareholders of the Company
at the 2nd extraordinary general meeting on December 31, 2004.
Arrangements with CSAHC and CSAHC's Affiliates
Leases
The Company, CSAHC and CNA entered into a lease agreement dated November 12, 2004, under
which CSAHC and CNA lease to the Company certain buildings, facilities and other infrastructure
related to the civil aviation businesses of CNA situated at various locations in Shenyang, Dalian,
Jilin, Harbin, Chaoyang and Russia. The lease is for a fixed term of three years, commencing from
the date of the lease, and is renewable, subject to compliance with the relevant requirements of
the Hong Kong Listing Rules by the Company, by an application in writing by the Company to the lessor three
months before the end of the fixed term. The consideration for lease agreement is RMB43,758,000 per
year, payable in arrear by cheque, in cash or by bank transfer on or before the 10th day of each
calendar month, and is determined after arm's length negotiation between the parties. The Cap for
the lease agreement is set at RMB43,758,000 per year. The lease agreement was approved by the
shareholders of the Company at the 2nd extraordinary general meeting
on December 31, 2004.
The Company, CSAHC and XJA entered into a lease agreement dated November 12, 2004, under
which CSAHC and XJA lease to the Company certain buildings, facilities and other infrastructure
related to the civil aviation businesses of XJA situated in Xinjiang and Russia. The lease is for a
fixed term of three years, commencing from the effective date of the lease, and is renewable,
subject to compliance with the relevant requirements of the Hong Kong Listing Rules by the Company, by an
application in writing by the Company to the lessor three months before the end of the fixed term.
The consideration for lease agreement is RMB5,798,000 per year, payable in arrear by cheque, in
cash or by bank transfer on or before the 10th day of each calendar month, and is determined after
arm's length negotiation between the parties. The Cap for the lease agreement is set at
RMB5,798,000 per year. The lease agreement was approved by the shareholders of the Company at the
2nd extraordinary general meeting on December 31, 2004.
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Arrangements with CSAHC's Affiliates
Southern Airlines (Group) Import and Export Trading Company ("SAIETC"), a wholly owned
subsidiary of CSAHC
The Company and SAIETC entered into an agreement dated May 22, 1997 for the import and export
of aircraft, flight equipment, special vehicles for airline use, communication and navigation
facilities, and training facilities for a term from May 22, 1997 to May 22, 2000 which was
subsequently extended to May 22, 2006 by mutual agreement between the parties. The parties have
determined the various rates for import and export services provided by SAIETC after negotiations
on a fair and equitable basis, which are not higher than the market rates for similar services.
For the year ended December 31, 2005, the amount incurred by the Group for the import and
export of the above equipment was RMB31,714,000.
In order to comply with the requirements under Rule 14A.35 of the Hong Kong Listing Rules so
that SAIETC can continue to provide import and export services and custom clearing service after
the expiry of the original agreement, the Company and SAIETC entered into a new import and export
agency framework agreement (the "Import and Export Agency Framework Agreement") on 1 January, 2006,
which became effective on April 25, 2006, having been approved by the Board of Directors of the
Company. The Import and Export Agency Framework Agreement is valid for a term of three years,
commencing from the date of the agreement, subject to compliance with the relevant provisions of
the Hong Kong Listing Rules by the Company. Both parties agreed that the agency fee for import and
export shall be determined after arm's length negotiation and shall not be higher than the market
rate.
Southern Airlines Advertising Company, which is 45% owned by the Company and 55% owned
by CSAHC ("SAAC")
The Company and SAAC entered into an agreement dated May 22, 1997 for the provision of
advertising services for a term extending from May 22, 1997 to May 22, 2000. After extension of
three years, the parties have mutually agreed to extend the agreement for another three years to
May 22, 2006.
In order to comply with the requirements under Rule 14A.35 of the Hong Kong Listing Rules, so
that SAAC can continue to provide advertising service after the expiry of the original agreement,
the Company and SAAC entered into a new advertising agency agreement ("Advertising Agency
Agreement") on January 1, 2006 for a term of three years commencing from the date of the agreement,
which became effective on 25 April, 2006, having been approved by the Board of Directors of the
Company.
Under the agreement, SAAC will produce advertisement script, graphic and music to the Company
with the copyright of such products belonging to the Company
products belonging to the Company, provided that the Company shall
comply with all relevant provisions under the Hong Kong Listing Rules. Both parties agreed that
the agency rate for advertising under the Advertising Agency Agreement shall be determined after
arm's length negotiation and shall not higher than the market rate. For the year ended 31 December
2005, the amount incurred by the Group to SAAC for advertising
services was RMB3,062,000.
China Southern Airlines Group Finance Company Limited ("SA Finance") which is 42% owned
by CSAHC, 32% owned by the Company and 26% owned in aggregate by five subsidiaries of the Company
The Company entered into a financial agreement dated May 22, 1997 with SA Finance for the
provision of financial services such as deposit and loan facilities, credit facilities, financial
guarantees and credit references for a term commencing from
May 22, 1997 to May 21, 2000. As agreed
by the parties, the agreement was extended for six years to May 22, 2006. In order to comply with
the new requirements under the Hong Kong Listing Rules, so that SA Finance can continue to provide deposit of
money service and other financial services (subject to execution of separate agreements and further
compliance with the Hong Kong Listing Rules), the Company and SA Finance entered into a new financial
agreement on November 12, 2004, commencing from that date for a period of three years, and is
renewable, subject to compliance with the requirements of the
relevant Hong Kong Listing Rules by the
Company, by an application in writing by the Company not less than 30 days before the end of the
fixed term.
As
SA Finance is a connected person of the Company under the Hong Kong Listing Rules, the financial
agreement constitutes a discloseable and non-exempt continuing connected transaction under Rule
14A.35 of the Hong Kong Listing Rules and requires the Company to comply with the reporting and announcement
requirement and the independent shareholders' approval
requirement under Rule 14A.48 of the Hong Kong Listing
Rules. The independent shareholders of the Company approved the financial agreement at the second
extraordinary general meeting of the Company held on December 31, 2004.
Under such agreement, SA Finance agrees to accept deposit of money from the Company at interest rates not lower than those set by the
People's Bank of China for the same term of deposit. SA Finance will in turn deposit the whole of
such sums of money with certain banks including Bank of Agriculture, Bank of Communications, China
Construction Bank and Industrial and Commercial Bank of China; make loans to the Company subject to the entering into of separate loan agreements, which will
set out the Cap, terms and conditions of the loans, upon
application by the Company during the term of the financial agreement. The maximum limit for amount
of money deposit under the financial agreement is RMB1 billion.
The Company will comply with the Hong Kong
Listing Rules when entering into such separate written agreements. SA Finance shall not charge
interest rates higher than those set by the People's Bank of China for similar loans. The total
amount of outstanding loans extended by SA Finance to the Company
must not exceed the sum of SA Finance's shareholders' equity, capital reserves and money deposit
received from other parties (except the Company); and provide credit facilities, financial guarantees, credit references, and other financial
services subject to the entering into of separate agreements, which will set out the cap, terms and
conditions of such services, upon request by the Company during the term of the financial
agreement. The Company will comply with the Hong Kong Listing Rules when entering into such separate written
agreements.
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As of December 31, 2005, the Group's deposits placed with SA Finance amounted to
RMB543,825,000, which bore interest at the rate of 0.72% per annum; the balance of the loans
extended to the Group by SA Finance amounted to RMB300,000,000.
Shenzhen Air Catering Company Limited, which is 33% owned by CSAHC, and 67% owned by two
independent third parties
The Company and Shenzhen Air Catering Company Limited entered into an agreement dated May 23,
1997 for the sale and purchase of in-flight meals for flights originating or stopping at the
airport in Shenzhen. Pursuant to such agreement, Shenzhen Air Catering Company Limited will supply
in-flight meals to the Group from time to time during the term from May 23, 1997 to May 23, 1998.
The parties have mutually agreed that the agreement can be renewed automatically.
For the year ended December 31, 2005, the amount incurred by the Group to Shenzhen Air
Catering Company Limited for the provision of in-flight meals was approximately RMB60,542,000.
China Southern West Australian Flying College Pty Ltd (the "Australian Pilot College"),
which is 65% owned by the Company and 35% owned by CSAHC
CSAHC and the Australian Pilot College entered into an agreement dated October 7, 1993 for the
provision of pilot training in Australia to the cadet pilots of CSAHC (the "Training Agreement").
The Training Agreement will remain in force unless terminated by either party upon 90 days' prior
written notice to the other party. Pursuant to the De-merger Agreement, the Company has assumed all
the interests, rights and obligations of CSAHC under the Training Agreement.
For the year ended December 31, 2005, the amount paid by the Group to the Australian Pilot
College for training services was RMB81,471,000.
Southern Airlines (Group) Economic Development Company, which is 61% owned by CSAHC and
39% owned by an independent third party
The Company and Southern Airlines (Group) Economic Development Company entered into an
agreement dated May 22, 1997 for the provision of drinks, snacks, liquor, souvenirs and other
products for a term extending from May 22, 1997 to May 22, 2007.
For the year ended December 31, 2005, the amount paid by the Group to Southern Airlines
(Group) Economic Development Company for the provision of drinks, snacks, liquor, souvenirs and
other products was RMB87,521,000.
Ticket sales arrangements
The Group has entered into ticket agency agreements for the sale of the Group's air tickets
with several subsidiaries of CSAHC (the "Agents"). The Agents charge commission on the basis of the
rates stipulated by the CAAC and International Air Transport Association ("IATA"). The Agents
charge a commission in the amount of 3% of the ticket price for domestic tickets and 5% to 12% of
the ticket price for Hong Kong and Macau regional/international tickets. The Group has other air
ticket sales agents in China who also charge commission at the same rates. The Agents also act as
air ticket sales agents for other Chinese airlines and charge the same rates of commission to such
other airlines as those charged to the Group. The rates of commission are not higher than market
rates for similar services.
For
the year ended December 31, 2005, the aggregate amount of ticket sales of the Group
conducted through the Agents was RMB451,121,000.
China Southern Airlines Group Air Catering Company Limited (the "Catering Company"), a
wholly owned subsidiary of CSAHC
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The Company and the Catering Company entered into a catering agreement dated November 12, 2004
under which the Catering Company would supply (1) in-flight meals in accordance with the menus of
in-flight meals to be agreed with the Company from time to time, and in such quantity as the
Company shall advise the Catering Company in advance; and (2) catering services for different
flights of the Company (including normal, additional, chartered and temporary flights) originating
or stopping at the domestic airports, mainly in northern China and the Xinjiang regions where the
Catering Company provides catering services.
The catering agreement is for a fixed term of three years, commencing from the date of the
agreement. The parties have agreed, after arm's length negotiation, on the price of each type of
in-flight meals and the service charges for each type of aircraft. The prices of in-flight meals
and the service charges are not higher than the market rate of comparable in-flight meals and
service charges. The Catering Company will issue an invoice listing out the quantity of in-flight
meals supplied, the agreed unit price and the total price payable for each of the Company flight it
provides service. The Cap for the Catering Agreement is set at RMB220,000,000 per year.
For the year ended December 31, 2005, the Company paid the in-flight meals charge of
RMB112,136,000 pursuant to the catering agreement.
China Southern Airlines Group Passenger and Cargo Agent Company Limited ("PCACL"), a wholly
owned subsidiary of CSAHC
In order to comply with the requirements under Rule 14A.35 of the Hong Kong Listing Rules so
that PCACL can continue to provide ticket agency services, the Company and PCACL, a whollyowned
subsidiary of CSAHC whose principal business activity is that of acting as an air ticket agent and
airfreight forwarding agent, entered into a new ticket agency framework agreement (the "New Ticket
Agreement") and a new airfreight forwarding agency framework agreement (the "New Airfreight
Agreement", together with New Ticket Agreement, the "Two
Sales Agency Framework Agreements") on January 1, 2006, which
became effective on April 25, 2006, having been approved by the Board of
Directors of the Company.
The Two Sales Agency Framework Agreements are valid for a term of three years commencing from
January 1, 2006, subject to the compliance of relevant requirements of the Hong Kong Listing Rules
by the Company. The parties agreed that the agency fee shall be determined after arm's length
negotiation and shall not be higher than the market rate.
China Southern Airlines Group Travel Development Company Limited ("CSA Travel"), a wholly
owned subsidiary of CSAHC
The Company and CSA Travel, whose principal business activity is that of operating tourism
related business, entered into a framework agreement on Lease, Operation and Management ("Framework
Agreement on Lease and Operation") on January 1, 2006 in order to allow Company to lease certain
hotels belonging to it to CSA Travel for it to operate, and to provide certain relevant services in
compliance with the requirements under Rule 14A.35 of the Hong Kong Listing Rules for a term of
three years, commencing from the date of the agreement. The Framework Agreement on Lease and
Operation became effective on April 25, 2006, having been approved by the Board of Directors of the
Company. Pursuant to the agreement, the Company shall lease Guangzhou Airlines Hotel, Zhuhai Pilot
Mansion and certain portions of CSA Guangzhou Hotel and Beijing CSA Hotel to the CSA Travel for
operation and management of such hotels. With regard to the amount of rent payable under the
agreement, the annual cap for the Framework Agreement on Lease and Operation is set at RMB6,000,000
per annum for the entire term of the agreement.
Guangzhou China Southern Airlines Property Management Company Limited (the "GCSAPMC"), which
is 90% owned by CSAHC and 10% owned by the Company's Union
The Company and GCSAPMC, whose principal business activity is that of management of real
property, entered into a framework agreement for the Engagement of Property Management ("Property
Management Framework Agreement") on January 1, 2006 in respect of engaging GCSAPMC to provide
property management and improvement services in compliance with the requirements under Rule 14A.35
of the Hong Kong Listing Rules for a term of three years, commencing from the date of the
agreement. The Property Management Framework Agreement became
effective on April 25, 2006, having
been approved by the Board of Directors of the Company. The Property Management Framework Agreement
would become effective upon approval by the Board of Directors of the Company. Pursuant to the
agreement, the Company has appointed GCSAPMC to provide management and maintenance services for the
Company's headquarters in Guangzhou and to provide maintenance and management services for the
110KV transformer substation at the new Baiyun International Airport to ensure the ideal working
conditions of the Company's production and office facilities and physical environment, and the
normal operation of equipment. The fee charging schedule shall be determined at an arm's length
between both parties. The agency fee is payable within the time period set out in the invoice to be
delivered to the Company. The Company will fund the agency fee wholly by its internal resources.
With regard to the approximate amount of agency fee payable for property management and
improvement services under the agreement likely to be incurred each year during the term of the
agreement, the annual cap for the Property Management Framework Agreement is set at RMB47,010,000
per annum for the entire term of the agreement.
CSAHC Hainan Co., Ltd., ("Hainan Co., Ltd."), a subsidiary of CSAHC from Hainan Co., Ltd.
In order to expand the assets size and competitive advantage of the Company's airline
operations and completely remove competition with CSAHC in the airline industry, the Board of
Directors reviewed and approved the acquisition (the "Acquisition") by the Company of the assets
("Core Assets") and liabilities ("Core Liabilities") in relation to the airline operations of CSAHC
Hainan Co., Ltd. ("Hainan Co., Ltd."), a subsidiary of CSAHC from Hainan Co., Ltd., whose main
business is that of civil aviation, on April 18, 2006.
As agreed by the parties, the value of the Core Assets to be acquired and the Core Liabilities
to be assumed by the Company is determined in accordance with the valuation reports
(Zhongqihuapingbaozi (2006) Report No. 024) on the transfer of business and assets of Hainan Co.,
Ltd. dated June 30, 2005 which was issued by China Enterprise Appraisal Co., Ltd., which sets out
the estimated value of the Core Assets as RMB355,150,000, consisting mainly of RMB103,020,000 in
cash, RMB55,110,000 for bill and trade receivables, RMB160,970,000 for airplanes, aviation
equipment and productionrelated buildings and equipment, as well as RMB35,480,000 of land; and the
Core Liabilities, which include airplane repair expenses, jet fuel and takeoff and landing fees,
amount to RMB350,000,000. The Core Liabilities will be paid directly by the Company to the
creditors in accordance with the terms and period as agreed by relevant parties. After deducting
the above-mentioned liabilities, the Company shall pay RMB5,150,000 in cash, being the difference
in the estimated values of the Core Assets and Core Liabilities, into the bank account designated
by Hainan Co., Ltd. The Company will fund the consideration for the Acquisition wholly by its
internal resources.
Nan Lung Travel & Express (Hong Kong) Ltd. (the "Nanlung"), a subsidiary wholly owned by CSAHC
As China Airlines (Hong Kong) Co., Ltd. has ceased to act as agent of the Company in respect
of its ticket sales, account settlement and the ground operations of its flights in Hong Kong
region, for the purpose of maintaining the sales and operations of the Company in Hong Kong region,
the Company entered into a new General Agency Agreement for Sale of Freight and Passenger Services
(the "Agency Agreement") with Nanlung on May 16, 2006, having been approved by the Board of
Directors of the Company.
The Agency Agreement is valid for a term of one year, commencing from January 1, 2006, subject
to compliance with the relevant provisions of the Hong Kong Listing Rules by the Company. Both
parties agreed that prior to the establishment of any relevant entity in Hong Kong region by the
Company, the Company authorizes Nanlung to act as agent in its sales and account settlement and the
ground operations of its flights in Hong Kong region, and that the rates of the various agency fees
shall be determined after arm's length negotiation and shall not exceed those of the same category
that prevail in the market, with a ceiling set at 6% of the revenue of the Company that is derived
from freight and passenger services sold through the agency of Nanlung (the total amount shall not
exceed HK$60 million). The agency fee is payable within the time period set out in the invoice to
be delivered to the Company. The Company will fund the agency fee wholly by its internal resources.
Interests of Experts and Counsel
Not applicable.
ITEM 8. FINANCIAL INFORMATION.
Consolidated Statements and Other Financial Information
See "Item 18. Financial Statements" for financial statements filed as part of this Annual
Report.
Significant Changes
No significant changes have occurred since the date of the financial statements provided in
Item 18 below.
Dividend Information
No interim dividend was paid during the year ended December 31, 2005. The Board of Directors
does not recommend the payment of a final dividend in respect of the year ended December 31, 2005.
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ITEM 9. THE OFFER AND LISTING.
Offer and Listing Details
The principal trading market for the Company's H Shares is the Hong Kong Stock Exchange, and
the Company's trading code is "1055". The ADSs, each representing 50 H Shares, are evidenced by
ADRs issued by The Bank of New York as the Depositary for the ADRs, and are listed on the New York
Stock Exchange under the symbol "ZNH".
In July 2003, the Company issued and listed 1,000,000,000 A shares on the Shanghai Stock
Exchange with trading code of "600029". The 2,200,000,000 Domestic Shares held by CSAHC are not
listed on any stock exchange and are essentially not transferrable by
CSAHC.
Set forth below for the periods indicated are the high and low sales prices of H Shares on the
Hong Kong Stock Exchange, ADSs on the New York Stock Exchange and A Shares on the Shanghai Stock
Exchange.
The Stock Exchange
The New York
The Shanghai
of Hong Kong
Stock Exchange
Stock Exchange
Price per H Share
Price per ADS
Price per A Share
(HK$)
(US$)
(RMB)
High
Low
High
Low
High
Low
Annual Market Prices
Fiscal Year ended December 31, 2000
2.93
1.02
18.38
6.06
N/A
N/A
Fiscal Year ended December 31, 2001
2.95
1.35
18.10
8.00
N/A
N/A
Fiscal Year ended December 31, 2002
3.60
1.50
22.25
10.35
N/A
N/A
Fiscal Year ended December 31, 2003
3.50
1.46
22.78
9.53
5.34
3.75
Fiscal Year ended December 31, 2004
4.68
2.47
29.73
15.95
6.87
3.96
Fiscal Year ended December 31, 2005
2.22
2.17
14.25
14.20
2.68
2.62
Quarterly Market Prices
Fiscal Year ended December 31, 2002
First Quarter
2.83
2.22
17.63
14.80
N/A
N/A
Second Quarter
3.42
2.33
21.74
14.95
N/A
N/A
Third Quarter
3.60
1.89
22.25
12.00
N/A
N/A
Fourth Quarter
2.42
1.50
15.00
10.35
N/A
N/A
Fiscal Year ended December 31, 2003
First Quarter
2.62
1.71
16.50
11.75
N/A
N/A
Second Quarter
2.40
1.46
14.85
9.53
N/A
N/A
Third Quarter
2.88
2.03
18.59
13.25
4.15
3.75
Fourth Quarter
3.50
2.50
22.78
16.76
5.34
3.86
Fiscal Year ended December 31, 2004
First Quarter
4.68
3.20
29.73
20.91
6.87
4.95
Second Quarter
3.90
2.47
24.89
15.95
6.24
4.14
Third Quarter
3.17
2.47
20.17
16.00
5.19
4.16
Fourth Quarter
3.53
2.55
22.74
16.71
5.40
3.96
Fiscal Year ended December 31, 2005
First Quarter
3.10
2.47
19.93
16.10
5.30
3.56
Second Quarter
2.72
2.20
17.33
14.72
4.02
2.95
Third Quarter
2.20
2.03
16.86
13.50
3.00
2.35
Fourth Quarter
2.40
1.83
15.45
11.68
2.77
2.23
Monthly Market Prices
December 2005
2.40
2.10
15.45
13.68
2.74
2.52
January 2006
2.40
2.12
15.50
13.91
3.03
2.53
February 2006
2.53
2.17
15.88
14.05
2.85
2.55
March 2006
2.47
2.20
15.78
14.16
2.84
2.45
April 2006
2.30
1.96
15.03
13.06
2.59
2.19
May 2006
2.08
1.86
13.59
12.01
2.75
2.25
June
19, 2006
1.94
1.68
12.65
10.76
2.97
2.53
Plan of Distribution
Not applicable.
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Markets
See
"Offer and Listing Details" above.
Selling Shareholders
Not applicable.
Dilution
Not applicable.
Expenses of the Issue
Not applicable.
ITEM 10. ADDITIONAL INFORMATION.
Share Capital
Not applicable.
Memorandum and Articles of Association
The following is a summary of certain provisions of our articles of association. As this is a summary, it does not contain all the information that may be important to you. You and your advisors should read the text of our articles
of association for further information.
The Company is registered with and has obtained a business license from the State
Administration Bureau of Industry and Commerce of the People's Republic of China on March 25, 1995.
The Company's business license number is 1000001001760.
On March 13, 2003, the Company obtained an approval certificate from the Ministry of Commerce
to change to a permanent limited company with foreign investments and obtained the business license
(Qi Gu Guo Zi Di No. 000995) on October 17, 2003 issued by the State Administration of Industry and
Commerce of the People's Republic of China.
Objects and Purpose
Pursuant to Article 13 of the Articles of Association, the business purposes of the Company
are: (i) to absorb domestic and foreign capital; (ii) to assist in developing the aviation industry
of China; (iii) to promote the development of the national economy of China; (iv) to utilize
corporate incentive mechanisms of privatization; (v) to draw on the advanced management expertise
of other domestic and foreign companies; (vi) to continuously improve the management of the
Company; (vii) to enhance the market competitiveness of the Company; (viii) to generate economic
and social benefits for the Company; and (ix) to generate steady income for the Company's
shareholders. Pursuant to Article 14 of the Articles of Association, the scope of business of the
Company shall be consistent with and subject to the scope of business approved by the relevant
supervisory department of the State. The scope of business of the Company includes: (i) provision
of scheduled and non-scheduled domestic, regional and international air transportation services for
passengers, cargo, mail and luggage; (ii) undertaking general aviation services; (iii) provision of
aircraft repair and maintenance services; (iv) acting as agent for other domestic and international
airlines; (v) provision of air catering services and (vi) engaging in other airline or
airline-related business, including advertising for such services.
Directors
Pursuant
to Article 179 of the Articles of Association, where a Director of the Company is in
any way, directly or indirectly, materially interested in a contract, transaction or arrangement or
proposed contract, transaction or arrangement with the Company, (other than his contract of service
with the Company), he shall declare the nature and extent of his interests to the Board of
Directors at the earliest opportunity, whether or not the contract, transaction or arrangement or
proposal therefor is otherwise subject to the approval of the Board of Directors.
Pursuant
to Article 130 of the Articles of Association, where a Director is interested in any
resolution proposed at a board meeting, such Director shall not be present and shall not have a
right to vote. Such Director shall not be counted in the quorum of the relevant meeting.
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Pursuant
to Article 187 of the Articles of Association, the Company shall, with the prior
approval of shareholders in general meeting, enter into a contract in writing with a Director
wherein his emoluments are stipulated. The aforesaid emoluments include, emoluments in respect of
his service as Director, Supervisor or senior administrative officer of the Company or any
subsidiary of the Company; emoluments in respect of the provision of other services in connection
with the management of the affairs of the Company and any of its subsidiaries; and payment by way
of compensation for loss of office, or as consideration for or in connection with his retirement
from office.
Pursuant
to Article 124(6) of the Articles of Association, the Board of Directors has the
power to formulate proposals for increases or reductions in the Company's registered capital and
the issue of debentures of the Company; such resolutions must be passed by more than two-thirds of
all the Directors.
There is no mandatory retirement age for the Directors of the Company. The Directors of the
Company are not required to hold shares of the Company.
Ordinary Shares
Pursuant to Article 19 of the Articles of Association
,
subject to the approval of the
securities authority of the State Council, the Company may issue and offer shares to domestic
investors or foreign investors for subscription. Foreign investors are those investors of foreign
countries and regions of Hong Kong, Macau and Taiwan who subscribe for shares issued by the
Company. Domestic investors are those investors within the territory of the PRC (excluding
investors of the regions referred to in the preceding sentence) who subscribe for shares issued by
the Company.
Pursuant to Article 20 of the Articles of Association
,
Shares issued by the Company to
domestic investors for subscription in Renminbi shall be referred to as "Domestic-Invested Shares".
Shares issued by the Company to foreign investors for subscription in foreign currencies shall be
referred to as "Foreign-Invested Shares". Foreign-Invested Shares which are listed overseas are
called "Overseas-Listed Foreign-Invested Shares". The foreign currencies mean the legal currencies
(apart from Renminbi) of other countries or districts which are recognized by the foreign exchange
control authority of the state and can be used to pay the Company for the share price.
Pursuant to Article 21 of the Articles of Association
,
Domestic-Invested Shares issued by the
Company shall be called "A Shares". Overseas-Listed Foreign-Invested Shares issued by the Company
and listed in Hong Kong shall be called "H Shares". H Shares are shares which have been admitted
for listing on The Stock Exchange of Hong Kong Limited, the par value of which is denominated in
Renminbi and which are subscribed for and traded in Hong Kong dollars. H Shares can also be listed
on a stock exchange in the United States of America in the form of American depositary receipts.
The Company has issued a total of 4,374,178,000 ordinary shares, of which (a) 2,200,000,000 are
Domestic Shares held by CSAHC, (b) 1,174,178,000 are H Shares held by Hong Kong and overseas
shareholders and (c) 1,000,000,000 are A Shares held by PRC shareholders.
