##### 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
 
 
  CHINA SOUTHERN AIRLINES COMPANY LIMITED
 
  THE PEOPLES REPUBLIC OF CHINA
 
  278 JI CHANG ROAD
GUANGZHOU
PEOPLES REPUBLIC OF CHINA, 510405
 
   Title of each class
    
    Name of each exchange on which registeredOrdinary H Shares of par value
    
    New York Stock Exchange, Inc.RMB 1.00 per sharerepresented by AmericanDepositary Shares
   
  
  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.
   
    o þ
  o þ
   þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
  o þ
 o þ




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##### Table of Contents



TABLE OF CONTENTS
 China Southern Airlines Company Limited
 PageForward-Looking Statements
    
    
    4Introductory Note
    
    
    4Glossary of Airline Industry Terms
    
    
    5PART IItem 1. Identity of Directors, Senior Management and Advisers
    
    
    6Item 2. Offer Statistics and Expected Timetable
    
    
    6Item 3. Key Information
    
    
    6Selected Financial Data
    
    
    6Capitalization and Indebtedness
    
    
    9Reasons for the Offer and Use of Proceeds
    
    
    10Risk Factors
    
    
    10Item 4. Information on the Company
    
    
    13History and Development of the Company
    
    
    13CNA/XJA Acquisitions
    
    
    15Business Overview
    
    
    15Organizational Structure
    
    
    31Property, Plant and Equipment
    
    
    32Item 5. Operating and Financial Review and Prospects
    
    
    33Critical Accounting Policies
    
    
    34Overview
    
    
    35Certain Financial Information and Operating Data by Geographic Region
    
    
    36Operating Results
    
    
    37Additional Information under U.S. GAAP
    
    
    42Liquidity and Capital Resources
    
    
    47Contractual Obligations and Commercial Commitments
    
    
    49Item 6. Directors, Senior Management and Employees
    
    
    49Directors and Senior Management
    
    
    49Compensation
    
    
    54Board Practices
    
    
    54Remuneration Committee
    
    
    54Employees
    
    
    54Share Ownership
    
    
    56Item 7. Major Shareholders and Related Party Transactions
    
    
    56Major Shareholders
    
    
    56Related Party Transactions
    
    
    56Interests of Experts and Counsel
    
    
    60Item 8. Financial Information
    
    
    60Consolidated Statements and Other Financial Information
    
    
    60Significant Changes
    
    
    60Dividend Information
    
    
    60Item 9. The Offer and Listing
    
    
    61Offer and Listing Details
    
    
    61Plan of Distribution
    
    
    61Markets
    
    
    62Selling Shareholders
    
    
    62Dilution
    
    
    62Expenses of the Issue
    
    
    62Item 10. Additional Information
    
    
    62Share Capital
    
    
    62Memorandum and Articles of Association
    
    
    62Material Contracts
    
    
    66Exchange Controls
    
    
    67Taxation
    
    
    67
 2




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##### Table of Contents



PageDividends and Paying Agents
    
    
    68Statement by Experts
    
    
    68Documents on Display
    
    
    68Subsidiary Information
    
    
    68Comparison of New York Stock Exchange Corporate Governance Rules and China
Corporate Governance Rules for Listed Companies
    
    
    68Item 11. Quantitative and Qualitative Disclosures About Market Risk
    
    
    69Item 12. Description of Securities other than Equity Securities
    
    
    70PART IIItem 13. Defaults, Dividend Arrearages and Delinquencies
    
    
    70Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    70Use of ProceedsPART IIIItem 15. Controls and Procedures
    
    
    71Item 16. [Reserved]
    
    
    72Item 16 A. Audit Committee Financial Expert
    
    
    73Item 16 B. Code of Ethics
    
    
    73Item 16 C. Principal Accounting Fees and Services
    
    
    73Item 16
D. Exemptions from the Listing Standards for Audit Committee
    
    
    74Item 16 E. Purchases of Equity Securities By the Issuer and Affiliated Purchasers
    
    
    74PART IVItem 17. Financial Statements
    
    
    74Item 18. Financial Statements
    
    
    74Index to Financial Statements
    
    
    74Item 19. Exhibits
    
    
    75Signatures
    
    
    76EX-4.1 FORM OF DIRECTOR'S SERVICE AGREEMENTEX-4.2 FORM OF NON-EXECUTIVE DIRECTOR'S SERVICE AGREEMENTEX-8 SUBSIDIARIES OF THE COMPANYEX-12.1 SECTION 302 CERTIFICATION OF CHAIRMANEX-12.2 SECTION 302 CERTIFICATION OF PRESIDENTEX-12.3 SECTION 302 CERTIFICATION OF CHIEF FINANCIAL OFFICEREX-13.1 SECTION 906 CERTIFICATION OF CHAIRMANEX-13.2 SECTION 906 CERTIFICATION OF PRESIDENTEX-13.3 SECTION 906 CERTIFICATION OF CHIEF FINANCIAL OFFICER
 3




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##### Table of Contents



FORWARD-LOOKING STATEMENTS
   
    
    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.
  
 INTRODUCTORY NOTE
    4




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##### Table of Contents



GLOSSARY OF AIRLINE INDUSTRY TERMS
  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 flownTraffic 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 flownYield 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 poundsLoad 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 operationsUtilizationutilization rate
    
    the actual number of flight hours per aircraft per operating dayEquipmentrotables
    
    aircraft parts that are ordinarily repaired and reusedexpendables
    
    aircraft parts that are ordinarily used up and replaced with new parts
 5




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##### Table of Contents



PART I
 
 ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.
  
 ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE.
  
 ITEM 3. KEY INFORMATION.
 
 Selected Financial Data
      Year ended December 31,2001
    
    2002
    
    2003
    
    2004
    
    2005
    
    2005RMB
    
    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
    
    
    
    4,745Operating expenses
    
    
    15,479
    
    
    
    15,993
    
    
    
    17,014
    
    
    
    23,065
    
    
    
    39,598
    
    
    
    4,907Operating 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
    
    
    
    151Income/(loss) before taxation
    
    
    788
    
    
    
    1,130
    
    
    
    (521
    )
    
    
    220
    
    
    
    (1,853
    )
    
    
    (230
    )Taxation
(expense)/benefit
    
    
    (313
    )
    
    
    (389
    )
    
    
    334
    
    
    
    (65
    )
    
    
    7
    
    
    
    1Income/ (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




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##### Table of Contents



Year ended December 31,2001
    
    2002
    
    2003
    
    2004
    
    2005
    
    2005RMB
    
    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
    
    
    
    4,637Other operating revenue
    
    
    657
    
    
    
    904
    
    
    
    586
    
    
    
    930
    
    
    
    874
    
    
    
    108Operating 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
    
    
    
    151Income/(loss)
before income taxes and minority interests
    
    
    468
    
    
    
    (145
    )
    
    
    (1,549
    )
    
    
    693
    
    
    
    (1,574
    )
    
    
    (193
    )Income tax (expense)/benefit
    
    
    (401
    )
    
    
    (356
    )
    
    
    536
    
    
    
    (261
    )
    
    
    46
    
    
    
    4Minority 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
    
    2005RMB
    
    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
    
    
    
    360Other current assets
    
    
    1,561
    
    
    
    1,835
    
    
    
    1,922
    
    
    
    4,286
    
    
    
    4,320
    
    
    
    535Property, plant and equipment, net
    
    
    22,352
    
    
    
    26,921
    
    
    
    28,536
    
    
    
    46,841
    
    
    
    54,266
    
    
    
    6,725Total assets
    
    
    30,653
    
    
    
    37,188
    
    
    
    39,062
    
    
    
    62,383
    
    
    
    71,402
    
    
    
    8,848Notes payable, including current installments of long term notes payable
    
    
    2,178
    
    
    
    5,241
    
    
    
    7,097
    
    
    
    11,518
    
    
    
    16,223
    
    
    
    2,010Current installments of obligations under capital leases
    
    
    1,452
    
    
    
    1,567
    
    
    
    1,298
    
    
    
    2,144
    
    
    
    3,373
    
    
    
    418Notes payable, excluding current installments
    
    
    3,628
    
    
    
    5,835
    
    
    
    4,522
    
    
    
    11,935
    
    
    
    12,740
    
    
    
    1,579Obligations under capital leases, excluding current installments
    
    
    7,692
    
    
    
    6,632
    
    
    
    5,543
    
    
    
    9,599
    
    
    
    12,459
    
    
    
    1,544Total equity
    
    
    10,600
    
    
    
    11,130
    
    
    
    13,569
    
    
    
    13,903
    
    
    
    11,936
    
    
    
    1,479U.S. GAAP:Cash and cash equivalents
    
    
    4,384
    
    
    
    4,772
    
    
    
    2,999
    
    
    
    3,083
    
    
    
    2,901
    
    
    
    360Other current assets
    
    
    3,065
    
    
    
    3,391
    
    
    
    3,034
    
    
    
    4,505
    
    
    
    4,551
    
    
    
    561Property, plant and equipment, net
    
    
    35,676
    
    
    
    40,277
    
    
    
    41,012
    
    
    
    46,202
    
    
    
    53,759
    
    
    
    6,662Total assets
    
    
    48,456
    
    
    
    54,860
    
    
    
    58,610
    
    
    
    65,144
    
    
    
    74,906
    
    
    
    9,283Notes payable, including current portion of long term notes payable
    
    
    5,359
    
    
    
    10,304
    
    
    
    8,600
    
    
    
    11,518
    
    
    
    16,223
    
    
    
    2,010Current installments of obligations under capital leases
    
    
    2,428
    
    
    
    2,591
    
    
    
    2,368
    
    
    
    2,106
    
    
    
    3,401
    
    
    
    421Notes payable, excluding current portion
    
    
    8,856
    
    
    
    9,179
    
    
    
    8,634
    
    
    
    11,935
    
    
    
    12,740
    
    
    
    1,579Obligations under capital leases, excluding current installments
    
    
    14,167
    
    
    
    13,333
    
    
    
    13,849
    
    
    
    11,975
    
    
    
    14,807
    
    
    
    1,835Net shareholders equity
    
    
    7,315
    
    
    
    6,796
    
    
    
    13,098
    
    
    
    11,169
    
    
    
    9,639
    
    
    
    1,194
    7




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Year ended December 31,2001
    
    2002
    
    2003
    
    2004
    
    2005CapacityASK (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
    
    
    
    13,598Total
    
    
    40,064
    
    
    
    44,245
    
    
    
    40,867
    
    
    
    53,769
    
    
    
    88,361ATK (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
    
    
    
    2,842Total
    
    
    5,124
    
    
    
    5,915
    
    
    
    5,921
    
    
    
    7,446
    
    
    
    11,509Kilometers flown (thousand)
    
    
    234,051
    
    
    
    258,379
    
    
    
    249,068
    
    
    
    324,827
    
    
    
    539,844Hours flown (thousand)
    
    
    365
    
    
    
    405
    
    
    
    385
    
    
    
    501
    
    
    
    846Number 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
    
    
    
    26,798Total
    
    
    208,061
    
    
    
    222,657
    
    
    
    214,190
    
    
    
    274,580
    
    
    
    438,674TrafficRPK (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
    
    
    
    8,902Total
    
    
    25,057
    
    
    
    28,940
    
    
    
    26,387
    
    
    
    37,196
    
    
    
    61,923RTK (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
    
    
    
    1,554Total
    
    
    3,034
    
    
    
    3,614
    
    
    
    3,561
    
    
    
    4,663
    
    
    
    7,284Passengers 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
    
    
    
    3,018Total
    
    
    19,121
    
    
    
    21,493
    
    
    
    20,470
    
    
    
    28,207
    
    
    
    44,119Cargo and mail carried (tons)
    
    
    398,000
    
    
    
    470,000
    
    
    
    464,000
    
    
    
    545,000
    
    
    
    775,000Load FactorsPassenger 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
    
    
    
    65.5Total
    
    
    62.5
    
    
    
    65.4
    
    
    
    64.6
    
    
    
    69.2
    
    
    
    70.1Overall 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
    
    
    
    54.7Total
    
    
    59.2
    
    
    
    61.1
    
    
    
    60.1
    
    
    
    62.6
    
    
    
    63.3Breakeven load factor (%)
    
    
    55.6
    
    
    
    55.9
    
    
    
    61.6
    
    
    
    61.9
    
    
    
    67.0
 Year ended December 31,2001
    
    2002
    
    2003
    
    2004
    
    2005YieldYield 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
    
    
    
    0.56Total
    
    
    0.60
    
    
    
    0.54
    
    
    
    0.57
    
    
    
    0.57
    
    
    
    0.55Yield per cargo and mail ton kilometers (RMB)
    
    
    1.76
    
    
    
    1.73
    
    
    
    1.62
    
    
    
    1.67
    
    
    
    1.75
 8




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##### Table of Contents



Year ended December 31,2001
    
    2002
    
    2003
    
    2004
    
    2005Yield 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
    
    
    
    4.24Total
    
    
    5.43
    
    
    
    4.84
    
    
    
    4.76
    
    
    
    5.01
    
    
    
    5.14Fleet Boeing
    
    
    91
    
    
    
    102
    
    
    
    108
    
    
    
    137
    
    
    
    140 Airbus
    
    
    20
    
    
    
    20
    
    
    
    24
    
    
    
    46
    
    
    
    71 McDonnell Douglas
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35
    
    
    
    36 Others
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13
    
    
    
    14Total aircraft in service at period end
    
    
    111
    
    
    
    122
    
    
    
    132
    
    
    
    231
    
    
    
    261Overall utilization rate (hours per day)
    
    
    9.1
    
    
    
    9.8
    
    
    
    8.5
    
    
    
    9.9
    
    
    
    9.6FinancialOperating cost per ASK (RMB)
    
    
    0.39
    
    
    
    0.36
    
    
    
    0.42
    
    
    
    0.43
    
    
    
    0.45Operating cost per ATK (RMB)
    
    
    3.02
    
    
    
    2.70
    
    
    
    2.87
    
    
    
    3.10
    
    
    
    3.44
   Average(1)Period
    
    Period End
    
    (RMB per US$)
    
    High
    
    LowAnnual Exchange Rate2001
    
    
    8.2766
    
    
    
    8.2766
    
    
    
    8.2910
    
    
    
    8.26422002
    
    
    8.2773
    
    
    
    8.2773
    
    
    
    8.2897
    
    
    
    8.21522003
    
    
    8.2767
    
    
    
    8.2772
    
    
    
    8.2800
    
    
    
    8.27692004
    
    
    8.2765
    
    
    
    8.2765
    
    
    
    8.2889
    
    
    
    8.26412005
    
    
    8.0694
    
    
    
    8.1825
    
    
    
    8.2767
    
    
    
    8.0702
  Period
    
    High
    
    LowMonthly Exchange RateDecember 2005
    
            8.0808
    
            8.0702January 2006
    
            8.0702
    
            8.0601February 2006
    
                8.0616
    
                8.0402March 2006
    
                8.0505
    
                8.0172April 2006
    
                8.0240
    
                8.0050May 2006
    
        8.0265
    
        8.0025June 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.   
 Capitalization and Indebtedness
  9




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Reasons for the Offer and Use of Proceeds
  
 Risk Factors
  Government ownership and control of the Company
  High operating leverage and foreign exchange exposure
  Potential conflicts of interest
   Risks relating to certain real property
  10




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##### Table of Contents



Risks associated with Hong Kong and Macau routes
  Internal
controls and management system
   Government regulation
  Jet fuel supply and costs
  Infrastructure limitations
  11




---



##### Table of Contents



Competition
   Limitation on foreign ownership
  Consolidation and Restructuring
  
    
    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.
 12




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Foreign exchange risks
   Developing legal system
  Taxation of holders of H Shares or ADS by China
  
 ITEM 4. INFORMATION ON THE COMPANY.
 
