CONFIDENTIAL
[CHINA EASTERN AIRLINES CORPORATION LIMITED LETTERHEAD]
January 26, 2006
Mr. David R. Humphrey
Branch Chief
Division of Corporation Finance
Securities and Exchange Commission
100 F Street, N.E.
Washington, DC 20549
United States of America
RE: CHINA EASTERN AIRLINES CORPORATION LIMITED
Form 20-F for the fiscal year ended December 31, 2004
Filed June 24, 2005, File No. 001-14550
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Dear Mr. Humphrey:
This is in response to the Staff's second comment letter, dated January 17,
2006, relating to (i) the annual report on Form 20-F of China Eastern Airlines
Corporation Limited (the "Company") for the fiscal year ended December 31, 2004
(the "2004 Form 20-F") and (ii) the Company's response letter, dated January 6,
2006, relating to the Staff's first comment letter.
We will submit a copy of this letter as "correspondence" via EDGAR. For the
Staff's comments which request expanded or revised disclosure, we propose to
include the revised or expanded disclosure in our annual report on Form 20-F for
the fiscal year ending December 31, 2005 (the "2005 Form 20-F"). The revised or
expanded disclosure in the 2005 Form 20-F will reflect facts, data and
conditions as of the respective dates as will be required or otherwise described
in the 2005 Form 20-F. We do not propose to amend the 2004 Form 20-F.
For your convenience, we have included your comments in this response
letter in italicized form and keyed our response accordingly. Our responses to
the comments are as follows. The page number references in our responses are to
the 2004 Form 20-F.
Mr. David R. Humphrey
page 2
CAPITAL EXPENDITURES, PAGE 42
1. Refer to your response to our previous comments 3. We note from the
discussion on page 41 that you have, and may continue to have, substantial
debts and that interest expenses associated with these debts might impair
your future profitability. Given the potential significance of outstanding
contractual commitments to your profitability, we believe that you should
enhance the disclosures you propose to add. Specifically, we believe you
should indicate the extent to which interest under finance leases and bank
loans is variable in nature. You should also explain the assumptions you
have used in calculating any variable interest. That is, you have disclosed
the contractual terms by which variable interest rates are computed.
However, you have not explained the assumptions utilized in order to
determine the direction of interest rates after year one. Please describe
your assumptions regarding the direction and magnitude of interest rate
changes in subsequent periods in a footnote to the table.
RESPONSE: The Company notes the Staff's comment and will disclose its
ongoing interest obligations in the 2005 Form 20-F in accordance with the
following revised table (with all figures to be modified to correspond to the
actual amounts of interest obligations outstanding as of December 31, 2005):
<Table>
- ---------------------------------------------------------------------------------------------------------
Contractual obligations Total <1 Year 1-3 Year 4-5 Year After 5 years
(RMB millions)
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Interest Obligations
- ---------------------------------------------------------------------------------------------------------
- - Under finance lease 1,153 337 318 113 385
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- - Under bank loans 1,187 501 410 204 72
- ---------------------------------------------------------------------------------------------------------
- Fixed rate 63 25 22 8 7
- ---------------------------------------------------------------------------------------------------------
- Variable rate (note) 1,123 475 387 195 64
- ---------------------------------------------------------------------------------------------------------
Total 2,340 838 728 317 457
- ---------------------------------------------------------------------------------------------------------
</Table>
Note: For the Company's variable rate loans, interest rates range from 3 months
LIBOR + 0.25% to 6 months LIBOR + 0.6%. Interest obligations relating to
variable rate loans are calculated based on the relevant LIBOR rates as of
December 31, 2004. A 1% increase or decrease in the interest rate would increase
or decrease the interest obligations by RMB304 million in total with RMB129
million in year 1, RMB105 million in years 2 and 3, RMB53 million in years 4 and
5 and RMB17 million for subsequent years.
