Form 20-F

20-F 1 d39685d20f.htm FORM 20-F Form 20-F

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 20-F

☐	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2020

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐	SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-14550

中国东方航空股份有限公司

(Exact Name of Registrant as Specified in Its Charter)


China Eastern Airlines Corporation Limited		The People’s Republic of China
(Translation of Registrant’s Name Into English)		(Jurisdiction of Incorporation or Organization)

5/F, Block A2, Northern District, CEA Building

36 Hongxiang 3rd Road, Minhang District, Shanghai

People’s Republic of China

Tel: (8621) 6268-6268

Fax: (8621) 6268-6116

(Address and Contact Details of the Board Secretariat’s Office)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol

Name of Each Exchange on which Registered

American Depositary Shares

Ordinary H Shares, par value RMB1.00 per share

CEA

The New York Stock Exchange

The New York Stock Exchange*

(1)	Not for trading, but only in connection with the registration of American Depositary Shares. The Ordinary H Shares are also listed and traded on The Stock Exchange of Hong Kong Limited.

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

As of December 31, 2020, 11,202,731,426 Ordinary Domestic Shares, par value RMB1.00 per share, were issued and outstanding, and 5,176,777,777 Ordinary H Shares par value RMB1.00 per share, were issued and outstanding. H Shares are Ordinary Shares of the Company listed on The Stock Exchange of Hong Kong Limited. Each American Depositary Share represents 50 Ordinary H Shares.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 . Yes ☐ No ☒

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large Accelerated Filer ☒		Accelerated Filer ☐		Non-Accelerated Filer ☐		Emerging Growth Company ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act. ☐

The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP ☐

International Financial Reporting Standards as issued

by the International Accounting Standards Board ☒

Other

☐

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 ☐ Item 18 ☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒


		Page No.
PART I

Item 1.	Identity of Directors, Senior Management and Advisers		3

Item 2.	Offer Statistics and Expected Timetable		3

Item 3.	Key Information		3

Item 4.	Information on the Company		17

Item 4A.	Unresolved Staff Comments		35

Item 5.	Operating and Financial Review and Prospects		35

Item 6.	Directors, Senior Management and Employees		58

Item 7.	Major Shareholders and Related Party Transactions		66

Item 8.	Financial Information		74

Item 9.	The Offer and Listing		76

Item 10.	Additional Information		77

Item 11.	Quantitative and Qualitative Disclosures about Market Risk		89

Item 12.	Description of Securities Other than Equity Securities		91

PART II

Item 13.	Defaults, Dividend Arrearages and Delinquencies		92

Item 14.	Material Modifications to the Rights of Security Holders and Use of Proceeds		92

Item 15.	Controls and Procedures		92

Item 16A.	Audit Committee Financial Expert		93

Item 16B.	Code of Ethics		93

Item 16C.	Principal Accountant Fees and Services		93

Item 16D.	Exemptions from the Listing Standards for Audit Committees		94

Item 16E.	Purchase of Equity Securities by the Issuer and Affiliated Purchasers		94

Item 16F.	Changes in Registrant’s Certifying Accountant		94

Item 16G.	Corporate Governance		94

Item 16H.	Mine Safety Disclosures		96

PART III

Item 17.	Financial Statements		96

Item 18.	Financial Statements		96

Item 19.	Exhibits		96

SUPPLEMENTAL INFORMATION

In this Annual Report, unless otherwise specified, the term “dollars”, “U.S. dollars” or “US$” refers to United States dollars, the lawful currency of the United States of America, or the United States or the U.S.; the term “Renminbi” or “RMB” refers to Renminbi, the lawful currency of The People’s Republic of China, or China or the PRC; the term “Hong Kong dollars” or “HK$” refers to Hong Kong dollars, the lawful currency of the Hong Kong Special Administrative Region of China, or Hong Kong; the term “SGD” refers to Singapore dollars, the lawful currency of the Republic of Singapore; the term “JPY” refers to Japan Yen, the lawful currency of Japan; the term “EUR” refers to EURO, the lawful currency of EMU member countries and the term “KRW” refers to Korea Won, the lawful currency of the Republic of Korea. Any discrepancies in the tables included herein between the amounts listed and the totals are due to rounding.

In this Annual Report, the term “we”, “us”, “our”, “our/the Company”, or “our/the Group” refers to China Eastern Airlines Corporation Limited, a joint stock limited company incorporated under the laws of the PRC on April 14, 1995, and our subsidiaries, or, in respect of references to any time prior to the incorporation of China Eastern Airlines Corporation Limited, the core airline business carried on by its predecessor, China Eastern Airlines, which was assumed by China Eastern Airlines Corporation Limited pursuant to the restructuring described in this Annual Report. The term “CEA Holding” refers to our parent, China Eastern Air Holding Company, which was established on October 11, 2002 as a result of the merger of our former controlling shareholder, Eastern Air Group Company, or EA Group, with China Northwest Airlines Company and Yunnan Airlines Company.

For the purpose of this Annual Report, references to The People’s Republic of China, China and the PRC do not include Hong Kong, Taiwan, or the Macau Special Administrative Region of China, or Macau.

CAUTIONARY STATEMENT WITH RESPECT TO FORWARD-LOOKING STATEMENTS

Certain information contained in this Annual Report may be deemed to constitute forward-looking statements. These forward-looking statements include, without limitation, statements relating to:

•

the impact of changes in the policies of the Civil Aviation Administration of China, or the CAAC, regarding route rights;

•

the impact of the CAAC policies regarding the restructuring of the airline industry in China;

•

the impact of macroeconomic fluctuations (including the fluctuations of oil prices, and interest and exchange rates);

•

certain statements with respect to trends in prices, volumes, operations, margins, risk management, overall market trends and exchange rates;

•

our fleet development plans, including, without limitation, related financing, schedule, intended use and planned disposition;

•

our expansion plan of the cargo operations;

•

our expansion plans, including possible acquisition of other airlines;

•

our marketing plans, including the establishment of additional sales offices;

•

our plan to add new pilots; and

•

the impact of unusual events on our business and operations.

The words or phrases “aim”, “anticipate”, “believe”, “continue”, “could”, “estimate”, “expect”, “going forward”, “intend”, “may”, “ought to”, “plan”, “potential”, “predict”, “project”, “seek”, “should”, “will”, “would”, and similar expressions or the negatives thereof, as they relate to our Company or its management, are intended to identify “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, or the Exchange Act. These forward-looking statements are based on current plans and estimates, and speak only as of the date they are made. We undertake no obligation to update or revise any forward-looking statement in light of new information, future events or otherwise. Forward-looking statements are, by their nature, subject to inherent risks and uncertainties, some of which are beyond our control, and are based on assumptions and analyzes made by us in light of our experience and our perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in particular circumstances. We caution you that a number of important factors could cause actual outcomes to differ, or to differ materially, from those expressed in any forward-looking statement, including, without limitation:

(1)

changes in political, economic, legal and social conditions in China;

(2)

any changes in the regulatory policies of the CAAC;

(3)

the development of the high-speed rail network in the PRC;

(4)

fluctuations of interest rates and foreign exchange rates;

(5)

the availability of qualified flight personnel and airport facilities;

(6)

the effects of competition on the demand for and price of our services;

(7)

the availability and cost of aviation fuel, including but not limited to pricing trends and risks associated with fuel hedging;

(8)

any significant depreciation of Renminbi or Hong Kong dollars against U.S. dollars, Japanese yen, Singapore dollar, Korea Won or Euro, the currencies in which the majority of our borrowings are denominated;

(9)

our ability to obtain adequate financing, including any required external debt and acceptable bank guarantees; and

(10)

general economic conditions in markets where we operate.

GLOSSARY OF TECHNICAL TERMS


Capacity measurements

ATK (available tonne-kilometers)		the number of tonnes of capacity available for the carriage of revenue load (passengers and cargo) multiplied by the distance flown

ASK (available seat kilometers)		the number of seats made available for sale multiplied by the distance flown

AFTK (available freight tonne-kilometers)		the number of tonnes of capacity available for the carriage of cargo and mail multiplied by the distance flown

Traffic measurements

revenue passenger-kilometers or RPK		the number of passengers carried multiplied by the distance flown

revenue freight tonne-kilometers or RFTK		cargo and mail load in tonnes multiplied by the distance flown

revenue passenger tonne-kilometers or RPTK		passenger load in tonnes multiplied by the distance flown

revenue tonne-kilometers or RTK		load (passenger and cargo) in tonnes multiplied by the distance flown

Load factors

overall load factor		tonne-kilometers expressed as a percentage of ATK

passenger load factor		passenger-kilometers expressed as a percentage of ASK

Yield and cost measurements

passenger yield (revenue per passenger-kilometer)		revenue from passenger operations divided by passenger-kilometers

cargo and mail yield (revenue per cargo and mail tonne-kilometer)		revenue from cargo and mail operations divided by cargo and mail tonne-kilometers

average yield (revenue per total tonne-kilometer)		revenue from airline operations divided by tonne-kilometers

unit cost		operating expenses divided by ATK

Tonne		a metric ton, equivalent to 2,204.6 lbs

PART I

Item 1. Identity of Directors, Senior Management and Advisers

Not applicable.

Item 2. Offer Statistics and Expected Timetable

Not applicable.

Item 3. Key Information

A.	Selected Financial Data

Pursuant to U.S. Securities and Exchange Commission (“SEC” or “Securities and Exchange Commission”) Release 33-8879 “ Acceptance from Foreign Private Issuers of Financial Statements Prepared in Accordance with International Financial Reporting Standards without Reconciliation to U.S. GAAP ” eliminating the requirement for foreign private issuers to reconcile their financial statements to U.S. GAAP, we prepare our financial statements based on International Financial Reporting Standards, or IFRSs, as issued by the International Accounting Standards Board, or the IASB, and no longer provide a reconciliation between IFRSs and U.S. GAAP.

Our consolidated financial statements as of December 31, 2019 and 2020 and for the years ended December 31, 2018, 2019 and 2020 included in this Annual Report on Form 20-F have been prepared in accordance with IFRSs.

We make an explicit and unreserved statement of compliance with IFRSs with respect to our consolidated financial statements as of December 31, 2019 and 2020 and for the years ended December 31, 2018, 2019 and 2020 included in this Annual Report. Ernst & Young Hua Ming LLP, our current independent registered public accounting firm in the PRC, has issued an unqualified auditor’s report on our consolidated statements of financial position as of December 31, 2019 and 2020 and the related consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for the years ended December 31, 2018, 2019 and 2020. The selected financial data from the consolidated profit or loss and other comprehensive income for the year ended December 31, 2017 and the selected financial data from the consolidated financial position as of December 31, 2017 and 2018 have been derived from our audited consolidated financial statements, which have been prepared in accordance with IFRSs, and audited by Ernst & Young Hua Ming LLP. The selected financial data from the consolidated profit or loss and other comprehensive income for the year ended December 31, 2016 and the selected financial data from the consolidated financial position as of December 31, 2016 have been derived from our audited consolidated financial statements, which have been prepared in accordance with IFRSs, and audited by Ernst & Young, an independent registered public accounting firm in Hong Kong.

The following tables present selected consolidated profit or loss and comprehensive income data for the years ended December 31, 2016, 2017, 2018, 2019 and 2020 and selected consolidated statements of financial position data as of December 31, 2016, 2017, 2018, 2019 and 2020 that were prepared under IFRSs. The selected financial information as of December 31, 2019 and 2020 and for the years ended December 31, 2018, 2019 and 2020 has been derived from, and should be read in conjunction with, the audited consolidated financial statements and their notes included elsewhere in this Annual Report. We initially applied IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers on January 1, 2018 and IFRS 16 Leases on January 1, 2019 and elected not to reflect the figures on a retrospective basis in comparative periods.


	Year Ended December 31,
	2016			2017			2018			2019			2020
	RMB			RMB			RMB			RMB			RMB
	(*in RMB millions, except per share or per ADS data*)
Consolidated Statements of Profit or Loss and Other Comprehensive Income Data:
Revenues		98,904			102,475			115,278			120,986			58,727
Other operating income and gains		5,469			7,481			6,592			7,202			5,698
Operating expenses⁽¹⁾		(91,887	)		(100,525	)		(112,561	)		(118,107	)		(78,265	)
Operating profit /(loss)		12,486			9,431			9,309			10,081			(13,840	)
Finance costs, net		(6,176	)		(1,072	)		(5,657	)		(6,064	)		(2,553	)
Profit /(loss) before income tax		6,497			8,610			3,856			4,299			(16,488	)
Profit /(loss) for the year attributable to the equity holders of the Company		4,498			6,342			2,698			3,192			(11,836	)
Basic and fully diluted earnings /(loss) per share ⁽²⁾		0.33			0.44			0.19			0.21			(0.72	)
Basic and fully diluted earnings /(loss) per ADS		16.5			22.0			9.5			10.5			(36	)

Notes:

(1)

Including gain on fair value changes of derivative financial instruments of RMB2 million, RMB311 million, nil and nil for the years ended December 31, 2016, 2018, 2019 and 2020, respectively, and loss on fair value changes of derivative financial instruments of RMB311 million for the year ended December 31, 2017.

(2)

The calculation of earnings per share for 2016 is based on the net profit attributable to the equity holders of the Company divided by the weighted average number of 13,811,136,000 ordinary shares in issue. The calculation of earnings per share for 2017 is based on the net profit attributable to the equity holders of the Company divided by the weighted average number of 14,467,585,682 ordinary shares in issue. The calculation of earnings per share for 2018 is based on the net profit attributable to the equity holders of the Company divided by the weighted average number of 14,467,585,682 ordinary shares in issue. The calculation of earnings per share for 2019 is based on the net profit attributable to the equity holders of the Company divided by the weighted average number of 15,104,893,522 ordinary shares in issue. The calculation of loss per share for 2020 is based on the loss attributable to the equity holders of the Company divided by the weighted average number of 16,379,509,203 ordinary shares in issue.


	As of December 31,
	2016			2017			2018			2019			2020
	RMB			RMB			RMB			RMB			RMB
	(in RMB millions)
Consolidated Statements of Financial Position Data:
Cash and cash equivalents		1,695			4,605			646			1,350			7,651
Net current liabilities		(52,194	)		(62,035	)		(57,132	)		(58,620	)		(77,310	)
Non-current assets		196,436			211,434			223,085			265,442			262,152
Long term borrowings, including current portion		(29,749	)		(28,842	)		(32,506	)		(31,137	)		(39,429	)
Lease liabilities, including current portion		—			—			—			(110,275	)		(96,251	)
Obligations under finance leases, including current portion		(61,041	)		(66,868	)		(77,427	)		—			—
Total share capital and reserves attributable to the equity holders of the Company		49,450			55,360			58,008			69,008			56,249
Non-current liabilities		(91,876	)		(90,621	)		(104,352	)		(134,176	)		125,688
Total assets less current liabilities		144,242			149,399			165,953			206,822			184,842
Total assets		212,324			229,727			239,017			285,185			284,650
Net assets		52,366			58,778			61,601			72,646			59,154

Selected Operating Data

The following table sets forth certain of our operating data for the five years ended December 31, 2020, which is not audited. All references in this Annual Report to our cargo operations, statistics or revenues include figures for cargo and mail.


				Year Ended December 31,
	2016		2016		2017		2017		2018		2019		2020
	(non-comparable basis) ⁽¹⁾		(comparable basis)⁽²⁾		(non-comparable basis) ⁽³⁾		(comparable basis) ⁽⁴⁾
Selected Airline Operating Data:
Capacity:
ATK (millions)		28,002.3		25,097.6		27,396.9		27,136.6		29,936.5		33,455.6		20,632.5
ASK (millions)		206,249.3		—		225,996.3		—		244,841.0		270,254.0		152,066.4
AFTK (millions)		9,439.9		6,535.2		7,057.3		6,797.0		7,900.8		9,132.7		6,946.5
Traffic:
Revenue passenger-kilometers (millions)		167,529.2		—		183,182.0		—		201,486.0		221,779.1		107,273.3
Revenue tonne-kilometers (millions)		19,712.9		17,333.1		18,856.1		18,651.3		20,358.4		22,518.0		11,699.7
Revenue freight tonne-kilometers (millions)		4,875.2		2,495.4		2,663.0		2,458.2		2,588.3		2,971.4		2,200.1
Hours flown (thousands)		1,956.5		1,918.8		2,072.7		2,069.3		2,206.0		2,394.0		1,547.6
Number of passengers carried (thousands)		101,741.6		—		110,811.4		—		121,199.7		130,297.4		74,621.2
Weight of cargo carried (millions of kilograms)		1,395.0		929.3		933.3		894.3		915.1		976.6		711.8
Load Factor:
Overall load factor (%)		70.4		69.1		68.8		68.7		68.0		67.3		56.7
Passenger load factor (%)		81.2		—		81.1		—		82.3		82.1		70.5
Yield and Cost Statistics (including fuel surcharge) (RMB):
Passenger yield (passenger revenue/ passenger- kilometers)		0.52		—		0.52		—		0.54		0.52		0.49
Cargo and mail yield (cargo and mail revenue/cargo and mail tonne-kilometers)		1.25		1.25		1.36		1.36		1.40		1.29		2.23
Average yield (passenger and cargo revenue/ tonne-kilometers)		4.71		5.18		5.25		5.30		5.53		5.32		4.94
Unit cost (operating expenses/ATK)		3.28		3.66		3.67		4.15		3.76		3.53		3.79

Notes:

(1)

On November 29, 2016, we entered into an equity transfer agreement with Eastern Airlines Industry Investment Company Limited (“Eastern Airlines Industry Investment”), in relation to the transfer of 100% equity interests in Eastern Airlines Logistics Co., Ltd. (“Eastern Logistics”) held by us to Eastern Airlines Industry Investment. China Cargo Airlines Co., Ltd (“China Cargo Airlines”), a non-wholly owned subsidiary of Eastern Logistics, operated nine freighters then. On February 8, 2017, we completed the transfer of 100% equity interest in Eastern Logistics to Eastern Airlines Industry Investment and the nine freighters operated by China Cargo Airlines ceased to be included in our fleet. Under non-comparable basis, our operating data in 2016 included our whole cargo freight data during the period from February to December 2016.

(2)	Under comparable basis, our operating data in 2016 did not include our whole cargo freight data during the period from February to December 2016.

(3)	Under non-comparable basis, the operating data in 2017 included our whole cargo freight data in January 2017.

(4)	Under comparable basis, the operating data in 2017 did not include our whole cargo freight data in January 2017.

B.	Capitalization and Indebtedness

Not applicable.

C.	Reasons for the Offer and Use of Proceeds

Not applicable.

D.	Risk Factors

Risks Relating to our Business

The COVID-19 pandemic and measures to reduce its spread have had, and will likely continue to have, a material adverse impact on our business, results of operations and financial condition.

The outbreak of the COVID-19 pandemic and implementation of measures to reduce its spread have adversely impacted our business and continue to adversely impact our business in a number of ways. Multiple countries have responded to the virus with air travel restrictions and closures, testing requirements or recommendations against air travel. We experiencd a significant decline in domestic and international demand due to the decreased willingness to travel and the implementation of the “Five-One” policy for international flights by the Civil Aviation Administration. For the year ended December 31, 2020, our total ASK, total number of passengers carried and passenger load factor decreased by 43.7%, 42.7% and 11.5 percentage points, respectively, as compared to the same period of 2019. The decline in demand caused a material deterioration in our revenues in 2020, resulting in a net loss attributable to shareholders of RMB11.8 billion.

The extent of the impact of the COVID-19 pandemic on our business, results of operations and financial condition will depend on future developments, including the currently unknowable duration of the COVID-19 pandemic; the efficacy of, ability to administer and extent of adoption of any COVID-19 vaccines domestically and globally; the impact of existing and future governmental regulations, travel restrictions that are imposed in response to the pandemic and the impact of the COVID-19 pandemic on consumer behavior, such as a reduction in the demand for air travel. The total potential economic impact brought on by the COVID-19 pandemic is difficult to assess or predict, and it has already caused, and is likely to result in further, significant disruptions to global financial markets, which may reduce our ability to access capital on favorable terms or at all, and increase the cost of capital.

In addition, a recession, depression or other sustained adverse economic event resulting from the spread of the coronavirus would materially adversely impact our business and our medium- and long-term financial condition and operations. Unfavorable economic conditions have driven changes in travel patterns, including reduced spending for both leisure and business travel. Unfavorable economic conditions, when low fares are often used to stimulate traffic, have also historically hampered the ability of airlines to raise fares to counteract any increases in fuel, labor, and other costs.

Recent developments with respect to the COVID-19 vaccines have the potential to affect the scope and duration of the pandemic. While a number of the COVID-19 vaccines have received regulatory approval and are available in the PRC and other parts of the world, a degree of uncertainty exists with respect to the distribution, utilization, and long-term efficacy of vaccinations among the general population. The impact of the COVID-19 vaccines on the pandemic, demand for air travel, and our business remain unknown. Even once the pandemic and fears of travel subside, demand for air travel may remain weak for a significant period of time. In particular, consumer behavior related to traveling may be negatively impacted by adverse changes in the perceived or actual economic climate, including higher unemployment rates, declines in income levels, and loss of wealth resulting from the impact of the COVID-19 pandemic. The ultimate impact of the COVID-19 pandemic is still highly uncertain and subject to change. Moreover, any other adverse public health developments, including SARS, Ebola, Avian Flu or Influenza A (H1N1), the COVID-19 pandemic, and the occurrence of natural disasters may, among other things, also lead to travel restrictions and reduced levels of economic activity in the affected areas, which may in turn significantly reduce demand for our services and have a material adverse effect on our financial condition and results of operations.

We may suffer losses in the event of an accident or incident involving our aircraft or the aircraft of any other airline.

As an airline company operating a large fleet, an accident or incident involving one of our aircraft could result in delays and require repair or replacement of a damaged aircraft, which could result in consequential temporary or permanent losses from disruption of service and/or significant liability to injured passengers and others. Unforeseeable or unpredictable events such as inclement weather, mechanical failures, human error, aircraft defects and other force majeure events may affect flight safety, which could result in accidents and/or incidents of passenger injuries or deaths that could lead to significant injury and loss claims. Although we believe that we currently maintain liability insurance in amounts and of the types generally consistent with industry practice, the amount of such coverage may not be adequate to cover the costs related to an accident or incident in full, which could damage our results of operations and financial condition. In addition, any aircraft accident or incident, even if fully insured, could cause a public perception that we are not as safe or reliable as other airlines, which could harm our competitive position and result in a decrease in our operating revenues. Moreover, a major accident or incident involving an aircraft of our competitors may cause the demand for air travel in general to decrease. In particular, certain of our competitors in the Asia Pacific region experienced major aircraft accidents and incidents in 2014, some of which involved destinations and routes that we cover. Also, there were accidents and incidents involving other airline companies and aircraft manufacturers in recent years. These accidents and incidents were highly publicized in the media and may have affected public perception of certain air travel routes, airline companies and aircraft manufacturers. The occurrence of any of the foregoing could adversely affect our results of operations and financial condition.

Our indebtedness and other financial obligations may have a material adverse effect on our liquidity and operations.

We have a substantial amount of debt, lease and other financial obligations, and will continue to do so in the future. As of December 31, 2020, our total liabilities were approximately RMB225,496 million and our current liabilities exceeded our current assets by approximately RMB77,310 million. Our total interest-bearing liabilities (including long-term and short-term bank borrowings, lease liabilities, bonds payable and super short-term debentures) as of December 31, 2019 and 2020 were approximately RMB162,147 million and RMB184,168 million, respectively, of which interest-bearing current liabilities accounted for approximately 25.2% and 38.7%, respectively. Our substantial indebtedness and other financial obligations could materially and adversely affect our business and operations, including being required to dedicate additional cash flow from operations to the payment of principal and interest on our indebtedness, thereby reducing the funds available for operations, maintenance and service improvements and future business opportunities, increasing our vulnerability to economic recessions, reducing our flexibility in responding to changing business and economic conditions, placing us at a disadvantage compared to competitors with lower debt, limiting our ability to arrange for additional financing for working capital, capital expenditures and other general corporate purposes, at all or on terms that are acceptable to us.

Moreover, we are largely dependent upon cash flows generated from our operations and external financing to meet our debt repayment obligations and working capital requirements, which may reduce the funds available for other business purposes. However, the widespread and continuous COVID-19 pandemic has materially decreased passenger demand, thereby adversely affecting operating income and cash flows from operations. In 2020, the passenger traffic (as measured in RPKs) was 107,273 million passenger-kilometres, representing a decrease of 51.6% from 2019. In 2020, our passenger revenue amounted to RMB49,215 million, representing a decrease of 55.4% from 2019. If our operating cash flow is under continous adverse impact of factors such as increased competition, a significant decrease in demand for our services resulting from worldwide epidemic such as the COVID-19 pandemic as well as a significant increase in jet fuel prices, our liquidity would be materially and adversely affected. We also try to secure sufficient financing through financing arrangements with domestic and foreign banks in China as well as from debt and equity capital markets. In 2020, we actively expanded financing channels, and issued a total of RMB77.2 billion of super short-term debentures and RMB2 billion of corporate bonds to ensure that the cash flow can meet our operation needs. However, our ability to obtain financing may be affected by our financial position and leverage, our credit rating and investor perception of the aviation industry, as well as prevailing economic conditions and the cost of financing in general. If we are unable to obtain adequate financing for our capital requirements, our liquidity and operations would be materially and adversely affected.

In addition, the airline industry overall is characterized by a high degree of operating leverage. Due to high fixed costs, including payments made in connection with aircraft leases, and landing and infrastructure fees which are set by government authorities and not within our control, the expenses relating to flight operations do not vary proportionately with the number of passengers carried, while revenues generated from a particular flight are directly related to the number of passengers carried and the fare structure of the flight. Accordingly, a decrease in revenues may result in a disproportionately higher decrease in profits.

We may not be able to secure future financing at terms acceptable to us or at all.

We require significant amounts of external financing to meet our capital commitments for acquiring and upgrading aircraft and flight equipment and for other general corporate needs. As of December 31, 2020, we had total unutilized credit facilities of approximately RMB33.7 billion from various banks. We expect to roll over these bank facilities in the near future. In addition, we generally acquire aircraft through either long-term capital leases or operating leases. In the past, we have obtained guarantees from Chinese banks in respect of payments under our foreign loan and capital lease obligations. However, we cannot assure you that we will be able to roll over our bank facilities or continue to obtain bank guarantees in the future. Unavailability of credit facilities or guarantees from Chinese banks or the increased cost of such guarantees may materially and adversely affect our ability to borrow additional funds or enter into international aircraft lease financing or other additional financing on acceptable terms. In addition, if we are not able to arrange financing for our aircraft on order, we may seek to defer aircraft deliveries or use cash from operations or other sources to acquire the aircraft.

Our ability to obtain financing may also be impaired by our financial position, leverage and credit rating. In addition, factors beyond our control, such as recent global market and economic conditions, volatile oil prices, and the tightening of credit markets may result in limited availability of financing and increased volatility in credit and equity markets, which may materially and adversely affect our ability to secure financing at reasonable costs or at all. If we are unable to obtain financing for a significant portion of our capital requirements, our ability to expand our operations, purchase new aircraft, pursue business opportunities we believe to be desirable, withstand any future downturn in our business, or respond to increased competition or changing economic conditions may be impaired. We have and in the future will likely continue to have substantial debts. As a result, the interest costs associated with these debts might impair our future profitability.

We are subject to the risk of fuel price fluctuations.

Jet fuel is one of the major expenses of airlines. Significant fluctuations of international oil prices will significantly impact jet fuel prices and our revenue from fuel surcharge and accordingly our results of operations. In 2020, our total aircraft fuel cost was approximately RMB13,840 million, representing a decrease of approximately 59.5% from approximately RMB34,191 million in 2019. The decrease was due to a decline in our fuel consumption by 38.5% and a drop in the average price of fuel by 34.2% from last year, both of which are attributable to the impact of the COVID-19 pandemic. In 2020, our total jet fuel cost accounted for approximately 17.7% of our total operating expenses, as compared to approximately 28.9% in 2019. As affected by the COVID-19 pandemic, there remains great uncertainty on our fuel consumption in 2021, and hence, there also remains great uncertainty on the expected jet fuel costs.

The fluctuations of international crude oil prices and adjustments on domestic jet fuel prices by the National Development and Reform Commission (the “NDRC”) have a significant impact on our profitability. Aircraft fuel prices have been subject to high volatility, fluctuating substantially over the past several years. Our results of operation and financial condition are affected by any significant fluctuations that may occur, which are generally due to factors beyond our control. As such, we generally alleviate the pressure from the rise in operating costs arising from the increase in aviation fuel by imposing fuel surcharges, which, however, are subject to government regulations. In order to control fuel costs, we have also entered into fuel hedging transactions using financial derivative products linked to the price of underlying assets such as United States WTI crude oil and Singapore jet fuel during previous years. In 2020, we used jet fuel forward contracts to deal with the cash flow risks arising from fluctuation of jet fuel prices. The jet fuel forward contracts entered into by us are mainly based on the purchase of jet fuel at a fixed transaction price, and are cash flow hedges. As of December 31, 2020, the notional amount of the outstanding jet fuel forward contracts held by us was approximately US$252 million, and will expire between 2021 and 2022. As of December 31, 2019, the notional amount of the outstanding jet fuel forward contracts held by us was nil.

Since 2009, the PRC government required prior governmental approval for entering into fuel forward contracts. We may, from time to time, seek approval from the PRC government to enter into overseas fuel forward contracts. However, these hedging strategies may not always be effective and high fluctuations in aviation fuel prices exceeding the locked-in price ranges may result in losses. Significant decline in fuel prices may substantially increase the costs associated with such fuel hedging arrangements. In addition, where we may, from time to time, seek to manage the risk of fuel price increases by using derivative contracts, we cannot assure you that, at any given point in time, such fuel hedging transactions will provide any particular level of protection against increased fuel costs.

We are subject to the risk of exchange rate fluctuations.

We operate our business in many countries and territories. We generate revenue in different currencies, and our foreign currency liabilities are typically much higher than our foreign currency assets. Our purchases and leases of aircraft are mainly priced and settled in foreign currencies such as U.S. dollars. Fluctuations in exchange rates will affect our costs incurred from foreign purchases such as aircraft, flight equipment and aviation fuel, and take-off and landing charges in foreign airports. As of December 31, 2020, our total interest-bearing liabilities denominated in foreign currencies amounted to approximately RMB47,364 million, of which U.S. dollar interest-bearing liabilities accounted for approximately 77.4%. Therefore, a significant fluctuation in exchange rates will subject us to significant foreign exchange loss/gain arising from the exchange of foreign currency denominated liabilities, which would affect our profitability and business development. We typically use hedging contracts for foreign currencies to reduce the foreign exchange risks for foreign currency revenues generated from flight ticket sales and expenses required to be paid in foreign currencies. As of December 31, 2019, the outstanding forward foreign currency contracts held by us amounted to a notional amount of approximately US$776 million. As of December 31, 2020, our forward foreign currency contracts have all expired, and there are no outstanding forward foreign currency contracts.

We recorded net foreign exchange losses of approximately RMB990 million in 2019 and net foreign exchange gains of approximately RMB2,494 million in 2020. However, as a result of the large value of existing net foreign currency liabilities denominated in U.S. dollars, our results would be adversely affected if the Renminbi depreciates against the U.S. dollar or the rate of appreciation of the Renminbi against the U.S. dollar decreases in the future. In 2017 and the first quarter of 2018, we expanded our financing channels by issuing guaranteed bonds and credit enhanced bonds denominated in SGD and JPY, and proactively optimized the mix of currency denomination of our debts. In 2019, we expanded our financing channels by means of issuing super short-term debentures and acquiring RMB borrowings to bring in RMB financing, continuing to optimize the mix of currency denomination of our debts. As of December 31, 2020, our proportion of U.S. dollar-denominated interest-bearing debts out of our total interest-bearing liabilities decreased to approximately 19.9% from 28.7% as of December 31, 2019. Our foreign exchange fluctuation risks are also subject to other factors beyond our control.

We are subject to the risk of interest rate fluctuations.

Our total interest-bearing liabilities (including long-term and short-term bank borrowings, lease liabilities, bonds payable and super short-term debentures) as of December 31, 2019 and 2020 were approximately RMB162,147 million and RMB184,168 million, respectively, of which short-term interest-bearing liabilities accounted for approximately 25.2% and 38.7%, respectively, and long-term interest-bearing liabilities accounted for approximately 74.8% and 61.3%, respectively. Both the short-term and long-term interest-bearing liabilities were affected by fluctuations in current market interest rates.

Our interest-bearing liabilities were primarily denominated in RMB and USD. As of December 31, 2019 and December 31, 2020, our interest-bearing liabilities denominated in RMB accounted for approximately 64.0% and 74.3% % of our total interest-bearing liabilities, respectively, and interest-bearing liabilities denominated in USD accounted for approximately 28.7% and 19.9% of our total interest-bearing liabilities, respectively. Fluctuations in interest rates of interest-bearing liabilities denominated in these two currencies have and will continue to have significant impact on our finance costs. As of December 31, 2020, the weighted average interest rates of our RMB-denominated interest-bearing liabilities, USD-denominated interest-bearing liabilities, EUR-denominated interest-bearing liabilities, SGD-denominated interest-bearing liabilities, KRW-denominated interest-bearing liabilities and JPY-denominated interest-bearing liabilities were approximately 3.08%, 2.97%,0.11%, 1.22%, 2.41% and 0.66%, respectively. In the first quarter of 2018, we also issued credit enhanced bonds denominated in JPY with total principal of JPY50.0 billion due in 2021, bearing fixed interest at the rate of 0.33% per annum and 0.64% per annum for different tranches. To cope with the risk of interest rate fluctuation, we strategically changed our debt portfolio by replacing our USD-denominated liabilities with floating interest rates with USD-denominated liabilities with fixed interest rates. As of December 31, 2020, our USD-denominated interest-bearing liabilities with fixed interest rate was approximately US$3,699 million and accounted for approximately 77.6% of our total long-term interest-bearing USD-denominated liabilities, increasing by approximately 68.0% as of December 31, 2019. As of December 31, 2020, our outstanding interest rate swap contracts amounted to a notional principal amount of US$690 million as compared to US$888 million as of December 31, 2019. These contracts will expire between the duration of 2021 to 2025. We will continue to optimize our liability structure to lower relevant risks by taking consideration of various factors including the market environment, interest rates and strategic plan. However, we cannot assure you that the relevant lending rates may not increase in the future for reasons beyond our control, which may adversely affect our business, prospects, cash flows, financial condition and results of operations. In addition, we expect to issue bonds and notes or enter into additional loan agreements and aircraft leases in the future to fund our operations and capital expenditures, and the cost of financing for these obligations will depend greatly on market interest rates.

Increases in insurance costs or reductions in insurance coverage may have adverse impact our results of operations and financial condition.

We could be exposed to significant liability or loss if our property or operations were to be affected by a natural catastrophe or other event, including aircraft accidents. We maintain insurance policies but we are not fully insured against all potential hazards and risks incident to our business. If we are unable to obtain sufficient insurance with acceptable terms or if the coverage obtained is insufficient relative to actual liability or losses that we experience, whether due to insurance market conditions, policy limitations and exclusions or otherwise, our results of operations and financial condition could be adversely affected.

We may experience difficulty integrating our acquisitions, which could result in a material adverse effect on our operations and financial condition.

We may from time to time expand our business through acquisition of airlines or airline-related businesses. We may devote significant resources to the integration of our operations in order to achieve the anticipated synergies and benefits of the absorption and acquisitions mentioned above. See “Item 4. Information on the Company” for details. However, such acquisitions involve uncertainties and a number of risks, including:

•

difficulty with integrating the assets, operations and technologies of the acquired airlines or airline-related businesses, including their employees, corporate cultures, managerial systems, processes, procedures and management information systems and services;

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complying with the laws, regulations and policies that are applicable to the acquired businesses;

•

failure to achieve the anticipated synergies, cost savings or revenue-enhancing opportunities resulting from the acquisition of such airlines or airline-related businesses;

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managing relationships with employees, customers and business partners during the course of integration of new businesses;

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attracting, training and motivating members of our management and workforce;

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accessing our debt, equity or other capital resources to fund acquisitions, which may divert financial resources otherwise available for other purposes;

•

diverting significant management attention and resources from our other businesses;

•

strengthening our operational, financial and management controls, particularly those of our newly acquired assets and subsidiaries, to maintain the reliability of our reporting processes;

•

difficulty with exercising control and supervision over the newly acquired operations, including failure to implement and communicate our safety management procedures resulting in additional safety hazards and risks;

•

increased financial pressure resulting from the assumption of recorded and unrecorded liabilities of the acquired airlines or airline-related businesses; and

•

the risk that any such acquisitions may not close due to failure to obtain the required government approvals.

We cannot assure you that we will not have difficulties in assimilating the operations, technologies, services and products of newly acquired companies or businesses. Moreover, the continued integration of our acquired companies into our Company depends significantly on integrating the employees of our acquired companies with our employees and on maintaining productive employee relations. In the event that we are unable to efficiently and effectively integrate newly acquired companies or airline-related businesses into our Company, we may be unable to achieve the objectives or anticipated synergies of such acquisitions and such acquisitions may adversely impact the operations and financial results of our existing businesses.

We may be unable to retain key management personnel or pilots.

We are dependent on the experience and industry knowledge of our key management personnel and pilots, and there can be no assurance that we will be able to retain them. Any inability to retain our key management employees or pilots, or attract and retain additional qualified management employees or pilots, could have a negative impact on our operations and profitability.

Our controlling shareholder, CEA Holding, holds a majority interest in our Company, and its interests may not be aligned with other shareholders.

Most of the major airlines in China are currently majority-owned by either the central government or provincial or municipal governments in China. As of December 31, 2020, CEA Holding holds directly or indirectly 49.79% of our Company’s equity stake on behalf of the PRC government. As a result, CEA Holding could potentially elect the majority of the board of directors of the Company (“Board of Directors” or the “Board”) and otherwise be able to control us. CEA Holding also has sufficient voting control to effect transactions without the concurrence of our minority shareholders. The interests of the PRC government as the ultimate controlling shareholder of our Company and most of the other major PRC airlines could conflict with the interests of our minority shareholders. Although the CAAC currently has a policy of equal treatment of all PRC airlines, we cannot assure you that the CAAC will not favor other PRC airlines over us.

As our controlling shareholder, CEA Holding has the ability to exercise controlling influence over our business and affairs, including, but not limited to, decisions with respect to:

•

mergers or other business combinations;

•

acquisition or disposition of assets;

•

issuance of any additional shares or other equity securities;

•

the timing and amount of dividend payments; and

•

the management of our Company.

We engage in related party transactions, which may result in conflict of interests.

We have engaged in, from time to time, and may continue to engage in, in the future, a variety of transactions with CEA Holding and its various members, from whom we receive a number of important services, including support for in-flight catering and assistance with importation of aircraft, flight equipment and spare parts. Because we are controlled by CEA Holding and CEA Holding may have interests that conflict with our interests, we cannot assure you that CEA Holding will not take actions that will serve its interests over our interests.

We may not be able to accurately report our financial results or prevent fraud if we fail to maintain effective internal controls over financial reporting, resulting in adverse investor perception, which in turn could have a material adverse effect on our reputation and the performance of our shares and American Depositary Shares (the “ADSs”).

We are required under relevant United States securities laws and regulations to disclose in the reports that we file or submit under the Exchange Act to the SEC, including our annual report on Form 20-F, a management report assessing the effectiveness of our internal controls over financial reporting at the end of the fiscal year. Our registered public accounting firm is also required to provide an attestation report on the effectiveness of our internal controls over financial reporting. Our management concluded that our internal controls over financial reporting were effective as of December 31, 2020. However, we may discover other deficiencies or material weaknesses in the course of our future evaluation of our internal controls over financial reporting and we may be unable to address and rectify such deficiencies in a timely manner. Any failure to maintain effective internal controls over financial reporting could lead to diminished investor confidence in the reliability of our consolidated financial statements, thereby adversely affecting our business, operations, and reputation, including negatively affecting our performance in the securities markets and decreasing potential opportunities to obtain financing in the capital markets.

As part of our business strategy, we have adopted various measures to develop the international side of our business and to enhance our competitiveness in the international long-distance flight routes. Due to the differences in certain legal and market environments, we have encountered certain challenges during the course of developing our overseas business. We have already adopted and will continue to implement measures in order to enhance the internal controls of our overseas offices and to continue the development of our overseas business.

Any failure or disruption of our computer, communications, flight equipment or other technology systems could have an adverse impact on our business operations, profitability, reputation and customer services.

