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AviChina Industry & Technology Company Ltd

AviChina Industry & Technology Co Ltd is engaged in the development, manufacture, sales and upgrade of aviation products, such as helicopters, trainers, general-purpose aircraft and regional jets, and the co-development and manufacture of helicopters with foreign helicopter manufacturers. With 26,364 employees as of 2011, its aviation products include the Z-8, Z-9, Z-11 and HC-I20 series helicopters; K-8 series and CJ-6 trainers, and Y-12 series multi-purpose aeroplanes and the N-5 series agricultural aeroplanes.

AviChina Industry & Technology Company Limited ("AviChina") was established in Beijing, the PRC on 30 April 2003 with a registered capital of RMB4.6 billion. AviChina has been listed on the main board of the Stock Exchange of Hong Kong Limited since 30 October 2003. Its principle shareholders include Aviation Industry Corporation of China ("AVIC"), European Aeronautic Defence and Space Company ("EADS"), China Hua Rong Asset Management Corporation, China Cinda Asset Management Corporation and China Orient Asset Management Corporation. AviChina had total assets of about RMB20 billion, share capital of RMB4.949 billion and issued H shares 2.14 billion. EADS is a strategic partner of AviChina and holds 5.03% equity interests in AviChina.

AviChina's main aviation products include helicopters, regional aircraft, trainers, general-purpose aircraft, aero-parts and components and aero-mechanical and electrical instruments. Helicopter products comprise Z8 series, Z9 series, Z11 series, H425s and HC120s. It has cooperated with Eurocopter, Agusta and Sikorsky to manufacture helicopter models EC120 series, CA109 series and parts and components of S92 series, respectively. AviChina is also a leading manufacturer of trainers and general-purpose aircraft in China. We produce L15 advanced trainers, K8 series trainers, CJ6 primary trainers, Y12 series transportation aircraft and N5 agricultural and forestry aircraft. The main R&D and production bases of AviChina are located in Harbin, Nanchang and Jingdezhen. AviChina has widely collaborated with world leading aviation manufacturers. Our cooperation with Airbus includes: A320 series aircraft final assembly line set up in Tianjin, AviChina's investment accounting for 20% in the Chinese Consortium's investment; and Hafei Airbus Composite Manufacturing Center, in which AviChina holds 20% equity interests in total.

In November 2008, China aviation industry completed a historic reorganization and established Aviation Industry Corporation of China ("AVIC"). The reorganized AVIC, listed in the World Top 500 in 2009, becomes the controlling shareholder of AviChina, which could provide stronger support and further broad prospects for the development of AviChina. AVIC has a registered capital of RMB64 billion, holds a completed aviation industry chain comprising research and development, manufacturing, marketing and services, employs the art-of-the-edge technologies and top human resources in China and has assets of RMB300 billion in total. In 2008, AVIC recorded a revenue of RMB166 billion in total.

With support from AVIC, AviChina will continuously upgrade its technologies and management through international cooperation, and enlarge its capital and market value by operations in overseas capital markets and is heading for AVIC's flagship manufacturer with a completed value chain for civil aviation products as well as a platform for overseas financing, merger and acquisition. AviChina will stick to the idea as "dedication, honest, innovation and exceeding", continue to improve its management system and supervision, enhance management and standardize operations, promote efficiency so as to return to our shareholders and the society.

On April 30, 2009, Jiangxi Changhe Automobile Co., Ltd. (Changhe Auto), a subsidiary of the Company, acquired Shanghai Aviation Electric Co., Ltd. and Lanzhou Wanli Aviation Electrical Co., Ltd., from Aviation Industry Corporation of China (AVIC). This consideration was satisfied by Changhe Auto by distributing its entire automobile assets to AVIC. On August 31, 2009, the Company distributed its 100% equity interests in a subsidiary, Harbin Hafei Automobile Industry Group Co., Ltd., to a subsidiary of AVIC.

2010 was a year during which the Group continued to push forward its business reorganization, improve its profitability and expand its profit base following the successful turnaround of the Group's business from loss to profit in 2009. During 2010, research and development of various aviation products of the Company progressed smoothly, assets reorganization and merger and acquisition projects were also conducted orderly and all the key tasks were successfully accomplished. On 10 March 2010, the Company completed the placing of approximately 330 million new Shares, the proceeds raised were fully utilized for acquisition of aviation assets so as to perfect the industry chain of the Company. In addition, the completion of the placing of new shares in Hongdu Aviation had provided funds for acquisition of aviation assets and investment in Jiangxi Commercial Aircraft Co., Ltd. for the manufacturing of the ancillary parts of the C919 large aircraft.

The industry chain of the avionics business of the Company was further improved through the acquisition of avionics enterprises, namely AVIC Kaitian, AVIC Lanfei, Taiyuan Instrument, Qianshan Avionics, Shaanxi Baocheng, Shaanxi Huayan by AVIC Avionics by way of issue of consideration shares. The acquisition of the entire equity interest in Tianjin Aviation through the issue of Domestic Shares and partial cash payment has been launched, which will enable the Company to set foot in new aviation mechanical and electrical business. Through the implementation of a series of assets reorganization, the aviation industry chain was perfected and laid a solid foundation for the future development and profit improvement of the Company. At the same time, the Company actively applied for High-Tech Enterprise Certification from the State and had formally passed the initial assessment conducted by the Beijing Bureau of High-Tech Enterprise Certification on 31 August 2010. In order to motivate the management team and retain talents, the Company had applied to SASAC for approval of the restricted share incentive scheme of the Company. The scheme was formally approved by SASAC.

For the year ended 31 December 2010, the comprehensive business (including continuing operations and discontinued operations) of the Group recorded a turnover of RMB14,364 million, representing a decrease of 13.54% as compared with RMB16,613 million in 2009. This is mainly attributable to the completion of the disposal of the entire vehicle business in 2009. Accordingly, the results during the reporting year no longer included the revenue derived from the entire vehicle business. In 2010, the aviation business of the Group underwent a rapid development with an increased sales volume of helicopters, resulting in a turnover of RMB8,013 million arising from the continuing operations of the Group during the reporting year, representing an increase of 41.72% as compared with that of last year. The procedures for the registration of the transfer of equity interests in each of Dongan Motor and JONHON Optronic were not completed by 31 December 2010.