PURCHASE OF 10 BOEING 737

Air China Ld
31 March 2006



THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ACTION


If you are in any doubt as to any aspect of this circular, you should consult a
stockbroker or other registered dealer in securities, bank manager, solicitor,
professional accountant or other professional adviser.


If you have sold or transferred all your shares of Air China Limited, you should
at once hand this circular to the purchaser or transferee or to the bank,
stockbroker or other agent through whom the sale was effected for transmission
to the purchaser or the transferee.


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


AIR CHINA LIMITED

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

(Stock Code: 753)


PURCHASE OF 10 BOEING 737 AIRCRAFT DISCLOSEABLE TRANSACTION


29 March 2006

                                   CONTENTS


Page


Definitions . . . . . . . . . . . . . . . . . . . . . .............1


Letter from the Board


1.     Introduction............... . . . . . . . . . . . . . . . . 4



2.     The Boeing Aircraft Purchase Agreement . . . . . . .........5



3.     Effect of the Transaction ...... . . . . . . . . . . . . .  7


4.     Additional Information. ...... . . . . . . . . . . . . .    7



Appendix    - General Information  . . . . . . . . . . . . . .     8


                                          i

                                  DEFINITIONS


In this circular, the following expressions have the following meanings, unless
the context requires otherwise:



'AIE'                           

Air China Group Import and Export Trading Co. a company incorporated under the
laws of the People's Republic of China and a wholly-owned subsidiary of the
Company as at the date of this circular


'Air China Cargo'               

Air China Cargo Co., Ltd. a company with limited liability incorporated under
the laws of the People's Republic of China and with 51% of its registered
capital owned by the Company as at the date of this circular


'Air Macau'                     

Air Macau Company Limited, a company with limited liability incorporated under
the laws of Macau and with 51.0% of its share capital owned by CNAC (Macau) as
at the date of this circular


'Ameco'                         

Aircraft Maintenance and Engineering Corporation, Beijing , a company with
limited liability incorporated under the laws of the People's Republic of China
and with 60% of its registered capital owned by the Company as at the date of
this circular


'Board'      

the board of directors of the Company



'Boeing Aircraft'

10 Boeing 737 aircraft to be purchased by the Company pursuant to the Boeing
Aircraft Purchase Agreement



'Boeing Aircraft Purchase Agreement'


the aircraft acquisition agreement dated 17 January 2006 pursuant to which the
Company has agreed to acquire and Boeing Company has agreed to sell the Boeing
Aircraft


'Boeing Company' 

Boeing Company, a company incorporated under the laws of Delaware of the United
States


'Cathay Pacific' 

Cathay Pacific Airways Limited

                                          1


                                 DEFINITIONS


'CNAC'         

China National Aviation Company Limited, a company with limited liability
incorporated under the laws of Hong Kong and listed on The Stock Exchange of
Hong Kong Limited with stock code 1110 and with approximately 68.36% of its
share capital owned by the Company as at the date of this circular



'CNAC (Macau)'   

China National Aviation Corporation (Macau) Company Limited, a company with
limited liability incorporated under laws of Macau and a wholly-owned subsidiary
of CNAC as at the date of this circular


'CNACG'  

China National Aviation Corporation (Group) Limited, a company incorporated
under the laws of Hong Kong and a wholly-owned subsidiary of CNAHC as at the
date of this circular



'CNAHC'    

China National Aviation Holding Company, a company incorporated under the laws
of the People's Republic of China which currently directly owns approximately
51.16% of the Company's share capital as at the date of this circular



'the Company'   

Air China Limited, a company incorporated under the laws of the People's
Republic of China with primary listing on The Stock Exchange of Hong Kong
Limited with stock code 753 and secondary listing on the Official List of the UK
Listing Authority


'Director(s)'       

the director(s) of the Company



'Group'   

the Company and its subsidiaries and joint ventures



'Latest Practicable Date'   

24 March 2006, being the latest practicable date prior to the printing of this
circular for ascertaining certain information contained herein 



'Listing Rules'   

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



'PRC'     

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


                                         2

                                  DEFINITIONS



'SFO'     

the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong), as
amended, supplemented or otherwise modified from time to time



'Stock Exchange'  