 History and Development of the Company
  13




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14




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##### Table of Contents



CNA/XJA Acquisitions
   
 Business Overview
       15




---



##### Table of Contents



16




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##### Table of Contents



Passenger carried
    
    Cargo and Mail Carried (tons)
    
    Total traffic (tons kilometers)Increase
    
    
    
    
    
    Increase
    
    
    
    
    
    Increase(decrease)
    
    
    
    
    
    (decrease)
    
    
    
    
    
    (decrease)over
    
    
    
    
    
    over
    
    
    
    
    
    overYear
    
    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
    
    
    
    16.12002
    
    
    21.49
    
    
    
    12.4
    
    
    
    470.0
    
    
    
    18.1
    
    
    
    3,614.0
    
    
    
    19.12003
    
    
    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
    
    
    
    30.92005
    
    
    44.12
    
    
    
    56.4
    
    
    
    775.0
    
    
    
    42.2
    
    
    
    7,284.0
    
    
    
    56.2
           17




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18




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##### Table of Contents



AverageNumber of
    
    Average age
    
    PassengerModel
    
    Aircraft
    
    (years)
    
    CapacityBoeing 777-200
    
    
    4
    
    
    
    9.53
    
    
    
    380Boeing 777-21B
    
    
    6
    
    
    
    7.20
    
    
    
    292Boeing 757-200
    
    
    38
    
    
    
    11.12
    
    
    
    200Boeing 747F
    
    
    2
    
    
    
    3.42
    
    
    
    n/aBoeing 737-800
    
    
    15
    
    
    
    2.32
    
    
    
    167Boeing 737-700
    
    
    29
    
    
    
    2.85
    
    
    
    138Boeing 737-500
    
    
    15
    
    
    
    12.80
    
    
    
    130Boeing 737-300
    
    
    31
    
    
    
    11.89
    
    
    
    145Airbus 300-600
    
    
    6
    
    
    
    10.96
    
    
    
    272Airbus 319-100
    
    
    21
    
    
    
    1.05
    
    
    
    128Airbus 320-200
    
    
    30
    
    
    
    5.38
    
    
    
    158Airbus 321-100
    
    
    10
    
    
    
    2.50
    
    
    
    182Airbus 330-200
    
    
    4
    
    
    
    0.72
    
    
    
    264McDonnell Douglas 82
    
    
    23
    
    
    
    14.63
    
    
    
    144McDonnell Douglas 90
    
    
    13
    
    
    
    7.85
    
    
    
    157Embraer 145 Jet
    
    
    6
    
    
    
    1.23
    
    
    
    50Cessna 208B
    
    
    3
    
    
    
    3.50
    
    
    
    14ATR-72
    
    
    5
    
    
    
    7.95
    
    
    
    72261
         19




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##### Table of Contents



Overview
   AverageCapital
    
    Operating
    
    RemainingModel
    
    Lease
    
    Lease
    
    Lease TermBoeing 777-200 and 777-21B
    
    
    5
    
    
    
    4
    
    
    
    4.48Boeing 757-200
    
    
    
    
    
    
    15
    
    
    
    3.10Boeing 737-700
    
    
    
    
    
    
    10
    
    
    
    5.60Boeing 737-800
    
    
    
    
    
    
    3
    
    
    
    8.17Boeing 737-500
    
    
    
    
    
    
    15
    
    
    
    0.99Boeing 737-300
    
    
    4
    
    
    
    10
    
    
    
    1.32Airbus 300-600
    
    
    6
    
    
    
    
    
    
    
    1.20Airbus 319-100
    
    
    6
    
    
    
    15
    
    
    
    9.05Airbus 320-200
    
    
    24
    
    
    
    6
    
    
    
    4.35Airbus 321-100
    
    
    6
    
    
    
    
    
    
    
    8.02Airbus 330-200
    
    
    4
    
    
    
    
    
    
    
    11.28McDonnell Douglas 82
    
    
    
    
    
    
    8
    
    
    
    2.17McDonnell Douglas 90
    
    
    10
    
    
    
    
    
    
    
    1.6965
    
    
    
    86
 Capital Leases
  20




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##### Table of Contents



Operating Leases
          21




---



##### Table of Contents



22




---



##### Table of Contents



23




---



##### Table of Contents



Passenger Ticket Sales and Reservations
    Cargo
  24




---



##### Table of Contents



Promotional and Marketing Activities
       Route Rights
 Domestic Routes
  Hong
Kong and Macau Routes
 25




---



##### Table of Contents



International Routes
   Air Fare Pricing Policy
    Acquisition of Aircraft and Flight Equipment
  Jet Fuel Supply and Pricing
 26




---



##### Table of Contents



Safety
    Security
  Noise and Environmental Regulation
  Chinese Airport Policy
  Competition
  27




---



##### Table of Contents



Total trafficPassenger carried
    
    Cargo and Mail Carried (tons)
    
    (ton kilometers)Industry
    
    Groups
    
    Industry
    
    Groups
    
    Industry
    
    GroupsYear
    
    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
    
    
    
    18.92000
    
    
    67.2
    
    
    
    24.9
    
    
    
    1,967
    
    
    
    22.5
    
    
    
    12.3
    
    
    
    20.02001
    
    
    75.2
    
    
    
    25.4
    
    
    
    1,709
    
    
    
    23.3
    
    
    
    14.1
    
    
    
    21.52002
    
    
    85.9
    
    
    
    25.0
    
    
    
    2,021
    
    
    
    23.3
    
    
    
    16.5
    
    
    
    21.92003
    
    
    87.6
    
    
    
    23.4
    
    
    
    2,190
    
    
    
    21.2
    
    
    
    17.1
    
    
    
    20.82004
    
    
    121.2
    
    
    
    23.3
    
    
    
    2,770
    
    
    
    19.7
    
    
    
    23.1
    
    
    
    20.22005
    
    138.3
    
    31.8
    
    3,067
    
    25.3
    
    26.1
    
    27.9
 Domestic Routes
  28




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##### Table of Contents



Cargo and MailPassenger carried
   
    Carried
    
    Departing flightAirport
    
    (% 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
    %
  Cargo and MailPassenger carried
    
    Carried
    
    Departing flightAirport
    
    (% 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
   International Routes
  29




---



##### Table of Contents



Airline Subsidiaries
           30




---



##### Table of Contents



Organizational Structure
  
  31




---



##### Table of Contents



Place and date ofestablishment
    
    Proportion of ownershipName of company
    
    /operation
    
    interest held by the CompanyGuangxi Airlines Company Limited
    
    PRCApril 28, 1994
    
    
    95Southern Airlines (Group) Shantou Airlines Company Limited
    
    PRC July 20, 1993
    
    
    60Zhuhai Airlines Company Limited
    
    PRCMay 8, 1995
    
    
    60Xiamen Airlines Company Limited
    
    PRCAugust 11, 1984
    
    
    60Guizhou Airlines Company Limited
    
    PRCNovember 12, 1991
    
    
    60Guangzhou Air Cargo Company Limited
    
    PRCMarch 31, 2004
    
    
    70Guangzhou Nanland Air Catering Company Limited
    
    PRC November 21, 1989
    
    
    75China Southern West Australian Flying College Pty Ltd.
    
    Australia January 26, 1971
    
    
    65Guangzhou Baiyun International Logistic Company Ltd
    
    PRCJuly 23, 2002
    
    
    61Xinjiang Civil Aviation Property Management Limited
    
    PRC February 12, 2002
    
    
    51.8
   Proportion of ownershipPlace and date of
    
    interest held byestablishment
    
    GroupName of company
    
    /operation
    
    effective interest
    
    The Company
    
    SubsidiariesGuangzhou 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
    
    
    
    26Sichuan 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
  
 Property, Plant and Equipment
  32




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##### Table of Contents



Land
    
    
    Buildings(in square meters)
    
    
    (in square meters)Owned
    
    
    Leased
    
    
    Owned
    
    
    LeasedGuangzhou
    
    
    9,797
    
    
    
    80,809
    
    
    
    514,957
    
    
    
    1,755Shenzhen
    
    
    208,740
    
    
    
    
    
    
    
    54,093
    
    
    
    Zhuhai
    
    
    170,062
    
    
    
    
    
    
    
    18,791
    
    
    
    Changsha
    
    
    138,949
    
    
    
    
    
    
    
    47,190
    
    
    
    Zhengzhou
    
    
    290,841
    
    
    
    
    
    
    
    60,582
    
    
    
    Haikou
    
    
    5,265
    
    
    
    
    
    
    
    63,570
    
    
    
    19,633Wuhan
    
    
    
    
    
    
    31,061
    
    
    
    17,335
    
    
    
    Nanyang
    
    
    
    
    
    
    
    
    
    
    12,156
    
    
    
    
  Land
    
    
    Buildings(in square meters)
    
    
    (in square meters)Owned
    
    
    Leased
    
    
    Owned
    
    
    LeasedXiamen
    
    
    451,121
    
    
    
    
    
    
    
    355,038
    
    
    
    12,509Shantou
    
    
    36,931
    
    
    
    55,407
    
    
    
    40,624
    
    
    
    Zhuhai
    
    
    68,186
    
    
    
    
    
    
    
    54,398
    
    
    
    2,135Guilin
    
    
    72,563
    
    
    
    
    
    
    
    73,379
    
    
    
    139Guizhou
    
    
    259,879
    
    
    
    
    
    
    
    93,390
    
    
    
    3,533  
 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS.
   33




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##### Table of Contents



Critical Accounting Policies
            Year ended December 31,2004
    
    
    2005RMB
    
    
    RMBAt January 1
    
    
    70
    
    
    
    92Impairment
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




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Overview
       35




---



##### Table of Contents



Certain Financial Information and Operating Data by Geographic Region
  Year ended
    
    2004 vs. 2003
    
    2005 vs. 2004December 31,
    
    % increase/
    
    % increase/2003
    
    2004
    
    2005
    
    (decrease)
    
    (decrease)TrafficRPK (million)Domestic
    
    
    21,294
    
    
    
    29,121
    
    
    
    51,472
    
    
    
    36.8
    
    
    
    76.8Hong Kong and Macau
    
    
    778
    
    
    
    1,203
    
    
    
    1,549
    
    
    
    54.6
    
    
    
    28.8International
    
    
    4,315
    
    
    
    6,872
    
    
    
    8,902
    
    
    
    59.3
    
    
    
    29.5Total
    
    
    26,387
    
    
    
    37,196
    
    
    
    61,923
    
    
    
    41.0
    
    
    
    66.5RTK (million)Domestic
    
    
    2,424
    
    
    
    3,206
    
    
    
    5,571
    
    
    
    32.3
    
    
    
    73.8Hong Kong and Macau
    
    
    78
    
    
    
    120
    
    
    
    159
    
    
    
    53.8
    
    
    
    32.5International
    
    
    1,059
    
    
    
    1,337
    
    
    
    1,554
    
    
    
    26.3
    
    
    
    16.2Total
    
    
    3,561
    
    
    
    4,663
    
    
    
    7,284
    
    
    
    30.9
    
    
    
    56.2Passengers carried (thousand)Domestic
    
    
    18,259
    
    
    
    25,002
    
    
    
    39,545
    
    
    
    36.9
    
    
    
    58.2Hong Kong and Macau
    
    
    1,019
    
    
    
    1,394
    
    
    
    1,556
    
    
    
    36.8
    
    
    
    11.6International
    
    
    1,192
    
    
    
    1,811
    
    
    
    3,018
    
    
    
    51.9
    
    
    
    66.6Total
    
    
    20,470
    
    
    
    28,207
    
    
    
    44,119
    
    
    
    37.8
    
    
    
    56.4Cargo and mail carried (thousand tons)Domestic
    
    
    379
    
    
    
    442
    
    
    
    639
    
    
    
    16.6
    
    
    
    44.6Hong Kong and Macau
    
    
    12
    
    
    
    15
    
    
    
    19
    
    
    
    25.0
    
    
    
    26.7International
    
    
    73
    
    
    
    88
    
    
    
    117
    
    
    
    20.5
    
    
    
    33.0Total
    
    
    464
    
    
    
    545
    
    
    
    775
    
    
    
    17.5
    
    
    
    42.2
 Year ended
    
    2004 vs. 2003
    
    2005 vs. 2004December 31,
    
    % increase/
    
    % increase/2003
    
    2004
    
    2005
    
    (decrease)
    
    (decrease)CapacityASK (million)Domestic
    
    
    32,590
    
    
    
    41,330
    
    
    
    72,107
    
    
    
    26.8
    
    
    
    74.5Hong Kong and Macau
    
    
    1,347
    
    
    
    1,896
    
    
    
    2,656
    
    
    
    40.8
    
    
    
    40.1International
    
    
    6,930
    
    
    
    10,543
    
    
    
    13,598
    
    
    
    52.1
    
    
    
    29.0Total
    
    
    40,867
    
    
    
    53,769
    
    
    
    88,361
    
    
    
    31.6
    
    
    
    64.3ATK (million)Domestic
    
    
    3,772
    
    
    
    4,773
    
    
    
    8,352
    
    
    
    26.5
    
    
    
    75.0Hong Kong and Macau
    
    
    150
    
    
    
    211
    
    
    
    315
    
    
    
    40.7
    
    
    
    49.3International
    
    
    1,999
    
    
    
    2,462
    
    
    
    2,842
    
    
    
    23.2
    
    
    
    15.4Total
    
    
    5,921
    
    
    
    7,446
    
    
    
    11,509
    
    
    
    25.8
    
    
    
    54.6Load FactorsPassenger load factor (RPK/ASK) (%)Domestic
    
    
    65.3
    
    
    
    70.5
    
    
    
    71.4
    
    
    
    8.0
    
    
    
    1.3Hong Kong and Macau
    
    
    57.8
    
    
    
    63.4
    
    
    
    58.3
    
    
    
    9.7
    
    
    
    (8.0
    )International
    
    
    62.3
    
    
    
    65.2
    
    
    
    65.5
    
    
    
    4.7
    
    
    
    0.5Overall
    
    
    64.6
    
    
    
    69.2
    
    
    
    70.1
    
    
    
    7.1
    
    
    
    1.3Overall 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
    
    
    
    0.7Overall
    
    
    60.1
    
    
    
    62.6
    
    
    
    63.3
    
    
    
    4.2
    
    
    
    1.1YieldYield per RPK (RMB)Domestic
    
    
    0.57
    
    
    
    0.58
    
    
    
    0.55
    
    
    
    1.8
    
    
    
    (5.2
    )
 36




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Year ended
    
    2004 vs. 2003
    
    2005 vs. 2004December 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
    )
    
    
    21.7Overall
    
    
    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
    
    
    