We rely heavily on computer, communications, flight equipment and other technology systems to operate our business and enhance customer service. Substantially all of our tickets are issued to passengers as electronic tickets, and we depend on our computerized reservation system to be able to issue, track and accept these electronic tickets. In addition, we rely on other automated systems for crew scheduling, flight dispatch and other operational needs. These systems could be disrupted due to various events, including natural disasters, power failures, terrorist attacks, equipment failures, software failures, computer viruses, cyber attacks and other events beyond our control. We cannot assure you that the measures we have taken to reduce the risk of some of these potential disruptions are adequate to prevent disruptions to or failures of these systems. Any substantial or repeated failure of or disruption to these systems could result in the loss of important data and/or flight delays, and could have an adverse impact on our business operations, profitability, reputation and customer services, including being liable for paying compensation to our customers.

We are subject to cyber security risks and may incur increasing costs in an effort to minimize those risks.

The nature of our business involves the receipt and storage of personal information about our customers. We have a program in place to detect and respond to data security incidents. To date, all incidents we have encountered have been insignificant. If we commit a significant data security breach or fail to detect and appropriately respond to a significant data security breach, we could be exposed to government enforcement actions and private litigation. In addition, our customers could lose confidence in our ability to protect their personal information, which could cause them to stop using our services. The loss of consumer confidence from a significant data security breach could hurt our reputation and adversely affect our business, result of operations and financial condition.

Actual or anticipated attacks may cause us to incur increasing costs, including costs to deploy additional personnel and protection technologies, train employees and engage third-party experts and consultants, costs incurred in connection with the notifications to employees, suppliers or the general public as part of our notification obligations to the various government authorities that govern our business, or costs to dedicate significant resources to system repairs or other increase cyber security protection. We may also be required to pay fines in connection with stolen customer, employee or other confidential information, or incur significant litigation or other costs. In October 2020, the Standing Committee of the National People’s Congress officially released the draft of the Personal Information Protection Law, or the Draft Personal Information Protection Law. The Draft Personal Information Protection Law provides the basic regime for personal information protection, including without limitation, stipulating an expanded definition of personal information, providing a long-arm jurisdiction in cross-border scenarios, emphasizing individual rights, and prohibiting rampant infringement of personal information, such as stealing, selling, or secretly collecting personal information. If the Draft Personal Information Protection Law is promulgated as an effective regulation in the future, we cannot assure you that our business operations will comply with such regulation in all respects and we may be ordered to terminate certain of our business operations that are deemed illegal by the regulatory authorities and become subject to fines and/or other sanctions.

Interruptions or disruptions of service at one or more airports in our primary market could have an adverse impact on us.

Our business is heavily dependent on our operations at our core hub airports in Shanghai, namely, Hongqiao International Airport and Pudong International Airport and our core hub airport in Beijing, namely, Beijing Daxing International Airport as well as our regional hub airports in Xi’an and Kunming. Each of these operations includes flights that connect our primary market to other major cities. Any significant interruptions or disruptions of service at one or more of our primary market airports could adversely impact our operations.

Terrorist attacks or the fear of such attacks, even if not made directly on the airline industry, could negatively affect us and the airline industry as a whole. The travel industry continues to face on-going security concerns and cost burdens.

The aviation industry as a whole has been beset with high-profile terrorist attacks, most notably on September 11, 2001 in the United States. The CAAC has also implemented increased security measures in relation to the potential threat of terrorist attacks. Terrorist attacks, even if not made directly towards us or on the airline industry, or the fear of or the precautions taken in anticipation of such attacks (including elevated threat warnings or selective cancelation or redirection of flights) could materially and adversely affect us and the entire airline industry. In addition, potential or actual terrorist attacks may result in substantial flight disruption costs caused by grounding of fleet, significant increase of security costs and associated passenger inconvenience, increased insurance costs, substantially higher ticket refunds and significantly decreased traffic and RPK. International terrorist attacks targeting aircraft and airport not only directly threatens our flight safety, aviation security, operational safety and the safety of overseas institutions and employees, but also brings about on-going adverse impact on the outbound tourism demand for places where terrorist attacks have taken place.

We could be classified as a passive foreign investment company by the United States Internal Revenue Service and may therefore be subject to adverse tax impact.

Depending upon the relative values of our passive assets and income as compared to our total assets and income each taxable year, we could be classified as a passive foreign investment company, or PFIC, by the United States Internal Revenue Service, or IRS, for U.S. federal income tax purposes. We believe that we were not a PFIC for the taxable year 2020. However, there can be no assurance that we will not be a PFIC for the taxable year 2021 and/or later taxable years, as PFIC status is re-tested each year and depends on the facts in such year.

We will be classified as a PFIC in any taxable year if either: (1) the average value during the taxable year of our assets that produce passive income, or are held for the production of passive income, is at least 50% of the average value of our total assets for such taxable year (the “Asset Test”) or (2) 75% or more of our gross income for the taxable year is passive income (such as certain dividends, interest or royalties) (the “Income Test”). For purposes of the Asset Test: (1) any cash, cash equivalents, and cash invested in short-term, interest bearing, debt instruments, or bank deposits that is readily convertible into cash, will generally count as producing passive income or as being held for the production of passive income and (2) the average values of our passive and total assets is calculated based on our market capitalization.

If we were a PFIC, we would generally be subject to additional taxes and interest charges on certain “excess distributions” our Company makes regardless of whether we continue to be a PFIC in the year in which you receive an “excess distribution”. An “excess distribution” would be either (1) the excess amount of a distribution with respect to ADSs during a taxable year in which distributions to you exceed 125% of the average annual distributions to you over the preceding three taxable years or, if shorter, your holding period for the ADSs, or (2) 100% of the gain from the disposition of ADSs.

Risks Relating to the Aviation Industry

Our business is subject to extensive government regulation.

The Chinese civil aviation industry is subject to a high degree of regulation by the CAAC. Regulatory policies issued or implemented by the CAAC encompass virtually every aspect of airline operations, including, among other things:

(a)

route allocation;

(b)

pricing of domestic airfares;

(c)

administration of air traffic control systems and certain airports;

(d)

jet fuel pricing;

(e)

air carrier certifications and air operator certification;

(f)

aircraft registration and aircraft airworthiness certification; and

(g)

airport expense policy.

Our ability to provide services on international routes is subject to a variety of bilateral civil air transport agreements between China and other countries, international aviation conventions and local aviation laws. As a result of government regulations, we may face significant constraints on our flexibility and ability to expand our business operations or to maximize our profitability. In addition, as we operate internationally and corporate with various counterparties domestically and overseas, we may be exposed to the risks associated with foreign laws, regulations or other challenges arising from the regulatory aspect.

The downward trend in domestic and global economy could affect air travel.

The airline industry is highly cyclical, and the level of demand for air travel is correlated to the strength of domestic and global economies. Robust demand for our air transportation services depends largely on favorable general economic conditions, including the strength of global and local economies, low unemployment, strong consumer confidence and availability of consumer and business credit. The COVID-19 pandemic had a severe and negative impact on the Chinese and the global economy in 2020. Whether this will lead to a prolonged downturn in the economy is still unknown. Even before the outbreak of the COVID-19 pandemic, the global macroeconomic environment was facing numerous challenges. There is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies which had been adopted by the central banks and financial authorities of some of the world’s leading economies, including the United States and China, even before 2020. In particular, there is significant uncertainty about the future relationship between the United States and China with respect to trade policies, treaties, government regulations, and tariffs. Any economic downturn or slowdown and/or negative business sentiment could potentially have an adverse indirect impact on almost all industries, and our business operations and financial condition may consequently be adversely affected.

We operate in a highly competitive industry.

We face intense competition in each of the domestic, regional and international markets that we serve. In our domestic market, we compete against all airlines that have the same routes, including smaller domestic airlines that have lower operating costs. In the regional and international markets, we compete against international airlines that have significantly longer operating history, better brand recognition, or more resources, such as large sales networks or sophisticated reservation systems. See the section headed “Item 4. Information on the Company — Business Overview — Competition” for more details. The public’s perception of safety of Chinese airlines could also materially and adversely affect our ability to compete against our international competitors. To stay competitive, we have, from time to time in the past, lowered airfares for certain of our routes, and we may continue to do so in the future. Increased competition and pricing pressures may have a material adverse effect on our financial condition and results of operations.

We depend on a limited number of suppliers for aircraft, aircraft engines and parts.

The aviation transportation industry features advanced technology and high operation costs. As a result, the available suppliers for key operating resources including aircraft, engines, flight spare parts, jet fuel and information technology services are limited. We depend on a limited number of suppliers for aircraft, aircraft engines and related parts and components. Due to the limited number of these suppliers, we are vulnerable to any problems associated with the performance of their obligation to supply key aircraft, parts and engines, including design defects, mechanical problems, contractual performance by suppliers, adverse perception by the public that would result in customers’ avoidance of any of our aircraft or any action by the regulatory authorities.

We expect to face substantial competition from the rapid development of the Chinese rail network.

The PRC government is aggressively implementing the expansion of its high-speed rail network, which has provided train services at a speed of up to 350 kilometers per hour connecting major cities such as Beijing, Shanghai, Guangzhou and Hong Kong. The expansion of rail network, improvements in railway service quality, increased passenger capacity and urban center accessibility could enhance the competitiveness of the railway service and negatively affect our market share on some of our routes, in particular our short-haul routes. For example, Yinchuan-Xi’an and Yancheng-Nantong routes were largely affected by the opening of high-speed railway routes in 2020. The load factors of two routes demonstrated a trend to decrease significantly after the high-speed railway routes put into operation. Increased competition and pricing pressures from the railway service may have a material adverse effect on our business, financial condition and results of operations.

Limitations on foreign ownership of PRC airlines may affect our access to funding in the international equity capital markets or pursuing business opportunities.

The current CAAC policies limit foreign ownership of PRC airlines. Under these rules, non-PRC, Hong Kong, Macau or Taiwan residents cannot hold a majority equity interest in a PRC airline. As of December 31, 2020, approximately 31.6% of our total outstanding shares were held by non-PRC, Hong Kong, Macau or Taiwan residents or legal entities (excluding the qualified foreign institutional investors that are approved to invest in the A Share market of the PRC). As a result, our access to funding in the international equity capital markets may be limited. This restriction may also limit the opportunities available to us to obtain funding or other benefits through the creation of equity-based strategic alliances with foreign carriers. We cannot assure you that the CAAC will not increase these limits on foreign ownership of PRC airlines in the future.

Any jet fuel shortages or any increase in jet fuel prices may materially and adversely affect our financial condition and results of operations.

The availability and prices of jet fuel have a significant impact on our financial condition and results of operations. In the past, jet fuel shortages have occurred in China and, on limited occasions, required us to delay or cancel flights. Although jet fuel shortages have not occurred since the end of 1993, we cannot assure you that jet fuel shortages will not occur in the future. Fuel prices continue to be susceptible to, among other factors, political unrest in various parts of the world, OPEC policies, the rapid growth of the economies of certain countries, including China and India, the inventory levels carried by industries, the amount of reserves built by governments, disruptions to production and refining facilities and weather conditions. Fuel efficiency of our aircraft decreases as they advance in age which results in an overall increase in our aviation fuel costs. The foregoing and other factors that impact the global supply and demand for jet fuel may affect our financial performance due to its sensitivity to fuel prices.

Aircraft fuel prices have been subject to high volatility, fluctuating substantially over the past several years. Setting aside the adjustment in factors such as fuel surcharge, if the average price of jet fuel had increased or decreased by 5%, based on the actual fuel consumption of flights in 2020, our jet fuel costs would have increased or decreased by approximately RMB692 million, our net profit will decrease or increase by approximately RMB519 million and our other comprehensive income will increase or decrease by approximately RMB62 million. In addition, the NDRC adjusts gasoline and diesel prices in China from time to time, taking into account the changes in international oil prices, thereby affecting aviation fuel prices. As such, we cannot assure you that jet fuel prices will not fluctuate further in the future. Due to the highly competitive nature of the airline industry, we may be unable to fully or effectively pass on to our customers any future increase in jet fuel costs.

The airline industry is subject to increasing environmental regulations, which would increase costs and affect profitability.

In recent years, regulatory authorities in China and other countries have issued a number of directives and other regulations to address, among other things, aircraft noise and engine emissions, the use and handling of hazardous materials, aircraft age and environmental contamination remedial clean-up measures. These requirements impose high fees, taxes and substantial ongoing compliance costs on airlines, particularly as new aircraft brought into service will have to meet the environmental requirements during their entire service life.

We have significant expenditures in respect of environmental compliance, which may affect our operations and financial condition. For example, we focused on pollution prevention and control by facilitating the application of new technologies for energy conservation and emission reduction, speeding up the “diesel-to-electric” (replacement of diesel vehicle by electric vehicle) project in airports, and promoting the replacement of Auxiliary Power Unit (APU) on aircraft. We also took measures to reduce the impact of our operations on the environment by optimizing our route network and flight schedules as well as installing energy-saving environmentally friendly engines. In addition, we continue to improve the energy efficiency of our fleet by introducing aircraft with energy-saving technologies, such as A320neo, B787-9 and A350-900 and by retiring old aircraft. However, these measures have resulted in significant costs and expenditures. We expect to continue to incur significant costs and expenditures on an ongoing basis to comply with environmental regulations, which could restrict our ability to modify or expand facilities or continue operations.

Our results of operations tend to be volatile and fluctuate due to seasonality.

The aviation industry is characterized by annual high and low travel seasons. Our operating revenue is substantially dependent on the passenger and cargo traffic volume carried, which is subject to seasonal and other changes in traffic patterns, the availability of appropriate time slots for our flights and alternative routes, the degree of competition from other airlines and alternate means of transportation, as well as other factors that may influence passenger travel demand and cargo and mail volume. As a result, our results tend to be volatile and subject to rapid and unexpected change.

Risks Relating to the PRC

Our ADSs may be delisted under the Holding Foreign Companies Accountable Act if the PCAOB is unable to inspect our auditor who is located in China. The delisting of our ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment. Additionally, the inability of the PCAOB to conduct inspections deprives our investors with the benefits of such inspections.

The Holding Foreign Companies Accountable Act, or the HFCAA, was enacted on December 18, 2020. The HFCAA states if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the PCAOB for three consecutive years beginning in 2021, the SEC shall prohibit our shares or ADSs from being traded on a national securities exchange or in the over the counter trading market in the U.S.

Our auditor, the independent registered public accounting firm that issues the audit report included in this annual report, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. Without a mutual and practical cooperation mechanism between securities regulatory authorities, it remains uncertain whether and when PCAOB could implement cross-border inspection in the PRC.

There could be additional regulatory or legislative requirements or guidance that could impact us if our auditor is not subject to PCAOB inspection. The implication of possible regulations in addition to the requirements of the HFCAA are uncertain. Such uncertainty could cause the market price of our ADSs to be materially and adversely affected, and our securities could be prohibited from being traded or even delisted.

It is unable for the PCAOB to fully evaluate the audits and quality control procedures of registered public accounting firms in the PRC due to the PCAOB’s inability to conduct inspections in the PRC. As a result, we and our investors are deprived of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in PRC makes it more difficult to evaluate the effectiveness of our independent registered public accounting firm’s audit procedures or quality control procedures as compared to auditors outside of PRC that are subject to the PCAOB inspections, which could cause investors and potential investors in our stock to lose confidence in our audit procedures and reported financial information and the quality of our financial statements.

Proceedings instituted by the SEC against certain PRC-based accounting firms, including our independent registered public accounting firm, could result in financial statements being determined not to comply with the requirements of the Exchange Act.

In December 2012, the SEC brought administrative proceedings against five accounting firms in China, including our then independent registered public accounting firm, alleging that they had refused to produce audit work papers and other documents related to certain other China-based companies under investigation by the SEC. On January 22, 2014, an initial administrative law decision was issued, censuring these accounting firms and suspending four of these firms from practicing before the SEC for a period of six months. The decision is neither final nor legally effective unless and until reviewed and approved by the SEC. On February 12, 2014, four of these PRC-based accounting firms appealed to the SEC against this decision. In February 2015, each of the four PRC-based accounting firms agreed to pay a fine to the SEC to settle the dispute and avoid suspension of their ability to practice before the SEC. The settlement requires the firms to follow detailed procedures to provide the SEC with access to the Chinese firms’ audit documents via the China Securities Regulatory Commission (the “CSRC”). If the firms do not follow these procedures, the SEC could impose sanctions such as suspensions, or it could restart the administrative proceedings. Our audit committee is aware of the policy restriction and regularly communicated with our independent auditor to ensure compliance.

In the event that the SEC restarts the administrative proceedings, depending upon the final outcome, listed companies in the United States with major PRC operations may find it difficult or impossible to retain auditors in respect of their operations in the PRC, which could result in financial statements being determined not to be in compliance with the requirements of the Exchange Act, and possibly delisting of the securities. Moreover, any negative news about the proceedings against these audit firms may cause investor uncertainty regarding China-based U.S.-listed companies and the market price of our ADSs may be adversely affected.

If our independent registered public accounting firm was denied, even temporarily, the ability to practice before the SEC and we were unable to find another registered public accounting firm in a timely manner to audit and issue an opinion on our financial statements, our financial statements could be determined not to be in compliance with the requirements of the Exchange Act. Such determination could ultimately lead to our delisting from the New York Stock Exchange (“NYSE”) or deregistration from the SEC, or both, which would substantially reduce or effectively terminate the trading of our ADSs in the United States.

It may be difficult for overseas regulators to conduct investigation or collect evidence within China.

Shareholder claims or regulatory investigation that are common in the United States generally are difficult to pursue as a matter of law or practicality in China. For example, in China, there are significant legal and other obstacles to providing information needed for regulatory investigations or litigations initiated outside China. Although the authorities in China may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-border supervision and administration, such cooperation with the securities regulatory authorities in the Unities States may not be efficient in the absence of mutual and practical cooperation mechanism. Furthermore, according to Article 177 of the PRC Securities Law, which became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigation or evidence collection activities within the PRC territory. While detailed interpretation or implementation of rules under this Article 177 have yet to be promulgated, the inability for an overseas securities regulator to directly conduct investigation or evidence collection activities within China may further increase the difficulties you face in protecting your interests.

Changes in the economic policies of the PRC government may materially affect our business, financial condition and results of operations.

Since the late 1970s, the PRC government has been reforming the Chinese economic system. These reforms have resulted in significant economic growth and social progress. These policies and measures may be modified or revised from time to time. Adverse changes in economic and social conditions in China, in the policies of the PRC government or in the laws and regulations of China, if any, may have a material adverse effect on the overall economic growth of China and investments in and profitability of the domestic airline industry. These developments, in turn, may have a material adverse effect on our business, financial condition and results of operations.

Changes in the foreign exchange regulations in the PRC may result in fluctuations of the Renminbi and adversely affect our ability to pay dividends or to satisfy our foreign currency liabilities.

A significant portion of our revenue and operating expenses are denominated in Renminbi, while a portion of our revenue, capital expenditures and debts are denominated in U.S. dollars and other foreign currencies. The Renminbi is currently freely convertible in the current account, which includes payment of dividends, trade and service-related foreign currency transactions, but not in the capital account, which includes foreign direct investment, unless approval from or registration or filing with the relevant authorities, is obtained. As a foreign invested enterprise approved by the PRC Ministry of Commerce (the “MOFCOM”), we can purchase foreign currencies without the approval of State Administration of Foreign Exchange (the “SAFE”) for settlement of current account transactions, including for the purpose of dividend payment, by providing commercial documents evidencing these transactions. We can also retain foreign currencies in our current accounts, subject to a maximum amount approved by SAFE, to satisfy foreign currency liabilities or pay dividends. The relevant PRC government authorities may limit or eliminate our ability to purchase and retain foreign currencies in the future. Foreign currency transactions in the capital account are still subject to limitations and require approvals from SAFE. This may affect our ability to raise foreign capital through debt or equity financing, including through loans or capital contributions. We cannot assure you that we will be able to obtain sufficient foreign currencies to pay dividends, if any, or satisfy our foreign currency liabilities.

Furthermore, the value of the Renminbi against the U.S. dollar and other currencies may fluctuate significantly and is affected by, among other things, the PRC government policies, domestic and international economic and political conditions and changes in the supply and demand of the currency. On July 21, 2005, the PRC government changed its policy of pegging the value of the Renminbi to the U.S. dollar. Under the new policy, the Renminbi is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. The Renminbi depreciated 2.0% against the U.S. dollar for the year ended December 31, 2018. The Renminbi depreciated 4.1% against the U.S. dollar for the year ended December 31, 2019. The Renminbi appreciated by appoximately 6.5% against the U.S. dollar for the year ended December 31, 2020. However, it remains unclear what further fluctuations may occur or what impact this will have on the value of the Renminbi. It is possible that the PRC government could adopt a more flexible foreign exchange policy, which could result in further and more significant revaluations of the Renminbi against the U.S. dollar or any other foreign currency. Any resulting fluctuations in exchange rates as a result of such policy changes may have an adverse effect on our financial condition and results of operations.

Our operations may be adversely affected by rising inflation rates in the PRC.

Increase in inflation is due to many factors beyond our control, such as rising production and labor costs, high debts, changes in the PRC and foreign governmental policy and regulations, and movements in exchange rates and interest rates. The national consumer price index, which is an indicator of the inflation, was 2.1%, 2.9% and 2.5% in 2018, 2019 and 2020, respectively. The national consumer price index was -0.3%, -0.2% and 0.4% in January, February and March 2021, respectively. We cannot assure you that inflation rates will not increase in the future. If inflation rates rise beyond our expectations, the costs of our business operations may become significantly higher than anticipated, and we may be unable to pass on such higher costs to consumers in amounts that are sufficient to cover those increasing operating costs. As a result, further inflationary pressures in the PRC may have a material adverse effect on our business, financial condition and results of operations, as well as our liquidity and profitability.

Any withdrawal of, or changes to, tax incentives in the PRC may adversely affect our results of operations and financial condition.

Prior to January 1, 2008, except for a number of preferential tax treatment schemes available to various enterprises, industries and locations, business enterprises in China were subject to an enterprise income tax rate of 33% under the relevant PRC Enterprise Income Tax Law. On March 16, 2007, China passed a new enterprise income tax law, or the EIT Law, which took effect on January 1, 2008 and amended on February 24, 2017 and December 29, 2018. The EIT Law imposes a uniform income tax rate of 25% for domestic enterprises and foreign invested enterprises. Business enterprises enjoying preferential tax treatment that was extended for a fixed term prior to January 1, 2008 will still be entitled to such treatment until such fixed term expires. Certain of our subsidiaries are entitled to preferential tax treatment, allowing us to enjoy a lower effective tax rate that would not otherwise be available to us. To the extent that there are any increases in the applicable effective tax rate, withdrawals of, or changes in, our preferential tax treatment or tax exemptions, our tax liability may increase correspondingly.

We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to domestic public companies in the United States.

Because we are a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers, including: (i) the rules under the Exchange Act requiring the filing of quarterly reports on Form 10-Q or current reports on Form 8-K with the SEC; (ii) the sections of the Exchange Act regulating the solicitation of proxies in respect of a security registered under the Exchange Act; (iii) the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and “short swing” liability for insiders who profit from certain trades; and (iv) the selective disclosure rules by issuers of material nonpublic information under Regulation FD.

We are required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we publish our results on a quarterly basis through press releases. Press releases relating to financial results and material events are furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC will be less extensive and may be less timely compared with that required to be filed with the SEC by U.S. domestic issuers. As a result, holders of ADSs may not be afforded the same protections or information, which would be made available to them, were they investing in a U.S. domestic issuer.

We are subject to the corporate governance requirements of the NYSE. However, the NYSE rules permit a foreign private issuer like us to follow the corporate governance practices of our home country in lieu of certain NYSE rules. Certain corporate governance practices in the PRC, which is our home country, may differ significantly from the NYSE corporate governance requirements. To the extent we choose to follow home country practice, our shareholders may be afforded less protection than they would otherwise enjoy under the NYSE corporate governance listing standards applicable to U.S. domestic issuers.

Uncertainties embodied in the PRC legal system may limit certain legal protection available to investors.

The PRC legal system is a civil law system based on written statutes. In 1979, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general. Legislation over the past 20 years has significantly enhanced the protection afforded to foreign investors in China. However, the interpretation and enforcement of some of these laws and regulations involve uncertainties that may limit the legal protection available to investors. As a result, it may be difficult or impossible for our investors to bring an action against us or our directors and officers in the United States in the event that such investors believe that their rights have been infringed under the U.S. federal securities laws or otherwise. Even if such investors are successful in bringing an action of this kind, the PRC laws may render them unable to enforce a judgment against our assets or the assets of our directors and officers.Such uncertainties pervade as the legal system in the PRC continues to evolve. Even where adequate laws exist in the PRC, the enforcement of the existing laws or contracts may be uncertain and sporadic, and it may be difficult to obtain swift and equitable enforcement, including enforcing a foreign judgment. In addition, the PRC legal system is based on written statutes and their interpretation; prior court decisions may be cited as reference but have limited authority as precedents. As such, any litigation in the PRC may be protracted and result in substantial costs and diversion of our resources and management attention. We have full or majority board control over the management and operation of all of our subsidiaries established in the PRC. The control over these PRC entities and the exercise of shareholder rights are subject to their respective articles of association and PRC laws applicable to foreign-invested enterprises in the PRC, which may be different from the laws of other developed jurisdictions.

The enacted laws and regulations may not sufficiently cover all aspects of economic activities in the PRC and this may create additional uncertainties as to the outcome of any litigation. In addition, interpretation of statutes and regulations may be subject to government policies reflecting domestic political changes. Furthermore, in case of new laws and regulations, the interpretation, implementation and enforcement of these laws and regulations would involve uncertainties due to the lack of established practice or published court decisions available for reference. We cannot predict the future legal development in the PRC, including promulgation of new laws, changes to existing laws or interpretation or enforcement thereof, or inconsistencies between the local rules and regulations and the national law. As a result, we may not be aware of any violations until sometime after the violation has occurred. This may also limit the remedies available to investors and to us in the event of any claims or disputes with third parties.

Item 4. Information on the Company

A. History and Development of the Company

Our registered office is located at 66 Airport Street, Pudong International Airport, Shanghai, China, 201202. Our principal executive office and mailing address is 5/F, Block A2, Northern District, CEA Building, 36 Hongxiang 3rd Road, Minhang District, Shanghai, China. The telephone number of our principal executive office is (86-21) 6268-6268 and the fax number for the Board Secretariat’s office is (86-21) 6268-6116. We currently do not have an agent for service of process in the United States.

Our Company, China Eastern Airlines Corporation Limited was established on April 14, 1995 under the laws of China as a company limited by shares in connection with the restructuring of our predecessor and our initial public offering. We are commercially known in the industry as China Eastern Airlines. Our predecessor was one of the six original airlines established in 1988 as part of the decentralization of the airline industry in China undertaken in connection with China’s overall economic reform efforts. Prior to 1988, the CAAC was responsible for all aspects of civil aviation in China, including the regulation and operation of China’s airlines and airports. In connection with our initial public offering, our predecessor was restructured into two separate legal entities, our Company and EA Group. According to the restructuring arrangement, by operation of law, our Company succeeded to substantially all of the assets and liabilities relating to the airline business of our predecessor. EA Group succeeded to our predecessor’s assets and liabilities that do not directly relate to the airline operations and do not compete with our businesses. Assets transferred to EA Group included our predecessor’s equity interests in companies engaged in import and export, real estate, advertising, in-flight catering, tourism and certain other businesses. In connection with the restructuring, we entered into various agreements with EA Group and its subsidiaries for the provision of certain services to our Company. CEA Holding assumed the rights and liabilities of EA Group under these agreements after it was formed by merging EA Group, Yunnan Airlines Company and China Northwest Airlines Company in October 2002. See “Item 7. Major Shareholders and Related Party Transactions” for more details.

The following chart sets forth the organizational structure of our Company and our significant subsidiaries as of December 31, 2020:

In 2020, we took the initiative to confront the COVID-19 pandemic and made every effort to stabilize our operations, striving to reduce the adverse impact of the COVID-19 pandemic. We have closely followed the situation of the COVID-19 pandemic and market changes to dynamically adjust the deployment of transportation capacity, laid a solid foundation in servicing the coordinated development of Beijing-Tianjin-Hebei and the construction of Xiong’an New District and steadily promoted the construction of the core hub of Beijing, and moved our base to Beijing Daxing International Airport as the main base airline as planned. During the outbreak of the COVID-19 pandemic, we launched “Wild Your Dreams”, a series of innovative products, to stimulate passengers’ travel demand, restore market confidence, promote the recovery of the aviation market, effectively serve the internal circulation of China and achieve good economic, social and brand benefits. We also launched the new “Eastern Miles” membership system and introduced the “Eastern Airlines Wallet” enabling “points + cash” payment, so as to increase the ways of using member points. In 2020, we actively expanded financing channels and issued a total of RMB77.2 billion of super short-term debentures and RMB2 billion of corporate bonds to ensure that the cash flow can meet our operation needs.

The material development of our indebtedness is set out in Note 36 to the consolidated financial statements. The capital expenditure is set out in Item 5 in this Annual Report.

The SEC also maintains a website at http://www.sec.gov that contains reports, proxy statements and other information regarding issuers that file electronically with the SEC. We maintain our own website at http://www.ceair.com.

B. Business Overview

We were one of the three largest air carriers in China in terms of several indicators including number of passengers carried, ATK and ASK in 2020 and is an important domestic airline based in and serving Shanghai, which is considered to be the international financial and shipping center of China. The primary focus of our business is the operation of civil aviation, including the provision of passenger, cargo, mail delivery, tour operations and other extended transportation services.

We operate most of our flights through our three hubs located in eastern, northwestern and southwestern China, namely Shanghai, Xi’an and Kunming, respectively. With Shanghai as our core hub and Xi’an and Kunming as our regional hubs, we believe that we will benefit from the level of development and growth opportunities in eastern, northern and western China as a whole by providing direct services between various cities in those regions and between those regions and other major cities in China. We have steadily fostered the construction of a flight system for these core hubs by introducing new flight destinations and increasing the frequency of certain flights, thereby enhancing our transfer and connection capability in these hub markets. With the commencement of operation of Beijing Daxing International Airport in 2019, Beijing Daxing International Airport also becomes one of our core hubs. With dual core hubs in both Shanghai and Beijing, we believe that we are better positioned to further strengthen our hub network and accommodate market demands.

Our domestic routes contributed approximately 82.0% of our total passenger revenues in 2020. Our most heavily traveled domestic routes generally link Shanghai to the large commercial and business centers of China, such as Beijing, Guangzhou and Shenzhen. Our flight routes include all provincial capital cities in China and specifically designated cities. As of December 31, 2020, we served a route network that covers 1,036 domestic and foreign destinations in 170 countries through SkyTeam, an international airlines alliance.

Our passenger traffic volume (as measured in revenue passenger-kilometers, or RPKs) decreased by 51.6% from approximately 221,779 million in 2019 to approximately 107,273 million in 2020. Our cargo and mail traffic volume (as measured in revenue freight tonne-kilometers, or RFTKs) decreased by 26.0% from approximately 2,971 million in 2019 to approximately 2,200 million in 2020. As a result, our traffic volume (as measured in RTKs) decreased by 48.0% from approximately 22,518 million in 2019 to approximately 11,700 million in 2020.

Awards

We have received many awards, recognitions and accolades through the years.

In 2020, we withstood the challenges brought by the COVID-19 pandemic and achieved constructive results. At the National Commendation Conference for Fighting the COVID-19 Pandemic in 2020, we were awarded honorary titles including “National Advanced Group in Fighting the COVID-19 Pandemic”, “National Advanced Individual in Fighting the COVID-19 Pandemic” and “National Advanced Primary Party Organisation”, and was awarded the most number of national-level advanced commendations for the COVID-19 pandemic prevention among entities in the civil aviation system in China. In 2020, we were selected as the “2020 Golden Bee Corporate Social Responsibility • China List” for our outstanding performance in social responsibility and were rated as “Golden Bee Enterprise”; MSCI assigned us an ESG rating of A.

Our Operations by Activity

The following table sets forth our traffic revenues by activity for each of the years ended December 31, 2018, 2019 and 2020:

Year Ended December 31,

2018

2019

2020

(in RMB millions)

Traffic revenues

Passenger

104,309

110,416

49,215

Cargo and mail

3,627

3,826

4,895

Total traffic revenues

107,936

114,242

54,110

Passenger Operations

The following table sets forth our certain passenger operating statistics by route for each of the years ended December 31, 2018, 2019 and 2020:


	Year Ended December 31,
	2018		2019		2020
Passenger Traffic (in RPKs) (millions)		201,486		221,779		107,273
Domestic		128,906		142,921		96,206
Regional (Hong Kong, Macau and Taiwan)		5,289		5,046		458.0
International		67,290		73,812		10,609
Passenger Capacity (in ASKs) (millions)		244,841		270,254		152,066
Domestic		154,059		171,684		134,702
Regional (Hong Kong, Macau and Taiwan)		6,374		6,408		902
International		84,408		92,162		16,463
Passenger Yield (RMB)		0.54		0.52		0.49
Domestic		0.56		0.54		0.46
Regional (Hong Kong, Macau and Taiwan)		0.73		0.74		0.90
International		0.49		0.47		0.82
Passenger Load Factor (%)		82.29		82.06		70.54
Domestic		83.67		83.25		71.42
Regional (Hong Kong, Macau and Taiwan)		82.99		78.75		50.79
International		79.72		80.09		64.44

In 2018, our fleet size, number of flights and number of users with “in-flight internet connection” ranked the first in China. We actively sought to establish an in-flight internet joint venture with telecom operators to reinforce and enhance our first-mover advantage in the inflight internet connection business. We continuously optimized the customers’ experience on our official website and mobile application, added and optimized important functions such as pre-flight ordering of in-flight meals and publication of information regarding unusual flights. We have vigorously promoted the establishment of overseas e-commerce platform, launched 14 new overseas websites and introduced value-added products such as oversized baggage check-in, VIP lounges and online seat selection. We strengthened the operation of points mall, enriched point redemption products, and optimized the points payment function.

In 2018, we introduced a total of 67 aircraft of major models and a total of 14 aircraft retired. With the introduction of new aircraft, such as A350-900, B787-9 and A320NEO, and the retirement of B767 aircraft, our fleet age has been made younger. As of December 31, 2018, we operated a fleet of 692 aircraft, which included 680 passenger aircraft and 12 business aircraft held under trust. We continuously intensified our cooperation with strategic partners to enrich the contents for cooperation and enhance the quality of cooperation. Delta Air Lines and we continued to intensify bilateral cooperation in four aspects, namely, revenue from cooperation (including mutual sales revenue and revenue from SPA (special allocation agreements)), experience of travelers, communication between personnel and cooperation for expansion and development. We entered into a new cooperation agreement with Air France-KLM, pursuant to which, additional routes such as Kunming-Paris and Wuhan-Paris were operated jointly commencing from January 1, 2019. We worked with Delta Air Lines and Air France-KLM to carry out the plan for network optimization connection, as well as ground service and procedure standards for Beijing Daxing International Airport. By entering into a comprehensive and upgraded business agreement with Qantas Airways Limited, we intensified the business partnership of both parties based on the original joint partnership. We has signed a joint cooperation agreement with Japan Airlines Co., Ltd. (“Japan Airlines”), and both parties are performing the relevant anti-monopoly legal procedures of China and Japan.

In 2018, our market share (in terms of passenger throughput) in hubs such as Shanghai, Beijing and Kunming increased by 0.6, 0.4 and 0.8 percentage point, respectively, while our market share in Xi’an remained the same year-on-year. Through the optimization of transit connection, the effect of hub network has gradually appeared. In respect of the number of transits connecting “origin to destination”, Pudong reached 4,614, representing an increase of 9.2% as compared to 2017; Kunming reached 1,793, representing an increase of 11.5% as compared to 2017; Xi’an reached 739, representing an increase of 12.7% as compared to 2017; and Beijing reached 751, representing an increase of 1.0% as compared to 2017.

In 2018, we put in available seat – kilometers (ASK) of approximately 244,841 million passenger-kilometers, representing an increase of approximately 8.3% from 2017. Number of passengers carried in 2018 was approximately 121 million, representing an increase of approximately 9.4% from 2017. Passenger load factor in 2018 was approximately 82.3%, representing an increase of approximately 1.2 percentage points from 2017. Passenger revenue in 2018 amounted to approximately RMB104,309 million, representing an increase of approximately 13.9% from 2017.

In 2019, we introduced a total of 44 aircraft of major models and one aircraft retired. With the introduction of new aircraft, such as A350-900, B787-9 and A320NEO, our fleet age structure has remained young. As of December 31, 2019, we operated a fleet of 734 aircraft, which included 723 passenger aircraft and 11 business aircraft held under trust. We have intensified our comprehensive cooperation with strategic partners and core partners to improve the capacity of international routes and enhance the quality of cooperation. For the core markets of Shanghai and Beijing, leveraging on the operation of the satellite terminal S1 of Shanghai Pudong International Airport (the “Satellite Terminal S1 of Pudong”) and Beijing Daxing International Airport, we worked with SkyTeam Airline Alliance members and other important partners to carry out the plan for route network optimization connection, as well as the development of ground service procedure and standards, explore ground operating cooperation opportunities, design passenger travel plan portfolio products and continue to expand the scope of code-sharing. As of the end of 2019, our codesharing covered 347 flight route destinations, 1,007 routes and 4,617 flights. For the North American market, we and Delta Air Lines started to operate in the same terminal in Satellite Terminal S1 of Pudong and recorded increase in revenue from cooperation. For the European market, we have expanded joint operation routes with Air France-KLM by adding new routes from Kunming and Wuhan to Paris, and intensified the cooperation in the aspects such as transfer mode of connected flights, corporate clients and joint sales. For the Australian market, our in-depth cooperation with Qantas Airways Limited in the areas of code-sharing, allocation of flight capacity, joint marketing, resources sharing and personnel exchange has driven the growth in mutual sales revenue from cooperation. For the Asia Pacific market, we continued to facilitate the anti-monopoly approval procedures for the joint cooperation with Japan Airlines and deepened the cooperation in the areas of route network and flight capacity sharing with Japan Airlines to strengthen our market position in Japan routes.

In 2019, we have focused on the core hubs of Beijing and Shanghai, and the regional hubs such as Xi’an and Kunming to continuously optimize our route network layout and flight capacity allocation so as to strengthen the our market share and influence. In 2019, our market shares in hubs such as Shanghai, Beijing, Kunming and Xi’an were 40.6%, 18.3%, 37.2% and 29.4%, respectively. Through the scientific matching of routes and flight capacity and the optimization of transit connection procedures, the effect of hub network has gradually appeared. The number of transits connecting “origin to destination” of the three hubs, namely Shanghai Pudong, Xi’an and Kunming, significantly increased by 11.6%, 34.4% and 9.9%, respectively. The transit passengers of the three hubs, namely Shanghai Pudong, Kunming, and Xi’an amounted to 3,488,000 passengers, 1,658,000 passengers and 580,000 passengers, respectively, representing a year-on-year increase of 11.1%, 3.0% and 7.8%, respectively.

In 2019, we put in available seat – kilometers (ASK) of approximately 270,254 million passenger-kilometers, representing an increase of approximately 10.4% from 2018. Number of passengers carried in 2019 was approximately 130 million, representing an increase of approximately 7.5% from 2018. Passenger load factor in 2019 was approximately 82.06%, remaining relatively stable as compared to 2018. Passenger revenue in 2019 amounted to approximately RMB110,416 million, representing an increase of approximately 5.9% from 2018.

In 2020, we introduced a total of 13 aircraft of major models and a total of 11 aircraft retired. With the introduction of new aircraft, such as A350-900, B787-9 and A320NEO, our fleet age structure still continues to remain young. As of December 31, 2020, we operated a fleet of 734 aircraft, which included 725 passenger aircraft and nine business aircraft held under trust.

In 2020, we have closely followed the situation of the COVID-19 pandemic and market changes to dynamically adjust the deployment of transportation capacity. To improve our route network and the establishment of our core hubs, we paid special attention to adjusting our capacity; we paired core hubs and important business cities with more wide-body aircraft; we optimized our route network layout and focused on the construction of express and quasi express routes in key markets; we continued to faciliate the construction of the core hub of Beijing and moved our base to Beijing Daxing International Airport; we steadily promoted construction of hubs in important business markets such as Chengdu, Qingdao and Wuhan.

Due to the adverse impact of the COVID-19 pandemic, our production volume, revenue, profit and other indicators all dropped significantly. In 2020, our passenger revenue amounted to RMB49,215 million, representing a decrease of 55.4% from last year, and accounted for 91.0% of our traffic revenue. The passenger traffic volume was 107,273 million passenger-kilometres, representing a decrease of 51.6% from last year. Meanwhile, our cargo traffic revenues amounted to RMB4,895 million, representing an increase of 27.9% from last year, and accounted for 9.0% of our traffic revenue. The cargo and mail traffic volume was 2,200 million tonne-kilometres, representing a decrease of 26.0% from last year. Our other revenue amounted to RMB4,617 million, representing a decrease of 31.5% from last year.