The Stock Exchange of Hong Kong Limited



'Supervisor(s)'  

the supervisor(s) of the Company



'Transaction'  

the acquisition by the Company of the Boeing Aircraft pursuant to the Boeing
Aircraft Purchase Agreement

                                           3

LETTER FROM THE BOARD


AIR CHINA LIMITED

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

(Stock Code: 753)


Directors:


Non-executive Directors:

Li Jiaxiang (Chairman)
Kong Dong (Vice Chairman) Wang Shixiang (Vice Chairman) Yao Weiting


Executive Directors:

Ma Xulun Cai Jianjiang Fan Cheng



Independent Non-executive Directors:

Hu Hung Lick, Henry
Wu Zhi Pan
Zhang Ke


Registered address:

9th Floor, Blue Sky Mansion

28 Tianzhu Road

Zone A

Tianzhu Airport Industrial Zone

Shunyi District

Beijing

PRC


Principal place of

business in Hong Kong:

5th Floor, CNAC House

12 Tung Fai Road

Hong Kong International Airport

Hong Kong


29 March 2006



To the Shareholders


Dear Sir or Madam,


DISCLOSEABLE TRANSACTION


1.     INTRODUCTION



On 10 February 2006, the Company announced that on 17 January 2006 the Company
and AIE entered into the Boeing Aircraft Purchase Agreement with Boeing Company,
pursuant to which the Company has agreed to purchase 10 Boeing 737-800 aircraft
from Boeing Company.


The Transaction constitutes a discloseable transaction of the Company under the
Listing Rules.


The purpose of this circular is to set out further details of the Transaction.

                                       4 

LETTER FROM THE BOARD


2.     THE BOEING AIRCRAFT PURCHASE AGREEMENT


(1)   Date of the Transaction



17 January 2006


(2)   Parties to the Transaction


(i)    the Company, as the purchaser, the principal business activity of which
is air passenger, air cargo and airline-related services;


(ii)    AIE, as the import agent for the Company; and



(iii) Boeing Company, as the vendor, one of whose principal business activity is
aircraft manufacturing.


The Company confirms that, to the best of the Directors' knowledge,
information and belief having made all reasonable enquiry, Boeing Company and
each of the ultimate beneficial owner of Boeing Company are independent third
parties and not connected persons (as defined in the Listing Rules) of the
Company.


(3)   Aircraft to be acquired


Boeing Aircraft, i.e.10 Boeing 737 aircraft


As at the Latest Practicable Date, the Company operated a fleet of 180 aircraft,
including 172 passenger aircraft, 6 freighters and two corporate jets.



(4)   Consideration


The aircraft basic price comprises the airframe price, optional features prices
and engine price. The aircraft basic price of the Boeing Aircraft in aggregate
is US$655.2 million. The airframe price is subject to price escalation by
applying a formula. Boeing has granted to the Company significant price
concessions with regard to the Boeing Aircraft. These will take the form of
credit memoranda which may be used by the Company towards the purchase of the
Boeing Aircraft or spare parts, goods and services or may be used towards the
final delivery invoice payment of the Boeing Aircraft. Such credit memoranda
were determined after arm's length negotiations between the parties and as a
result, the actual consideration for the Boeing Aircraft is lower than the
aircraft basic price mentioned above. The Transaction was negotiated and entered
into in accordance with customary business practice. Taking into account all the
factors relating to the purchase of aircraft by the Company, including the
market condition, the type, number and delivery schedule of aircraft being
purchased, and the terms of the umbrella agreement entered into between Boeing
Company and the China Aviation Supplies Import and Export Group Corporation in
November 2005 (the Umbrella Agreement), the extent


                                       5


LETTER FROM THE BOARD


of the price concessions granted to the Company in the Transaction is comparable
with the price concessions that the Company had obtained in the previous
aircraft purchase transaction entered into between the Company and Boeing
Company on 8 August 2005

(the 2005 Aircraft Purchase). The Company believes that there is no material
difference between the effect of the price concessions obtained in the
Transaction and the 2005

Aircraft Purchase on the Company's operating costs taken as a whole.