    28.1Overall
    
    
    4.76
    
    
    
    5.01
    
    
    
    5.14
    
    
    
    5.3
    
    
    
    2.6Financial IFRSPassenger revenue (RMB million)Domestic
    
    
    12,242
    
    
    
    16,869
    
    
    
    28,182
    
    
    
    37.8
    
    
    
    67.1Hong Kong and Macau
    
    
    750
    
    
    
    1,104
    
    
    
    1,194
    
    
    
    47.2
    
    
    
    8.2International
    
    
    2,018
    
    
    
    3,127
    
    
    
    4,952
    
    
    
    55.0
    
    
    
    58.4Total
    
    
    15,010
    
    
    
    21,100
    
    
    
    34,328
    
    
    
    40.6
    
    
    
    62.7Cargo and mail revenue (RMB million)
    
    
    1,955
    
    
    
    2,244
    
    
    
    3,091
    
    
    
    14.8
    
    
    
    37.7U.S. GAAPPassenger revenue (RMB million)Domestic
    
    
    18,679
    
    
    
    24,773
    
    
    
    28,182
    
    
    
    32.6
    
    
    
    13.8Hong Kong and Macau
    
    
    781
    
    
    
    1,151
    
    
    
    1,194
    
    
    
    47.4
    
    
    
    3.7International
    
    
    2,978
    
    
    
    4,519
    
    
    
    4,952
    
    
    
    51.7
    
    
    
    9.6Total
    
    
    22,438
    
    
    
    30,443
    
    
    
    34,328
    
    
    
    35.7
    
    
    
    12.8Cargo and mail revenue (RMB million)
    
    
    2,459
    
    
    
    2,792
    
    
    
    3,091
    
    
    
    13.5
    
    
    
    10.7
 
 Operating Results
    Operating revenue
   37




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Operating expenses
     38




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##### Table of Contents



Operating(loss))/Profit
  Non-operating income/(expenses)
   Taxation
     Operating revenue
  39




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Operating expenses
  40




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##### Table of Contents



Operating profit
  Non-operating income/(expenses)
    Taxation
 41




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Minority interests
  
 Additional information under U.S. GAAP
       42




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##### Table of Contents



Operating expenses
        43




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##### Table of Contents



Operating (loss)/income
  Non-operating income/(expenses)
   Taxation
         44




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Operating expenses
     45




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##### Table of Contents



Operating income
  Non-operating income/(expenses)
    Taxation
   Minority interests
  46




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Liquidity and Capital Resources
            47




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48




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Contractual Obligations and Commercial Commitments
  As of December 31, 2005
    
    
    As of DecemberPayment due by period
    
    
    31, 2004less thanTotal
    
    
    1 year
    
    
    1-3 years
    
    
    4-5 years
    
    
    After 5 years
    
    
    Total(RMB million)Contractual obligationsShort-term
debt (Note 2)
    
    
    14,346
    
    
    
    11,735
    
    
    
    2,611
    
    
    
    
    
    
    
    
    
    
    
    9,925Long-term debt
    
    
    14,617
    
    
    
    1,877
    
    
    
    6,472
    
    
    
    2,095
    
    
    
    4,173
    
    
    
    13,528Capital lease obligations
    
    
    15,832
    
    
    
    3,373
    
    
    
    5,538
    
    
    
    2,189
    
    
    
    4,732
    
    
    
    11,743Cash payable for CNA/ XJA Acquisitions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,959Total contractual obligations
    
    
    44,795
    
    
    
    16,985
    
    
    
    14,621
    
    
    
    4,284
    
    
    
    8,905
    
    
    
    37,155Other commercial commitmentsOperating lease commitments
    
    
    24,594
    
    
    
    3,340
    
    
    
    5,666
    
    
    
    5,132
    
    
    
    10,456
    
    
    
    12,750Aircraft purchase commitments (Note 1)
    
    
    45,628
    
    
    
    7,341
    
    
    
    23,299
    
    
    
    14,988
    
    
    
    
    
    
    
    11,776Capital commitments in respect of
investments in the Guangzhou new
airport
    
    
    840
    
    
    
    840
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    824Other capital commitments
    
    
    1,335
    
    
    
    752
    
    
    
    583
    
    
    
    
    
    
    
    
    
    
    
    700Investing commitments
    
    
    83
    
    
    
    83
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    83Total commercial obligations
    
    
    72,480
    
    
    
    12,356
    
    
    
    29,548
    
    
    
    20,120
    
    
    
    10,456
    
    
    
    26,133Estimated future interest payments on
short term debt and long term debtFixed rates
    
    
    3,285
    
    
    
    785
    
    
    
    1,071
    
    
    
    640
    
    
    
    789
    
    
    
    2,388Variable rates
    
    
    2,171
    
    
    
    935
    
    
    
    635
    
    
    
    369
    
    
    
    232
    
    
    
    9395,456
    
    
    
    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
  Name
    
    Position
    
    Gender
    
    AgeLiu Shao Yong
    
    Chairman of the Board
    
    Male
    
    
    48Liu Ming Qi(1)
    
    Vice Chairman of the Board
    
    Male
    
    
    62Peng An Fa(2)
    
    Director
    
    Male
    
    
    58Wang Quan Hua
    
    Director
    
    Male
    
    
    52Zhao Liu An
    
    Director
    
    Male
    
    
    58Zhou Yong Qian(3)
    
    Director
    
    Male
    
    
    61Si Xian Min
    
    Director, President
    
    Male
    
    
    49Zhou Yong Jin(1)
    
    Director
    
    Male
    
    
    63Xu Jie Bo
    
    Director, Chief Financial Officer and Vice President
    
    Male
    
    
    41Wu Rong Nan(1)
    
    Director
    
    Male
    
    
    64Simon To(4)
    
    Independent Non-executive Director
    
    Male
    
    
    55Peter Lok
    
    Independent Non-executive Director
    
    Male
    
    
    70Wei Ming Hai
    
    Independent Non-executive Director
    
    Male
    
    
    42
 49




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##### Table of Contents



Name
    
    Position
    
    Gender
    
    AgeWang Zhi
    
    Independent Non-executive Director
    
    Male
    
    
    64Sui Guang Jun
    
    Independent Non-executive Director
    
    Male
    
    
    45Sun Xiao Yi
    
    Chairman of the Supervisory Committee
    
    Male
    
    
    52Yang Guang Hua
    
    Supervisor
    
    Male
    
    
    53Yang Yi Hua
    
    Supervisor
    
    Female
    
    
    46Li Kun(5)
    
    Vice President
    
    Male
    
    
    46Yuan Xin An
    
    Vice President
    
    Male
    
    
    49Zheng En Ren(6)
    
    Vice President
    
    Male
    
    
    61Hao Jian Hua
    
    Vice President
    
    Male
    
    
    55Ren Ji Dong(7)
    
    Vice President
    
    Male
    
    
    41He Zong Kai(7)
    
    Vice President
    
    Male
    
    
    55Liu Qian
    
    Chief Pilot
    
    Male
    
    
    40Su Liang
    
    Company Secretary
    
    Male
    
    
    44Chen 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
 Mr. Wang Quan Hua
 50




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##### Table of Contents



Mr. Zhao Liu An
 Mr. Si Xian Min
 Mr. Xu
Jie Bo
 Mr. Peter Lok
 Mr. Wei Ming Hai
 51




---



##### Table of Contents



Mr. Wang Zhi
 Mr. Sui Guang Jun
  SUPERVISORY COMMITTEE
  Mr. Sun Xiao Yi
 Mr. Yang Guang Hua
 Ms. Yang Yi Hua
 52




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##### Table of Contents



SENIOR ADMINISTRATIVE OFFICERS


Mr. Yuan Xin An
 Mr. Hao Jian Hua
 Mr. Ren Ji Dong
 Mr. He Zong Kai
 Mr. Liu Qian
 Mr. Su Liang
 Mr. Chen Wei Hua
 53




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##### Table of Contents



Compensation
   Salaries,allowances
    
    
    
    
    
    
    RetirementDirectors
    
    
    and benefits
    
    
    Discretionary
    
    
    schemeName
    
    
    
    
    
    fees
    
    
    in kind
    
    
    bonuses
    
    
    contributions
    
    
    TotalNote
    
    
    RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    RMB000Executive directorsLiu Shao Yong
    
    
    (i
    )
    
    
    
    
    
    
    299
    
    
    
    
    
    
    
    12
    
    
    
    311Liu Ming Qi
    
    
    
    
    
    
    
    
    
    
    242
    
    
    
    
    
    
    
    10
    
    
    
    252Peng An Fa
    
    
    
    
    
    
    
    
    
    
    101
    
    
    
    
    
    
    
    6
    
    
    
    107Wang Quan Hua
    
    
    
    
    
    
    
    
    
    
    237
    
    
    
    
    
    
    
    12
    
    
    
    249Zhao Liu An
    
    
    (i
    )
    
    
    
    
    
    
    237
    
    
    
    
    
    
    
    12
    
    
    
    249Zhou Yong Qian
    
    
    
    
    
    
    
    
    
    
    237
    
    
    
    
    
    
    
    12
    
    
    
    249Si Xian Min
    
    
    
    
    
    
    
    
    
    
    281
    
    
    
    
    
    
    
    12
    
    
    
    293Zhou Yong Jin
    
    
    
    
    
    
    
    
    
    
    127
    
    
    
    
    
    
    
    2
    
    
    
    129Xu Jie Bo
    
    
    
    
    
    
    
    
    
    
    226
    
    
    
    
    
    
    
    12
    
    
    
    238Wu Rong Nan
    
    
    
    
    
    
    
    
    
    
    368
    
    
    
    162
    
    
    
    7
    
    
    
    537SupervisorsSun Xiao Yi
    
    
    
    
    
    
    
    
    
    
    237
    
    
    
    
    
    
    
    12
    
    
    
    249Yang Guang Hua
    
    
    
    
    
    
    
    
    
    
    225
    
    
    
    
    
    
    
    12
    
    
    
    237Yang Yi Hua
    
    
    
    
    
    
    
    
    
    
    48
    
    
    
    70
    
    
    
    11
    
    
    
    129Independent non-executive
directorsSimon To
    
    
    (ii
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Peter Lok
    
    
    
    
    
    
    58
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58Wei Ming Hai
    
    
    
    
    
    
    58
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58Wang Zhi
    
    
    
    
    
    
    58
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58Sui Guang Jun
    
    
    
    
    
    
    58
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58232
    
    
    
    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
      
    
 Employees
  54




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55




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Share Ownership
  
 ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.
 
 Major Shareholders
     ApproximatePercentageof the TotalName
    
    Number of Shares
    
    Number of SharesCSAHC
    
    2,200,000,000 domestic shares
    
    
    50.30%HKSCC Nominees Limited
    
    1,150,854,998 H shares
    
    
    26.31%
  ApproximatePercentage ofthe TotalNumber of HName
    
    Number of H Shares
    
    SharesHKSCC Nominees Limited
    
    
    1,150,854,998
    
    
    
    98.01%
  
 Related Party Transactions
   Trademark License Agreement
  56




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Leases
       Leases
   57




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##### Table of Contents



Southern Airlines (Group) Import and Export Trading Company (SAIETC), a wholly owned
subsidiary of CSAHC
    Southern Airlines Advertising Company, which is 45% owned by the Company and 55% owned
by CSAHC (SAAC)
    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
    58




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Shenzhen Air Catering Company Limited, which is 33% owned by CSAHC, and 67% owned by two
independent third parties
   China Southern West Australian Flying College Pty Ltd (the Australian Pilot College),
which is 65% owned by the Company and 35% owned by CSAHC
   Southern Airlines (Group) Economic Development Company, which is 61% owned by CSAHC and
39% owned by an independent third party
   Ticket sales arrangements
   China Southern Airlines Group Air Catering Company Limited (the Catering Company), a
wholly owned subsidiary of CSAHC
 59




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##### Table of Contents



China Southern Airlines Group Passenger and Cargo Agent Company Limited (PCACL), a wholly
owned subsidiary of CSAHC
   China Southern Airlines Group Travel Development Company Limited (CSA Travel), a wholly
owned subsidiary of CSAHC
  Guangzhou China Southern Airlines Property Management Company Limited (the GCSAPMC), which
is 90% owned by CSAHC and 10% owned by the Companys Union
   CSAHC Hainan Co., Ltd., (Hainan Co., Ltd.), a subsidiary of CSAHC from Hainan Co., Ltd.
   Nan Lung Travel & Express (Hong Kong) Ltd. (the Nanlung), a subsidiary wholly owned by CSAHC
   
 Interests of Experts and Counsel
  
 ITEM 8. FINANCIAL INFORMATION.
 
 Consolidated Statements and Other Financial Information
  
 Significant Changes
  
 Dividend Information
  60




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ITEM 9. THE OFFER AND LISTING.
 
 Offer and Listing Details
    The Stock Exchange
    
    The New York
    
    The Shanghaiof Hong Kong
    
    Stock Exchange
    
    Stock ExchangePrice per H Share
    
    Price per ADS
    
    Price per A Share(HK$)
    
    (US$)
    
    (RMB)High
    
    Low
    
    High
    
    Low
    
    High
    
    LowAnnual Market PricesFiscal Year ended December 31, 2000
    
    
    2.93
    
    
    
    1.02
    
    
    
    18.38
    
    
    
    6.06
    
    
    
    N/A
    
    
    
    N/AFiscal Year ended December 31, 2001
    
    
    2.95
    
    
    
    1.35
    
    
    
    18.10
    
    
    
    8.00
    
    
    
    N/A
    
    
    
    N/AFiscal Year ended December 31, 2002
    
    
    3.60
    
    
    
    1.50
    
    
    
    22.25
    
    
    
    10.35
    
    
    
    N/A
    
    
    
    N/AFiscal Year ended December 31, 2003
    
    
    3.50
    
    
    
    1.46
    
    
    
    22.78
    
    
    
    9.53
    
    
    
    5.34
    
    
    
    3.75Fiscal Year ended December 31, 2004
    
    
    4.68
    
    
    
    2.47
    
    
    
    29.73
    
    
    
    15.95
    
    
    
    6.87
    
    
    
    3.96Fiscal Year ended December 31, 2005
    
    
    2.22
    
    
    
    2.17
    
    
    
    14.25
    
    
    
    14.20
    
    
    
    2.68
    
    
    
    2.62Quarterly Market PricesFiscal Year ended December 31, 2002First Quarter
    
    
    2.83
    
    
    
    2.22
    
    
    
    17.63
    
    
    
    14.80
    
    
    
    N/A
    
    
    
    N/ASecond Quarter
    
    
    3.42
    
    
    
    2.33
    
    
    
    21.74
    
    
    
    14.95
    
    
    
    N/A
    
    
    
    N/AThird Quarter
    
    
    3.60
    
    
    
    1.89
    
    
    
    22.25
    
    
    
    12.00
    
    
    
    N/A
    
    
    
    N/AFourth Quarter
    
    
    2.42
    
    
    
    1.50
    
    
    
    15.00
    
    
    
    10.35
    
    
    
    N/A
    
    
    
    N/AFiscal Year ended December 31, 2003First Quarter
    
    
    2.62
    
    
    
    1.71
    
    
    
