Air China Ltd, the nation's flagship carrier, is awaiting government approval to issue A shares. The China Securities Regulatory Commission will assess the airline's application tomorrow.

If approved, Air China would be the second major State-owned enterprise to go public on the Chinese mainland following Bank of China (BOC) after the government lifted its year-long ban on initial public offerings (IPOs) in May. BOC was listed in Shanghai earlier this month.

Air China plans to issue no more than 2.7 billion yuan-denominated shares on the Shanghai Stock Exchange to institutional and public investors, the Hong Kong-listed company said in a draft prospectus.

The issue price would not be lower than 90 per cent of the average closing price of Air China's H shares, the company said.

"The listing on the Chinese mainland will provide a new financing channel for Air China. We will have more choices to finance the future expansion of Air China," said Rao Xinyu, Air China's board secretary.

Rao declined to disclose how much capital Air China planned to raise through the listing.

Analysts said the total capital would likely amount to 8 billion yuan (US$1 billion).

Air China would use the fund to finance the purchase of 20 Airbus A330-200 aircraft, 15 Boeing 787s and 10 Boeing 737-800s as well as its airport expansion project in Beijing, the company said in its IPO application. The aggregate catalogue price of the 45 aircraft is US$5.68 billion. The deals were clinched last year and at the beginning of this year.

Analysts said Air China's stock performance on the mainland is likely to be better than the other two major Chinese aviation groups China Eastern Airlines and China Southern Airlines.

"Air China has a much more extensive and stronger flight network than its rivals, especially on international routes," said Li Lei, an aviation analyst with CITIC Securities, a Beijing-based securities company.

Air China's international flight network also gives it a cost advantage over rivals because it can buy jet fuel abroad at lower prices as about half of its flights are international, Li said.

Other Chinese carriers have to buy fuel for domestic flights, the largest source of their revenue, from monopoly State-owned oil supplier China Aviation Oil Holding Co.

"Besides its relatively stronger profitability, Air China's cross shareholding with Cathay Pacific would also help to boost investors' confidence in Air China's long-term performance," Li said.

Cathay early last month agreed to increase its stake in Air China from 10 per cent to 20 per cent. Air China will acquire 10.2 per cent of Cathay. In aggregate, Air China and its subsidiary, China National Aviation Co, will own 17.5 per cent of Cathay.

But since the whole aviation industry is plagued by record-high fuel prices, Li added, the Air China share issue price would not be very high.

"The average fuel price was US$57 per barrel last year, but this year it already shot up to US$70 by July. The profitability of the whole aviation industry will continue to drop this year," Li said.

Shares of Air China dropped 1.49 per cent to HK$2.98 (38 US cents) yesterday.

The carrier will issue its half-year report at the end of August. It reported a 0.85 per cent rise in net profit for 2005, while its domestic rivals continued to fly in the red.

(China Daily July 25, 2006)