Pursuant to Article 54 of the Articles of Association, the ordinary shareholders of the
Company shall enjoy the following rights:
(1)
the right to attend or appoint a proxy to attend shareholders' general meetings and to vote
thereat;
(2) the right to dividends and other distributions in proportion to the number of shares held;
(3)
the right of supervisory management over the Company's business operations, and the right to
present proposals or enquiries;
(4)
the right to transfer, donate or pledge his shares in accordance with laws, administrative
regulations and provisions of these articles of association;
(5)
the right of knowledge and decision making power with respect to important matters of the
Company in accordance with laws, administrative regulations and these articles of association;
(6)
the right to obtain relevant information in accordance with the provisions of these articles
of association, including:
(i) the right to obtain a copy of these articles of association, subject to payment of the
cost of such copy;
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(ii) the right to inspect and copy, subject to payment of a reasonable charge:
(a) all parts of the register of shareholders;
(b) personal particulars of each of the Company's directors, supervisors, president and other
senior administrative officers, including:
(aa) present name and alias and any former name or alias;
(bb) principal address (residence);
(cc) nationality;
(dd) primary and all other part-time occupations and duties;
(ee) identification documents and their relevant numbers;
(c) state of the Company's share capital;
(d) reports showing the aggregate par value, quantity, highest and lowest price paid in
respect of each class of shares repurchased by the Company since the end of last accounting
year and the aggregate amount paid by the Company for this purpose;
(e) minutes of shareholders' general meetings;
(f) interim and annual reports of the Company.
(7)
in the event of the termination or liquidation of the Company, to participate in the
distribution of surplus assets of the Company in accordance with the number of shares held;
(8)
other rights conferred by laws, administrative regulations and these articles of association.
Pursuant to Article 55 of the Articles of Association, the ordinary shareholders of the
Company shall assume the following obligations:
(1)
to abide by these articles of association;
(2)
to pay subscription monies according to the number of shares subscribed and the method of
subscription;
(3)
no right to return shares to the Company unless laws and regulations provide otherwise;
(4)
other obligations imposed by laws, administrative regulations and these articles of
association.
Shareholders are not liable to make any further contribution to the share capital other than
as agreed by the subscriber of the relevant shares on subscription.
Action necessary to change rights of shareholders
Pursuant
to Article 112 of the Articles of Association, shareholders who hold different
classes of shares are shareholders of different classes.
The
holders of the Domestic-Invested Shares and holders of Overseas-Listed Foreign-Invested
Shares shall be deemed to be shareholders of different classes.
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Pursuant
to Article 113 of the Articles of Association, rights conferred on any class of
shareholders in the capacity of shareholders ("class rights") may not be varied or abrogated unless
approved by a special resolution of shareholders in general meeting and by holders of shares of
that class at a separate meeting conducted in accordance with
Articles 115 to 119.
Pursuant
to Article 115 of the Articles of Association,
s
hareholders of the affected class,
whether or not otherwise having the right to vote at shareholders' general meetings, shall
nevertheless have the right to vote at class meetings in respect of matters concerning
sub-paragraphs (2) to (8), (11) and (12) of
Article 114, but interested shareholder(s) shall not be
entitled to vote at class meetings. "Interested shareholder(s)" is:
(1)
in the case of a repurchase of shares by offers to all shareholders or public dealing on a
stock exchange under Article 31, a "controlling shareholder" within the meaning of Article 57;
(2)
in the case of a repurchase of share by an off-market contract under Article 31, a holder of
the shares to which the proposed contract relates;
(3)
in the case of a restructuring of the Company, a shareholder within a class who bears less
than a proportionate obligation imposed on that class under the proposed restructuring or who
has an interest in the proposed restructuring different from the interest of shareholders of
that class.
Pursuant
to Article 116 of the Articles of Association, resolutions of a class of shareholders
shall be passed by votes representing more than two-thirds of the voting rights of shareholders of
that class represented at the relevant meeting who, according to
Article 115, are entitled to vote
at class meetings.
Pursuant
to Article 117 of the Articles of Association, written notice of a class meeting shall
be given forty-five (45) days before the date of the class meeting to notify all of the
shareholders in the share register of the class of the matters to be considered, the date and the
place of the class meeting. A shareholder who intends to attend the class meeting shall deliver his
written reply concerning attendance at the class meeting to the Company twenty (20) days before the
date of the class meeting.
If the number of shares carrying voting rights at the meeting represented by the shareholders
who intend to attend the class meeting reaches more than one half of the voting shares at the class
meeting, the Company may hold the class meeting; if not, the Company shall within five (5) days
notify the shareholders again by public notice of the matters to be considered, the date and the
place for the class meeting. The Company may then hold the class meeting after such publication of
notice.
Pursuant
to Article 118 of the Articles of Association, notice of class meetings need only be
served on shareholders entitled to vote thereat.
Meeting of any class of shareholders shall be conducted in a manner as similar as possible to
that of general meetings of shareholders. The provisions of these articles of association relating
to the manner to conduct any shareholders' general meeting shall apply to any meeting of a class of
shareholders.
Pursuant
to Article 119 of the Articles of Association, the special procedures for voting at
any meeting of a class of shareholders shall not apply to the following circumstances:
(1)
where the Company issues, upon the approval by special resolution of its shareholders in
general meeting, either separately or concurrently once every twelve months, not more than 20
per cent of each of its existing issued Domestic-Invested Shares and Overseas-Listed
Foreign-Invested Shares;
(2)
where the Company's plan to issue Domestic-Invested Shares and Overseas-Listed
Foreign-Invested Shares at the time of its establishment is carried out within fifteen (15)
months from the date of approval of the Securities Committee of the State Council.
Meetings of shareholders
Shareholders' general meetings is the organ of authority of the Company and shall exercise its
functions and powers, among other things, to decide on the Company's operational policies and
investment plans, to elect and replace directors and decide on matters relating to the remuneration
of directors, to examine and approve reports of the board of directors, etc.
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There are two types of shareholders' general meetings: annual general meetings and
extraordinary general meetings. Shareholders' general meetings shall be convened by the board of
directors. Annual general meetings are held once every year and within six (6) months from the end
of the preceding financial year.
Under
any of the following circumstances, the Board of Directors shall convene an
extraordinary general meeting within two (2) months:
(1)
when the number of Directors is less than the number of Directors required by the Company Law
or two thirds of the number of Directors specified in the Articles of Association;
(2)
when the unrecovered losses of the Company amount to one third of the total amount of its
share capital;
(3)
when shareholder(s) holding 10 per cent or more of the
Company's issued and outstanding shares carrying voting rights request(s) in writing the convening of an extraordinary general
meeting;
(4)
when deemed necessary by the Board of Directors or as requested by the supervisory committee.
When the Company convenes a shareholders' general meeting, written notice of the meeting shall
be given forty five (45) days before the date of the meeting to notify all of the shareholders in
the share register of the matters to be considered and the date and the place of the meeting. A
shareholder who intends to attend the meeting shall deliver his written reply concerning the
attendance of the meeting to the Company twenty (20) days before the date of the meeting.
The Company shall, based on the written replies received twenty (20) days before the date of
the shareholders' general meeting from the shareholders, calculate the number of voting shares
represented by the shareholders who intend to attend the meeting. If the number of voting shares
represented by the shareholders who intend to attend the meeting reaches one half or more of the
Company's total voting shares, the Company may hold the meeting; if not, then the Company shall
within five (5) days notify the shareholders again by public notice of the matters to be
considered, the place and date for, the meeting. The Company may then hold the meeting after such
publication of notice.
Limitation on right to own securities
The PRC Special Regulations on Overseas Offering and the Listing of Shares by Companies
Limited by Share (the "Special Regulations") and the Mandatory Provisions for Articles of
Association of Companies to be Listed Overseas (the "Mandatory Provisions") provide for different
classes of shares to be subscribed for and traded by local and overseas investors respectively.
Shares which can be traded by overseas investors must be in registered form and while denominated
in Renminbi, they are traded in foreign currency with dividends payable in foreign currency. Local
investors are prohibited from dealing in such shares.
Merger, acquisition or corporate restructuring
Pursuant
to Article 221 of the
Articles of Association, in the event of the merger or division
of the Company, a plan shall be presented by the Company's board of directors and shall be approved
in shareholders' general meeting and the relevant examining and approving formalities shall be
processed as required by law. A shareholder who objects to the plan of merger or division shall
have the right to demand the Company or the shareholders who consent to the plan of merger or
division to acquire that dissenting shareholder's shareholding at a fair price. The contents of the
resolution of merger or division of the Company shall be made into special documents for
shareholders' inspection. Such special documents shall be sent by mail to holders of
Overseas-Listed Foreign-Invested Shares.
The Articles of Association do not contain any provisions governing the ownership threshold
above which shareholder ownership must be disclosed.
Material Contracts
The Company has not entered into any material contracts other than in the ordinary course of
business and other than those described in this Item 10, Item 4, "Information on the Company" or
elsewhere in this annual report on Form 20-F.
(a)
A sale and purchase agreement (the "Sale and Purchase Agreement") dated November 12, 2004
between the Company, CSAHC, CNA, a wholly owned subsidiary of CSAHC, and XJA, a wholly owned
subsidiary of CSAHC, pursuant to which the Company agreed to acquire, and CSAHC, CNA and XJA
agreed to sell certain airlines and airlines-related operations, assets and properties of CNA,
XJA and their respective subsidiaries, which included aircraft, engines, spare parts, aviation
equipment and facilities, properties, office facilities, and other fixed, current and
intangible assets. In addition, the Company will also assume all indebtedness in the aggregate
sum of RMB13,438,191,000 owed by XJA, CNA and their respective subsidiaries in connection with
their civil aviation business. The total consideration, including the assumption of the debts
under the Sale and Purchase Agreement was RMB15,397,524,000. It became effective upon approval
by the shareholders of the Company on December 31, 2004.
(b)
A lease agreement (the "Lease Agreement 1") dated November 12, 2004 between
the Company, CSAHC and CNA, pursuant to which CSAHC and CNA lease to the Company
certain buildings, facilities and other infrastructure related to the civil
aviation business of CNA situated at various locations in Shenyang, Dalian, Jilin,
Harbin, Chaoyang and Russia for a period of three years. The consideration for
Lease Agreement 1 is RMB41,993,318.44 per year. It became effective upon approval
by the shareholders of the Company on December 31, 2004.
(c)
A lease agreement (the "Lease Agreement 2") dated November 12, 2004
between the Company, CSAHC and XJA, pursuant to which CSAHC and XJA lease to the
Company certain buildings, facilities and other infrastructure related to the
civil aviation business of XJA situated at Xinjiang and Russia for a period of
three years. The consideration for Lease Agreement 2 is RMB5,797,908.61 per year.
It became effective upon approval by the shareholders of the Company on December
31, 2004.
(d)
A lease agreement (the "Lease Agreement 3") dated November 12, 2004
between the Company and CSAHC, pursuant to which CSAHC leases to the Company
certain lands situated in Urumqi, Shenyang, Dalian and Harbin, by leasing the land
use rights of such lands to the Company for a period of three years. The
consideration for Lease Agreement 3 is RMB22,298,033 per year. It became effective
upon approval by the shareholders of the Company on December 31, 2004.
(e)
A catering agreement (the "Catering Agreement") dated November 12,
2004 between the Company and China Southern Airlines Group Air Catering Company
Limited (the "Catering Company"), a wholly owned subsidiary of CSAHC, pursuant to
which the Catering Company supplies in-flight meal and catering services to the
flights of the Company originating or stopping at the domestic airports, mainly in
Northern China and Xinjiang regions where the Catering Company provides catering
services for a period of three years. The consideration for the catering agreement
is based on the price of each type of in-flight meals and the service price for
each type of aircraft, and is capped at RMB220 million per year. It became
effective upon approval by the shareholders of the Company on December 31, 2004.
(f)
A financial agreement (the "Financial Agreement") dated November 12,
2004, between the Company and Southern Airlines Group Finance Company Limited ("SA
Finance"), a connected person of the Company which is 42% owned by CSAHC, 32%
owned by the Company and 26% owned in aggregate by five subsidiaries of the
Company. The Financial Agreement commenced from November 12, 2004 for a period of
three years, and is renewable, subject to compliance with the requirements of the
relevant Hong Kong Listing Rules by the Company, by an application in writing by
the Company not less than 30 days before the end of the fixed term. Under the
Financial Agreement, SA Finance provides deposit of money service and, subject to
the execution of further agreements with the Company, other financial services
like loan facilities, credit facilities, financial guarantees and credit
references to the Company. The Company is not subject to any extra charges for
depositing money with SA Finance. For the other financial services provided by SA
Finance under the financial agreement, the Company is liable to pay SA Finance the
standard charging rates set by the People's Bank of China. The PRC commercial
banks also charge similar charging rates set by the People's Bank of China. The
Company will make payment for such interest, fees and commissions in accordance
with the payment terms of the separate agreements for the provision of loans or
other financial services as might be entered into between the Company and SA
Finance. It became effective upon approval by the shareholders of the Company on
December 31, 2004.
(g)
A framework agreement on lease and operation dated January 1, 2006
between the Company and China Southern Airlines Group Travel Development Company
Limited (the "CSA Travel"), a wholly owned subsidiary of CSAHC, pursuant to which
the Company leases certain hotels belonging to it to CSA Travel for
operation and management for a period of three years. The
consideration for the framework agreement on lease and operation is based on the
rent payable and fees for operation and management of the hotels, and is capped at RMB6 million per year. It became
effective on April 25, 2006 has been approved by the directors of the Company.
(h)
An advertising agency agreement dated January 1, 2006 between the
Company and Southern Airlines Advertising Company (the "SAAC"), a related party
that is 45% owned by the Company and 55% owned by CSAHC, pursuant to which the
SAAC produces advertisement script, graphic and music for the Company with the
copyright of such products belonging to the Company for a period of three years.
The consideration for the advertising agency agreement is based on
the fees payable for advertising services to be provided, and is capped at RMB30 million per year. It
became effective on April 25, 2006 has been approved by the directors of the
Company.
(i)
A property management framework agreement dated January 1, 2006
between the Company and Guangzhou China Southern Airlines Property Management
Company Limited (the "GCSAPMC"), a related party that is 90% owned by CSAHC and
10% owned by the Company's union, pursuant to which the GCSAPMC provides property
management and improvement services for certain properties of the Company for a
period of three years. The consideration for the property management framework
agreement is based on the fees payable for management and maintenance
services to be provided, and is
capped at RMB47,010,000 per year. It became effective on April 25, 2006 has been
approved by the directors of the Company.
(j)
An acquisition agreement dated April 1, 2006 between the Company and CSAHC Hainan Co., Ltd.
(the "Hainan Co., Ltd."), a subsidiary of CSAHC, pursuant to which the Company has
agreed to acquire and Hainan Co., Ltd. has agreed to sell the assets and
liabilities in relation to the airline operations of Hainan Co., Ltd. The total
consideration payable by the Company, including the assets to be acquired and the liabilities to be
assumed by the Company, was RMB5,150,000. It became effective upon approval by the
directors of the Company on April 18, 2006.
(k)
An agency agreement for sale of freight and passenger services dated
May 16, 2006 between the Company and Nan Lung Travel & Express (Hong Kong) Ltd.
(the "Nanlung"), a wholly owned subsidiary of CSAHC, pursuant to which the Nanlung
acts as agent in the Company's sales and account settlement and the ground
operations of the Company's flights in Hong Kong region for a period of one year.
The consideration for the agency agreement is based on the fees
payable for ticket sale and other services to be provided, and is capped at RMB60 million for the entire
term of the agency agreement. It became effective on May 16, 2006 and was
approved by the directors of the Company on December 24, 2005.
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Exchange Controls
Under current Chinese foreign exchange regulations, Renminbi is fully convertible
for current account transactions, but is not freely
convertible for capital account transactions. Current account foreign exchange transactions can be
undertaken without prior approval from the relevant Chinese Government agencies by producing
commercial documents evidencing such transactions, provided that they are processed through Chinese
banks licensed to engage in foreign exchange transactions. Conversion from Renminbi into a foreign
currency or vice versa for purposes of capital account transactions requires prior approvals of
relevant Chinese Government agencies. This restriction on capital account transactions could
affect the ability of the Company to acquire foreign currency for capital expenditures.
The Company is generally required by law to sell all its foreign exchange revenues to Chinese
banks. The Company may purchase foreign exchange directly from Chinese banks for any current
account transactions, such as trade transactions in its usual and normal course of business,
including acquisition of aircraft, jet fuel and flight equipment (such acquisition requires
approvals from the relevant Chinese Government agencies). Payment of dividends by the Company to
holders of the Company's H Shares and ADSs is also considered a current account transaction under
Chinese law. Therefore, there is no legal restriction on the conversion of Renminbi into foreign
exchange for the purpose of paying dividends to such holders of H Shares and ADSs. In addition, the
Company's Articles of Association require the Company to pay dividends to holders of the Company's
H Shares and ADSs in foreign currency.
On July 21, 2005, the PRC government changed its policy of pegging the value of the Renminbi
to the U.S. dollar so that the Renminbi is now permitted to fluctuate within a band against a
basket of certain foreign currencies. As a result, the value of the Renminbi against the U.S.
dollar has appreciated by approximately 2%. Under the new policy, the value of Renminbi against the
U.S. dollar has fluctuated on a daily basis within narrow ranges, but overall has further
strengthened against the U.S. dollar. The PRC government has stated publicly that it intends to
further liberalize its currency policy, which could result in a further and more significant change
in the value of the Renminbi against the U.S. dollar. Any significant revaluation of the Renminbi
may have a material adverse effect on the Company's financial performance, and the value of, and
any dividends payable on, the Company's H Shares and ADSs in foreign currency terms.
Other Limitations
There are no limitations on the right of non-resident or foreign owners to hold or vote H
Shares or ADSs imposed by Chinese law or by the Articles of Association or other constituent
documents of the Company. However, under current Chinese law, foreign ownership of the Company may
not exceed 49%.
Taxation
Chinese Taxation
The following is a general summary of certain Chinese tax consequences of the acquisition,
ownership and disposition of H Shares and ADSs. This summary is based upon tax laws of China as in
effect on the date of this Annual Report, including the income tax treaty between the United States
and China (the "U.S.-PRC Tax Treaty"), all of which are subject to change or different
interpretation.
In general, for Chinese tax purposes, holders of ADSs will be treated as the owners of the H
Shares represented by those ADSs, and exchanges of H Shares for ADSs, and ADSs for H Shares, will
not be subject to taxation under the laws of China.
This summary does not purport to address all material tax consequences for holders or
prospective purchasers of H Shares or ADSs, and does not take into account the specific
circumstances of such investors. Investors should consult their own tax advisors as to Chinese or
other tax consequences of the acquisition, ownership and disposition of H Shares or ADSs.
Dividends
Chinese tax law generally provides for the imposition of a withholding tax on dividends paid
by a Chinese company to a non-Chinese shareholder at a rate of 20%. However, the Chinese tax
authorities have temporarily suspended imposition of this withholding tax. Accordingly, dividends
paid by the Company to holders of H Shares or ADSs who are foreign individuals not resident in
China or which are foreign enterprises with no permanent establishment in China will currently not
be subject to Chinese withholding tax. In the event that the suspension of the withholding tax is
lifted, such payments will be subject to withholding tax at the 20% rate unless the holder is
entitled to a tax waiver or a lower tax rate under an applicable double-taxation treaty.
China currently has double-taxation treaties with a number of countries, including Australia,
Canada, France, Germany, Japan, Malaysia, the Netherlands, Singapore, the United Kingdom and the
United States. Under the U.S.-PRC Tax Treaty, China may tax a dividend paid by the Company to a
U.S. holder up to a maximum of 10% of the gross amount of such dividend.
Capital Gains from Transfer or Disposition of Shares
Chinese tax law generally provides that an individual who transfers or otherwise disposes of a
company's shares of capital stock is subject to a 20% capital gains tax. Currently, foreign
enterprises and all individuals are temporarily exempt from capital gains tax on transfers of
shares of capital stock of joint stock companies, such as the Company. Should such temporary
exemption be discontinued, such holders may be
67
Table of Contents
subject to a 20% capital gains tax unless reduced by an applicable
double-taxation treaty. Under the U.S.-PRC Tax Treaty, for example, China may only impose a 20%
capital gains tax from the sale or other disposition by a U.S. holder of H Shares or ADSs
representing an interest in the Company of 25% or more.
Stamp Duty
Transfers of shares of capital stock of a company are not subject to Chinese stamp duty if the
transfer does not take place within China (excluding Hong Kong, Macau and Taiwan).
United
States Federal Income Taxation
This discussion describes the material U.S. federal income tax consequences of the purchase,
ownership and disposition of the Company's ADSs. This discussion does not address any aspect of
U.S. federal gift or estate tax, or the state, local or foreign tax consequences of an investment
in the Company's ADSs. This discussion applies to you only if you hold and beneficially own the
Company's ADSs as capital assets for tax purposes. This discussion does not apply to you if you are
a member of a class of holders subject to special rules, such as:
•
dealers in securities or currencies;
•
traders in securities that elect to use a mark-to-market method of
accounting for securities holdings;
•
banks or other financial institutions;
•
insurance companies;
•
tax-exempt organizations;
•
partnerships and other entities treated as partnerships for U.S.
federal income tax purposes or persons holding ADSs through any such
entities;
•
persons that hold ADSs as part of a hedge, straddle, constructive
sale, conversion transaction or other integrated investment;
•
U.S. Holders (as defined below) whose functional currency for tax
purposes is not the U.S. dollar;
•
persons liable for alternative minimum tax; or
•
persons who actually or constructively own 10% or more of the total
combined voting power of all classes of the Company's shares
(including ADSs) entitled to vote.
This discussion is based on the U.S. Internal Revenue Code of 1986, as amended, which is
referred to in this discussion as the Code, its legislative history, existing and proposed
regulations promulgated thereunder, published rulings and court decisions, all as currently in
effect. These laws are subject to change, possibly on a retroactive basis. In addition, this
discussion relies on the assumptions regarding the value of the Company's shares and the nature of
its business over time. Finally, this discussion is based in part upon the representations of the
depositary and the assumption that each obligation in the deposit agreement and any related
agreement will be performed in accordance with its terms. For U.S. federal income tax purposes, as
a holder of ADSs, you are treated as the owner of the underlying ordinary shares represented by
such ADSs.
You should consult your own tax advisor concerning the particular U.S. federal income tax
consequences to you of the purchase, ownership and disposition of the Company's ADSs, as well as
the consequences to you arising under the laws of any other taxing jurisdiction.
For purposes of the U.S. federal income tax discussion below, you are a "U.S. Holder" if you
beneficially own ADSs and are:
•
a citizen or resident of the United States for U.S. federal income tax purposes;
•
a corporation, or other entity taxable as a corporation, that was created or
organized in or under the laws of the United States or any political
subdivision thereof;
•
an estate the income of which is subject to U.S. federal income tax regardless
of its source; or
•
a trust if (a) a court within the United States is able to exercise primary
supervision over its administration and one or more U.S. persons have the
authority to control all substantial decisions of the trust, or (b) the trust
has a valid election in effect to be treated as a U.S. person.
If you are not a U.S. person, please refer to the discussion below under "Non-U.S. Holders."
For U.S. federal income tax purposes, income earned through a foreign or domestic partnership or
other flow-through entity is attributed to its owners. Accordingly, if a partnership or other
flow-through entity holds ADSs, the tax treatment of the holder will generally depend on the status
of the partner or other owner and the activities of the partnership or other flow-through entity.
U.S. Holders
Dividends on ADSs
Subject to the "Passive Foreign Investment Company" discussion below, if the Company makes
distributions and you are a U.S. Holder, the gross amount of any distributions you receive on your
ADSs will generally be treated as dividend income if the distributions are made from the Company's
current or accumulated earnings and profits, calculated according to U.S. federal income tax
principles. Dividends will generally be subject to U.S. federal income tax as ordinary income on
the day you actually or constructively receive such income. However, if you are an individual and
have held your ADSs for a sufficient period of time, dividend distributions on the Company's ADSs
will generally constitute qualified dividend income taxed at a preferential rate (generally 15% for
dividend distributions before January 1, 2009) as long as the Company's ADSs continue to be readily
tradable on the New York Stock Exchange and certain other conditions apply. You should consult your
own tax adviser as to the rate of tax that will apply to you with respect to dividend
distributions, if any, you receive from us.
Distributions on the Company's ADSs, if any, will generally be taxed to you as dividend
distributions for U.S. tax purposes. Even if you are a corporation, you will not be entitled to
claim a dividends-received deduction with respect to distributions you receive from the Company.
Dividends generally will constitute foreign source passive income for U.S. foreign tax credit
limitation purposes.
Sales and other dispositions of ADSs
Subject to the "Passive Foreign Investment Company" discussion below, when you sell or
otherwise dispose of the Company's ADSs, you will generally recognize capital gain or loss in an
amount equal to the difference between the amount realized on the sale or other disposition and
your adjusted tax basis in the ADSs, both as determined in U.S. dollars. Your adjusted tax basis
will generally equal the amount you paid for the ADSs. Any gain or loss you recognize will be
long-term capital gain or loss if your holding period in the Company's ADSs is more than one year
at the time of disposition. If you are an individual, any such long-term capital gain will be taxed
at preferential rates. Your ability to deduct capital losses will be subject to various
limitations.
Passive Foreign Investment Company
If the Company were a Passive Foreign Investment Company or "PFIC" in any taxable year in
which you hold the Company's ADSs, as a U.S. Holder, you would generally be subject to adverse U.S.
tax consequences, in the form of increased tax liabilities and special U.S. tax reporting
requirements.
The Company will be classified as a PFIC in any taxable year if either: (1) the average
percentage value of its gross assets during the taxable year that produce passive income or are
held for the production of passive income is at least 50% of the value of its total gross assets or
(2) 75% or more of its gross income for the taxable year is passive income (such as certain
dividends, interest or royalties). For purposes of the first test: (1) any cash, cash equivalents,
and cash invested in short-term, interest bearing, debt instruments, or bank deposits that is
readily convertible into cash, will generally count as producing passive income or held for the
production of passive income and (2) the average value of the Company's gross assets is calculated
based on its market capitalization.
The Company believes that it was not a PFIC for the taxable year 2004. However, there can be
no assurance that the Company will not be a PFIC for the taxable year 2005 and/or later taxable
years, as PFIC status is re-tested each year and depends on the facts in such year. For example,
the Company would be a PFIC for the taxable year 2005 if the sum of its average market
capitalization, which is its share price multiplied by the total amount of its outstanding shares,
and its liabilities over that taxable year is not more than twice the value of its cash, cash
equivalents, and other assets that are readily converted into cash.
If the Company were a PFIC, you would generally be subject to additional taxes and interest
charges on certain "excess" distributions the Company makes and on any
gain realized on the disposition or deemed disposition of your ADSs, regardless of whether the
Company continues to be a PFIC in the year in which you receive an "excess" distribution or dispose
of or are deemed to dispose of your ADSs. Distributions in respect of your ADSs during a taxable
year would generally constitute "excess" distributions if, in the aggregate, they exceed 125% of
the average amount of distributions in respect of your ADSs over the three preceding taxable years
or, if shorter, the portion of your holding period before such taxable year.