Cargo and Mail Operations

We also provide air cargo and mail services. The following table sets forth certain of our cargo and mail operations statistics by route for each of the years ended December 31, 2018, 2019 and 2020:


	Year Ended December 31,
	2018		2019		2020
Cargo and Mail Traffic (in RFTKs)		2,588		2,971		2,200
(millions)
Domestic		886		951		774
Regional (Hong Kong, Macau and Taiwan)		35		29		9
International		1,667		1,991		1,416
Cargo and Mail Capacity (in AFTKs)		7,901		9,133		6,946
(millions)
Domestic		2,741		3,216		2,755
Regional (Hong Kong, Macau and Taiwan)		191		189		42
International		4,969		5,728		4,150
Cargo and Mail Yield (RMB)		1.40		1.29		2.23
Domestic		1.12		1.05		0.97
Regional (Hong Kong, Macau and Taiwan)		5.57		5.56		8.91
International		1.47		1.34		2.87
Cargo and Mail Load Factor (%)		32.76		32.54		31.67
Domestic		32.33		29.58		28.11
Regional (Hong Kong, Macau and Taiwan)		18.39		15.21		22.45
International		33.55		34.77		34.13

China Cargo Airlines has exclusive operation to independently operate and manage our passenger aircraft cargo business.

Our Operations by Geographical Area

Our revenues (net of business tax) by geographical area are analyzed based on the following criteria:

(1)

Traffic revenue from services within the PRC (excluding Hong Kong Special Administrative Region (“Hong Kong”), Macau Special Administrative Region (“Macau”) and Taiwan, (collectively known as “Regional”)) is classified as domestic operations. Traffic revenue from inbound and outbound services between overseas markets excluding Regional is classified as international operations.

(2)

Revenue from ticket handling services, ground services, cargo handling service and other miscellaneous services is classified based on where the services are performed.

The following table sets forth our revenues by geographical area for each of the three years ended December 31, 2020:


	2018		2019		2020
	*(in RMB millions)*
Domestic		76,517		80,058		45,479
Regional (Hong Kong, Macau and Taiwan)		4,017		3,846		489
International		34,744		37,082		12,759
Total		115,278		120,986		58,727

Regulation

The PRC Civil Aviation Law provides the framework for regulation of many important aspects of civil aviation activities in China, including:

(1)

the administration of airports and air traffic control systems;

(2)

aircraft registration and aircraft airworthiness certification;

(3)

operational safety standards; and

(4)

the liabilities of carriers.

The Chinese airline industry is also subject to a high degree of regulation by the CAAC. Regulations issued or implemented by the CAAC encompass virtually every aspect of airline operations, including route allocation, domestic airfare, licensing of pilots, operational safety standards, aircraft acquisition, aircraft airworthiness certification, fuel prices, standards for aircraft maintenance and air traffic control and standards for airport operations. Although the PRC airlines operate under the supervision and regulation of the CAAC, they are accorded a significant degree of operational autonomy. These areas of operational autonomy include:

•

whether to apply for any route;

•

the allocation of aircraft among routes;

•

the airfare pricing for the international and regional passenger routes;

•

the airfare pricing within the limit provided by the CAAC for the domestic passenger routes;

•

the acquisition of aircraft and spare parts;

•

the training and supervision of personnel; and

•

many other areas of day-to-day operations.

Although we have generally been allocated adequate routes in the past to accommodate our expansion plans and other changes in our operations, those routes are subject to allocation and re-allocation in response to changes in governmental policies or otherwise at the discretion of the CAAC. Consequently, we cannot assure you that our route structure will be adequate to satisfy our expansion plans.

The CAAC has established regulatory policies intended to promote controlled growth of the Chinese airline industry. We believe those policies will be beneficial to the development of and prospects for the Chinese airline industry as a whole. Nevertheless, those regulatory policies could limit our flexibility to respond to changes in market conditions, competition or our cost structure. Moreover, while we generally benefit from regulatory policies that are beneficial to the airline industry in China as a whole, the implementation of specific regulatory policies may from time to time materially and adversely affect our business operations.

Because we provide services on international routes, we are also subject to a variety of bilateral civil air transport agreements between China and other countries. In addition, China is a contracting state as well as a permanent member of the International Civil Aviation Organization, an agency of the United Nations established in 1947 to assist in the planning and development of the international air transportation. The International Civil Aviation Organization establishes technical standards for the international airline industry. China is also a party to a number of other international aviation conventions. Our business operations are also subject to these international aviation conventions, as well as certain foreign country aviation regulations and local aviation laws with respect to route allocation, landing rights and related flight operation regulation.

Domestic Route Rights

Chinese airlines must obtain from the CAAC the right to carry passengers or cargo on any domestic route. The CAAC’s policy on domestic route rights is to assign routes to the airline or airlines suitable for a particular route. The CAAC will take into account whether an applicant for a route is based at the point of origin or termination of a particular route. This policy benefits airlines, such as us, that have a hub located at each of the active air traffic centers in China. The CAAC also considers other factors that will make a particular airline suitable for an additional route, including the applicant’s safety record, previous on-time performance and level of service and availability of aircraft and pilots. The CAAC will consider the market conditions applicable to any given route before such route is allocated to one or more airlines. Generally, the CAAC will permit additional airlines to service a route that is already being serviced only when there is strong demand for a particular route relative to the available supply. The CAAC’s current general policy is to require the passenger load factor of one or two airlines on a particular route to reach a certain level before another carrier is permitted to commence operations on such route.

Regional Route Rights

Hong Kong routes and the corresponding landing rights were formerly derived from the Sino-British air services agreement. In February 2000, the PRC government, acting through the CAAC, and Hong Kong signed the Air Transportation Arrangement between mainland China and Hong Kong. The Air Transportation Arrangement provides equal opportunity for airlines based in Hong Kong and mainland China. Competition from airlines based in Hong Kong increased after the execution of the Air Transportation Arrangement. The CAAC normally will not allocate an international route or a Hong Kong route to more than one domestic airline unless certain criteria, including minimum load factors on existing flights, are met. There is more than one Chinese airline company on certain of our Hong Kong routes.

The CAAC and the Economic Development and Labor Bureau of Hong Kong entered into an agreement in 2007 to further expand the Air Transportation Arrangement. This agreement increases the routes between Hong Kong and mainland China to expand coverage to most major cities in mainland China. The capacity limits for passenger and/or cargo services on most routes will also be gradually lifted. Beginning in 2007, each side designated three airline companies to operate passenger and/or cargo flights and another airline company to operate all-cargo flights on the majority of the routes between Hong Kong and mainland China. Since then, the two sides signed memorandums to further expand the Air Transportation Arrangement several times.

On December 15, 2008, mainland China and Taiwan commenced direct air and sea transport and postal services, ending a nearly six-decade ban on regular links between the two sides since 1949. Under a historic agreement signed by the governments of mainland China and Taiwan in early November 2008, the new air links expanded from weekend charters to a daily service. According to the flight plan of 2019-2020 winter and spring season of CAAC, the total number of flights between mainland China and Taiwan reached 1,320 per week.

International Route Rights

International route rights, along with the corresponding landing rights, are derived from air services agreements negotiated between the PRC government, acting through the CAAC, and the government of the relevant foreign country. Each government grants to the other the right to designate one or more domestic airlines to operate scheduled services between certain points within each country. The CAAC awards the relevant route to an airline based on various criteria, including:

(1)

availability of appropriate aircraft and flight personnel;

(2)

safety record;

(3)

on-time performance; and

(4)

hub location.

Although hub location is an important criterion, an airline may be awarded a route that does not originate from an airport where it has a hub.

The route rights awarded do not have a fixed expiry date and can be terminated at the discretion of the CAAC.

Airfare Pricing Policy

The PRC Civil Aviation Law provides that airfares for domestic routes are determined jointly by the CAAC and the agency of the State Council responsible for price control, primarily based upon average airline operating costs and market conditions.

The CAAC and NDRC jointly issued a notice on April 13, 2010, effective on June 1, 2010, pursuant to which airlines may set first-class and business-class airfares in accordance with market prices, subject to relevant PRC laws. Such pricing must be filed 30 days before effectiveness with the CAAC and NDRC. Efforts by the Chinese regulators to promote a sale market with fair competition will also help provide a favorable environment for our business growth.

At the end of 2014, the CAAC and the NDRC jointly promulgated The Notice on Further Improving the Problems About Civil Aviation Domestic Air Transport Price Policy, which lifted the control over the civil domestic airlines cargo freight rate and changed the prices of specific airlines from government-oriented pricing to market-oriented pricing.

At the end of 2015, the CAAC announced the Implementation Opinion on the Reform of Mechanism of Prices and Service Fee in Civil Aviation Transport, which sets the goal to generally lift the control over the prices and service fee in competitive part of civil aviation transport by 2017, and to generally set up a basically optimized, scientific, standardized, transparent and market-oriented pricing regulatory system by 2020.

In October 2016, the CAAC and the NDRC jointly promulgated the Circular on the Further Reform of Passenger Transport Price Policy in Civil Aviation Domestic Air Transport, which loosened the control over the civil domestic airlines passenger transportation and changed the prices from government-oriented pricing to market-oriented pricing. According to the circular, the price of routes under 800km or routes above 800km that are in competition with high-speed rails for passenger transportation can be determined independently.

At the end of 2017, the CAAC and the NDRC jointly promulgated the Notice on Further Improving the Problems about Passenger Transport Price Policy in Civil Aviation Domestic Air Transport, given greater freedom to set fares on more domestic routes.

On April 13, 2018, the CAAC issued the Notice on the Issuance of Domestic Route Directory with Market-adjusted Prices showing a total of 1,030 domestic routes implementing market adjusted ticket prices.

On November 23, 2020, the Civil Aviation Authority and the National Development and Reform Commission, jointly issued a Notice on Issues Related to Further Deepening the Reform of Transport Prices on Domestic Routes of Civil Aviation, which may greatly increase the volume of market-adjusted domestic routes, and the market price-determining mechanism may be further strengthened.

Under the PRC Civil Aviation Law, maximum airfares on regional and international routes are set in accordance with the terms of the air services agreements pursuant to which these routes are operated. In the absence of an air services agreement, airfares are set by the airlines themselves or by the CAAC with reference to comparable market prices, taking into account the international airfare standards established through the coordination of the International Air Transport Association, which organizes periodic air traffic conferences for coordinating international airfares. Discounts are permitted on regional and international routes. For the airline industry in China as a whole, the airfare per kilometer is substantially higher for regional and international routes than that for domestic routes.

Acquisition of Aircraft and Spare Parts

We are permitted to import aircraft, aircraft spare parts and other equipment for our own use from manufacturers through Eastern Aviation Import and Export Co., Ltd., or EAIEC, which is 55% owned by CEA Holding and 45% owned by our Company. This gives us a sale market with fair competition flexibility with our inventory management by allowing us to maintain a relatively lower overall inventory level of aircraft parts and equipment than we otherwise would have to maintain. We are still required to obtain approval from the NDRC and may be subject to appraisal of the relevant competent authorities for any import of aircraft. We generally pay a commission to EAIEC in connection with these imports.

Domestic Fuel Supply and Pricing

The Civil Aviation Oil Supply Company, or the CAOSC, which is supervised by the State-owned Assets Supervision and Administration Commission of the State Council, or the SASAC, is currently the dominant civil aviation fuel supply company in China. We currently purchase a significant portion of our domestic fuel supply from CAOSC. The PRC government determines the fuel price at which the CAOSC acquires fuel from domestic suppliers and the CAAC issues a guidance price. The retail price at which the CAOSC resells fuel to airline customers is set within a specified range based on this guidance price.

In 2005, the NDRC, the CAAC and the China Air Transport Association jointly launched the linkage mechanism for aviation fuel prices and transportation prices by airline companies. The fuel surcharge standards for domestic passenger routes were adjusted according to a series of notices regarding the adjustments of passenger fuel surcharges on domestic routes issued by the NDRC and the CAAC from 2006 to 2008. In the second half of 2008, international crude oil prices decreased significantly, leading the NDRC and the CAAC to release an announcement on January 14, 2009 to suspend fuel surcharges for domestic passenger routes with effect from January 15, 2009. A Notice Concerning the Relevant Issues on Establishment Linkage Mechanism for Passenger Fuel Surcharges on Domestic Routes and the Price of Domestic Aviation Coal Oil Fuel by NDRC and CAAC, with effect from November 14, 2009, provided that fuel surcharges shall be charged by the airlines, at the airline’s discretion, but within certain limits as set forth in the notice. On March 31, 2010, the NDRC and CAAC issued the Notice Regarding the Publication of Passenger Fuel Surcharges Rate on Domestic Routes, which reduced the standard fuel surcharge by 3.1% for domestic routes. In addition, on March 31, 2011, the NDRC and CAAC issued another similar notice, which further adjusted the standard fuel surcharge downwards. From August 1, 2011, according to the Announcement on the Linking Mechanism for Fuel Surcharges and Aviation Coal Oil Fuel, issued by the NDRC and CAAC, the rate of domestic route fuel surcharges will be adjusted each month if the difference in consolidated purchase costs for domestic aviation coal oil fuel exceeds RMB250 per ton.

On March 24, 2015, the CAAC and the NDRC jointly promulgated the Notice on Adjustment of the Linking Mechanism for Fuel Surcharges and Aviation Coal Oil Fuel in Passenger Transport of Domestic Airlines, in which they decided to increase the base price of aviation coal oil fuel from RMB4,140 per ton to RMB5,000 per ton.

Safety

The CAAC has made the continuance of improvement of air traffic safety in China a high priority. The CAAC is responsible for the establishment of operational safety, maintenance and training standards for all Chinese airlines, which have been formulated based on international standards. Each Chinese airline is required to provide flight safety reports to the CAAC, including reports of flight incidents or accidents involving its aircraft, which occurred during the relevant reporting period and other safety related problems. The CAAC conducts safety inspections on each airline periodically.

The CAAC oversees the training of most Chinese airline pilots through its operation of the pilot training college. The CAAC implements a unified pilot certification process applicable to all Chinese airline pilots and is responsible for the issuance, renewal, suspension and cancelation of pilot licenses. Each pilot is required to pass the CAAC-administered examinations before obtaining a pilot license and is subject to an annual examination in order to have such certification renewed.

All aircraft operated by Chinese airlines, other than a limited number of leased aircraft registered in foreign countries, are required to be registered with the CAAC. All of our aircraft are registered with the CAAC. All aircraft operated by Chinese airlines must have a valid certificate of airworthiness issued and annually renewed by the CAAC. In addition, maintenance permits are issued to a Chinese airline only after the maintenance capabilities of that Chinese airline have been examined and assessed by the CAAC. These maintenance permits are renewed annually. All aircraft operated by Chinese airlines may be maintained and repaired only by CAAC certified maintenance facilities, whether located within or outside China. Aircraft maintenance personnel must be certified by the CAAC before assuming aircraft maintenance posts.

In early 2013, the CAAC amended the original Civil Aviation Incidents Standards and published the new Civil Aviation Incidents Standards which became effective as of March 1, 2013. The CAAC amended the Management Rules on Safety Information of Civil Aviation which became effective on April 4, 2016 and required that related Chinese airlines should arrange a certain number of specialists that satisfied with special requirements to take charge of the management of safety information. The CAAC promulgated the new Administrative Provisions on Emergencies of China’s Civil Aviation which became effective from April 17, 2016 and formulated the duties and responsibilities of Chinese airlines on the prevention and emergency preparedness, prediction and early warning, emergency disposal, handling and other emergency work of civil aviation. We will ensure our relevant employees implement the new standards, which will enable us to enhance our daily operations. For more information on the safety standards and measures implemented by us, see “– Maintenance and Safety – Safety.” In 2016, the CAAC promulgated the new Administrative Provisions on Civil Aviation Safety Information. As a result, we formulated new internal regulations on aviation safety information to strengthen the safety of our information system.

Security

The CAAC establishes and oversees the implementation of security standards and regulations based on the PRC laws and standards established by international civil aviation organizations. Each airline is required to submit to the CAAC an aviation security handbook describing specific security procedures established by the airline for the day-to-day operations and security training for staff. Such security procedures must be formulated based on the relevant CAAC regulations. Chinese airlines that operate international routes must also adopt security measures in accordance with the requirements of the relevant international agreements and applicable local laws. We believe that we comply with all applicable security regulations.

Environmental Regulation

We are subject to a number of environmental laws and regulations issued by regulatory authorities in China including the Environment Protection Law of the PRC, the Prevention and Control of Noise Pollution Law of the PRC, the Environmental Protection Tax Law of the PRC, Implementing Regulations of Environmental Protection Tax Law of the PRC and Implementation Opinions on Further Promoting the Green Development of Civil Aviation. We believe that we comply with all applicable noise and environmental regulations in material aspects.

Chinese Airport Policy

Prior to September 2003, all civilian airports in China were operated directly by the CAAC or by provincial or municipal governments. In September 2003, as part of the restructuring of the aviation industry in China, the CAAC transferred 93 civilian airports to provincial or municipal governments. The CAAC retained the authority to determine the take-off and landing charges, as well as charges on airlines for the use of airports and airport services. Prior to 2004, Chinese airlines were generally required to collect from their passengers on behalf of the CAAC a levy for contribution to the civil aviation infrastructure fund, which was used for improving China’s civilian airport facilities. Our revenue for the previous years is shown net of this levy. In 2003, the levy was 5% of domestic airfares and 2% of international airfares. The levy was waived by the CAAC from May 1, 2003 to December 31, 2003. With effect from September 2004, the civil aviation infrastructure levies, now paid to the Ministry of Finance of the PRC (“MOF”), have been reflected in airfares of Chinese airlines rather than collected as a separate levy.

On December 28, 2007, the CAAC and the NDRC released the Implementing Scheme for the Civil Aviation Airport Charges Reform Implementation Plan, which was implemented on March 1, 2008. This new plan divides airport charges into three parts: charges related to airline businesses; charges related to important non-airline items; and other non-airline charges. The charges related to airline businesses and important non-airline items must follow the national guided prices, in which the standard prices are rarely increased, while reduced rates can be negotiated between the airport or the service provider and the users. The plan grants us the right to negotiate with airports on the airport charges. On January 23, 2017, CAAC promulgated the Notice of Distributing the Adjustment Plan for Charging Standards for Civil Airport, adjusting the general aviation fee policy and the preferential policy for passenger service fees, including but not limited to the categories, meanings, management methods, benchmark prices and floating ranges of several airport charges and take-off and landing fees. On May 28, 2019, the CAAC issued Notice on Issues Related to Civil Airport Charging, which lowered the charging standards for some airport charging items.

Limitation on Foreign Ownership

The CAAC’s present policies limit foreign ownership in Chinese airlines. Under these limits, non-Chinese residents and Hong Kong, Macau or Taiwan residents cannot hold a majority of our total outstanding shares individually or together. For PRC air transportation companies, pursuant to the Special Administrative Measures for Foreign Investment Access (Negative List) (2020 Edition), Chinese investors should be the controlling shareholders of a PRC public air transportation company and the total shares held by foreign investment enterprises and its associated enterprises are not permitted to exceed 25% of the total shares of a PRC public air transportation company.

Domestic Investment

According to the Regulations on Domestic Investment in Civil Aviation Industry issued by the Ministry of Transport of PRC and effected on January 19, 2018, public air transport companies that require special management for domestic investment can keep a relative state-owned holding in its equity structure. The state-owned shares ratio requirement of major civil transport airports is loosened. Moreover, investment restrictions among various entities in the civil aviation industry are further liberalized.

Competition

Domestic

We compete against our domestic competitors primarily based on safety, quality of service and frequency of scheduled flights. With the combination of our dominant position in Shanghai, our route network and our continued commitment to safety and service quality, we believe that we are well-positioned to compete against our domestic competitors in the growing airline industry in China. However, domestic competition from other Chinese airlines has been increasing recently as our competitors have increased capacity and expanded operations by adding new routes or additional flights to existing routes and acquiring other airlines. In addition, we have faced intense competition from entrants to our domestic markets as new investments into China’s civil aviation industry have been made following the CAAC’s relaxation of certain private-sector investment rules in July 2005. In December 2008, the CAAC announced ten measures to protect and encourage the domestic aviation industry, one of which provides that no new Chinese airlines will be licensed to incorporate and operate aviation businesses before 2010. In October 2010, the CAAC announced that the suspension of approvals for new Chinese airlines companies would continue for an indefinite period. However, if the restriction is lifted in the future, we expect that competition from other Chinese airlines on our routes will further intensify.

There are currently approximately 50 Chinese airlines in mainland China, and we compete with many of them on various domestic routes. All of these airlines operate under the regulatory supervision of the CAAC. Our Company, Air China Limited, or Air China, which is based in Beijing and listed on the Hong Kong Stock Exchange (“HKEX”) and the London Stock Exchange, and China Southern Airlines Company Limited, or China Southern, which is based in Guangzhou and listed on the HKEX and the NYSE, are the three leading air carriers in China.

Each of the domestic airlines competes against other airlines operating the same routes or flying indirect routes to the same destinations. Our principal competitors in the domestic market are China Southern and Air China, which also provide transportation services on some of our routes, principally routes originating from the major air transportation hubs in China, such as Shanghai, Guangzhou and Beijing. Some of these routes are among our most heavily traveled routes. Since most of the major domestic airlines operate routes from their respective hubs to Shanghai, we also compete against virtually all of the major domestic airlines on these routes. In addition, we are facing increasing competition from certain low-cost carriers, such as Spring Airlines, in the domestic market. Spring Airlines competes with us, as it operates daily domestic routes to certain destinations such as Harbin, Shenyang, Guangzhou, Xiamen, Sanya, Kunming and Chongqing, which are covered in our domestic routes. The “Twelfth Five-Year Plan” for civil aviation industry in China encourages low-cost airlines to enter into major logistics market gradually. In February 2014, CAAC issued Guidance on Facilitating Low-cost Aviation Development which aims at supporting the development of domestic low-cost airlines. This will further intensify the competition in domestic aviation market. However, we believe we are well-positioned to compete against domestic low-cost carriers due to our expansive route network, competitive pricing, greater availability of flight services to these destinations and strong brand name.

Domestic Rail

The PRC government is aggressively implementing the expansion of its domestic high-speed rail network, which has provided train services at speeds of up to 350 km per hour connecting major cities such as Beijing, Shanghai, Guangzhou and Hong Kong. The expansion of rail network, improvements in railway service quality, increased passenger capacity and urban center accessibility could enhance the competitiveness of the railway service and negatively affect our market share on some of our routes, in particular our short-haul routes. For example, in 2020, Yinchuan-Xi’an and Yancheng-Nantong routes were largely affected by the opening of high-speed railway routes. The load factors of two routes demonstrated a trend of significant decrease after the high-speed railway routes put into operation.

We have been taking active measures in decreasing the number of short-haul routes that overlap with high-speed train routes, as well as adjusting certain airfare prices on affected routes, facilitating “air-to-railway” transfers, adjusting the flight structure, and allocating flight resources to alternative routes or medium-to-long-haul routes that have higher profitability, higher demand and lessened competition. In addition, in 2013, we developed ground connection services such as Air-Rail Service and Air-Bus Service and cooperated with Disney, brand hotel groups, and renowned international travel enterprises to develop travel products. Our Air-Rail Service and Air-Bus Service have been developing steadily with increased routes in Yangtze River Delta, Xi’an, Lanzhou and other cities and regions. We expect to continue exploring cooperation opportunities with domestic railway authorities, while maintaining and strengthening our other competitive advantages, which include providing high quality services, increasing our pre-sale product promotions and developing our transfer services. In 2020, we cooperated with China National Railway Group Co., Ltd. to open a new era of “air-rail combined transportation” by linking the system of the CEA APP and Railway 12306 APP and providing one-stop joint booking of “aircraft + high-speed rail”, thereby offering passengers with more convenient one-stop services.

Regional

Our Hong Kong routes were highly competitive before the outbreak of the COVID-19 pandemic. We operated approximately 20 flight routes between various cities in mainland China and Hong Kong in 2019. The primary competitors on our Hong Kong routes were Cathay Pacific Airways (“Cathay”) and HongKong Airlines. Cathay and HongKong Airlines compete with us on several of these routes, particularly the Shanghai-Hong Kong route. In addition, we continue to face competition from other low-cost airlines on overlapping routes connecting Hong Kong and mainland cities. The Air Transportation Arrangement signed between the PRC government and the administrative government of Hong Kong in February, 2000 provides for equal opportunity for airlines based in Hong Kong and mainland China. We currently operate one flight route between mainland China and Hong Kong.

The policy restraint on direct flights between Taiwan and mainland China has been further loosened in the past few years but there has been no further negotiation on the expansion of such arrangement between Taiwan and mainland China since mid-2016. However, given the arrangement is subject to the political relationship between Taiwan and mainland China, any deterioration in such political relationship may cause the discontinuity or disruption in the flight arrangement. As one of the several airlines offering Taiwan-mainland China direct flight services, we cannot assure you that we will maintain or will continue to be allocated sufficient Taiwan-mainland China routes, or our results will not be adversely impacted. We compete with China Airlines, China Southern and Eva Air on our route connecting mainland cities and Taiwan. We currently operate one flight to Taipei from mainland China.

We compete with Air Macau on the Shanghai Pudong-Macau route. Air Macau’s routes also provide an alternative to our Hong Kong routes for passengers traveling between Taiwan and mainland China. As of December 31, 2020, we operated five flight routes from mainland China to Macau.

International

We compete with Air China, China Southern and many other well-established foreign carriers on our international routes. Most of our international competitors are very well-known international carriers and are substantially larger than we are and have substantially greater financial resources than we do. Many of our international competitors also have significantly longer operating histories and greater name recognition than we do. Some international passengers, who may perceive these airlines to be safer and provide better service than Chinese airlines in general, may prefer to travel on these airlines. In addition, many of our international competitors have more extensive sales networks and utilize more developed reservation systems than ours, or engage in promotional activities, such as frequent flyer programs, that may be more popular than ours and effectively enhance their ability to attract international passengers.

To improve our competitive position in international markets, we have established additional dedicated overseas sales offices, launched our own frequent flyer program, participated in “Asia Miles”, a popular frequent flyer program in Asia, and entered into code-sharing arrangements with a number of foreign airlines. We have also improved our online reservation and payment system. In addition, in June 2011, we joined SkyTeam, an international airlines alliance and frequent flyer mileage program that includes, among others, international carriers such as Delta Air Lines, China Southern, Alitalia, Air France and KLM. As a member of SkyTeam alliance, our Elite members can enjoy approximately 790 VIP lounges worldwide. Since 2013, we have been implementing code-sharing programs to extend our international route and improve our competitiveness and reputation in the international market. In 2020, we have actively responded to industry competition, proactively strived for additions of air traffic rights and time slot resources in hub markets and core markets, steadily improved utilization of aircraft and penetration in core markets, and consolidated and expanded our market share in the four major hubs and core markets. Leveraging on the SkyTeam Airline Alliance platform, we enhanced our strategic cooperation with Delta Air Lines, Inc. and Air France KLM, and strengthened our cooperation with non-member airlines of the SkyTeam Airline Alliance such as Qantas Airways Ltd and Japan Airlines Co., Ltd, so as to develop an efficient and convenient flight network covering all parts of China and connecting all parts of the world. As of December 31, 2020, we cooperated with 10 airline companies outside the SkyTeam Airline Alliance on code sharing.

Maintenance and Safety

The rapid increase in air traffic volume in China in recent years has put pressure on many components of China’s airline industry, including air traffic control systems, the availability of qualified flight personnel and airport facilities. In recent years, the CAAC has placed increasing emphasis on the safety of airline operations in China and has implemented a number of measures aimed at improving the safety record of the airlines. Our ability to provide safe air transportation in the future depends on the availability of qualified and experienced pilots in China and the improvement of maintenance services, national air traffic control and navigational systems and ground control operations at Chinese airports. We have a good safety record and regard the safety of our flights as the most important component of our operations.

Maintenance Capability

Through our cooperation with service providers and ventures with other companies, we currently perform regular repair and maintenance checks on all of our aircraft, which include D1 checks, C checks and other maintenance services for certain aircraft and other flight equipment. We also perform certain maintenance services for other Chinese and international airlines. We have four main maintenance bases in Shanghai, Kunming and Xi’an and several maintenance bases in our provincial hubs including Taiyuan, Qingdao, etc. We also constructed a new maintenance base in Beijing Daxing International Airport in 2019. Our primary aircraft maintenance base is at Pudong International Airport. We employed approximately 13,258 workers as maintenance personnel as of December 31, 2020. We prepared our own training plan for our employees to meet the requirements of certain regulations and the needs for future development. In order to enhance our maintenance capabilities and to reduce our maintenance costs, we have acquired additional maintenance equipment, tools and fixtures and other assets over the past few years, such as airborne testing and aircraft data recovery and analysis equipment. In 2019, we increased our capacities in our maintenance bases in Kunming and Xi’an by installing one additional production line for the maintenance of narrow-body aircraft in each of the two bases.Our avionics equipment is primarily maintained and repaired at our electronic maintenance equipment center located in Shanghai. In 2020, our maintenance bases continued to guarantee the maintenance and support work required for the daily operation of our large fleet.

We entered into a joint venture with Honeywell International Inc. (“Honeywell”), formerly Allied Signal Inc., in Shanghai for performing maintenance and repairs on aircraft wheel assemblies and brakes. Since October 1997, we have operated a maintenance hangar at Hongqiao International Airport, which has the capacity to house two wide-body aircraft. We and Rockwell Collins International Inc. of the United States have also co-established Collins Aviation Maintenance Service Shanghai Limited, which is primarily engaged in the provision of repair and maintenance services for avionics and aircraft in-flight entertainment facilities in China. We and Rockwell Collins International Inc. hold 35% and 65%, respectively, of the equity interests in the joint venture. Moreover, in November 2002, we, jointly with Aircraft Engineering Investment Limited, established Shanghai Eastern Aircraft Maintenance Limited, in which we hold 60% of the equity interests, to provide supplemental avionics and other maintenance services to us. STA, which was established in 2004 by us and Singapore Technologies Aerospace Ltd. under a joint venture agreement dated March 10, 2003, also provides us with aircraft maintenance, repair and overhaul services. In 2019, we entered into one agreement with Honeywell, pursuant to which we expected we will save certain repairing costs. In 2020, we did not enter into any maintenance agreement with Honeywell.

In 2007, we entered into joint venture with United Technologies Corp. and took over equity interests in maintenance companies such as Boeing Shanghai Aviation Services Co., Ltd., Shanghai Hute Aviation Technology Co., Ltd. and Shanghai Airlines. In 2014, we established Eastern Airlines Technology Co. Ltd. (“Eastern Technology”), a wholly-owned subsidiary specializing in aircraft maintenance. Since 2016, our customer base continued to expand, other airlines such as Singapore Airlines, AirAsia, Royal Brunei Airlines, Macau Airlines, Delta Air Lines, Asiana Airlines, Hong Kong Airlines, Malaysia Airlines, Air Busan, British Airways and Egypt Air became customers of Eastern Technology. In 2020, we did not enter into any joint venture or cooperation agreement.

Safety

The provision of safe and reliable air services for all of our customers is one of our primary operational objectives. We implement uniform safety standards and safety-related training programs in all operations. Our flight safety management division monitors and supervises our flight safety. We have had a flight safety committee since the commencement of our business, comprised of members of our senior management, to formulate policies and implement routine safety checks at our Shanghai headquarters and all provincial hubs. The flight safety committee meets monthly to review our overall operation safety record during the most recent quarter and to adopt measures to improve flight safety based upon these reviews. We have also implemented an employee incentive program, using a system of monetary rewards and discipline, to encourage compliance with the CAAC safety standards and our safety procedures. We periodically evaluate the skills, experience and safety records of our pilots in order to maintain strict control over the quality of our pilot crews. In 2011, we were awarded the “Flight Safety Five-star Award” by CAAC for our commitment to aviation and operations safety.

Since 2013, we have been strengthening our Safety Management System (“SMS”) and further enhanced our safety management system by strengthening the enforcement of safety responsibilities, our safety supervision and inspection, our risk control over special routes and international routes for long-haul flights, enhancing our operational risk alert abilities, boosting the quality of training for our pilots, improving our system for developing talents with core skills, enhancing our ability in handling security-related contingencies, and strictly implementing safety requirements for our flights. In 2019, we adhered to the civil aviation safety with zero tolerance for safety hazards, and has maintained safe operation throughout the year. In addition, we have studied the risks of new aircraft and new routes in advance to continuously strengthen the foundation for safe development. In terms of mechanism establishment, we have improved the relevant rules and regulations as well as implementation rules of our safe production responsibility system to further enhance safety requirements.

In 2020, we continued to place great emphasis on ensuring safe operation and have ensured that all employees signed the safety responsibility agreement on “maintaining the original aspiration, assuming the mission, fulfilling commitments and making contributions” to further strengthen the implementation of safety responsibilities. In respect of strengthening risk supervision, we carried out in-depth safety rectification and special inspections of safety work, inspected and supervised key units and key tasks, carried out comprehensive investigation of hidden dangers, and improved safety management capabilities. In respect of the promotion of practice construction, based on the theme of the “three reverences”, we strengthened safety publicity and education, carried out practice and discipline rectification, and laid a solid foundation for safety management. In 2020, our fleet had 1,547,600 safe flying hours and 672,200 take-off and landing flights in total, which have respectively decreased by 35.4% and 32.0% compared to the same period in 2019 due to the decrease in travel demand resulting from the COVID-19 pandemic.

Cyber-security

With respect to our internal policies on cyber-security and internet safety, we have established an information safety management system and issued internal regulations on cyber-security, internal hardware and data safety systems to prevent loss of information due to cyber-security incidents, network outages or hardware incidents. We also plan to implement measures relating to the office environment information safety management and information system emergency management, information system access control, protection from any malicious software, management of information exchange tools and internal review and audit of information safety risks. Furthermore, we have entered into a strategic cooperation plan with the China Information Technology Security Evaluation Center by which their trained engineers evaluate our internal data security policies and cyber-security measures. Since 2012, we established and announced four internal regulations relating to cyber-security, namely, China Eastern Airlines Information Security Management Regulation, China Eastern Airlines Information System Application and Development Safety Regulation, China Eastern Airlines Information Security Incident Management Regulation, China Eastern Airlines Information System Classification Measures, China Eastern Airlines Accounts Management Regulation and China Eastern Airlines Information System and Personal Data Protection Management Requirements, which we believe will strengthen our information safety management systems and overall cyber-security defenses. In addition, in strict compliance with the relevant provisions of the “General Data Protection Regulation” (“GDPR”) by the European Union, we have appointed a “data protection officer” to enhance the protection of customer information and prevent network security risks.

In 2020, we continuously promoted the construction of information security projects, and established a sound information security-related technical protection and security management platform. We strengthened information security management by deepening the strategic cooperation with external security agencies. In response to the implementation of the GDPR released by the European Union, we appointed a “data protection officer”. We strengthened customer privacy terms of online channels, assessed risks of third-party platforms and reinforced the passenger information protection firewall. In addition, we initiated a special task for network protection to improve its network security protection capabilities.

We did not purchase any insurance for internet security.

Fuel Supplies

Jet fuel is one of the major expenses of airlines. Fuel costs represented approximately 17.7% of our total operating expenses in 2020. We currently purchase a significant portion of the aviation fuel for our domestic routes from regional branches of the CAOSC. Fuel costs in China are affected by costs at domestic refineries and limitations in the transportation infrastructure, as well as by insufficient storage facilities for aviation fuel in certain regions of China. Fuel prices at six designated major airports in China, namely, the airports in Shanghai Pudong, Shanghai Hongqiao, Beijing, Guangzhou, Shenzhen and Tianjin, are set and adjusted once a month by the CAAC in accordance with prevailing fuel prices on the international market. For our international routes, we purchase a portion of our aviation fuel from foreign fuel suppliers located at the destinations of these routes, generally at international market prices. Significant fluctuations of international oil prices will significantly impact jet fuel prices and our revenue from fuel surcharge and accordingly our results of operations.

In 2020, our total aircraft fuel cost was approximately RMB13,840 million, representing a decrease of 59.5% from RMB34,191 million in 2019. The decrease was due to a decline in our fuel consumption by 38.5% and a drop in the average price of fuel by 34.2% from last year, both of which are attributable to the impact of the COVID-19 pandemeic. We cannot assure you that fuel prices will not fluctuate in the future. Further, due to the highly competitive nature of the airline industry and government regulation on airfare pricing, we may be unable to fully or effectively pass on to our customers any increased fuel costs we may encounter in the future. However, we intend to continue focusing on enhancing our jet fuel procurement policies and developing additional internal cost-control measures, which include streamlining the number of aircraft models in our fleet and optimizing route structures, which we believe will enable us to control our fuel costs.

Ground Facilities and Services

The center of our operations is Shanghai, one of China’s principal air transportation hubs. Our Shanghai operations are based at Hongqiao International Airport and Pudong International Airport. In addition, we also started our operation in Beijing Daxing International Airport following its commencement of operation in September 2019. We currently also operate from various other domestic airports. We have hangars, aircraft parking and other airport service facilities at these airports, and provide ground services in these locations.

We have our own ground services and other operational services, such as aircraft cleaning and refueling and the handling of passengers and cargo for our operations at Hongqiao International Airport and Pudong International Airport. We also provide ground services for many other airlines that operate to and from Hongqiao International Airport and Pudong International Airport.

In-flight meals and other catering services for our Shanghai-originated flights are provided primarily by Shanghai Eastern Air Catering Limited Liability Company, a joint venture company affiliated with CEA Holding. We generally contract with local catering companies for flights originating from other airports.

In 2020, we strengthened our service management, further improved service efficiency and service experience such as check-in, baggage check-in, priority boarding and VIP lounge.

Marketing and Sales

Passenger Operations

Our marketing strategy with respect to passenger operations is primarily aimed at increasing our market share for all categories of air travelers. With respect to our Hong Kong and international routes, we are permitted to market our services based on price. We have limited flexibility in setting our airfares for domestic routes and adjust our domestic airfares in response to market demand. As part of our overall marketing strategy, we emphasize our commitment to safety and service quality. We believe that emphasis on safety is a critical component of our ability to compete successfully.

We have also adopted customized strategies to market our services to particular travelers. We seek to establish long-term customer relationships with business entities that have significant air travel requirements. In order to attract and retain business travelers, we focus on the frequency of flights between major business centers, convenient transit services and an extensive sales network. We launched our initial frequent flyer program in 1998 and joined the “Asia Miles” frequent flyer program in April 2001 to attract and retain travelers. In August 2003, we upgraded and rebranded our frequent flyer program to “Eastern Miles” and introduced a series of new services, including, among others, instant registration of membership and mileage, online registration of mileage, and accumulation of mileage on expenses at certain hotels, restaurants and other service providers that are our strategic partners. The special services hotline “95530” call center was established and came into operation in 2004. In light of the expansion of national high-speed railway network, we have cooperated with the Shanghai Railway Bureau to launch “Air-Rail Pass Transportation” products. Our domestic and international flights together with the high-speed railway products at Shanghai Hongqiao International Airport and Shanghai Pudong International Airport, have formed an air-rail two-way transportation product, which has helped us broaden our customer resources.

In terms of our customer resources, we have actively explored and expanded our customer base of high-end business travelers to accelerate the development of group clients. In addition, we have fully promoted the expansion of Eastern Miles membership. In order to attract more members and to provide members with better experience in terms of diversity, comprehensiveness and flexibility, we have strengthened our cooperation with retail stores by increasing the number of co-operative stores, covering various industries such as financial services, hotel, car rental and health services. We also strengthened the operation of points mall, enriched point redemption products, and optimized the points payment function. During the outbreak of the COVID-19 pandemic, we first launched “Wild Your Dreams”, a series of innovative products, to stimulate passengers’ travel demand, restore market confidence, promote the recovery of the aviation market, effectively serve the internal circulation of China and achieve good economic, social and brand benefits. We actively expanded the sales channels of auxiliary products such as VIP lounges and realized the voucher sales of products such as class upgrades, so as to increase auxiliary revenue; and launched the new “Eastern Miles” membership system and introduced the “Eastern Airlines Wallet” enabling “points + cash” payment, so as to increase the ways of using member points. Our members can use CEA points for purchasing products from us and other suppliers. The consumption scenarios and value for CEA points were increased. We also strictly implemented on-board protection measures, optimized on-board service procedures and meal services, and improved passenger satisfaction. Taking into account the significant reduction in air travel of members during the outbreak of the COVID-19 pandemic, we proactively issued a protection policy for automatic extension of membership level to enhance member loyalty and satisfaction.As of the end of 2020, frequent flyer members of “Eastern Miles” reached 45.22 million, increased by 5.95% as compared to 2019.

Our advertising, marketing and other promotional activities include the use of social media, online platforms, radio, television and print advertisements. We continue to diversify our advertising and promotional channels. We plan to continue to use advertising and promotional campaigns to increase sales on new routes and competitive routes.