The Boeing Aircraft Purchase Agreement was signed pursuant to the Umbrella
Agreement. The 2005 Aircraft Purchase was signed pursuant to an umbrella
agreement entered into between Boeing Company and the airline companies
including the Company in January 2005. The purchase of the Boeing Aircraft was
not in contemplation at the time of the 2005 Aircraft Purchase. Accordingly, the
Transaction and the 2005 Aircraft Purchase are not part of the same series of
transactions and are not treated as if they were one transaction and these
transactions are not required to be aggregated for the relevant classification
of the Transaction pursuant to Rule 14.22. As the relevant percentage ratio
under Rule 14.07 of the Listing Rules for the Transaction is more than 5% but
less than

25%, the Transaction on its own constitutes a discloseable transaction, and is
therefore not subject to approval by the Company's shareholders under the
Listing Rules.



(5)    Payment and delivery terms



The aggregate consideration for the acquisition of Boeing Aircraft is payable by
cash in eight instalments, with first seven instalments to be paid prior to
delivery of each Boeing Aircraft and the remaining balance, being a substantial
portion of the consideration, to be paid upon delivery of each Boeing Aircraft.
The Company is expecting to take delivery of the Boeing Aircraft in stages from
end 2007 to end 2008.




(6)    Source of funding



The Transaction will be funded through cash generated from the Company's
business operations, commercial bank loans and other debt instruments of the
Company and subject to the completion of the proposed A share issue as set out
in the announcement by the Company dated 9 February 2006, the proceeds from the
A share issue.





(7)    Reasons for and benefits of the Transaction



The Boeing Aircraft will expand the fleet capacity of the Company and will
principally reinforce Beijing's position as a transportation hub and increase
frequency of flights, departing originally from Beijing, of a number of key
domestic flight courses. The Company expects the Boeing Aircraft will deliver
more cost-efficient performance and provide more comfortable services to
passengers.



                                       6 


LETTER FROM THE BOARD



Although the Boeing Aircraft was purchased with other aircrafts under a package
acquisition plan, which is coordinated by the NDRC, the decision to purchase the
Boeing Aircraft was made independently by the Company. The negotiations under
the acquisition plan were done as a package to increase bargaining power.



The Directors believe that the terms of the Transaction are fair and reasonable
and in the interests of the shareholders of the Company as a whole.





3.     EFFECT OF THE TRANSACTION



Based on the technical specifications of the Boeing Aircraft, the Company
expects the Boeing Aircraft to operate with a higher utilization rate, more
efficient jet fuel consumption and relatively low maintenance cost. This will
enable the Company to operate on a cost-efficient basis and would potentially
have a positive effect on the earnings of the Company.



As mentioned above, the Transaction will be partly financed by commercial bank
loans and other debt instruments of the Company. The Transaction will therefore
increase the Group's fixed assets and liabilities. The Transaction may also
result in an increase in the Group's debt-to-equity ratio. The total cash
outflow of the Company in 2006 in respect of the Transaction is approximately
RMB873 million. However, the Company does not expect the Transaction to have any
material negative impact on its cash-flow position or its business operations.



Save as described above, the Transaction is not expected to have any material
impact on earnings, assets and liabilities of the Group.



4.     ADDITIONAL INFORMATION


Your attention is drawn to the additional information set out in the appendix to
this circular.



By Order of the Board Li Jiaxiang Chairman


Beijing, the PRC


                                       7 


APPENDIX
GENERAL INFORMATION




1.     RESPONSIBILITY STATEMENT


This circular includes particulars given in compliance with the Listing Rules
for the purpose of giving information with regard to the Group. The Directors
collectively and individually accept full responsibility for the accuracy of the
information contained in this circular and confirm, having made all reasonable
enquiries, that to the best of their knowledge and belief there are no other
facts the omission of which would make any statement herein misleading.





2.     DISCLOSURE OF INTERESTS OF DIRECTORS AND SUPERVISORS





As at the Latest Practicable Date, Mr. Zhang Xianlin, a Supervisor of the
Company, had interests in 33,126,000 shares, which represents approximately 1%
of the share capital of CNAC.





Save as disclosed above, as at the Latest Practicable Date, none of the
Directors, Supervisors or chief executive of the Company has interests or short
positions in the shares, underlying shares and/or debentures (as the case may
be) of the Company or its associated corporations (within the meaning of Part XV
of the SFO) which were notified to the Company and the Stock Exchange pursuant
to SFO (including interests or short positions which he is taken or deemed to
have under such provisions of the SFO), or recorded in the register maintained
by the Company pursuant to Section 352 of the SFO, or which were notified to the
Company and the Stock Exchange pursuant to the Model Code for Securities
Transactions by Directors of the Listed Companies.