To compute the tax on "excess" distributions or any gain, (1) the "excess" distribution or the
gain would be allocated ratably to each day in your holding period, (2) the amount allocated to the
current year and any tax year before the Company became a PFIC would be taxed as ordinary income in
the current year, (3) the amount allocated to other taxable years would be taxable at the highest
applicable marginal rate in effect for that year, and (4) an interest charge at the rate for
underpayment of taxes for any period described under (3) above would be imposed with respect to any
portion of the "excess" distribution or gain that is allocated to such period. In addition, if the
Company were a PFIC, no distribution that you receive from the Company would qualify for taxation
at the preferential rate discussed in the "Dividends on ADSs" section above.
If the Company were a PFIC in any year, as a U.S. Holder, you would be required to make an
annual return on IRS Form 8621 regarding your ADSs. However, the Company does not intend to
generate, or share with you, information that you might need to properly complete IRS Form 8621.
You should consult with your own tax adviser regarding reporting requirements with regard to your
ADSs.
If the Company were a PFIC in any year, you would generally be able to avoid the "excess"
distribution rules described above by making a timely so-called "mark-to-market" election with
respect to your ADSs provided the Company's ADSs are "marketable". The Company's ADSs will be
"marketable" as long as they remain regularly traded on a national securities exchange, such as the
New York Stock Exchange. If you made this election in a timely fashion, you would generally
recognize as ordinary income or ordinary loss the difference between the fair market value of your
ADSs on the first day of any taxable year and their value on the last day of that taxable year. Any
ordinary income resulting from this election would generally be taxed at ordinary income rates and
would not be eligible for the reduced rate of tax applicable to qualified dividend income. Any
ordinary losses would be limited to the extent of the net amount of previously included income as a
result of the mark-to-market election, if any. Your basis in the ADSs would be adjusted to reflect
any such income or loss. You should consult with your own tax adviser regarding potential
advantages and disadvantages to you of making a "mark-to-market" election with respect to your
ADSs. Separately, if the Company were a PFIC in any year, you would be able to avoid the "excess"
distribution rules by making a timely election to treat us as a so-called "Qualified Electing Fund"
or "QEF." You would then generally be required to include in gross income for any taxable year (1)
as ordinary income, your pro rata share of the Company's ordinary earnings for the taxable year,
and (2) as long-term capital gain, your pro rata share of the Company's net capital gain for the
taxable year. However, the Company does not intend to provide you with the information you would
need to make or maintain a "QEF" election and you
will, therefore, not be able to make or maintain such an election with respect to your ADSs.
Non-U.S. Holders
If you beneficially own ADSs and are not a U.S. Holder for U.S. federal income tax purposes (a
"Non-U.S. Holder"), you generally will not be subject to U.S. federal income tax or withholding on
dividends received from the Company with respect to ADSs unless that income is considered
effectively connected with your conduct of a U.S. trade or business and, if an applicable income
tax treaty so requires as a condition for you to be subject to U.S. federal income tax with respect
to income from your ADSs, such dividends are attributable to a permanent establishment that you
maintain in the United States. You generally will not be subject to U.S. federal income tax,
including withholding tax, on any gain realized upon the sale or exchange of ADSs, unless:
•
that gain is effectively connected with the conduct of a U.S. trade or
business and, if an applicable income tax treaty so requires as a
condition for you to be subject to U.S. federal income tax with
respect to income from your ADSs, such gain is attributable to a
permanent establishment that you maintain in the United States; or
•
you are a nonresident alien individual and are present in the United
States for at least 183 days in the taxable year of the sale or other
disposition and either (1) your gain is attributable to an office or
other fixed place of business that you maintain in the United States
or (2) you have a tax home in the United States.
If you are engaged in a U.S. trade or business, unless an applicable tax treaty provides
otherwise, the income from your ADSs, including dividends and the gain from the disposition of the
Company's ADSs, that is effectively connected with the conduct of that trade or business will
generally be subject to the rules applicable to U.S. Holders discussed above. In addition, if you
are a corporation, you may be subject to an additional branch profits tax at a rate of 30% or any
lower rate under an applicable tax treaty.
U.S. information reporting and backup withholding rules
In general, dividend payments with respect to the ADSs and the proceeds received on the sale
or other disposition of those ADSs may be subject to information reporting to the IRS and to backup
withholding (currently imposed at a rate of 28%). Backup withholding will not apply, however, if
you (1) are a corporation or come within certain other exempt categories and, when required, can
demonstrate that fact or (2) provide a taxpayer identification number, certify as to no loss of
exemption from backup withholding and otherwise comply with the applicable backup withholding
rules. To establish your status as an exempt person, you will generally be required to provide
certification on IRS Form W-9, W-8BEN or W-8ECI, as applicable. Any amounts withheld from payments
to you under the backup withholding rules will be allowed as a refund or a credit against your U.S.
federal income tax liability, provide that you furnish the required information to the IRS.
HOLDERS OF THE COMPANY'S ADSS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE
APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX
CONSEQUENCES RESULTING FROM PURCHASING, HOLDING OR DISPOSING OF THE ADSS, INCLUDING THE
APPLICABILITY AND EFFECT OF THE TAX LAWS OF ANY STATE, LOCAL OR FOREIGN JURISDICTION AND INCLUDING
ESTATE, GIFT, AND INHERITANCE LAWS.
Dividends
and Paying Agents
Not applicable.
Statement by Experts
Not applicable.
Documents on Display
The Company has filed this Annual Report on Form 20-F with the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended. Statements made in this Annual
Report as to the contents of any document referred to are not necessarily complete. With respect to
each such document filed as an exhibit to this Annual Report, reference is made to the exhibit for
a more complete description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference.
The Company is subject to the informational requirements of the Exchange Act and file reports
and other information with the Securities and Exchange Commission. Reports and other information
which the Company filed with the Securities and Exchange Commission, including this Annual Report
on Form 20-F, may be inspected and copied at the public reference room of the Securities and
Exchange Commission at 450 Fifth Street N.W. Washington D.C. 20549.
You can also obtain copies of this Annual Report on Form 20-F by mail from the Public
Reference Section of the Securities and Exchange Commission, 450 Fifth Street, N.W., Washington
D.C. 20549, at prescribed rates. Additionally, copies of this material may be obtained from the
Securities and Exchange Commission's Internet site at http://www.sec.gov. The Commission's
telephone number is 1-800-SEC-0330.
Subsidiary Information
Not applicable.
Comparison of New York Stock Exchange Corporate Governance Rules and China Corporate
Governance Rules for Listed Companies
Under the amended Corporate Governance Rules of New York Stock Exchange (NYSE), foreign issuers
(including the Company) listed on the NYSE are required to disclose a summary of the significant
differences between their domestic corporate governance rules and NYSE corporate governance rules
that would apply to a U.S. domestic issuer. A summary of such differences is listed below:
NYSE corporate governance rules
Corporate governance rules applicable
to the domestically listed companies
in China and the Company's governance
practices
Director Independence
A listed company must have a
majority of independent directors
on its board of directors. No
director qualifies as
"independent" unless the board of
directors affirmatively determines
that the director has no material
relationship with the listed
company (either directly or as a
partner, shareholder or officer of
an organization that has a
relationship with the company). In
addition, a director must meet
certain standards to be deemed
independent. For example, a
director is not independent if the
director is, or has been within
the last three years, an employee
of the listed company, or if the
director has received, during any
twelve-month period within the
last three years, more than
US$100,000 in direct compensation
from the listed company.
Director Independence
Any listed company must establish an
independent director system and set
forth specific requirements for the
qualification of independent
directors. An independent director
shall not hold any other position in
the listed company other than being a
director and shall not be influenced
by the main shareholders or the
controlling persons of the listed
company, or by any other entities or
persons with whom the listed company
has a significant relationship.
The Company's governance practices
The Company has complied with the
relevant Chinese corporate governance
rules and has implemented internal
rules governing the independence and
responsibilities of independent
directors. The Company determines the
independence of independent directors
every year.
The non-management directors of
each listed company must meet at
regularly scheduled executive
sessions without management.
No similar requirements.
Nominating/Corporate Governance Committee
Listed companies must have a
nominating/corporate governance
committee composed entirely of
independent directors.
The nominating/corporate governance
committee must have a written charter
that addresses the committee's purposes
and responsibilities which, at minimum,
must be to: search for eligible people
for the board of directors, select and
nominate directors for the next session
of the shareholders' annual meeting,
study and propose corporate governance
guidelines, supervise the evaluation of
the board of directors and management,
and evaluate the performance of the
committee every year.
Nominating/Corporate Governance Committee
The board of directors of a listed company may, through the
resolution of the shareholders' meeting, establish a
nominating committee composed entirely of directors, of
which the independent directors shall be the majority and
the convener.
The Company's governance practices
The Company has not established a nominating committee. The
independent non-executive Directors of the Company are
nominated by the Board of Directors, and their appointment
must be approved by the shareholders of the Company in a
general meeting. The executive Directors of the Company are
nominated by CSAHC, the controlling shareholder of the
Company, and their appointment must be approved by the
shareholders of the Company in a general meeting.
Compensation Committee
Listed companies must have a
compensation committee composed entirely
of independent directors.
Compensation Committee
The board of directors of a
listed company can, through the
resolution of shareholders'
meeting, have a compensation and
evaluation committee composed
entirely of directors, of whom
the independent directors are the
majority and act as the convener.
The Company's governance practices
The Company has established a
remuneration committee consisting
of three members. The
remuneration committee is chaired
by independent non-executive
Director Sui Guang Jun with
independent non-executive
Director Wei Ming Hai and
executive Director Wang Quan Hua
as members.
The written charter of the
compensation committee must state,
at least, the following purposes and
responsibilities:
(1) review and approve the
corporate goals associated with
CEO's compensation, evaluate the
performance of the CEO in fulfilling
these goals, and based on such
evaluation determine and approve the
CEO's compensation level;
(2) make recommendations to the
board with respect to non-CEO
executive officer compensation, and
incentive-compensation and
equity-based plans that are subject
to board approval;
(3) produce a committee report on
executive compensation as required
by the SEC to be included in the
annual proxy statement or annual
report filed with the SEC.
The charter must also include the
requirement for an annual
performance evaluation of the
compensation committee.
The responsibilities are similar to
those stipulated by the NYSE rules,
but the committee is not required to
produce a report on the executive
compensation or make an annual
performance evaluation of the
committee.
The responsibilities of the
remuneration committee are to
approve the remuneration packages of
Directors and senior management of
the Group, and the Company's
"preliminary proposals on annual
emoluments of the directors and
senior management of the Group". The
remuneration committee is also
responsible for assessing
performance of executive director
and approving the terms of executive
directors' service contracts.
Audit Committee
Listed companies must have an audit
committee that satisfies the
requirements of Rule 10A-3 of
Exchange Act. It must have a minimum
of three members, and all audit
committee members must satisfy the
requirements for independence set
forth in Section 303A.02 of NYSE
Corporate Governance Rules as well
as the requirements of Rule 10A-3b
(1) of the Exchange Act.
Audit Committee
The board of directors of a listed
company can, through the resolution
of the shareholders' meeting,
establish an audit committee
composed entirely of directors, of
which the independent directors are
the majority and act as the
convener, and, at minimum, one
independent director is an
accounting professional.
The written charter of the audit committee must specify
that the purpose of the audit committee is to assist the
board oversight of the integrity of financial statements,
the company's compliance with legal and regulatory
requirements, qualifications and independence of
independent auditors and the performance of the listed
company's internal audit function and independent
auditors.
The written charter must also require the audit committee
to prepare an audit committee report as required by the
SEC to be included in the listed company's annual proxy
statement as well as an annual performance evaluation of
the audit committee.
The responsibilities of the audit committee are
similar to those stipulated by the NYSE rules, but
according to the domestic practices, the Company is
not required to make an annual performance
evaluation of the audit committee and the audit
committee is not required to prepare an audit
report to be included in the Company's annual proxy
statement.
The Company's governance practices
The Board of Directors of the Company has
established an audit committee that satisfies
relevant domestic requirements and the audit
committee has a written charter.
Each listed company must have an internal audit department.
China has a similar regulatory provision, and the
Company has an internal audit department.
Shareholders must be given the opportunity to vote on
equity-compensation plans and material revisions thereto,
except for employment incentive plans, certain awards and
plans in the context of mergers and acquisitions.
The relevant regulations of China require the board
of directors to propose plans and types of director
compensation for the shareholders' meeting to
approve. The compensation plan of executive
officers is subject to approval by the board and
announced at the shareholders' meeting and
disclosed to the public upon the approval of the
board of directors. The approval of director
compensation and compensation plan of executive
officers of the Company satisfies relevant domestic
requirements.
Corporate Governance Guidelines
Listed companies must adopt and disclose corporate
governance guidelines, involving director qualification
standards, director compensation, director continuing
education, annual performance evaluation of the board of
directors, etc.
Corporate Governance Guidelines
China Securities Regulatory Commission ("CSRC") has
issued the Corporate Governance Rules, with which
the Company has complied.
Code of Ethics for Directors, Officers and Employees
Listed companies must adopt and disclose a code of
business conduct and ethics for directors, officers and
employees, and promptly disclose any waivers of the code
for directors or executive officers.
Code of Ethics for Directors, Officers and Employees
China does not have such requirement for a code for
ethics. But, the directors and officers must
perform their legal responsibilities in accordance
with the Company Law of PRC, relative requirements
of CSRC and Mandatory Provisions to the Charter of
Companies Listed Overseas.
The Company's governance practices
The Company does not have, in form, a code of
ethics that applies to the president, chief
financial officer and principal accounting officer,
or collectively, the senior corporate officers.
The senior executive officers, all of whom
currently serve as our directors, are subject to
the director service contracts that they have with
the Company. Under the director service contracts,
the directors, including the senior corporate
officers, agree that each director owes a fiduciary
and diligence obligation to the Company and that no
director shall engage in any activities in
competition with the Company's business or carry
any activities detrimental to the interests of the
Company. Each of the directors, including the
senior corporate officers, also agreed to perform
their respective duties as directors and senior
officers in accordance with the Company Law of the
PRC, relevant rules and regulations promulgated by
China Securities Regulatory
Commission and the Mandatory Provisions of Articles
of Association of Overseas Listed Companies.
Each listed company CEO must certify to the NYSE each year
that he or she is not aware of any violation by the
company of NYSE corporate governance listing standards and
he or she must promptly notify the NYSE on writing of any
material non-compliance with any applicable provisions of
Section 303A.
No similar requirements.
68
Table of Contents
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Group is subject to market risks due to fluctuations in interest rates. The majority of
the Group's borrowings is in the form of long-term fixed- and variable-rate debts with original
maturities ranging from two to fifteen years. Fluctuations in interest rates can lead to
significant fluctuations in the fair value of such debt instruments. From time to time, the Group
may enter into interest rate swaps designed to mitigate exposure relating to interest rate risks.
No such contract was outstanding as of December 31, 2005.
The Group is also exposed to foreign currency risk as a result of its aircraft and flight
equipment being sourced from overseas suppliers. Specifically, the Group's foreign currency
exposure relates primarily to its foreign currency long-term debts used to finance such capital
expenditures and its capital commitments. Subject to certain restrictive conditions imposed by the
State Administration of Foreign Exchange, the Group may, from time to time, enter into forward
foreign exchange contracts to mitigate its foreign currency exposures. No such contract was
outstanding as of December 31, 2005.
As of December 31, 2005, the Group operated a total of 151 aircraft under operating and
capital leases at rates that are substantially fixed. Such leases expose the Group to market risks;
however, in accordance with Item 305 of Regulation S-K, such leases have been excluded from the
following market risk tables. Commitments under operating and capital leases are disclosed in Note
28 to the Financial Statements.
The following table provides information regarding the Group's material interest rate
sensitive financial instruments as of December 31, 2005 and 2004:
As of December 31, 2005
As of December 31, 2004
Expected maturity date
Total
Total
recorded
recorded
2006
2007
2008
2009
2010
Thereafter
amount
Fair value(2)
amount
Fair value(2)
Debt
Fixed-rate notes payable
In US$
484
449
303
266
215
697
2,414
2,440
2,252
2,464
Average interest rate
6.47
%
6.47
%
6.47
%
6.62
%
6.47
%
6.47
%
6.47
%
6.09
%
Variable-rate notes payable
In US$(3)
12,169
5,188
1,801
1,047
345
2,924
23,474
23,474
15,327
15,327
Average interest rate
4.57
%
4.52
%
4.44
%
4.44
%
4.46
%
4.46
%
4.57
%
2.40
%
In HKD(3)
657
1,238
—
—
—
—
1,895
1,895
3,327
3,327
Average interest rate
4.11
%
4.83
—
—
—
—
4.11
%
1.42
%
In RMB
302
52
52
122
100
552
1,180
1,180
2,547
2,547
Average interest rate
5.06
%
5.12
%
5.12
%
5.12
%
5.12
%
2.75
%
4.15
%
5.04
%
(1)
These interest rates are calculated based on the year end indices.
(2)
Fair value of debt instruments was estimated based on the interest rates applicable to
similar debt instruments as of December 31, 2005 and 2004.
(3)
Short term bank debts included certain debts of RMB2,611 million which were
renewed subsequent to December 31, 2005. The renewed debts are unsecured, bear interest
at floating rates ranging from 3-month HIBOR/6-month LIBOR + 0.55% to 0.60% per annum
and are repayable one year from their respective renewal dates.
The following table provides information regarding the Group's material foreign currency
sensitive financial instruments and capital commitments as of December 31, 2005 and 2004:
As of December 31, 2005
As of December 31, 2004
Expected maturity date
Total
Total
recorded
recorded
2006
2007
2008
2009
2010
Thereafter
amount
Fair value(2)
amount
Fair value(2)
Debt
Fixed-rate notes
payable In US$
484
449
303
266
215
697
2,414
2,440
2,252
2,464
Average interest rate
6.47
%
6.47
%
6.47
%
6.62
%
6.47
%
6.47
%
6.47
%
6.09
%
Variable-rate notes
payable in US$(3)
12,169
5,188
1,801
1,047
345
2,924
23,474
23,474
15,327
15,327
Average interest rate
4.57
%
4.52
%
4.44
%
4.44
%
4.46
%
4.46
%
4.57
%
2.40
%
In HKD(3)
657
1,238
—
—
—
—
1,895
1,895
3,327
3,327
Average interest rate
4.11
%
4.83
—
—
—
—
4.11
%
1.42
%
Capital commitment in
US$
7,341
8,945
14,354
5,300
9,688
—
45,628
45,628
11,776
11,776
69
Table of Contents
(1)
These interest rates are calculated based on the year end indices.
(2)
Fair value of debt instruments was estimated based on the floating interest rates applicable
to similar debt instruments as of December 31, 2005 and 2004.
(3)
Short term bank debts included certain debts of RMB2,611 million which were
renewed subsequent to December 31, 2005. The renewed debts are unsecured, bear interest
at floating rates ranging from 3-month HIBOR/6-month LIBOR + 0.55% to 0.60% per annum
and are repayable one year from their respective renewal dates.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.
Not applicable.
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS.
There were no material modifications affecting the rights of securities holders made during
the fiscal year ended December 31, 2005.
Use of Proceeds
(1)
Effective date of the Securities Act registration statement for which the use of proceeds
information is being disclosed:
July 23, 1997.
SEC file number assigned to such registration statement: 333-7114.
(2)
The offering commenced on July 23, 1997.
(3)
The offering was not terminated prior to the sale of any securities registered under the
registration statement.
(4)
(i) The offering was not terminated prior to the sale of all securities registered under the registration statement.
(ii)
Name of the managing underwriter:
Goldman Sachs (Asia) L.L.C. (global coordinator).
(iii)
and (iv)
Aggregate
Aggregate
Title of each
price of
offering
class of
offering
price of
securities
Amount
amount
Amount
amount
registered
registered(1)
registered(2)
sold(3)
sold(4)
Ordinary H Shares of par
value RMB 1.00 per share
represented by American
Depositary Shares
861,823,000 shares
US$
528,469,864
851,501,000 shares
US$
522,140,413
Notes:
(1)
The amount does not include 322,677,000 H Shares (some of which in the form of ADSs) which have
not been registered with the SEC, of which 290,477,000 H Shares were sold to certain corporate
investors in Hong Kong as part of the global offering of the Company in July 1997 and 32,200,000 H
Shares were sold to certain limited partnership investment funds affiliated with Goldman, Sachs &
Co. in a private placement in June 1997 prior to the Company's global offering.
70
Table of Contents
(2)
Assumes that all H Shares were sold in the form of ADSs. The price to public for each ADS is
US$30.66. Each ADS represents 50 H Shares.
(3)
The amount does not include 322,677,000 H Shares referred to in note (1) above.
(4)
The amount does not include US$197,865,536 which represents the proceeds from the sale of
322,677,000 H Shares referred to in note (1) above. If the latter amount is included, the aggregate
amount of proceeds to the Company would be US$720,005,950. In addition, the aggregate amount is
calculated on the assumption that all H Shares were sold in the form of ADSs. Based on the actual
sale of H Shares and ADSs, the aggregate amount of proceeds to the Company was US$719,494,700. The
issue price per H Share was HK$4.70.
(v)
Underwriting discounts and commissions
US$
36,593,000
Finder's fees
—
Expenses paid to or for underwriters
US$
2,958,000
Other expenses
US$
21,411,000
Total expenses
US$
60,962,000
Note:
No direct or indirect payments were made to directors, officers, general partners of the
Company or their associates, or to persons owning ten percent or more of any class of equity
securities of the Company, or to affiliates of the Company. All payments were made to third
parties.
(vi) Net offering proceeds to the Company after deducting the total expenses in item (4)(v) above:
US$658,532,700
Note:
The amount is calculated on the basis of the actual aggregate amount of proceeds to the
Company, and includes the proceeds from the sale of 322,677,000 H Shares referred to in note
(1) of item (4)(iv) above.
(vii) As
of December 31, 2005, the net offering proceeds to the Company was used up as follows:
Construction of plant, building and facilities
US$41.9   million
Purchase and installation of machinery and equipment
US$394.6 million
Purchase of real estate
—
Acquisition of other business(es)
—
Repayment of indebtedness
US$192.4 million
Working Capital
US$29.6   million
Note:
No direct or indirect payments were made to directors, officers, general partners of the
Company or their associates, or to persons owning ten percent or more of any class of equity
securities of the Company, or to affiliates of the Company. All payments were made to third
parties.
(viii) The uses of proceeds do not represent a material change in the use of proceeds described in
the prospectus.
PART III
ITEM 15. CONTROLS AND PROCEDURES.
Our president and chief financial officer have evaluated the effectiveness of our disclosure
controls and procedures (as defined in the Exchange Act Rules 13a-15(e) or 15d-15(e)), and
concluded that, based on their evaluation, our disclosure controls and procedures are effective as
of the end of the period covered by this Annual Report to ensure that material information required
to be included in this Annual Report would be made known to them by others on a timely basis.
There has been no significant change in our internal controls over financial reporting during
the period covered by this Annual Report that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
71
Table of Contents
ITEM 16. [RESERVED]
72
Table of Contents
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Directors has determined that Mr. Wei Ming Hai qualifies as an audit committee
financial expert in accordance with the terms of Item 16. A of Form 20-F. See "Item 6 Directors,
Senior Management and Employees — Directors and Senior Management".
ITEM 16B. CODE OF ETHICS.
As of the date of this Annual Report, the Company does not have, in form, a code of ethics
that applies to the president, chief financial officer and principal accounting officer, or
collectively, the senior corporate officers. The senior executive officers, all of whom currently
serve as our directors, are subject to the director service contracts that they have with the
Company. Under the director service contracts, the directors, including the senior corporate
officers, agree that each director owes a fiduciary and diligence obligation to the Company and
that no such director shall engage in any activities in competition with the Company's business or
carry out any activities detrimental to the interests of the Company. Each of the directors, including
the senior corporate officers, also agreed to perform their respective duties as directors and
senior officers in accordance with the Company Law of the PRC, relevant rules and regulations
promulgated by China Securities Regulatory Commission and the Mandatory Provisions of Articles of
Association of Overseas Listed Companies.
ITEM 16C. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The following table sets forth the aggregate audit fees, audit-related fees, tax fees of the
Company's principal accountants and all other fees billed for products and services provided by the
Company's principal accountants other than the audit fees, audit-related fees and tax fees for each
of the fiscal years 2004 and 2005:
Audit Fees
Audit-Related Fees
Tax Fees
2004
RMB8.9 million
RMB6.6 million
RMB0.11 million
2005
RMB13.9 million
RMB5.8 million
RMB0.11 million
Audit-related fees
Services provided primarily consist of the following:
a)
Review of the Group's 2005 interim financial report prepared under IFRS; and
b)
In connection with the Company's acquisition of the airline operations and related assets of
China Northern Airlines Company and Xinjiang Airlines Company;
–
Audit of the financial statements of China Northern Airlines Company and Xinjiang Airlines Company;
–
Issuance of comfort letter on profit forecast;
–
Issuance of comfort letter on working capital forecast; and
–
Issuance of report on statement of indebtedness.
Tax fees
Services provided primarily consist of tax compliance services.
73
Table of Contents
ITEM 16D. Exemptions from the Listing Standards for Audit Committee
Not applicable.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.
The Company and its affiliated companies have not purchased any issued common shares of the
Company during 2005 and up to the date of this Annual Report.
PART IV
ITEM 17. FINANCIAL STATEMENTS.
Not applicable.
ITEM 18. FINANCIAL STATEMENTS.
Index to Financial Statements
Page
CONSOLIDATED FINANCIAL STATEMENTS OF CHINA SOUTHERN AIRLINES COMPANY LIMITED
Report of Independent Registered Public Accounting Firm
F-1
Consolidated Statements of Operations for the years ended December 31, 2003, 2004 and 2005
F-2
Consolidated Balance Sheets as of December 31, 2004 and 2005
F-3
Consolidated
Statements of Changes in Shareholders' Equity for the years ended December 31, 2003, 2004 and 2005
F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2004 and 2005
F-7
Notes to Consolidated Financial Statements
F-9
74
Table of Contents
ITEM 19. EXHIBITS.
Exhibit No.
Description of Exhibit
4.1
Form of Director's Service Agreement is incorporated by
reference in Exhibit 4(c).1 of Form 20-F for the year of
2005.
4.2
Form of Non-Executive Director's Service Agreement is
incorporated by reference in Exhibit 4(c).2 of Form 20-F
for the year of 2005.
8
Subsidiaries of the Company
12.1
Section 302 Certification of Chairman
12.2
Section 302 Certification of President
12.3
Section 302 Certification of Chief Financial Officer
13.1
Section 906 Certification of Chairman
13.2
Section 906 Certification of President
13.3
Section 906 Certification of Chief Financial Officer
75
Table of Contents
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F
and that it has duly caused and authorized the undersigned to sign this annual report on its
behalf.