In 2016, China Eastern Airlines E-Commerce Co., Ltd. (“Eastern E-Commerce”) established an e-commerce platform by integrating our online and offline platforms. Ticket returns, rebooking and upgrades via multiple channels, such as our official website, mobile application and member website were launched with success. In 2020, we continued to optimize the e-commerce platform to ensure user experience. At the same time, we upgraded the CEA APP and official website, supporting new functions such as “Wild Your Dreams” ticket packages, seat selection, multiple login methods, unified display of orders, site-wide search and epidemic prevention functions. We made efforts to provide passengers with more product choices while ensuring the efficiency of the system.

Ticket Booking Systems

In 2002 and again in 2012, we upgraded our online ticket booking and payment system to facilitate customer purchases of tickets via the Internet. In 2012, we also expedited the construction of nine overseas websites in a variety of languages. We continue to encourage our customers to book and purchase tickets via the Internet by initiating various promotional campaigns, upgrading and expanding the services offered by our online sales system. In 2012, we introduced “China Eastern Mobile E”, a smartphone application that provides mobile flight booking, flight status and online checking services, which we believe will provide our customers with additional convenient, value-added services. We have been continuing to update our mobile phone application and our official website to enhance our direct sales efforts as well as vigorously promoting the establishment of overseas e-commerce platform.

In 2019, we established a joint team comprising of our client department, IT department and Eastern E-Commerce to upgrade our overall capabilities of e-commerce operation. We also launched a series of updates to our official website and mobile phone application in 2019. In 2020, our global websites have used global acceleration services. The access speed and the system availability have been imporoved significantly. In 2020, revenue from our direct sales channels (including our official website and mobile phone application) amounted to RMB93.8 billion, representing a decrease of approximately 29.5% as compared to 2019, primarily due to government restrictions on and decreased willingness to travel resulting from the outbreak of the COVID-19 pandemic. It is estimated that a new version of our official website and mobile phone application with multiple languages and currencies incorporated will be launched in 2020, where global travelers can purchase tickets and other products through one website and one mobile phone application.

We also maintain an extensive domestic network of sales agents and representatives in order to promote in-person ticket sales and to assist customers. Direct sales are also promoted through the availability of our telephone reservation and confirmation services. In addition to our domestic sales agents located in various cities in mainland China, Hong Kong, Macau and Taiwan, we maintain overseas sales or representative offices worldwide, including: (i) North American locations such as Honolulu, Los Angeles, New York, San Francisco and Vancouver; (ii) European and Middle Eastern locations such as Frankfurt, Hamburg, London, Moscow, Paris, Rome, Madrid, Brussels and Munich; (iii) Asia-Pacific locations such as Seoul, Tokyo, Osaka, Nagoya, Fukuoka, Hiroshima, Sapporo, Niigata, Fukushima, Okinawa, Shizuoka, Kanazawa, Toyama, Nagasaki, Kagoshima, Okayama, Matsuyama, Singapore, Bangkok, Phuket, New Delhi, Kolkata, Kuala Lumpur, Ho Chi Minh, Bali, Dubai, Dhaka, Phnom Penh, Siem Reap, Vientiane, Yangon, Mandalay, Kathmandu and Maldives; and (iv) Australian locations such as Melbourne and Sydney.

As of June 1, 2008, we stopped issuing paper tickets for air travel in accordance with a mandate from the International Air Transport Association (“IATA”). The IATA currently represents approximately 290 airlines and comprises approximately 82% of the world’s air traffic. As a result of the mandate, we now issue electronic itineraries and receipts as well as electronic tickets to our passengers. We believe the transition to 100% electronic ticketing will decrease administrative costs, increase flexibility and travel options for passengers, in addition to benefiting the environment through the reduced need for paper. All of our direct passenger ticket sales are recorded on our computer systems. Most Chinese airlines, including us, are required to use the passenger reservation service system provided by the CAAC’s computer information management center, which is linked with the computer systems of major Chinese commercial airlines. In 2020, we continued to use the TravelSky Passenger Service System (PSS), cooperated with several international reservation systems with which we have carried out relevant business cooperation for many years, including Amadeus, Sabre, Travelport, Infini and Axess. Among them, Axess is scheduled to terminate its operations with us on June 30, 2021 due to its sole reason and our cooperation with other companies developed normally. In 2020, we cooperated with China National Railway Group Co., Ltd. to open a new era of “air-rail combined transportation” by linking the system of the CEA APP and Railway 12306 APP and providing one-stop joint booking of “aircraft + high-speed rail”, thereby offering passengers with more convenient one-stop services.

SkyTeam Alliance

We officially joined SkyTeam, an international airlines alliance and frequent flyer mileage program that includes international carriers such as, among others, Delta Air Lines, Alitalia, Air France and KLM, on June 21, 2011 and have continued expand our code-sharing programs with SkyTeam members on more routes. In 2019, we further deepened and expanded our cooperation with SkyTeam member airlines. In 2020, leveraging on the SkyTeam Airline Alliance platform, we enhanced our strategic cooperation with Delta Air Lines, Inc. and Air France KLM to develop an efficient and convenient flight network covering all parts of China and connecting all parts of the world.

By connecting to the route networks of other SkyTeam member airlines, we were able to offer our passengers seamless transit to 44 destinations in 15 countries under a single plane ticket with direct luggage services as of December 31, 2020. Passengers may also enjoy the comfort of more than 750 VIP airport lounges of SkyTeam around the world. 1,036 domestic and foreign destinations in 170 countries were covered through extensive global cooperation of 19 member airlines. We believe this will be another benefit for our passengers, as they will be afforded additional flight options and frequent flyer mileage benefits through our SkyTeam alliance partners. In addition, we will benefit from possible codeshare and cooperative flight options, reduced costs and increased alliance-related marketing and promotion overseas.

Patents and Trademarks

We own or have obtained licenses to use various domestic and foreign patents, patent applications and trademarks related to our business. While patents, patent applications and trademarks are important to our competitive position, no single one is material to us as a whole. In addition, we own various trademarks related to our business. The most important trademark is the service trademark of China Eastern Airlines Corporation Limited. All of our trademarks are registered in China.

Insurance

The CAAC purchases fleet insurance from PICC Property and Casualty Company Limited (“PICC”), and China Pacific Property Insurance Company Ltd., on behalf of all Chinese airlines. PICC has reinsured a substantial portion of its aircraft insurance business through Lloyd’s of London. The fleet insurance is subject to certain deductibles. The premium payable in connection with the insurance is allocated among all Chinese airlines based on the aircraft owned or leased by these airlines. Under the relevant PRC laws, the maximum civil liability of Chinese airlines for injuries to passengers traveling on domestic flights has been increased to RMB400,000 per passenger in March 2006, for which we also purchase insurance. As of July 31, 2006, the Convention for the Unification of Certain Rules for International Carriage by Air of 1999, or Montreal Convention, became effective in China. Under the Montreal Convention, carriers of international flights are strictly liable for proven damages up to 128,821 Special Drawing Rights and beyond that, carriers are only able to exclude liability if they can prove that the damage was not due to negligence or other wrongful act of the carrier (and its agents) or if the damage solely arose from the negligence or other wrongful act of a third party. We believe that we maintain adequate insurance coverage for the civil liability that can be imposed due to injuries to passengers under Chinese law, the Montreal Convention and any other agreement we are subject to. We also maintain hull all risk, hull war risk and aircraft legal liability insurance, including third party liability insurance, of the types and in amounts customary for Chinese airlines.

C. Organizational Structure

See the section headed “Item 4. Information on the Company - History and Development of the Company”.

D. Property, Plant and Equipment

Fleet

As of December 31, 2020, we operated a fleet of 734 aircraft, including 725 passenger aircraft, most with a seating capacity of over 100 seats and 9 business aircraft held under trust. In 2020, we introduced 13 aircraft of major models. With the introduction of new aircraft, such as A350-900, B787-9 and A320NEO, our fleet age structure has remained young.

We plan to continue to expand our scale in the future and to adjust and optimize our route network, thereby increasing our competitiveness and ability to create more attractive products and services to meet the needs of the market.

Existing Fleet

The following table sets forth the details of our fleet as of December 31, 2020:


										Units
	No. Model	Self- owned		Under finance lease		Under operating lease		Sub- total		Average fleet age (Years)
1	B777-300ER		10		10		0		20		4.9
2	B787-9		3		7		0		10		1.9
3	A350-900		1		7		0		8		1.5
4	A330 series		30		21		5		56		7.1
Total number of wide-body aircraft			44		45		5		94		5.6
5	A320 series		137		127		72		336		8.0
6	B737 series		102		73		117		292		6.6
Total number of narrow-body aircraft			239		200		189		628		7.4
7	ARJ21		2		1		0		3		0.2
Total number of regional aircraft			2		1		0		3		0.2
Total number of passenger aircraft			285		246		194		725		7.1
Total number of business aircraft held under trust									9
Total number of aircraft									734

The table below sets forth the daily average utilization rates of our jet passenger aircraft for the year ended December 31, 2020:


	2020
	(in hours)
B777-300ER		7.36
B787-9		6.46
A350-900		6.51
A330 Series		5.64
A320 Series		6.15
B737 Series		5.80
ARJ21		2.72

Most of our jet passenger aircraft were manufactured by either Airbus or Boeing Company. On July 9, 2015, we entered into a purchase agreement with Boeing Company to purchase fifty new Boeing B737 series aircraft which are expected to be delivered to us in stages from 2017 to 2019. On August 14, 2015, we also entered into a purchase agreement with Airbus SAS to purchase fifteen new Airbus A330 series aircraft, which are expected to be delivered to us in stages from 2017 to 2018. On April 28, 2016, we entered into a purchase agreement with Boeing Company to purchase 15 B787-9 aircraft, which are expected to be delivered to us in stages from 2018 to 2021. On the same day, we also entered into a purchase agreement with Airbus SAS to purchase 20 Airbus A350-900 series aircraft, which are expected to be delivered to us in stages from 2018 to 2022. On August 30, 2019, we entered into an aircraft purchase agreement with Commercial Aircraft Corporation of China Limited to purchase 35 ARJ21-700 aircraft, which are single-aisle regional aircraft with medium and short range and are expected to be delivered to us in stages from 2020 to 2024.

Future Fleet Development

Our aircraft acquisition program focuses on aircraft that will modernize and rationalize our fleet to better meet the anticipated requirements of our route structure, taking into account aircraft size and fuel efficiency. Our aircraft acquisition program, however, is subject to the approval of the CAAC and the NDRC. Older aircraft models of high energy-consumption will be surrendered as appropriate. Details of the expected fleet plan from 2021 to 2023 are as follows:


	2021E				2022E				2023E
	Introduction		Retirement		Introduction		Retirement		Introduction		Retirement
Model
A320 Series		27		6		34		5		—		4
A330 Series		—		—		—		—		—		—
A350 Series		4		—		8		—		—		—
B737 Series		—		3		—		4		46		12
B787 Series		5		—		—		—		—		—
ARJ Series		6		—		8		—		9		—
Total		43		9		52		9		57		16

Notes:

(1)

We and our suppliers have engaged in proactive negotiation and adjusted the progress for the introduction of aircraft under the influence of the COVID-19 pandemic. The planning for the introduction and retirement of aircraft will be subject to timely adjustment based on the changes in external environment, market conditions and our flight capacity allocation. The timing for resumption of operation of B737 MAX 8 and future deliveries remains uncertain.

As of December 31, 2020, according to confirmed orders, we planned to introduce nine aircraft and retire 21 aircraft in 2024.

The actual quantity and time of the introduction and retirement of any of these aircraft or any additional aircraft may depend on such factors as general economic conditions, the levels of prevailing interest rates, foreign exchange rates, the level of inflation, credit conditions in the domestic and international markets, conditions in the global aviation industry, our financial condition and results of operations, our financing requirements, and the terms of any financing arrangements, such as leases, and other capital requirements. We believe that our aircraft acquisition plan will help us accomplish our expansion plans while maintaining an efficient fleet and ensuring alternative sources of supply.

Fleet Financing Arrangements

We generally acquire aircraft through internal funds, long-term capital leases or operating leases. Under the terms of most capital leases, we generally are obligated to make lease payments that finance most of the purchase price of the aircraft over the lease term. Upon the expiration of the lease term, we must either purchase the aircraft at a specified price or pay any amount by which such price exceeds the proceeds from the disposition of the aircraft to third parties. Alternatively, some capital leases provide for ownership of the aircraft to pass to us upon satisfaction of the final lease payment. Under capital leases, aircraft are generally leased for approximately the whole of their estimated working life, and the leases are either non-cancelable or cancelable only on a payment of a major penalty by the lessee. As a result, we bear substantially all of the economic risks and rewards of ownership of the aircraft held under capital leases. Operating leases, however, are customarily cancelable by the lessee on short notice and without major penalty. Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Due to the adoption of IFRS 16 Leases, long-term capital lease and operating leases are both classified as leases in our financial statements. For details of the impact of IFRS 16 Leases on us, please refer to the section headed “Critical Accounting Policies” under Item 5.

Operating Facilities

As of December 31, 2020, we (including subsidiaries and branches) had operations on 660 parcels of land, occupying a total area of approximately 4.1 million square meters. In addition, as of December 31, 2020, we (including subsidiaries and branches) owned approximately 2,161 buildings. We and our major subsidiaries have obtained the land use rights certificates and building ownership certificates for most parcels of land and buildings, and are currently in the process of applying for the certificates with respect to the remaining 16 parcels of land and 167 buildings. We did not have any environmental issues that may have a material impact on our utilization of the assets in 2020.

Item 4A. Unresolved Staff Comments

None.

Item 5. Operating and Financial Review and Prospects

You should read the following discussion in conjunction with our audited consolidated financial statements, together with the related notes, included elsewhere in this Annual Report. Our consolidated financial statements have been prepared in accordance with IFRSs. This discussion may include forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Item 3. Key information - D. Risk Factors” or in other parts of this Annual Report.

Overview

Our primary business is the provision of domestic, regional (which includes Hong Kong, Macau and Taiwan) and international passenger services.

Our overall capacity on an available tonne kilometer, or ATK, basis decreased by approximately 38.3% from approximately 33,456 million in 2019 to approximately 20,632 million in 2020, and our passenger capacity on an available seat kilometer, or ASK, basis decreased by 43.7% from approximately 270,254 million in 2019 to approximately 152,066 million in 2020. Total traffic on a revenue tonne kilometer, or RTK, basis decreased by 48.0%, from approximately 22,518 million in 2019 to approximately 11,700 million in 2020.

The historical results of operations discussed in this Annual Report may not be indicative of our future operating performance. Like those of other airlines, our operations depend substantially on overall passenger and cargo traffic volumes and are subject to seasonal and other variations that may influence passenger travel demand and cargo volume and may not be under our control, including unusual political events, changes in the domestic and global economies and other unforeseen events. Our operations will be affected by, among other things, fluctuations in aviation fuel prices, aircraft acquisition and leasing costs, maintenance expenses, take-off and landing charges, wages, salaries and benefits, other operating expenses, the rates of income taxes paid and public health events such as the COVID-19 pandemic.

Our financial performance is also significantly affected by factors associated with operating in a highly regulated industry, as well as a number of other external variables, including political and economic conditions in China, competition, foreign exchange fluctuations and public perceptions of the safety of air travel with Chinese airlines. Because nearly every aspect of our airline operations is subject to the regulation of the CAAC, our operating revenues and expenses are directly affected by the CAAC regulations with respect to, among other things, domestic airfares, level of commissions paid to sales agents, the aviation fuel price, take-off and landing charges and route allocations. The nature and extent of airline competition and the ability of Chinese airlines to expand are also significantly affected by various CAAC regulations and policies. Changes in the CAAC’s regulatory policies, or in the implementation of such policies, are therefore likely to have a significant impact on our future operations.

Critical Accounting Policies

We prepare our consolidated financial statements in accordance with IFRSs which requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the accounting policies. We have established procedures and processes to facilitate the making of such judgments in the preparation of our consolidated financial statements. Management has used the best information available but actual performance may differ from our management’s estimates and future changes in key variables could change future reported amounts in our consolidated financial statements.

Revenue recognition

Revenue from contracts with customers

Revenue from contracts with customers is recognized when control of goods or services is transferred to the customers at an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services.

When the consideration in a contract includes a variable amount, the amount of consideration is estimated to which we will be entitled in exchange for transferring the goods or services to the customer. The variable consideration is estimated at contract inception and constrained until it is highly probable that a significant revenue reversal in the amount of cumulative revenue recognized will not occur when the associated uncertainty with the variable consideration is subsequently resolved.

When the contract contains a financing component which provides the customer with a significant benefit of financing the transfer of goods or services to the customer for more than one year, revenue is measured at the present value of the amount receivable, discounted using the discount rate that would be reflected in a separate financing transaction between the customer and us at contract inception. When the contract contains a financing component which provides us with a significant financial benefit for more than one year, revenue recognized under the contract includes the interest expense accreted on the contract liability under the effective interest method. For a contract where the period between the payment by the customer and the transfer of the promised goods or services is one year or less, the transaction price is not adjusted for the effects of a significant financing component, using the practical expedient in IFRS 15.

(i)

Passenger, cargo and mail revenues are recognized as traffic revenue when the transportation is provided or when ticket breakage occurs. The value of sold but unused tickets is included in contract liabilities as sales in advance of carriage (“SIAC”). We estimate the value of passenger ticket breakage based on historical trends and experience and recognizes revenue at the scheduled flight date.

(ii)

Revenues from the provision of ground services, tour services, ticket cancelation services and other travel related services are recognized when the services are rendered.

(iii)

Commission income represents amounts earned from other carriers in respect of sales made by us on their behalf, and is recognized upon ticket sales.

(iv)

We operate a frequent flyer program called “Eastern Miles” that issues mileage points to program members based on accumulated mileage. We defer a portion of passenger revenue attributable to the mileage points issued based on the relative stand-alone selling price approach and recognizes revenue when the mileage points are redeemed and performance obligations are fulfilled or the mileage points expire unused. The stand-alone selling price of the mileage points was estimated based on the historical prices of equivalent flights and goods provided for mileage points redeemed and was adjusted for mileage points that are not expected to be redeemed (“Breakage”).

(v)

Revenue from the sale of goods is recognized at the point in time when control of the asset is transferred to the customer.

Revenue from other sources

Rental income is recognized on a time proportion basis over the lease terms. Variable lease payments that do not depend on an index or a rate are recognized as income in the accounting period in which they are incurred.

Other income

Interest income is recognized on an accrual basis using the effective interest method by applying the rate that exactly discounts the estimated future cash receipts over the expected life of the financial instrument or a shorter period, when appropriate, to the net carrying amount of the financial asset.

Dividend income is recognized when the shareholders’ right to receive payment has been established, it is probable that the economic benefits associated with the dividend will flow to us and the amount of the dividend can be measured reliably.

Contract liabilities

A contract liability is recognized when a payment is received or a payment is due (whichever is earlier) from a customer before we transfer the related goods or services. Contract liabilities are recognized as revenue when we perform under the contract (i.e., transfers control of the related goods or services to the customer).

Maintenance and overhaul costs

Overhaul costs that meet specific recognition criteria are capitalized as a component of property, plant and equipment or right-of-use assets and are depreciated over the appropriate maintenance cycles.

Certain lease arrangements contain provisions that we are obligated to fulfill certain return conditions at the end of lease term. We estimate lease return costs for aircraft and engines and recognized such costs as part of the right-of-use asset and are depreciated during the lease term. (applicable from January 1, 2019)

Provision for the estimated lease return costs for aircraft and engines is made on a straight-line basis over the lease term. (applicable before January 1, 2019)

All other repairs and maintenance costs are charged to profit or loss as and when incurred.

Goodwill

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred, the amount recognized for non-controlling interests and any fair value of our previously held equity interests in the acquiree over the identifiable net assets acquired and liabilities assumed. If the sum of this consideration and other items is lower than the fair value of the net assets acquired, the difference is, after reassessment, recognized in profit or loss as a gain on bargain purchase.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Weperform our annual impairment test of goodwill as of December 31. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of our cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of ours are assigned to those units or groups of units.

Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash-generating units) to which the goodwill relates. Where the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the carrying amount, an impairment loss is recognized. An impairment loss recognized for goodwill is not reversed in a subsequent period.

Where goodwill has been allocated to a cash-generating unit (or group of cash-generating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on the disposal. Goodwill disposed of in these circumstances is measured based on the relative value of the operation disposed of and the portion of the cash-generating unit retained.

Property, plant and equipment

Property, plant and equipment, other than construction in progress, are stated at cost less accumulated depreciation and any impairment losses. When an item of property, plant and equipment is classified as held for sale or when it is part of a disposal group classified as held for sale, it is not depreciated and is accounted for in accordance with IFRS 5, as further explained in the accounting policy for “Non-current assets and disposal groups held for sale”. The cost of an item of property, plant and equipment comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use.

When each major aircraft overhaul is performed, its cost is recognized in the carrying amount of the item of property, plant and equipment and is depreciated over the appropriate maintenance cycles. Components related to airframe overhaul cost, are depreciated on a straight-line basis over 5 to 7.5 years. Components related to engine overhaul costs, are depreciated between each overhaul period using the ratio of actual flying hours and estimated flying hours between overhauls. Upon completion of an overhaul, any remaining carrying amount of the cost of the previous overhaul is derecognized and charged to profit or loss.

Except for components related to overhaul costs, the depreciation method of which has been described in the preceding paragraph, other depreciation of property, plant and equipment is calculated using the straight-line method to write off their costs to their residual values over their estimated useful lives, as follows:


Owned aircraft and engines		20 years
Other flight equipment, including rotables		10 years
Buildings		8 to 35 years
Other property, plant and equipment		3 to 20 years

Where parts of an item of property, plant and equipment have different useful lives, the cost of that item is allocated on a reasonable basis among the parts and each part is depreciated separately. Residual values, useful lives and the depreciation method are reviewed, and adjusted if appropriate, at least at each financial year end.

An item of property, plant and equipment including any significant part initially recognized is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on disposal or retirement recognized in the statement of profit or loss in the year the asset is derecognized is the difference between the net sales proceeds and the carrying amount of the relevant asset.

Construction in progress represents a building under construction, which is stated at cost less any impairment losses, and is not depreciated. Cost comprises the direct costs of construction and capitalized borrowing costs on related borrowed funds during the period of construction. Construction in progress is reclassified to the appropriate category of property, plant and equipment when completed and ready for use.

Impairment of non-financial assets (other than goodwill)

Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than inventories, deferred tax assets, financial assets, and non-current assets/a disposal group classified as held for sale), the asset’s recoverable amount is estimated. An asset’s recoverable amount is the higher of the asset’s or cash-generating unit’s value in use and its fair value less costs of disposal, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is determined for the cash-generating unit to which the asset belongs. We owned and leased aircraft and engines are included in the airline transportation operations cash-generating unit. Management uses the value in use of the cash-generating unit of airline transportation operations to determine the recoverable amount.

An impairment loss is recognized only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is charged to profit or loss in the period in which it arises in those expense categories consistent with the function of the impaired asset.

An assessment is made at the end of each reporting period as to whether there is an indication that previously recognized impairment losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognized impairment loss of an asset other than goodwill is reversed only if there has been a change in the estimates used to determine the recoverable amount of that asset, but not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortization) had no impairment loss been recognized for the asset in prior years. A reversal of such an impairment loss is credited to profit or loss in the period in which it arises, unless the asset is carried at a revalued amount, in which case the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

Investments and other financial assets

Initial recognition and measurement

Financial assets are classified, at initial recognition, as subsequently measured at amortized cost, fair value through other comprehensive income, and fair value through profit or loss.

The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and our business model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which we have applied the practical expedient of not adjusting the effect of a significant financing component, initially we measure a financial asset at its fair value, plus in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or for which we have applied the practical expedient are measured at the transaction price determined under IFRS 15 in accordance with the policies set out for “Revenue recognition”.

In order for a financial asset to be classified and measured at amortized cost or fair value through other comprehensive income, it needs to give rise to cash flows that are solely payments of principal and interest (“SPPI”) on the principal amount outstanding. Financial assets with cash flows that are not SPPI are classified and measured at fair value through profit or loss, irrespective of the business model.

Our business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both. Financial assets classified and measured at amortized cost are held within a business model with the objective to hold financial assets in order to collect contractual cash flows, while financial assets classified and measured at fair value through other comprehensive income are held within a business model with the objective of both holding to collect contractual cash flows and selling. Financial assets which are not held within the aforementioned business models are classified and measured at fair value through profit or loss.

All regular way purchases and sales of financial assets are recognized on the trade date, that is, the date that we commit to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace.

Subsequent measurement

The subsequent measurement of financial assets depends on their classification as follows:

Financial assets at amortized cost (debt instruments)

Financial assets at amortized cost are subsequently measured using the effective interest method and are subject to impairment. Gains and losses are recognized in the statement of profit or loss when the asset is derecognized, modified or impaired.

Financial assets at fair value through other comprehensive income (debt instruments)

For debt investments at fair value through other comprehensive income, interest income, foreign exchange revaluation and impairment losses or reversals are recognized in the statement of profit or loss and computed in the same manner as for financial assets measured at amortized cost. The remaining fair value changes are recognized in other comprehensive income. Upon derecognition, the cumulative fair value change recognized in other comprehensive income is recycled to the statement of profit or loss.

Financial assets designated at fair value through other comprehensive income (equity investments)

Upon initial recognition, we can elect to classify irrevocably its equity investments as equity investments designated at fair value through other comprehensive income when they meet the definition of equity under IAS 32 Financial Instruments: Presentation and are not held for trading. The classification is determined on an instrument-by-instrument basis.

Gains and losses on these financial assets are never recycled to the statement of profit or loss. Dividends are recognized as other income in the statement of profit or loss when the right of payment has been established, it is probable that the economic benefits associated with the dividend will flow to us and the amount of the dividend can be measured reliably, except when we benefit from such proceeds as a recovery of part of the cost of the financial asset, in which case such gains are recorded in other comprehensive income. Equity investments designated at fair value through other comprehensive income are not subject to impairment assessment.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value recognized in the statement of profit or loss.

This category includes derivative instruments and equity investments which we had not irrevocably elected to classify at fair value through other comprehensive income. Dividends on equity investments classified as financial assets at fair value through profit or loss are also recognized as other income in the statement of profit or loss when the right of payment has been established, it is probable that the economic benefits associated with the dividend will flow to us and the amount of the dividend can be measured reliably.

A derivative embedded in a hybrid contract, with a financial liability or non-financial host, is separated from the host and accounted for as a separate derivative if the economic characteristics and risks are not closely related to the host; a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and the hybrid contract is not measured at fair value through profit or loss. Embedded derivatives are measured at fair value with changes in fair value recognized in the statement of profit or loss. Reassessment only occurs if there is either a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required or a reclassification of a financial asset out of the fair value through profit or loss category.

A derivative embedded within a hybrid contract containing a financial asset host is not accounted for separately. The financial asset host together with the embedded derivative is required to be classified in its entirety as a financial asset at fair value through profit or loss.

Impairment of financial assets

We recognize an allowance for expected credit losses (“ECLs”) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that we expect to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.

General approach

ECLs are recognized in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12 months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).

At each reporting date, we assess whether the credit risk on a financial instrument has increased significantly since initial recognition. When making the assessment, we compare the risk of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument as at the date of initial recognition and considers reasonable and supportable information that is available without undue cost or effort, including historical and forward-looking information.

We consider a financial asset in default when contractual payments are past due. However, in certain cases, we may also consider a financial asset to be in default when internal or external information indicates that we are unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by us. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.

Debt investments at fair value through other comprehensive income and financial assets at amortized cost are subject to impairment under the general approach and they are classified within the following stages for measurement of ECLs except for trade receivables and contract assets which apply the simplified approach as detailed below.


Stage 1 –		Financial instruments for which credit risk has not increased significantly since initial recognition and for which the loss allowance is measured at an amount equal to 12-month ECLs

Stage 2 –		Financial instruments for which credit risk has increased significantly since initial recognition but that are not credit-impaired financial assets and for which the loss allowance is measured at an amount equal to lifetime ECLs

Stage 3 –		Financial assets that are credit-impaired at the reporting date (but that are not purchased or originated credit-impaired) and for which the loss allowance is measured at an amount equal to lifetime ECLs

Simplified approach

For trade receivables and contract assets that do not contain a significant financing component or when we apply the practical expedient of not adjusting the effect of a significant financing component, we apply the simplified approach in calculating ECLs. Under the simplified approach, we do not track changes in credit risk, but instead recognizes a loss allowance based on lifetime ECLs at each reporting date. We have established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.

Derivative financial instruments and hedge accounting

Initial recognition and subsequent measurement

We use derivative financial instruments, such as forward currency contracts, interest rate swaps and fuel forward contracts, to hedge its foreign currency risk, interest rate risk and fuel price risk, respectively. Such derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.

The fair value of commodity purchase contracts that meet the definition of a derivative as defined by IFRS 9 is recognized in the statement of profit or loss as cost of sales. Commodity contracts that are entered into and continue to be held for the purpose of the receipt or delivery of a non-financial item in accordance with our expected purchase, sale or usage requirements are held at cost.

Any gains or losses arising from changes in fair value of derivatives are taken directly to the statement of profit or loss, except for the effective portion of cash flow hedges, which is recognized in other comprehensive income and later reclassified to profit or loss when the hedged item affects profit or loss.

For the purpose of hedge accounting, hedges are classified as:

•

fair value hedges when hedging the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment; or

•

cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction, or a foreign currency risk in an unrecognized firm commitment; or

•

hedges of a net investment in a foreign operation.

At the inception of a hedge relationship, we formally designate and documents the hedge relationship to which we wish to apply hedge accounting, the risk management objective and its strategy for undertaking the hedge.

The documentation includes identification of the hedging instrument, the hedged item, the nature of the risk being hedged and how we will assess whether the hedging relationship meets the hedge effectiveness requirements (including the analysis of sources of hedge ineffectiveness and how the hedge ratio is determined). A hedging relationship qualifies for hedge accounting if it meets all of the following effectiveness requirements:

•

There is “an economic relationship” between the hedged item and the hedging instrument.

•

The effect of credit risk does not “dominate the value changes” that result from that economic relationship.

•

The hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that we actually hedge and the quantity of the hedging instrument that we actually use to hedge that quantity of hedged item.

Hedges which meet all the qualifying criteria for hedge accounting are accounted for as follows:

Cash flow hedges

The effective portion of the gain or loss on the hedging instrument is recognized directly in other comprehensive income in the cash flow hedge reserve, while any ineffective portion is recognized immediately in the statement of profit or loss. The cash flow hedge reserve is adjusted to the lower of the cumulative gain or loss on the hedging instrument and the cumulative change in fair value of the hedged item.

The amounts accumulated in other comprehensive income are accounted for, depending on the nature of the underlying hedged transaction. If the hedged transaction subsequently results in the recognition of a non-financial item, the amount accumulated in equity is removed from the separate component of equity and included in the initial cost or other carrying amount of the hedged asset or liability. This is not a reclassification adjustment and will not be recognized in other comprehensive income for the period. This also applies where the hedged forecast transaction of a non-financial asset or non-financial liability subsequently becomes a firm commitment to which fair value hedge accounting is applied.

For any other cash flow hedges, the amount accumulated in other comprehensive income is reclassified to the statement of profit or loss as a reclassification adjustment in the same period or periods during which the hedged cash flows affect the statement of profit or loss.

If cash flow hedge accounting is discontinued, the amount that has been accumulated in other comprehensive income must remain in accumulated other comprehensive income if the hedged future cash flows are still expected to occur. Otherwise, the amount will be immediately reclassified to the statement of profit or loss as a reclassification adjustment. After the discontinuation, once the hedged cash flow occurs, any amount remaining in accumulated other comprehensive income is accounted for depending on the nature of the underlying transaction as described above.

Fair value hedges

The change in the fair value of a hedging instrument is recognized in the statement of profit or loss as other expenses. The change in the fair value of the hedged item attributable to the risk hedged is recorded as a part of the carrying amount of the hedged item and is also recognized in the statement of profit or loss as other expenses.

For fair value hedges relating to items carried at amortized cost, the adjustment to carrying value is amortized through the statement of profit or loss over the remaining term of the hedge using the effective interest rate method. Effective interest rate amortization may begin as soon as an adjustment exists and shall begin no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged. If the hedged item is derecognized, the unamortized fair value is recognized immediately in the statement of profit or loss.

When an unrecognized firm commitment is designated as a hedged item, the subsequent cumulative change in the fair value of the firm commitment attributable to the hedged risk is recognized as an asset or liability with a corresponding gain or loss recognized in the statement of profit or loss. The changes in the fair value of the hedging instrument are also recognized in the statement of profit or loss.

Current versus non-current classification

Derivative instruments that are not designated as effective hedging instruments are classified as current or non-current or separated into current and non-current portions based on an assessment of the facts and circumstances (i.e., the underlying contracted cash flows).

•

Where we expect to hold a derivative as an economic hedge (and does not apply hedge accounting) for a period beyond 12 months after the end of the reporting period, the derivative is classified as non-current (or separated into current and non-current portions) consistently with the classification of the underlying item.

•

Embedded derivatives that are not closely related to the host contract are classified consistently with the cash flows of the host contract.

•

Derivative instruments that are designated as, and are effective hedging instruments, are classified consistently with the classification of the underlying hedged item. The derivative instruments are separated into current portions and non-current portions only if a reliable allocation can be made.

Leases (policies under IFRS 16 applicable from January 1, 2019)

We assess at contract inception whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

(i)

As lessee

We apply a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. We recognize lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.

(a)

Right-of-use assets

Right-of-use assets are recognized at the commencement date of the lease (that is the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and any impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. The cost of a right-of-use asset also includes an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease terms and the estimated useful lives of the assets as follows:


Aircraft and engines under leases		5 to 20 years
Buildings		2 to 10 years
Prepayments for land use rights		40 to 50 years
Others		2 to 5 years

If ownership of the leased asset transfers to us by the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset.

(i)

Lease liabilities

Lease liabilities are recognized at the commencement date of the lease at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by us and payments of penalties for termination of a lease, if the lease term reflects us exercising the option to terminate the lease. The variable lease payments that do not depend on an index or a rate are recognized as an expense in the period in which the event or condition that triggers the payment occurs.

In calculating the present value of lease payments, we use its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in lease payments (e.g., a change to future lease payments resulting from a change in an index or rate) or a change in assessment of an option to purchase the underlying asset.

(ii)

Short-term leases and leases of low-value assets

We apply the short-term lease recognition exemption to its short-term leases (that is those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). We also apply the recognition exemption for leases of low-value assets to leases of assets that are considered to be of low value. Lease payments on short-term leases and leases of low-value assets are recognized as an expense on a straight-line basis over the lease term.

(ii)

As lessor

When we act as a lessor, it classifies at lease inception (or when there is a lease modification) each of its leases as either an operating lease or a finance lease.

Leases in which we do not transfer substantially all the risks and rewards incidental to ownership of an asset are classified as operating leases. When a contract contains lease and non-lease components, we allocate the consideration in the contract to each component on a relative stand-alone selling price basis. Rental income is accounted for on a straight-line basis over the lease terms and is included in revenue in the statement of profit or loss due to its operating nature. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income. Contingent rents are recognized as revenue in the period in which they are earned.

Leases that transfer substantially all the risks and rewards incidental to ownership of an underlying asset to the lessee are accounted for as finance leases.

Leases (applicable before January 1, 2019)

(i)

As lessee

Finance leases

Leases where we have acquired substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalized at the lease’s commencement at the lower of the fair value of the assets and the present value of the minimum lease payments.

Each lease payment is allocated between the liability and finance charges. The corresponding rental obligations, net of finance charges, are included in the current portion of obligations under finance leases and obligations under finance leases, respectively. The interest element of the finance costs is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Leased assets are depreciated using a straight-line basis over their expected useful lives to residual values.

For sale and leaseback transactions resulting in a finance lease, we continue to recognize the transferred asset and recognize a financial liability equal to the transfer proceeds.

Operating leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on a straight-line basis over the period of the lease.

For sale and leaseback transactions resulting in an operating lease, differences between sales proceeds and net book values are recognized immediately in profit or loss, except to the extent that any profit or loss is compensated for by future lease payments at above or below the market value, then the profit or loss is deferred and amortized over the period for which the asset is expected to be used.

(ii)

As lessor

Assets leased out under operating leases are included in property, plant and equipment in the statement of financial position. They are depreciated over their expected useful lives on a basis consistent with similar property, plant and equipment. Rental income is recognized on a straight-line basis over the lease term.

Retirement benefits

(i)

Defined contribution plans

We participate in schemes regarding pension and medical benefits for employees organized by the municipal governments of the relevant provinces. Contributions to these schemes are expensed as incurred.

We also implement an additional defined contribution pension benefit scheme (annuity) for voluntary eligible employees. Contributions are made based on a percentage of the employees’ total salaries and are charged to profit or loss as incurred.

(ii)

Defined benefit plan

We provide eligible retirees with certain post-retirement benefits including retirement subsidies, transportation allowance as well as other welfare. The defined post-retirement benefits are unfunded. The cost of providing benefits under the post-retirement benefit plan is determined using the projected unit credit actuarial valuation method.

Remeasurements arising from the post-retirement benefit plan, comprising actuarial gains and losses, the effect of the asset ceiling (excluding net interest) and the return on plan assets (excluding net interest), are recognized immediately in the consolidated statement of financial position with a corresponding debit or credit to equity through other comprehensive income in the period in which they occur. Remeasurements are not reclassified to profit or loss in subsequent periods.

Past service costs are recognized in profit or loss at the earlier of:

(i)

the date of the plan amendment or curtailment; and

(ii)

the date that we recognize restructuring-related costs

Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. We recognize the following changes in the net defined benefit obligation under “Wages, salaries and benefits” and “Finance costs” in profit or loss:

(i)

service costs comprising current service costs, past-service costs, gains and losses on curtailments and non-routine settlements; and

(ii)

net interest expense

Income tax

Income tax comprises current and deferred tax. Income tax relating to items recognized outside profit or loss is recognized outside profit or loss, either in other comprehensive income or directly in equity.

Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period, taking into consideration interpretations and practices prevailing in the countries in which we operate.

Deferred tax is provided, using the liability method, on all temporary differences at the end of the reporting period between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognized for all taxable temporary differences, except:

•

when the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

•

in respect of taxable temporary differences associated with investments in subsidiaries, associates and joint ventures, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognized for all deductible temporary differences, and the carryforward of unused tax credits and any unused tax losses. Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carryforward of unused tax credits and unused tax losses can be utilized, except:

•

when the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

•

in respect of deductible temporary differences associated with investments in subsidiaries, associates and joint ventures, deferred tax assets are only recognized to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at the end of each reporting period and are recognized to the extent that it has become probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax assets and deferred tax liabilities are offset if and only if we have a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realize the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.

Critical Accounting Estimates and Judgments

Estimates and judgments used in preparing the financial statements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. We make estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Passenger ticket breakage

We recognize traffic revenues in accordance with the accounting policy stated in Note 2.4 to the consolidated financial statements. Passenger ticket breakage is recognized as revenue based on estimates. We estimate the value of passenger ticket breakage, reduces contract liabilities and recognizes revenue at the scheduled flight date using a portfolio based approach. The breakage rate is estimated and constrained by reference to the historical trend of passenger ticket breakage.

Recognition of contract liabilities for frequent flyer program

Passenger ticket sales earning mileage points under the Company’s frequent flyer program provide customers with mileage points earned and air transportation. A portion of passenger revenue attributable to the mileage points issued is deferred based on the relative stand-alone selling price approach. Significant assumptions are used in determining the estimated stand-alone selling price of mileage points, including the historical prices of equivalent flights and goods provided, which is estimated by reference to the quantitative value a program member receives by redeeming mileage points for flights and goods, and the estimated Breakage. The Breakage is estimated considering historical redemption pattern, current industry and economic trends and other relevant factors. Changes in the significant assumptions could have a significant effect on the balance of contract liabilities for frequent flyer program and the results of operations.

Provision for lease return costs for aircraft and engines

Provision for lease return costs for aircraft and engines is recognized as part of the right-of-use assets and are depreciated during the lease term. The estimation of the provision is made taking into account anticipated aircraft and engines’ utilization patterns and the anticipated return costs derived from historical experience of actual return costs incurred. Different estimates could significantly affect the estimated provision for lease return costs for aircraft and engines.

Retirement benefits

We operate and maintain a defined retirement benefit plan which provides eligible retirees with benefits including retirement subsidies, transportation allowance as well as other welfare. The cost of providing the aforementioned benefits in the defined retirement benefit plan is actuarially determined and recognized over the employee’s service period by utilizing various actuarial assumptions and using the projected unit credit method in accordance with the accounting policy stated in Note 2.4 to the consolidated financial statements. These assumptions include, without limitation, the selection of discount rate and annual rate of increase of per capita benefit payment. The discount rate is based on management’s review of government bonds. The annual rate of increase of benefit payments is based on the general local economic conditions.