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



3.     SUBSTANTIAL SHAREHOLDERS





As at the Latest Practicable Date, to the knowledge of the Directors,
Supervisors and chief executive of the Company, the interests and short
positions of the following persons (other than a Director, Supervisor or chief
executive of the Company) who have an interest or short position in the shares
and underlying shares of the Company which would fall to be disclosed to the
Company pursuant to the SFO, or who are, directly or indirectly, interested in
10% or


                                       8 


APPENDIX
GENERAL INFORMATION



more of the nominal value of any class of share capital carrying rights to vote
in all circumstances at general meetings of any members of the Group are as
follows:



(a)   Substantial interests in the Company



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

CNAHC      Beneficial owner          4,826,195,989    51.16%         100%              -                 -          -   
                                    domestic shares

CNAHC(1)   Attributable              1,380,482,920    14.64%            -           100%                 -          -   
           interests             non-H foreign shares
                                               

China      Beneficial owner          1,380,482,920    14.64%            -           100%                 -          -
National                         non-H foreign shares
Aviation 
Corporation 
(Group) 
Limited


Cathay 
Pacific     Beneficial owner           943,321,091    10.00%            -              -            29.24%          -
                                        H shares

Swire       Attributable interests     943,321,091    10.00%             -              -           29.24%          -
Pacific     H shares
Limited(2)        


John Swire  Attributable interests     943,321,091    10.00%             -              -           29.24%          -
& Sons                                  H shares
Limited(2)


John Swire  Attributable interests     943,321,091    10.00%             -              -           29.24%          -
& Sons                                  H shares
(H.K.) 
Limited (2)


Wellington  Investment manager         153,112,100     1.62%             -              -            4.75%          -
Management                              H shares
Company, 
LLP(3)


HSBC        Investment manager         163,840,000     1.74%                                          5.08%
Halbis                                  H shares
Partners
(Hong Kong) 
Limited


Temasek     Attributable interests     400,450,000     4.25%            -               -            12.41%         -
Holdings                                H shares
(Private) 
Limited(4)


Note:



Based on the information available to the Directors, chief executive and
Supervisors of the Company (including such information as was available on the
website of the Stock Exchange) and so far as the Directors, chief executive and
Supervisors are aware, as at the Latest Practicable Date:



1. By virtue of CNAHC's 100% interest in China National Aviation
Corporation (Group) Limited, CNAHC is deemed to be interested in the
1,380,482,920 non-H foreign shares of the Company directly held by China
National Aviation Corporation (Group) Limited.



                                       9


APPENDIX
GENERAL INFORMATION


2. By virtue of John Swire & Sons Limited's 100% interest in John Swire
& Sons (H.K.) Limited and their approximately 30% equity interest and 53% voting
rights in Swire Pacific Limited, and Swire Pacific Limited's approximately
46% interest in Cathay Pacific, John Swire & Sons Limited, John Swire & Sons
(H.K.) Limited and Swire Pacific Limited are deemed to be interested in the
943,321,091 H shares of the Company directly held by Cathay Pacific.



3. Pursuant to the last notification filed by Wellington Management
Company, LLP dated 20

December 2005, it had an interest of 5.45% of the total issued H shares of the
Company. Given subsequent issuance of H shares pursuant to the over-allotment
option in January 2005, the Company believes the interests of Wellington
Management Company, LLP in the total issued shares and in the total issued H
shares of the Company have been reduced to 1.62% and 4.75%, respectively, as at
30 June 2005.



4. Temasek Holdings (Private) Limited, through its controlled entities, had an
attributable interest in 400,450,000 H shares of the Company , out of which the
interest in 292,500,000 H shares (representing approximately 9.07% of the total
issued H shares) was held directly by Aranda Investment (Mauritius) Pte Ltd. and
the interest in the remaining 107,950,000 H shares was held directly by Dahlia
Investments Ptd Ltd, FPL Alpha Investment Pte Ltd and Fullerton (Private)
Limited.