CHINA SOUTHERN AIRLINES COMPANY LIMITED
/s/ Liu Shao Yong
Name: Liu Shao Yong
Title: Chairman of the Board of Directors
Date: June
30, 2006
76
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm
F-1
Consolidated
Statements of Operations for the years ended December 31, 2003,
2004 and 2005
F-2
Consolidated
Balance Sheets as of December 31, 2004 and 2005
F-3
Consolidated
Statements of Changes in Shareholders' Equity for the years ended December 31, 2003,
2004 and 2005
F-5
Consolidated
Statements of Cash Flows for the years
ended December 31, 2003, 2004 and 2005
F-7
Notes to Consolidated Financial Statements
F-9
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of
China Southern Airlines Company Limited:
We have audited the accompanying
consolidated balance sheets of China Southern Airlines Company
Limited (the "Company") and its
subsidiaries (the "Group") as of December 31, 2004 and 2005, and the related consolidated
statements of operations, cash flows and changes in shareholders' equity for each of the three
years in the period ended December 31, 2005, all expressed in Renminbi. These consolidated
financial statements are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements based on our audits.
We conducted our
audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects, the financial
position of China Southern Airlines Company Limited and its subsidiaries as of December 31, 2004
and 2005, and the results of their operations and their cash flows for each of the three years
in the period ended December 31, 2005 in conformity with International Financial Reporting
Standards promulgated by the International Accounting Standards Board.
As more
fully described in Note 3 to the consolidated financial statements, the Group changed the
presentation of share of affiliated companies' and jointly controlled entities' taxation in the
consolidated statements of operations in order to comply with IAS 1, "Presentation of financial
statements". In addition, the Group changed the manner in which it presents minority interests
in the consolidated balance sheets and consolidated statements of operations in order to comply
with IAS 1 and IAS 27, "Consolidated and separate financial statements".
International
Financial Reporting Standards vary in certain significant respects from accounting principles
generally accepted in the United States of America. Information relating to the nature and
effect of such differences is presented in Note 51 to the consolidated financial statements.
The accompanying
consolidated financial statements as of and for the year ended December 31, 2005 have been
translated into United States dollars solely for the convenience of readers. We have audited the
 translation, and in our opinion, the consolidated financial statements expressed in Renminbi
have been translated into United States dollars on the basis set forth in Note 1 to the
consolidated financial statements.
Hong Kong, China
April 19, 2006, except as to Note 44, which is as of May 31, 2006.
F-1
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 2003, 2004 and 2005
(Amounts in millions, except per share data)
Note
2003
2004
2005
2005
RMB
RMB
RMB
U.S. dollars
(restated,
(restated,
Note 3)
Note 3)
Operating revenue:
Traffic revenue
4
16,965
23,344
37,419
4,637
Other operating revenue
4
505
630
874
108
Total operating revenue
17,470
23,974
38,293
4,745
Operating expenses:
Flight operations
5
7,070
10,418
19,394
2,403
Maintenance
6
2,589
3,459
4,589
569
Aircraft and traffic servicing
7
2,767
3,503
5,759
714
Promotion and sales
8
1,480
1,940
2,780
345
General and administrative
9
1,053
1,323
2,457
304
Depreciation and amortization
10
2,038
2,413
4,440
550
Others
17
9
179
22
Total operating expenses
17,014
23,065
39,598
4,907
Operating income/(loss)
456
909
(1,305
)
(162
)
Non-operating income/(expenses):
Interest income
13
22
55
7
Interest expense
12
(824
)
(691
)
(1,616
)
(200
)
Equity income/(loss) of affiliated
companies
23
45
10
(285
)
(35
)
Equity (loss)/income of jointly
controlled entities
24
(46
)
(16
)
36
4
Loss on sale of property,
plant and equipment
(22
)
(1
)
(32
)
(4
)
Exchange (loss)/gain, net
(164
)
(59
)
1,220
151
Others, net
21
46
74
9
Total net non-operating expenses
(977
)
(689
)
(548
)
(68
)
Loss/(income) before taxation
(521
)
220
(1,853
)
(230
)
Income tax benefit/(expense)
13
334
(65
)
7
1
(Loss)/income for the year
(187
)
155
(1,846
)
(229
)
Attributable to:
Equity shareholders of the Company
(358
)
(48
)
(1,848
)
(229
)
Minority interests
171
203
2
—
Net (loss)/income
(187
)
155
(1,846
)
(229
)
Basic loss per share
15
(0.09
)
(0.01
)
(0.42
)
(0.052
)
See accompanying notes to consolidated financial statements.
F-2
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31, 2004 and 2005
(Amounts in millions)
Note
2004
2005
2005
RMB
RMB
U.S. dollars
(restated,
Note 3)
ASSETS
CURRENT ASSETS
Cash and cash equivalents
16
3,083
2,901
360
Trade receivables
17
1,203
1,518
188
Inventories
18
1,302
1,382
171
Short term investments
19
683
—
—
Other receivables
20
720
956
119
Prepaid expenses and other current assets
378
380
47
Amounts due from related companies
30
—
84
10
Total current assets
7,369
7,221
895
NON-CURRENT ASSETS
Property, plant and equipment, net
21
46,841
54,266
6,725
Construction in progress
22
565
674
84
Other investments
19
272
320
40
Interest in affiliated companies
23
429
142
18
Interest in jointly controlled entities
24
782
805
99
Lease prepayments
346
333
41
Lease and equipment deposits
5,397
7,265
900
Deferred tax assets
25
51
74
9
Other assets
26
331
302
37
Total non-current assets
55,014
64,181
7,953
TOTAL ASSETS
62,383
71,402
8,848
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable, including current
installments of long-term
notes payable
27
11,518
16,223
2,010
Current installments of obligations
under capital leases
28
2,144
3,373
418
Trade and bills payables
29
1,690
3,929
487
Sales in advance of carriage
874
1,413
175
Amounts due to related companies
30
2,434
116
14
Accrued expenses
31
4,551
4,250
527
Other liabilities
32
2,974
3,796
471
Taxes payable
39
28
3
Total current liabilities
26,224
33,128
4,105
See accompanying notes to consolidated financial statements.
F-3
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31, 2004 and 2005
(Amounts in millions)
Note
2004
2005
2005
RMB
RMB
U.S. dollars
(restated,
Note 3)
NON-CURRENT LIABILITIES
Notes payable, excluding current installments
27
11,935
12,740
1,579
Obligations under capital leases, excluding
current installments
28
9,599
12,459
1,544
Provision for major overhauls
33
284
301
37
Deferred tax liabilities
25
338
342
42
Deferred credits
100
496
62
Total non-current liabilities
22,256
26,338
3,264
TOTAL LIABILITIES
48,480
59,466
7,369
SHAREHOLDERS'
EQUITY
Equity attributable to equity shareholders of the Company
34,35
11,848
10,000
1,239
Minority interests
2,055
1,936
240
TOTAL
SHAREHOLDERS' EQUITY
13,903
11,936
1,479
TOTAL
LIABILITIES AND TOTAL SHAREHOLDERS' EQUITY
62,383
71,402
8,848
F-4
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF CHANGES IN SHAREHOLDERS' EQUITY
For the years ended December 31, 2003, 2004 and 2005
(Amounts in millions)
Attributable to equity shareholders of the company
Retained
earnings/
Share
Share
Other
(accumulated
Minority
Total
capital
premium
reserves
loss)
Total
interests
equity
RMB
RMB
RMB
RMB
RMB
RMB
RMB
(Note (i))
(Note (ii))
At December 31, 2002
3,374
3,684
586
1,969
9,613
1,516
11,129
Issue of A Shares
1,000
1,641
—
—
2,641
—
2,641
(Loss)/income for the year
—
—
—
(358
)
(358
)
171
(187
)
Appropriations to reserves
—
—
25
(25
)
—
—
—
Capital contributions
from minority shareholders
—
—
—
—
—
1
1
Distributions to minority
shareholders
—
—
—
—
—
(15
)
(15
)
At December 31, 2003
4,374
5,325
611
1,586
11,896
1,673
13,569
(Loss)/income for the year
—
—
—
(48
)
(48
)
203
155
Appropriations to reserves
—
—
61
(61
)
—
—
—
Capital contributions
from minority shareholders
—
—
—
—
—
71
71
Distributions to minority
shareholders
—
—
—
—
—
(15
)
(15
)
Through the CNA/XJA
Acquisitions
—
—
—
—
—
123
123
At December 31, 2004
4,374
5,325
672
1,477
11,848
2,055
13,903
F-5
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF CHANGES IN SHAREHOLDERS' EQUITY
For the years ended December 31, 2003, 2004 and 2005
(Amounts in millions)
Attributable to equity shareholders of the company
Retained
earnings/
Share
Share
Other
(accumulated
Minority
Total
capital
premium
reserves
loss)
Total
interests
equity
RMB
RMB
RMB
RMB
RMB
RMB
RMB
(Note (i))
(Note (ii))
At December 31, 2004
4,374
5,325
672
1,477
11,848
2,055
13,903
(Loss)/income for the year
—
—
—
(1,848
)
(1,848
)
2
(1,846
)
Appropriations to reserves
—
—
19
(19
)
—
—
—
Capital contributions
from minority shareholders
—
—
—
—
—
17
17
Acquisition of equity interest
held by minority shareholders
—
—
—
—
—
(118
)
(118
)
Distributions to minority
shareholders
—
—
—
—
—
(20
)
(20
)
At December 31, 2005
4,374
5,325
691
(390
)
10,000
1,936
11,936
Total equity at December 31, 2005
in U.S. dollars
542
660
85
(48
)
1,239
240
1,479
See accompanying notes to consolidated financial statements.
Notes:
(i) Other reserves represent statutory surplus reserve, statutory public welfare fund and
discretionary surplus reserve. Details are set out in Note 35.
(ii) Minority interests were presented separately from liabilities and equity at December 31, 2003
and 2004. Minority interests are presented within the equity with effect from January 1, 2005 and
the presentation of minority interests for the comparative years has been restated accordingly.
Details are set out in Note 3.
F-6
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2003, 2004 and 2005
(Amounts in millions)
Note
2003
2004
2005
2005
RMB
RMB
RMB
U.S. dollars
(restated,
(restated,
Note 3)
Note 3)
(Loss)/income before taxation
(521
)
220
(1,853
)
(230
)
Adjustments to reconcile (loss)/income before taxation
to cash inflows from operations
Depreciation of property, plant and equipment
1,998
2,363
4,420
548
Other amortization
40
50
40
5
Amortization of deferred credits
(2
)
(4
)
(78
)
(10
)
Equity (loss)/income of affiliated companies
(45
)
(10
)
285
36
Equity income/(loss) of jointly controlled entities
46
16
(36
)
(5
)
Loss on sale of property, plant and equipment
22
1
32
4
Interest income
(13
)
(22
)
(55
)
(7
)
Interest expense
824
691
1,616
200
Net realised and unrealised gain on equity securities
held for trading
—
(15
)
(6
)
(1
)
Non-cash exchange loss/(gain), net
177
42
(1,164
)
(144
)
Decrease/(increase) in inventories
2
(29
)
46
6
Increase in trade receivables
(162
)
(218
)
(315
)
(39
)
Decrease/(increase) in other receivables
77
(166
)
(236
)
(29
)
Increase in prepaid expenses and other
current assets
(6
)
(31
)
(2
)
—
Increase in deferred expenditure
—
(2
)
—
—
Increase/(decrease) in net amounts due from/(to)
related companies
404
(586
)
(493
)
(61
)
(Decrease)/increase in trade and bills payables
(466
)
(30
)
2,239
277
Increase in sales in advance of carriage
76
408
539
67
Increase/(decrease) in accrued expenses
203
541
(399
)
(49
)
Increase in other liabilities
373
1,223
822
102
Increase in provision for major overhauls
48
113
17
2
Cash inflows from operations
3,075
4,555
5,419
672
Interest received
13
22
55
7
Interest paid
(924
)
(754
)
(1,616
)
(200
)
Income tax paid
(35
)
(227
)
(23
)
(3
)
Net cash inflows from operating activities
2,129
3,596
3,835
476
See accompanying notes to consolidated financial statements.
F-7
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2003, 2004 and 2005
(Amounts in millions)
Note
2003
2004
2005
2005
RMB
RMB
RMB
U.S. dollars
(restated,
(restated,
Note 3)
Note 3)
Investing activities:
Proceeds from sale of property,
plant and equipment
57
47
238
30
Proceeds from sale of other investments
—
—
689
85
Increase in deferred credits
—
—
57
7
Dividends received from affiliated companies
—
12
2
—
Dividends received from jointly controlled entities
—
5
39
5
Dividends received from other non-current assets
—
—
4
1
Dividends received from equity securities held
for trading
—
13
—
—
Decrease/(increase) in other non-current assets
6
(9
)
4
1
Payment for the CNA/XJA Acquisitions
—
—
(1,959
)
(243
)
Payment for acquisition of equity interest held by
minority shareholders
—
—
(118
)
(15
)
Payment of lease and equipment deposits
(1,852
)
(3,151
)
(6,649
)
(824
)
Refund of lease and equipment deposits
1,066
1,253
4,619
572
Capital expenditures
(4,707
)
(6,631
)
(4,935
)
(612
)
Purchase of other investments
(1
)
(680
)
—
—
Investments in an affiliated company
—
(9
)
—
—
Investments in jointly controlled entities
(3
)
(72
)
—
—
Effect of the CNA/XJA Acquisitions
40
(a)
—
398
—
—
Net cash used in investing activities
(5,434
)
(8,824
)
(8,009
)
(993
)
Net cash outflows before financing activities
(3,305
)
(5,228
)
(4,174
)
(517
)
Financing activities:
Proceeds from A Shares issue, net of issuance costs
2,641
—
—
—
Proceeds from notes payable
8,914
14,555
18,238
2,260
Repayment of notes payable
(8,371
)
(7,108
)
(12,193
)
(1,511
)
Repayment of principal under capital lease
obligations
(1,555
)
(1,272
)
(2,050
)
(254
)
Capital contributions received from minority
shareholders
1
71
17
2
Dividends paid to minority shareholders
(15
)
(15
)
(20
)
(2
)
Net cash inflows from financing
activities
1,615
6,231
3,992
495
Decrease/(increase) in cash and cash equivalents
(1,690
)
1,003
(182
)
(22
)
Cash and cash equivalents at January 1
3,770
2,080
3,083
382
Cash and cash equivalents at December 31
2,080
3,083
2,901
360
See accompanying notes to consolidated financial statements.
F-8
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions, except share data)
1. BASIS OF PRESENTATION
China Southern Airlines Company Limited (the "Company") and its subsidiaries (the "Group")
are principally engaged in the provision of domestic, Hong Kong and Macau and international
passenger, cargo and mail airline services, with flights operating primarily from the Guangzhou
Baiyun International Airport, which is both the main hub of the Group's route network and the
location of its corporate headquarters.
The Company was established in the People's Republic of China (the "PRC", "China" or the
"State") on March 25, 1995 as a joint stock limited company as part of the reorganization (the
"Reorganization") of the Company's holding company, China Southern Air Holding Company ("CSAHC").
CSAHC is a state-owned enterprise under the supervision of the PRC central government.
The Company's H shares and American Depositary Shares ("ADS") (each ADS representing 50 H
Shares) have been listed on The Stock Exchange of Hong Kong Limited and the New York Stock
Exchange, respectively since July 1997. In July 2003, the Company issued 1,000,000,000 A shares
which are listed on the Shanghai Stock Exchange.
The Company acquired the airline operations and certain related assets of China Northern
Airlines Company ("CNA") and Xinjiang Airlines Company ("XJA") from its parent company, CSAHC, on
December 31, 2004 (the "CNA/XJA Acquisitions") (Note 40).
The consolidated financial statements have been prepared in Renminbi ("RMB"), the national
currency of the PRC. Translation of amounts from RMB into United States dollar ("US$") solely for
the convenience of readers has been made at the rate of US$1.00 to RMB8.0694, being the average of
the buying and selling rates as quoted by the People's Bank of China (the "PBOC") at the close of
business on December 31, 2005. No representation is made that the RMB amounts could have been, or
could be, converted into US$ at that rate or at any other certain rate on December 31, 2005 or at
any other certain date.
2. PRINCIPAL ACCOUNTING POLICIES
(a) Statement of compliance
These consolidated financial statements have been prepared in accordance with International
Financial Reporting Standards ("IFRSs") promulgated by the International Accounting Standards
Board (the "IASB"). IFRSs include International Accounting Standards ("IAS") and interpretations.
The IASB has issued a number of new and revised IFRSs that are effective for accounting
periods beginning on or after January 1, 2005. Information on the changes in accounting policies
resulting from initial application of these new and revised IFRSs for the current and prior
accounting periods reflected in these financial statements is provided in Note 3.
Information relating to the nature and effect of the significant differences between IFRSs
and accounting principles generally accepted in the United States of America (''U.S. GAAP'') are
set forth in Note 51.
F-9
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
(b) Basis of preparation
As of December 31, 2005, the Group's current liabilities exceeded its current assets by
RMB25,907, which includes current instalments of notes payable of
RMB16,223. In preparing the consolidated financial statements, the directors have considered
the Group's sources of liquidity and believe that adequate
funding is available to fulfil the Group's short term obligations and capital expenditure requirements. Accordingly, the consolidated financial statements have been prepared on
the basis that the Group will be able to continue as a going concern. Further details are set out
in Note 41.
The consolidated financial statements comprise the Company and its subsidiaries and the
Group's interest in affiliated companies and jointly controlled entities.
The measurement basis used in the preparation of the consolidated financial statements is the
historical cost basis except that the following assets are stated at their fair value as explained
in the accounting policies set out below:
–
Certain property, plant and equipment (Note 2(d)); and
–
Short term investments (Note 2(h)).
The preparation of financial statements in conformity with IFRSs requires management to make
judgements, estimates and assumptions that affect the application of policies and reported amounts
of assets and liabilities, income and expenses. The estimates and associated assumptions are based
on historical experience and various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making the judgements about carrying values
of assets and liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognized in the period in which the estimate is revised if the revision
affects only that period, or in the period of the revision and future periods if the revision
affects both current and future periods.
Judgements made by management in the application of IFRSs that have significant effect on the
financial statements and estimates with a significant risk of material adjustment in the next year
are disclosed in Note 47.
(c) Basis of consolidation
(i) Subsidiaries
F-10
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
A subsidiary is an entity controlled by the Company. Control exists when the Company has the
power, directly or indirectly, to govern the financial and operating policies of an entity so as
to obtain benefits from its activities. In assessing control, potential voting rights that
presently are exercisable or convertible are taken into account. The financial statements of
subsidiaries are included in the consolidated financial statements from the date that control
effectively commences until the date that control ceases.
Intra-group balances and transactions, and any unrealized income arising from intra-group
transactions, are eliminated in full in preparing the consolidated financial statements.
Unrealized losses resulting from intra-group transactions are eliminated in the same way as
unrealized income, but only to the extent that there is no evidence of impairment.
Minority interests at the balance sheet date, being the portion of the net assets of
subsidiaries attributable to equity interests that are not owned by the Company, whether directly
or indirectly through subsidiaries, are prepared in the consolidated balance sheet and statement
of changes in shareholders' equity within equity, separately from, equity attributable to the
equity shareholders of the Company. Minority interests in the results of the Group are presented
on the face of the consolidated statement of operations as an allocation of the total income or
loss for the year between minority interest and the equity shareholders of the Company.
Where losses applicable to the minority exceed the minority's interest in the equity of a
subsidiary, the excess, and any further losses applicable to the minority, are charged against the
Group's interest except to the extent that the minority has a binding obligation to, and is able
to, make additional investment to cover the losses. If the subsidiary subsequently reports
income, the Group's interest is allocated all such income until the minority's share of losses
previously absorbed by the Group has been recovered.
(ii) Affiliated companies and jointly controlled entities
An affiliated company is an entity in which the Group has significant influence, but not
control or joint control, over the financial and operating policies. The consolidated financial
statements include the Group's share of the total recognized gains and losses of affiliated
companies on an equity accounted basis, from the date that significant influence commences until
the date that significant influence ceases. When the Group's share of losses exceeds its interest
in an affiliated company, the Group's carrying amount is reduced to nil and recognition of further
losses is discontinued except to the extent that the Group has incurred legal or constructive
obligations or made payments on behalf of an affiliated company.
A jointly controlled entity is an entity over whose activities the Group has joint control,
established by contractual agreement. The consolidated financial statements include the Group's
share of the total recognized gains and losses of jointly controlled entities on an equity
accounted basis, from the date that joint control commences until the date that joint control
ceases. When the Group's share of losses exceeds its interest in a jointly controlled entity, the
Group's carrying amount is reduced to nil and recognition of further losses is discontinued except
to the extent that the Group has incurred legal or constructive obligations or made payments on
behalf of a jointly controlled entity.
F-11
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
Unrealized income arising from transactions with affiliated companies and jointly controlled
entities are eliminated to the extent of the Group's interest in the entity. Unrealized losses are
eliminated in the same way as unrealized income, but only to the extent that there is no evidence
of impairment.
F-12
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
(iii) Goodwill
Goodwill represents the excess of the cost of a business combination or an investment in an
affiliated company or a jointly controlled entity over the Group's interest in the net fair value
of the acquiree's identifiable assets, liabilities and contingent liabilities.
Goodwill is stated at cost less accumulated impairment losses. Goodwill is allocated to
cash-generating units and is tested annually for impairment (Note 2(l)). In respect of affiliated
companies or jointly controlled entities, the carrying amount of goodwill is included in the
carrying amount of the interest in the affiliated company or jointly controlled entity.
Any excess of the Group's interest in the net fair value of the acquiree's identifiable
assets, liabilities and contingent liabilities over the cost of a business combination or an
investment in an affiliated company or a jointly controlled entity is recognized immediately in
income or loss.
On disposal of a cash generating unit, an affiliated company or a jointly controlled entity
during the year, any attributable amount of purchased goodwill is included in the calculation of
the gain or loss on disposal.
(d) Property, plant and equipment and depreciation
(i) Owned assets
An item of property, plant and equipment is initially recorded at cost less accumulated
depreciation (see (iv) below) and impairment losses (Note 2(l)). The cost of an asset comprises
its purchase price and any directly attributable costs of bringing the asset to working condition
and location for its intended use and the initial estimate, where relevant, of the costs of
dismantling and removing the item and restoring the site on which it is located. Subsequent to
the revaluation (Note 21), which was based on depreciated replacement costs, property, plant and
equipment are carried at revalued amount, being the fair value at the date of the revaluation less
any subsequent accumulated depreciation and impairment losses. Revaluations are performed with
sufficient regularity to ensure that the carrying amount of these assets does not differ
materially from that which would be determined using fair value at the balance sheet date.
Gains or losses arising from the retirement or disposal of an item of property, plant and
equipment are determined as the difference between the estimated net disposal proceeds and the
carrying amount of the item and are recognized in the statement of operations on the date of
retirement or disposal. Any related revaluation surplus is transferred from the revaluation
reserve to retained earnings.
F-13
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
(ii) Leased assets
Leases in terms of which the Group assumes substantially all the risks and rewards of
ownership are classified as capital leases.
Flight equipment acquired by way of capital leases is stated at an amount equal to lower of
its fair value and the present value of minimum lease payments at inception of the lease, less
accumulated depreciation (see (iv) below) and impairment losses (Note 2(l)) and the corresponding
liabilities, net of finance charges are recorded as obligations under capital leases. Subsequent
to the revaluation (Note 21), which was based on depreciated replacement costs, leased assets are
carried at revalued amount, being the fair value at the date of the revaluation less any
subsequent accumulated depreciation and impairment losses. Revaluations are performed with
sufficient regularity to ensure that the carrying amount of these assets does not differ
materially from that which would be determined using fair value at the balance sheet date.
The finance charge is allocated to each period during the lease term so as to produce a
constant periodic rate of interest on the remaining balance of the liability. Contingent rentals
are written off as an expense of the period in which they are incurred.
Gains or losses on aircraft sale and leaseback transactions which result in capital leases
are deferred and amortized over the terms of the related leases. Gains or losses on other
aircraft sale and leaseback transactions are recognized immediately if the transactions are
established at fair value. Any difference between the sales price over fair value is deferred and
amortized over the period the assets are expected to be used.
Where the Group has the use of assets held under operating leases, payments made under
operating leases are charged to the statement of operations in equal instalments over the
accounting periods covered by the lease term, except where an alternative basis is more
representative of the pattern of benefits to be derived from the leased asset. Lease incentives
received are recognized in the statement of operations as an integral part of the aggregate net
lease payments. Contingent rentals are charged to the consolidated statement of operations in the
accounting period in which they are incurred.
(iii) Subsequent costs
The Group recognizes in the carrying amounts of an item of property, plant and equipment the
cost of replacing part of such an item when that cost is incurred if it is probable that the
future economic benefits embodied with the item will flow to the Group and the cost of the item
can be measured reliably. All other costs are recognized in the statement of operations as an
expense as incurred.
F-14
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
(iv) Depreciation
Depreciation is calculated to write off the cost or revalued amount of items of property,
plant and equipment, less their estimated residual value, if any, using the straight line method
over their estimated useful lives as follows:
Buildings
15 to 40 years
Owned and leased aircraft
15 to 20 years
Other flight equipment
Jet engines
8 to 15 years
Others, including rotable spares
8 to 15 years
Machinery and equipment
5 to 10 years
Vehicles
6 years
Depreciation for assets acquired under capital leases is calculated to write off the cost of
the assets in equal annual amounts over the term of the relevant lease or, where it is likely the
Group will obtain ownership of the asset, the life of the asset, as set out above.
Where parts of an item of property, plant and equipment have different useful lives, the cost
or valuation of the item is allocated on a reasonable basis between the parts and each part is
depreciated separately. Both the useful life of an asset and its residual value, if any, are
reviewed annually.
(e) Construction in progress
Construction in progress represents office buildings, various infrastructure projects under
construction and equipment pending installation, and is stated at cost less impairment losses
(Note 2(l)). Cost comprises direct costs of construction and the initial estimate, where
relevant, of the costs of dismantling and removing the item and restoring the site on which it is
located as well as interest charges during the periods of construction and installation.
Capitalization of these costs ceases and the construction in progress is transferred to property,
plant and equipment when the asset is substantially ready for its intended use, notwithstanding
any delay in the issue of the relevant commissioning certificates by the relevant PRC authorities.
No depreciation is provided in respect of construction in progress.
(
f
)
Lease prepayments
Lease prepayments represent land use rights paid to the PRC's governmental authorities. Land
use rights are carried at cost less impairment losses (Note 2(l)) and are charged to the statement
of operations on a straight-line basis over the respective periods of the rights which range from
30 to 50 years.
F-15
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
(g) Deferred expenditure
Custom duties and other direct costs in relation to modifying, introducing and certifying
certain operating leased aircraft are deferred and amortized over the terms of the related leases.