Additional information regarding the retirement benefit plan is disclosed in Note 38 to the consolidated financial statements.

Deferred income tax

Deferred tax assets are recognized for unused tax losses and deductible temporary difference to the extent that it is probable that taxable profit will be available against which the losses and deductible temporary difference can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and level of future taxable profits together with future tax planning strategies.

Provision for flight equipment spare parts

Provision for flight equipment spare parts is made based on the difference between the carrying amount and the net realizable value. The net realizable value is estimated based on current market condition, historical experience and the Company’s future operation plan for the aircraft and related spare parts. The net realizable value may be adjusted significantly due to the change of market condition and the future plan for the aircraft and related spare parts.

Estimated impairment of long-term assets (other than goodwill)

We test whether property, plant and equipment, right-of-use assets, intangible assets (other than goodwill), advanced payments on acquisition of aircraft and other non-current assets have been impaired in accordance with the accounting policy stated in Note 2.4 to the consolidated financial statements. The recoverable amount of the cash-generating unit has been determined based on the higher of its value in use and its fair value less costs of disposal. The cash flow projections used to determine the value in use of a cash-generating unit, including the airline transportation operations cash-generating unit, is based on significant assumptions, such as revenue growth rates and the discount rate applied to the projected cash flows. These assumptions may be affected by unexpected changes in future market or economic conditions.

Impairment of goodwill

We determine whether goodwill is impaired at least on an annual basis. This requires an estimation of the recoverable amount which is the higher of its value in use and its fair value less costs of disposal. We use the value in use of the cash-generating unit to which the goodwill is allocated to determine the recoverable amount. The cash flow projections used to determine the value in use of a cash-generating unit, including the airline transportation operations cash-generating unit, is based on significant assumptions, such as revenue growth rate, terminal growth rate and the discount rate applied to the projected cash flows. These assumptions may be affected by unexpected changes in future market or economic conditions.

Fair value of unlisted equity investments

The unlisted equity investments have been valued based on a market-based valuation technique as detailed in Note 47 to the consolidated financial statements. The valuation requires us to determine the comparable companies (peers) and select the price multiple. In addition, we make estimates about the discount for illiquidity and size differences. We classify the fair value hierarchy of these investments as Level 3.

Leases – Estimating the incremental borrowing rate (applicable from January 1, 2019)

We cannot readily determine the interest rate implicit in a lease, and therefore, it uses an incremental borrowing rate (“IBR”) to measure lease liabilities. The IBR is the rate of interest that we would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The IBR therefore reflects what we “would have to pay”, which requires estimation when no observable rates are available (such as for subsidiaries that do not enter into financing transactions) or when it needs to be adjusted to reflect the terms and conditions of the lease (for example, when leases are not in the subsidiary’s functional currency). We estimate the IBR using observable inputs (such as market interest rates) when available and is required to make certain entity-specific estimates (such as the subsidiary’s stand-alone credit rating) when necessary.

A. Operating Result

The following tables set forth our summary consolidated statements of profit or loss and other comprehensive income and financial position data as of and for the years indicated:


				Year Ended December 31,
	2016			2017			2018			2019			2020
	RMB			RMB			RMB			RMB			RMB
	(*in millions, except per share or per ADS data*)
Consolidated Statements of Profit or Loss and Other Comprehensive Income Data:
Revenues		98,904			102,475			115,278			120,986			58,727
Other operating income and gains		5,469			7,481			6,592			7,202			5,698
Operating expenses ⁽¹⁾		(91,887	)		(100,525	)		(112,561	)		(118,107	)		(78,265	)
Operating profit /(loss)		12,486			9,431			9,309			10,081			(13,840	)
Finance costs, net		(6,176	)		(1,072	)		(5,657	)		(6,064	)		(2,553	)
Profit /(loss) before income tax		6,497			8,610			3,856			4,299			(16,488	)
Profit /(loss) for the year attributable to the equity holders of the Company		4,498			6,342			2,698			3,192			(11,836	)
Basic and fully diluted earnings /(loss) per share ⁽²⁾		0.33			0.44			0.19			0.21			(0.72	)


				As of December 31,
	2016			2017			2018			2019			2020
	RMB			RMB			RMB			RMB			RMB
							*(in millions)*
Consolidated Statements of Financial Position Data:
Cash and cash equivalents		1,695			4,605			646			1,350			7,651
Net current liabilities		(52,194	)		(62,035	)		(57,132	)		(58,620	)		(77,310	)
Non-current assets		196,436			211,434			223,085			265,442			262,152
Long term borrowings, including current portion		(29,749	)		(28,842	)		(32,506	)		(31,137	)		(39,429	)
Lease liabilities, including current portion		—			—			—			(110,275	)		96,251
Obligations under finance leases, including current portion		(61,041	)		(66,868	)		(77,427	)		—			—
Total share capital and reserves attributable to the equity holders of the Company		49,450			55,360			58,008			69,008			56,249
Non-current liabilities		(91,876	)		(90,621	)		(104,352	)		(134,176	)		(125,688	)
Total assets less current liabilities		144,242			149,399			165,953			206,822			184,842

Notes:

(1)

Including gain on fair value changes of derivative financial instruments of RMB2 million, RMB311 million, nil and nil for the years ended December 31, 2016, 2018, 2019 and 2020 respectively, and loss on fair value changes of derivative financial instruments of RMB311 million for the year ended December 31, 2017.

(2)

The calculation of earnings per share for 2016 is based on the net profit attributable to the equity holders of the Company divided by the weighted average number of 13,811,136,000 ordinary shares in issue. The calculation of earnings per share for 2017 is based on the net profit attributable to the equity holders of the Company divided by the weighted average number of 14,467,585,682 ordinary shares in issue. The calculation of earnings per share for 2018 is based on the net profit attributable to the equity holders of the Company divided by the weighted average number of 14,467,585,682 ordinary shares in issue. The calculation of earnings per share for 2019 is based on the net profit attributable to the equity holders of the Company divided by the weighted average number of 15,104,893,522 ordinary shares in issue. The calculation of loss per share for 2020 is based on the net loss attributable to the equity holders of the Company divided by the weighted average number of 16,379,509,203 ordinary shares in issue.

2020 Compared to 2019

Our revenues decreased by approximately 51.5% from approximately RMB120,986 million in 2019 to approximately RMB58,727 million in 2020.

In 2020, we transported approximately 75 million passengers, representing a decrease of approximately 42.7%, from approximately 130 million passengers in 2019. Our total passenger traffic (as measured in RPKs) decreased by approximately 51.6%, from approximately 221,779 million in 2019 to approximately 107,273 million in 2020.

Our total cargo and mail traffic (as measured in RFTKs) decreased by approximately 26.0% from approximately 2,971 million in 2019 to 2,200 million in 2020.

Our average yield for our passenger operations decreased by approximately 5.6% from approximately RMB0.52 per passenger-kilometers in 2019 to approximately RMB0.49 per passenger-kilometers in 2020.

Our average yield for our cargo and mail operations increased by approximately 72.8% from approximately RMB1.29 per freight tonne-kilometers in 2019 to approximately RMB2.23 per freight tonne-kilometers in 2020.

The following chart sets forth our revenue breakdown for 2019 and 2020:


	Year Ended December 31				2020 vs. 2019
	2019		2020		Increase (Decrease)			% Increase (Decrease)
			*(in RMB millions)*
Traffic revenues		114,242		54,110		(60,132	)		(52.6	)
Passenger revenue		110,416		49,215		(61,201	)		(55.4	)
Cargo and mail revenue		3,826		4,895		1,069			27.9
Others ⁽¹⁾		6,744		4,617		(2,127	)		(31.5	)
Total Operating Revenue		120,986		58,727		(62,259	)		(51.5	)

Notes:

(1)	Including tour operations income, ground service income, commission income and others.

Passenger revenues

Our passenger traffic revenues decreased by approximately RMB61,201 million, or approximately 55.4%, from approximately RMB110,416 million in 2019 to approximately RMB49,215 million in 2020. This decrease was primarily due to decreased passenger demand and decrease in scheduled flights resulting from the COVID-19 pandemic.

Our domestic passenger traffic revenues (excluding Hong Kong, Macau and Taiwan passenger revenues) amounted to approximately RMB40,343 million in 2020, which accounted for approximately 82.0% of our total passenger traffic revenues in 2020, decreased by approximately 44.6% from approximately RMB72,764 million in 2019, primarily due to decreased passenger demand resulting from the COVID-19 pandemic. Our domestic passenger traffic (as measured in RPKs) decreased by approximately 32.7% from approximately 142,921 million in 2019 to approximately 96,206 million in 2020. The number of passengers carried on domestic routes decreased by approximately 33.9% from approximately 109 million in 2019 to approximately 72 million in 2020. Our passenger-kilometers yield for domestic routes decreased from approximately RMB0.54 per passenger-kilometer in 2019 to approximately RMB0.46 per passenger-kilometer in 2020.

Our regional passenger traffic revenues (representing Hong Kong, Macau and Taiwan passenger revenues) amounted to approximately RMB405 million in 2020, which accounted for approximately 0.8% of our total passenger traffic revenues in 2020, decreased by approximately 89.0% from approximately RMB3,686 million in 2019, primarily due to the decrease of passenger volume resulting from the COVID-19 pandemic. Our regional passenger traffic (as measured in RPKs) decreased by approximately 90.9% from approximately RMB5,046 million in 2019 to approximately RMB458 million in 2020. The number of passengers carried on Hong Kong, Macau and Taiwan routes decreased by approximately 90.6% from approximately 3.7 million in 2019 to approximately 0.3 million in 2020. Our passenger-kilometers yield for regional routes increased from approximately RMB0.74 per passenger-kilometer in 2019 to approximately RMB0.90 per passenger-kilometer in 2020.

Our international passenger traffic revenues amounted to approximately RMB8,467 million in 2020, which accounted for approximately 17.2% of our total passenger traffic revenues in 2020, decreased by approximately 75.1% from approximately RMB33,966 million in 2019, primarily due to decreased international passenger demand and decrease in our scheduled flights on international routes resulting from the COVID-19 pandemic. Our international passenger traffic (as measured in RPKs) decreased by approximately 85.6% from approximately RMB73,812 million in 2019 to approximately RMB10,609 million in 2020. The number of passengers carried on international routes decreased by approximately 87.3% from approximately 17.6 million in 2019 to approximately 2.2 million in 2020. Our passenger-kilometers yield for international routes increased from approximately RMB0.47 per passenger-kilometer in 2019 to approximately RMB0.82 per passenger-kilometer in 2020.

Cargo and mail revenues

Our cargo and mail traffic revenues accounted for approximately 9.0% of our total traffic revenues in 2020 and increased by approximately 27.9% from RMB3,826 million in 2019 to RMB4,895 million in 2020, primarily due to the passenger flights to transport pandemic prevention supplies. Cargo and mail yield increased from approximately RMB1.29 per freight tonne-kilometers in 2019 to approximately RMB2.23 per freight tonne-kilometers in 2020.

Our domestic cargo and mail traffic revenues (excluding Hong Kong, Taiwan and Macau cargo and mail revenues) accounted for approximately 15.4% of our total cargo and mail traffic revenues in 2020 and decreased by approximately 24.7% from RMB998 million in 2019 to RMB751 million in 2020, primarily due to the above-mentioned reason. Our freight tonne-kilometers yield for domestic routes was approximately RMB1.05 per freight tonne-kilometers in 2019 and approximately RMB0.97 per freight tonne-kilometers in 2020.

Our regional cargo and mail traffic revenues (representing Hong Kong, Macau and Taiwan cargo and mail traffic revenues) amounted to approximately RMB84 million in 2020, which accounted for approximately 1.7% of our total cargo and mail traffic revenues in 2020, decreased by approximately 47.2% from approximately RMB159 million in 2019. Our freight tonne-kilometers yield for regional routes was approximately RMB5.56 per freight tonne-kilometers in 2019 and approximately RMB8.91 per freight tonne-kilometers in 2020.

International cargo and mail traffic revenues accounted for approximately 82.9% of our total cargo and mail traffic revenues in 2020 and increased by approximately 52.1% from approximately RMB2,669 million in 2019 to approximately RMB4,060 million in 2020, primarily due to the above-mentioned reason. Our freight tonne-kilometers yield for international routes was approximately RMB1.34 per freight tonne-kilometers in 2019 and approximately RMB2.87 per freight tonne-kilometers in 2020.

Other revenues

We also generated revenues from other services, including tour operations, airport ground services and ticket handling services. These services include aircraft cleaning and ground transportation of cargo and passenger luggage for aircraft arriving at or departing from Hongqiao International Airport and Pudong International Airport of Shanghai. We are currently the principal provider of airport ground services at both Hongqiao International Airport and Pudong International Airport. Our total other revenues decreased by approximately 31.5% from approximately RMB6,744 million in 2019 to approximately RMB4,617 million in 2020, primarily due to the impact of the COVID-19 pandemic.

Operating Expenses

The following chart sets forth a breakdown of our operating expenses for the years ended December 31, 2019 and 2020:


							2019 vs. 2020
	Year Ended December 31						(Increase)			% Increase
	2019			2020			Decrease			(Decrease)
				(in RMB millions)
Operating Expenses:
Aircraft fuel		(34,191	)		(13,840	)		20,351			(59.5	)
Take-off and landing charges		(16,457	)		(9,331	)		7,126			(43.3	)
Depreciation and amortization		(22,080	)		(22,255	)		(175	)		0.8
Wages, salaries and benefits		(24,152	)		(20,827	)		3,325			(13.8	)
Aircraft maintenance		(3,380	)		(3,451	)		(71	)		2.1
Impairment charges		(4	)		(184	)		(180	)		4,500.0
Impairment losses on financial assets, net		(16	)		(32	)		(16	)		100.0
Food and beverages		(3,667	)		(1,589	)		2,078			(56.7	)
Low value and short-term lease rentals		(631	)		(358	)		273			(43.3	)
Selling and marketing expenses		(4,134	)		(1,570	)		2,564			(62.0	)
Civil aviation development fund		(1,831	)		—			1,831			(100.0	)
Ground services and other expenses		(2,476	)		(872	)		1,604			(64.8	)
Fair value changes of financial asset at fair value through profit or loss		25			(26	)		(51	)		(204.0	)
Indirect operating expenses		(5,113	)		(3,930	)		1,183			(23.1	)
Total Operating Expenses		(118,107	)		(78,265	)		39,842			(33.7	)

Our total operating expenses decreased by approximately 33.7% from approximately RMB118,107 million in 2019 to approximately RMB78,265 million in 2020. As affected by the COVID-19 pandemic, the passenger traffic volume and number of passengers carried significantly reduced, and our various costs such as aircraft fuel, aircraft take-off and landing costs and catering also decreased from last year.

Aircraft fuel costs decreased by approximately 59.5% from approximately RMB34,191 million in 2019 to approximately RMB13,840 million in 2020. The decrease was due to a decline in our fuel consumption by 38.5% and a drop in the average price of fuel by 34.2% from last year, both of which are attributable to the impact of the COVID-19 pandemic.

Take-off and landing charges decreased by 43.3% from approximately RMB16,457 million in 2019 to approximately RMB9,331 million in 2020, primarily due to the significant decrease in traffic volume as we significantly adjusted our flight capacity as a result of the significant decrease in passenger travel demand as affected by the COVID-19 pandemic.

Depreciation and amortization remaining relatively stable at approximately RMB22,080 million in 2019 and approximately RMB22,255 million in 2020.

Wages, salaries and benefits, which accounted for approximately 26.6% of our total operating expenses in 2020, decreased by approximately 13.8% from approximately RMB24,152 million in 2019 to approximately RMB20,827 million in 2020, primarily due to the decrease in number of flights, leading to the decrease in remuneration of aircrew and ground crew.

Aircraft maintenance expenses was approximately RMB3,451 million in 2020, which accounted for approximately 4.4% of our total operating expenses in 2020, remaining relatively stable as last year.

Food and beverages expenses decreased by approximately 56.7% from approximately RMB3,667 million in 2019 to approximately RMB1,589 million in 2020, primarily due to the significant decrease in traffic volume as we adjusted our flight capacity as a result of the significant decrease in passenger travel demand as affected by the COVID-19 pandemic.

Selling and marketing expenses decreased by approximately 62.0% from approximately RMB4,134 million in 2019 to approximately RMB1,570 million in 2020, primarily due to the significant decrease in a variety of our businesses in line with the deceased relevant opearting cost as a result of the significant decrease in passenger travel demand as affected by the COVID-19 pandemic.

We recorded no civil aviation development fund to the CAAC in 2020 while our civil aviation development fund to the CAAC was RMB1,831 million in 2019, due to CAAC’s exemption of contribution to the civil aviation development fund as a result of the impanct of the COVID-19 pandemic.

Ground services and other expenses decreased by approximately 64.8% from approximately RMB2,476 million in 2019 to approximately RMB872 million in 2020, primarily due to the significant decrease in a variety of our businesses in line with the deceased relevant opearting cost as a result of the significant decrease in passenger travel demand as affected by the COVID-19 pandemic.

Indirect operating expenses decreased by approximately 23.1% from approximately RMB5,113 million in 2019 to approximately RMB3,930 million in 2020, primarily due to the significant decrease in a variety of our businesses in line with the deceased relevant opearting cost as a result of the significant decrease in passenger travel demand as affected by the COVID-19 pandemic.

Other Operating Income and Gains

Our other operating income and gains mainly consist of co-operation routes income, income from disposal of property, plant and equipment and subsidy income. The total amount of our other operating income and gains decreased by approximately 20.9% from approximately RMB7,202 million in 2019 to approximately RMB5,698 million in 2020, primarily due to the significant reduction in our income from joint routes as a result of the impact of the COVID-19 pandemic.

Finance Income/Costs

In 2020, our finance income amounted to approximately RMB2,660 million, increased significantly from approximately RMB96 million in 2019; our finance costs amounted to RMB5,213 million, representing a decrease of 15.4% from approximately RMB6,160 million in 2019, which were primarily due to our exchange gains of RMB2,494 million in 2020, as compared to the exchange losses of RMB990 million in 2019.

Loss/Profit Attributable to the Equity Holders of the Company

As a result of the foregoing, we recorded a net loss attributable to the equity holders at approximately RMB11,836 million in 2020 while the net profit attributable to the equity holders amounted to approximately RMB3,192 million in 2019, primarily due to the significant reduction in our revenue as a result of the impact of the COVID-19 pandemic.

Property, Plant and Equipment

We had approximately RMB101,043 million of property, plant and equipment as of December 31, 2020, including, among other assets, aircraft, engines and flight equipment, remaining relatively stable as compared to approximately RMB99,437 million as of December 31, 2019.

2019 Compared to 2018

Our revenues increased by approximately 5.0% from approximately RMB115,278 million in 2018 to approximately RMB120,986 million in 2019.

In 2019, we transported approximately 130 million passengers, representing an increase of approximately 7.5%, from approximately 121 million passengers in 2018. Our total passenger traffic (as measured in RPKs) increased by approximately 10.1%, from approximately 201,486 million in 2018 to approximately 221,779 million in 2019.

Our total cargo and mail traffic (as measured in RFTKs) increased by approximately 14.8% from approximately 2,588 million in 2018 to approximately 2,971 million in 2019.

Our average yield for our passenger operations remained relatively stable at RMB0.54 per passenger-kilometers in 2018 and RMB0.52 per passenger-kilometers in 2019.

Our average yield for our cargo and mail operations decreased by approximately 8.1% from approximately RMB1.40 per freight tonne-kilometers in 2018 to RMB1.29 per freight tonne-kilometers in 2019.

The following chart sets forth our revenue breakdown for 2018 and 2019:


	Year Ended December 31				2019 vs. 2018
	2018		2019		Increase			% Increase
					(Decrease)			(Decrease)
			*(in RMB millions)*
Traffic revenues		107,936		114,242		6,306			5.8
Passenger revenue		104,309		110,416		6,107			5.9
Cargo and mail revenue		3,627		3,826		199			5.5
Others ⁽¹⁾		7,342		6,744		(598	)		(8.1	)
Total Operating Revenue		115,278		120,986		5,708			5.0

Notes:

(1)	Including tour operations income, ground service income, commission income and others.

Passenger revenues

Our passenger traffic revenues increased by approximately RMB6,107 million, or approximately 5.9%, from approximately RMB104,309 million in 2018 to approximately RMB110,416 million in 2019. This increase was primarily due to increased passenger demand and increase in scheduled flights.

Our domestic passenger traffic revenues (excluding Hong Kong, Macau and Taiwan passenger revenues) amounted to approximately RMB72,764 million in 2019, which accounted for approximately 65.9% of our total passenger traffic revenues in 2019, increased by approximately 6.0% from approximately RMB68,619 million in 2018, primarily due to increased passenger demand. Our domestic passenger traffic (as measured in RPKs) increased by approximately 10.9% from approximately 128,906 million in 2018 to approximately 142,921 million in 2019. The number of passengers carried on domestic routes increased by approximately 7.7% from approximately 101 million in 2018 to approximately 109 million in 2019. Our passenger-kilometers yield for domestic routes remained relatively stable at approximately RMB0.56 per passenger-kilometer in 2018 and approximately RMB0.54 per passenger-kilometer in 2019.

Our regional passenger traffic revenues (representing Hong Kong, Macau and Taiwan passenger revenues) amounted to approximately RMB3,686 million in 2019, which accounted for approximately 3.3% of our total passenger traffic revenues in 2019, decreased by approximately 3.5% from approximately RMB3,821 million in 2018, primarily due to the decrease of passenger volume. Our regional passenger traffic (as measured in RPKs) decreased by approximately 4.6% from approximately 5,289 million in 2018 to approximately 5,046 million in 2019. The number of passengers carried on Hong Kong, Macau and Taiwan routes decreased by approximately 4.1% from approximately 3.9 million in 2018 to approximately 3.7 million in 2019. Our passenger-kilometers yield for regional routes remained relatively stable at approximately RMB0.73 per passenger-kilometer in 2018 and approximately RMB0.74 per passenger-kilometer in 2019.

Our international passenger traffic revenues amounted to approximately RMB33,966 million in 2019, which accounted for approximately 30.8% of our total passenger traffic revenues in 2019, increased by approximately 6.6% from approximately RMB31,869 million in 2018, primarily due to increased international passenger demand and increase in our scheduled flights on international routes. Our international passenger traffic (as measured in RPKs) increased by approximately 9.7% from approximately 67,290 million in 2018 to approximately 73,812 million in 2019. The number of passengers carried on international routes increased by approximately 9.2% from approximately 16.1 million in 2018 to approximately 17.6 million in 2019. Our passenger-kilometers yield for international routes remained relatively stable at approximately RMB0.49 per passenger-kilometer in 2018 and approximately RMB0.47 per passenger-kilometer in 2019.

Cargo and mail revenues

Our cargo and mail traffic revenues accounted for approximately 3.4% of our total traffic revenues in 2019 and increased by approximately 5.5% from RMB3,627 million in 2018 and approximately RMB3,826 million in 2019. Cargo and mail yield remained relatively stable at approximately RMB1.4 per freight tonne-kilometers in 2018 and approximately RMB1.3 per freight tonne-kilometers in 2019.

Our domestic cargo and mail traffic revenues (excluding Hong Kong, Taiwan and Macau cargo and mail revenues) accounted for approximately 26.1% of our total cargo and mail traffic revenues in 2019 and remained relatively stable at approximately RMB989 million in 2018 and approximately RMB998 million in 2019. Our freight tonne-kilometers yield for domestic routes was approximately RMB1.12 per freight tonne-kilometers in 2018 and approximately RMB1.05 per freight tonne-kilometers in 2019.

Our regional cargo and mail traffic revenues (representing Hong Kong, Macau and Taiwan cargo and mail traffic revenues) amounted to approximately RMB159 million in 2019, which accounted for approximately 4.2% of our total cargo and mail traffic revenues in 2019, decreased by approximately 18.9% from approximately RMB196 million in 2018, mainly due to the decreased cargo transportation demand. Our freight tonne-kilometers yield for regional routes remained relatively stable at approximately RMB5.57 per freight tonne-kilometers in 2018 and approximately RMB5.56 per freight tonne-kilometers in 2019.

International cargo and mail traffic revenues accounted for approximately 69.7% of our total cargo and mail traffic revenues in 2019 and increased by approximately 9.3% from approximately RMB2,442 million in 2018 to approximately RMB2,669 million in 2019. Our freight tonne-kilometers yield for international routes was approximately RMB1.47 per freight tonne-kilometers in 2018 and approximately RMB1.34 per freight tonne-kilometers in 2019.

Other revenues

We also generated revenues from other services, including tour operations, airport ground services and ticket handling services. These services include aircraft cleaning and ground transportation of cargo and passenger luggage for aircraft arriving at or departing from Hongqiao International Airport and Pudong International Airport of Shanghai. We are currently the principal provider of airport ground services at both Hongqiao International Airport and Pudong International Airport. Our total other revenues decreased by approximately 8.1% from approximately RMB7,342 million in 2018 to approximately RMB6,744 million in 2019, primarily due to the decrease in the revenue generating from tourism services as a result of the disposal of Shanghai Airlines Tour in 2019.

Operating Expenses

The following chart sets forth a breakdown of our operating expenses for the years ended December 31, 2018 and 2019:


							2018 vs. 2019
	Year Ended December 31						(Increase)			% Increase
	2018			2019			Decrease			(Decrease)
				(in RMB millions)
Operating Expenses:
Aircraft fuel expenses		(33,680	)		(34,191	)		(511	)		1.5
Take-off and landing charges		(14,914	)		(16,457	)		(1,543	)		10.3
Depreciation and amortization		(15,313	)		(22,080	)		(6,767	)		44.2
Wages, salaries and benefits		(22,134	)		(24,152	)		(2,018	)		9.1
Aircraft maintenance		(3,738	)		(3,380	)		358			(9.6	)
Impairment charges		(318	)		(4	)		314			(98.7	)
Impairment losses on financial assets, net		(27	)		(16	)		11			(40.7	)
Food and beverages		(3,383	)		(3,667	)		(284	)		8.4
Low value and short-term lease rentals		—			(631	)		(631	)		100.0
Aircraft operating lease rentals		(4,306	)		—			4,306			(100.0	)
Other operating lease rentals		(928	)		—			928			(100.0	)
Selling and marketing expenses		(3,807	)		(4,134	)		(327	)		8.6
Civil aviation development fund		(2,235	)		(1,831	)		404			(18.1	)
Ground services and other expenses		(2,845	)		(2,476	)		369			(13.0	)
Fair value changes of financial asset at fair value through profit or loss		(27	)		25			52			(192.6	)
Fair value changes of derivative financial instruments		311			—			(311	)		(100.0	)
Indirect operating expenses		(5,217	)		(5,113	)		104			(2.0	)
Total Operating Expense		(112,561	)		(118,107	)		(5,546	)		4.9

Our total operating expenses increased by approximately 4.9% from approximately RMB112,561 million in 2018 to approximately RMB118,107 million in 2019. Under the influence of further expansion of our operational scale as well as the rapid growth in the passenger traffic volume and the number of passengers carried, our various costs such as aircraft fuel expenses, aircraft take-off and landing costs, catering, depreciation and amortization increased from 2018. Our total operating expenses accounted for approximately 97.6% of our operating revenue in 2019, remaining the same as 2018.

Aircraft fuel expenses increased by approximately 1.5% from approximately RMB33,680 million in 2018 to approximately RMB34,191 million in 2019. The increase was primarily due to an increase in our volume of refueling of 6.8% as compared to 2018, leading to an increase in aircraft fuel costs of RMB2,289 million, partially offset by the decrease in average price of fuel of 4.9% as compared to 2018, leading to a decrease in aircraft fuel costs of RMB1,778 million.

Take-off and landing charges increased by 10.3% from approximately RMB14,914 million in 2018 to approximately RMB16,457 million in 2019, primarily due to the expansion of our operational scale and the growth in the number of take-off and landing flight and passenger transportation volume.

Depreciation and amortization increased by approximately 44.2% from approximately RMB15,313 million in 2018 to approximately RMB22,080 million in 2019, primarily due to the effect of the initial adoption of IFRS 16 Leases. For details of the impact of IFRS 16 Leases on us, please refer to the section headed “Critical Accounting Policies” under Item 5.

Wages, salaries and benefits, which accounted for approximately 20.4% of our total operating expenses in 2019, increased by approximately 9.1% from approximately RMB22,134 million in 2018 to approximately RMB24,152 million in 2019, primarily due to the increase in the remuneration as a result of the increase in the number of operation support staff in line with the growth in the flight hours and expansion of our operational scale.

Aircraft maintenance expenses, which accounted for approximately 2.9% of our total operating expenses in 2019, decreased by approximately 9.6% from approximately RMB3,738 million in 2018 to approximately RMB3,380 million in 2019, primarily due to the capitalization of part of our maintenance expenses in accordance with IFRS 16 Leases.

Food and beverage expenses increased by approximately 8.4% from approximately RMB3,383 million in 2018 to approximately RMB3,667 million in 2019, primarily due to the increase in the number of passengers carried.

Other operating lease rentals decreased by approximately 100.0% from approximately RMB928 million in 2018, primarily due to the effect of the initial adoption of IFRS 16 Leases.

Selling and marketing expenses increased by approximately 8.6% from approximately RMB3,807 million in 2018 to approximately RMB4,134 million in 2019, in line with our increased sales.

The amount of civil aviation development fund to the CAAC decreased by approximately 18.1% from approximately RMB2,235 million in 2018 to approximately RMB1,831 million in 2019, primarily due to the decrease in the charging standard of civil aviation development fund in 2019.

Ground services and other expenses decreased by approximately 13.0% from approximately RMB2,845 million in 2018 to approximately RMB2,476 million in 2019, primarily due to the decrease in expenses resulting from the disposal of 65% of equity interests of Shanghai Airlines Tours.

Indirect operating expenses amounted to approximately RMB5,113 million in 2019, remaining relatively stable as compared to approximately RMB5,217 million in 2018.

Fair Value Changes of Derivative Financial Instruments

We did not record changes in fair value of derivative financial instruments in 2019, primarily due to no fair value hedging in 2019. A gain on fair value changes of derivative financial instruments of approximately RMB311 million was recorded in 2018.

Other Operating Income and Gains

Our other operating income and gains mainly consists of co-operation routes income, income from disposal of property, plant and equipment and subsidy income. The total amount of our other operating income and gains increased by approximately 9.3% from approximately RMB6,592 million in 2018 to approximately RMB7,202 million in 2019, primarily due to the increase of co-operation routes income of approximately RMB900 million.

Net Finance Costs

In 2019, our finance costs amounted to approximately RMB6,160 million in 2019, representing an increase of approximately RMB393 million from approximately RMB5,767 million in 2018, primarily due to the effect of the initial adoption of IFRS 16 Leases.

Profit Attributable to the Equity Holders of the Company

As a result of the foregoing, the net profit attributable to the equity holders of the Company increased by approximately 18.3% from approximately RMB2,698 million in 2018 to approximately RMB3,192 million in 2019, primarily due to the increase in traffic revenues in 2019.

Property, Plant and Equipment

We had approximately RMB99,437 million of property, plant and equipment as of December 31, 2019, including, among other assets, aircraft, engines and flight equipment, representing a decrease of 44.8% from approximately RMB180,104 million as of December 31, 2018. The decrease was mainly due to the effect of the initial adoption of IFRS 16 Leases.

Inflation

According to the National Bureau of Statistics of China, China’s overall national inflation rate, as represented by the general consumer price index, was approximately 2.0% in 2016, 1.6% in 2017, 2.1% in 2018, 2.9% in 2019 and 2.5% in 2020. Although neither inflation nor deflation in the past had any material adverse impact on our results of operations, we cannot assure you that the deflation or inflation of the Chinese economy in the future would not materially and adversely affect our financial condition and results of operations.

B. Liquidity and Capital Resources

We finance our working capital requirements through various financing channels, including a combination of funds generated from operations, bank loans, the issuance of corporate bonds and super short-term debentures. As a result, our liquidity could be materially and adversely affected if there is any deterioration in debt and equity capital markets, any delay in obtaining bank loans or a significant decrease in demand for our services.

As of December 31, 2018, 2019 and 2020, we had RMB646 million, RMB1,350 million and RMB7,651 million, respectively, in cash and cash equivalents; RMB55,152 million, RMB51,872 million and RMB87,917 million, respectively, in outstanding borrowings; and RMB16 million, RMB6 million and RMB12 million, respectively, in restricted bank deposits and short-term bank deposits. Our cash and cash equivalents primarily consist of cash on hand and deposits that are placed with banks and other financial institutions. We plan to use the remaining available cash for other capital expenditures, including expenditures for aircraft, engines and related equipment, as well as for working capital and other day-to-day operating purposes.

In addition, our current liabilities exceeded our current assets by approximately RMB77,310 million as of December 31, 2020. Therefore, our directors have taken active steps to seek additional sources of financing to improve our liquidity position. As of December 31, 2020, we had total unutilized credit facilities of RMB33.67 billion from various banks. See the discussion below under “– Working Capital and Liabilities”.

We believe that our current cash, cash equivalents, anticipated cash flow from operations, and the ability to obtain sufficient financing will enable us to operate, as well as to meet our anticipated cash needs for working capital and capital expenditure requirements for at least the next 12 months. However, additional cash may be required due to changing business conditions or other future developments, including any investments or acquisitions that we may decide to pursue.

Cash Flows from Operating Activities

In 2020, we generated a net cash inflow from operating activities of RMB1,211 million as a result of cash generated from operations of RMB1,480 million less income tax paid in 2020. Our cash generated from operations was mainly due to operating profit before working capital changes of RMB8,534 million and negative changes in working capital of RMB7,054 million. The operating profit before working capital changes of RMB8,534 million was a result of the loss before income tax of RMB16,488 million, mainly adjusted for: (i) depreciation of property, plant and equipment, depreciation of right-of-use assets and amortization of other non-current assets of RMB22,004 million, (ii) interest expenses of RMB5,214 million and (iii) net foreign exchange gains of RMB2,746 million. Negative changes in working capital mainly consisted of (i) contract liabilities of RMB6,686 million, (ii) other long-term liabilities of RMB2,174 million and (iii) other payables and accruals of RMB983 million, partly offset by (i) prepayments and other receivables of RMB2,893 million and (ii) trade receivables of RMB593 million.

In 2019, we generated a net cash inflow from operating activities of RMB28,972 million as a result of cash generated from operations of RMB30,137 million less income tax paid in 2019. Our cash generated from operations was mainly due to operating profit before working capital changes of RMB32,043 million and negative changes in working capital of RMB1,906 million. The operating profit before working capital changes of RMB32,043 million was a result of the profit before income tax of RMB4,299 million, mainly adjusted for: (i) depreciation of property, plant and equipment, depreciation of right-of-use assets and amortization of other non-current assets of RMB21,912 million, (ii) interest expenses of RMB5,169 million and (iii) net foreign exchange losses of RMB890 million. Negative changes in working capital mainly consisted of (i) prepayments and other receivables of RMB2,336 million and (ii) other long-term liabilities of RMB1,916 million, partly offset by (i) other payables and accruals of RMB1,459 million and (ii) contract liabilities of RMB1,281 million.

In 2018, we generated a net cash inflow from operating activities of RMB22,338 million as a result of cash generated from operations of RMB24,047 million less income tax we paid in 2018. Our cash generated from operations was mainly due to operating profit before working capital changes of RMB24,115 million and negative changes in working capital of RMB68 million. The operating profit before working capital changes of RMB24,115 million was a result of the profit before income tax of RMB3,856 million, mainly adjusted for: (i) depreciation of property, plant and equipment and amortization of other non-current assets of RMB15,084 million, (ii) interest expenses of RMB3,727 million and (iii) net foreign exchange losses of RMB1,983 million. Negative changes in working capital mainly consisted of (i) prepayments and other receivables of RMB2,056 million and (ii) other long-term liabilities of RMB525 million, partly offset by (i) contract liabilities of RMB1,051 million and (ii) trade and

bills payables of RMB856 million.

Cash Flows from Investing Activities

In 2020, our net cash outflow from investing activities was RMB6,283 million. Our net cash outflow for investing activities mainly consisted of additions to property, plant and equipment and other non-current assets of RMB7,247 million. These cash outflows were partly offset by proceeds from disposal of property, plant and equipment of RMB894 million.

In 2019, our net cash outflow from investing activities was RMB4,899 million. Our net cash outflow for investing activities mainly consisted of additions to property, plant and equipment and other non-current assets of RMB7,589 million. These cash outflows were partly offset by proceeds from novation of purchase rights of RMB2,366 million.

In 2018, our net cash outflow from investing activities was RMB12,780 million. Our net cash outflow for investing activities mainly consisted of (i) advanced payments on acquisition of aircraft of RMB15,342 million and (ii) additions of property, plant and equipment of RMB10,653 million. These cash outflows were partly offset by (i) proceeds from novation of purchase rights of RMB7,483 million and (ii) proceeds from disposal of property, plant and equipment of RMB5,493 million.

Cash Flows from Financing Activities

In 2020, our net cash inflow from financing activities was RMB11,426 million. Our net cash inflow for financing activities mainly consisted of (i) proceeds from issuance of short-term debentures of RMB77,200 million, (ii) proceeds from draw-down of short-term bank loans of RMB28,883 million, (iii) proceeds from draw-down of long-term bank loans of RMB10,823 million and (iv) proceeds from issuance of long-term debentures and bonds of RMB1,998 million. These cash outflows were partly offset by (i) repayments of short-term debentures of RMB69,200 million, (ii) repayments of principal of lease liabilities of RMB18,439 million, (iii) repayments of short-term bank loans of RMB9,130 million, (iv) repayments of long-term debentures and bonds of RMB2,453 million and (v) repayments of long-term bank loans of RMB1,948 million.

In 2019, our net cash outflow from financing activities was RMB23,375 million. Our net cash outflow for financing activities mainly consisted of (i) repayments of short-term debentures of RMB35,000 million, (ii) repayments of principal of lease liabilities of RMB23,895 million, (iii) repayments of short-term bank loans of RMB12,868 million, (iv) repayments of long-term debentures and bonds of RMB5,567 million and (v) repayments of long-term bank loans of RMB4,033 million. These cash outflows were partly offset by (i) proceeds from issuance of short-term debentures of RMB39,000 million, (ii) proceeds from issue of shares of RMB9,442 million, (iii) proceeds from issuance of long-term debentures and bonds of RMB7,755 million and (iv) proceeds from draw down of short-term bank loans of RMB6,986 million.

In 2018, our net cash outflow from financing activities was RMB13,558 million. Our net cash outflow for financing activities mainly consisted of (i) repayments of short-term bank loans of RMB36,066 million, (ii) repayments of short-term debentures of RMB26,500 million, (iii) repayments of principal of finance lease obligations of RMB9,629 million and (iv) repayments of long-term bank loans of RMB7,592 million. These cash outflows were partly offset by (i) proceeds from issuance of short-term debentures of RMB31,000 million, (ii) proceeds from draw down of short-term bank loans of RMB19,144 million, (iii) proceeds from draw down of long-term bank loans and other financing activities of RMB18,693 million and (iv) proceeds from issuance of long-term debentures and bonds of RMB2,938 million.

Working Capital and Liabilities

We have, and in the future may continue to have, substantial debts. In addition, we generally operate with a working capital deficit. As of December 31, 2020, our current liabilities exceeded our current assets by RMB77,310 million. In comparison, our current liabilities exceeded our current assets by RMB58,620 million as of December 31, 2019. Our current liabilities increased by 27.4% from RMB78,363 million as of December 31, 2019 to RMB99,808 million as of December 31, 2020, primarily due to the increase in the current portion of lease liabilities. Our current assets increased by 14.0% from RMB19,743 million as of December 31, 2019 to RMB22,498 million as of December 31, 2020, primarily due to the increase in cash and cash equivalents. Short-term loans outstanding totaled RMB25,233 million and RMB57,150 million as of December 31, 2019 and 2020, respectively. Long-term outstanding bank loans totaled RMB26,604 million and RMB30,745 million as of December 31, 2019 and 2020, respectively.

As of December 31, 2020, our debt ratio, representing total liabilities divided by total assets, was 79.2%. The interest expenses associated with these debts may impair our future profitability. We expect that cash from operations and bank borrowings will be sufficient to meet our operating cash flow requirements, although events that materially and adversely affect our operating results can also have a negative impact on liquidity.