    16.50
    
    
    
    11.75
    
    
    
    N/A
    
    
    
    N/ASecond Quarter
    
    
    2.40
    
    
    
    1.46
    
    
    
    14.85
    
    
    
    9.53
    
    
    
    N/A
    
    
    
    N/AThird Quarter
    
    
    2.88
    
    
    
    2.03
    
    
    
    18.59
    
    
    
    13.25
    
    
    
    4.15
    
    
    
    3.75Fourth Quarter
    
    
    3.50
    
    
    
    2.50
    
    
    
    22.78
    
    
    
    16.76
    
    
    
    5.34
    
    
    
    3.86Fiscal Year ended December 31, 2004First Quarter
    
    
    4.68
    
    
    
    3.20
    
    
    
    29.73
    
    
    
    20.91
    
    
    
    6.87
    
    
    
    4.95Second Quarter
    
    
    3.90
    
    
    
    2.47
    
    
    
    24.89
    
    
    
    15.95
    
    
    
    6.24
    
    
    
    4.14Third Quarter
    
    
    3.17
    
    
    
    2.47
    
    
    
    20.17
    
    
    
    16.00
    
    
    
    5.19
    
    
    
    4.16Fourth Quarter
    
    
    3.53
    
    
    
    2.55
    
    
    
    22.74
    
    
    
    16.71
    
    
    
    5.40
    
    
    
    3.96Fiscal Year ended December 31, 2005First Quarter
    
    
    3.10
    
    
    
    2.47
    
    
    
    19.93
    
    
    
    16.10
    
    
    
    5.30
    
    
    
    3.56Second Quarter
    
    
    2.72
    
    
    
    2.20
    
    
    
    17.33
    
    
    
    14.72
    
    
    
    4.02
    
    
    
    2.95Third Quarter
    
    
    2.20
    
    
    
    2.03
    
    
    
    16.86
    
    
    
    13.50
    
    
    
    3.00
    
    
    
    2.35Fourth Quarter
    
    
    2.40
    
    
    
    1.83
    
    
    
    15.45
    
    
    
    11.68
    
    
    
    2.77
    
    
    
    2.23Monthly Market PricesDecember 2005
    
    
    2.40
    
    
    
    2.10
    
    
    
    15.45
    
    
    
    13.68
    
    
    
    2.74
    
    
    
    2.52January 2006
    
    
    2.40
    
    
    
    2.12
    
    
    
    15.50
    
    
    
    13.91
    
    
    
    3.03
    
    
    
    2.53February 2006
    
    
    2.53
    
    
    
    2.17
    
    
    
    15.88
    
    
    
    14.05
    
    
    
    2.85
    
    
    
    2.55March 2006
    
    
    2.47
    
    
    
    2.20
    
    
    
    15.78
    
    
    
    14.16
    
    
    
    2.84
    
    
    
    2.45April 2006
    
    
    2.30
    
    
    
    1.96
    
    
    
    15.03
    
    
    
    13.06
    
    
    
    2.59
    
    
    
    2.19May 2006
    
    
    2.08
    
    
    
    1.86
    
    
    
    13.59
    
    
    
    12.01
    
    
    
    2.75
    
    
    
    2.25June
19, 2006
    
    
    1.94
    
    
    
    1.68
    
    
    
    12.65
    
    
    
    10.76
    
    
    
    2.97
    
    
    
    2.53
 
 Plan of Distribution
  61




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##### Table of Contents



Markets
  
 Selling Shareholders
  
 Dilution
  
 Expenses of the Issue
  
 ITEM 10. ADDITIONAL INFORMATION.
 
 Share Capital
  
 Memorandum and Articles of Association
         62




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##### Table of Contents



,
 ,
 ,
   (1)
    
    the right to attend or appoint a proxy to attend shareholders general meetings and to vote
thereat;
  (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:
  63




---



##### Table of Contents



(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.
  (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.
     64




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##### Table of Contents



s
 (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.
       (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.
   65




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(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.
        
 Material Contracts
  (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.
 66




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##### Table of Contents



Exchange Controls
      
 Taxation
 Chinese Taxation
         67




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##### Table of Contents



United
States Federal Income Taxation
  
    
    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.
    
    
    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.
    Dividends on ADSs
   Sales and other dispositions of ADSs
  Passive Foreign Investment Company
          
    
    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.
  U.S. information reporting and backup withholding rules
   
 Dividends
and Paying Agents
  
 Statement by Experts
  
 Documents on Display
    
 Subsidiary Information
  
 Comparison of New York Stock Exchange Corporate Governance Rules and China Corporate
Governance Rules for Listed Companies
  NYSE corporate governance rules
    
    Corporate governance rules applicable
to the domestically listed companies
in China and the Companys governance
practicesDirector 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




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ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
     As of December 31, 2005
    
    As of December 31, 2004Expected maturity dateTotal
    
    
    
    
    
    Totalrecorded
    
    
    
    
    
    recorded2006
    
    2007
    
    2008
    
    2009
    
    2010
    
    Thereafter
    
    amount
    
    Fair value(2)
    
    amount
    
    Fair value(2)DebtFixed-rate notes payable
In US$
    
    
    484
    
    
    
    449
    
    
    
    303
    
    
    
    266
    
    
    
    215
    
    
    
    697
    
    
    
    2,414
    
    
    
    2,440
    
    
    
    2,252
    
    
    
    2,464Average 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
    
    
    
    15,327Average 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
    
    
    
    3,327Average interest rate
    
    
    4.11
    %
    
    
    4.83
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.11
    %
    
    
    
    
    
    
    1.42
    %In RMB
    
    
    302
    
    
    
    52
    
    
    
    52
    
    
    
    122
    
    
    
    100
    
    
    
    552
    
    
    
    1,180
    
    
    
    1,180
    
    
    
    2,547
    
    
    
    2,547Average 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.  As of December 31, 2005
    
    As of December 31, 2004Expected maturity dateTotal
    
    
    
    
    
    Totalrecorded
    
    
    
    
    
    recorded2006
    
    2007
    
    2008
    
    2009
    
    2010
    
    Thereafter
    
    amount
    
    Fair value(2)
    
    amount
    
    Fair value(2)DebtFixed-rate notes
payable In US$
    
    
    484
    
    
    
    449
    
    
    
    303
    
    
    
    266
    
    
    
    215
    
    
    
    697
    
    
    
    2,414
    
    
    
    2,440
    
    
    
    2,252
    
    
    
    2,464Average 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
    
    
    
    15,327Average 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
    
    
    
    3,327Average 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




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##### 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.
  
 PART II
 
 ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.
  
 ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS.
  
 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
    
    
    
    
    
    AggregateTitle of each
    
    
    
    
    
    price of
    
    
    
    
    
    offeringclass of
    
    
    
    
    
    offering
    
    
    
    
    
    price ofsecurities
    
    Amount
    
    amount
    
    Amount
    
    amountregistered
    
    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
  
 (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




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##### 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.  Underwriting discounts and commissions
    
    US$
    36,593,000Finders fees
    
    
    Expenses paid to or for underwriters
    
    US$
    2,958,000Other expenses
    
    US$
    21,411,000Total 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.
   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.
  Construction of plant, building and facilities
    
    US$41.9   millionPurchase and installation of machinery and equipment
    
    US$394.6 millionPurchase of real estate
    
    Acquisition of other business(es)
    
    Repayment of indebtedness
    
    US$192.4 millionWorking 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.
  
 PART III
 
 ITEM 15. CONTROLS AND PROCEDURES.
   71




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ITEM 16. [RESERVED]
 72




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##### Table of Contents



ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT.
  
 ITEM 16B. CODE OF ETHICS.
  
 ITEM 16C. PRINCIPAL ACCOUNTING FEES AND SERVICES.
  Audit Fees
    
    Audit-Related Fees
    
    Tax Fees2004
    
    RMB8.9 million
    
    RMB6.6 million
    
    RMB0.11 million2005
    
    RMB13.9 million
    
    RMB5.8 million
    
    RMB0.11 million
 Audit-related fees
  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
  73




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##### Table of Contents



ITEM 16D. Exemptions from the Listing Standards for Audit Committee
  
 ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.
  
 PART IV
 
 ITEM 17. FINANCIAL STATEMENTS.
  
 ITEM 18. FINANCIAL STATEMENTS.
 
 Index to Financial Statements
 PageCONSOLIDATED FINANCIAL STATEMENTS OF CHINA SOUTHERN AIRLINES COMPANY LIMITEDReport of Independent Registered Public Accounting Firm
    
    
    F-1Consolidated Statements of Operations for the years ended December 31, 2003, 2004 and 2005
    
    
    F-2Consolidated Balance Sheets as of December 31, 2004 and 2005
    
    
    F-3Consolidated
Statements of Changes in Shareholders Equity for the years ended December 31, 2003, 2004 and 2005
    
    
    F-5Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2004 and 2005
    
    
    F-7Notes to Consolidated Financial Statements
    
    
    F-9
 74




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##### Table of Contents



ITEM 19. EXHIBITS.
 Exhibit No.
    
    Description of Exhibit4.1
    
    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 Company12.1
    
    Section 302 Certification of Chairman12.2
    
    Section 302 Certification of President12.3
    
    Section 302 Certification of Chief Financial Officer13.1
    
    Section 906 Certification of Chairman13.2
    
    Section 906 Certification of President13.3
    
    Section 906 Certification of Chief Financial Officer
 75




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##### Table of Contents



SIGNATURES
  CHINA SOUTHERN AIRLINES COMPANY LIMITED/s/ Liu Shao YongName: Liu Shao YongTitle: Chairman of the Board of Directors
  76




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##### Table of Contents



CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageReport of Independent Registered Public Accounting Firm
    
    
    F-1Consolidated
Statements of Operations for the years ended December 31, 2003,
2004 and 2005
    
    
    F-2Consolidated
Balance Sheets as of December 31, 2004 and 2005
    
    
    F-3Consolidated
Statements of Changes in Shareholders Equity for the years ended December 31, 2003,
2004 and 2005
    
    
    F-5Consolidated
Statements of Cash Flows for the years
ended December 31, 2003, 2004 and 2005
    
    
    F-7Notes to Consolidated Financial Statements
    
    
    F-9




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
       
 F-1




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##### 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
    
    2005RMB
    
    RMB
    
    RMB
    
    U.S. dollars(restated,
    
    (restated,Note 3)
    
    Note 3)Operating revenue:Traffic revenue
    
    
    4
    
    
    
    16,965
    
    
    
    23,344
    
    
    
    37,419
    
    
    
    4,637Other operating revenue
    
    
    4
    
    
    
    505
    
    
    
    630
    
    
    
    874
    
    
    
    108Total operating revenue
    
    
    
    
    
    
    17,470
    
    
    
    23,974
    
    
    
    38,293
    
    
    
    4,745Operating expenses:Flight operations
    
    
    5
    
    
    
    7,070
    
    
    
    10,418
    
    
    
    19,394
    
    
    
    2,403Maintenance
    
    
    6
    
    
    
    2,589
    
    
    
    3,459
    
    
    
    4,589
    
    
    
    569Aircraft and traffic servicing
    
    
    7
    
    
    
    2,767
    
    
    
    3,503
    
    
    
    5,759
    
    
    
    714Promotion and sales
    
    
    8
    
    
    
    1,480
    
    
    
    1,940
    
    
    
    2,780
    
    
    
    345General and administrative
    
    
    9
    
    
    
    1,053
    
    
    
    1,323
    
    
    
    2,457
    
    
    
    304Depreciation and amortization
    
    
    10
    
    
    
    2,038
    
    
    
    2,413
    
    
    
    4,440
    
    
    
    550Others
    
    
    
    
    
    
    17
    
    
    
    9
    
    
    
    179
    
    
    
    22Total operating expenses
    
    
    
    
    
    
    17,014
    
    
    
    23,065
    
    
    
    39,598
    
    
    
    4,907Operating income/(loss)
    
    
    
    
    
    
    456
    
    
    
    909
    
    
    
    (1,305
    )
    
    
    (162
    )Non-operating income/(expenses):Interest income
    
    
    
    
    
    
    13
    
    
    
    22
    
    
    
    55
    
    
    
    7Interest 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
    
    
    
    4Loss on sale of property,
plant and equipment
    
    
    
    
    
    
    (22
    )
    
    
    (1
    )
    
    
    (32
    )
    
    
    (4
    )Exchange (loss)/gain, net
    
    
    
    
    
    
    (164
    )
    
    
    (59
    )
    
    
    1,220
    
    
    
    151Others, net
    
    
    
    
    
    
    21
    
    
    
    46
    
    
    
    74
    
    
    
    9Total 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
    )
  F-2




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##### 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
    
    2005RMB
    
    RMB
    
    U.S. dollars(restated,Note 3)ASSETSCURRENT ASSETSCash and cash equivalents
    
    
    16
    
    
    
    3,083
    
    
    
    2,901
    
    
    
    360Trade receivables
    
    
    17
    
    
    
    1,203
    
    
    
    1,518
    
    
    
    188Inventories
    
    
    18
    
    
    
    1,302
    
    
    
    1,382
    
    
    
    171Short term investments
    
    
    19
    
    
    
    683
    
    
    
    
    
    
    
    Other receivables
    
    
    20
    
    
    
    720
    
    
    
    956
    
    
    
    119Prepaid expenses and other current assets
    
    
    
    
    
    
    378
    
    
    
    380
    
    
    
    47Amounts due from related companies
    
    
    30
    
    
    
    
    
    
    
    84
    
    
    
    10Total current assets
    
    
    
    
    
    
    7,369
    
    
    
    7,221
    
    
    
    895NON-CURRENT ASSETSProperty, plant and equipment, net
    
    
    21
    
    
    
    46,841
    
    
    
    54,266
    
    
    
    6,725Construction in progress
    
    
    22
    
    
    
    565
    
    
    
    674
    
    
    
    84Other investments
    
    
    19
    
    
    
    272
    
    
    
    320
    
    
    
    40Interest in affiliated companies
    
    
    23
    
    
    
    429
    
    
    
    142
    
    
    
    18Interest in jointly controlled entities
    
    
    24
    
    
    
    782
    
    
    
    805
    
    
    
    99Lease prepayments
    
    
    
    
    
    
    346
    
    
    
    333
    
    
    
    41Lease and equipment deposits
    
    
    
    
    
    
    5,397
    
    
    
    7,265
    
    
    
    900Deferred tax assets
    
    
    25
    
    
    
    51
    
    
    
    74
    
    
    
    9Other assets
    
    
    26
    
    
    
    331
    
    
    
    302
    
    
    
    37Total non-current assets
    
    
    
    
    
    
    55,014
    
    
    
    64,181
    
    
    
    7,953TOTAL ASSETS
    
    
    
    
    
    
    62,383
    
    
    
    71,402
    
    
    
    8,848LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIESNotes payable, including current
installments of long-term
notes payable
    
    
    27
    
    
    
    11,518
    
    
    
    16,223
    
    
    
    2,010Current installments of obligations
under capital leases
    
    
    28
    
    
    
    2,144
    
    
    
    3,373
    
    
    
    418Trade and bills payables
    
    
    29
    
    
    
    1,690
    
    
    
    3,929
    
    
    
    487Sales in advance of carriage
    
    
    