Lump sum housing benefits payable to employees of the Group are deferred and amortized on a
straight line basis over a period of 10 years, which represents the benefit vesting period of the
employees.
Deferred expenditure is carried at cost less impairment losses (Note 2(l)).
(h) Other investments in debt and equity securities
The Group's policies for investments in debt and equity securities, other than investments in
subsidiaries, affiliated companies and jointly controlled entities, are as follows:
Investments in securities held for trading are classified as current assets and are initially
stated at fair value. At the balance sheet date the fair value is remeasured, with any resultant
gain or loss recognized in the statement of operations.
Dated debt securities that the Group has the positive ability and intention to hold to
maturity are classified as held-to-maturity securities. Held-to-maturity securities are initially
recognized in the balance sheet at fair value plus transaction costs. Subsequently, they are
stated in the balance sheet at amortized cost less impairment losses (Note 2(l)).
Other financial instruments are stated at cost less impairment losses (Note 2(l)). Other
financial instruments represent unquoted available-for-sale equity securities of companies
established in the PRC. There is no quoted market price for such equity securities and accordingly
a reasonable estimate of the fair value could not be measured reliably.
(i) Inventories
Inventories, which consist primarily of expendable spare parts and supplies, are stated at
cost less any applicable provision for obsolescence, and are expensed when used in operations.
Cost represents the average unit cost. Inventories held for disposal are stated at the lower of
cost and net realizable value. Net realizable value represents estimated resale price.
(j) Trade and other receivables
Trade and other receivables are initially recognized at fair value and thereafter stated at
amortized cost less impairment losses for bad and doubtful debts (Note 2(l)), except where the
effect of discounting would be immaterial. In such cases, the receivables are stated at cost less
impairment losses for bad and doubtful debts (Note 2(l)).
F-16
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
(k) Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and
other financial institutions having been within three months of maturity at acquisition. Bank
overdrafts that are repayable on demand and form an integral part of the Group's cash management
are also included as a component of cash and cash equivalents for the purposes of the consolidated
statement of cash flows.
(l)
Impairment of assets
(i)
Impairment of investments in debt and equity securities and other receivables
Investments in debt and equity securities and other current and non-current receivables that
are stated at cost or amortized cost are reviewed at each balance sheet date to determine whether
there is objective evidence of impairment. If any such evidence exists, any impairment loss is
determined and recognized as follows:
–
For unquoted equity securities and current receivables that are
carried at cost, the impairment loss is measured as the
difference between the carrying amount of the financial asset
and the estimated future cash flows, discounted at the current
market rate of return for a similar financial asset where the
effect of discounting is material. Impairment losses for
current receivables are reversed if in a subsequent period the
amount of the impairment loss decreases. Impairment losses for
equity securities are not reversed.
–
For financial assets carried at amortized cost, the impairment
loss is measured as the difference between the asset's carrying
amount and the present value of estimated future cash flows,
discounted at the financial asset's original effective interest
rate (i.e. the effective interest rate computed at initial
recognition of these assets).
If in a subsequent period the amount of an impairment loss decreases and the decrease can be
linked objectively to an event occurring after the impairment loss was recognized, the impairment
loss is reversed through the statement of operations. A reversal of
an impairment loss shall not result in the asset's carrying amount exceeding that which would have
been determined had no impairment loss been recognized in prior years.
F-17
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
(ii) Impairment of other assets
Internal and external sources of information are reviewed at each balance sheet date to
identify indications that the following assets may be impaired or an impairment loss previously
recognized no longer exists or may have decreased:
–
Property, plant and equipment;
–
Construction in progress;
–
Lease and equipment deposits;
–
Lease prepayments;
–
Deferred expenditure; and
–
Interests in affiliated companies and jointly controlled entities.
If any such indication exists, the asset's recoverable amount is estimated.
–
Calculation of recoverable amount
The recoverable amount of an asset is the greater of its net selling price and the value in
use. In assessing value in use, the estimated future cash flows are discounted to their present
value using a pre-tax discount rate that reflects current market assessments of time value of
money and the risks specific to the asset. Where an asset does not generate cash inflows largely
independent of those from other assets, the recoverable amount is determined for the smallest
group of assets that generates cash inflows independently (i.e. a cash-generating unit).
–
Recognition of impairment losses
An impairment loss is recognized in the statement of operations whenever the carrying amount
of an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount.
Impairment losses recognized in respect of cash-generating units are allocated first to reduce the
carrying amount of the other assets in the unit (or group of units) on a pro rata basis, except
that the carrying value of an asset will not be reduced below its individual fair value less costs
to sell, or value in use, if determinable.
–
Reversals of impairment losses
F-18
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
An impairment loss is reversed if there has been a favorable change in the estimates used to
determine the recoverable amount.
A reversal of an impairment loss is limited to the asset's carrying amount that would have
been determined had no impairment loss been recognized in prior years. Reversals of impairment
losses are credited to the statement of operations in the year in which the reversals are
recognized.
F-19
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
(m) Interest- bearing borrowings
Interest-bearing borrowings are recognized initially at fair value, less attributable
transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at
amortized cost with any difference between cost and redemption value being recognized in the
consolidated statement of operations over the period of the borrowings using the effective
interest method.
(n) Trade and other payables
Trade and other payables are initially recognized at fair value and thereafter stated at
amortized cost unless the effect of discounting would be immaterial, in which case they are stated
at cost.
(o) Provisions and contingent liabilities
Provisions are recognized for liabilities of uncertain timing or amount when the Group has a
present legal or constructive obligation as a result of a past event, and it is probable that an
outflow of economic benefits will be required to settle the obligations and a reliable estimate can
be made. Where the time value of money is material, provisions are stated at the present value of
the expenditures expected to settle the obligation.
Where it is not probable that an outflow of economic benefits will be required, or the amount
cannot be estimated reliably, the obligation is disclosed as contingent liability, unless the
probability of outflow of economic benefits is remote. Possible obligations, whose existence will
only be confirmed by the occurrence or non-occurrence of one or more future events are also
disclosed as contingent liabilities unless the probability of outflow of economic benefits is
remote.
(p) Defeasance of long-term liabilities
Where long-term liabilities have been defeased by the placement of security deposits, those
liabilities and deposits (and income and charge arising therefrom) are netted off in order to
reflect the overall commercial effect of the arrangements. Such netting off has been effected
where a right is held by the Group to insist on net settlement of the liability and deposit
including in all situations of default and where that right is assured beyond doubt.
(q) Deferred credits
F-20
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
In connection with the acquisition or operating lease of certain aircraft and engines, the
Group receives various credits. Such credits are deferred until the aircraft and engines are
delivered, at which time they are either applied as a reduction of the cost of acquiring the
aircraft and engines, resulting in a reduction of future depreciation, or amortized as a reduction
of rental expense for aircraft and engines under operating leases.
F-21
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
(r) Income tax
Income tax for the year comprises current and movement in deferred tax assets and
liabilities. Current tax and movements in deferred tax assets and liabilities are recognized in
the statement of operations except to the extent that they relate to items recognized directly in
equity, in which case they are recognized in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates
enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in
respect of previous years.
Deferred tax assets and liabilities arise from deductible and taxable temporary differences
respectively, being the differences between the carrying amounts of assets and liabilities for
financial reporting purposes and their tax bases. Deferred tax assets also arise from unused tax
losses and unused tax credits.
Apart from certain limited exceptions, all deferred tax liabilities, and all deferred tax
assets to the extent that it is probable that future taxable income will be available against which
the asset can be utilized, are recognized. Future taxable income that may support the recognition
of deferred tax assets arising from deductible temporary differences include those that will arise
from the reversal of existing taxable temporary differences, provided those differences relate to
the same taxation authority and the same taxable entity, and are expected to reverse either in the
same period as the expected reversal of the deductible temporary difference or in periods into
which a tax loss arising from the deferred tax asset can be carried back or forward. The same
criteria are adopted when determining whether existing taxable temporary differences support the
recognition of deferred tax assets arising from unused tax losses and credits, that is, those
differences are taken into account if they relate to the same taxation authority and the same
taxable entity, and are expected to reverse in a period, or periods, in which the tax loss or
credit can be utilized.
The limited exceptions to the recognition of deferred tax assets and liabilities are those
temporary differences arising from goodwill not deductible for tax purposes, the initial
recognition of assets or liabilities that affect neither accounting nor taxable profit (provided
they are not part of a business combination), and temporary differences relating to investment in
subsidiaries to the extent that, in the case of taxable differences, the Group controls the timing
of the reversal and it is probable that the difference will not reverse in the foreseeable future,
or in the case of deductible differences, unless it is probable that they will reverse in the
future.
The amount of deferred tax recognized is measured based on the expected manner of realisation
or settlement of the carrying amount of the assets and liabilities, using tax rates enacted or
substantively enacted at the balance sheet date. Deferred tax assets and liabilities are not
discounted.
The carrying amount of a deferred tax asset is reviewed at each balance sheet date and is
reduced to the extent that it is no longer probable that sufficient taxable income will be
available to
F-22
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
allow the related tax benefit to be utilized. Any such reduction is reversed to the
extent that it becomes probable that sufficient taxable income will be available.
Additional income taxes that arise from the distribution of dividends are recognized when the
liability to pay the related dividends is recognized.
Current tax balances and deferred tax balances, and movements therein, are presented
separately from each other and are not offset. Current tax assets are offset against current tax
liabilities, and deferred tax assets against deferred tax liabilities, if the Group has the legally
enforceable right to set off current tax assets against current tax liabilities and the following
additional conditions are met:
–
in the case of current tax assets and liabilities, the Group intends either to settle
on a net basis, or to realize the asset and settle the liability simultaneously; or
–
in the case of deferred tax assets and liabilities, if they relate to income taxes
levied by the same taxation authority on either:
•
the same taxable entity; or
•
different taxable entities, which, in each future period in which
significant amounts of deferred tax liabilities or assets are expected to be settled or
recovered, intend to realize the current tax assets and settle the current tax
liabilities on a net basis or realize and settle simultaneously.
(s) Revenue recognition
(i) Passenger, cargo and mail revenues are recognized when the transportation is provided. Ticket
sales for transportation not yet provided are included in current liabilities as sales in advance
of carriage. Revenues from airline-related business are recognized when services are rendered.
Revenue is stated net of sales tax.
(ii)
Interest income is recognized as it accrues using the effective interest method.
(iii)
Dividend income is recognized when the Group's right to receive dividend is established.
(iv)
Operating lease income is recognized on a straight line basis over the terms of the
respective leases.
(t) Traffic commissions
Traffic commissions are expensed when the transportation is provided and the related revenue
is recognized. Traffic commissions for transportation not yet provided are recorded on the
balance sheet as a prepaid expense.
F-23
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
(u) Maintenance and overhaul costs
Routine maintenance, repairs and overhauls are expensed in the statement of operations as and
when incurred.
In respect of owned and capital leased aircraft, components within the aircraft subject to
replacement during major overhauls are depreciated over the average expected life between major
overhauls. When each major overhaul is performed, its cost is recognized in the carrying amount
of property, plant and equipment and is depreciated over the estimated period between major
overhauls. Any remaining carrying amount of cost of previous major overhaul is derecognized and
charged to the statement of operations.
In respect of aircraft held under operating leases, a provision is made over the lease term
for the estimated cost of overhauls required to be performed on the related aircraft prior to
their return to the lessors.
(v) Borrowing costs
Borrowing costs are expensed in the statement of operations as and when incurred, except to
the extent that they are capitalized as being directly attributable to the acquisition or
construction of an asset which necessarily takes a substantial period of time to get ready for its
intended use.
(w) Retirement benefits
Contributions to retirement schemes and additional retirement benefits paid to retired
employees are accrued in the year in which the associated services are rendered by employees.
(x) Frequent flyer award programs
The Group maintains two frequent flyer award programs, namely, the China Southern Airlines
Sky Pearl Club and the Egret Mileage Plus, which provide travel awards to members based on
accumulated mileage. The estimated incremental cost to provide free travel is recognized as an
expense and accrued as a current liability as members accumulate mileage. As members redeem awards
or their entitlements expire, the incremental cost liability is reduced accordingly to reflect the
acquittal of the outstanding obligations.
Revenue from mileage sales to third parties under the frequent flyer award programs is
recognized when the related transportation services are provided.
F-24
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
(y) Translation of foreign currencies
Transactions in foreign currencies are translated into Renminbi at the applicable rates of
exchange quoted by the PBOC prevailing on the transaction dates. Monetary assets and liabilities
denominated in foreign currencies at the balance sheet date are translated into Renminbi at the
PBOC exchange rates at the balance sheet date. Foreign exchange differences arising on
translation are recognized in the statement of operations. Non-monetary assets and liabilities
that are measured in terms of historical cost in a foreign currency are translated into Renminbi
at the PBOC exchange rates prevailing on the transaction dates. Non-monetary assets and
liabilities denominated in foreign currencies that are stated at fair value are translated into
Renminbi at the PBOC exchange rates at the dates the fair value was determined.
(z) Related parties
For the purposes of these consolidated financial statements, parties are considered to be
related to the Group if the Group has the ability, directly or indirectly, to control the party or
exercise significant influence over the party in making financial and operating decisions, or vice
versa, or where the Group and the party are subject to common control or common significant
influence. Related parties may be individuals (being members of key management personnel,
significant shareholders and/ or their close family members) or other entities and include entities
which are under the significant influence of related parties of the Group where those parties are
individuals, and post-employment benefit plans which are for the benefit of employees of the Group
or of any entity that is a related party of the Group.
(aa) Segmental reporting
A segment is a distinguishable component of the Group that is engaged either in providing
products or services (business segment), or in providing products or services within a particular
economic environment (geographical segment), which is subject to risks and rewards that are
different from those of other segments.
3. NEW AND REVISED IFRSs
The IASB has issued a number of new and revised IFRSs that are effective for accounting
periods beginning on or after January 1, 2005.
The accounting policies of the Group after the adoption of these new and revised IFRSs have
been summarized in Note 2. The following sets out information on the significant changes in
accounting policies for the current and prior accounting periods reflected in these financial
statements.
F-25
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
The Group has not applied any new standard or interpretation that is not yet effective for the
current accounting period (Note 48).
F-26
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
(a) Changes in presentation of share of affiliated companies' and jointly controlled entities'
taxation (IAS 1, Presentation of Financial Statements)
In prior years, the Group's share of taxation of affiliated companies and jointly controlled
entities accounted for using the equity method was included as part of the Group's income tax in
the consolidated statement of operations. With effect from January 1, 2005, in accordance with the
implementation guidance in IAS 1, the Group has changed the presentation and includes the share of
taxation of affiliated companies and jointly controlled entities accounted for using the equity
method in the respective shares of income or loss reported in the consolidated statement of
operations before arriving at the Group's income or loss before tax. These changes in presentation
have been applied retrospectively with comparatives restated.
As a result of these changes in presentation, the Group's share of results of affiliated
companies and jointly controlled entities and income tax expense/benefit have been adjusted. Share
of income of affiliated companies for the years ended December 31, 2003 and 2004 decreased by RMB3
and RMB2, respectively. Share of losses of affiliated companies for the year ended December 31,
2005 decreased by RMB15. Share of losses of jointly controlled entities increased by RMB7 and
RMB11 for the years ended December 31, 2003 and 2004, respectively, and decreased by RMB3 for the
year ended December 31, 2005. The Group's income tax expense has decreased by RMB10 and RMB13
during the years ended December 31, 2003 and 2004, respectively and income tax benefit has
decreased by RMB18 during the year ended December 31, 2005. Accordingly, there is no effect on the
net results and net assets of the Group in periods presented.
(b)
Changes in presentation of minority interests (IAS 1, Presentation of financial statements
and IAS 27, Consolidated and separate financial statements)
In prior years, minority interests at the balance sheet date were presented separately from
liabilities and equity in the consolidated balance sheet. Minority interests in the results of the
Group for the year were also separately presented in the consolidated statement of operations as a
deduction before arriving at the results attributable to shareholders (the equity shareholders of
the Company).
With effect from January 1, 2005, in order to comply with IAS 1 and IAS 27, the Group has
changed its accounting policy relating to presentation of minority interests. Under the new
policy, minority interests are presented as part of equity, separately from interests attributable
to the equity shareholders of the Company. Further details of the new policy are set out in Note
2(c). These changes in presentation have been applied retrospectively with comparatives restated.
F-27
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
As a result of these changes in presentation, the Group's loss for the years ended December
31, 2003, 2004 and 2005 have decreased by RMB171, RMB203 and RMB2, respectively and the Group's
total equity as of December 31, 2004 and 2005 have increased by RMB2,055 and RMB1,936,
respectively.
F-28
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
(c) Scope of related parties (IAS 24, Related party disclosures)
As a result of the adoption of revised IAS 24, the definition of related parties as disclosed
in Note 2(z) has been expanded such that state-controlled entities are included. The revised IAS
24 also requires the compensation of key management personnel to be disclosed. The Group has
included these additional disclosures in these consolidated financial statements.
4. TURNOVER
Turnover comprises revenues from airline and airline-related business and is stated net of
sales tax. An analysis of turnover is as follows:
Year ended December 31,
2003
2004
2005
RMB
RMB
RMB
Traffic revenue
Passenger
15,010
21,100
34,328
Cargo and mail
1,955
2,244
3,091
16,965
23,344
37,419
Other operating revenue
Commission income
140
203
237
General aviation income
40
55
77
Ground services income
99
146
195
Air catering income
31
53
25
Net income from lease arrangements (Note 21)
69
—
—
Rental income
40
45
69
Aircraft lease income
—
11
1
Others
86
117
270
505
630
874
17,470
23,974
38,293
Pursuant to various sales tax rules and regulations, the Group is required to pay sales tax
to national and local tax authorities at the rate of approximately 3% of the traffic revenue in
respect of domestic flights and outbound international/Hong Kong and Macau flights. Sales tax
incurred by the Group for the years ended December 31, 2003, 2004 and 2005, netted off against
revenue, amounted to RMB206, RMB716, and RMB1,111, respectively.
F-29
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
In addition, the Group is required to pay contributions to the CAAC Infrastructure Development
Fund. Prior to May 1, 2003, contributions to CAAC Infrastructure Development Fund were payable at
5% and 2%, respectively, of the domestic and international/ Hong Kong and Macau traffic revenue.
For the period from May 1, 2003 to March 31, 2004, the Group was exempted from paying any
contributions. Effective from April 1, 2004, contributions to the CAAC Infrastructure Development
Fund are payable based on the traffic capacity deployed by the Group on its routes. The
contributions now form part of the flight operations expenses and amounted to RMB466 and RMB978 for
the years ended December 31, 2004 and 2005, respectively (Note 5). The contributions for the year
ended December 31, 2003 amounted to RMB251 were netted off against traffic revenue.
F-30
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
5. FLIGHT OPERATIONS EXPENSES
Year ended December 31,
2003
2004
2005
RMB
RMB
RMB
Jet fuel costs
3,867
6,050
11,929
Operating lease rentals
- Aircraft and flight equipment
1,536
1,665
2,497
- Land and buildings
136
109
302
Air catering expenses
474
705
1,196
Aircraft insurance
196
185
105
Flight personnel payroll and welfare
728
1,026
1,619
Training expenses
123
183
373
CAAC Infrastructure Development
Fund contributions (Note 4)
—
466
978
Others
10
29
395
7,070
10,418
19,394
6. MAINTENANCE EXPENSES
Year ended December 31,
2003
2004
2005
RMB
RMB
RMB
Repairing and maintenance charges
2,289
3,247
4,153
Maintenance materials
300
212
436
2,589
3,459
4,589
F-31
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
7. AIRCRAFT AND TRAFFIC SERVICING EXPENSES
Year ended December 31,
2003
2004
2005
RMB
RMB
RMB
Landing and navigation fees
2,562
3,222
4,891
Ground service charges
205
281
868
2,767
3,503
5,759
8. PROMOTION AND SALES EXPENSES
Year ended December 31,
2003
2004
2005
RMB
RMB
RMB
Sales commissions
757
1,062
1,503
Ticket office expenses
504
552
659
Computer reservation services
175
233
417
Advertising and promotion
24
36
32
Others
20
57
169
1,480
1,940
2,780
9. GENERAL AND ADMINISTRATIVE EXPENSES
Year ended December 31,
2003
2004
2005
RMB
RMB
RMB
General corporate expenses
1,011
1,260
2,408
Impairment losses for trade and
other receivables (Note 17)
12
27
—
Auditors' remuneration
8
11
12
Other taxes and levies
22
25
37
1,053
1,323
2,457
F-32
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
10. DEPRECIATION AND AMORTIZATION
Year ended December 31,
2003
2004
2005
RMB
RMB
RMB
Depreciation
- Owned assets
1,502
1,891
3,292
- Assets acquired under capital leases
496
472
1,128
Amortization of deferred credits
—
—
(20
)
Other amortization
40
50
40
2,038
2,413
4,440
Depreciation of property, plant and equipment leased out under operating leases amounted to
RMB55, RMB55 and RMB35 for the years ended December 31, 2003, 2004 and 2005, respectively.
11. STAFF COSTS
Year ended December 31,
2003
2004
2005
RMB
RMB
RMB
Salaries, wages and welfare
1,496
2,260
3,515
Retirement schemes contributions
150
168
472
1,646
2,428
3,987
Staff costs relating to flight operations, maintenance, aircraft and traffic servicing,
promotion and sales and general and administrative expenses are also included in the respective
total amounts disclosed separately in Notes 5 to 9 above.
F-33
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
12. INTEREST EXPENSE
Year ended December 31,
2003
2004
2005
RMB
RMB
RMB
Interest on bank and other notes payable wholly
repayable within five years
288
221
211
Interest on other notes payable
176
156
877
Finance charges on obligations under capital
leases
443
348
626
Less: borrowing costs capitalized
(83
)
(34
)
(98
)
824
691
1,616
The borrowing costs have been capitalized at rates ranging from 1.62% to 5.46% per annum,
1.51% to 3.48% per annum, and 4.14% to 5.27% per annum for the years ended December 31, 2003, 2004
and 2005, respectively.
13. INCOME TAX (BENEFIT)/EXPENSE
a) Income tax (benefit)/expense in the consolidated statements of operations
Year ended December 31,
2003
2004
2005
RMB
RMB
RMB
(restated,
(restated,
Note 3)
Note 3)
PRC income tax
47
176
12
Deferred tax (Note 25)
- current year
11
(111
)
(19
)
- adjustment for change in enacted tax rate
(392
)
—
—
(334
)
65
(7
)
On October 17, 2003, the Company's registered address was moved to Guangzhou Economic &
Technology Development Zone. In accordance with the Rules and Regulations for Implementation of
Income Tax for Foreign Investment Enterprises and Foreign Enterprises of the PRC and a taxation
approval document "Guangzhou Municipal State Tax Bureau Suo De Shui Zi Que 020043", the Company is
entitled to enjoy the preferential tax policy implemented in the
Guangzhou Economic & Technology Development Zone effective October 1, 2003. As a result, the
Company's income tax rate has been changed from 33% to 15% beginning from that date.
F-34
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
As a result of the reduction in income tax rate, the Company's net deferred tax liability
balance at January 1, 2003 of RMB507 was reduced by RMB392. Accordingly, a net deferred tax credit
of RMB392 was recognized in the consolidated statement of operations for the year ended December
31, 2003.
In respect of the Group's overseas airline activities, the Group has either obtained
exemptions from overseas taxation pursuant to the bilateral aviation agreements between the
overseas governments and the PRC government, or has sustained tax losses in these overseas
jurisdictions. Accordingly, no provision for overseas tax has been made for the years ended
December 31, 2003, 2004 and 2005.
b) Reconciliation between tax (benefit)/expense and accounting (loss)/income at applicable tax
rates
Year ended December 31,
2003
2004
2005
RMB
RMB
RMB
(restated,
(restated,
Note 3)
Note 3)
(Loss)/income before tax
(521
)
220
(1,853
)
Expected tax on (loss)/income before tax
calculated at 15% for the years ended
December 31, 2003, 2004 and 2005
(78
)
33
(278
)
Adjustments:
Effect on change in income tax rate on
deferred taxation
(392
)
—
—
Rate differential on subsidiaries/branches
5
3
7
Tax effect of non-deductible expenses
80
29
82
Tax effect of non-taxable income
—
—
(8
)
Tax effect of share of results of affiliated
companies and jointly controlled entities
(9
)
(1
)
37
Tax effect of unused tax losses not recognized
22
—
135
Expired tax losses
34
—
—
Others
4
1
18
Actual tax (benefit)/expense
(334
)
65
(7
)
All but an insignificant amount of (loss)/income before taxation is from domestic sources.
F-35
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
In accordance with relevant PRC tax regulations, a PRC lessee is liable to pay PRC withholding
tax in respect of any lease payments regularly made to an overseas lessor. Depending on the
circumstances, this tax is generally imposed at a fixed rate ranging from 10% to 20% of the lease
payments, or in certain cases, the interest components of such payments. Pursuant to an approval
document from the State Tax Bureau, lease arrangements executed prior to September 1, 1999 were
exempted from PRC withholding tax.
The PRC withholding tax payable by the Group for the years ended December 31, 2003, 2004 and
2005 of RMB8, RMB23 and RMB55, respectively, in respect of the operating leases executed after
September 1, 1999 has been included as part of the operating lease rentals.
14. DIVIDENDS
No interim dividend was paid during the years ended December 31, 2003, 2004 and 2005.
The board of directors of the Company does not recommend the payment of a final dividend in
respect of the year ended December 31, 2005. No final dividend was paid in respect of the years
ended December 31, 2003 and 2004.
15. BASIC LOSS PER SHARE
The calculation of basic loss per share for the years ended December 31, 2003, 2004 and 2005
is based on the loss attributable to equity shareholders of the Company of RMB358, RMB48, and
RMB1,848, respectively, and the weighted average number of shares in issue of 3,831,712,000,
4,374,178,000, and 4,374,178,000, respectively.
The amount of diluted loss per share is not presented as there were no dilutive potential
ordinary shares in existence during the years ended December 31, 2003, 2004 and 2005.
16. CASH AND CASH EQUIVALENTS
As of December 31, 2004 and 2005, cash and cash equivalents comprise cash at bank and in hand
and deposits with China Southern Airlines Group Finance Company Limited ("SA Finance"), a PRC
authorized financial institution controlled by CSAHC and an affiliated company of the Group. In
accordance with the financial agreement dated May 22, 1997 and subsequently revised on December
31, 2004 between the Company and SA Finance, all the Group's deposits accepted by SA Finance were
simultaneously placed with several designated major PRC banks by SA Finance. As of December 31,
2004 and 2005, the Group's deposits with SA Finance amounted to RMB406 and RMB544, respectively.
