19 January 2005

Company Announcements Office
The Australian Stock Exchange Limited

Dear Sir/Madam

AEC LETTER TO APPLICANTS

Advanced Engine Components Limited ("AEC" or "the Company") today lodge
the covering letter to prospectus applicants dispatched with the Supplementary
Prospectus (previously lodged with ASX on 17 January 2005).

For further information please contact Tony Middleton, Managing Director, on 08 9209 6911.

Yours faithfully

SIMON STORM
COMPANY SECRETARY

17 January 2005

Dear Shareholder/Applicant

PROSPECTUS OFFER

Attached is a copy of the Supplementary Prospectus which extends the time for completion of the current $3.5 million Prospectus Offer and re-quotation of the Company's shares on the Australian Stock Exchange. The closing date of the Offer has been extended to 21 February 2005.

The Directors are disappointed the Offer did not close prior to the Christmas break. It is always difficult to identify the specific reasons. However, there appear to be a number of contributing factors, which include:

(a) general investor interest in the lead up to the Christmas break;
(b) concerns that AEC is an engine technology company;
(c) AEC's past history; and, in particular
(d) the execution risk of the Chinese contracts.

In the Directors' opinion, issues that directly relate to the Company were all addressed prior to the issue of the Prospectus and have been either minimised or eliminated.

AEC's NGVS technology is proven and has been commercially successful for many years. Nearly 650 buses are operating in Australia and Europe using the AEC NGVS system.

AEC's principal business is the export of know how together with the related systems and components. AEC is not a technology company nor an engine manufacturer. Major engine and vehicle manufacturers, including Irisbus, First Auto Works and Weichai, have selected AEC for its expertise, design skills and world leading systems.

AEC is complimenting the skills and strengths of First Auto Works and Weichai, two of China's largest engine manufacturers. We are not competing with them. If these two major engine manufacturers are to produce gas engines they require access to the skills and knowledge that AEC has built over the last 20 years. In fact, Weichai has exclusive arrangements with AEC and has granted AEC the right to market on behalf of Weichai in markets outside of China.

The Company's operations, particularly the Chinese contracts, are proceeding in line with expectations set out in the Prospectus. As you read this letter the first of the First Auto Works engines is on its way back to China for road testing.

In addition to existing contracts, the Company continues to develop lucrative markets in Australia, South East Asia, India, Iran and Pakistan. Further details on some of these activities were announced to the Australian Stock Exchange on 3 December 2004.

Your Directors remain very positive about the Offer and the future of the Company. AEC's technology provides a sustainable, environmentally responsible alternative fuel to oil which has never been as marketable as it is today.

Discussions with potential institutional and other major investors will continue with the aim of closing the Offer and re-quotation of the Company's shares on ASX as soon as possible.

Applicants who have already subscribed for shares are advised to read the Supplementary Prospectus and consult their investment advisors before making a decision in respect of their current applications.

For further information in relation to the above or should you require another copy of the Prospectus or Supplementary Prospectus please contact:

Tony Middleton - Managing Director, on (08) 9209 6911;
Graham Keys - Chairman, on (08) 9324 8555; or
Email: shares@advancedengine.com

Yours faithfully

GRAHAM KEYS
CHAIRMAN

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