NOTE 2 -- PRINCIPAL ACCOUNTING POLICIES
(B) Group Accounting
(I) Subsidiaries, page F-10
2. We note from your response to our previous comment 4 that you consider your
acquisition of Air Great Wall to be an asset purchase and not the
acquisition of a
Mr. David R. Humphrey
page 3
business. It is unclear from your response and your current disclosure how
you performed the analysis to arrive at this conclusion. Supplementally
explain to us the facts and circumstances surrounding your conclusion that
this acquisition should be accounted for as an asset acquisition and not
the acquisition of a business. We may have further comment on your
response.
RESPONSE: The Company's response to previous comment 4 refers to the
Company's acquisitions of China General Aviation Company and Air Great Wall as
asset purchases only because this is the true description of how such
acquisitions were legally structured and consummated. From an accounting
perspective, the Company's acquisitions of China General Aviation Company and
Air Great Wall were treated as acquisitions of businesses, as indicated in the
last sentence in part i of the Company's response to previous comment 4. The
Company has not disclosed the acquired entities as its subsidiaries in Note 2(b)
to the 2004 Form 20-F because the Company did not actually purchase, and does
not own, the legal entities that were China General Aviation Company and Air
Great Wall.
3. As a related matter, please revise your explanation in Note 39 (d) to
include a discussion of the differences in goodwill arising from the
differences in the treatment of acquisitions of businesses or assets under
"common control" and, if applicable, from the acquisition of assets from
unrelated third parties under IFRS and US GAAP. Your added disclosure
should include the reason for the differences in treatment and the dollar
amounts of the differences in basis.
RESPONSE: The Company notes the Staff's comment and will make the following
additional disclosures in the 2005 Form 20-F as follows:
Under IFRS, the accounting for common control business combinations is
outside the scope of IAS 22 and IFRS 3. The Company has selected an
acquisition method as its accounting policy for these transactions. Under
U.S. GAAP, business combinations under common control transactions should
be accounted for at historical cost.
Additionally, the Company will quantify the impact of such difference in
accounting policy and disclose such amounts in its 2005 financial statements to
be contained in the 2005 Form 20-F.
4. Refer to your response to our prior comment 5. You state that there are no
VIEs for which you absorb the majority of losses or returns that would have
a material impact upon your financial statements. Please note the
disclosure requirements set forth in paragraph 24 of FIN46, as revised.
Specifically, disclosures are also required with respect to any holdings of
significant variable interests in VIEs for which you are not the primary
beneficiary. If applicable, please include these disclosures in your 2005
Form 20-F as well.
Mr. David R. Humphrey
page 4
RESPONSE: The Company notes the Staff's comment and confirms to the Staff
it will perform a FIN 46 assessment for each reporting period and include all
required disclosures under FIN 46 in the 2005 Form 20-F, where applicable.
Supplementally, the Company would like to inform the Staff that, as of December
31, 2004, it did not hold a significant variable interest in any variable
interest entity for which the Company was not the primary beneficiary that would
require disclosure under paragraph 24 of FIN 46.
* * *
In connection with responding to the Staff's comments, the Company hereby
acknowledges that
o the Company is responsible for the adequacy and accuracy of the
disclosure in its filings;
o the Staff's comments or changes to disclosure in response to the
Staff's comments in the filings reviewed by the Staff do not foreclose
the Commission from taking any action with respect to the Company's
filings; and
o the Company may not assert the Staff's comments as a defense in any
proceeding initiated by the Commission or any person under the federal
securities laws of the United States.
Mr. David R. Humphrey
page 5
Should you have any questions or wish to discuss the foregoing, please
contact Nian Zhou (Legal Affairs, Office of the Secretary of the Board of
Directors) at 86-21-5113-0922.
Sincerely,
/s/ LUO Weide
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LUO Weide
Chief Financial Officer
cc: Amy Geddes
Margery Reich
(Securities and Exchange Commission)
Haosheng Wang
Nian Zhou
(China Eastern Airlines Corporation Limited)
Amelia Yau
Dennis Neider
Jack Li
Frederick Mang
(PricewaterhouseCoopers)
Chun Wei
Da-Wai Hu
Liu Fang
(Sullivan & Cromwell LLP)