F-36
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
Included in cash and cash equivalents are the following amounts denominated in a currency
other than the functional currency of the entity to which they relate:
December 31,
2004
2005
United States Dollars
US$    37
US$    24
Japanese Yen
JPY1, 272
JPY1, 161
F-37
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
17. TRADE RECEIVABLES
December 31,
2004
2005
RMB
RMB
Trade receivables, principally traffic
1,295
1,562
Less: Impairment losses for bad and doubtful accounts
(92
)
(44
)
1,203
1,518
Credit terms granted by the Group to sales agents and other customers generally range from one
to three months. An ageing analysis of trade receivables, net of impairment losses for bad and
doubtful accounts, is set out below:
December 31,
2004
2005
RMB
RMB
Within 1 month
998
1,366
More than 1 month but less than 3 months
163
137
More than 3 months but less than 12 months
42
14
More than 12 months
—
1
1,203
1,518
As of December 31, 2004 and 2005, the Group had an amount due from a fellow subsidiary of
RMB52 and RMB42, respectively, which was included in trade receivables.
All of the trade receivables are expected to be recovered within one year.
Included in trade receivables are the following amounts denominated in a currency other than
the functional currency of the entity to which they relate:
December 31,
2004
2005
United States Dollars
US$
11
US$
15
F-38
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
Movements in impairment losses for bad and doubtful accounts comprise:
Year ended December 31,
2004
2005
RMB
RMB
At January 1
70
92
Impairment losses for bad and doubtful accounts (Note 9)
27
—
Through the
CNA/XJA Acquisitions
44
—
Bad and doubtful accounts written off
(49
)
(48
)
At December 31
92
44
18. INVENTORIES
December 31,
2004
2005
RMB
RMB
Expendable spare parts and maintenance materials
1,175
1,241
Other supplies
127
141
1,302
1,382
The analysis of the amount of inventories recognized as an expense is as follows:
December 31,
2004
2005
RMB
RMB
Consumption
596
720
Write-down of inventories
—
209
596
929
As a result of fleet adjustment, inventories have been written down by RMB209 at
December 31, 2005.
F-39
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
19. OTHER INVESTMENTS
December 31,
2004
2005
RMB
RMB
Non-current investments
Unlisted equity securities available for sale, at cost
272
320
Current investments
Listed equity securities held for trading
523
—
Listed debt securities held-to-maturity
160
—
683
—
Market value of listed securities
683
—
The current investments at December 31, 2004 were listed outside Hong Kong.
Net realized and unrealized gain on trading securities of the Group amounted to RMBNil, RMB15
and RMB6 during the years ended December 31, 2003, 2004 and 2005, respectively.
Dividend income from unlisted securities of the Group amounted to RMBNil, RMB14 and RMB4
during the years ended December 31, 2003, 2004 and 2005, respectively.
The amortized cost, gross unrealized holding gains, gross unrealized holding losses, and fair
value of debt security held-to-maturity as of December 31, 2004 and 2005 were as follows:
Gross
Gross
unrealized
unrealized
Amortized
holding
holding
cost
gains
losses
Fair value
RMB
RMB
RMB
RMB
As of December 31, 2004
Debt securities held-to-maturity
160
—
—
160
As of December 31, 2005
Debt securities held-to-maturity
—
—
—
—
F-40
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
20. OTHER RECEIVABLES
As of December 31, 2004 and 2005, other receivables of the Group included an amount due from
Zhongyuan Airlines Company Limited ("Zhongyuan Airlines") of RMB104 and RMB98, respectively. As
of December 31, 2005 and up to date of approval of these consolidated financial statements, the
Group is in the process of applying for transfer of certain properties held by Zhongyuan Airlines
for settlement of the balance.
21. PROPERTY, PLANT AND EQUIPMENT, NET
Other flight
Aircraft
equipment,
Machinery,
Held
including
equipment
under capital
rotable
and
Buildings
Owned
leases
spares
vehicles
Total
Cost or valuation:
At January 1, 2004
3,288
17,222
10,463
6,842
1,930
39,745
Exchange adjustments
5
—
—
—
12
17
Reclassification on exercise
of purchase options
—
550
(550
)
—
—
—
Additions
336
4,156
—
525
5
5,022
Transfer from construction
in progress
2,472
—
—
—
235
2,707
Through the CNA/XJA
Acquisitions
915
5,206
4,616
1,753
490
12,980
Disposals
(28
)
—
—
(76
)
(73
)
(177
)
At December 31, 2004
6,988
27,134
14,529
9,044
2,599
60,294
Representing:
Cost
6,633
20,905
10,189
6,870
2,115
46,712
Valuation - 1996 (Note (b))
355
6,229
4,340
2,174
484
13,582
6,988
27,134
14,529
9,044
2,599
60,294
At January 1, 2005
6,988
27,134
14,529
9,044
2,599
60,294
Exchange adjustments
(6
)
—
—
—
(14
)
(20
)
Additions
64
1,827
8,146
1,336
307
11,680
Transfer from construction
in progress
513
—
—
—
56
569
Transfer to inventories
—
—
—
(126
)
—
(126
)
Disposals
(256
)
—
—
(207
)
(81
)
(544
)
At December 31, 2005
7,303
28,961
22,675
10,047
2,867
71,853
Representing:
Cost
6,948
22,732
18,335
7,873
2,383
58,271
Valuation - 1996 (Note (b))
355
6,229
4,340
2,174
484
13,582
7,303
28,961
22,675
10,047
2,867
71,853
F-41
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
Other flight
Aircraft
equipment,
Machinery,
Held
including
equipment
under capital
rotable
and
Buildings
Owned
leases
spares
vehicles
Total
Accumulated depreciation:
At January 1, 2004
594
3,192
2,605
3,644
1,174
11,209
Exchange adjustments
1
—
—
—
9
10
Reclassification on exercise
of purchase options
—
183
(183
)
—
—
—
Charge for the year
179
956
472
544
212
2,363
Disposals
(17
)
—
—
(51
)
(61
)
(129
)
At December 31, 2004
757
4,331
2,894
4,137
1,334
13,453
At January 1, 2005
757
4,331
2,894
4,137
1,334
13,453
Exchange adjustments
(1
)
—
—
—
(11
)
(12
)
Charge for the year
227
1,546
1,108
1,121
418
4,420
Disposals
(74
)
—
—
(145
)
(55
)
(274
)
At December 31, 2005
909
5,877
4,002
5,113
1,686
17,587
Net book value:
At December 31, 2004
6,231
22,803
11,635
4,907
1,265
46,841
At December 31, 2005
6,394
23,084
18,673
4,934
1,181
54,266
(a) Substantially all of the Group's buildings are located in the PRC. The Group was formally
granted the rights to use the twenty one parcels of land in Guangzhou, Shenzhen, Zhuhai, Beihai,
Changsha, Shantou, Haikou, Zhengzhou, Guiyang and Wuhan by the relevant PRC authorities for periods
of 30 to 70 years, which expire between 2020 and 2068. For other land in the PRC on which the
Group's buildings are erected, the Group was formally granted the rights to use such land for
periods of one to five years pursuant to various lease agreements between the Company and CSAHC.
In this connection, rental payments totaling RMB2, RMB2 and RMB24 were paid to CSAHC for each of
the years ended December 31, 2003, 2004 and 2005, respectively in respect of these leases (Note
36).
(b) In compliance with the PRC rules and regulations governing initial public offering of shares by
PRC joint stock limited companies, the property, plant and equipment of the Group as of December
31, 1996 were revalued. This revaluation was conducted by Guangzhou Assets Appraisal Corp., a firm
of independent valuers registered in the PRC, on a depreciated replacement cost basis, and approved
by the China State-owned Assets Administration Bureau.
F-42
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
Subsequent to the 1996 revaluation, the property, plant and equipment of the Group are carried
at revalued amount, being the fair value at the date of the revaluation less any subsequent
accumulated depreciation and impairment losses. Revaluation is performed with sufficient regularity
to ensure that the carrying amount does not differ materially from that which would be determined
using fair value at the balance sheet date. Based on a revaluation performed as of September 30,
2005, by Savills Valuation & Professional Services Limited, a firm of independent valuers, on a
depreciated replacement cost basis, the carrying value of property, plant and equipment did not
differ materially from their fair value. Consequently, no additional fair value adjustment was
recorded during the year ended December 31, 2005.
At December 31, 2005, the carrying amount of such revalued property, plant and equipment
approximated the historical carrying value of such assets had they been stated at cost less
accumulated depreciation and impairment losses.
(c) As of December 31, 2004 and 2005, certain aircraft of the Group with an aggregate carrying
amount of approximately RMB23,562 and RMB30,408, respectively, were mortgaged under certain notes
payable and lease agreements (Notes 27 and 28).
(d) In 2003, the Group entered into operating lease arrangements to lease certain flight training
facilities and buildings to Zhuhai Xiang Yi Aviation Technology Company Limited ("Zhuhai Xiang
Yi"), a jointly controlled entity of the Group. The leases with initial one-year term are
automatically renewable for additional subsequent one year unless either party gives appropriate
notice of termination. In this connection, rental income totaling RMB31, RMB31 and RMB31 was
received by the Group for each of the years ended December 31, 2003, 2004 and 2005 in respect of
the leases (Note 36). The carrying amount and accumulated depreciation of the relevant property,
plant and equipment totaled RMB787 and RMB514 at December 31, 2004, and RMB862 and RMB664 at
December 31, 2005, respectively. Depreciation of relevant property, plant and equipment recognized
for each of the years ended December 31, 2003, 2004 and 2005 amounted to RMB55, RMB55 and RMB35,
respectively. As of December 31, 2005, the Group's total future minimum lease payments under
non-cancellable operating leases were receivable within one year and amounted to RMB31.
F-43
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
(e) The Group entered into two separate arrangements (the "Arrangements") with certain independent
third parties during each of 2002 and 2003. Under each of the Arrangements, the Group sold an
aircraft and then immediately leased back the aircraft for an agreed period. The lease payment
obligations, with pre-determined net present value, are to be satisfied solely out of the sale
proceeds and such amount has been placed irrevocably by the Group in form of deposits and debt
securities in favor of the lessor. The Group has an option to purchase the aircraft at a
pre-determined date and an agreed purchase price to be satisfied by the balances of the deposits
and debt securities outstanding at that date. In the event that the lease agreement is early
terminated by the Group, the Group is liable to pay a pre-determined penalty to the lessor.
Provided that the Group complies with the lease agreements, the Group is entitled to the continued
possession and operation of the aircraft. Since the Group retains substantially all risks and
rewards incident to ownership of the aircraft and enjoys substantially the same rights to their use
as before the Arrangements, no adjustment has been made to the property, plant and equipment. As
of December 31, 2004 and 2005, the net present value of the lease commitments and the corresponding
defeased deposits and debt securities amounted to RMB2,462 and RMB2,376, respectively. As a result
of the Arrangements, the Group received net cash benefit of RMB69 in 2003, which was recognized as
income for 2003.
(f) As of December 31, 2005 and up to the date of approval of these consolidated financial
statements, the Group is in the process of applying for the land use right certificates and
property title certificates in respect of the properties located in the Guangzhou Baiyun
International Airport, in which the Group has interests and for which such certificates have not
been granted. As of December 31, 2004 and 2005, carrying value of such properties of the Group
amounted to RMB2,319 and RMB2,316, respectively. The directors of the Company are of the opinion
that the use of and the conduct of operating activities at the properties referred to above are not
affected by the fact that the Group has not yet obtained the relevant land use right certificates
and property title certificates.
22. CONSTRUCTION IN PROGRESS
December 31,
2004
2005
RMB
RMB
At January 1
1,630
565
Additions
1,616
678
Through the CNA/XJA Acquisitions
26
—
Transfer to property, plant and equipment
(2,707
)
(569
)
At December 31
565
674
The construction in progress as of December 31, 2005 mainly related to projects at the
Guangzhou, Jilin and Fuzhou airports, Shenzhen cargo centre and Beijing branch.
F-44
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
23. INTEREST IN AFFILIATED COMPANIES
December 31,
2004
2005
RMB
RMB
Share of net assets
429
142
Details
of the Group's principal affiliated companies are set out in
Note 50, all of which
are unlisted corporate entities.
Summary financial information on affiliated companies:
100%
Group's effective interest
December 31,
December 31,
2003
2004
2005
2003
2004
2005
RMB
RMB
RMB
RMB
RMB
RMB
Non-current assets
4,254
5,334
1,672
2,081
Current assets
2,165
2,275
1,049
455
Non-current
liabilities
(2,918
)
(3,897
)
(1,290
)
(1,520
)
Current liabilities
(2,568
)
(3,318
)
(1,002
)
(874
)
Net assets
933
394
429
142
Revenues
1,756
2,676
3,314
682
1,042
1,318
Expenses
(1,637
)
(2,633
)
(3,798
)
(634
)
(1,030
)
(1,618
)
Taxation
(6
)
(5
)
(39
)
(3
)
(2
)
15
Income/(loss)
for the year
113
38
(523
)
45
10
(285
)
24. INTEREST IN JOINTLY CONTROLLED ENTITIES
December 31,
2004
2005
RMB
RMB
Share of net assets
782
805
Details
of the Group's principal jointly controlled entities are set out
in Note 50, all of
which are unlisted corporate entities.
F-45
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
Summary financial information on jointly controlled entities:
Group's effective interest
December 31,
2003
2004
2005
RMB
RMB
RMB
Non-current assets
845
920
Current assets
794
877
Non-current liabilities
(389
)
(524
)
Current liabilities
(468
)
(468
)
Net assets
782
805
Revenues
545
762
1,115
Expenses
(585
)
(767
)
(1,082
)
Taxation
(6
)
(11
)
3
(Loss)/income for the year
(46
)
(16
)
36
25. DEFERRED TAX ASSETS/LIABILITIES
Movements of net deferred tax (liabilities)/assets are as follows:
December 31,
2004
2005
RMB
RMB
At January 1
(398
)
(287
)
Credited to consolidated statements of operations (Note
13)
111
19
At December 31
(287
)
(268
)
F-46
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
The deferred tax (liabilities)/assets as of December 31, 2004 and 2005 were made up of the
following tax effects:
December 31,
2004
2005
RMB
RMB
Deferred tax assets:
Tax losses
39
159
Repair charges capitalized
254
275
Accrued expenses
275
175
Others
21
29
Total deferred tax assets
589
638
Deferred tax liabilities:
Accrued expenses
75
58
Depreciation allowances in excess of the related depreciation
752
832
Others
49
16
Total deferred tax liabilities
876
906
(287
)
(268
)
Net deferred tax asset recognized on the consolidated balance sheet
51
74
Net deferred tax liability recognized on the consolidated balance sheet
(338
)
(342
)
(287
)
(268
)
F-47
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
As of December 31, 2004 and 2005, the Group had tax losses for PRC income tax purposes
totaling approximately RMB260 and RMB1,601. Such tax losses are available for carry forward to set
off against future PRC assessable income for a maximum period of five years and will expire in
2011. In accordance with accounting policy set out in Note 2(r), as of December 31, 2004 and 2005,
the Group has not recognized deferred tax assets in respect of tax losses to the extent of
approximately Nil and RMB710 as it was determined by management that it is not probable that future
taxable income against which the losses can be utilized will be available before they expire.
As of December 31, 2004 and 2005, the Group has also not recognized deferred tax assets in
respect of cumulative tax losses from operations in Hong Kong of approximately RMB303, as it is not
probable that future taxable income against which the losses can be utilized will be available. The
tax losses do not expire under current tax legislation.
26. OTHER ASSETS
As of December 31, 2004 and 2005, other assets of the Group include lump sum housing benefits
of RMB197 and RMB171, respectively. Further details are set out in Note 37.
Movements of lump sum housing benefits are as follows:
December 31,
2004
2005
RMB
RMB
At January 1
223
197
Amortization for the year
(26
)
(26
)
At December 31
197
171
27.
DEBT
Short-term notes payable
December 31,
2004
2005
RMB
RMB
Short-term notes payable
9,925
14,346
Current installments of long-term notes payable
1,593
1,877
11,518
16,223
Borrowings under short-term notes payable are used primarily to finance working capital needs
and are repayable in full on the respective due dates with interest rates ranging from 3.15% to
5.34% per annum. The Group's weighted average interest rate on short-term notes payable was 1.60%
and 4.83% per annum, respectively, as of December 31, 2004 and 2005.
Short-term notes payable include certain notes payable of RMB2,611 which were
renewed subsequent to December 31, 2005. The renewed notes payable are unsecured, bear
interest at floating rates ranging from 3-month HIBOR/6-month LIBOR + 0.55% to 0.60%
per annum and are repayable within one year from their respective renewal dates.
In addition, the Group entered into new notes payable agreements totalling RMB2,671
subsequent to December 31, 2005.  These new notes payable are unsecured and bear interest
at floating rates ranging from 6-month LIBOR + 0.55% to 0.70% per annum with maturities
through 2008.
F-48
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
Long-term notes payable
December 31,
Interest rate and final maturity
2004
2005
RMB
RMB
Renminbi denominated notes payable
Non-interest bearing loan from a municipal
government authority repayable on demand
3
3
Floating interest rates ranging from 5.02%
to 5.51% per annum as of December 31, 2005,
with maturities through 2011
1,217
877
United States Dollars denominated notes payable
Fixed interest rates ranging from 4.43%
to 7.73% per annum as of December 31, 2005,
with maturities through 2015
2,676
2,414
Floating interest rates ranging from 3 months LIBOR
+ 0.70% to 0.90% per annum as of December 31, 2005,
with maturities through 2012
1,426
3,610
Floating interest rates ranging from 6 months LIBOR
+ 0.3% to 1.20% per annum as of December 31, 2005,
with maturities through 2013
8,206
7,713
13,528
14,617
Less: current installments
(1,593
)
(1,877
)
11,935
12,740
As of December 31, 2004 and 2005, bank and other notes payable of the Group totaling
RMB8,620 and RMB8,116, respectively, were secured by mortgages over certain of the Group's aircraft
with carrying amount of RMB11,927 and RMB11,735, respectively.
F-49
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
As of December 31, 2004 and 2005, certain bank and other notes payable were guaranteed by the
following parties:
December 31,
2004
2005
RMB
RMB
Guarantors
Short-term notes payable
CSAHC
411
300
Long-term notes payable
Industrial Commercial Bank of China
149
111
Export-Import Bank of the United States
1,732
1,171
Bank of China
291
155
CSAHC
2,041
1,608
Shenzhen
Yingshun Investment Development Company Limited
—
22
SA Finance
9
7
4,633
3,374
As of December 31, 2005, the Group had banking facilities with several PRC commercial banks
for providing loan finance up to an approximate amount of RMB39,294. As of December 31, 2005, an
approximate amount of RMB28,242 was utilized.
As of December 31, 2004 and 2005, loans to the Group from SA Finance amounted to RMB256 and
RMB300, respectively (Note 36(b)).
F-50
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
The aggregate annual maturities of long-term notes payable for each of the five years
subsequent to December 31, 2005 and thereafter are as follows:
RMB
Year ending December 31,
2006
1,877
2007
4,316
2008
2,156
2009
1,435
2010
660
Thereafter
4,173
14,617
Included in bank and other loans are the following amounts denominated in a currency other
than the functional currency of the entity to which they related:
December 31,
2004
2005
United States Dollars
US$1,969
US$3,208
Hong Kong Dollars
HK$2,678
HK$1,821
F-51
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
28. LEASE OBLIGATIONS
Capital leases
The Group has commitments under capital lease agreements in respect of aircraft and related
equipment. The majority of these leases have terms of 10 to 15 years expiring during the years
2006 to 2017.
As of December 31, 2005, future payments under these capital leases are as follows:
Payments
*Interest
Obligations
RMB
RMB
RMB
Year ending December 31,
2006
4,030
657
3,373
2007
3,423
493
2,930
2008
3,016
408
2,608
2009
1,684
307
1,377
2010
1,050
238
812
Thereafter
5,412
680
4,732
18,615
2,783
15,832
Less: current
installments
of obligations
under capital
leases
(3,373
)
12,459
*
Interest rates ranging from 1.44% to 8.01% per annum
As of December 31, 2004, future payments under these capital leases are as follows:
Payments
*Interest
Obligations
RMB
RMB
RMB
Year ending December 31,
2005
2,580
436
2,144
2006
3,213
350
2,863
2007
2,844
279
2,565
2008
2,699
146
2,553
2009
997
71
926
Thereafter
722
30
692
13,055
1,312
11,743
Less: current installments of
obligations
under capital leases
(2,144
)
9,599
*
Interest rates ranging from 1.92% to 8.48% per annum
F-52
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
Under the terms of the leases, the Group has an option to purchase, at or near the end
of the lease term, certain aircraft and flight equipment at either fair market value or a
percentage of the respective lessor's defined cost of the aircraft.
Security, including charges over the assets concerned and relevant insurance policies, is
provided to the lessors. As of December 31, 2004 and 2005, certain of the Group's aircraft with
carrying amount of RMB11,635 and RMB18,673, respectively were mortgaged to secure finance lease
obligations RMB11,743 and RMB15,832, respectively.
Included in obligations under capital leases are the following amounts denominated in a
currency other than the functional currency of the entity to which they relate:
December 31,
2004
2005
United States Dollars
US$958
US$1,556
Japanese Yen
JPY47,840
JPY47,795
Operating leases
As of December 31, 2005, future minimum lease payments under non-cancellable aircraft and
flight equipment operating leases were as follows (principally denominated in U.S. dollars):
RMB
Year ending December 31,
2006
3,340
2007
2,881
2008
2,785
2009
2,609
2010
2,523
Thereafter
10,456
Total minimum lease payments
24,594
F-53
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
As of December 31, 2004, future minimum lease payments under non-cancellable aircraft and
flight equipment operating leases were as follows (principally denominated in U.S. dollars):
RMB
Year ending December 31,
2005
1,761
2006
1,622
2007
1,562
2008
5,259
2009
764
Thereafter
1,782
Total minimum lease payments
12,750
29.
TRADE AND BILLS PAYABLES
December 31,
2004
2005
RMB
RMB
Trade payables
1,554
3,033
Bills payable
136
896
1,690
3,929
The following is the ageing analysis of trade and bills payables:
December 31,
2004
2005
RMB
RMB
Within 1 month
735
2,000
More than 1 month but less than 3 months
431
1,225
More than 3 months but less than 6 months
524
704
1,690
3,929
As of December 31, 2004 and 2005, the Group had an amount due to a fellow subsidiary of
RMB838 and RMB859, respectively, which was included in trade and bills payables.
All of the trade and bills payables are expected to be settled within one year.
F-54
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
Included in trade and bills payables are the following amounts denominated in a currency other
than the functional currency of the entity to which they relate:
December 31,
2004
2005
United States Dollars
US$
108
US$
147
30.
AMOUNTS DUE FROM/TO RELATED COMPANIES
(a)
Amounts due from related companies
December 31,
2004
2005
RMB
RMB
Jointly controlled entities
—
84
The amounts due from related companies were unsecured, interest free and have no fixed terms
of repayment.
(b)
Amounts due to related companies
December 31,
2004
2005
RMB
RMB
CSAHC and its subsidiaries
2,094
12
An affiliated company
—
5
Jointly controlled entities
340
99
2,434
116
The amounts due to related companies were unsecured, interest free and have no fixed terms of
repayment.
F-55
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
31.
ACCRUED EXPENSES
December 31,
2004
2005
RMB
RMB
Jet fuel costs
743
686
Operating lease charges
29
86
Air catering expenses
192
132
Salaries and welfare
349
193
Lump sum housing benefits payable
108
92
Repairs and maintenance
976
996
Provision for major overhauls (Note 33)
75
151
Landing and navigation fees
1,331
1,129
Computer reservation services
195
190
Interest expense
240
338
Duties and levies
71
12
Property management fee
—
37
Others
242
208
4,551
4,250
32.
OTHER LIABILITIES
December 31,
2004
2005
RMB
RMB
CAAC Infrastructure Development fund
161
177
Airport construction surcharge
316
542
Airport tax
112
198
Construction cost payable
864
793
Advance payment on chartered flights
119
104
Sales agent deposits
182
198
Other tax payable
332
441
Others
888
1,343
2,974
3,796
F-56
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
33.
PROVISION FOR MAJOR OVERHAULS
Details of provision for major overhauls in respect of aircraft held under operating leases
are as follows:
Year ended December 31,
2004
2005
RMB
RMB
At January 1
200
359
Provision for the year
89
129
Through the CNA/XJA Acquisitions
70
—
Amount utilized
—
(36
)
At December 31
359
452
Less: current portion included in accrued
expenses (Note 31)
(75
)
(151
)
284
301
34.
SHARE CAPITAL
December 31,
2004
2005
RMB
RMB
Registered, issued and paid up capital:
2,200,000,000 domestic state-owned shares of RMB1.00 each
2,200
2,200
1,174,178,000 H shares of RMB1.00 each
1,174
1,174
1,000,000,000 A shares of RMB1.00 each
1,000
1,000
4,374
4,374
All the domestic state-owned, H and A shares rank pari passu in all material respects.
As of December 31, 2004 and 2005, the retained earnings/accumulated loss of the Group included
RMB81 and RMB(200), respectively, of undistributed earnings/losses of companies which are 50% or
less owned by the Group and accounted for under the equity method.
F-57
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
35. RESERVES
December 31,
2004
2005
RMB
RMB
Share premium
At January 1 and December 31
5,325
5,325
Statutory surplus reserve (Note (a))
At 1 January
361
402
Transfer from retained earnings
41
8
At December 31
402
410
Statutory public welfare fund (Note (b))
At 1 January
173
193
Transfer from retained earnings
20
5
At December 31
193
198
Discretionary surplus reserve (Note (c))
At 1 January
77
77
Transfer from retained earnings
—
6
At December 31
77
83
Retained earnings/(accumulated loss)
At 1 January
1,586
1,477
Loss for the year
(48
)
(1,848
)
Appropriations to reserves
(61
)
(19
)
At December 31
1,477
(390
)
Total
7,474
5,626
(a) According to the PRC Company Law and the Articles of Association of the Company and certain of
its subsidiaries, the Company and the relevant subsidiaries are required to transfer 10% of their
annual net income after taxation, as determined under relevant PRC accounting rules and
regulations, to a statutory surplus reserve until the reserve balance reaches 50% of the registered
capital. The transfer to this reserve must be made before distribution of a dividend to
shareholders.
Statutory surplus reserve can be used to offset prior years' losses, if any, and may be
converted into share capital by the issue of new shares to shareholders in proportion to their
existing shareholding or by increasing the par value of the shares currently held by them, provided
that the balance after such issue is not less than 25% of the registered capital.
F-58
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
(b) According to the PRC Company Law and the Articles of Association of the Company and certain of
its subsidiaries, the Company and the relevant subsidiaries are required to transfer between 5% to
10% of their annual net income after taxation, as determined under PRC accounting rules and
regulations, to the statutory public welfare fund. This fund can only be utilized on capital items
for the collective benefits of the Company's and the relevant subsidiaries' employees such as the
construction of dormitories, canteen and other staff welfare facilities. This fund is
non-distributable other than in liquidation. The transfer to this fund must be made before
distribution of a dividend to shareholders and is subject to respective shareholders' approval.
(c) The appropriation of this reserve is subject to shareholders' approval. The usage of this
reserve is similar to that of statutory surplus reserve.