    
    
    
    874
    
    
    
    1,413
    
    
    
    175Amounts due to related companies
    
    
    30
    
    
    
    2,434
    
    
    
    116
    
    
    
    14Accrued expenses
    
    
    31
    
    
    
    4,551
    
    
    
    4,250
    
    
    
    527Other liabilities
    
    
    32
    
    
    
    2,974
    
    
    
    3,796
    
    
    
    471Taxes payable
    
    
    
    
    
    
    39
    
    
    
    28
    
    
    
    3Total current liabilities
    
    
    
    
    
    
    26,224
    
    
    
    33,128
    
    
    
    4,105
  F-3




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##### 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
    
    2005RMB
    
    RMB
    
    U.S. dollars(restated,Note 3)NON-CURRENT LIABILITIESNotes payable, excluding current installments
    
    
    27
    
    
    
    11,935
    
    
    
    12,740
    
    
    
    1,579Obligations under capital leases, excluding
current installments
    
    
    28
    
    
    
    9,599
    
    
    
    12,459
    
    
    
    1,544Provision for major overhauls
    
    
    33
    
    
    
    284
    
    
    
    301
    
    
    
    37Deferred tax liabilities
    
    
    25
    
    
    
    338
    
    
    
    342
    
    
    
    42Deferred credits
    
    
    
    
    
    
    100
    
    
    
    496
    
    
    
    62Total non-current liabilities
    
    
    
    
    
    
    22,256
    
    
    
    26,338
    
    
    
    3,264TOTAL LIABILITIES
    
    
    
    
    
    
    48,480
    
    
    
    59,466
    
    
    
    7,369SHAREHOLDERS
EQUITYEquity attributable to equity shareholders of the Company
    
    
    34,35
    
    
    
    11,848
    
    
    
    10,000
    
    
    
    1,239Minority interests
    
    
    
    
    
    
    2,055
    
    
    
    1,936
    
    
    
    240TOTAL
SHAREHOLDERS EQUITY
    
    
    
    
    
    
    13,903
    
    
    
    11,936
    
    
    
    1,479TOTAL
LIABILITIES AND TOTAL SHAREHOLDERS EQUITY
    
    
    
    
    
    
    62,383
    
    
    
    71,402
    
    
    
    8,848
 F-4




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##### 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 companyRetainedearnings/Share
    
    Share
    
    Other
    
    (accumulated
    
    
    
    
    
    Minority
    
    Totalcapital
    
    premium
    
    reserves
    
    loss)
    
    Total
    
    interests
    
    equityRMB
    
    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
    
    
    
    11,129Issue 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
    
    
    
    1Distributions 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
    
    
    
    155Appropriations to reserves
    
    
    
    
    
    
    
    
    
    
    61
    
    
    
    (61
    )
    
    
    
    
    
    
    
    
    
    
    Capital contributions
from minority shareholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71
    
    
    
    71Distributions to minority
shareholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15
    )
    
    
    (15
    )Through the CNA/XJA
Acquisitions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    123
    
    
    
    123At December 31, 2004
    
    
    4,374
    
    
    
    5,325
    
    
    
    672
    
    
    
    1,477
    
    
    
    11,848
    
    
    
    2,055
    
    
    
    13,903
 F-5




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##### 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 companyRetainedearnings/Share
    
    Share
    
    Other
    
    (accumulated
    
    
    
    
    
    Minority
    
    Totalcapital
    
    premium
    
    reserves
    
    loss)
    
    Total
    
    interests
    
    equityRMB
    
    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
    
    
    
    17Acquisition 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
    
    
    
    11,936Total equity at December 31, 2005
in U.S. dollars
    
    
    542
    
    
    
    660
    
    
    
    85
    
    
    
    (48
    )
    
    
    1,239
    
    
    
    240
    
    
    
    1,479
  
    F-6




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##### 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
    
    2005RMB
    
    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 operationsDepreciation of property, plant and equipment
    
    
    
    
    
    
    1,998
    
    
    
    2,363
    
    
    
    4,420
    
    
    
    548Other amortization
    
    
    
    
    
    
    40
    
    
    
    50
    
    
    
    40
    
    
    
    5Amortization of deferred credits
    
    
    
    
    
    
    (2
    )
    
    
    (4
    )
    
    
    (78
    )
    
    
    (10
    )Equity (loss)/income of affiliated companies
    
    
    
    
    
    
    (45
    )
    
    
    (10
    )
    
    
    285
    
    
    
    36Equity income/(loss) of jointly controlled entities
    
    
    
    
    
    
    46
    
    
    
    16
    
    
    
    (36
    )
    
    
    (5
    )Loss on sale of property, plant and equipment
    
    
    
    
    
    
    22
    
    
    
    1
    
    
    
    32
    
    
    
    4Interest income
    
    
    
    
    
    
    (13
    )
    
    
    (22
    )
    
    
    (55
    )
    
    
    (7
    )Interest expense
    
    
    
    
    
    
    824
    
    
    
    691
    
    
    
    1,616
    
    
    
    200Net 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
    
    
    
    6Increase 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
    
    
    
    277Increase in sales in advance of carriage
    
    
    
    
    
    
    76
    
    
    
    408
    
    
    
    539
    
    
    
    67Increase/(decrease) in accrued expenses
    
    
    
    
    
    
    203
    
    
    
    541
    
    
    
    (399
    )
    
    
    (49
    )Increase in other liabilities
    
    
    
    
    
    
    373
    
    
    
    1,223
    
    
    
    822
    
    
    
    102Increase in provision for major overhauls
    
    
    
    
    
    
    48
    
    
    
    113
    
    
    
    17
    
    
    
    2Cash inflows from operations
    
    
    
    
    
    
    3,075
    
    
    
    4,555
    
    
    
    5,419
    
    
    
    672Interest received
    
    
    
    
    
    
    13
    
    
    
    22
    
    
    
    55
    
    
    
    7Interest 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
  F-7




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##### 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
    
    2005RMB
    
    RMB
    
    RMB
    
    U.S. dollars(restated,
    
    (restated,Note 3)
    
    Note 3)Investing activities:Proceeds from sale of property,
plant and equipment
    
    
    
    
    
    
    57
    
    
    
    47
    
    
    
    238
    
    
    
    30Proceeds from sale of other investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    689
    
    
    
    85Increase in deferred credits
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57
    
    
    
    7Dividends received from affiliated companies
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    2
    
    
    
    Dividends received from jointly controlled entities
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    39
    
    
    
    5Dividends received from other non-current assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    1Dividends received from equity securities held
for trading
    
    
    
    
    
    
    
    
    
    
    13
    
    
    
    
    
    
    
    Decrease/(increase) in other non-current assets
    
    
    
    
    
    
    6
    
    
    
    (9
    )
    
    
    4
    
    
    
    1Payment 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
    
    
    
    572Capital 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
    
    
    
    2,260Repayment 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
    
    
    
    2Dividends paid to minority shareholders
    
    
    
    
    
    
    (15
    )
    
    
    (15
    )
    
    
    (20
    )
    
    
    (2
    )Net cash inflows from financing
activities
    
    
    
    
    
    
    1,615
    
    
    
    6,231
    
    
    
    3,992
    
    
    
    495Decrease/(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
    
    
    
    382Cash and cash equivalents at December 31
    
    
    
    
    
    
    2,080
    
    
    
    3,083
    
    
    
    2,901
    
    
    
    360
  F-8




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##### 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
      2. PRINCIPAL ACCOUNTING POLICIES
 (a) Statement of compliance
    F-9




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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)
 (b) Basis of preparation
    
    
    Certain property, plant and equipment (Note 2(d)); and
    
    Short term investments (Note 2(h)).
    (c) Basis of consolidation
  F-10




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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-11




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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-12




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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) Property, plant and equipment and depreciation
 (i) Owned assets
   F-13




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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)
 (ii) Leased assets
      (iii) Subsequent costs
  F-14




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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)
 (iv) Depreciation
  Buildings
    
    15 to 40 yearsOwned and leased aircraft
    
    15 to 20 yearsOther flight equipmentJet engines
    
    8 to 15 yearsOthers, including rotable spares
    
    8 to 15 yearsMachinery and equipment
    
    5 to 10 yearsVehicles
    
    6 years
   (e) Construction in progress
   f Lease prepayments
  F-15




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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)
 (g) Deferred expenditure
    (h) Other investments in debt and equity securities
     (i) Inventories
  (j) Trade and other receivables
  F-16




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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)
 (k) Cash and cash equivalents
  (l)
    
    Impairment of assets(i)
    
    Impairment of investments in debt and equity securities and other receivables
  
    
    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).
  F-17




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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)
 (ii) Impairment of other assets
  
    
    Property, plant and equipment;
    
    Construction in progress;
    
    Lease and equipment deposits;
    
    Lease prepayments;
    
    Deferred expenditure; and
    
    Interests in affiliated companies and jointly controlled entities.
  
    
    Calculation of recoverable amount
  
    
    Recognition of impairment losses
  
    
    Reversals of impairment losses
 F-18




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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-19




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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)
 (m) Interest- bearing borrowings
  (n) Trade and other payables
  (o) Provisions and contingent liabilities
   (p) Defeasance of long-term liabilities
  (q) Deferred credits
 F-20




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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-21




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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)
 (r) Income tax
        F-22




---



##### Table of Contents



CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in millions, except share data)
    
    
    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
  (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
  F-23




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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)
 (u) Maintenance and overhaul costs
    (v) Borrowing costs
  (w) Retirement benefits
  (x) Frequent flyer award programs
   F-24




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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)
 (y) Translation of foreign currencies
  (z) Related parties
  (aa) Segmental reporting
  3. NEW AND REVISED IFRSs
   F-25




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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-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)
   (b)
    
    Changes in presentation of minority interests (IAS 1, Presentation of financial statements
and IAS 27, Consolidated and separate financial statements)
   F-27




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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-28




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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)
 (c) Scope of related parties (IAS 24, Related party disclosures)
  4. TURNOVER
  Year ended December 31,2003
    
    
    2004
    
    
    2005RMB
    
    
    RMB
    
    
    RMBTraffic revenuePassenger
    
    
    15,010
    
    
    
    21,100
    
    
    
    34,328Cargo and mail
    
    
    1,955
    
    
    
    2,244
    
    
    
    3,09116,965
    
    
    
    23,344
    
    
    
    37,419Other operating revenueCommission income
    
    
    140
    
    
    
    203
    
    
    
    237General aviation income
    
    
    40
    
    
    
    55
    
    
    
    77Ground services income
    
    
    99
    
    
    
    146
    
    
    
    195Air catering income
    
    
    31
    
    
    
    53
    
    
    
    25Net income from lease arrangements (Note 21)
    
    
    69
    
    
    
    
    
    
    
    Rental income
    
    
    40
    
    
    
    45
    
    
    
    69Aircraft lease income
    
    
    
    
    
    
    11
    
    
    
    1Others
    
    
    86
    
    
    
    117
    
    
    
    270505
    
    
    
    630
    
    
    
    87417,470
    
    
    
    23,974
    
    
    
    38,293
  F-29




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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-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
    
    
    2005RMB
    
    
    RMB
    
    
    RMBJet fuel costs
    
    
    3,867
    
    
    
    6,050
    
    
    
    11,929Operating lease rentals- Aircraft and flight equipment
    
    
    1,536
    
    
    
    1,665
    
    
    
    2,497- Land and buildings
    
    
    136
    
    
    
    109
    
    
    
    302Air catering expenses
    
    
    474
    
    
    
    705
    
    
    
    1,196Aircraft insurance
    
    
    196
    
    
    
    185
    
    
    
    105Flight personnel payroll and welfare
    
    
    728
    
    
    
    1,026
    
    
    
    1,619Training expenses
    
    
    123
    
    
    
    183
    
    
    
    373CAAC Infrastructure Development
Fund contributions (Note 4)
    
    
    
    
    
    
    466
    
    
    
    978Others
    
    
    10
    
    
    
    29
    
    
    
    3957,070
    
    
    
    10,418
    
    
    
    19,394
 6. MAINTENANCE EXPENSES
 Year ended December 31,2003
    
    
    2004
    
    
    2005RMB
    
    
    RMB
    
    
    RMBRepairing and maintenance charges
    
    
    2,289
    
    
    
    3,247
    
    
    
    4,153Maintenance materials
    
    
    300
    
    
    
    212
    
    
    
    4362,589
    
    
    
    3,459
    
    
    
    4,589
 F-31




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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)
 7. AIRCRAFT AND TRAFFIC SERVICING EXPENSES
 Year ended December 31,2003
    
    
    2004
    
    
    2005RMB
    
    
    RMB
    
    
    RMBLanding and navigation fees
    
    
    2,562
    
    
    
    3,222
    
    
    
    4,891Ground service charges
    
    
    205
    
    
    
    281
    
    
    
    8682,767
    
    
    
    3,503
    
    
    
    5,759
 8. PROMOTION AND SALES EXPENSES
 Year ended December 31,2003
    
    
    2004
    
    
    2005RMB
    
    
    RMB
    
    
    RMBSales commissions
    
    
    757
    
    
    
    1,062
    
    
    
    1,503Ticket office expenses
    
    
    504
    
    
    
    552
    
    
    
    659Computer reservation services
    
    
    175
    
    
    
    233
    
    
    
    417Advertising and promotion
    
    
    24
    
    
    
    36
    
    
    
    32Others
    
    
    20
    
    
    
    57
    
    
    
    1691,480
    
    
    
    1,940
    
    
    
    2,780
 9. GENERAL AND ADMINISTRATIVE EXPENSES
 Year ended December 31,2003
    
    
    2004
    
    
    2005RMB
    
    
    RMB
    
    
    RMBGeneral corporate expenses
    
    
    1,011
    
    
    
    1,260
    
    
    
    2,408Impairment losses for trade and
other receivables (Note 17)
    
    
    12
    
    
    
    27
    
    
    
    Auditors remuneration
    
    
    8
    
    
    
    11
    
    
    
    12Other taxes and levies
    
    
    22
    
    
    
    25
    
    
    
    371,053
    
    
    
    1,323
    
    
    
    2,457
 F-32




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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)
 10. DEPRECIATION AND AMORTIZATION
 Year ended December 31,2003
    
    
    2004
    
    
    2005RMB
    
    
    RMB
    
    
    RMBDepreciation- Owned assets
    
    
    1,502
    
    
    
    1,891
    
    
    
    3,292- Assets acquired under capital leases
    
    
    496
    
    
    
    472
    
    
    
    1,128Amortization of deferred credits
    
    
    
    
    
    
    
    
    
    
    (20
    )Other amortization
    
    
    40
    
    
    
    50
    
    
    
    402,038
    
    
    
    2,413
    
    
    
    4,440
  11. STAFF COSTS
 Year ended December 31,2003
    
    
    2004
    
    
    2005RMB
    
    
    RMB
    
    
    RMBSalaries, wages and welfare
    
    
    1,496
    
    
    
    2,260
    
    
    
    3,515Retirement schemes contributions
    
    
    150
    
    
    
    168
    
    
    
    4721,646
    
    
    
    2,428
    
    
    
    3,987
  F-33




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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)
 12. INTEREST EXPENSE
 Year ended December 31,2003
    
