China Southern Announces Very Substantial Acquisition & Connected Transactions Regarding Northern Airlines/Xinjiang Airlines

Business Wire, Nov 15, 2004

The cargo transportation business also showed material improvement with cargo yield per RFTK increasing 12% from RMB1.90 for year 2001 to RMB2.13 for the first six months of 2004.

Passenger and cargo air transportation are Xinjiang Airlines Group's principal businesses. In 2003, passenger air transportation business generated 96% of total revenues with freight transportation business accounting for 4%.

Xinjiang Airlines Group has managed to improve its domestic passenger load factor to 66% in the first half of 2004 from 59% in 2001. Passenger traffic as measured by RPK has also increased over the past three years. However, passenger yields suffered in 2003 and first half 2004 due to increased competition.

Operational bases

Shenyang, Dalian, Harbin, and Changchun are the primary bases for Northern Airlines Group. Urumqi is the principal base for Xinjiang Airlines Group.

(c) Routes network

From the four bases in northeastern China, Northern Airlines Group currently offers regular flights on 106 domestic routes to over 46 cities in China and 29 international routes to North Asia and Russia.

Headquartered in Urumqi, Xinjiang Airlines Group is the leading air traffic service provider in northwestern China. It offers regular flight services on 42 domestic routes. It also offers regular flight services on seven international routes to major cities in the Middle East, Russia and West Asia.

Top 10 routes of Northern Airlines Group by revenue
First six months ended
30 June, 2004 2003

1. Changchun-Beijing Changchun-Beijing
2. Shenyang-Beijing Harbin-Shenyang-Shenzhen
3. Dalian-Beijing Harbin-Dalian-Guangzhou
4. Harbin-Beijing Harbin-Beijing
5. Dalian-Shanghai Pudong Dalian-Beijing
6. Harbin-Shenyang-Shenzhen Shenyang-Beijing
7. Harbin-Dalian-Guangzhou Shenyang-Wenzhou-Guangzhou
8. Shenyang-Shanghai Pudong Shenyang-Shanghai Pudong
9. Shenyang-Wenzhou-Guangzhou Dalian-Shanghai Pudong
10. Dalian-Hangzhou-Shenzhen Dalian-Hangzhou-Shenzhen

Top 10 routes of Xinjiang Airlines Group by revenue
First six months ended
30 June, 2004 2003

1. Urumqi-Beijing Urumqi-Beijing
2. Urumqi-Shanghai Urumqi-Shanghai
3. Urumqi-Changsha-Shenzhen Urumqi-Kashi
4. Urumqi-Chengdu Urumqi-Changsha-Shenzhen
5. Urumqi-Guangzhou Urumqi-Guangzhou
6. Urumqi-Kashi Urumqi-Chengdu
7. Urumqi-Lanzhou-Hangzhou Urumqi-Lanzhou-Hangzhou
8. Urumqi-Zhengzhou-Qingdao Urumqi-Zhengzhou-Qingdao
9. Urumqi-Yili Urumqi-Xian
10. Urumqi-Xian Urumqi-Zhengzhou-Fuzhou

(d) Fleet

As of June 30, 2004, Northern Airlines Group owned and operated 55 medium to large size aircraft with an average fleet age of 8.08 years. The table below sets out details of its fleet:

Northern Airlines Group's fleet details (as of 30 June, 2004)
Finance Operating
Self-owned lease lease Total
MD82 10 1 11 22
MD90 3 10 - 13
A300 - 6 - 6
A321 4 4 - 8
A319 - - 3 3
Cessna 208B 3 - - 3
Total 20 21 14 55

Xinjiang Airlines Group has gradually phased out the Soviet-made TU-154 and IL-86 for commercial flights. The airline has recently purchased and leased a large number of Boeing and ATR commercial aircraft. As of June 30, 2004, the average age of the 20 aircraft owned or operated by Xinjiang Airlines Group was 5.90 years. Details of the fleet are set out in the table below: *T Xinjiang Airlines Group's fleet details (as of 30 June, 2004) Operating Self-owned lease Total B757-200 6 3 9 B737-300 2 - 2 B737-700 - 4 4 ATR-72 5 - 5 Total 13 7 20 *T