(b)   Substantial interests in CNAC


                        Capacity               No. of shares       Percentage of the issued share capital

CNAHC(1)          Attributable interest        2,264,628,000                  68.36


The Company(2)    Beneficial owner             2,264,628,000                  68.36


Best Strikes 
Limited           Beneficial owner               187,656,000                   5.66


On Ling 
Investments 
Limited(3)        Attributable interest          322,856,000                   9.75


Novel             
Investments 
Holdings
Limited(3)        Attributable interest          322,856,000                   9.75


Novel 
Enterprises 
Limited(3)        Attributable interest          322,856,000                   9.75


Novel 
Enterprises 
(BVI) 
Limited(3)        Attributable interest          322,856,000                   9.75


Novel 
Credit 
Limited(3)        Attributable interest          322,856,000                   9.75


Novel 
Holdings 
(BVI) 
Limited(3)        Attributable interest          322,856,000                   9.75



Westleigh 
Limited(3)        Attributable interest          322,856,000                   9.75


Notes:


1. CNAHC owns approximately 51.16 per cent of the total issued share
capital of the Company and the entire issued share capital of CNACG, a company
incorporated in Hong Kong, which in turn owns approximately 14.64 per cent of
the total issued share capital of the Company. Accordingly its interests in CNAC
duplicate with those interest of the Company.



                                       10 


APPENDIX
GENERAL INFORMATION


2. CNAGC, the Company's former immediate controlling shareholder, transferred
its approximately 69 per cent shareholding interest in CNAC to the Company in
September 2004 by way of a capital contribution in return for the Company's non-
H foreign shares, as such the Company becomes the immediate controlling
shareholder of CNAC. Its interest in CNAC duplicates with those interests of
CNAHC.


3.  5.6% of the interest held by each of these companies in CNAC duplicates
with Best Strikes Limited's interest in CNAC. The interests of these companies in CNAC also
duplicate each other.



(c)    Substantial interests in other members of the Group


Member of the Group               Name                             Approximate %
                                                                of share capital


Air Macau                         CNAC                                       51%


Air Macau                         Sociedale de Turismo                       14%
                                  e Diversaes de Macau

Air Macau                         Servico, Administracao e                   20%
                                  Participacoes, Lda.


Ameco                             Deutsche Lufthansa AG                      40%


Air China                         Cargo Capital Airport Holding Company      24%


Air China Cargo                   CITIC Pacific Limited                      25%


Save as disclosed above, as at the Latest Practicable Date, to the knowledge of
the Directors, chief executive and Supervisors of the Company, no other person
(other than a Director, Supervisor or chief executive of the Company) had an
interest or short position in the shares and underlying shares of the Company
which would fall to be disclosed to the Company pursuant to the SFO, or
otherwise was, directly or indirectly, interested in 10% or more of the nominal
value of any class of share capital carrying rights to vote in all circumstances
at general meetings of any members of the Group.



4.     LITIGATION



As at the Latest Practical Date, the litigation or claims of material importance
pending or threatened against a member of the Group are as disclosed in the
fourth paragraph of the section headed 'Capital Commitments and Contingent
Liabilities' and note 17 to the unaudited condensed consolidated interim
financial statements in the Company's 2005 interim report dated 5 September
2005.



Except as disclosed above, there was no litigation or claims of material
importance pending or threatened against any member of the Group.



5.     SERVICE CONTRACTS



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



                                       11 


APPENDIX
GENERAL INFORMATION



6.     MISCELLANEOUS



(a)    The joint company secretaries of the Company are Zheng Baoan and Li Man
Kit. Mr. Li is an associate member of the Institute of Chartered Secretaries and
Administrators, UK and the Hong Kong Institute of Company Secretaries.



(b)   The qualified accountant of the Company is David Tze-kin Ng. Mr. Ng is a
member of the Hong Kong Institute of Certified Public Accountants.





(c)   The registered address of the Company is at 9th Floor, Blue Sky Mansion,
28

Tianzhu Road, Zone A, Tianzhu Airport Industrial Zone, Shunyi District, Beijing,
PRC. The head office of the Company is at South Terminal, Beijing Capital
International Airport, Chaoyang District, Beijing, PRC.




(d)   The Hong Kong branch share registrar and transfer office of the Company is
Computershare Hong Kong Investor Services Limited, Rooms 1712-1716, 17th Floor,
Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong.



                                       12 




                      This information is provided by RNS
            The company news service from the London Stock Exchange