    
    2004
    
    
    2005RMB
    
    
    RMB
    
    
    RMBInterest on bank and other notes payable wholly
repayable within five years
    
    
    288
    
    
    
    221
    
    
    
    211Interest on other notes payable
    
    
    176
    
    
    
    156
    
    
    
    877Finance charges on obligations under capital
leases
    
    
    443
    
    
    
    348
    
    
    
    626Less: borrowing costs capitalized
    
    
    (83
    )
    
    
    (34
    )
    
    
    (98
    )824
    
    
    
    691
    
    
    
    1,616
  13. INCOME TAX (BENEFIT)/EXPENSE
  Year ended December 31,2003
    
    
    2004
    
    
    2005RMB
    
    
    RMB
    
    
    RMB(restated,
    
    
    (restated,Note 3)
    
    
    Note 3)PRC income tax
    
    
    47
    
    
    
    176
    
    
    
    12Deferred tax (Note 25)- current year
    
    
    11
    
    
    
    (111
    )
    
    
    (19
    )- adjustment for change in enacted tax rate
    
    
    (392
    )
    
    
    
    
    
    
    (334
    )
    
    
    65
    
    
    
    (7
    )
  F-34




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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)
    Year ended December 31,2003
    
    
    2004
    
    
    2005RMB
    
    
    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
    
    
    
    7Tax effect of non-deductible expenses
    
    
    80
    
    
    
    29
    
    
    
    82Tax effect of non-taxable income
    
    
    
    
    
    
    
    
    
    
    (8
    )Tax effect of share of results of affiliated
companies and jointly controlled entities
    
    
    (9
    )
    
    
    (1
    )
    
    
    37Tax effect of unused tax losses not recognized
    
    
    22
    
    
    
    
    
    
    
    135Expired tax losses
    
    
    34
    
    
    
    
    
    
    
    Others
    
    
    4
    
    
    
    1
    
    
    
    18Actual tax (benefit)/expense
    
    
    (334
    )
    
    
    65
    
    
    
    (7
    )
  F-35




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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)
   14. DIVIDENDS
   15. BASIC LOSS PER SHARE
   16. CASH AND CASH EQUIVALENTS
  F-36




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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)
  December 31,2004
    
    
    2005United States Dollars
    

US$    37

    
    
US$    24Japanese Yen
    

JPY1, 272
    
    

JPY1, 161
 F-37




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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)
 17. TRADE RECEIVABLES
 December 31,2004
    
    2005RMB
    
    RMBTrade receivables, principally traffic
    
    
    1,295
    
    
    
    1,562Less: Impairment losses for bad and doubtful accounts
    
    
    (92
    )
    
    
    (44
    )1,203
    
    
    
    1,518
  December 31,2004
    
    2005RMB
    
    RMBWithin 1 month
    
    
    998
    
    
    
    1,366More than 1 month but less than 3 months
    
    
    163
    
    
    
    137More than 3 months but less than 12 months
    
    
    42
    
    
    
    14More than 12 months
    
    
    
    
    
    
    11,203
    
    
    
    1,518
    December 31,2004
    
    
    2005United States Dollars
    
    US$
    11
    
    
    US$
    15
 F-38




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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)
  Year ended December 31,2004
    
    2005RMB
    
    RMBAt January 1
    
    
    70
    
    
    
    92Impairment 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
    
    2005RMB
    
    RMBExpendable spare parts and maintenance materials
    
    
    1,175
    
    
    
    1,241Other supplies
    
    
    127
    
    
    
    1411,302
    
    
    
    1,382
  December 31,2004
    
    2005RMB
    
    RMBConsumption
    
    
    596
    
    
    
    720Write-down of inventories
    
    
    
    
    
    
    209596
    
    
    
    929
  F-39




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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)
 19. OTHER INVESTMENTS
 December 31,2004
    
    2005RMB
    
    RMBNon-current investmentsUnlisted equity securities available for sale, at cost
    
    
    272
    
    
    
    320Current investmentsListed equity securities held for trading
    
    
    523
    
    
    
    Listed debt securities held-to-maturity
    
    
    160
    
    
    
    683
    
    
    
    Market value of listed securities
    
    
    683
    
    
    
    
     Gross
    
    Grossunrealized
    
    unrealizedAmortized
    
    holding
    
    holdingcost
    
    gains
    
    losses
    
    Fair valueRMB
    
    RMB
    
    RMB
    
    RMBAs of December 31, 2004Debt securities held-to-maturity
    
    
    160
    
    
    
    
    
    
    
    
    
    
    
    160As of December 31, 2005Debt securities held-to-maturity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 F-40




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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)
 20. OTHER RECEIVABLES
  21. PROPERTY, PLANT AND EQUIPMENT, NET
 Other flightAircraft
    
    equipment,
    
    Machinery,Held
    
    including
    
    equipmentunder capital
    
    rotable
    
    andBuildings
    
    Owned
    
    leases
    
    spares
    
    vehicles
    
    TotalCost or valuation:At January 1, 2004
    
    
    3,288
    
    
    
    17,222
    
    
    
    10,463
    
    
    
    6,842
    
    
    
    1,930
    
    
    
    39,745Exchange adjustments
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    17Reclassification on exercise
of purchase options
    
    
    
    
    
    
    550
    
    
    
    (550
    )
    
    
    
    
    
    
    
    
    
    
    Additions
    
    
    336
    
    
    
    4,156
    
    
    
    
    
    
    
    525
    
    
    
    5
    
    
    
    5,022Transfer from construction
in progress
    
    
    2,472
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    235
    
    
    
    2,707Through the CNA/XJA
Acquisitions
    
    
    915
    
    
    
    5,206
    
    
    
    4,616
    
    
    
    1,753
    
    
    
    490
    
    
    
    12,980Disposals
    
    
    (28
    )
    
    
    
    
    
    
    
    
    
    
    (76
    )
    
    
    (73
    )
    
    
    (177
    )At December 31, 2004
    
    
    6,988
    
    
    
    27,134
    
    
    
    14,529
    
    
    
    9,044
    
    
    
    2,599
    
    
    
    60,294Representing:Cost
    
    
    6,633
    
    
    
    20,905
    
    
    
    10,189
    
    
    
    6,870
    
    
    
    2,115
    
    
    
    46,712Valuation - 1996 (Note (b))
    
    
    355
    
    
    
    6,229
    
    
    
    4,340
    
    
    
    2,174
    
    
    
    484
    
    
    
    13,5826,988
    
    
    
    27,134
    
    
    
    14,529
    
    
    
    9,044
    
    
    
    2,599
    
    
    
    60,294At January 1, 2005
    
    
    6,988
    
    
    
    27,134
    
    
    
    14,529
    
    
    
    9,044
    
    
    
    2,599
    
    
    
    60,294Exchange adjustments
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14
    )
    
    
    (20
    )Additions
    
    
    64
    
    
    
    1,827
    
    
    
    8,146
    
    
    
    1,336
    
    
    
    307
    
    
    
    11,680Transfer from construction
in progress
    
    
    513
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56
    
    
    
    569Transfer to inventories
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (126
    )
    
    
    
    
    
    
    (126
    )Disposals
    
    
    (256
    )
    
    
    
    
    
    
    
    
    
    
    (207
    )
    
    
    (81
    )
    
    
    (544
    )At December 31, 2005
    
    
    7,303
    
    
    
    28,961
    
    
    
    22,675
    
    
    
    10,047
    
    
    
    2,867
    
    
    
    71,853Representing:Cost
    
    
    6,948
    
    
    
    22,732
    
    
    
    18,335
    
    
    
    7,873
    
    
    
    2,383
    
    
    
    58,271Valuation - 1996 (Note (b))
    
    
    355
    
    
    
    6,229
    
    
    
    4,340
    
    
    
    2,174
    
    
    
    484
    
    
    
    13,5827,303
    
    
    
    28,961
    
    
    
    22,675
    
    
    
    10,047
    
    
    
    2,867
    
    
    
    71,853
 F-41




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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)
 Other flightAircraft
    
    equipment,
    
    Machinery,Held
    
    including
    
    equipmentunder capital
    
    rotable
    
    andBuildings
    
    Owned
    
    leases
    
    spares
    
    vehicles
    
    TotalAccumulated depreciation:At January 1, 2004
    
    
    594
    
    
    
    3,192
    
    
    
    2,605
    
    
    
    3,644
    
    
    
    1,174
    
    
    
    11,209Exchange adjustments
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    10Reclassification on exercise
of purchase options
    
    
    
    
    
    
    183
    
    
    
    (183
    )
    
    
    
    
    
    
    
    
    
    
    Charge for the year
    
    
    179
    
    
    
    956
    
    
    
    472
    
    
    
    544
    
    
    
    212
    
    
    
    2,363Disposals
    
    
    (17
    )
    
    
    
    
    
    
    
    
    
    
    (51
    )
    
    
    (61
    )
    
    
    (129
    )At December 31, 2004
    
    
    757
    
    
    
    4,331
    
    
    
    2,894
    
    
    
    4,137
    
    
    
    1,334
    
    
    
    13,453At January 1, 2005
    
    
    757
    
    
    
    4,331
    
    
    
    2,894
    
    
    
    4,137
    
    
    
    1,334
    
    
    
    13,453Exchange adjustments
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11
    )
    
    
    (12
    )Charge for the year
    
    
    227
    
    
    
    1,546
    
    
    
    1,108
    
    
    
    1,121
    
    
    
    418
    
    
    
    4,420Disposals
    
    
    (74
    )
    
    
    
    
    
    
    
    
    
    
    (145
    )
    
    
    (55
    )
    
    
    (274
    )At December 31, 2005
    
    
    909
    
    
    
    5,877
    
    
    
    4,002
    
    
    
    5,113
    
    
    
    1,686
    
    
    
    17,587Net book value:At December 31, 2004
    
    
    6,231
    
    
    
    22,803
    
    
    
    11,635
    
    
    
    4,907
    
    
    
    1,265
    
    
    
    46,841At December 31, 2005
    
    
    6,394
    
    
    
    23,084
    
    
    
    18,673
    
    
    
    4,934
    
    
    
    1,181
    
    
    
    54,266
   F-42




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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-43




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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)
   22. CONSTRUCTION IN PROGRESS
 December 31,2004
    
    2005RMB
    
    RMBAt January 1
    
    
    1,630
    
    
    
    565Additions
    
    
    1,616
    
    
    
    678Through the CNA/XJA Acquisitions
    
    
    26
    
    
    
    Transfer to property, plant and equipment
    
    
    (2,707
    )
    
    
    (569
    )At December 31
    
    
    565
    
    
    
    674
  F-44




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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)
 23. INTEREST IN AFFILIATED COMPANIES
 December 31,2004
    
    2005RMB
    
    RMBShare of net assets
    
    
    429
    
    
    
    142
   100%
    
    Groups effective interestDecember 31,
    
    December 31,2003
    
    2004
    
    2005
    
    2003
    
    2004
    
    2005RMB
    
    RMB
    
    RMB
    
    RMB
    
    RMB
    
    RMBNon-current assets
    
    
    
    
    
    
    4,254
    
    
    
    5,334
    
    
    
    
    
    
    
    1,672
    
    
    
    2,081Current assets
    
    
    
    
    
    
    2,165
    
    
    
    2,275
    
    
    
    
    
    
    
    1,049
    
    
    
    455Non-current
liabilities
    
    
    
    
    
    
    (2,918
    )
    
    
    (3,897
    )
    
    
    
    
    
    
    (1,290
    )
    
    
    (1,520
    )Current liabilities
    
    
    
    
    
    
    (2,568
    )
    
    
    (3,318
    )
    
    
    
    
    
    
    (1,002
    )
    
    
    (874
    )Net assets
    
    
    
    
    
    
    933
    
    
    
    394
    
    
    
    
    
    
    
    429
    
    
    
    142Revenues
    
    
    1,756
    
    
    
    2,676
    
    
    
    3,314
    
    
    
    682
    
    
    
    1,042
    
    
    
    1,318Expenses
    
    
    (1,637
    )
    
    
    (2,633
    )
    
    
    (3,798
    )
    
    
    (634
    )
    
    
    (1,030
    )
    
    
    (1,618
    )Taxation
    
    
    (6
    )
    
    
    (5
    )
    
    
    (39
    )
    
    
    (3
    )
    
    
    (2
    )
    
    
    15Income/(loss)
for the year
    
    
    113
    
    
    
    38
    
    
    
    (523
    )
    
    
    45
    
    
    
    10
    
    
    
    (285
    )
 24. INTEREST IN JOINTLY CONTROLLED ENTITIES
 December 31,2004
    
    
    2005RMB
    
    
    RMBShare of net assets
    
    
    782
    
    
    
    805
  F-45




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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)
  Groups effective interestDecember 31,2003
    
    2004
    
    2005RMB
    
    RMB
    
    RMBNon-current assets
    
    
    
    
    
    
    845
    
    
    
    920Current assets
    
    
    
    
    
    
    794
    
    
    
    877Non-current liabilities
    
    
    
    
    
    
    (389
    )
    
    
    (524
    )Current liabilities
    
    
    
    
    
    
    (468
    )
    
    
    (468
    )Net assets
    
    
    
    
    
    
    782
    
    
    
    805Revenues
    
    
    545
    
    
    
    762
    
    
    
    1,115Expenses
    
    
    (585
    )
    
    
    (767
    )
    
    
    (1,082
    )Taxation
    
    
    (6
    )
    
    
    (11
    )
    
    
    3(Loss)/income for the year
    
    
    (46
    )
    
    
    (16
    )
    
    
    36
 25. DEFERRED TAX ASSETS/LIABILITIES
  December 31,2004
    
    2005RMB
    
    RMBAt January 1
    
    
    (398
    )
    
    
    (287
    )Credited to consolidated statements of operations (Note
13)
    
    
    111
    
    
    
    19At December 31
    
    
    (287
    )
    
    
    (268
    )
 F-46




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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)
  December 31,2004
    
    2005RMB
    
    RMBDeferred tax assets:Tax losses
    
    
    39
    
    
    
    159Repair charges capitalized
    
    
    254
    
    
    
    275Accrued expenses
    
    
    275
    
    
    
    175Others
    
    
    21
    
    
    
    29Total deferred tax assets
    
    
    589
    
    
    
    638Deferred tax liabilities:Accrued expenses
    
    
    75
    
    
    
    58Depreciation allowances in excess of the related depreciation
    
    
    752
    
    
    
    832Others
    
    
    49
    
    
    
    16Total deferred tax liabilities
    
    
    876
    
    
    
    906(287
    )
    
    
    (268
    )Net deferred tax asset recognized on the consolidated balance sheet
    
    
    51
    
    
    
    74Net deferred tax liability recognized on the consolidated balance sheet
    
    
    (338
    )
    
    
    (342
    )(287
    )
    
    
    (268
    )
 F-47




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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)
   26. OTHER ASSETS
   December 31,2004
    
    2005RMB
    
    RMBAt January 1
    
    
    223
    
    
    
    197Amortization for the year
    
    
    (26
    )
    
    
    (26
    )At December 31
    
    
    197
    
    
    
    171
 27.
    
