If Apple is actually working on an update to the MacBook Air, then I think that's great, but you have to remember, this is Apple. When these updates do happen, they tend to infuriate as much as they delight. Here is what I can envisage them doing -
Delight - CPU - Intel has discontinued higher end Broadwell CPUs and the CPUs that Apple is using in the current MBA have no Broadwell-based successor. I do not think Apple would go with Skylake CPUs at this point, since the U-series (6360U,6660U) were superseded by Kaby Lake U-Series (7360U, 7660U) so quickly. Couple that with the inevitable update to quad-core Coffee Lake U-Series in the 13" MacBook Pro at some point this year, leaving dual-core Kaby Lake as a logical choice. It also ensures compatibility with HEVC and HEIF in future macOS updates. So minimum Skylake, but I am hedging towards Kaby Lake U-Series.
Both - RAM - 8GB LPDDR3 standard, 16GB LPDDR3 BTO. Apple is not giving you a DIMM slot for your own upgrades, let it go.
Infuriate - Flash Storage - 128, 256, 512 and new 1TB BTO options, nVME, but slower than MacBook Pro storage. Apple is going to solder this to the board after years of using a proprietary slot.
Neither - GPU - Built-in...it's a MacBook Air, if you want a discrete GPU, buy an MBP.
Both - Ports - USB 3 Type-A (x2), SDXC Card reader, headphone jack and TB3 replaces TB2, with two ports, one of which replaces the MagSafe port. Again, let it go. MagSafe had it's day and Apple wants to standardize power delivery to USB-C.
Both - Display - 1680X1050, but it will be an IP-S panel. I think Apple can get IP-S at the price it wants and I don't think the battery hit will be that bad, given that the CPU is a bit more power efficient. Apple is not going to put a Retina display in a "value" portable. If you want Retina, they are going to push you to a 12" MacBook or a 13" MacBook Pro.
Both - Keyboard - Not the current keyboard, but not the butterfly one either...more than likely, the Magic Keyboard mechanism will be used. It's cheaper to implement in a value portable and allows Apple to discontinue manufacturing the current MacBook Air mechanism. Also, expect it have the arrow keys that NOBODY seems to like.
Both - Trackpad - Force Touch, and bigger, but not as big as it's Pro siblings.
I think we might see some minor chassis mods for revised airflow, the revised ports, larger trackpad, etc. I expect the lighted Apple logo to disappear to fall in line with the current MBP ID. My opinion is that Apple management thinks it's cheesy and not dignified enough.
The iSight will stay at 720p. I think the screen will be made a tad thinner, maybe the body as well, but I wouldn't count on it if Apple is trying to maximize it's existing investment without retooling the innards too much. hopefully, tiered/terraced batteries make an appearance and we still get the phenomenal battery life that made the MBA famous.
We'll see if I'm right, if Apple actually releases an update, but that's a big IF.