Our consolidated interest-bearing borrowings as of December 31, 2019 and 2020 for the purpose of calculating the indebtedness were as

follows:


	As of December 31,
	2019		2020
	(*in RMB millions*)
Secured		19,335		22,897
Unsecured		32,537		65,020
Total		51,872		87,917

Our maturity profile of interest-bearing borrowings as of December 31, 2019 and 2020 was as follows:


	As of December 31,
	2019		2020
	(*in RMB millions*)
Within one year		25,235		57,153
In the second year		8,111		5,948
In the third to fifth year inclusive		14,845		17,685
After the fifth year		3,681		7,131
Total		51,872		87,917

As of December 31, 2020, our interest rates relating to short-term borrowings ranged from 1.21% to 3.30%, while our fixed interest rates on our interest-bearing borrowings for long-term bank loans ranged from 2.40% to 3.92%. Our bank loans are denominated in Renminbi, U.S. dollars , Singapore dollars and Euros. As of December 31, 2020, our total bank loans denominated in Renminbi amounted to RMB31,151 million, our total bank loans denominated in U.S. dollars amounted to US$57 million and our total bank loans denominated in EUR amounted to EUR332 million.

On March 16, 2018, we issued JPY-denominated credit enhanced bonds (Series 1 JPY10,000,000,000 0.33% Bonds due 2021, Series 2 JPY20,000,000,000 0.64% Bonds due 2021 and Series 3 JPY20,000,000,000 0.64% Bonds due 2021), which was listed on the professional oriented TOKYO PRO-BOND Market of the Tokyo Stock Exchange on March 19, 2018.

On March 5, 2019, we issued three-year medium-term bonds with a principal amount of RMB3 billion, at an issue price equal to the face value of the bonds. The bonds bear interest at the rate of 3.70% per annum, which is payable annually. The principal of the bonds will mature and become repayable on March 7, 2022.

On August 19, 2019, we issued five-year corporate bonds with a total principal amount of RMB3 billion. The bonds bear interest at the rate of 3.60% per annum, which is payable annually. The principal of the bonds will mature and become repayable on August 20, 2024.

On December 6, 2019, Eastern Air Overseas (Hong Kong) Co., Ltd. issued three-year corporate bonds with a principal amount of KRW300 billion, at an issue price equal to the face value of the bonds. The bonds bear interest at the rate of 2.40% per annum, which is payable annually. The principal of the bonds will mature and become repayable on December 6, 2022. We have unconditionally and irrevocably guaranteed the due payment and performance of the above bonds.

On April 24, 2020, we issued three-year corporate bonds with a total principal amount of RMB2 billion. The bonds bear interest at the rate of 2.39% per annum, which is payable annually. The principal of the bonds will mature and become repayable on April 28, 2023. See Note 36 to the consolidated financial statements for the issuance of bonds.

We have entered into credit facility agreements to meet our future working capital needs. However, our ability to obtain financing may be affected by: (i) our results of operations, financial condition, cash flows and credit ratings; (ii) costs of financing in line with prevailing economic conditions and the status of the global financial markets; and (iii) our ability to obtain PRC government approvals required to access domestic or international financing or to undertake any project involving significant capital investment, which may include one or more approvals from the NDRC, SAFE, MOFCOM and/or the CSRC depending on the circumstances. If we are unable to obtain financing, for whatever reason, for a significant portion of our capital requirements, our ability to acquire new aircraft and to expand our operations may be materially and adversely affected.

Capital Expenditures

As of December 31, 2020, according to the relevant agreements, we expect our capital expenditures for aircraft, engines and related equipment to be in aggregate approximately RMB37,277 million, including approximately RMB13,542 million in 2021 and approximately RMB13,692 million in 2022, in each case subject to contractually stipulated increases or any increase relating to inflation.

We plan to finance our other capital commitments through a combination of funds generated from operations, existing credit facilities, bank loans, leasing arrangements and other external financing arrangements.

C. Research and Development, Patents and Licenses, etc.

None.

D. Trend Information

Other than as disclosed elsewhere in this Annual Report, we are not aware of any trends, uncertainties, demands, commitments or events for the period from January 1, 2020 to December 31, 2020 that are reasonably likely to have a material effect on our net revenues, income, profitability, liquidity or capital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.

E. Off-balance Sheet Arrangements

We have not entered into any off-balance sheet arrangements other than our capital commitments:

(1)

We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any unconsolidated entity;

(2)

We have not entered into any obligations under any derivative contracts that are indexed to our own shares and classified as shareholder’s equity, or that are not reflected in our consolidated financial statements; and

(3)

We do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity.

F. Tabular Disclosure of Contractual Obligations

Contractual Obligations and Commercial Commitments

The following tables set forth selected information regarding our outstanding contractual and commercial commitments as of December 31, 2020:


	Total		Less Than 1 Year		1-2 Years		2-4 Years		More Than 4 Years
Long-Term Debt ⁽¹⁾		14,690		1,526		1,149		6,748		5,267
Lease Liabilities ⁽²⁾		96,251		14,073		13,141		23,664		45,373
Unconditional Purchase Obligations ⁽³⁾		37,277		13,542		13,692		10,043		—
Other Long-term Obligations ⁽⁴⁾⁽⁵⁾		1,955		—		—		—		—
Post-retirement Benefit Obligations ⁽⁴⁾		2,538		—		—		—		—
Short-term Bank Loans ⁽⁶⁾		21,966		21,966		—		—		—
Interest Obligations
Under Lease Liabilities		14,761		3,370		2,868		4,350		4,173
Under Bank Loans		2,408		854		350		491		713
Fixed Rate		737		551		103		83		—
Variable Rate ⁽⁷⁾		1,671		303		247		408		713

Notes:

(1)	Excludes interest.

(2)	Primarily comprise amounts to be paid under leases for the aircraft and engines.

(3)	Primarily comprise capital expenditures.

(4)	Figures of payments due by period are not available.

(5)	Other long-term obligations mainly include long-term duties and levies payable, and other long-term payables.

(6)	Short-term bank loans are generally repayable within one year. As of December 31, 2020, the weighted average interest rate of our short-term bank loans was 2.17% per annum (2019: 3.30%).

(7)

For our variable rate loans, interest rates range from three months Euribor + 0.50% to five years LPR – 0.44%. Interest obligations relating to variable rate loans are calculated based on the relevant variable rates as of December 31, 2020. A 25 basis points increase in the interest rate would increase interest expenses by RMB126 million.


	Total		Amount of Commitment Expiration Per Period
Other Commercial	Amounts		Less Than						After
Commitments/Credit Facilities	Committed		1 Year		1-3 Years		4-5 Years		5 Years
					(RMB in millions)
Lines of Credit		33,667		5,700		2,103		5,500		20,364
Standby Letters of Credit		—		—		—		—		—
Guarantees		—		—		—		—		—
Total		33,667		5,700		2,103		5,500		20,364

Taxation

We had carried forward tax losses of approximately RMB15,310 million as of December 31, 2020, which can be mainly used to set off against future taxable income between 2021 and 2028.

Pursuant to the “Notice on the continuation of the Income Tax Policies for Enhancing the Implementation of Western Region Development Strategy.” (Ministry of Finance Announcement [2020] No.23), and other series of tax regulations, enterprises located in the western regions and engaged in the industrial activities as listed in the “Catalogue of Encouraged Industries in Western Regions”, will be entitled to a reduced corporate income tax rate of 15% from 2021 to 2030 upon approval from the tax authorities. China Eastern Airlines Yunnan Co., Ltd. (“CEA Yunnan”), a subsidiary of the Company, obtained approval from the tax authorities and has been entitled to a reduced corporate income tax rate of 15% from January 1, 2011. The Company’s Sichuan branch, Gansu branch and Xibei branch also obtained approvals from the respective tax authorities and are entitled to a reduced corporate income tax rate of 15%. The subsidiaries incorporated in Hong Kong are subject to Hong Kong profits tax rate of 16.5% (2019: 16.5%). Eastern E-Commerce, a subsidiary of the Company, qualified for High and New Technology Enterprise (HNTE) status with HNTE certificate No.GR201831003647 issued by the relative authorities, has been entitled to a reduced corporate income tax rate of 15% from January 1, 2018 as approved by the tax authorities.

The Company and its subsidiaries, except for CEA Yunnan, Eastern E-Commerce, Sichuan branch, Gansu branch, Xibei branch and those incorporated in Hong Kong, are generally subject to the PRC standard corporate income tax rate of 25% (2019: 25%).

New Pronouncements

For a detailed discussion of new accounting pronouncements, please see Note 2.3 to the consolidated financial statements.

G. Safe Harbor

See the section headed “Cautionary Statement With Respect To Forward-Looking Statements”.

Item 6. Directors, Senior Management and Employees

A. Directors and Senior Management

The following table sets forth certain information concerning our current directors, supervisors and senior management members. Except as disclosed below, none of our directors, supervisors or members of our senior management was selected or chosen as a result of any arrangement or understanding with any major shareholders, customers, suppliers or others. There is no family relationship between any director, supervisor or senior management member and any other director, supervisor or senior management member of our Company.


Name	Age	Shares Owned	Position
Liu Shaoyong	62	—	Chairman of the Board of Directors
Li Yangmin	57	3,960 A Shares⁽¹⁾	Vice Chairman of the Board of Directors and President
Tang Bing	54	—	Director
Shao Ruiqing	63	—	Independent Non-executive Director
Cai Hongping	66	—	Independent Non-executive Director
Dong Xuebo	67	—	Independent Non-executive Director
Jiang Jiang	56	—	Employee Representative Director
Guo Lijun	49	—	Chairman of the Supervisory Committee
Fang Zhaoya	52	—	Supervisor
Zhou Huaxin	50	—	Employee Representative Supervisor
Xi Sheng	58	—	Vice President
Zhou Qimin	53	—	Vice President and Chief Financial Officer
Feng Dehua	55	—	Vice President
Cheng Guowei	51	—	Vice President
Liu Tiexiang	55	—	Vice President
Wang Jian	47	—	Board Secretary and Company Secretary

Notes:

(1)	Mr. Li Yangmin directly held 3,960 A Shares in the capacity of beneficial owner.

Directors

Mr. Liu Shaoyong, is currently the chairman and party secretary of the Company and chairman and party secretary of CEA Holding. Born in November 1958, Mr. Liu joined the civil aviation industry in 1978 and was appointed as vice president of China General Aviation Corporation, deputy director of Shanxi Provincial Civil Aviation Administration of the PRC, general manager of the Shanxi Branch of the Company, and director general of flight standard department of CAAC. Mr. Liu served as president of the Company from December 2000 to October 2002, vice minister of CAAC from October 2002 to August 2004, president of China Southern Air Holding Company from August 2004 to December 2008, and chairman of China Southern Airlines Co., Limited from November 2004 to December 2008. Mr. Liu served as president and vice party secretary of CEA Holding from December 2008 to December 2016, and became the chairman of the Company since February 2009. He has served as the chairman and party secretary of CEA Holding since December 2016 and the party secretary of the Company since December 2017. Mr. Liu is also currently a member of the 13th National Committee of the Chinese People’s Political Consultative Conference, a council member of the International Air Transport Association, and the vice chairman of the International Advisory Board of School of Management, Fudan University. Mr. Liu graduated from the China Civil Aviation Flight College and obtained a Master of Business Administration degree from Tsinghua University. He holds the title of commanding (senior) pilot.

Mr. Li Yangmin, is currently the vice chairman, president and vice party secretary of the Company, and a director, the president and vice party secretary of CEA Holding. Born in August 1963, Mr. Li joined the civil aviation industry in 1985. He was previously the deputy general manager of the aircraft maintenance base and the manager of air route department of China Northwest Airlines, general manager of the aircraft maintenance base of China Eastern Air Northwest Branch Company and vice president of China Eastern Air Northwest Branch Company. From October 2005 to March 2019, he has also been a vice president of the Company. He served as a safety director of the Company from July 2010 to November 2012. He became a party member of CEA Holding in May 2011. He was a Director of the Company from June 2011 to August 2018 and served as a party secretary of the Company from June 2011 to December 2017. He served as a vice party secretary of CEA Holding since August 2016 and the vice president of CEA Holding from August 2016 to February 2019. Since December 2017, he served as the vice party secretary of the Company. He has served as a director and the president of CEA Holding since February 2019 and the president of the Company since March 2019. He has served as the vice chairman of the Company since May 2019 and vice president of China Association for Public Companies since August 2019. Since November 2019, he has served as a director of Juneyao Airlines. Mr. Li graduated from the Civil Aviation University of China and Northwestern Polytechnical University and obtained an Executive Master of Business Administration degree from Fudan University. He is also a qualified professor-level senior engineer.

Mr. Tang Bing, is currently a Director and vice party secretary of the Company, and a director and vice party secretary of CEA Holding. Born in February 1967, Mr. Tang joined the civil aviation industry in 1993. He served as vice executive president (general manager representing Chinese shareholder) of MTU Maintenance Zhuhai Co., Limited, office director of China Southern Airlines Holding Company and president of Chongqing Airlines Company Limited. From December 2007 to May 2009, he served as chief engineer and general manager of the aircraft engineering department of China Southern Airlines Company Limited. From May 2009 to February 2010, he was appointed as the president of the Beijing Branch of the Company and was the president of Shanghai Airlines Co., Ltd. from February 2010 to December 2011. He served as the chairman and an executive director of Shanghai Airlines Co., Ltd. from January 2012 to January 2018 and a vice president of the Company from February 2010 to March 2019. He was appointed as a party member of CEA Holding in May 2011. He served as a Director of the Company from June 2012 to August 2018, and a vice president of CEA Holding from December 2016 to February 2019. Since February 2019, he served as a director and vice party secretary of CEA Holding, and has served as a vice party secretary of the Company since March 2019, and as a Director of the Company since May 2019. Mr. Tang graduated from Nanjing University of Aeronautics and Astronautics majoring in electrical technology. He obtained a Master of Business Administration degree from the Administration Institute of Sun Yat-sen University, an Executive Master of Business Administration degree from the School of Economics and Management of Tsinghua University and a doctoral degree in national economics from the Graduate School of Chinese Academy of Social Sciences. He is also a qualified senior engineer.

Mr. Shao Ruiqing, is currently an independent non-executive Director. Born in September 1957, Mr. Shao currently serves as a professor in accounting and PhD supervisor at Shanghai Lixin University of Commerce. Mr. Shao served as the deputy dean and dean of the School of Economics and Management of Shanghai Maritime University, and the deputy dean of Shanghai Lixin University of Commerce. Mr. Shao was awarded the special allowance by the State Council of the PRC in 1995. He is currently a consultant professional of the Committee for Accounting Standards of the Ministry of Finance, the deputy head of the Accounting Society of China, a consultative committee member of the Ministry of Transport as an expert in finance and accounting, and the deputy head of China Association of Communications Accountancy. Mr. Shao successively graduated from Shanghai Maritime University, Shanghai University of Finance and Economics and Tongji University with a bachelor’s degree in economics, and master’s and doctoral degrees in management. Mr. Shao has spent two and a half years studying and being a senior visiting scholar in the U.K. and Australia. Mr. Shao has served as an independent non-executive Director since June 2015. Mr. Shao is also an independent non-executive director of China Everbright Bank Co., Ltd. and Shanghai International Port (Group) Co., Ltd., Huayu Automotive Systems Company Limited and Tibet Urban Development and Investment Co., Ltd.

Mr. Cai Hongping, is currently an independent non-executive Director. Born in December 1954, Mr. Cai currently serves as the chairman of AGIC Capital. He is a resident of Hong Kong. He worked for Sinopec Shanghai Petrochemical Company Limited (“Sinopec Shanghai”) from 1987 to 1993. He participated in the listing of Sinopec Shanghai in Hong Kong and the United States (the first company of the PRC to be listed in the stock exchanges of Hong Kong and the United States) and is one of the founders of H shares in the PRC. From 1992 to 1996, he acted as a member of the Overseas Listing Team for Chinese Enterprises under the Restructuring Committee of the State Council and the chairman of the Joint Committee of Board Secretaries for H Share Companies in the PRC. He served as a joint director of the investment banking division of Peregrine Investments Holdings Limited in Asia from 1996 to 2006, chairman of the investment banking division of UBS AG in Asia from 2006 to 2010, chairman of Deutsche Bank in the Asia Pacific region from 2010 to 2015 and chairman of AGIC Capital since February 2015. Since June 2016, Mr. Cai has served as an independent non-executive Director. Mr. Cai is also an independent non-executive director of COSCO SHIPPING Development Co., Ltd., an independent director of Shanghai Pudong Development Bank Co., Ltd and BYD Company Limited and an external director of China National Machinery Industry Corporation. Mr. Cai graduated from Fudan University, majoring in mass communications.

Mr. Dong Xuebo, is currently an independent non-executive Director. Born in February 1954, Mr. Dong served as the deputy mayor of Luoyang City, Henan Province, deputy director of the comprehensive planning department and director of the comprehensive programming department of the Ministry of Transport, assistant to the president of China Merchants Group, general manager of Huajian Transportation Economic Development Center, assistant to the president of China Merchants Group, executive vice chairman, director, CEO and party secretary of China Merchants Highway, and general counsel of China Merchants Group. Since December 2019, he has served as an independent non-executive Director. Currently, Mr. Dong is also an external director of China National Machinery Industry Corporation. Mr. Dong obtained a postgraduate degree.

Mr. Jiang Jiang, is currently an employee representative Director, safety director, chairman of the labor union of the Company, and an employee representative director and chairman of the labor union of CEA Holding. Mr. Jiang joined the civil aviation industry in 1986, and has successively worked in the Civil Aviation Industry Airline Corporation and China General Aviation Corporation. From June 1999 to April 2005, he served as the deputy manager and manager of the flight division of the Shanxi Branch of the Company. From April 2005 to July 2010, he was the deputy general manager of the Shanxi Branch. From July 2010 to June 2014, he served as the general manager and the deputy secretary of the party committee of the Shanxi Branch. From June 2014 to December 2016, he served as the general manager and deputy secretary of the party committee of China Eastern Airlines Wuhan Limited. From December 2016 to February 2017, he has served as the person-in-charge of the safety operation management of the Company. From February 2017 to January 2021, he has served as a vice president and standing member of party committee of the Company. Since July 2020, he has served as the safety director of the Company. Since November 2020, he has served as the chairman of the labor unior of the Company and CEA Holding. Since December 2020, he served as an employee representative director of the Company and CEA Holding. Mr. Jiang graduated from the Flight College of Civil Aviation Flight University of China, majoring in aviation transportation and obtained an Executive Master of Business Administration degree from Fudan University. He has the professional title of senior pilot.

Supervisory Committee

As required by the PRC Company Law and our Articles of Association, our Company has a supervisory committee (the “Supervisory Committee”), whose primary duty is the supervision of our senior management, including our Board of Directors, managers and senior officers. Supervisory Committee consists of three supervisors.

Mr. Guo Lijun, is currently the chairman of the supervisory committee and chief economist of the Company. Mr. Guo joined the civil aviation industry in 1994. Mr. Guo had taken up the position as the officer of the secretariat of the Board. He served as the general manager of the legal department of the Company and the deputy director of the legal department of CEA Holding from April 2009 to August 2014; he served as the general counsel legal adviser of the Company from December 2011 to December 2017; he served as the service director of the Company from July 2013 to June 2014; served as the general manager of the planning and development department of the Company from June 2014 to September 2016; and served as the general manager of the Beijing Branch of the Company from September 2016 to April 2018. Mr. Guo has served as the chief economist of the Company since December 2017. From April 2018 to April 2020, he temporarily served as a member of the Standing Committee of the Wuhu Municipal Committee and Deputy Mayor of Wuhu Municipal Government, Anhui Province. He has served as the chairman of the supervisory committee of the Company since March 2021. Mr. Guo graduated from the Zhongnan University of Economics and Law, majoring in law. He obtained a master’s degree in law from the University of Washington in the United States, a master’s degree in law from Fudan University and an Executive Master of Business Administration degree from Fudan University. Mr. Guo has the title of corporate legal adviser.

Mr. Fang Zhaoya, is currently a supervisor of the Company and the head of the strategic development department of CEA Holding. Mr. Fang joined the civil aviation industry in July 1989. He served as the director of the time control office of the production planning department and the director of the A310/300 workshop of the route department of the maintenance base of China Northwest Airlines Co., Ltd., and the deputy director of the technical maintenance control center (TMCC) for production of the route department and the deputy head of the quality control department of the maintenance base of the Northwest Branch of the Company. He served as the manager of the production planning center of the maintenance management department of China Eastern Air Engineering & Technique Co., Ltd. from September 2006 to August 2009, the manager of the business development department of China Eastern Air Engineering & Technique Co., Ltd. from August 2009 to July 2010, the manager of the aircraft selection and lease and sales management department of China Eastern Air Engineering & Technique Co., Ltd. from August 2010 to May 2015, the deputy general manager of China Eastern Air Engineering & Technique Co., Ltd. from May 2015 to June 2017, and the general manager of the planning department of the Company from June 2017 to April 2019. He has been the head of the strategic development department of CEA Holding since April 2019 and a supervisor of the Company since December 2019. Mr. Fang graduated from the Department of Aviation Machinery of China Civil Aviation Institute majored in thermal power machinery and equipment. He obtained a master’s degree from the Northwestern Polytechnical University majored in aviation engineering, and holds the title of senior engineer.

Mr. Zhou Huaxin, is currently the employee representative supervisor of the Company and the head of group work department of the Company and CEA Holding. Mr. Zhou joined the civil aviation industry in 1993 and served as the deputy director of general office and director of research office of CEA Holding and office director of the Company. He served as the director of general office and director of foreign affairs office (Hong Kong, Macao and Taiwan affairs office) of CEA Holding from June 2014 to August 2017; the party secretary and vice president of the Anhui Branch of the Company from August 2017 to April 2018; and the executive vice president and party member of the Beijing Branch of the Company from April 2018 to September 2020. He has served as the head of group work department of the Company and CEA Holding since September 2020, and the employee representative supervisor of the Company since December 2020. Mr. Zhou graduated from Lanzhou University majoring in Marxism, and obtained a master’s degree in economics from the Renmin University of China majoring in national economic planning and management and an Executive Master of Business Administration degree from the School of Management of Fudan University. He holds a political work specialist title.

Senior Management

Mr. Xi Sheng, is currently a vice president and party member of the Company and a vice president, party member and the chief auditor of CEA Holding. Mr. Xi served as the deputy head of the foreign affairs department II of the foreign funds utilization and application audit department and the head of the liaison and reception office of the foreign affairs department of the National Audit Office of the PRC and the deputy head of the PRC Audit Institute. He was also the deputy head and head of the fixed assets investment audit department of the National Audit Office of the PRC, and the party secretary and a special commissioner of the Harbin office of the National Audit Office of the PRC. He served as the head of the personnel and education department of the National Audit Office of the PRC. He was the head of the audit department of CEA Holding from September 2009 to November 2012. Mr. Xi has served as the chief auditor of CEA Holding since September 2009. From June 2012 to January 2021, he was a Supervisor of the Company. From June 2016 to January 2021, he was the chairman of the Supervisory Committee of the Company. He served as the head of the audit department of CEA Holding from December 2017 to November 2018, and has served as a vice president and party member of CEA Holding since January 2018. From November 2018 to May 2020, he served as the director of audit department of the Company and CEA Holding. Since January 2021, he has served as a vice president and party member of the Company. Mr. Xi is also the vice chairman of China Institute of Internal Audit. Mr. Xi graduated from Jiangxi University of Finance and Economics with undergraduate education background. He is a senior auditor, a Chinese Certified Public Accountant (CPA) and an International Certified Internal Auditor (CIA).

Mr. Zhou Qimin, is currently a vice president, the chief financial officer and a party member of the Company and the chief accountant and a party member of CEA Holding. Mr. Zhou served as deputy head of the Finance Department of the eighth research institute of Shanghai Aerospace Bureau of China Aerospace Corporation, and head of the Finance Department, chief accountant and a member of party committee of the eighth research institute of China Aerospace Science and Technology Corporation. He served as the head of financial department of Commercial Aircraft Corporation of China, Ltd. from April 2008 to October 2016, the deputy chief accountant of Commercial Aircraft Corporation of China, Ltd. from August 2014 to January 2018, the chief accountant of Commercial Aircraft Corporation of China, Ltd. from January 2018 to July 2020, a member of party committee of Commercial Aircraft Corporation of China, Ltd. from January 2018 to July 2018 and standing member of party committee of Commercial Aircraft Corporation of China, Ltd. from July 2018 to July 2020. He has served as the chief accountant and a party member of CEA Holding since July 2020, the chief financial officer of the Company since August 2020, and a vice president and party member of the Company since January 2021. Mr. Zhou graduated from the Faculty of Mathematics of Gannan Normal University, majoring in mathematics. He also graduated from the Faculty of Management Engineering of University of Electronic Science and Technology of China, majoring in industrial management engineering, holds an undergraduate degree and is a researcher-level senior accountant.

Mr. Feng Dehua, is currently a vice president and party member of the Company and a vice president and party member of CEA Holding. Mr. Feng joined the civil aviation industry in 1989 and successively worked in China General Aviation Corporation, the Shanxi Branch of the Company and the sales and marketing system of the Company. From May 2009 to August 2009, Mr. Feng was the executive vice president for sales and marketing of passenger transportation department of the Company. From August 2009 to November 2011, he was the party secretary and vice president for sales and marketing of passenger transportation department of the Company. From November 2011 to August 2014, he was the president and vice party secretary of the Beijing Branch of the Company. From August 2014 to December 2017, he was the secretary of the disciplinary committee of the Company. He has served as a party member of the Company since August 2014. From September 2014 to February 2019, he has been the deputy head of party disciplinary inspection group of CEA Holding. Since December 2017, he has been a vice president of the Company. Since December 2019, he has been a party member and vice president of CEA Holding. Mr. Feng graduated from Shanxi Finance and Economics Institute majoring in commercial business management, and obtained an Executive Master of Business Administration degree from Fudan University. He is qualified as a professor-level senior economist.

Mr. Cheng Guowei, is currently a vice president and party member of the Company and a vice president, party member and the safety director of CEA Holding. Mr. Cheng joined the civil aviation industry in 1994 and served as the deputy chief engineer, chief engineer, director of flight maintenance and general manager of the flight maintenance engineering department of Shanghai Airlines Co., Limited from April 2005 to March 2010, the vice president of Shanghai Airlines Co., Limited from March 2010 to November 2010, the vice president and safety director of Shanghai Airlines Co., Limited from November 2010 to August 2011, the vice president, safety director and secretary of the disciplinary committee of Shanghai Airlines Co., Limited from August 2011 to July 2013, and the party secretary and vice president of Shanghai Airlines Co., Limited from July 2013 to September 2016. He served as the party secretary and vice president of the Northwest Branch of the Company from September 2016 to August 2017, and the president and vice party secretary of the Northwest Branch of the Company from August 2017 to November 2018. He served as the general manager and vice party secretary of China Eastern Airlines Technology Co., Ltd. from November 2018 to December 2019. He has served as a vice president and party member of CEA Holding since December 2019. He has served as a vice president and party member of the Company since January 2020. He served as the Safety Director of the Company from February 2020 to July 2020, and has served as the safety director of CEA Holding since February 2020. Mr. Cheng graduated from Nanjing University of Aeronautics and Astronautics majoring in aerodynamics and obtained a Master of Business Administration degree jointly offered by Beijing University of Technology and American City University. He holds the title of senior engineer.

Mr. Liu Tiexiang, is currently a vice president and party member of the Company and a vice president and party member of CEA Holding. Mr. Liu joined the civil aviation industry in 1983, and served as the manager of the flight training center of training department, the deputy general manager of the aviation safety technology department and the deputy general manager of the flight technology management department of Air China, and the general manager of the flight technology management department, deputy chief and party member of the general fleet and chief and vice party secretary of the general fleet of Air China. From April 2011 to August 2014, he served as the chief pilot of Air China. From March 2012 to January 2013, he also served as the general manager, party member and deputy secretary of the operation control center of Air China, and the deputy chief operating officer of Air China. From January 2013 to August 2014, he also served as the general manager and vice party secretary of the Southwest Branch of Air China. From August 2014 to March 2020, he served as the vice president and party member of Air China. From April 2015 to March 2020, he also served as the chief operating officer of Air China. From May 2016 to March 2020, he also served as the chairman of Beijing Airlines Co., Ltd. Since March 2020, he has served as a vice president and party member of CEA Holding. Since April 2020, he has served as a vice president and party member of the Company. Mr. Liu graduated from the Correspondence Institute of the Party School of the CPC Central Committee majoring in economics and management, and holds the title of commanding senior pilot.

Mr. Wang Jian, is currently the Board secretary of the Company. Mr. Wang joined the civil aviation industry in 1995 and served as deputy head of the Company’s office, the deputy general manager of the Shanghai Business Office of the Company, and the deputy general manager of the Shanghai Business Office of China Southern Airlines Company Limited. He served as the head of the Board office of the Company and a representative of the Company’s securities affairs from May 2009 to April 2012. He has served as the Board secretary of the Company since April 2012. He also served as the head of the Board office of the Company from April 2014 to May 2016. He served as a director and the general manager of Eastern Airlines Industry Investment from November 2016 to February 2019. He has also served as the head of the Board office of the Company since May 2018. He has served as the chairman of Eastern Airlines Industry Investment since February 2019, and also served as a director of AFK since July 2019. During his term as secretary to the Board and his relevant work, he designed and promoted to implement several capital and strategic projects of CEA. Mr. Wang graduated from Shanghai Jiao Tong University and has a Master of Business Administration postgraduate degree from East China University of Science and Technology and an Executive Master of Business Administration degree from Tsinghua University.

Retired Director, Supervisor and Senior Management during the Reporting Period

Mr. Wang Junjin, served as a Director of the Company during the Reporting Period. He is currently the chairman of Shanghai Juneyao (Group) Co., Ltd., the chairman of Juneyao Airlines Co., Ltd., the chairman of Shanghai Aijian Group Co., Ltd., the chairman of Jiangsu Wuxi Commercial Building Group Co., Ltd., the chairman of Shanghai World Foreign Language Primary and Middle Schools, a vice president of China Glory Society, a vice chairman (vice president) of Shanghai Federation of Industry and Commerce (General Chamber of Commerce), and the president of Shanghai Zhejiang Chamber of Commerce. Mr. Wang served as a manager, deputy general manager and general manager of Wenzhou Tianlong Chartered Aircraft Industry Co., Ltd., the general manager of Juneyao Group Aviation Services Co., Ltd., a vice president, vice chairman and president of Shanghai Juneyao (Group) Co., Ltd., a member of the 11th and 13th National Committee of the CPPCC and a representative of the 12th National People’s Congress. In October 2018, Mr. Wang was selected into the List of 100 Outstanding Private Entrepreneurs in the 40 Years of Reform and Opening Up by the United Front Work Department of the Central Government and the All-China Federation of Industry and Commerce. From December 2019 to December 2020, he served as Director of the Company. Mr. Wang has a postgraduate degree and obtained a Master of Business Administration degree.

Mr. Lin Wanli, served as an independent Director of the Company during the Reporting Period. Mr. Lin is currently an external director of Central Enterprise. Mr. Lin served as a vice party secretary and secretary of the disciplinary committee of the Tunnel Bureau of Ministry of Railways from December 1995 to March 2001, the vice chairman and party secretary of China Railway Tunnel Group Co., Ltd. from April 2001 to December 2006, and a vice party secretary, secretary of the disciplinary committee and chairman of the labour union of China Northern Locomotive and Rolling Stock Industry (Group) Corporation from January 2007 to August 2013. He served as the president and party secretary of China Railway Materials Commercial Corporation and the chairman and party secretary of China Railway Materials Co., Ltd. from August 2013 to June 2015, a director and party secretary of China National Aviation Fuel Group Corporation from July 2015 to November 2016, and the chairman of China Aviation Oil (Singapore) Corporation Ltd. from August 2015 to February 2017. Since November 2016, he has served as an external director of Central Enterprise. Since February 2017, he has served as an external director of China National Agricultural Development Group Co., Ltd. Since January 2018, he has served as a non-executive director of China Construction Science & Technology Group Co., Ltd. From August 2018 to December 2020, he served as an independent Director of the Company. Mr. Lin graduated from the Economics Faculty of Shandong University and obtained an Executive Master of Business Administration degree from Tsinghua University. He is a researcher-level senior political work specialist and senior economist.

Mr. Yuan Jun, served as an employee representative Director and chairman of the labour union of the Company and an employee representative director and chairman of the labour union of CEA Holding during the Reporting Period. Mr. Yuan joined the civil aviation industry in 1997. From May 2007 to October 2011, Mr. Yuan was the deputy head and head of Work Department of Party Committee of the Company. From October 2011 to May 2016, he was the general manager of Human Resources Department of the Company. From July 2014 to March 2018, he served as the chief human resources officer of the Company. From June 2015 to September 2016, he concurrently served as the general manager of Ground Services Department and the vice party secretary of the Company. From September 2016 to October 2018, he served as the head of Human Resources Department of CEA Holding. He served as an employee representative director of CEA Holding from December 2017 to December 2020, an employee representative Director of the Company from February 2018 to December 2020, the chairman of the labour union of the Company from April 2018 to May 2020 and the chairman of the labour union of CEA Holding from May 2018 to May 2020. Mr. Yuan holds an Executive Master of Business Administration degree from Fudan University and a senior political work specialist title.

Mr. Gao Feng, served as an employee representative Supervisor of the Company during the Reporting Period. Mr. Gao joined the civil aviation industry in 1984 and worked in China General Aviation Corporation. He served as a vice party secretary, secretary of the disciplinary committee and chairman of the labour union of the Shanxi Branch of the Company. He served as the party secretary of the Shanxi Branch of the Company from July 2009 to January 2014 and the party secretary, vice president and executive vice president of China United Airlines Co., Ltd. from January 2014 to October 2015. He served as the executive vice chairman of the labour union of the Company from October 2015 to November 2019, the director of the labour union office of the Company from June 2016 to November 2018, an employee representative Supervisor of the Company from August 2018 to December 2020 and the vice chairman of the labor union of CEA Holding from November 2018 to November 2019. He has been a member of party committee and deputy chief commander of the construction and operation command department of CEA Holding (CEA Corporation) in Beijing Daxing International Airport since November 2019. Mr. Gao graduated from the Central Party School of the Communist Party of China majoring in economic management, and obtained an Executive Master of Business Administration degree from Fudan University. He obtained a senior political work specialist title.

Mr. Wu Yongliang, served as a vice president, the chief financial officer and a party member of the Company and a vice president, the chief accountant and a party member of CEA Holding during the Reporting Period. Mr. Wu joined the civil aviation industry in 1984 and served as deputy head and subsequently head of the Finance Department of the Company, head of Planning and Finance Department of the Company and head of the Finance Department of CEA Holding. From April 2001 to March 2009, he served as deputy chief accountant and head of the Finance Department of CEA Holding. From March 2009 to August 2020, he served as the chief financial officer of the Company. He served as a vice president and party member of the Company from December 2011 to August 2020, a vice president and party member of CEA Holding from November 2017 to July 2020, and the chief accountant of CEA Holding from June 2018 to July 2020. Mr. Wu graduated from the Faculty of Economic Management of Civil Aviation University of China, majoring in planning and finance. He also graduated from Fudan University, majoring in business administration. Mr. Wu holds an MBA degree and is a certified accountant.

B. Compensation

The aggregate amount of cash compensation paid by us to our directors, supervisors and the senior management during 2020 for services performed as directors, supervisors and officers or employees of our Company was approximately RMB4.9 million. In addition, directors and supervisors who are also officers or employees of our Company receive certain other in-kind benefits which are provided to all of our employees.

Details of the emoluments paid to our directors, supervisors and senior management for the year 2020 are as follows:


	Total
Name and Principal Position	RMB’000
Directors
Liu Shaoyong*		—
Li Yangmin*		—
Tang Bing*		—
Independent Non-executive Directors
Shao Ruiqing		200
Cai Hongping		200
Dong Xuebo		60
Employee Representative Director
Jiang Jiang		2,361.1
Supervisors
Guo Lijun		—
Fang Zhaoya*		—
Zhou Huaxin		46.6
Senior Management
Xi Sheng*		—
Zhou Qimin*		—
Feng Dehua*		—
Cheng Guowei*		—
Liu Tiexiang*		—
Wang Jian		1,465.9
Retired Director, Supervisor and Senior Management
Wang Junjin*		—
Lin Wanli		—
Yuan Jun*		—
Gao Feng		559.5
Wu Yongliang*		—
Total		4,893.1

These directors and supervisors of our Company received emoluments from CEA Holding, our parent company, part of which were in respect of their services to our Company and our subsidiaries. No apportionment has been made, as it is impracticable to apportion this amount between their services to us and their services to CEA Holding.

During the year ended December 31, 2020, no directors or supervisors of the Company waived their compensation.

C. Board Practices

All of our directors and supervisors serve a term of three years or until such later date as their successors are elected or appointed. Directors and supervisors may serve consecutive terms. One of the supervisors is employee representative supervisor appointed by our employees, and the rest are appointed by the shareholders. The following table sets forth the terms and the expiration of the terms of the directors, executive officers and supervisors of the Company who have held their positions during the period from January 1, 2020 to April 28, 2021.


Name	Position	Held Position Since	Expiration of Term
Liu Shaoyong	Chairman of the Board of Directors	December 31, 2019	December 31, 2022
Li Yangmin	Vice Chairman President	December 31, 2019 December 31, 2019	December 31, 2022 December 31, 2022
Tang Bing	Director	December 31, 2019	December 31, 2022
Shao Ruiqing	Independent Non-executive Director	December 31, 2019	December 31, 2022
Cai Hongping	Independent Non-executive Director	December 31, 2019	December 31, 2022
Dong Xuebo	Independent Non-executive Director	December 31, 2019	December 31, 2022
Jiang Jiang	Employee Representative Director	December 28, 2020	December 31, 2022
	Vice President	December 31, 2019	January 18, 2021
Guo Lijun	Chairman of the Supervisory Committee	March 29, 2021	December 31, 2022
Fang Zhaoya	Supervisor	December 31, 2019	December 31, 2022
Zhou Huaxin	Employee Representative Supervisor	December 10, 2020	December 31, 2022
Xi Sheng	Chairman of the Supervisory Committee	December 31, 2019	January 18, 2021
	Vice President	January 18, 2021	December 31, 2022
Zhou Qimin	Chief Financial Officer	August 28, 2020	December 31, 2022
	Vice President	January 18, 2021	December 31, 2022
Feng Dehua	Vice President	December 31, 2019	December 31, 2022
Cheng Guowei	Vice President	January 15, 2020	December 31, 2022
Liu Tiexiang	Vice President	April 29, 2020	December 31, 2022
Wang Jian	Board Secretary	December 31, 2019	December 31, 2022

None of our directors, supervisors or members of our senior management has entered into any agreement or reached any understanding with us requiring our Company to pay any benefits as a result of termination of their services.

Audit and Risk Management Committee

Our Board of Directors established the audit committee in August 2000 in accordance with the listing rules of the HKEX. Currently, the Audit and Risk Management Committee comprised three members, namely Mr. Shao Ruiqing, as chairman of the committee, Mr. Cai Hongping and Mr. Dong Xuebo, all of which are independent non-executive directors, and satisfy the requirements of Rule 10A-3 of the Exchange Act and NYSE Rule 303A.06 relating to audit committees, including the requirements relating to independence of the audit committee members.

The Audit and Risk Management Committee is authorized to, among other things, examine our internal control, internal audit and risk management systems, review auditing procedures and financial reports with our auditors, evaluate the overall risk management and corporate governance of our Company and prepare relevant recommendations to our Board of Directors. Subject to the approval of the shareholders’ meeting, the Audit and Risk Management Committee of our Company is also directly responsible for the appointment, compensation, retention and oversight of our external auditors, including resolving disagreements between management and the auditor regarding financial reporting. The external auditors report directly to the Audit and Risk Management Committee. The Audit and Risk Management Committee holds at least three meetings each year. The Audit and Risk Management Committee has established procedures for the receipt, retention and treatment of complaints received by our Company regarding accounting, internal controls or auditing matters, and procedures for the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters. The Audit and Risk Management Committee has the authority to engage independent counsel and other advisors, as it determines necessary, to carry out its duties. Our Company provides appropriate funding, as determined by the Audit and Risk Management Committee, for payment of compensation to the external auditors, advisors employed by the audit committee, if any, and ordinary administrative expenses of the audit committee that are necessary or appropriate in carrying out its duties. The Audit and Risk Management Committee held 10 meetings in 2020.

Nominations and Remuneration Committee

Currently, the Nominations and Remuneration Committee comprised three members, namely Mr. Liu Shaoyong, the Chairman, Mr. Cai Hongping and Mr. Dong Xuebo. Mr. Cai Hongping and Mr. Dong Xuebo are independent non-executive director. When considering and approving nomination related matters, the Nominations and Remuneration Committee will be chaired by Mr. Liu Shaoyong; when considering and approving remuneration related matters, the Nominations and Remuneration Committee will be chaired by Mr. Cai Hongping.

The Nominations and Remuneration Committee is authorized to make recommendations to our Board of Directors regarding its size and composition based on the relevant provisions of the PRC Company Law and in the light of specific circumstances such as the characteristics of the Company’s equity structure, determine standards and procedures for the nomination of directors and senior management of the Company, examine the remuneration policies of directors and senior management of the Company, review the performance of our directors and senior management as well as determine their annual compensation level. The Nominations and Remuneration Committee submits to our Board of Directors or shareholders’ meeting for approval compensation plans and oversee the implementation of approved compensation plans. The Nominations and Remuneration Committee may consult financial, legal or other outside professional firms in carrying out its duties. The Nominations and Remuneration Committee held 4 meetings in 2020.