    DEBTShort-term notes payable
 December 31,2004
    
    2005RMB
    
    RMBShort-term notes payable
    
    
    9,925
    
    
    
    14,346Current installments of long-term notes payable
    
    
    1,593
    
    
    
    1,87711,518
    
    
    
    16,223
    F-48




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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)
 Long-term notes payable
 December 31,Interest rate and final maturity
    
    2004
    
    2005RMB
    
    RMBRenminbi denominated notes payableNon-interest bearing loan from a municipal
government authority repayable on demand
    
    
    3
    
    
    
    3Floating interest rates ranging from 5.02%
to 5.51% per annum as of December 31, 2005,
with maturities through 2011
    
    
    1,217
    
    
    
    877United States Dollars denominated notes payableFixed interest rates ranging from 4.43%
to 7.73% per annum as of December 31, 2005,
with maturities through 2015
    
    
    2,676
    
    
    
    2,414Floating 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
    
    
    
    3,610Floating 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
    
    
    
    7,71313,528
    
    
    
    14,617Less: current installments
    
    
    (1,593
    )
    
    
    (1,877
    )11,935
    
    
    
    12,740
  F-49




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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)
  December 31,2004
    
    2005RMB
    
    RMBGuarantorsShort-term notes payableCSAHC
    
    
    411
    
    
    
    300Long-term notes payableIndustrial Commercial Bank of China
    
    
    149
    
    
    
    111Export-Import Bank of the United States
    
    
    1,732
    
    
    
    1,171Bank of China
    
    
    291
    
    
    
    155CSAHC
    
    
    2,041
    
    
    
    1,608Shenzhen
Yingshun Investment Development Company Limited
    
    
    
    
    
    
    22SA Finance
    
    
    9
    
    
    
    74,633
    
    
    
    3,374
   F-50




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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)
  RMBYear ending December 31,2006
    
    
    1,8772007
    
    
    4,3162008
    
    
    2,1562009
    
    
    1,4352010
    
    
    660Thereafter
    
    
    4,17314,617
  December 31,2004
    
    2005United States Dollars
    
    US$1,969
    
    US$3,208Hong Kong Dollars
    
    HK$2,678
    
    HK$1,821
 F-51




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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)
 28. LEASE OBLIGATIONS
 Capital leases
   Payments
    
    *Interest
    
    ObligationsRMB
    
    RMB
    
    RMBYear ending December 31,2006
    
    
    4,030
    
    
    
    657
    
    
    
    3,3732007
    
    
    3,423
    
    
    
    493
    
    
    
    2,9302008
    
    
    3,016
    
    
    
    408
    
    
    
    2,6082009
    
    
    1,684
    
    
    
    307
    
    
    
    1,3772010
    
    
    1,050
    
    
    
    238
    
    
    
    812Thereafter
    
    
    5,412
    
    
    
    680
    
    
    
    4,73218,615
    
    
    
    2,783
    
    
    
    15,832Less: current
installments
of obligations
under capital
leases
    
    
    
    
    
    
    
    
    
    
    (3,373
    )12,459
 
 *
    
    Interest rates ranging from 1.44% to 8.01% per annum  Payments
    
    *Interest
    
    ObligationsRMB
    
    RMB
    
    RMBYear ending December 31,2005
    
    
    2,580
    
    
    
    436
    
    
    
    2,1442006
    
    
    3,213
    
    
    
    350
    
    
    
    2,8632007
    
    
    2,844
    
    
    
    279
    
    
    
    2,5652008
    
    
    2,699
    
    
    
    146
    
    
    
    2,5532009
    
    
    997
    
    
    
    71
    
    
    
    926Thereafter
    
    
    722
    
    
    
    30
    
    
    
    69213,055
    
    
    
    1,312
    
    
    
    11,743Less: current installments of
obligations
under capital leases
    
    
    
    
    
    
    
    
    
    
    (2,144
    )9,599
 
 *
    
    Interest rates ranging from 1.92% to 8.48% per annum F-52




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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)
    December 31,2004
    
    2005United States Dollars
    
    US$958
    
    US$1,556Japanese Yen
    
    JPY47,840
    
    JPY47,795
 Operating leases
  RMBYear ending December 31,2006
    
    
    3,3402007
    
    
    2,8812008
    
    
    2,7852009
    
    
    2,6092010
    
    
    2,523Thereafter
    
    
    10,456Total minimum lease payments
    
    
    24,594
 F-53




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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)
  RMBYear ending December 31,2005
    
    
    1,7612006
    
    
    1,6222007
    
    
    1,5622008
    
    
    5,2592009
    
    
    764Thereafter
    
    
    1,782Total minimum lease payments
    
    
    12,750
 29.
    
    TRADE AND BILLS PAYABLES
 December 31,2004
    
    2005RMB
    
    RMBTrade payables
    
    
    1,554
    
    
    
    3,033Bills payable
    
    
    136
    
    
    
    8961,690
    
    
    
    3,929
  December 31,2004
    
    2005RMB
    
    RMBWithin 1 month
    
    
    735
    
    
    
    2,000More than 1 month but less than 3 months
    
    
    431
    
    
    
    1,225More than 3 months but less than 6 months
    
    
    524
    
    
    
    7041,690
    
    
    
    3,929
   F-54




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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)
  December 31,2004
    
    2005United States Dollars
    
    US$
    108
    
    
    US$
    147
 30.
    
    AMOUNTS DUE FROM/TO RELATED COMPANIES(a)
    
    Amounts due from related companies
 December 31,2004
    
    2005RMB
    
    RMBJointly controlled entities
    


    
    84
  (b)
    
    Amounts due to related companies
 December 31,2004
    
    2005RMB
    
    RMBCSAHC and its subsidiaries
    
    
    2,094
    
    
    
    12An affiliated company
    
    
    
    
    
    
    5Jointly controlled entities
    
    
    340
    
    
    
    992,434
    
    
    
    116
  F-55




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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)
 31.
    
    ACCRUED EXPENSES
 December 31,2004
    
    2005RMB
    
    RMBJet fuel costs
    
    
    743
    
    
    
    686Operating lease charges
    
    
    29
    
    
    
    86Air catering expenses
    
    
    192
    
    
    
    132Salaries and welfare
    
    
    349
    
    
    
    193Lump sum housing benefits payable
    
    
    108
    
    
    
    92Repairs and maintenance
    
    
    976
    
    
    
    996Provision for major overhauls (Note 33)
    
    
    75
    
    
    
    151Landing and navigation fees
    
    
    1,331
    
    
    
    1,129Computer reservation services
    
    
    195
    
    
    
    190Interest expense
    
    
    240
    
    
    
    338Duties and levies
    
    
    71
    
    
    
    12Property management fee
    
    
    
    
    
    
    37Others
    
    
    242
    
    
    
    2084,551
    
    
    
    4,250
 32.
    
    OTHER LIABILITIES
 December 31,2004
    
    2005RMB
    
    RMBCAAC Infrastructure Development fund
    
    
    161
    
    
    
    177Airport construction surcharge
    
    
    316
    
    
    
    542Airport tax
    
    
    112
    
    
    
    198Construction cost payable
    
    
    864
    
    
    
    793Advance payment on chartered flights
    
    
    119
    
    
    
    104Sales agent deposits
    
    
    182
    
    
    
    198Other tax payable
    
    
    332
    
    
    
    441Others
    
    
    888
    
    
    
    1,3432,974
    
    
    
    3,796
 F-56




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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)
 33.
    
    PROVISION FOR MAJOR OVERHAULSDetails of provision for major overhauls in respect of aircraft held under operating leases
are as follows:
 Year ended December 31,2004
    
    2005RMB
    
    RMBAt January 1
    
    
    200
    
    
    
    359Provision for the year
    
    
    89
    
    
    
    129Through the CNA/XJA Acquisitions
    
    
    70
    
    
    
    Amount utilized
    
    
    
    
    
    
    (36
    )At December 31
    
    
    359
    
    
    
    452Less: current portion included in accrued
expenses (Note 31)
    
    
    (75
    )
    
    
    (151
    )284
    
    
    
    301
 34.
    
    SHARE CAPITAL
 December 31,2004
    
    2005RMB
    
    RMBRegistered, issued and paid up capital:2,200,000,000 domestic state-owned shares of RMB1.00 each
    
    
    2,200
    
    
    
    2,2001,174,178,000 H shares of RMB1.00 each
    
    
    1,174
    
    
    
    1,1741,000,000,000 A shares of RMB1.00 each
    
    
    1,000
    
    
    
    1,0004,374
    
    
    
    4,374
   F-57




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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)
 35. RESERVES
 December 31,2004
    
    
    2005RMB
    
    RMBShare premiumAt January 1 and December 31
    
    
    5,325
    
    
    
    5,325Statutory surplus reserve (Note (a))At 1 January
    
    
    361
    
    
    
    402Transfer from retained earnings
    
    
    41
    
    
    
    8At December 31
    
    
    402
    
    
    
    410Statutory public welfare fund (Note (b))At 1 January
    
    
    173
    
    
    
    193Transfer from retained earnings
    
    
    20
    
    
    
    5At December 31
    
    
    193
    
    
    
    198Discretionary surplus reserve (Note (c))At 1 January
    
    
    77
    
    
    
    77Transfer from retained earnings
    
    
    
    
    
    
    6At December 31
    
    
    77
    
    
    
    83Retained earnings/(accumulated loss)At 1 January
    
    
    1,586
    
    
    
    1,477Loss for the year
    
    
    (48
    )
    
    
    (1,848
    )Appropriations to reserves
    
    
    (61
    )
    
    
    (19
    )At December 31
    
    
    1,477
    
    
    
    (390
    )Total
    
    
    7,474
    
    
    
    5,626
 
   F-58




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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)
    36. RELATED PARTY TRANSACTIONS
  (a) Significant transactions with related companies
  F-59




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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)
  2003
    
    2004
    
    2005Note
    
    RMB
    
    RMB
    
    RMBExpenses paid to CSAHC and its affiliatesHandling charges
    
    (i)
    
    
    27
    
    
    
    33
    
    
    
    32Air catering supplies
    
    (ii)
    
    
    90
    
    
    
    170
    
    
    
    173Wet lease rentals
    
    (iii)
    
    
    36
    
    
    
    
    
    
    
    Commission expense
    
    (iv)
    
    
    5
    
    
    
    2
    
    
    
    26Sundry aviation supplies
    
    (v)
    
    
    43
    
    
    
    66
    
    
    
    88Lease charges for aircraft
    
    (vi)
    
    
    
    
    
    
    
    
    
    
    10Lease charges for land and buildings
    
    (vii)
    
    
    15
    
    
    
    18
    
    
    
    90Property management fee
    
    (viii)
    
    
    
    
    
    
    
    
    
    
    28Housing benefits
    
    (ix)
    
    
    85
    
    
    
    85
    
    
    
    Expenses paid to affiliated companies and
jointly controlled entitiesGround service expenses
    
    (x)
    
    
    
    
    
    
    
    
    
    
    32Repairing charges
    
    (xi)
    
    
    693
    
    
    
    1,159
    
    
    
    1,118Flight simulation service charges
    
    (xii)
    
    
    101
    
    
    
    100
    
    
    
    126Interest expense
    
    (xiii)
    
    
    
    
    
    
    3
    
    
    
    37Income received from affiliated companies
and jointly controlled entitiesRental income
    
    (xii)
    
    
    31
    
    
    
    31
    
    
    
    31Interest income
    
    (xiii)
    
    
    3
    
    
    
    4
    
    
    
    3OthersCNA/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




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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)
 
 (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




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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)
 
 (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.  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 FinanceLoans from SA Finance are unsecured and have the following terms:
 December 31,2004
    
    
    2005Interest rate
    
    Guarantee
    
    
    RMB
    
    
    RMBFloating 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
    
    
    
    300256
    
    
    
    300
 (c)
    
    Key management personnel remunerationRemuneration for key management personnel is as follows:
 December 31,2004
    
    
    2005RMB
    
    
    RMBShort-term employees benefits
    
    
    6,748
    
    
    
    5,926Post-employment benefits
    
    
    182
    
    
    
    2216,930
    
    
    
    6,147Directors and supervisors
    
    
    4,684
    
    
    
    3,461Senior management
    
    
    2,246
    
    
    
    2,6866,930
    
    
    
    6,147
  (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




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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)
 (e) Transactions with other state-owned enterprises
  37. RETIREMENT AND HOUSING BENEFITS
    F-64




---



##### Table of Contents



CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in millions, except share data)
  38. SEGMENTAL INFORMATION
  (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 KongDomestic
    
    
    and Macau
    
    
    International*
    
    
    TotalRMB
    
    
    RMB
    
    
    RMB
    
    
    RMB2003Traffic revenue
    
    
    13,087
    
    
    
    808
    
    
    
    3,070
    
    
    
    16,965Other operating revenue
    
    
    436
    
    
    
    
    
    
    
    69
    
    
    
    505Turnover
    
    
    13,523
    
    
    
    808
    
    
    
    3,139
    
    
    
    17,470Operating income/(loss)
    
    
    440
    
    
    
    (29
    )
    
    
    45
    
    
    
    456Depreciation and amortization
    
    
    1,581
    
    
    
    85
    
    
    
    372
    
    
    
    2,038Significant 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 KongDomestic
    
    
    and Macau
    
    
    International*
    
    
    TotalRMB
    
    
    RMB
    
    
    RMB
    
    
    RMB2004Traffic revenue
    
    
    17,742
    
    
    
    1,180
    
    
    
    4,422
    
    
    
    23,344Other operating revenue
    
    
    630
    
    
    
    
    
    
    
    
    
    
    
    630Turnover
    
    
    18,372
    
    
    
    1,180
    
    
    
    4,422
    
    
    
    23,974Operating income
    
    
    650
    
    
    
    67
    
    
    
    192
    
    
    
    909Depreciation and amortization
    
    
    1,876
    
    
    
    99
    
    
    
    438
    
    
    
    2,413Significant non-cash items other than
depreciation and amortization:Impairment losses for trade and
other receivables
    
    
    27
    
    
    
    
    
    
    
    
    
    
    
    272005Traffic revenue
    
    
    29,533
    
    
    
    1,298
    
    
    
    6,588
    
    
    
    37,419Other operating revenue
    
    
    874
    
    
    
    
    
    
    
    
    
    
    
    874Turnover
    
    
    30,407
    
    
    
    1,298
    
    
    
    6,588
    
    
    
    38,293Operating loss
    
    
    (282
    )
    
    
    (97
    )
    
    
    (926
    )
    
    
    (1,305
    )Depreciation and amortization
    
    
    3,663
    
    
    
    139
    
    
    
    638
    
    
    
    4,440Significant 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.  39. MATERIAL NON-CASH TRANSACTIONS
   F-66




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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)
 40. EFFECT OF THE CNA/XJA ACQUISITIONS
  Year ended December 31,2003
    
    
    2004
    
    
    2005RMB
    
    
    RMB
    
    
    RMBAssets 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




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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)
  The Group
    
    
    Results of(without effect
    
    
    airlineof CNA/XJA
    
    
    operationsAcquisitions)
    
    
    of CNA/XJA
    
    
    CombinedRMB
    
    
    RMB
    
    
    RMBTurnover
    
    
    23,974
    
    
    
    10,057
    
    
    
    34,031Income for the year
    
    
    155
    
    
    
    170
    
    
    
    325
 41.
    