(d) Dividend distributions may be proposed at the discretion of the Company's board of directors,
after consideration of the transfers referred to above and making up cumulative prior years'
losses. Pursuant to the Articles of Association of the Company, the net income of the Company for
the purpose of dividend distribution is deemed to be the lesser of (i) net income determined in
accordance with the PRC accounting rules and regulations, and (ii) the net income determined in
accordance with IFRSs; or if the financial statements of the Company are not prepared in accordance
with IFRSs, the accounting standards of one of the countries in which its shares are listed. As of
December 31, 2005, the Company did not have any distributable reserves.
36. RELATED PARTY TRANSACTIONS
In
addition to the balances discussed in Notes 16, 17, 21, 27, 29 and 30 to these consolidated
financial statements, the Group entered into the following material related party transactions.
(a) Significant transactions with related companies
The Group obtained various operational and financial services provided by CSAHC and its
affiliates, and the Group's affiliated companies and jointly controlled entities during the normal
course of its business. In the past, CSAHC was under the direct control of the Civil Aviation
Administration of China (the "CAAC"). However, such control has been shifted to the China
State-owned Assets Administration Bureau since early 2003. Consequently, transactions with the
CAAC and its affiliates beginning from 2003 are no longer presented as related party transactions
of the Group.
F-59
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
Details of the significant transactions carried out are as follows:
2003
2004
2005
Note
RMB
RMB
RMB
Expenses paid to CSAHC and its affiliates
Handling charges
(i)
27
33
32
Air catering supplies
(ii)
90
170
173
Wet lease rentals
(iii)
36
—
—
Commission expense
(iv)
5
2
26
Sundry aviation supplies
(v)
43
66
88
Lease charges for aircraft
(vi)
—
—
10
Lease charges for land and buildings
(vii)
15
18
90
Property management fee
(viii)
—
—
28
Housing benefits
(ix)
85
85
—
Expenses paid to affiliated companies and
jointly controlled entities
Ground service expenses
(x)
—
—
32
Repairing charges
(xi)
693
1,159
1,118
Flight simulation service charges
(xii)
101
100
126
Interest expense
(xiii)
—
3
37
Income received from affiliated companies
and jointly controlled entities
Rental income
(xii)
31
31
31
Interest income
(xiii)
3
4
3
Others
CNA/XJA Acquisitions
(xiv)
—
15,522
—
Operating expenses recharged to related
companies
(xv)
—
65
—
Short term advances from CSAHC
(xvi)
166
—
—
Refund of medical benefit payments
(xvii)
58
—
—
(i)
The Group acquires aircraft, flight equipment and other airline-related facilities
through Southern Airlines (Group) Import and Export Trading Company ("SAIETC"), a
wholly-owned subsidiary of CSAHC.
F-60
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
(ii)
The Group purchases certain inflight meals and related services from Shenzhen Air
Catering Company Limited, a co-operative joint venture established in the PRC, in respect
of which CSAHC is entitled to 33% of its income after tax, and Southern Airlines (Group)
Catering Co., Ltd, a wholly owned subsidiary of CSAHC.
(iii)
During 2003, wet lease rentals totaling RMB36, were paid to XJA, pursuant to a wet
lease agreement in respect of a Boeing 757-200 aircraft effective October 2002. The wet
lease agreement was terminated in April 2003.
(iv)
Commission is earned by certain subsidiaries of CSAHC in connection with the air
tickets sold by them on behalf of the Group. Commission is calculated based on a fixed
rate ranging from 1.5% to 12% on the ticket value.
(v)
Certain sundry aviation supplies are purchased from Southern Airlines (Group)
Economic Development Company ("SAGEDC"), a subsidiary of CSAHC.
(vi)
The Group leases an aircraft from China Southern Airlines (Group) Hainan Co., Ltd,
a subsidiary of CSAHC.
(vii)
The Group leases certain land and buildings in the PRC from CSAHC. Rental
payments for land and buildings amounted to RMB2 (Note 21(a)) and RMB13, respectively,
RMB2 (Note 21(a)) and RMB16, respectively, and RMB24 (Note 21(a)) and RMB66, respectively
were paid to CSAHC in 2003, 2004 and 2005, respectively.
(viii)
China Southern Airlines (Group) Property Management Co., Ltd, a subsidiary of CSAHC,
provides property management services to the Group.
(ix)
The Group paid a fixed annual fee of RMB85 to CSAHC from 1995 to 2004 in respect of
the provision of quarters to the eligible employees of the Group (Note 37). No such
payment was made in 2005.
(x)
Airport ground service was provided by Beijing Southern Airlines Ground Services
Company Limited, a jointly controlled entity of the Company.
(xi)
The Group has a 50% equity interest in both Guangzhou Aircraft Maintenance
Engineering Company Limited ("GAMECO") and MTU Maintenance Zhuhai Co., Ltd ("MTU
Zhuhai"), which provide comprehensive maintenance services to the Group.
(xii)
The Group has a 51% equity interest in Zhuhai Xiang Yi, which provides flight
simulation services to the Group. In addition, the Group entered into operating lease
agreements to lease certain flight training facilities and buildings to Zhuhai Xiang Yi
(Note 21(d)).
F-61
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
(xiii)
Interest income was received from deposits with SA Finance. The applicable interest
rates are determined in accordance with the deposit rates published by the PBOC (Note
16).
The Group obtained loans from SA Finance. The interest rates ranged from 3.30% to
5.02% per annum during the year ended December 31, 2005.
(xiv)
On December 31, 2004, the Group acquired the airline operations and certain
related assets of CNA and XJA at a total consideration of RMB15,522, which was partly
satisfied by assumption of debts and liabilities of CNA and XJA totalling RMB13,563
outstanding as of that date. The remaining consideration of RMB1,959 was fully paid in
cash during 2005.
(xv)
In 2004, the Group provided administrative services to CNA and XJA. Operating
expenses amounted to RMB65 million were recharged to CNA and XJA on a cost basis.
(xvi)
In 2003, CSAHC made short term advances to the Group. These advances were
unsecured, interest free and fully repaid in 2004.
(xvii)
Prior to January 1, 2002, the Group paid a fixed annual fee to CSAHC in return for
CSAHC providing medical benefit, transportation subsidies and other welfare facilities to
the retirees of the Group. Such arrangement was terminated on January 1, 2002. In 2003,
CSAHC refunded RMB58 to the Group which represented the difference between the aggregate
fixed annual fees received from the Group and the aggregate cost of services incurred by
CSAHC under the above agreement.
In addition to the above, certain subsidiaries of CSAHC also provided hotel and other services
to the Group during the year. The total amount involved is not material to the results of the Group
for the year.
F-62
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
(b)
Loans from SA Finance
Loans from SA Finance are unsecured and have the following terms:
December 31,
2004
2005
Interest rate
Guarantee
RMB
RMB
Floating interest rate at 90% of
interest rates as published by the PBOC,
repayable within 1 year
No guarantee
76
—
Floating interest rate at 90% of
interest rates as published by the PBOC,
repayable within 1 year
Guaranteed by CSAHC
180
300
256
300
(c)
Key management personnel remuneration
Remuneration for key management personnel is as follows:
December 31,
2004
2005
RMB
RMB
Short-term employees benefits
6,748
5,926
Post-employment benefits
182
221
6,930
6,147
Directors and supervisors
4,684
3,461
Senior management
2,246
2,686
6,930
6,147
Total remuneration is included in "staff costs" (Note 11).
(d)
The Group participates in various defined contribution retirement plans organized by
municipal and provincial governments for its staff. Details of the Group's employee benefits
plan are disclosed in Note 37.
F-63
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
(e) Transactions with other state-owned enterprises
The Group is a state-owned entity and operates in an economic regime currently predominated by
state-owned entities. Apart from transactions with CSAHC and its affiliates, the Group conducts a
majority of its business activities with entities directly or indirectly owned or controlled by the
PRC government and numerous government authorities and agencies (collectively referred to as
"state-owned entities") in the ordinary course of business. These transactions, which include
sales and purchase of goods and ancillary materials, rendering and receiving services, lease of
assets, purchase of property, plant and equipment and obtaining finance, are carried out at terms
similar to those that would be entered into with non-state-owned entities and have been reflected
in these financial statements. The management believes that it has provided meaningful disclosure
of related party transactions as summarized above.
37. RETIREMENT AND HOUSING BENEFITS
Employees of the Group participate in several defined contribution retirement schemes
organized separately by PRC municipal governments in regions where the major operations of the
Group are located. The Group is required to contribute to these schemes at the rates ranging from
14% to 20% during the year ended December 31, 2004 and 9% to 20% during the year ended December 31,
2005, respectively, of salary costs including certain allowances. A member of the retirement
schemes is entitled to pension benefits equal to a fixed proportion of the salary at the retirement
date. The retirement benefit obligations of all existing and future retired staff of the Group are
assumed by these schemes.
In addition, the Group was selected as one of the pilot enterprises to establish a
supplementary defined contribution retirement scheme for the benefit of employees. In this
connection, employees of the Group participate in a supplementary defined contribution retirement
scheme whereby the Group is required to make defined contributions at rates ranging from 3% to 5%
of total salaries. The Group has no obligation for the payment of pension benefits beyond the
contributions described above.
Furthermore, pursuant to the comprehensive services agreement (the "Services Agreement") dated
May 22, 1997 between the Company and CSAHC, CSAHC provided quarters to eligible employees of the
Group. In return, the Group paid a fixed annual fee of RMB85 to CSAHC for a ten-year period from
1995 to 2004. The agreement expired by December 31, 2004 and no further payment was made in 2005.
F-64
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
Pursuant to an additional staff housing benefit scheme effective September 2002, the Group
agreed to pay lump sum housing allowances to certain employees who have not received quarters from
CSAHC or the Group according to the relevant PRC housing reform policy, for subsidizing their
purchases of houses. An employee who quits prior to the end of the vesting benefit period is
required to pay back a portion of the lump sum housing benefits determined on a pro-rata basis of
the benefit vesting period. The Group has the right to effect a charge on the employee's house and
to enforce repayment through selling the house in the event of default in repayment. Any shortfall
in repayment would be charged against consolidated statements of operations. As at December 31,
2004 and 2005, the Group had made payments totaling RMB152 and RMB168, respectively, under the
scheme and recorded its remaining contractual liabilities totaling RMB108 and RMB92, respectively,
as accrued expenses on the consolidated balance sheets. Housing allowances are payable when
applications are received from eligible employees.
38. SEGMENTAL INFORMATION
The Group operates principally as a single business segment for the provision of air
transportation services. The analysis of turnover and operating income/(loss) by geographical
segment is based on the following criteria:
(i)
Traffic revenue from domestic services within the PRC (excluding Hong Kong and Macau) is
attributed to the domestic operation. Traffic revenue from inbound/outbound services between
the PRC and Hong Kong/Macau, and the PRC and overseas destinations is attributed to the Hong
Kong and Macau operation and international operation respectively.
(ii)
Other revenue from ticket selling, general aviation and ground services, air catering and
other miscellaneous services is attributed on the basis of where the services are performed.
Hong Kong
Domestic
and Macau
International*
Total
RMB
RMB
RMB
RMB
2003
Traffic revenue
13,087
808
3,070
16,965
Other operating revenue
436
—
69
505
Turnover
13,523
808
3,139
17,470
Operating income/(loss)
440
(29
)
45
456
Depreciation and amortization
1,581
85
372
2,038
Significant non-cash items other than
depreciation and amortization:
Impairment losses for trade and
other receivables
12
—
—
12
F-65
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
Hong Kong
Domestic
and Macau
International*
Total
RMB
RMB
RMB
RMB
2004
Traffic revenue
17,742
1,180
4,422
23,344
Other operating revenue
630
—
—
630
Turnover
18,372
1,180
4,422
23,974
Operating income
650
67
192
909
Depreciation and amortization
1,876
99
438
2,413
Significant non-cash items other than
depreciation and amortization:
Impairment losses for trade and
other receivables
27
—
—
27
2005
Traffic revenue
29,533
1,298
6,588
37,419
Other operating revenue
874
—
—
874
Turnover
30,407
1,298
6,588
38,293
Operating loss
(282
)
(97
)
(926
)
(1,305
)
Depreciation and amortization
3,663
139
638
4,440
Significant non-cash items other than
depreciation and amortization:
Write-down of inventories
—
—
209
209
*
Asian market accounted for approximately 70%, 67% and 74%, respectively, of
the Group's total international traffic revenue for the years ended December 31,
2003, 2004 and 2005. The remaining portion was mainly derived from the Group's
flights to/from European, North American and Australian regions.
The major revenue-earning assets of the Group are its aircraft fleet, all are registered
in the PRC. Since the Group's aircraft fleet is employed flexibly across its route network, there
is no suitable basis of allocating such assets to geographic segments. Most of the Group's
non-aircraft assets are located in the PRC.
39. MATERIAL NON-CASH TRANSACTIONS
During 2004, the Group acquired the airline operation and related assets of CNA and XJA at a
total consideration of RMB15,522, which was partially satisfied by assumption of debts and
liabilities of CNA and XJA totalling RMB13,563 outstanding as of December 31, 2004. Details are
set out in Note 40.
During
2005, aircraft acquired under capital leases amounted to RMB6,938.
F-66
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
40. EFFECT OF THE CNA/XJA ACQUISITIONS
(a) Supplementary information for consolidated statements of cash flows
Year ended December 31,
2003
2004
2005
RMB
RMB
RMB
Assets acquired:
Property, plant and equipment, net
—
12,980
—
Inventories
—
729
—
Trade receivables
—
314
—
Cash and cash equivalents
—
398
—
Other assets
—
1,101
—
—
15,522
—
Liabilities assumed:
Notes payable
—
4,587
—
Obligations under capital leases
—
6,125
—
Trade payables
—
343
—
Accrued expenses
—
1,475
—
Other liabilities
—
1,033
—
—
13,563
—
Net identifiable assets and liabilities
—
1,959
—
Cash consideration payable and not yet
settled at December 31, 2004
—
1,959
—
Net cash inflow from acquisitions
- cash and cash equivalents acquired
—
398
—
F-67
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
(b) Had the CNA/XJA Acquisitions been effected on January 1, 2004, results of operations
of the Group for the year ended December 31, 2004 are as follows:
The Group
Results of
(without effect
airline
of CNA/XJA
operations
Acquisitions)
of CNA/XJA
Combined
RMB
RMB
RMB
Turnover
23,974
10,057
34,031
Income for the year
155
170
325
41.
FINANCIAL INSTRUMENTS
Financial assets of the Group include cash and cash equivalents, other investments, trade
receivables, other receivables, other current assets and amounts due from related companies.
Financial liabilities of the Group include notes payable, obligations under capital leases, trade
and bills payables, amounts due to related companies, taxes payable and other liabilities.
Liquidity risk
As at December 31, 2005, the Group's current liabilities exceeded its current assets by
RMB25,907. For the year ended December 31, 2005, the Group recorded a net cash inflow from
operating activities of RMB3,835, a net cash outflow from investing activities and financing
activities of RMB4,017, and a decrease in cash and cash equivalents of RMB182.
In 2006 and thereafter, the liquidity of the Group is primarily dependent on its ability to
maintain adequate cash inflow from operations to meet its debt obligations as they fall due, and on
its ability to obtain adequate external finance to meet its committed future capital expenditures.
The Group has obtained firm commitments from its principal bankers to renew its short-term notes
payable outstanding at December 31, 2005 when they fall due
during 2006. Subsequent to December 31, 2005, the Group renewed
short-term notes payable outstanding of RMB2,611 (Notes 27). The directors of the Company
believe that sufficient financing will be available to the Group.
The directors of the Company have carried out a detailed review of the cash flow forecast of
the Group for the twelve months ending December 31, 2006. Based on such forecast, the directors
have determined that adequate liquidity exists to finance the working capital and capital
expenditure requirements of the Group during that period. In preparing the cash flow forecast, the
directors have considered historical cash requirements of the Group as well as other key factors,
including the availability of the above-mentioned loan finance which may impact the operations of
the Group during the next twelve-month period. The directors are of the opinion that the
assumptions and sensitivities which are included in the cash flow forecast are reasonable. However,
as with all assumptions in regard to future events, these are subject to inherent limitations and
uncertainties and some or all of these assumptions may not be realized.
F-68
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
Interest rate risk
The interest rates and maturity information of the Group's notes payable, and maturity
information of the Group's capital leases obligations are disclosed in Notes 27 and 28,
respectively.
Foreign currency risk
The Renminbi is not freely convertible into foreign currencies. All foreign exchange
transactions involving Renminbi must take place either through the PBOC or other institutions
authorized to buy and sell foreign exchange or at a swap center.
The Group currently maintains bank accounts in currencies other than the Renminbi to engage in
foreign exchange transactions. The amount of foreign exchange that can be retained by the Group
under this system is determined by the State Administration of Foreign Exchange ("SAFE") based on
the Group's expected payment obligations in foreign currencies for lease and debt payments and for
dividends. Any amounts of foreign exchange that the Group receives in excess of such amount must be
converted into Renminbi at the rate prevailing in the PRC inter-bank market. The Group will have
access to foreign currency through the inter-bank system, subject to the approval of the SAFE, to
satisfy its foreign exchange requirements where these exceed the amount of foreign exchange that
the Group has retained.
The Group has significant exposure to foreign currency as substantially all of the Group's
lease obligations and notes payable are denominated in foreign currencies, principally US dollars,
and to a lesser extent, Japanese Yen. Depreciation or appreciation of the Renminbi against foreign
currencies affects the Group's results significantly because the Group's foreign currency payments
generally exceed its foreign currency receipts. The Group is not able to hedge its foreign
currency exposure effectively other than by retaining its foreign currency denominated earnings and
receipts to the extent permitted by the SAFE, or subject to certain restrictive conditions,
entering into forward foreign exchange contracts with authorized PRC banks.
On July 21, 2005, the PBOC announced that the PRC government reformed the exchange rate regime
by moving into a managed floating exchange rate regime based on market supply and demand with
reference to a basket of foreign currencies. In particular, the exchange rate of US dollar against
Renminbi was adjusted upward to 8.11 yuan per US dollar with effect from the close of business on
July 21, 2005.
Credit risk
Substantially all of the Group's cash and cash equivalents are deposited with PRC financial
institutions, which management believes are of high credit quality.
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CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
A significant portion of the Group's air tickets are sold by agents participating in the
Billing and Settlement Plan ("BSP"), a clearing scheme between airlines and sales agents organized
by International Air Transportation Association which has insignificant credit risk to the Group.
As of December 31, 2004 and 2005, the balance due from BSP agents amounted to RMB411 and RMB782,
respectively. The credit risk exposure to BSP and the remaining trade receivables balance has been
monitored by the Group on an ongoing basis and the impairment losses for bad and doubtful accounts
have been within management's expectations.
Fair value
(a) All financial instruments are carried at amounts not materially different from their fair
values as of December 31, 2004 and 2005 except the following:
December 31,
2004
2005
Carrying
Fair
Carrying
Fair
amount
value
amount
value
RMB
RMB
RMB
RMB
Notes payable
23,453
23,665
28,963
28,989
The following methods and assumptions were used to estimate the fair value for each class of
financial instrument:
(i)
Cash and cash equivalents, short term investments, trade receivables, other receivables and
other current assets. Obligation under capital leases, trade and bills payables, taxes payable
and other liabilities.
The carrying values approximate their fair values because of the short maturities of these
instruments.
(ii) Notes payable
The fair value has been estimated by applying a discounted cash flow approach using interest
rates available to the Group for similar indebtedness.
(iii)
Fair value estimates are made at a specific point in time and based on relevant market
information about the financial instruments. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
(b) The economic characteristics of the Group's capital leases vary from lease to lease. It is
impractical to compare such leases with those prevailing in the market within the constraints of
timeliness and cost for the purpose of estimating the fair value of such leases.
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CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
42.
COMMITMENTS
(a)
Capital commitments
At December 31, 2005, the Group had capital commitments as follows:
2004
2005
RMB
RMB
Commitments in respect of aircraft and flight equipment
— authorized and contracted for
11,776
45,628
— authorized but not contracted for
13,571
—
25,347
45,628
Commitments
in respect of investments in the Guangzhou new airport
— authorized and contracted for
110
79
— authorized but not contracted for
714
761
824
840
Other commitments
— authorized and contracted for
132
11
— authorized but not contracted for
568
1,324
700
1,335
26,871
47,803
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CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
At December 31, 2005, the Group had on order 82 aircraft and certain flight equipment,
scheduled for deliveries in 2006 to 2010. Deposits of RMB6,351 million have been made towards the
purchase of these aircraft and related equipment. As of December 31, 2005, the approximate total
future payments, including estimated amounts for price escalation through anticipated delivery
dates for these aircraft and flight equipment are as follows:
2004
2005
RMB
RMB
2005
8,748
—
2006
2,996
7,341
2007
32
8,945
2008
—
14,354
2009
—
5,300
2010
—
9,688
11,776
45,628
At December 31, 2005, the Group's attributable share of the capital commitments of jointly
controlled entities was as follows:
2004
2005
RMB
RMB
Authorized and contracted for
—
—
Authorized but not contracted for
156
74
156
74
(b) Investing commitments
At December 31, 2005, the Group committed to make capital contributions in respect of:
2004
2005
RMB
RMB
Subsidiaries
181
—
Jointly controlled entities
83
83
264
83
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CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
43.
CONTINGENCIES
(a) Pursuant to the Reorganization of CSAHC effected in 1995 (Note 1), the Company assumed the
airline and airline-related businesses together with the relevant assets and liabilities from
CSAHC. The Company has been advised by its PRC lawyers that, except for liabilities constituting or
arising out of or relating to the businesses assumed by the Company in the Reorganization, no other
liabilities were assumed by the Company, and the Company is not jointly and severally liable for
other debts and obligations incurred by CSAHC prior to the Reorganization. There are not, however,
any definitive PRC regulations or other pronouncements confirming such conclusion.
(b) The Group leases from CSAHC certain land in Guangzhou and certain land and buildings in
Wuhan and Haikou. The Group has a significant investment in buildings and other leasehold
improvements located on such land. However, such land in Guangzhou and such land and buildings in
Wuhan and Haikou lack adequate documentation evidencing CSAHC's rights thereto.
The Group cannot predict the magnitude of the effect on its financial condition or results of
operations to the extent that their uses of one or more of the above parcels of land or the related
facilities were successfully challenged. Pursuant to an indemnification agreement dated May 22,
1997 entered into between the Company and CSAHC, CSAHC has agreed to indemnify the Group against
any loss or damage caused by any challenge or interference with the Group's use of any of its land
and buildings.
44.
SUBSEQUENT EVENT
From April 20, 2006 to May 31, 2006, the Group entered into additional new notes
payable agreements totalling RMB3,808.  These additional new notes payable are unsecured,
bear interest at floating rates ranging from 6-month LIBOR + 53% to 55% per annum and
repayable one year from their respective origination dates.
45.
COMPARATIVE FIGURES
Certain comparative figures have been adjusted or re-classified as a result of the changes in
accounting policies. Further details are disclosed in Note 3.
46.
PARENT AND ULTIMATE HOLDING COMPANY
As of December 31, 2005, the directors of the Company consider the parent and ultimate holding
company of the Group to be CSAHC, a state-owned enterprise established in the PRC. This entity does
not produce financial statements available for public use.
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CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
47.
ACCOUNTING ESTIMATES AND JUDGMENTS
The Groups' financial position and results of operations are sensitive to accounting methods,
assumptions and estimates that underlie the preparation of the financial statements. The Group
bases the assumptions and estimates on historical experience and on various other assumptions that
the Group believes to be reasonable and which form the basis for making judgments about matters
that are not readily apparent from other sources. On an on-going basis, management evaluates its
estimates. Actual results may differ from those estimates as facts, circumstances and conditions
change.
The selection of critical accounting policies, the judgments and other uncertainties affecting
application of those policies and the sensitivity of reported results to changes in condition and
assumptions are factors to be considered when reviewing the financial statements. The principal
accounting policies are set forth in Note 2. The Group believes the following critical accounting
policies involve the most significant judgments and estimates used in the preparation of the
financial statements.
Impairments
If circumstances indicate that the net book value of a long-lived asset may not be
recoverable, this asset may be considered "impaired", and an impairment loss may be recognized in
accordance with IAS 36 "Impairment of Assets". The carrying amounts of long-lived assets are
reviewed periodically in order to assess whether the recoverable amounts have declined below the
carrying amounts. These assets are tested for impairment whenever events or changes in
circumstances indicate that their recorded carrying amounts may not be recoverable. When such a
decline has occurred, the carrying amount is reduced to recoverable amount. The recoverable amount
is the greater of the net selling price and the value in use. In determining the value in use,
expected cash flows generated by the asset are discounted to their present value, which requires
significant judgment relating to level of traffic revenue and amount of operating costs. The Group
uses all readily available information in determining an amount that is a reasonable approximation
of recoverable amount, including estimates based on a reasonable and supportable assumptions and
projections of traffic revenue and amount of operating costs.
Depreciation
Property, plant and equipment are depreciated on a straight-line basis over the estimated
useful lives, after taking into account the estimated residual value. The Group reviews the
estimated useful lives of the assets regularly in order to determine the amount of depreciation
expense to be recorded during any reporting period. The useful lives are based on the Group's
historical experience with similar assets and taking into account anticipated technological
changes. The depreciation expense for future periods is adjusted if there are significant changes
from previous estimates.
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CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
Impairment loss for doubtful accounts
The Group maintains an impairment loss for doubtful accounts for estimated losses resulting
from the inability of the debtors to make required payments. The Group bases the estimates of
future cash flows on the ageing of the trade receivables balance, debtors' credit-worthiness, and
historical write-off experience. If the financial condition of the debtors were to deteriorate,
actual write-offs would be higher than estimated.
48.
RECENTLY ISSUED ACCOUNTING STANDARDS
New standards and interpretations which are not yet effective for the accounting period ending
December 31, 2005 and which have not been adopted in these consolidated financial statements are as
follows:
Effective for
accounting periods
beginning on or after
IFRS 6, Exploration for and evaluation of mineral
resources
January 1, 2006
IFRS 7, Financial instruments: disclosure
January 1, 2007
IFRIC 4, Determining whether an arrangement contains
a
lease
January 1, 2006
IFRIC 5, Rights to interests arising from
decommissioning,
restoration environmental rehabilitation funds
January 1, 2006
IFRIC 6, Liabilities arising from participating in a
specific
market – Waste electrical and electronic equipment
December 1, 2005
IFRIC 7, Applying the restatement approach under IAS
29,
Financial reporting in hyperinflationary economies
March 1, 2006
IFRIC 8, Scope of IFRS 2
May 1, 2006
IFRIC 9, Reassessment of embedded derivatives
June 1, 2006
F-75
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
Effective for
accounting periods
beginning on or after
Amendments to IAS 1, Presentation of financial
statements
January 1, 2007
— capital disclosures
Amendments
to IAS 19, Employee benefits — actuarial
gains and losses, group plans and disclosures
January 1, 2006
Amendments
to IAS 39, Financial instruments: recognition and measurement
January 1, 2006
— Cash flow hedge accounting of forecast intragroup
transactions
— The fair value option
Amendments
to IAS 39, Financial instruments: recognition and measurement, and IFRS 4, Insurance
contracts
January 1, 2006
— Financial guarantee contracts
Amendment to IAS 21, The effects of changes in
foreign exchange rates
January 1, 2006
— Net investment in a foreign operation
Amendments to IFRS 1, First-time adoption
January 1, 2006
Amendments to IFRS 1, First-time adoption and IFRS 6, Exploration for
and evaluation of mineral resources
For entities that adopt IFRSs for the first time before 1 January 2006 and choose to apply IFRS 6 before that date
Revised guidance on implementing IFRS 4, Insurance contracts
For entities that begin to apply IFRS 7 on or after 1 January 2007 or choose to apply IFRS 7 before that date
F-76
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CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
The Group is in the process of making an assessment of what the impact of these amendments,
new standards and new interpretations is expected to be in the period of initial application. So
far it has concluded that the adoption of these amendments and new standards and new
interpretations in future periods is unlikely to have a significant impact on the Group's results
of operations and financial position.