We follow our home country practice in relation to the composition of our Nominations and Remuneration Committee in reliance on the exemption provided under NYSE Corporate Governance Rule 303A.00 available to foreign private issuers. Our home country practice does not require us to establish a remuneration committee composed entirely of independent directors.

Planning and Development Committee

Currently, the Planning and Development Committee comprised three members, namely Mr. Tang Bing, a director, Mr. Dong Xuebo and Mr. Cai Hongping, both of them are independent non-executive director. Mr. Tang Bing was appointed as the chairman of the Planning and Development Committee.

The Planning and Development Committee, a specialized committee under our Board of Directors, is responsible for studying, considering, and developing plans and making recommendations with regard to the long-term development plans and material investment decisions of the Company. The members of the committee also oversee the implementation of such plans. The Planning and Development Committee held 6 meetings in 2020.

Aviation Safety and Environment Committee

Currently, the Aviation Safety and Environment Committee comprised three members, namely Mr. Li Yangmin, a director, Mr. Shao Ruiqing, an independent non-executive director and Mr. Jiang Jiang, an employee representative director. Mr. Li Yangmin was appointed as the chairman of the committee.

The Aviation Safety and Environment Committee, a specialized committee under the Board of Directors, is responsible for consistent implementation of relevant laws or regulations regarding national aviation safety and environmental protection, examining and overseeing the aviation safety management of the Company, studying, considering and making recommendations with regard to aviation safety duty plans and significant issues resulting from related safety duties as well as implementing such safety duty plans. In addition, the Aviation Safety and Environment Committee performs studies, and makes recommendations on significant environmental protection issues, including carbon emissions on our domestic and international aviation routes and carbon emission programs, and overseeing their implementation. The Aviation Safety and Environment Committee held 2 meetings in 2020.

D. Employees

Our employees are members of a labor association, which represents employees with respect to labor disputes and certain other employee matters. We believe that we maintain good relations with our employees and with their labor association.

The table below sets forth the number of our employees as of December 31, 2018, 2019 and 2020, respectively:


	As of December 31,
	2018		2019		2020
Pilots		7,634		8,284		8,837
Flight attendants and other aircrew staff		19,909		21,673		21,149
Maintenance personnel		12,262		12,960		13,258
Sales and marketing		3,978		4,009		4,040
Operation control		1,780		1,877		1,893
Information technology		1,025		1,116		1,168
Management		3,605		3,650		3,677
Ground Services and others		26,812		27,567		27,135
Total		77,005		81,136		81,157

In 2020, we continued to provide large-scale training with different emphasis on different personnel and construct our online study platform to integrate online and offline training resources. By setting up our online study platform, we integrated the online and offline training resources and enhanced the effects of training and studying. We focused on different professional trainings, concentrated on the development of talent for the key positions and set up clear development and training plans for the targeted personnel. For example, in 2020, we launched training programs for cabin crew, ground services personnel and maintenance personnel in relation to the new model of aircraft we introduced. We also prepared specific training plan for backup talents to enhance our talent reserve. Due to the impact of the COVID-19 pandemic, we adjusted our training program in a timely manner, added online training methods, and provided various types of training for the the middle and high level management personnel.

See Note 8 to the consolidated financial statements for changes in our retirement benefits.

E. Share Ownership

See Item 6.A and Item 6.B above.

In 2012, we implemented an H shares appreciation rights scheme, under which H shares appreciation rights were granted to the directors and senior management on November 30, 2012 at an exercise price of HK$2.67. The H share appreciation rights granted under this scheme are valid for a period of five years from the date of grant. The lock-up period of the share appreciation rights shall be the 24 months from the date of grant, during which no share appreciation right shall be exercised. Subject to the satisfaction of performance appraisal indicators, incentive recipients may exercise their share appreciation rights in equal installments within three years after the expiration of the lock-up period.

There was no granting or exercise of rights under the H shares appreciation rights of our Company during 2013. The first tranche of H shares appreciation rights, amounting to one third of the total H shares appreciation rights of our Company, was originally planned to be exercised on December 1, 2014. However, as our Company did not satisfy the exercising conditions in 2013, such tranche expired automatically.

Item 7. Major Shareholders and Related Party Transactions

A. Major Shareholders

The following table sets forth certain information regarding ownership of our capital stock as of December 31, 2020 by all persons who were known to us to be the beneficial owners of 5% or more of any class of our issued share capital:


Name of shareholder	Class of shares		Number of shares held			Percentage in the relevant class of Shares (%)		Percentage in total issued shares (%)
CEA Holding		A Shares		5,072,922,927	⁽²⁾		45.28		30.97
				457,317,073	⁽²⁾		4.08		2.79
		H Shares		2,626,240,000	⁽³⁾		50.73		16.03
CES Global		H Shares		2,626,240,000	⁽³⁾		50.73		16.03
HKSCC Nominees Limited		H Shares		4,701,626,955			90.82		28.70
Juneyao Group		A Shares		311,831,909	⁽⁴⁾		2.78		1.90
				808,441,233	⁽⁴⁾		7.22		4.94
		H Shares		529,677,777	⁽⁵⁾		10.23		3.23
Juneyao Airlines		A Shares		219,400,137	⁽⁴⁾		1.96		1.34
				589,041,096	⁽⁴⁾		5.26		3.60
				311,831,909	⁽⁴⁾		2.78		1.90
		H Shares		12,000,000	⁽⁵⁾		0.23		0.07
				517,677,777	⁽⁵⁾		10.00		3.16
Juneyao Hong Kong		H Shares		517,677,777	⁽⁵⁾		10.00		3.16
Shanghai Jidaohang		A Shares		589,041,096	⁽⁴⁾		5.26		3.60
Wang Junjin		A Shares		1,120,273,142	⁽⁴⁾		10.00		6.84
		H Shares		529,677,777	⁽⁵⁾		10.23		3.23
Wang Han		A Shares		1,120,273,142	⁽⁴⁾		10.00		6.84
		H Shares		558,769,777	⁽⁵⁾		10.79		3.41
Ye Jinqi		A Shares		1,120,273,142	⁽⁴⁾		10.00		6.84
		H Shares		529,677,777	⁽⁵⁾		10.23		3.23

Notes:

(1)	Based on the information available to the directors (including such information as was available on the website of the HKEX) and so far as they are aware, as of December 31, 2020.

(2)	5,072,922,927 A Shares were held directly by CEA Holding; and 457,317,073 A Shares were held directly by CES Finance, which in turn was entirely held by CEA Holding. Therefore, CEA Holding is deemed to be interested in the 457,317,073 A Shares held directly by CES Finance.

(3)	CES Global directly held 2,626,240,000 H Shares through HKSCC Nominees Limited, and CEA Holding indirectly owned the entire interests of CES Global through CES Finance. Therefore, CEA Holding is deemed to be interested in the 2,626,240,000 H Shares held directly by CES Global.

(4)

311,831,909 A Shares were held directly by Juneyao Group. 219,400,137 A Shares were held directly by Juneyao Airlines. 589,041,096 A Shares were held directly by Shanghai Jidaohang. Mr. Wang Han and Mr. Wang Junjin were interested in 71.77% of shares of Juneyao Group. Juneyao Group is the controlling shareholder of Juneyao Airlines. Juneyao Airlines owned the entire equity interests of Shanghai Jidaohang. Ms. Ye Jinqi is the spouse of Mr. Wang Junjin. Therefore, Juneyao Group is deemed to be interested in 219,400,137 A Shares and 589,041,096 A Shares held by Juneyao Airlines and Shanghai Jidaohang, respectively. Juneyao Airlines is deemed to be interested in 589,041,096 A Shares held directly by Shanghai Jidaohang. Mr. Wang Han and Mr. Wang Junjin are deemed to be interested in 311,831,909 A Shares, 219,400,137 A Shares and 589,041,096 A Shares held directly by Juneyao Group, Juneyao Airlines and Shanghai Jidaohang, respectively. Ms. Ye Jinqi is deemed to be interested in 1,120,273,142 A Shares held indirectly by Mr. Wang Junjin.

On October 29, 2019, Juneyao Group and Juneyao Airlines signed a voting rights proxy agreement to delegate the voting rights of 311,831,909 A Shares held directly by Juneyao Group to Juneyao Airlines. Therefore, Juneyao Airlines is also deemed to be interested in the 311,831,909 A Shares held directly by Juneyao Group.

(5)

Juneyao Airlines directly held 12,000,000 H Shares and Juneyao Hong Kong directly held 517,677,777 H Shares through HKSCC Nominees Limited. Mr. Wang Han and Mr. Wang Junjin were interested in 71.77% of shares of Juneyao Group. Juneyao Group is the controlling shareholder of Juneyao Airlines. Juneyao Airlines owned the entire equity interests of Juneyao Hong Kong. Ms. Ye Jinqi is the spouse of Mr. Wang Junjin. Therefore, Juneyao Group, Mr. Wang Han and Mr. Wang Junjin are deemed to be interested in 12,000,000 H Shares and 517,677,777 H Shares held directly by Juneyao Airlines and Juneyao Hong Kong. Juneyao Airlines is deemed to be interested in 517,677,777 H Shares held directly by Juneyao Hong Kong. Ms. Ye Jinqi is deemed to be interested in 558,769,777 H Shares held indirectly by Mr. Wang Junjin.

As of December 31, 2020, CEA Holding directly or indirectly held 49.79% of our issued and outstanding capital stock. Due to the completion of non-public issuance of H Shares and A Shares by us to Juneyao Airlines and Juneyao Group in 2019, the shareholding of Juneyao Airlines, Juneyao Group, Mr. Wang Junjin, Mr. Wang Han and Ms. Ye Jinqi in us increased in 2019, resulting in the dilution of the shareholding of CEA Holding in us. See “Item 4. Information on the Company – History and Development of the Company” for details of the non-public issuance of H Shares and A Shares. Neither CEA Holding nor HKSCC Nominees Limited has any voting rights different from those of other shareholders. We are not aware of any arrangement which may at a subsequent date result in a change of control of our Company.

As of December 31, 2020, there were 5,176,777,777 H Shares issued and outstanding. As of December 31, 2020 and April 15, 2021, there were 58 and 56 registered holders, respectively, of American Depositary Receipts evidencing 1,323,052 and 1,338,412 ADSs, respectively. Since certain of the ADSs are held by nominees, the above number may not be representative of the actual number of U.S. beneficial holders of ADSs or the number of ADSs beneficially held by U.S. persons.

Our Company is currently a subsidiary of CEA Holding who holds 49.79% of our issued and outstanding capital stock. CEA Holding itself is a wholly state-owned enterprise under the administrative control of the SASAC. CEA Holding’s shareholding in our Company is in the form of ordinary domestic shares, through which it, under the supervision of the SASAC, enjoys shareholders’ rights and benefits on behalf of the PRC government.

B. Related Party Transactions

Relationship with CEA Holding and Associated Companies

We enter into transactions from time to time with CEA Holding and its subsidiaries. For a description of such transactions, see Note 48 to the consolidated financial statements.

Related Business Transactions

As our Company and EA Group and its subsidiaries were a single group prior to the restructuring in 2002, certain arrangements among us have continued after the restructuring and the establishment of CEA Holding. Although we do not currently intend to enter into any equivalent contracts with third parties, each of these arrangements is non-exclusive.

Eastern Aviation Import and Export Co., Ltd. (“EAIEC”), a 55% owned subsidiary of CEA Holding

Import and Export Services (previously known as Import and Export Agency Services)

On August 30, 2016, we entered into an agreement relating to the renewal of the existing import and export agency agreement with EAIEC, pursuant to which EAIEC and its subsidiaries will from time to time provide us with a range of import and export services including: (i) agency services for the import and export of goods, including aircraft and related raw materials, accessories, machinery and equipment, together with related insurance and financial services, required in the daily airlines operations and civil aviation business of us; (ii) the provision of transportation services as required by us in the conduct of foreign trade; and (iii) provision of aircraft on-board supplies. The import and export services renewal agreement (previously known as import and export agency renewal agreement) is effective for a term of three years, from January 1, 2017 to December 31, 2019.

On August 30, 2019, we entered into an agreement relating to the renewal of the existing import and export services renewal agreement with EAIEC (the “Import and Export Services Agreement”), pursuant to which EAIEC and its subsidiaries will from time to time provide us with a range of import and export services in the conduct of foreign trade including: (i) provision of agency services for the import and export of goods in the conduct of foreign trade; (ii) provision of transportation management services in the conduct of foreign trade; and (iii) provision of aircraft on-board supplies procurement and other services. The Import and Export Services Agreement is effective for a term of three years, from January 1, 2020 and December 31, 2022.

For the year ended December 31, 2020, we paid handling charges of approximately RMB132 million to EAIEC. We currently have certain balances with EAIEC, which are trade in nature, interest-free and payable within normal credit terms. See Note 45(c) to the consolidated financial statements for more details.

China Eastern Airlines Media Co. Ltd. (“CEA Media”), a 55% owned subsidiary of CEA Holding

Advertising Service Agreement

On August 30, 2016, we entered into an agreement relating to the renewal of the existing advertising services agreement with CEA Media on substantially the same terms, pursuant to which CEA Media and its subsidiaries will from time to time provide us with multi-media advertising services to promote our business and to organize promotional functions and campaigns to enhance our reputation in the civil aviation industry. The advertising services renewal agreement is effective for a term of three years, from January 1, 2017 to December 31, 2019.

On August 30, 2019, we entered into an agreement relating to the renewal of the existing advertising services agreement with CEA Media (the “Advertising Services Renewal Agreement”), pursuant to which CEA Media and its subsidiaries will from time to time provide us with multi-media advertising services to promote our business and to organize promotional functions and campaigns to enhance our reputation in the civil aviation industry. The Advertising Services Renewal Agreement is effective for a term of three years, from January 1, 2020 and December 31, 2022.

For the year ended December 31, 2020, we paid to Eastern Aviation Advertising approximately RMB26 million for advertising services.

Media Resources Agreement

On September 27, 2013, we entered into an agreement with CEA Media, pursuant to which we and certain of our subsidiaries agreed to transfer the exclusive rights to use certain media and advertising resources to CEA Media and certain of its subsidiaries for a period of 15 years (from January 1, 2014 to December 31, 2028). CEA Media is a subsidiary of and thus an associate of CEA Holding, which in turn is a controlling shareholder of the Company.

For the year ended December 31, 2020, Eastern Aviation Advertising paid approximately RMB14 million in media royalty fees.

China Eastern Air Catering Investment Co., Ltd. (“CEA Catering”), a 55% owned subsidiary of CEA Holding with the remaining by our Company

Catering Service Agreements

On August 30, 2016, we entered into an agreement relating to the renewal of the existing catering services agreement with CEA Catering, pursuant to which CEA Catering and its subsidiaries (each an “Eastern Air Catering Entity” and collectively the “Eastern Air Catering Entities”) will from time to time provide us with catering services (including the supply of meals and beverages, cutlery and tableware) and related storage and complementary services required in the day-to-day airline and ground operation of us. The Eastern Air Catering Entities provide their services in accordance with the specifications and schedules as from time to time specified by the relevant member(s) of us to accommodate the operational needs of us.

On August 30, 2019, we entered into an agreement relating to the renewal of the existing catering services agreement with CEA Catering (the “Catering Services and Related Services Agreement”), pursuant to which CEA Catering and its subsidiaries (each an “Eastern Air Catering Entity” and collectively the “Eastern Air Catering Entities”) will from time to time provide us with food, beverages, related tableware and the storage, recycling and other related services for food and beverages required for air transport and ground services. In addition, the Eastern Air Catering Entities (as the lessee) will lease lands and buildings owned by us (as the lessor) and will construct buildings and structures on lands leased from us, offsetting rent with construction costs. The Catering Services and Related Services Agreement is effective for a term of three years, from January 1, 2020 and December 31, 2022.

On August 28, 2020, we entered into an agreement relating to the daily connected transaction with CEA Catering (the “the Catering and Aircraft On-board Supplies Support Agreement”), pursuant to which we shall engage Eastern Air Catering Entities for the centralized procurement and the support and maintenance of operation of all of the catering, aircraft on-board supplies support and related services. In addition, Eastern Air Catering Entities shall provide property leasing services in the mode of “offsetting rent with construction costs” to us. The Catering and Aircraft On-board Supplies Support Agreement (the renewed catering service and related services agreement) is effective for a term of three years, from January 1, 2021 and December 31, 2023.

In 2020, we paid RMB812 million to CEA Catering for its provision of food, beverages, related tableware and the storage, recycling and other related services, and received RMB15 million from CEA Catering for our provison of property leasing services to CEA Catering.

Eastern Air Group Finance Co., Ltd., (“Eastern Finance”), a 53.75% owned subsidiary of CEA Holding

On August 30, 2016, we entered into an agreement relating to the renewal of the existing financial services agreement with Eastern Finance and CES Finance, on substantially the same terms, pursuant to which Eastern Finance and its subsidiaries (each an “Eastern Air Finance Entity” and collectively the “Eastern Air Finance Entities”) and CES Finance and its subsidiaries (each a “CES Finance Entity” and collectively the “CES Finance Entities”) agreed from time to time provide us with a range of financial services including: (i) deposit services by the Eastern Air Finance Entities; (ii) loan and financing services by the Eastern Air Finance Entities; and (iii) other financial services, such as: (a) the provision of services such as trust loans, financial guarantees and credit references by the Eastern Air Finance Entities; and (b) the provision of services such as broker services for future products (e.g. crude oil, foreign exchange and national debt) by the CES Finance Entities (the scope of “other financial services” is not limited and different services may be provided to us as and when they are needed). The financial services renewal agreement is effective for a term of three years, from January 1, 2017 to December 31, 2019.

On August 30, 2019, we entered into an agreement relating to the renewal of the existing financial services agreement with Eastern Finance (the “Financial Services Agreement”), pursuant to which Eastern Finance and its subsidiaries agreed from time to time provide us with a range of financial services including: with a range of financial services including: (i) deposit services; (ii) loan services; and (iii) other financial services. The Financial Services Agreement is effective for a term of three years, from January 1, 2020 to December 31, 2022.

As of December 31, 2020, we had deposits amounting to RMB5,474 million placed with Eastern Finance, which paid interest to us at 0.35%per annum.

CEA Development Co. (“CEA Development”), a wholly-owned subsidiary of CEA Holding

On August 30, 2016, we entered into the complementary services renewal agreement (previously known as the existing maintenance and repair services agreement) with CEA Development, pursuant to which CEA Development and its subsidiaries (each a “CEA Development Entity” and collectively the “CEA Development Entities”) will from time to time provide us with a range of services including: (i) supply of equipment and materials and provision of maintenance and repair services to our automobiles and equipment; (ii) provision of property management services; (iii) provision of hotel accommodation services; and (iv) other complementary aviation services. The complementary services renewal agreement is effective for a term of three years, from January 1, 2017 to December 31, 2019.

On August 30, 2019, the Company entered into an agreement relating to the renewal of the existing complementary services agreement with CEA Development (the “Complementary Services Agreement”), pursuant to which CEA Development Entities will from time to time provide us with a range of services. According to the Complementary Services Agreement, CEA Development Entities will provide us with special vehicles and equipment leasing, supply and maintenance services, property management services, hotel services, ground transportation services and other aviation supporting services.

For the year ended December 31, 2020, production and maintenance services fees paid to CEA Development Entity amounted to approximately RMB439 million.

Eastern Logistics, an indirectly owned subsidiary of CEA Holding

Disposal of the entire equity interest in Eastern Air Logistics

On November 29, 2016, we entered into a disposal agreement with Eastern Airlines Industry Investment, pursuant to which, we have conditionally agreed to sell, and Eastern Airlines Industry Investment has conditionally agreed to purchase, our entire equity interest in Eastern Logistics at a consideration of RMB2,432,544,211.50, determined with reference to the relevant valuation report. Upon completion of the disposal on February 8, 2017, Eastern Logistics ceased to be our subsidiary.

Freight Logistics Daily Connected Transactions Framework Agreement with Eastern Logistics

As Eastern Logistics ceased to be our subsidiary, each member of the Eastern Logistics Group became a connected person of us. On November 29, 2016, we entered into the Freight Logistics Daily Connected Transactions Framework Agreement with Eastern Logistics. We will provide the following services to the Eastern Logistics Group, required for the daily operation of its freight logistics business: (i) aircraft maintenance and its ancillary support services; (ii) information technology support services; (iii) cleaning services; (iv) training services; and (v) other daily support services. The Eastern Logistics Group will provide us the following services required for our daily business operation: (i) apron transfer services, cargo terminal operation services and security inspection services; and (ii) other daily support services. The Freight Logistics Daily Connected Transactions Framework Agreement will be effective for a term of three years, commencing from the date on which the entire equity interest in Eastern Logistics was transferred from us to Eastern Airlines Industry Investment pursuant to the disposal agreement, and ending on December 31, 2019.

On August 30, 2019, we entered into an agreement relating to the renewal of the existing freight logistics daily connected transactions framework agreement with Eastern Logistics on substantially the same terms (the “Freight Logistics Daily Connected Transactions Framework Agreement”), pursuant to which we will provide the freight logistics business support services, including (i) aircraft maintenance and its ancillary support services; (ii) cargo transport maintenance and its ancillary support services; (iii) information technology support services; (iv) cleaning services; (v) training services; and (vi) other daily support services, to Eastern Logistics required for the daily operation of its freight logistics business, and the Eastern Logistics will provide the cargo terminal business support services (as defined below), including (i) apron transfer services, cargo terminal operation services and security inspection services; and (ii) other daily support services, to us required for our daily business operation. The Freight Logistics Daily Connected Transactions Framework Agreement is effective for a term of three years, from January 1, 2020 to December 31, 2022.

For the year ended December 31, 2020, the amount payable by Eastern Logistics to us for the freight logistics support services amounted to approximately RMB185 million and the amount payable by us to Eastern Logistics for the cargo terminal business support services amounted to approximately RMB286 million.

Exclusive Operation Agreement for Passenger Aircraft Cargo Business

On January 1, 2017, to avoid the competition between the bellyhold space business operated by us and the all-cargo aircraft freight business operated by China Cargo Airlines, the subsidiary of Eastern Logistics, after the completion of equity transfer in Eastern Logistics, we entered into the Bellyhold Space Management Agreement with China Cargo Airlines to entrust China Cargo Airlines for the operation of the bellyhold space business for a term of three years, which commenced on January 1, 2017. Pursuant to the Bellyhold Space Management Agreement, in respect of the entrusted management of bellyhold space business, we will pay management fee to China Cargo Airlines according to industry practice, including handling charges for the entrusted management and incentives for achieving specified sales targets. The Bellyhold Space Management Agreement is effective for a term of three years commencing January 1, 2017 until December 31, 2019.

The Bellyhold Space Management Agreement has been superseded by the contractual operation agreement dated March 1, 2018 entered into between the Company and China Cargo Airlines from March 31, 2018.

On September 29, 2020, we entered into the adjusted “passenger aircraft bellyhold space contractual operation proposal” with China Cargo Airlines, pursuant to which we clarified the coverage of the transaction, and the pricing method. In addition, the adjustment provided the cap amount of the Exclusive Operation Agreement (the adjusted “passenger aircraft bellyhold space contractual operation proposal”) for each of the three years ending December 31, 2020, 2021 and 2022. The Exclusive Operation Agreement is effective from January 1, 2020 to December 31, 2032.

For the year ended December 31, 2020 the actual amount paid by the China Cargo Airlines amounted to RMB4,895 million under the Exclusive Operation Agreement.

Shanghai Eastern Airlines Investment Co., Limited (“Eastern Investment”), a wholly-owned subsidiary of CEA Holding

Land Use Rights Transfer Agreement and the Buildings Compensation Agreement

On September 29, 2017, we entered into the land use rights transfer agreement and the buildings compensation agreement with Eastern Investment in Shanghai. Pursuant to the land use rights transfer agreement and the buildings compensation agreement, (i) we agreed to transfer to Eastern Investment the land use rights in respect of the target land together with the buildings thereon at the eastern district of Terminal One of the Shanghai Hongqiao International Airport; and (ii) Eastern Investment agreed to compensate us for the transfer of the buildings, at total consideration of approximately RMB808 million.

Property Leases

On August 30, 2016, we entered into an agreement relating to the renewal of the existing property leasing agreement with CEA Holding. Pursuant to the property leasing renewal agreement, we will lease from CEA Holding and its subsidiaries the following properties, for use in our daily airlines and other business operations:

(a)

altogether 17 land properties owned by CEA Holding in Lanzhou, Gansu, covering an aggregate site area of approximately 234,989 square meters together with a total of 81 building properties, construction, structures and other ancillary facilities occupying an aggregate floor area of approximately 54,290 square meters;

(b)

altogether three land properties owned by CEA Holding in Kunming, Yunnan, covering an aggregate site area of 44,835 square meters together with a total of 24 building properties, construction, structures and other ancillary facilities occupying an aggregate floor area of approximately 67,992 square meters;

(c)

one building property, construction, structures and other ancillary facilities owned by CEA Holding in Shijiazhuang, occupying an aggregate floor area of approximately 8,853 square meters;

(d)

a total of 67 building properties, construction, structures and other ancillary facilities owned by CEA Holding in Taiyuan, occupying an aggregate floor area of approximately 45,068 square meters;

(e)

a total of 7 building properties, construction, structures and other ancillary facilities owned by CEA Holding in Shanghai, occupying an aggregate floor area of approximately 13,195 square meters;

(f)

altogether 16 land properties owned by China Eastern Air Northwest Company (“CEA Northwest”), covering an aggregate site area of approximately 393,929 square meters together with a total of 115 building properties, construction, structures and other ancillary facilities occupying an aggregate floor area of approximately 88,440 square meters;

(g)

a total of altogether 33 guest rooms in Eastern Hotel owned by CEA Holding, occupying an aggregate floor area of approximately 1,500 square meters located in Shanghai; and

(h)

other land and property facilities owned by CEA Holding may be leased to us from time to time due to our business and operational needs.

In addition to the above and on terms and conditions to be further agreed, we leased some of the properties legally owned or leased by us to subsidiaries of CEA Holding as needed by the subsidiaries of CEA Holding. The property leasing renewal agreement was effective for a term of three years from January 1, 2017 to December 31, 2019.

On August 30, 2019, we entered into an agreement relating to the renewal of the existing property leasing agreement with CEA Holding and Eastern Investment (the “Property Leasing and Construction and Management Agency Agreement”). Pursuant to the Property Leasing and Construction and Management Agency Agreement, CEA Holding and its subsidiaries (including Eastern Investment) will lease to us relevant properties. In the meantime, Eastern Investment will also provide the construction and management agency services to us in relation to the basic construction projects, organize the implementation of the construction management work and provide the projects that meet various standards to us pursuant to the agreement. The scope of specific construction and management agency services is determined according to the agreement of the specific agreement signed by both parties.

Pursuant to the Property Leasing and Construction and Management Agency Agreement, we will lease from CEA Holding and its subsidiaries (excluding Eastern Investment) the following properties, for use by us in our daily airlines and other business operations:

(a)

altogether 20 land properties owned by CEA Holding in Lanzhou, Gansu, covering an aggregate site area of approximately 234,989 square meters together with a total of 77 building properties, construction, structures and other ancillary facilities occupying an aggregate floor area of approximately 54,290 square meters;

(b)

(c)

one building property, construction, structures and other ancillary facilities owned by CEA Holding in Shijiazhuang, occupying an aggregate floor area of approximately 8,853 square meters;

(d)

a total of 77 building properties, construction, structures and other ancillary facilities owned by CEA Holding in Taiyuan, occupying an aggregate floor area of approximately 45,068 square meters;

(e)

a total of seven building properties, construction, structures and other ancillary facilities owned by CEA Holding in Shanghai, occupying an aggregate floor area of approximately 13,195 square meters;

(f)

altogether 15 land properties owned by CEA Northwest, covering an aggregate site area of approximately 335,741 square meters together with a total of 106 building properties, construction, structures and other ancillary facilities occupying an aggregate floor area of approximately 92,935 square meters; and

(g)

other land and property facilities owned by CEA Holding may be leased to us from time to time due to our business and operational needs.

Pursuant to the Property Leasing and Construction and Management Agency Agreement, we will lease from Eastern Investment the following properties, for use by us in its daily airlines and other business operations:

(a)

a total of 78 building properties, construction, structures and other ancillary facilities owned by Eastern Investment in Chengdu, occupying an aggregate floor area of approximately 25,992 square meters;

(b)

a total of 17 building properties, construction, structures and other ancillary facilities owned by Eastern Investment in Beijing, occupying an aggregate floor area of approximately 35,730 square meters;

(c)

a total of 26 building properties, construction, structures and other ancillary facilities owned by Eastern Investment in Lanzhou, occupying an aggregate floor area of approximately 29,274 square meters;

(d)

altogether five land properties owned by Eastern Investment in Shanghai Hongqiao East District, covering an aggregate site area of approximately 333,369 square meters together with a total of 60 building properties, construction, structures and other ancillary facilities occupying an aggregate floor area of approximately 120,053 square meters;

(e)

one building property, construction, structures and other ancillary facilities owned by Eastern Investment in Hangzhou, occupying an aggregate floor area of approximately 486 square meters; and

(f)

other land and property facilities owned by Eastern Investment may be leased to us from time to time due to our business and operational needs.

The Property Leasing and Construction and Management Agency Agreement is effective for a term of three years commencing from January 1, 2020 to December 31, 2022.

For the year ended December 31, 2020, we paid a rental fee of RMB134 million under the property leasing renewal agreement.

Amendments to the Non-Competition Undertaking with CEA Holding

On December 22, 2017, we and CEA Holding entered into the supplemental agreement II to the reorganization and division agreement to amend the non-competition undertaking of CEA Holding as set out in article 3 of the supplemental agreement I to the reorganization and division agreement entered into by both parties in 1996.

Pursuant to article 3 of the supplemental agreement I, CEA Holding has undertaken to us that, so long as we are listed in the PRC, Hong Kong or New York, if CEA Holding holds more than 35% of the issued shares of us or is deemed to be our controlling shareholder pursuant to the listing rules of relevant stock exchange(s) or relevant laws and regulations, CEA Holding shall not, in any place within or outside the PRC or in any way (including but not limited to carrying on through sole proprietorship, forming partnerships or joint ventures with others and holding shares or interests in other companies or enterprises, except that the shares held by CEA Holdings do not exceed 10% of our shares or enterprise as listed on a stock exchange) conduct any business or activities that is or may be in direct or indirect competition with our business.

Pursuant to the amendments, CEA Holding undertakes to us that so long as we are listed in the PRC, Hong Kong or New York, if CEA Holding holds more than 35% of the issued shares of us or is deemed to be our controlling shareholder pursuant to the listing rules of relevant stock exchange(s) or relevant laws and regulations, CEA Holding shall not, in any place within or outside the PRC or in any way, conduct any business or activities that is or may be in direct or indirect competition with our business, with an exception that CEA Holding will be allowed to conduct equity investment in any companies or enterprises that is or may be in direct or indirect competition with the principal business of the Company (the “Competing Enterprise(s)”), provided that CEA Holding and its controlled subsidiary(ies) (other than us) will not contravene any applicable laws and regulations as well as regulatory rules, control or be deemed to control such Competing Enterprises by the listing rules of relevant stock exchange(s) or relevant laws and regulations after the investment, and subject to certain conditions.

Guarantee by CEA Holding

As of December 31, 2018, 2019 and 2020, bonds issued by us in an aggregate amount of RMB7.8 billion were guaranteed by CEA

Holding.

See Note 45(d) to the consolidated financial statements.

Guarantee by the Company

To Certain Subsidiaries

On January 17, 2017, the Board of Directors considered and approved that we shall provide, within the period from the effective date of the Board resolution to December 31, 2017, guarantee in the total amount of up to RMB1,000 million to China United Airlines, Shanghai Eastern Flight Training Co., Limited, Eastern Business Airlines Service Co., Limited, Eastern Technology, and their respective wholly-owned subsidiaries. The period of guarantee shall be the same as the period of subject obligations of the respective guaranteed parties and shall not exceed 10 years.

On December 22, 2017, the Board of Directors considered and approved that we shall provide, within the period from the effective date of the Board resolution to December 31, 2018, guarantee in the total amount of up to RMB1,000 million to China United Airlines, Shanghai Eastern Flight Training Co., Limited, Eastern Business Airlines Service Co., Limited, Eastern Technology, and their respective wholly-owned subsidiaries, and that Shanghai Airlines Tours International (Group) Co., Limited, a wholly-owned subsidiary of us, shall provide guarantee in the total amount of up to RMB10 million to Shanghai Dongmei Air Travel Co., Ltd. The period of guarantee shall be the same as the period of subject obligations of the respective guaranteed parties and shall not exceed 10 years.

On January 19, 2018, with an aim to carry out the work of changing aircraft leasing from overseas operating lease to domestic operating lease for not more than 67 aircraft, the Board of Directors agreed us to invest and establish not more than 67 subsidiaries in Dongjiang Free Trade Port Zone of Tianjin with the aggregate guarantee amount not exceeding RMB9.8 billion. The term of each guarantee will not exceed 15 years commencing from the actual date when we provide guarantee to each subsidiary. The guarantee was considered and approved at the general meeting of the Company held on February 8, 2018.

On January 18, 2019, the Board of Directors considered and approved that we shall provide, within the period from the effective date of the resolution to December 31, 2019, guarantee in the total amount of up to RMB1 billion to China United Airlines, Shanghai Eastern Flight Training Co., Ltd., Eastern Business Airlines Service Co., Ltd., Eastern Technology, and their respective wholly-owned subsidiaries. Shanghai Airlines Tours (our then wholly-owned subsidiary) shall provide guarantee in the total amount of RMB10 million to Shanghai Dongmei Air Travel Co., Ltd., the period of which shall be the same as the period of the subject obligations of the respective guaranteed parties and shall not exceed 10 years.

On December 31, 2019, the Board of Directors considered and approved that we shall provide, within the period from the effective date of the resolution to December 31, 2020, guarantee in the total amount of up to RMB1 billion to our three wholly-owned subsidiaries, namely China United Airlines, Shanghai Eastern Flight Training Co., Ltd., and Eastern Technology, or their respective wholly-owned subsidiaries. The period of guarantee shall be the same as the period of the subject obligations of the respective guaranteed parties and shall not exceed 10 years.

A further guarantee was considered and approved at the 2021 first regular meeting of the Board of Directors held on January 26, 2021, which passed the resolution to provide guarantees to certain wholly-owned subsidiaries and agreed us to offer three wholly owned subsidiries, namely, Shanghai Eastern Flight Training Co., Ltd., China Eastern Aviation Technology Co., Ltd. and One Two Three Airlines Co., Ltd. or their wholly-owned subsidiaries with the aggregate guarantee amount not exceeding RMB1 billion. The term of the guarantee will not exceed 10 years and shall be consistent with the term of the principal debt of the gurantee.

Agreements in relation to Aircraft Finance Lease and Aircraft Operating Lease with CES Leasing

Master Lease Agreement

On May 5, 2015, we entered into a master lease agreement with CES Leasing, pursuant to which CES Leasing agreed to provide finance leasing to us in relation to 23 aircraft in accordance with the terms and conditions of the master lease agreement and the relevant implementation agreements. CES Leasing is a non-wholly owned subsidiary of CEA Holding, which in turn is the controlling shareholder of the Company.

2016 Aircraft Finance Lease Framework Agreement

On April 28, 2016, we entered into the 2016 Aircraft Finance Lease Framework Agreement with CES Leasing, pursuant to which CES Leasing agreed to provide finance leasing to us in relation to the leased aircraft, as and when we consider desirable, in our interests and the interests of the shareholders as a whole in accordance with the terms and conditions of the 2016 Aircraft Finance Lease Framework Agreement and the relevant implementation agreements contemplated thereunder. The 2016 Aircraft Finance Lease Framework Agreement was effective for a term of one year commencing January 1, 2016.

2017–2019 Aircraft Finance Lease Framework Agreement

On April 28, 2016, we entered into the 2017–2019 Aircraft Finance Lease Framework Agreement with CES Leasing, pursuant to which CES Leasing agreed to provide finance leasing to us in relation to the Leased Aircraft, as and when we consider desirable, in our interests and the interests of the shareholders as a whole in accordance with the terms and conditions of the 2017–2019 Aircraft Finance Lease Framework Agreement and the relevant implementation agreements contemplated thereunder. The 2017–2019 Aircraft Finance Lease Framework Agreement is effective for a term of three years, from January 1, 2017 to December 31, 2019.

Novation Agreement and Aircraft Operating Lease Agreement

On July 9, 2015, we (as the purchaser) entered into the purchase agreement with Boeing Company (as the seller) regarding the acquisition of fifty brand new Boeing B737 series aircraft (the “Purchase Agreement”).

On August 10, 2017, we entered into a novation agreement with CES Leasing, pursuant to which, (i) we agreed to novate, from the date of the novation agreement, our rights (including the purchase right) and obligations in and under the Purchase Agreement in respect of the five Boeing Aircraft, which are expected to be delivered by the Boeing Company to us in 2017 pursuant to the Purchase Agreement (the “Five Boeing Aircraft”) at nil consideration; and (ii) CES Leasing agreed to, from the date of the novation agreement, assume all of the rights (including the purchaser right) and obligations in and under the Purchase Agreement in respect of the Five Boeing Aircraft at nil consideration. The parties entered into the novation agreement at nil consideration.

On August 10, 2017, we entered into the aircraft operating lease agreement with CES Leasing, pursuant to which, CES Leasing agreed to provide operating leasing to us in relation to the Five Boeing Aircraft. The aircraft operating lease agreement is effective for a term of 144 months for each aircraft from the date on which each of the Five Boeing Aircraft is delivered. Delivery date would fall on the period between August 2017 and December 2017.

2018-2019 Aircraft and Engines Operating Lease Framework Agreement

On December 22, 2017, we entered into the 2018-2019 aircraft and engines operating lease framework agreement with CES Leasing, pursuant to which CES Leasing agreed to provide operating leasing to us in relation to the aircraft and aircraft engines. Upon successful bidding of the tender of the aircraft and/or aircraft engines during the period between January 1, 2018 and December 31, 2019 by CES Leasing, the term of each of the lease agreement under the 2018-2019 aircraft and engines operating lease framework agreement shall be not more than 144 months for each leasing of the aircraft and aircraft engines by CES Leasing to us.

2020–2022 Aircraft Finance Lease Framework Agreement

On August 30, 2019, we entered into an agreement relating to the renewal of the 2017–2019 Aircraft Finance Lease Framework Agreement with CES Leasing on substantially the same terms, pursuant to which CES Leasing Group (as lessor(s)) agreed to provide finance lease to us (as lessee(s)) in respect of the aircraft (the “2020–2022 Aircraft Finance Lease Framework Agreement”) with reference to the transaction practices for years between the parties for aircraft finance lease. Pursuant to the 2020–2022 Aircraft Finance Lease Framework Agreement, for certain aircraft which we intend to purchase during the years from 2020 to 2022, if, as evaluated on requests for proposals, the finance plans proposed by CES Leasing are better than the plans proposed by other parties (including, but not limited to the overall financial cost quoted in the finance plans proposed by CES Leasing being more competitive than those under other plans), we agreed to select CES Leasing for relevant transactions.

2020–2022 Aircraft and Aircraft Engines Operating Lease Framework Agreement

On August 30, 2019, we entered into an agreement relating to the renewal of the 2018-2019 Aircraft and Aircraft Engines Operating Lease Framework Agreement with CES Leasing on substantially the same terms, pursuant to which CES Leasing Group (as lessor(s)) agreed to provide operating leasing to us (as lessee(s)) in respect of the aircraft and aircraft engines (the “2020–2022 Aircraft and Aircraft Engines Operating Lease Framework Agreement”) with reference to the transaction practices for years between parties for aircraft and engine operating leasing agreements. According to such agreement, if, as evaluated on requests for proposals, the operating lease plans proposed by CES Leasing are better than other plans, we agreed to select CES Leasing for relevant transactions.

For the year ended December 31, 2020, the actual amount paid by us for aircraft lease services (including aircraft finance lease and aircraft operating lease services) was approximately RMB6,667 million.

Transactions with Air France-KLM

On July 27, 2017, a wholly-owned subsidiary of CEA Holding and Delta Air Lines entered into a conditional subscription agreement with Air France-KLM, respectively, to acquire 10% newly issued shares in the share capital of Air France-KLM after the completion of issuance of additional shares. We entered into a marketing agreement with Air France-KLM to further strengthen the business partnership on the basis of good business relationship between the two parties.

