Air China Ltd plans to raise as much as 8.7 billion Hong Kong dollars (US$1.1 billion) in its initial public offering in Hong Kong and London to buy aircraft and pay off debt, bankers involved in the sale said.

　　Based in Beijing, the nation's biggest international carrier plans to sell 2.805 billion shares at between HK$2.35 and HK$3.10 each, which is 8.8 times to 11 times the 2005 profit levels forecast by banks arranging the sale, the sources said, asking not to be identified.

　　The airline is selling its shares at a valuation similar to that of China Eastern Airlines Corp, the nation's third-largest carrier by fleet size, which trades at 11 times forecast 2005 earnings, according to Bloomberg data. China Southern Airlines Co, the country's largest airline, trades at 15 times forecast 2005 earnings.

　　Air China plans to fix the price of its shares during the week of December 6 and start trading in Hong Kong and London during the week of December 13, the bankers said.

　　The carrier plans to spend 18.7 billion yuan (US$2.3 billion) buying 46 aircraft by 2006 and building an airport terminal, according to Merrill Lynch's research on the sale. Chinese airlines have been expanding their fleets as rising urban incomes make travel affordable to more people.

　　The company will benefit from a rally in Hong Kong shares that has pushed the city's benchmark stock index to its highest in almost four years, according to analysts. Hong Kong's Hang Seng Index closed at 14,023.29 yesterday, the highest since March 9, 2001. The benchmark has climbed 20 percent in the past six months, partly as an influx of mainland tourists helped revive the city's economy.

　　The acquisition of a 10 percent stake by Hong Kong's Cathay Pacific Airways Ltd and a decline in fuel prices from a 14-year high last month may also boost investor confidence.

　　"The timing is right to list on the market, and the Cathay Pacific investment will help," said Andy Mantel, managing director of Pacific Sun Investment Management Ltd in Hong Kong, which may buy the shares. "A lot will still come down to pricing."

　　Air China is luring investors to the sale by citing an expected increase in demand for air travel and air freight in China, boosted by the country's average 9 percent annual economic growth during the past decade.

　　An estimated 100 million Chinese citizens will travel abroad every year by 2020, an average annual growth rate of 12.8 percent, or triple the global industry expansion, according to the Madrid-based World Tourism Organization, a United Nations agency.

　　On the downside, higher jet fuel prices are threatening to erode the profitability of Chinese airlines even as traffic is increasing. China's dominant jet-fuel supplier raised prices for domestic airlines by 10.8 percent.

　　(Bloomberg News)