    FINANCIAL INSTRUMENTS
  Liquidity risk
    F-68




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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)
 Interest rate risk
  Foreign currency risk
     Credit risk
  F-69




---



##### Table of Contents



CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in millions, except share data)
  Fair value
  December 31,2004
    
    
    2005Carrying
    
    
    Fair
    
    
    Carrying
    
    
    Fairamount
    
    
    value
    
    
    amount
    
    
    valueRMB
    
    
    RMB
    
    
    RMB
    
    
    RMBNotes payable
    
    
    23,453
    
    
    
    23,665
    
    
    
    28,963
    
    
    
    28,989
  (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.
  (ii) Notes payable
  (iii)
  F-70




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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)
 42.
    
    COMMITMENTS(a)
    
    Capital commitments
  2004
    
    
    2005RMB
    
    
    RMBCommitments in respect of aircraft and flight equipment authorized and contracted for
    
    
    11,776
    
    
    
    45,628 authorized but not contracted for
    
    
    13,571
    
    
    
    25,347
    
    
    
    45,628Commitments
in respect of investments in the Guangzhou new airport authorized and contracted for
    
    
    110
    
    
    
    79 authorized but not contracted for
    
    
    714
    
    
    
    761824
    
    
    
    840Other commitments authorized and contracted for
    
    
    132
    
    
    
    11 authorized but not contracted for
    
    
    568
    
    
    
    1,324700
    
    
    
    1,33526,871
    
    
    
    47,803
 F-71




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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)
  2004
    
    
    2005RMB
    
    
    RMB2005
    
    
    8,748
    
    
    
    2006
    
    
    2,996
    
    
    
    7,3412007
    
    
    32
    
    
    
    8,9452008
    
    
    
    
    
    
    14,3542009
    
    
    
    
    
    
    5,3002010
    
    
    
    
    
    
    9,68811,776
    
    
    
    45,628
  2004
    
    
    2005RMB
    
    
    RMBAuthorized and contracted for
    
    
    
    
    
    
    Authorized but not contracted for
    
    
    156
    
    
    
    74156
    
    
    
    74
 (b) Investing commitments
  2004
    
    
    2005RMB
    
    
    RMBSubsidiaries
    
    
    181
    
    
    
    Jointly controlled entities
    
    
    83
    
    
    
    83264
    
    
    
    83
 F-72




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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)
 43.
    
    CONTINGENCIES
    44.
    
    SUBSEQUENT EVENT
  45.
    
    COMPARATIVE FIGURES
  46.
    
    PARENT AND ULTIMATE HOLDING COMPANY
  F-73




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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)
 47.
    
    ACCOUNTING ESTIMATES AND JUDGMENTS
   Impairments
  Depreciation
  F-74




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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)
 Impairment loss for doubtful accounts
  48.
    
    RECENTLY ISSUED ACCOUNTING STANDARDS
  Effective foraccounting periodsbeginning on or afterIFRS 6, Exploration for and evaluation of mineral
resources
    
    January 1, 2006IFRS 7, Financial instruments: disclosure
    
    January 1, 2007IFRIC 4, Determining whether an arrangement contains
a
lease
    
    January 1, 2006IFRIC 5, Rights to interests arising from
decommissioning,
restoration environmental rehabilitation funds
    
    January 1, 2006IFRIC 6, Liabilities arising from participating in a
specific
market  Waste electrical and electronic equipment
    
    December 1, 2005IFRIC 7, Applying the restatement approach under IAS
29,
Financial reporting in hyperinflationary economies
    
    March 1, 2006IFRIC 8, Scope of IFRS 2
    
    May 1, 2006IFRIC 9, Reassessment of embedded derivatives
    
    June 1, 2006
 F-75




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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)
 Effective foraccounting periodsbeginning on or afterAmendments to IAS 1, Presentation of financial
statements
    
    January 1, 2007 capital disclosuresAmendments
to IAS 19, Employee benefits  actuarial
gains and losses, group plans and disclosures
    
    January 1, 2006Amendments
to IAS 39, Financial instruments: recognition and measurement
    
    January 1, 2006 Cash flow hedge accounting of forecast intragroup
transactions The fair value optionAmendments
to IAS 39, Financial instruments: recognition and measurement, and IFRS 4, Insurance
contracts
    
    January 1, 2006 Financial guarantee contractsAmendment to IAS 21, The effects of changes in
foreign exchange rates
    
    January 1, 2006 Net investment in a foreign operationAmendments to IFRS 1, First-time adoption
    
    January 1, 2006Amendments 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 dateRevised 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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##### Table of Contents



CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in millions, except share data)
  F-77




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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)
 49. SUBSIDIARIES
  Proportion ofPlace of
    
    
    
    
    
    ownershipestablishment
    
    
    
    
    
    interest held by
    
    PrincipalName of company
    
    /operation
    
    Registered capital
    
    the Company
    
    activitiesGuangxi Airlines Company Limited (a)
    
    PRC
    
    RMB170,900,000
    
    
    95
    %
    
    AirlineSouthern Airlines (Group) Shantou
Airlines Company Limited (a)
    
    PRC
    
    RMB280,000,000
    
    
    60
    %
    
    AirlineZhuhai Airlines Company Limited (a)
    
    PRC
    
    RMB250,000,000
    
    
    60
    %
    
    AirlineXiamen Airlines Company Limited (a)
    
    PRC
    
    RMB700,000,000
    
    
    60
    %
    
    AirlineGuizhou Airlines Company Limited (a)
    
    PRC
    
    RMB80,000,000
    
    
    60
    %
    
    AirlineGuangzhou Air Cargo Company
Limited (a)
    
    PRC
    
    RMB238,000,000
    
    
    70
    %
    
    Cargo servicesGuangzhou Baiyun International
Logistic Company Limited (a)
    
    PRC
    
    RMB50,000,000
    
    
    61
    %
    
    Logistics operationsGuangzhou Nanland Air Catering
Company Limited (b)
    
    PRC
    
    RMB120,000,000
    
    
    75
    %
    
    Air cateringChina Southern West Australian Flying
College Pty Limited
    
    Australia
    
    AUD100,000
    
    
    65
    %
    
    Pilot training servicesXinjiang 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. F-78




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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
  Proportion ofownership interest held byPlace of
    
    Groupsestablishment
    
    effective
    
    The
    
    
    
    
    
    PrincipalName of company
    
    /operation
    
    interest
    
    Company
    
    subsidiaries
    
    activitiesGuangzhou Aircraft Maintenance
Engineering Company Limited (a)
    
    PRC
    
    
    50
    %
    
    
    50
    %
    
    
    
    
    
    Provision of aircraft repair and maintenance servicesChina Southern Airlines Group
Finance Company Limited
    
    PRC
    
    
    49.3
    %
    
    
    32
    %
    
    
    26
    %
    
    Provision of  financial servicesSichuan Airlines Corporation Limited
    
    PRC
    
    
    39
    %
    
    
    39
    %
    
    
    
    
    
    AirlineMTU Maintenance Zhuhai Co. Ltd. (a)
    
    PRC
    
    
    50
    %
    
    
    50
    %
    
    
    
    
    
    Provision of engine repair and maintenance servicesChina Postal Airlines Limited (a)
    
    PRC
    
    
    49
    %
    
    
    49
    %
    
    
    
    
    
    AirlineZhuhai Xiang Yi Aviation
Technology Company Limited (a)
    
    PRC
    
    
    51
    %
    
    
    51
    %
    
    
    
    
    
    Provision of flight simulation servicesBeijing 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. F-79




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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
  (a) CNA/XJA Acquisitions
   (b) Sale and leaseback accounting
  (c) Lease arrangements
    F-80




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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
   (e) Revaluation of property, plant and equipment
    F-81




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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
   (g) Provision for major overhauls
    (h) Classification of short-term obligations expected to be refinanced
   F-82




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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
         December 31,2004
    
    
    2005RMB
    
    
    RMBDeferred tax assets:Tax losses
    
    
    92
    
    
    
    347Repair charges capitalized
    
    
    254
    
    
    
    275Accrued expenses
    
    
    275
    
    
    
    175Others
    
    
    21
    
    
    
    29Total deferred tax assets
    
    
    642
    
    
    
    826Less: valuation allowance
    
    
    (53
    )
    
    
    (188
    )589
    
    
    
    638Deferred tax liabilities:Accrued expenses
    
    
    75
    
    
    
    58Depreciation allowances in excess of the related depreciation
    
    
    752
    
    
    
    832Others
    
    
    49
    
    
    
    16Total deferred tax liabilities
    
    
    876
    
    
    
    906(287
    )
    
    
    (268
    )Representing:Deferred tax assets  current portion
    
    
    161
    
    
    
    61Deferred tax assets  non-current portion
    
    
    428
    
    
    
    577Deferred tax liabilities  current portion
    
    
    (75
    )
    
    
    (58
    )Deferred tax liabilities  non-current portion
    
    
    (801
    )
    
    
    (848
    )(287
    )
    
    
    (268
    )
    F-83




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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)
    2003
    
    

2004RMB
    
    
    RMBIncome tax
(benefit)/expense as previously reported under U.S. GAAP
    
    
    (526
    )
    
    
    274Reclassification 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
  Reference
    
    Year ended December 31,in Note
    
    2003
    
    2004
    
    2005
    
    2005above
    
    RMB
    
    RMB
    
    RMB
    
    U.S. dollarsLoss 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
    
    
    
    19Sale and leaseback accounting
    
    (b)
    
    
    115
    
    
    
    115
    
    
    
    115
    
    
    
    14Lease arrangements
    
    (c)
    
    
    (64
    )
    
    
    7
    
    
    
    7
    
    
    
    1Capitalized 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
    
    
    
    1Deferred 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
    
    
    
    10Net (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




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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)
  Reference
    
    December 31,in Note
    
    2004
    
    2005
    
    2005above
    
    RMB
    
    RMB
    
    U.S. DollarsTotal
shareholders equity under IFRSs
    
    
    
    
    13,903
    
    
    
    11,936
    
    
    
    1,479U.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
    
    
    
    41Investments in affiliated company
and jointly controlled entity
    
    (f)
    
    
    (104
    )
    
    
    (97
    )
    
    
    (12
    )Deferred tax effect on airline
operations of CNA and XJA
    
    
    
    
    66
    
    
    
    122
    
    
    
    15Deferred 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




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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)
  Condensed consolidated statements of operations
 2003
    
    2004RMB
    
    RMBOperating revenue:Traffic revenue
    
    
    24,897
    
    
    
    33,235Other operating revenue
    
    
    586
    
    
    
    930Total operating revenue
    
    
    25,483
    
    
    
    34,165Operating expenses:Flight operations
    
    
    10,351
    
    
    
    15,016Maintenance
    
    
    3,878
    
    
    
    4,578Aircraft and traffic servicing
    
    
    3,803
    
    
    
    4,789Promotion and sales
    
    
    2,043
    
    
    
    2,606General and administrative
    
    
    1,397
    
    
    
    1,759Depreciation and amortization
    
    
    3,042
    
    
    
    3,523Asset impairment charges
    
    
    510
    
    
    
    Others
    
    
    93
    
    
    
    17Total operating expenses
    
    
    25,117
    
    
    
    32,288Operating income
    
    
    366
    
    
    
    1,877Non-operating income/(expenses):Interest income
    
    
    27
    
    
    
    33Interest expense
    
    
    (1,604
    )
    
    
    (1,184
    )Equity income/(loss) of affiliated companies
    
    
    50
    
    
    
    15Equity (loss)/income of jointly controlled entities
    
    
    (44
    )
    
    
    (14
    )Investment income
    
    
    
    
    
    
    5Exchange (loss)/gain, net
    
    
    (381
    )
    
    
    (124
    )Others, net
    
    
    37
    
    
    
    85Total net non-operating expenses
    
    
    (1,915
    )
    
    
    (1,184
    )(Loss)/income before income tax and minority interests
    
    
    (1,549
    )
    
    
    693Income tax benefit/(expense)
    
    
    536
    
    
    
    (261
    )(Loss)/income before minority interests
    
    
    (1,013
    )
    
    
    432Minority interest
    
    
    (127
    )
    
    
    (193
    )(Loss)/income for the year
    
    
    (1,140
    )
    
    
    239
 F-86




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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)
  Condensed consolidated statements of cash flows
  2003
    
    2004RMB
    
    RMBNet cash inflow/(outflow) fromOperating activities
    
    
    2,965
    
    
    
    5,419Investing activities
    
    
    (7,558
    )
    
    
    (9,507
    )Financing activities
    
    
    2,820
    
    
    
    4,172(Decrease)/increase in cash and cash equivalents
    
    
    (1,773
    )
    
    
    84Cash and cash equivalents at January 1
    
    
    4,772
    
    
    
    2,999Cash and cash equivalents at December 31
    
    
    2,999
    
    
    
    3,083
 Condensed consolidated statements of changes in total shareholders equity
 TotalRMBShareholders equity at December 31, 2002
    
    
    6,796Issue of A shares
    
    
    2,641Net loss
    
    
    (1,140
    )Net liabilities assumed by CSAHC (note a)
    
    
    4,552Recognition of deferred tax assets (note b)
    
    
    246Contributions from CSAHC
    
    
    3Shareholders equity at December 31, 2003
    
    
    13,098Net income
    
    
    239Net 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




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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)
  (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




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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)
 
  Operating revenue
 Year ended December 31,2003
    
    2004RMB
    
    RMBTraffic revenuePassenger
    
    
    22,438
    
    
    
    30,443Cargo and mail
    
    
    2,459
    
    
    
    2,79224,897
    
    
    
    33,235Other operating revenueCommission income
    
    
    157
    
    
    
    227General aviation income
    
    
    40
    
    
    
    55Ground services income
    
    
    123
    
    
    
    202Air catering income
    
    
    31
    
    
    
    53Rental income
    
    
    40
    
    
    
    45Aircraft lease income
    
    
    36
    
    
    
    145Gain on disposal of property,
plant and equipment
    
    
    
    
    
    
    Maintenance services income
    
    
    30
    
    
    
    23Income on transfer of
surplus pilot trainees
    
    
    
    
    
    
    Utility services income
    
    
    14
    
    
    
    28Other
    
    
    115
    
    
    
    152586
    
    
    
    930Total operating revenue
    
    
    25,483
    
    
    
    34,165
 Income tax
   F-89




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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)
  Year ended December 31,2003
    
    2004RMB
    
    RMBPRC 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




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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)
  Year ended December 31,2003
    
    2004RMB
    
    RMBExpected 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
    )
    
    
    3Rate 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
    
    
    
    
    
    
    17Effect of share of results of affiliated companies and
jointly controlled entities
    
    
    9
    
    
    
    12Other, net
    
    
    (3
    )
    
    
    (6
    )536
    
    
    
    (261
    )
  F-91




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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)
 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
  F-92




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description of Exhibit4.1
    
    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 Company12.1
    
    Section 302 Certification of Chairman12.2
    
    Section 302 Certification of President12.3
    
    Section 302 Certification of Chief Financial Officer13.1
    
    Section 906 Certification of Chairman13.2
    
    Section 906 Certification of President13.3
    
    Section 906 Certification of Chief Financial Officer