F-77
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
49. SUBSIDIARIES
The particulars of the Group's principal subsidiaries as of December
31, 2005 are as follows:
Proportion of
Place of
ownership
establishment
interest held by
Principal
Name of company
/operation
Registered capital
the Company
activities
Guangxi Airlines Company Limited (a)
PRC
RMB170,900,000
95
%
Airline
Southern Airlines (Group) Shantou
Airlines Company Limited (a)
PRC
RMB280,000,000
60
%
Airline
Zhuhai Airlines Company Limited (a)
PRC
RMB250,000,000
60
%
Airline
Xiamen Airlines Company Limited (a)
PRC
RMB700,000,000
60
%
Airline
Guizhou Airlines Company Limited (a)
PRC
RMB80,000,000
60
%
Airline
Guangzhou Air Cargo Company
Limited (a)
PRC
RMB238,000,000
70
%
Cargo services
Guangzhou Baiyun International
Logistic Company Limited (a)
PRC
RMB50,000,000
61
%
Logistics operations
Guangzhou Nanland Air Catering
Company Limited (b)
PRC
RMB120,000,000
75
%
Air catering
China Southern West Australian Flying
College Pty Limited
Australia
AUD100,000
65
%
Pilot training services
Xinjiang Civil Aviation Property
Management
Limited (a)
PRC
RMB251,332,832
51.8
%
Property management
(a)
These subsidiaries are PRC limited liabilities companies.
(b)
This subsidiary is a Sino-foreign equity joint venture company established in the PRC.
(c)
Certain of the Group's subsidiaries are PRC joint ventures which have limited lives
pursuant to the PRC law.
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Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
50. AFFILIATED COMPANIES AND JOINTLY CONTROLLED ENTITIES
The particulars of the Group's principal affiliated companies and jointly controlled entities
as of December 31, 2005 are as follows:
Proportion of
ownership interest held by
Place of
Group's
establishment
effective
The
Principal
Name of company
/operation
interest
Company
subsidiaries
activities
Guangzhou Aircraft Maintenance
Engineering Company Limited (a)
PRC
50
%
50
%
—
Provision of aircraft repair and maintenance services
China Southern Airlines Group
Finance Company Limited
PRC
49.3
%
32
%
26
%
Provision of  financial services
Sichuan Airlines Corporation Limited
PRC
39
%
39
%
—
Airline
MTU Maintenance Zhuhai Co. Ltd. (a)
PRC
50
%
50
%
—
Provision of engine repair and maintenance services
China Postal Airlines Limited (a)
PRC
49
%
49
%
—
Airline
Zhuhai Xiang Yi Aviation
Technology Company Limited (a)
PRC
51
%
51
%
—
Provision of flight simulation services
Beijing Southern Airlines Ground
Services Company Limited (a)
PRC
50
%
50
%
—
Provision of airport ground services
(a)
These are jointly controlled entities.
(b)
Certain of the Group's jointly controlled entities are PRC joint ventures which have limited lives
pursuant to the PRC law.
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Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
51. SIGNIFICANT DIFFERENCES BETWEEN IFRS AND U.S. GAAP
The Group's accounting policies conform with IFRSs which differ in certain significant
respects from U.S. GAAP. Information relating to the nature and effect of such differences is set
out below.
(a) CNA/XJA Acquisitions
As disclosed in Note 1 to the consolidated financial statements prepared under IFRSs, the
Group acquired the airline operations and certain related assets and liabilities of CNA and XJA
with effect from December 31, 2004. Under IFRSs, the purchase method of accounting was applied to
such business combination such that at December 31, 2004 only the acquired assets and assumed
liabilities are included in the consolidated financial statements of the Group. The results of the
acquired operations and their related cash flows were included in the consolidated financial
statement of the Group beginning January 1, 2005.
Under U.S. GAAP, such transaction is considered to be "a combination of entities under common
control". A combination of entities under common control is accounted for in a manner similar to a
"pooling-of-interests". Consequently, the assets and liabilities of CNA and XJA are reflected at
their historical net asset carrying values and the U.S. GAAP consolidated financial statements of
the Group are restated to include the historical carrying values of assets and liabilities of CNA
and XJA, and their results of operations and cash flows for all the periods presented.
(b) Sale and leaseback accounting
Under IFRSs, gains on sale and leaseback transactions where the subsequent lease is an
operating lease are recognized as income immediately, if the transactions are established at fair
value. Differences between the sale price and fair value are deferred and amortized over the period
for which the assets are expected to be used. Under U.S. GAAP, such gains are deferred and
amortized over the term of the lease.
(c) Lease arrangements
As disclosed in Note 21 to the consolidated financial statements, during 2002 and 2003, the
Group entered into two separate arrangements with certain independent third parties under which the
Group sold aircraft and then immediately leased back the aircraft for a pre-determined period.
As a result of the Arrangements, the Group received a net cash benefit of RMB52 and RMB69 in
2002 and 2003, respectively, which were recognized as income under IFRSs. Under U.S. GAAP, such
benefits are deferred and amortized over the minimum lease period.
In addition, under the lease arrangements, the commitments by the Group to make long-term
lease payments are defeased by the placement of security deposits. As such, under IFRSs, such
commitments and deposits are not recognized on the consolidated balance sheets. Under U.S. GAAP,
such commitments and deposits amounting to RMB2,462 and RMB2,376 as of December 31, 2004 and 2005,
respectively, would be recognized on the consolidated balance sheets, as such commitments are not
deemed as extinguished by the placement of security deposits.
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Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
(d) Capitalized interest
Under IFRSs, the Group capitalizes interest costs to the extent the related borrowings are
directly attributable to the acquisition or construction of an asset.
Under U.S. GAAP, interest costs capitalized are determined based on specific borrowings
related to the acquisition or construction of an asset, if an entity's financing plans associate a
specific new borrowing with a qualifying asset. If average accumulated expenditures for the asset
exceed the amounts of specific new borrowings associated with the asset, additional interest costs
capitalized are based on the weighted average interest rate applicable to other borrowings of the
entity.
(e) Revaluation of property, plant and equipment
In connection with the Reorganization in 1996, the property, plant and equipment of the Group
were revalued as of December 31, 1996 (see Notes 1 and 21 to the consolidated financial
statements). Such revaluation resulted in an increase in shareholders' equity with respect to the
increase in carrying amount of certain property, plant and equipment above their historical cost
bases, while a charge to the consolidated statement of operations was recorded with respect to the
reduction in carrying amount of certain property, plant and equipment below their historical cost
bases. In addition, the revalued property, plant and equipment amounts serve as the tax bases of
property, plant and equipment for years beginning in 1997. Accordingly, the revaluation eliminated
certain of the temporary differences which gave rise to a deferred tax asset as of December 31,
1996. Such tax asset was offset against the revaluation surplus.
Under U.S. GAAP, property, plant and equipment are stated at their historical cost unless an
impairment loss has been recorded. An impairment loss on property, plant and equipment is recorded
under U.S. GAAP if the carrying amount of such asset exceeds its future undiscounted cash flows,
excluding finance costs. The future undiscounted cash flows, excluding finance costs, of the
Group's property, plant and equipment whose carrying amount was reduced in connection with the
Reorganization, exceed their historical cost carrying amount and, therefore, impairment of such
assets is not appropriate under U.S. GAAP. Accordingly, the revaluation reserve recorded directly
to shareholders' equity and the charge recorded under IFRSs in 1996 and the additional depreciation
charges recorded in the nine years ended December 31, 2005, as a result of the Reorganization are
reversed for U.S. GAAP purposes.
However, as a result of the tax deductibility of the net revaluation reserve, a deferred tax
asset related to the reversal of the net revaluation reserve is created under U.S. GAAP with a
corresponding increase in shareholders' equity as of December 31, 1996. Such deferred tax asset
will be reversed upon depreciation of the net revaluation surplus included in the property, plant
and equipment beginning 1997.
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Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
(f) Investments in affiliated company and jointly controlled entity
During 2002, the Group invested in an affiliated company and a jointly controlled entity,
which were PRC state-owned enterprises. Under IFRSs, such investments are initially recorded on a
fair value basis at the cost of purchases borne by the Group. In the consolidated statements of
operations, the equity share of results of the investees are measured based on the fair value of
underlying net assets determined on the dates of acquisitions.
Under U.S. GAAP, such transactions are considered to be "combinations of businesses under
common control". Consequently, such investments are initially recorded at the Group's equity share
of net assets of the investees determined on a historical cost basis. The differences between such
amounts and the cost of purchases are reflected as movements in the shareholders' equity. In the
consolidated statements of operations, the equity share of results of the investees are measured
based on the historical cost basis.
(g) Provision for major overhauls
As disclosed in Notes 2(u) and 33 to the consolidated financial statements prepared under
IFRS, in respect of aircraft held under operating leases, a provision is made over the lease term
for the estimated cost of overhauls required to be performed on the related aircraft prior to their
return to the lessors.
Under U.S. GAAP, a liability is recorded at the outset of the operating leases for the fair
value of contractual obligations to perform the overhauls and a deferred asset is recorded for the
corresponding amount, which is amortized over the term of the operating lease. The carrying
amounts of such liability and asset amounted to approximately RMB749 and RMB390 respectively as of
December 31, 2004 and RMB941 and RMB489 respectively as of December 31, 2005.
The effect of above difference on the net income/(loss) and shareholders' equity reported
under U.S. GAAP was not material for the years presented.
(h) Classification of short-term obligations expected to be refinanced
As described in Note 27 to the consolidated financial statements prepared under IFRSs,
the short-term notes payable included certain notes payable of RMB2,611 which were
renewed subsequent to December 31, 2005.   The maturity dates of these notes payable are
extended for twelve months to after December 31, 2006.
Under U.S. GAAP, such short-term obligations which were refinanced on a long-term
basis after the balance sheet date but before issuance of financial statements are classified as
non-current liabilities.  Consequently, under U.S. GAAP, short-term notes payable and
consolidated current liabilities would be RMB18,834 and RMB35,739, respectively, at
December 31, 2005.
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Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
(i) Financial statements presentation and disclosure
(i)  Gain/(loss) on sale of property, plant and equipment
In the consolidated statements of operations presented under IFRSs, gain/(loss) on sale of
property, plant and equipment is classified under "Non-operating income/(expenses)". Under U.S.
GAAP, such gain/(loss) is classified under "Operating income/(expenses) – General and
administrative".
(ii) Presentation
of dividends received in the consolidated statements of cash flows
In the consolidated statements of cash flows presented under IFRSs, dividends received are
classified within investing activities. Under U.S. GAAP, such dividends received are classified
within operating activities.
(iii) Deferred tax assets/liabilities
As disclosed in Note 25 to the consolidated financial statements, deferred tax assets are
presented on a net basis under IFRSs. Under U.S. GAAP, the gross amounts of such deferred tax
assets and any applicable valuation allowances are separately disclosed.
In addition, deferred tax liabilities and assets should be classified as non-current when a
classified balance sheet is presented under IFRSs. Under U.S. GAAP, an enterprise shall separate
deferred tax liabilities and assets into a current amount and a non-current amount based on the
classification of the related asset or liability for financial reporting.
The U.S. GAAP presentation of deferred tax assets/(liabilities) as of December 31, 2004 and
2005 are as follows:
December 31,
2004
2005
RMB
RMB
Deferred tax assets:
Tax losses
92
347
Repair charges capitalized
254
275
Accrued expenses
275
175
Others
21
29
Total deferred tax assets
642
826
Less: valuation allowance
(53
)
(188
)
589
638
Deferred tax liabilities:
Accrued expenses
75
58
Depreciation allowances in excess of the related depreciation
752
832
Others
49
16
Total deferred tax liabilities
876
906
(287
)
(268
)
Representing:
Deferred tax assets — current portion
161
61
Deferred tax assets — non-current portion
428
577
Deferred tax liabilities — current portion
(75
)
(58
)
Deferred tax liabilities — non-current portion
(801
)
(848
)
(287
)
(268
)
The valuation allowance was RMB48 as of January 1, 2003. During the years ended
December 31, 2003, 2004 and 2005, the valuation allowance increased by RMB5, RMBNil and RMB135,
respectively.
(iv)  Minority interests
Under IFRS, minority interests at the balance sheet date are presented in the consolidated
balance sheet within equity, separately from the equity attributable to the equity shareholders of
the Company, and minority interests in the results of the Group for the year are presented in the
consolidated statement of operations as an allocation of the total net income for the year between
the minority interests and the equity shareholders of the Company. Under US GAAP, minority
interests at the balance sheet date are presented in the consolidated balance sheet either as
liabilities or separately from liabilities and equity. Minority interests in the results of the
Group for the year are also separately presented in the consolidated statement of operations as a
component of net income.
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Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
(v) 
Share of taxation of affiliated companies and jointly controlled entities
During the years ended December 31, 2003 and 2004, the Group's share of taxation of affiliated
companies and jointly controlled entities accounted for using the equity method was included as
part of the Group's income tax in the consolidated statements of operations under both IFRS and
U.S. GAAP. As discussed in Note 3, with effect from January 1, 2005, the Group has changed the
presentation and includes the share of taxation of affiliated companies and jointly controlled
entities accounted for using the equity method in the respective shares of income or loss reported
in the consolidated statements of operations before arriving at the Group's income or loss before
tax. These changes in presentation have been applied retrospectively with comparatives restated
for both IFRS and U.S. GAAP.
Income
tax (benefit)/expense under U.S. GAAP for the years ended December
31, 2003 and 2004 have been restated as follows:
2003
2004
RMB
RMB
Income tax
(benefit)/expense as previously reported under U.S. GAAP
(526
)
274
Reclassification for share of taxation of affiliated companies and
jointly controlled entities
(10
)
(13
)
Income tax
(benefit)/expense as restated under U.S. GAAP
(536
)
261
Effect on net income/(loss) of significant differences between IFRS and U.S. GAAP is as
follows:
Reference
Year ended December 31,
in Note
2003
2004
2005
2005
above
RMB
RMB
RMB
U.S. dollars
Loss attributable to equity shareholders
of the Company under IFRSs
(358
)
(48
)
(1,848
)
(229
)
U.S. GAAP adjustments:
Net (loss)/income before tax attributable
to airline operations of CNA and XJA
(a)
(1,042
)
354
159
19
Sale and leaseback accounting
(b)
115
115
115
14
Lease arrangements
(c)
(64
)
7
7
1
Capitalized interest
(d)
(33
)
(13
)
(9
)
(1
)
Reversal of additional depreciation
arising from revaluation of property,
plant and equipment
(e)
33
13
—
—
Investments in affiliated company and jointly
controlled entity
(f)
7
7
7
1
Deferred tax effects
— current year
(8
)
(16
)
(17
)
(2
)
— effect on change in the Company's
income tax rate
(51
)
—
—
—
— tax effect of acquisitions of
airline operations of CNA and XJA
261
(81
)
(23
)
(3
)
— effect on change in income tax
rate applicable to airline operations
of CNA and XJA
—
(99
)
79
10
Net (loss)/income under U.S. GAAP
(1,140
)
239
(1,530
)
(190
)
Basic (loss)/earnings per share under U.S. GAAP
(0.298
)
0.055
(0.350
)
(0.043
)
Basic (loss)/earnings per ADS under U.S. GAAP*
(14.876
)
2.732
(17.489
)
(2.172
)
*
Basic (loss)/earnings per ADS is calculated on the basis that one ADS is equivalent to 50 H shares.
F - 84
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
Effect on shareholders' equity of significant differences between IFRSs and U.S. GAAP is
as follows:
Reference
December 31,
in Note
2004
2005
2005
above
RMB
RMB
U.S. Dollars
Total
shareholders' equity under IFRSs
13,903
11,936
1,479
U.S. GAAP adjustments:
Shareholders' equity attributable
to airline operations of CNA and XJA
(a)
(531
)
(372
)
(46
)
Sale and leaseback accounting
(b)
(357
)
(242
)
(30
)
Lease arrangements
(c)
(107
)
(100
)
(13
)
Capitalized interest
(d)
335
326
41
Investments in affiliated company
and jointly controlled entity
(f)
(104
)
(97
)
(12
)
Deferred tax effect on airline
operations of CNA and XJA
66
122
15
Deferred tax effects
19
2
—
Minority interests
(h)
(2,055
)
(1,936
)
(240
)
Net shareholders' equity under US GAAP
11,169
9,639
1,194
F - 85
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
The following are condensed consolidated statements of operations, cash flows and changes
in total shareholders' equity under U.S. GAAP for each of the two years ended December 31, 2003 and
2004, and additional financial information restated to reflect the impact of the effects of the
combination of CNA and XJA and the Group in a manner similar to a pooling of interests prepared on
a U.S. GAAP basis. As the CNA/XJA Acquisitions were completed on December 31, 2004, condensed
consolidated balance sheets under U.S. GAAP at December 31, 2004 and 2005 and condensed
consolidated statements of operations, cash flows and changes in total shareholders' equity under
U.S. GAAP for the year ended December 31, 2005 are not presented in these consolidated financial
statements.
Condensed consolidated statements of operations
2003
2004
RMB
RMB
Operating revenue:
Traffic revenue
24,897
33,235
Other operating revenue
586
930
Total operating revenue
25,483
34,165
Operating expenses:
Flight operations
10,351
15,016
Maintenance
3,878
4,578
Aircraft and traffic servicing
3,803
4,789
Promotion and sales
2,043
2,606
General and administrative
1,397
1,759
Depreciation and amortization
3,042
3,523
Asset impairment charges
510
—
Others
93
17
Total operating expenses
25,117
32,288
Operating income
366
1,877
Non-operating income/(expenses):
Interest income
27
33
Interest expense
(1,604
)
(1,184
)
Equity income/(loss) of affiliated companies
50
15
Equity (loss)/income of jointly controlled entities
(44
)
(14
)
Investment income
—
5
Exchange (loss)/gain, net
(381
)
(124
)
Others, net
37
85
Total net non-operating expenses
(1,915
)
(1,184
)
(Loss)/income before income tax and minority interests
(1,549
)
693
Income tax benefit/(expense)
536
(261
)
(Loss)/income before minority interests
(1,013
)
432
Minority interest
(127
)
(193
)
(Loss)/income for the year
(1,140
)
239
F-86
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
The Group has changed the presentation and includes the share of taxation of affiliated
companies and jointly controlled entities accounted for using the equity method in the respective
shares of income or loss reported in the consolidated statements of operations before arriving at
the Group's income or loss before tax. These changes in presentation have been applied
retrospectively with comparatives restated for both IFRS and U.S. GAAP. Further details are set
out in Note 3 and Note 51(i).
Condensed consolidated statements of cash flows
The Group applies IAS 7 "Cash Flow Statements". Its objectives and principles are similar to
those set out in Statement of Financial Accounting Standards No. 95, "Statement of Cash Flows"
("SFAS 95") for U.S. GAAP. The principal differences between the standards relate to
classification. Dividend received classified as investing activities under IAS 7 are classified as
operating activities under SFAS 95. Summarized cash flows data by operating, investing and
financing activities in accordance with SFAS 95 are as follows:
2003
2004
RMB
RMB
Net cash inflow/(outflow) from
Operating activities
2,965
5,419
Investing activities
(7,558
)
(9,507
)
Financing activities
2,820
4,172
(Decrease)/increase in cash and cash equivalents
(1,773
)
84
Cash and cash equivalents at January 1
4,772
2,999
Cash and cash equivalents at December 31
2,999
3,083
Condensed consolidated statements of changes in total shareholders' equity
Total
RMB
Shareholders' equity at December 31, 2002
6,796
Issue of A shares
2,641
Net loss
(1,140
)
Net liabilities assumed by CSAHC (note a)
4,552
Recognition of deferred tax assets (note b)
246
Contributions from CSAHC
3
Shareholders' equity at December 31, 2003
13,098
Net income
239
Net assets distributed to CSAHC (note a)
(28
)
Elimination of net deferred tax assets (note c)
(181
)
Distributions to CSAHC
(1,959
)
Shareholders' equity at December 31, 2004
11,169
F-87
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
Notes:
(a)
In connection with the CNA/XJA Acquisitions, certain assets and liabilities of CNA and XJA
which were not to be acquired by the Company were transferred to CSAHC, the owner of CNA and
XJA during 2003 and 2004.
(b)
In connection with the CNA/XJA Acquisitions, the property, plant and equipment of CNA and XJA
were revalued as of December 31, 2003 according to the relevant PRC rules and regulations.
The revalued amount serves as the tax base for future years. Such revaluation is not recorded
under U.S. GAAP. However, a deferred tax asset is recognized for the tax deductibility of the
resulting net revaluation surpluses with a corresponding credit to the equity under U.S. GAAP.
(c)
As a result of the CNA/XJA Acquisitions, the tax losses attributable to the airline
operations of CNA and XJA are no longer available for utilization against future taxable
income of such operations. Accordingly, the deferred tax assets arising from such tax losses
and related valuation allowance was eliminated against equity.
F-88
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
The following additional financial statement disclosures are required under U.S. GAAP and are
presented on a U.S. GAAP basis.
Operating revenue
Year ended December 31,
2003
2004
RMB
RMB
Traffic revenue
Passenger
22,438
30,443
Cargo and mail
2,459
2,792
24,897
33,235
Other operating revenue
Commission income
157
227
General aviation income
40
55
Ground services income
123
202
Air catering income
31
53
Rental income
40
45
Aircraft lease income
36
145
Gain on disposal of property,
plant and equipment
—
—
Maintenance services income
30
23
Income on transfer of
surplus pilot trainees
—
—
Utility services income
14
28
Other
115
152
586
930
Total operating revenue
25,483
34,165
Income tax
The Company was subject to PRC income tax at 33% for the period from January 1 to September
30, 2003. The Company is subject to PRC income tax at 15% beginning October 1, 2003.
The airline operations of CNA and XJA were subject to PRC income tax at 33% during 2003 and up
to December 30, 2004. As a result of the CNA/XJA Acquisitions having been effective December 31,
2004, the airline operations of CNA and XJA have become divisions of the Company and are subject to
PRC income tax at the applicable rate of 15% at December 31, 2004.
F-89
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
Taxation (expense)/benefit consisted of:
Year ended December 31,
2003
2004
RMB
RMB
PRC income tax
(47
)
(259
)
Deferred tax
— current year
242
97
— adjustment for change in
the Company's enacted tax rate
341
—
— adjustment for change in applicable tax rate
for airline operations of CNA and XJA
—
(99
)
536
(261
)
Additional income taxes were allocated as follows:
Shareholders' equity, for deferred tax asset
recognized in connection with the tax
deductibility
resulting from net revaluation surpluses
246
—
Shareholders' equity, for elimination of deferred
tax assets of the airline operations of
CNA and XJA no longer available
—
(181
)
246
(181
)
F-90
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
Actual taxation amount in the consolidated statements of operations for the years ended
December 31, 2003 and 2004 differed from the amounts computed by applying the PRC income tax rate
of 15% to income/(loss) before taxation and minority interests as a result of the following:
Year ended December 31,
2003
2004
RMB
RMB
Expected PRC taxation (expense)/benefit
232
(104
)
Adjustments:
Effect of change in the Company's income tax rate
341
—
Effect of change in the income tax rate applicable to
the airline operations of CNA and XJA
—
(99
)
Rate differential on subsidiaries
(5
)
3
Rate differential on airline operations
of CNA and XJA
196
(43
)
Non-deductible expenses
(90
)
(37
)
Increase in deferred tax valuation allowance
(110
)
(4
)
Expired tax losses
(34
)
—
Non-taxable income
—
17
Effect of share of results of affiliated companies and
jointly controlled entities
9
12
Other, net
(3
)
(6
)
536
(261
)
All but an insignificant amount of income/(loss) before taxation is from domestic sources.
F-91
Table of Contents
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions, except share data)
Related party transactions
In addition to the related party transactions disclosed in Note 36, the Group and the airline
operations of CNA and XJA had entered into the following material related party transactions.
(a)
For the years ended December 31, 2003 and 2004, repairing charges of RMB701 and RMB1,159,
respectively, was incurred by the Group and the airline operations of CNA and XJA in
connection with aircraft repair and maintenance services rendered by GAMECO and MTU Zhuhai.
GAMECO and MTU Zhuhai are jointly controlled entities of the Company.
(b)
Operating lease charges of RMB15 and RMB82, respectively, were paid by the Group and the
airline operations of CNA and XJA to CSAHC under lease arrangement for certain land and
buildings in the PRC for the years ended December 31, 2003 and 2004.
(c)
Aircraft lease income of RMBNil and RMB111, respectively, for the years ended December 31,
2003 and 2004, represents rental receivables in respect of short term leasing of aircraft by
the Group and the airline operations of CNA and XJA to certain airlines controlled by the
CSAHC.
Post-retirement benefit
Employees of the Group and the airline operations of CNA and XJA participate in several
defined contribution retirement schemes organized separately by PRC municipal governments in
regions where the major operations of the Group and the airline operations of CNA and XJA are
located. The Group and the airline operations of CNA and XJA are required to contribute to these
schemes at the rates ranging from 14% to 20% of salary costs including certain allowances. A
member of the retirement schemes is entitled to pension benefits equal to a fixed proportion of the
salary at the retirement date. The retirement benefit obligations of all the existing and future
retired staff are assumed by these schemes. Contributions to the retirement schemes are charged to
consolidated statements of operations as and when incurred.
Contributions to the retirement schemes amounted to RMB231 and RMB243, respectively, during 2003 and 2004.
F-92
Table of Contents
EXHIBIT INDEX
Exhibit No.
Description of Exhibit
4.1
Form of Director's Service Agreement is incorporated by reference in Exhibit 4(c).1 of
Form 20-F for the year of 2005.
4.2
Form of Non-Executive Director's Service Agreement is incorporated by reference in
Exhibit 4(c).2 of Form 20-F for the year of 2005.
8
Subsidiaries of the Company
12.1
Section 302 Certification of Chairman
12.2
Section 302 Certification of President
12.3
Section 302 Certification of Chief Financial Officer
13.1
Section 906 Certification of Chairman
13.2
Section 906 Certification of President
13.3
Section 906 Certification of Chief Financial Officer