On October 3, 2017, the trading of the fixed issuance of additional 10% shares to CEA Holding by Air France-KLM was completed in the Euronext. CEA Holding appointed Tang Bing, our director and then vice president as the director of Air France-KLM. According to the relevant requirements of the Shanghai Stock Exchange, the daily businesses such as joint operation and service security between us and Air France-KLM and its controlled subsidiaries constituted a related party transaction of the Company under the Rules Governing the Listing of Stocks on the Shanghai Stock Exchange.

On December 22, 2017, the Board of Directors considered and approved the relevant resolution regarding the 2017-2019 daily related party transactions between Air France-KLM and us, pursuant to which, we will provide aircraft aviation transportation cooperation and support services to Air France-KLM and Air France-KLM will provide aircraft aviation transportation cooperation and support services to us. The Board of Directors also approved the 2017-2019 annual caps for the Air France-KLM aircraft aviation transportation cooperation and support services.

On August 10, 2018, a wholly-owned subsidiary of us entered into the aeronautical materials and components maintenance and spare parts supply service agreement and components lease service agreement with the wholly-owned subsidiary of Air France-KLM, KLM Royal Dutch Airlines, pursuant to which, KLM Royal Dutch Airlines will lease and maintain aeronautical material and spare parts for our 15 B787 airplanes to us for 15 years. The Board of Directors considered and approved the relevant transactions.

On October 30, 2018, a wholly-owned subsidiary of us entered into the aeronautical materials and components maintenance and spare parts supply service agreement and components lease service agreement with the wholly-owned subsidiary of Air France-KLM, Societe Air France, pursuant to which, Societe Air France will lease and maintain aeronautical material and spare parts for our 20 A350 airplanes to us for 15 years. The Board of Directors considered and approved the relevant transactions.

On August 30, 2019, the Board of Directors considered and approved the relevant resolution regarding the 2020-2022 daily related party transactions between Air France-KLM and us. The Board of Directors also approved the 2020-2022 annual caps for the Air France-KLM aircraft aviation transportation cooperation and support services.

For the year ended December 31, 2020, the actual amount of the Air France-KLM aircraft aviation transportation cooperation and support services received by us was approximately RMB105 million and the actual amount of the Air France-KLM aircraft aviation transportation cooperation and support services paid by us was approximately RMB221 million. The actual amount for the aeronautical materials, components and spare parts supply, leasing and maintenance services paid by us to Air France-KLM was approximately RMB10 million.

C. Interests of Experts and Counsel

Not applicable.

Item 8. Financial Information

A. Consolidated Statements and Other Financial Information

Financial Statements

Please read “Item 18. Financial Statements” for information regarding our audited consolidated financial statements and other financial information.

Legal Proceedings

We are involved in routine litigation and other proceedings in the ordinary course of our business. We do not believe that any of these proceedings are likely to be material to our business operations, financial condition or results of operations.

Dividends and Dividend Policy

On March 29, 2018, the Board of Directors considered and approved the 2017 annual profit distribution proposal. It was recommended by the Board of Directors that the 2017 annual distribution be approximately RMB740.3 million in cash. Based on the total share capital of 14,467,585,682 shares of the Company, the cash distribution per share would be RMB0.051 (before tax) in cash which will be distributed to holders of A shares of the Company in RMB and to holders of H shares of the Company in HKD.

On March 29, 2019, the Board of Directors considered and approved the 2018 annual profit distribution proposal. According to the relevant requirements of the “Measures for the Administration of Securities Issuance and Underwriting” of the CSRC, “for issue securities by a listed company, in the event that any profit distribution proposal or proposal of conversion of the reserve into the share capital has not been submitted to its general meeting for voting or has been approved by the general meeting but has not yet been implemented, the issuance of securities shall proceed after such proposal has been implemented.” As the proposed non-public issuance of our A shares was under review by the CSRC and the project was strategically important to us, in order to guarantee the smooth progress of the proposed nonpublic issuance project, we intended not to proceed with cash dividend distribution or conversion of capital reserve into share capital for the year 2018, after comprehensively taking into account of our long-term development and the interests of all of our shareholders. The retained profits would be used to supplement our daily working capital, to fulfill our main business development needs.

We have, for the years ended December 31, 2016 and 2017, consecutively implemented profit distribution proposals to return to our investors. The accumulated profit distribution for the years ended December 31, 2016, 2017 and 2018 amounted to RMB1,446.8 million, which has exceeded the requirement provided in our Articles of Association that “the accumulated profit distribution made in cash by the Company in the latest three years shall not be less than 30% of the average annual distributable profit attributable to the owners of the parent company in the consolidated statements in the latest three years”.

The independent non-executive directors were of the view that the aforesaid 2018 annual profit distribution proposal of the Board of Directors had comprehensively considered the significance of our proposed non-public offering of shares, taking into account of our long-term development and the interests of all of our shareholders. The Board of Directors had performed the voting procedures for the matter in accordance with the requirements of relevant laws and regulations and considered that there is no circumstance detrimental to the interests of our shareholders, especially to our minority shareholders. Meanwhile, it would help us to ensure smooth implementation of our major capital projects, facilitate our healthy and sustainable development.

On March 31, 2020, the Board of Directors considered and approved the 2019 annual profit distribution proposal. It was recommended by the Board of Directors that the 2019 annual distribution be approximately RMB819 million in cash. Based on the total share capital of 16,379,509,203 shares of the Company, the cash distribution per share would be RMB0.050 (before tax) in cash which will be distributed to holders of A shares of the Company in RMB and to holders of H shares of the Company in HKD.

On March 30, 2021, the Board of Directors considered and approved the 2020 profit distribution proposal in the second regular meeting in 2021, and recommended the Company not to distribute profit for 2020.

The independent non-executive directors of the Company consider that the Company’s 2020 profit distribution proposal is in line with the objective situation of the Company, that the consideration procedures are legal and valid, and that the proposal is in line with the PRC Company Law, the PRC Securities Law, relevant laws and regulations of the CSRC and the Shanghai Stock Exchange and the relevant provisions of the articles of association of the Company. The proposal does not damage the interests of investors, especially the interests of small and medium shareholders. The independent non-executive directors of the Company agreed to submit the 2020 profit distribution proposal to the 2020 annual general meeting of the Company for consideration.

The aforesaid profit distribution proposal is subject to consideration and approval by the shareholders at the 2020 general meeting of our Company.

Our Board of Directors declares dividends, if any, in Renminbi, with respect to H Shares on a per share basis and pays such dividends in HK dollars. Any final dividend for a fiscal year is subject to shareholders’ approval. The Bank of New York Mellon (the “BNYM”), as depositary, converts the HK dollar dividend payments and distributes them to holders of ADSs in U.S. dollars, less conversion expenses. Under PRC Company Law and our Articles of Association, all of our shareholders have equal rights to dividends and distributions. The holders of the H Shares share proportionately on a per share basis in all dividends and other distributions declared by our Board of Directors, if any, based on the foreign exchange conversion rate published by PBOC, on the date of the distribution of the cash dividend.

We believe that our dividend policy strikes a balance between two important goals providing our shareholders with a competitive return on investment and assuring sufficient reinvestment of profits to enable us to achieve our strategic objectives. The declaration of dividends is subject to the discretion of our Board of Directors, which takes into account the following factors:

•

our financial results;

•

capital requirements;

•

contractual restrictions on the payment of dividends by us to our shareholders or by our subsidiaries to us;

•

our shareholders interests;

•

the effect on our creditworthiness;

•

general business and economic conditions; and

•

other factors our Board of Directors may deem relevant.

Pursuant to PRC laws and regulations, dividends may only be distributed after allowance has been made for: (i) recovery of losses, if any and (ii) allocations to the statutory surplus reserve. The allocation to the statutory surplus reserve is 10% of our net profit determined in accordance with PRC Generally Accepted Accounting Principles. Our distributable profits for the current fiscal year will be equal to our net profits determined in accordance with IFRSs, less allocations to the statutory surplus reserve.

B. Significant Changes

Significant Post Financial Statements Events

On March 12, 2021, the Company issued two series of corporate bonds with a total principal of RMB9 billion on the Shanghai Stock Exchange. The first series of corporate bonds with a total principal amount of RMB3 billion bears interest at the rate of 3.95% per annum and the principal of the bonds will mature and become repayable on March 12, 2031. Another series of corporate bonds with a total principal amount of RMB6 billion bears interest at the rate of 3.68% per annum and the principal of the bonds will mature and become repayable on March 12, 2027.

On March 29, 2021, the Company’s extraordinary general meeting approved the Proposal for the Non-public Issuance of A shares by China Eastern Airlines Corporation Limited, pursuant to which the Company will issue 2,494,930,875 A Shares to CEA Holding. It is expected that the proceeds to be raised will be not more than RMB10,828 million.

Item 9. The Offer and Listing

A. Offer and Listing Details

The principal trading market for our H Shares is the HKEX (Code: 00670). The ADSs, each representing 50 H Shares, have been issued by BNYM as Depositary and are listed for trading on the NYSE under the symbol “CEA”. Prior to our initial public offering and subsequent listings on the NYSE and the HKEX on February 4 and 5, 1997, respectively, there was no market for our H Shares or ADSs. Our publicly traded domestic shares, or A shares, have been listed on the Shanghai Stock Exchange (Code: 600115) since November 5, 1997.

As of December 31, 2020, there were 5,176,777,777 H Shares issued and outstanding. As of December 31, 2020 and April 15, 2021, there were 58 and 56 registered holders, respectively, of American Depositary Receipts evidencing 1,323,052 and 1,338,412 ADSs, respectively. Since nominees hold certain of the ADSs, the above number may not be representative of the actual number of U.S. beneficial holders of ADSs or the number of ADSs beneficially held by U.S. persons. A total of 11,202,731,426 domestic ordinary shares were also outstanding as of December 31, 2020.

B. Plan of Distribution

Not applicable.

C. Markets

Our H Shares are listed for trading on the HKEX (Code: 00670), our ADSs are listed for trading on the NYSE under the symbol “CEA” and our A Shares are listed for trading on the Shanghai Stock Exchange (Code: 600115).

D. Selling Shareholders

Not applicable.

E. Dilution

Not applicable.

F. Expenses of the Issue

Not applicable.

Item 10. Additional Information

A. Share Capital

Not applicable.

B. Memorandum and Articles of Association

The following is a brief summary of certain provisions of our Articles of Association, as amended. Such summary does not purport to be complete. For further information, you and your advisors should refer to the text of our Articles of Association, as amended, and to the texts of applicable laws and regulations. A copy of the English translation of our Articles of Association, as amended on December 31, 2019, is attached as an exhibit to this Annual Report on Form 20-F (which is incorporated by reference).

Selected Summary of the Articles of Association

We are a joint stock limited company established in accordance with the Company Law of the People’s Republic of China (the “Company Law”), the “State Council’s Special Regulations Regarding the Issue of Shares Overseas and the Listing of Shares Overseas by Companies Limited by Share” (the “Special Regulations”) and other relevant laws and regulations of the State. We are established by way of promotion with the approval under the document “Ti Gai Sheng” 1994 No. 140 of the PRC State Commission for Restructuring the Economic System. We are registered with and obtained a business license from China’s State Administration Bureau of Industry and Commerce on April 14, 1995. On February 8, 2017, we completed the “Combination of Three Licenses into One” procedures for our business license, organization code certificate and tax registration certificate. The unified social credit code of our business license after the integration is 913100007416029816.

We were incorporated in the PRC for the purpose of providing the public with safe, punctual, comfortable, fast and convenient air transport services and other ancillary services, to enhance the cost-effectiveness of these services and to protect the lawful rights and interests of shareholders.

Board of Directors

The Board of Directors shall consist of seven (7) to thirteen (13) directors, who are to be elected at the shareholders’ general meeting (excluding employee representative directors, who shall be elected or removed by employee representative assembly) and will hold a term of office for three (3) years. At least one-third of the members of the Board of Directors shall be independent directors. The directors are not required to hold shares of our Company.

Directors who are either directly or indirectly materially interested in a contract, transaction or arrangement or proposed contract, transaction or arrangement with our Company (other than his contract of service with our Company) shall declare the nature and extent of his interests to the Board of Directors at the earliest opportunity, whether or not the contract, transaction or arrangement or proposal is otherwise subject to the approval of the Board of Directors.

In accordance with our Articles, a director shall abstain from voting at a board meeting, the purpose of which is to approve contracts, transactions or arrangements that such director or any of his or her associates (as defined in the relevant rules governing the listing of securities) has a material interest in. Such director shall not be counted in the quorum for the relevant board meeting.

Unless the interested director discloses his interests in accordance with our Articles of Association and the contract, transaction or arrangement is approved by the Board of Directors at a meeting in which the interested director is not counted in the quorum and refrains from voting, a contract, transaction or arrangement in which that director is materially interested is voidable at the instance of our Company except as against a bona fide party thereto acting without notice of the breach of duty by the interested director. A director is also deemed to be interested in a contract, transaction or arrangement in which an associate of the director is interested.

Our Articles provide that our Company shall not in any manner pay taxes for or on behalf of a director or make directly or indirectly a loan to or provide any guarantee in connection with the making of a loan to a director of our Company or of our Company’s holding company or any of their respective associates. However, the following transactions are not subject to such prohibition: (i) the provision by our Company of a loan or a guarantee of a loan to a company which is a subsidiary of our Company; (ii) the provision by our Company of a loan or a guarantee in connection with the making of a loan or any other funds to any of its directors, administrative officers to meet expenditure incurred or to be incurred by him for the purposes of our Company or for the purpose of enabling him to perform his duties properly, in accordance with the terms of a service contract approved by the shareholders in general meeting; (iii) our Company may make a loan to or provide a guarantee in connection with the making of a loan to any of the relevant directors or their respective associates in the ordinary course of its business on normal commercial terms, provided that the ordinary course of business of our Company includes the lending of money or the giving of guarantees.

Our Articles do not contain any requirements for (i) the directors’ power to vote compensation to themselves or any members of their body, in the absence of an independent quorum or (ii) the directors to retire by a specified age.

Description of the Shares

As of December 31, 2020, our share capital structure was as follows: 16,379,509,203 ordinary shares, comprising a total of 11,202,731,426 A Shares, representing 68.39% of our total share capital, a total of 5,176,777,777 H Shares, representing 31.61% of our total share capital.

Our ordinary shareholders shall enjoy the following rights:

(i)

the right to dividends and other distributions in proportion to the number of shares held;

(ii)

the right to attend or appoint a proxy to attend Shareholders’ general meetings and to vote thereat;

(iii)

the right of supervisory management over the Company’s business operations, and the right to present proposals or enquiries;

(iv)

the right to transfer shares in accordance with laws, administrative regulations and provisions of these Articles of Association;

(v)

the right to obtain relevant information in accordance with the provisions of these Articles of Association, including:

(1)

the right to obtain a copy of these Articles of Association, subject to payment of the cost of such copy;

(2)

the right to inspect and copy, subject to payment of a reasonable charge;

(a)

all parts of the register of shareholders;

(b)

personal particulars of each of the Company’s directors, supervisors, general manager, deputy general managers and other senior administrative officers, including:

(aa)

present name and alias and any former name or alias;

(bb)

principal address (residence);

(cc)

nationality;

(dd)

primary and all other part-time occupations and duties;

(ee)

identification documents and their relevant numbers;

(c)

state of the Company’s share capital;

(d)

reports showing the aggregate par value, quantity, highest and lowest price paid in respect of each class of shares repurchased by the Company since the end of the last accounting year and the aggregate amount paid by the Company for this purpose;

(e)

minutes of Shareholders’ general meetings and the accountant’s report;

(vi)

in the event of the termination or liquidation of the Company, to participate in the distribution of surplus assets of the Company in accordance with the number of shares held; or

(vii)

other rights conferred by laws, administrative regulations and these Articles of Association.

A shareholder (including a proxy), when voting at a Shareholders’ general meeting, may exercise such voting rights in accordance with the number of shares carrying the right to vote and each share shall have one vote. Resolutions of shareholders’ general meetings shall be divided into ordinary resolutions and special resolutions. To adopt an ordinary resolution, votes representing more than one half of the voting rights represented by the shareholders (including proxies) present at the meeting must be exercised in favor of the resolution in order for it to be passed. To adopt a special resolution, votes representing more than two-thirds of the voting rights represented by the shareholders (including proxies) present at the meeting must be exercised in favor of the resolution in order for it to be passed. Our ordinary shareholders are entitled to the right to dividends and other distributions in proportion to the number of shares held, and they are not liable for making any further contribution to the share capital other than as agreed by the subscriber of the relevant shares on subscription. Our Articles of Association provide that a controlling shareholder (as defined in the Articles of Association) shall not approve certain matters which will be prejudicial to the interests of all or some of other shareholders by exercising his/her voting rights.

The Listing Agreement between us and the HKEX further provides that we may not permit amendments to certain sections of the Articles of Association subject to the Mandatory Provisions for the Articles of Association of Companies Listed Overseas promulgated by the State Council Securities Commission and the State Restructuring Commission on August 27, 1994 (the “Mandatory Provisions”). These sections include provisions relating to (i) varying the rights of existing classes of shares; (ii) voting rights; (iii) our power to purchase our own shares; (iv) rights of minority shareholders; and (v) procedures upon liquidation. In addition, certain amendments to the Articles of Association require the approval and assent of relevant PRC authorities.

Shareholders’ Meetings

Shareholders’ general meetings are divided into annual general meetings and extraordinary general meetings. Shareholders’ general meetings shall be convened by the Board of Directors. Annual general meetings are held once every year and within six (6) months from the end of the preceding financial year. The Board of Directors shall convene an extraordinary general meeting within two (2) months of the occurrence of any one of the following events:

(i)

where the number of directors is less than the number of directors required by Company Law or two-thirds of the number of directors specified in these Articles of Association;

(ii)

where the unrecovered losses of the Company amount to one-third of the total amount of its share capital;

(iii)

where shareholder(s) holding 10 per cent or more of the Company’s issued and outstanding shares carrying voting rights request(s) in writing the convening of an extraordinary general meeting; or

(iv)

when deemed necessary by the Board of Directors or as requested by the supervisory committee.

When we convene a shareholders’ general meeting, written notice of the meeting shall be given forty five (45) days before the date of the meeting to notify all of the shareholders in the share register of the matters to be considered and the date and place of the meeting. A shareholder who intends to attend the meeting shall deliver his written reply concerning the attendance of the meeting to us twenty (20) days before the date of the meeting. When we convene a shareholders’ annual general meeting, shareholders holding three per cent or more of the total voting shares of the Company shall have the right to propose new motions in writing, and we shall place those matters in the proposed motions within the scope of functions and powers of the Shareholders’ general meeting on the agenda.

Shareholders’ Rights

Set forth below is certain information relating to the H Shares, including a brief summary of certain provisions of the Articles, and selected laws and regulations applicable to us.

Sources of Shareholders’ Rights

The rights and obligations of holders of H Shares and other provisions relating to shareholder protection are principally provided in the Articles of Association and Company Law. The Articles of Association incorporate mandatory provisions in accordance with Mandatory Provisions. We are further subject to management ordinances applicable to the listed companies in Hong Kong SAR and the United States, as our H Shares are listed on the HKEX and the NYSE (in the form of ADSs).

In addition, for so long as the H Shares are listed on the HKEX, we are subject to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “HKSE Rules”), the Securities and Futures Ordinance of Hong Kong (the “SFO”) and the Hong Kong Code on Takeovers and Mergers and Share Repurchases.

Unless otherwise specified, all rights, obligations and protections discussed below are derived from the Articles of Association, Company Law and abovementioned laws and regulations.

Significant Differences in the H Shares and A Shares

Holders of H Shares and A Shares, with minor exceptions, are entitled to the same economic and voting rights. The Articles of Association provide that dividends or other payments payable to A Share holders shall be declared and calculated in Renminbi and paid in Renminbi, while those to H Share holders shall be declared and calculated in Renminbi and paid in the local currency at the place where such H Shares are listed (if there is more than one place of listing, then the principal place of listing as determined by the Board of Directors).

Restrictions on Transferability and the Share Register

All fully paid up H Shares will be freely transferable in accordance with the Articles of Association unless otherwise prescribed by laws and/or administrative regulations. There are no restrictions on the ability of investors who are not PRC residents to hold H Shares.

Pursuant to the Articles of Association, we may refuse to register a transfer of H Shares unless:

(1)

a fee (for each instrument of transfer) of HK$2.50 or any higher fee as agreed by the Stock Exchange has been paid to us for registration of any transfer or any other document which is related to or will affect ownership of or change of ownership of the shares;

(2)

the instrument of transfer only involves H Shares;

(3)

the stamp duty chargeable on the instrument of transfer has been paid;

(4)

the relevant share certificate and upon the reasonable request of the Board of Directors any evidence in relation to the right of the transferor to transfer the shares have been submitted;

(5)

if it is intended to transfer the shares to joint owners, then the maximum number of joint owners shall not exceed four (4); or

(6)

we do not have any lien on the relevant shares.

If we refuse to register any transfer of shares, we shall within two months of the formal application for the transfer provide the transferor and the transferee with a notice of refusal to register such transfer. No changes in the shareholders’ register due to the transfer of shares may be made within thirty (30) days before the date of a Shareholders’ general meeting or within five (5) days before the record date established for the purpose of distributing a dividend.

Merger and Acquisitions

In the event of the merger or division of our Company, a plan shall be presented by our Board of Directors and shall be approved in accordance with the procedures stipulated in our Articles of Association and then the relevant examining and approving formalities shall be processed as required by law. A shareholder who objects to the plan of merger or division shall have the right to demand that we or the shareholders who consent to the plan of merger or division acquire such dissenting shareholders’ shareholding at a fair price. The contents of the resolution of merger or division of our Company shall be made into special documents for shareholders’ inspection.

Repurchase of Shares

We may, with approval according to the procedures provided in these Articles of Association and subject to the approval of the relevant governing authority of the State, repurchase our issued shares under the following circumstances:

(i)

cancelation of shares for the reduction of capital;

(ii)

merging with another company that holds shares in our Company;

(iii)

issue of shares in connection with staff shareholding plans or share incentives;

(iv)

requesting our Company to purchase its own shares where shareholders object to the merger or demerger resolution of a general meeting;

(v)

issue of shares in connection with convertible bonds issued by the Company;

(vi)

deemed necessary by the Company for protecting the Company’s value and shareholders’ interests; or

(vii)

other circumstances permitted by relevant laws and administrative regulations.

We shall not repurchase our issued shares except under the circumstances stated above.

We may, with the approval of the relevant State governing authority for repurchasing shares, conduct the repurchase in one of the following ways:

(i)

making a pro rata general offer of repurchase to all our shareholders;

(ii)

repurchasing shares through public dealing on a stock exchange;

(iii)

repurchasing shares by an off-market agreement outside a stock exchange; or

(iv)

by any other mean which is permitted by law and administrative regulations and by the authorities in charge of the securities and stock exchanges in the place where our Company is listed.

Interested Shareholders

Articles 89 and 90 of our Articles of Association provide the following:

Article 89: the following circumstances shall be deemed to be a variation or abrogation of the class rights of a class:

(i)

to increase or decrease the number of shares of such class, or increase or decrease the number of shares of a class having voting or equity rights or privileges equal or superior to those of the shares of that class;

(ii)

to effect an exchange of all or part of the shares of such class into shares of another class or to effect an exchange or create a right of exchange of all or part of the shares of another class into the shares of such class;

(iii)

to remove or reduce rights to accrued dividends or rights to cumulative dividends attached to shares of such class;

(iv)

to reduce or remove a dividend preference or a liquidation preference attached to shares of such class;

(v)

to add, remove or reduce conversion privileges, options, voting rights, transfer or pre-emptive rights, or rights to acquire securities of the Company attached to shares of such class;

(vi)

to remove or reduce rights to receive payment payable by the Company in particular currencies attached to shares of such class;

(vii)

to create a new class of shares having voting or equity rights or privileges equal or superior to those of the shares of such class;

(viii)

to restrict the transfer or ownership of the shares of such class or add to such restrictions;

(ix)

to allot and issue rights to subscribe for, or convert into, shares in the Company of such class or another class;

(x)

to increase the rights or privileges of shares of another class;

(xi)

to restructure the Company where the proposed restructuring will result in different classes of shareholders bearing a disproportionate burden of such proposed restructuring; or

(xii)

to vary or abrogate the provisions of this Chapter.

Article 90. Shareholders of the affected class, whether or not otherwise having the right to vote at Shareholders’ general meetings, shall nevertheless have the right to vote at class meetings in respect of matters concerning sub-paragraphs (2) to (8), (11) and (12) of Article 89, but interested shareholder(s) shall not be entitled to vote at class meetings.

The meaning of “interested shareholder(s)” as mentioned in the preceding paragraph is:

in the case of a repurchase of shares by offers to all shareholders or public dealing on a stock exchange under Article 31, a “controlling shareholder” within the meaning of Article 54;

in the case of a repurchase of shares by an off-market contract under Article 31, a holder of the shares to which the proposed contract relates; and

in the case of a restructuring of the Company, a shareholder within a class who bears less than a proportionate obligation imposed on that class under the proposed restructuring or who has an interest in the proposed restructuring different from the interest of shareholders of that class.

Ownership Threshold

There are no ownership thresholds above which shareholder ownership is required to be disclosed.

Changes in Capital

Article 79(1) provides that any increase or reduction in share capital shall be resolved by a special resolution at a shareholders’ general

meeting.

Changes in Registered Capital

The Company may reduce its registered share capital. It shall do so in accordance with Company Law, any other relevant regulatory provisions and the Articles of Association.

C. Material Contracts

For a summary of any material contracts entered into by our Company or any of our consolidated subsidiaries outside of the ordinary course of business during the last two years, see “Item 4. Information on the Company”, “Item 5. Operating and Financial Review and Prospects” and “Item 7. Major Shareholders and Related Party Transactions”.

D. Exchange Controls

The Renminbi is not currently a freely convertible currency. SAFE, under the authority of PBOC, controls the conversion of Renminbi into foreign currency. Prior to January 1, 1994, Renminbi could be converted to foreign currency through the Bank of China or other authorized institutions at official rates fixed daily by SAFE. Renminbi could also be converted at swap centers open to Chinese enterprises and foreign invested enterprises subject to SAFE approval of each foreign currency trade, at exchange rates negotiated by the parties for each transaction. Effective January 1, 1994, a unitary exchange rate system was introduced in China, replacing the dual-rate system previously in effect. In connection with the creation of a unitary exchange rate, the PRC government announced the establishment of an inter-bank foreign exchange market, the China Foreign Exchange Trading System, or CFETS, and the phasing out of the swap centers. Effective December 1, 1998, the swap centers were abolished by the PRC government.

On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the Renminbi to the U.S. dollar. Under the new policy, the Renminbi is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. The PRC government further reformed the Renminbi exchange rate regime in 2012 and 2014. On August 11, 2015, the PBOC announced an adjustment to the mechanism of determining the midpoint price of Renminbi to the U.S. dollar to make the exchange rate of Renminbi more market-based. The modified mechanism allows traders to consider the closing exchange rate in the previous trading day when they quote the mid-point price for Renminbi against the U.S. dollar. The PRC government may make further adjustments to the exchange rate system in the future.

In general, under existing foreign exchange regulations, domestic enterprises operating in China must price and sell their goods and services in China in Renminbi. Any foreign exchange received by such enterprises must be sold to authorized foreign exchange banks in China. A significant portion of our revenue and operating expenses are denominated in Renminbi, while a portion of our revenue, capital expenditures and debts are denominated in U.S. dollars and other foreign currencies. Renminbi is currently freely convertible under the current account, which includes dividends, trade and service-related foreign currency transactions, but not under the capital account, which includes foreign direct investment, unless the prior approval of the SAFE, is obtained. As a foreign investment enterprise approved by the MOC, we can purchase foreign currency without the approval of SAFE for settlement of current account transactions, including payment of dividends, by providing commercial documents evidencing these transactions. We can also retain foreign exchange in our current accounts, subject to a maximum amount approved by SAFE, to satisfy foreign currency liabilities or to pay dividends. However, the relevant PRC government authorities may limit or eliminate our ability to purchase and retain foreign currencies in the future. Foreign currency transactions under the capital account are still subject to limitations and require approvals from SAFE. This may affect our ability to obtain foreign exchange through debt or equity financing, including by means of loans or capital contributions. We cannot assure you that we will be able to obtain sufficient foreign exchange to pay dividends or satisfy our foreign exchange liabilities.

E. Taxation

The taxation of income and capital gains of holders of H Shares or ADSs is subject to the laws and practices of China and of jurisdictions in which holders of H Shares or ADSs are resident or otherwise subject to tax. The following summary of certain relevant taxation provisions is based on current law and practice, is subject to change and does not constitute legal or tax advice. The discussion does not deal with all possible tax consequences relating to an investment in the H Shares or ADSs. In particular, the discussion does not address the tax consequences under state, local and other laws, such as non-U.S. federal laws. Accordingly, you should consult your own tax adviser regarding the tax consequences of an investment in the H Shares and ADSs. The discussion is based upon laws and relevant interpretations in effect as of the date of this Annual Report, all of which are subject to change.

Hong Kong Taxation

The following discussion summarizes the relevant Hong Kong tax rules relating to the ownership of H shares or ADSs purchased in connection with the global offering and held by you.

Dividends

Under current Hong Kong Inland Revenue Department practice, no profits tax is payable by the recipient in respect of dividends we paid.

Taxation of Capital Gains

Gains derived from the sale of capital assets are specifically exempt from profits tax. Thus, no profits tax is imposed on capital gains arising from the sale of property (such as H shares) acquired and held as a capital asset. However, whether or not there has been a sale of a capital asset depends upon the particular circumstances of a case. If a person carries on a business in Hong Kong of trading and dealing in securities and derives trading gains from that business in Hong Kong, that person could be subject to profits tax on any assessable gains. Assessable gains include gains derived from the sales of H shares effected on the HKEX as these gains are considered to be trading gains derived from Hong Kong. Profits tax is currently charged at the rate of 16.5% for corporations and at the rate of 15% for unincorporated businesses (i.e. individuals). From the year of assessment 2018/19, a concessionary tax rate (i.e. half of the current tax rate) can apply to corporations or unincorporated businesses for the first HK$2 million of assessable profits subject to applicable conditions.

No profits tax liability will arise on trading gains arising from the sale of ADSs where the purchase and sale is effected outside Hong Kong (e.g. on the NYSE).

Hong Kong Stamp Duty

Stamp duty is payable by each of the seller and the purchaser for every sold note and every bought note created for every sale and purchase of the H shares. Stamp duty is levied at the total rate of 0.2% (0.1% for each of sold note and bought note) of the value of the H shares transferred (the buyer and seller each paying half of such stamp duty). The rate will increase to the total rate of 0.26% (0.13% for each of sold note and bought note) for every sale and purchase of H Shares occurring on or after August 1, 2021. In addition, a fixed duty of HK$5 is currently payable on an instrument of transfer of H shares. If one of the parties to a sale is a non-resident of Hong Kong and does not pay the required stamp duty, the amount of unpaid stamp duty will be assessed on the instrument of transfer (if any), and the transferee will be liable for payment of such unpaid amount.

If the withdrawal of H shares when ADSs are surrendered or the issuance of ADSs when H shares are deposited results in a change of beneficial ownership in the H shares under Hong Kong law, stamp duty at the rate cited above for a sale and purchase transaction will apply. The issuance of ADSs for deposited H shares issued directly to the depositary, or for the account of the depositary, should not result in any stamp duty liability. Holders of the ADSs are not liable for the stamp duty on transfers of ADSs outside of Hong Kong so long as the transfers do not result in a change of beneficial interest in the H shares under Hong Kong law.

Hong Kong Estate Duty

Hong Kong estate duty was abolished with respect to persons passing away on or after February 11, 2006.

China Taxation

The following is a general summary of certain Chinese tax consequences of the acquisition, ownership and disposition of the H Shares and ADSs. This summary does not purport to address all material tax consequences of the ownership of Shares or ADSs, and does not take into account the specific circumstances of any particular investors. This summary is based on the tax laws of China as in effect on the date of this Annual Report, as well as on the U.S.- China Treaty, all of which are subject to change (or changes in interpretation), possibly with retroactive effect.

In general, and taking into account the earlier assumptions, for Chinese tax purposes, holders of ADRs evidencing ADSs will be treated as the owners of the H Shares represented by those ADSs, and exchanges of H Shares for ADSs, and ADSs for H Shares, will not be subject to Chinese tax.

Taxation of Dividends by China

Individual investors

The Provisional Regulations of China Concerning Questions of Taxation on Enterprises Experimenting with the Share System, or the Provisional Regulations, provide that dividends from Chinese companies are ordinarily subject to a Chinese withholding tax levied at a flat rate of 20%. However, on July 21, 1993, the Chinese State Tax Bureau issued a Notice Concerning the Taxation of Gains on Transfer and Dividends from Shares (Equities) Received by Foreign Investment Enterprises, Foreign Enterprises and Foreign Individuals Numbered Guo Shui Fa [1993] No. 045, or No. 45 Document which provides that dividends from a Chinese company on shares listed on an overseas stock exchange, or Overseas Shares, such as H Shares (including H Shares represented by ADSs), would not be subject to Chinese withholding tax. The relevant tax authority has not collected withholding tax on dividend payments on Overseas Shares.

Nevertheless, No.45 Document was abolished on January 4, 2011 and the Chinese State Tax Bureau issued, on June 28, 2011, a Notice on Issues Concerning the Levy of Individual Income Tax following the Abolishment of the Document Numbered Guo Shui Fa [1993] No. 045, according to which dividends from a Chinese company are ordinarily subject to a Chinese withholding tax levied at a flat rate of 20% unless otherwise provided in applicable tax treaties between the PRC and the jurisdiction in which the relevant non-resident shareholder resides. The tax rate of dividends income tax applicable to Hong Kong residents and U.S. residents is 10% of the gross amount of interest.

On October 31, 2014, CSRC, MOF and STA together promulgated The Notice of the Relevant Tax Policy of the Pilot Program for the Shanghai-Hong Kong Stock Connect (Hereinafter refer to as Notice 81) which has been effective from November 17, 2014. Pursuant to Notice 81, for dividends acquired by mainland individual investors through investment in H-shares listed on the HKEX via Hong Kong-Shanghai Stock Connect, the H-share company shall apply to China Securities Depository and Clearing Corporation Limited (Hereinafter refer to as Chinese Clearing). Chinese Clearing shall provide the H-share company with the mainland individual’s investor rosters. The H-share company withholds the individual income tax at the tax rate of 20%. For dividends acquired by mainland securities investment funds through investment in shares listed on the HKEX via Hong Kong- Shanghai Stock Connect, the individual income tax shall be collected according to the regulations hereinbefore.

For dividends acquired by Hong Kong investors’ (including enterprises and individuals) through investment in A-shares listed on the Shanghai Stock Exchange, before Hong Kong Securities Clearing Limited (Hereinafter refer to as Hong Kong Clearing) meet the conditions to provide Chinese Clearing with detailed data of investors’ identity certification and time of shareholding, the different tax policy according to time of shareholding will temporarily not to be implemented. The listed company shall withhold the income tax at the tax rate of 10%, declare, and pay to the tax authorities.

Enterprises

Under the EIT Law amended in 2018 and the implementation regulations to the EIT Law amended on April 23, 2019, PRC income tax at the rate of 10% is applicable to dividends payable to investors that are “non-resident enterprises”, which do not have an establishment or place of business in the PRC, or which have such establishment or place of business but the relevant income is not effectively connected with the establishment or place of business. The rate could be reduced or eliminated pursuant to an applicable double taxation treaty.

In accordance with the Notice 81, (a) dividends acquired by mainland enterprise investors through investment in shares listed on the HKEX via Hong Kong-Shanghai Stock Connect will be accounted into their total income and subject to enterprise income tax according to the laws. Among those, for the dividends acquired by mainland enterprise investors through continuing holding H shares for 12 months, the enterprise income tax shall be exempted according to the laws; (b) the H-share company listed on the HKEX shall apply to the Chinese Clearing to offer them the mainland enterprise investor rosters. The H-share company does not withhold income tax from dividends for mainland enterprise investors. The enterprises shall declare and pay by themselves; and (c) the mainland enterprise investors may apply for tax credits for dividends already withheld by non-H-share listed companies on the HKEX when declaring and paying the enterprise tax income.

Tax Treaties

Non-Chinese investors resident in countries, which have entered into double-taxation treaties with China, may be entitled to a reduction of the withholding tax imposed on the payment of dividends to non-Chinese investors of our Company. China currently has double-taxation treaties with a number of other countries, including Australia, Canada, France, Germany, Japan, Malaysia, the Netherlands, Singapore, the United Kingdom and the United States.

Notice 81 explicitly stipulated that for Hong Kong investors who are tax residents of other countries that have signed the tax agreement with China to regulate the tax rate for dividends, that income tax to be less than 10%, the enterprise or individual may, by themselves or withholding agents, apply for the treatment of the tax agreement to the tax authorities of listed companies. After examination and verification, the tax authorities shall reimburse the difference between the levied tax and the payable tax according to the tax agreement.

Under the U.S.-China Treaty, China may tax a dividend paid by our Company to a U.S. holder of H Shares or ADSs only up to a maximum of 10% of the gross amount of such dividend.

Taxation of Capital Gains by China

Individual Investors

According to the Law of Individual Income Tax and its implementation regulations, holders of H Shares or ADSs who have no domiciles and do not reside in China or who have no domiciles but have resided in China for less than one year shall be subject to individual income tax on their income gained within China, unless otherwise reduced or eliminated pursuant to an applicable double taxation treaty.

Notice 81 requires, (a) from November 17, 2014 to November 16, 2017, the income tax from transfer price difference will be temporarily exempted for mainland individual investors’ investment in shares listed on the HKEX through Hong Kong-Shanghai Stock Connect; (b) for mainland individual investors, the business tax from transfer price difference in the trading of shares listed on the HKEX through Hong Kong- Shanghai Stock Connect will be temporarily exempted according to current policy; and (c) the income tax and the business tax from transfer price difference will be temporarily exempted for Hong Kong individual investors’ investment in A-shares listed on the Shanghai Stock Exchange.

Under the U.S.-China Treaty, China may only tax gains from the sale or disposition by a U.S. holder of H Shares or ADSs representing an interest in the company of 25% or more.

Enterprises

Under the EIT Law and the implementation regulations to the EIT Law, gains realized upon the sale of Overseas Shares by “non-resident enterprises” may be subject to PRC taxation at the rate of 10% (or lower treaty rate).

Pursuant to Notice 81, the income tax from transfer price difference will be accounted into the total income and subject to enterprise income tax according to the laws for mainland enterprise investors’ investment in shares listed on the HKEX through Hong Kong-Shanghai Stock Connect. For mainland enterprise investors, the business tax from transfer price difference in the trading of shares listed on the HKEX through Hong Kong-Shanghai Stock Connect shall be levied and exempted according to current policy. Income tax and the business tax from transfer price difference will be temporarily exempted for Hong Kong enterprise investors’ investment in A-shares listed on the Shanghai Stock Exchange.

PRC Stamp Tax

Chinese stamp tax imposed on the transfer of shares of Chinese publicly traded companies under the Share System Tax Regulations should not apply to the acquisition or disposition by non-Chinese investors of H Shares or ADSs outside of China by virtue of the Provisional Regulations of the People’s Republic of China Concerning Stamp Tax, which provides that Chinese stamp tax is imposed only on documents executed or received within China or that should be considered as having been executed or received within China.

According to Notice 81, Hong Kong investors shall pay stamp duty according to mainland current tax policy when trading, inheriting, gifting the A- shares listed on the Shanghai Stock Exchange through Hong Kong-Shanghai Stock Connect.

United States Federal Income Taxation

Each potential investor is strongly urged to consult his, her or its own tax adviser to determine the particular U.S. federal, state, local, treaty and foreign tax consequences and U.S. reporting and compliance requirement of acquiring, owning or disposing of the H Shares or ADSs.

The following is a general discussion of material U.S. federal income tax consequences of purchasing, owning and disposing of the H Shares or ADSs if you are a U.S. Holder, as defined below, use the U.S. Dollar as your functional currency, and hold the H Shares or ADSs as capital assets within the meaning of Section 1221 of the U.S. Internal Revenue Code of 1986 as amended (the “Code”). This discussion does not address all of the tax consequences relating to the purchase, ownership and disposition of the H Shares or ADSs, and does not take into account U.S. Holders (defined below) who may be subject to special rules including:

•

tax-exempt entities;

•

banks, financial institutions, and insurance companies;

•

real estate investment trusts, regulated investment companies and grantor trusts;

•

dealers or traders in securities, commodities or currencies;

•

U.S. Holders that own, actually or constructively, 10% or more of our voting stock;

•

persons who receive the H Shares or ADSs as compensation for services;

•

U.S. Holders that hold the H Shares or ADSs as part of a straddle or a hedging or conversion transaction;

•

persons that generally mark their securities to market for U.S. federal income tax purposes;

•

U.S. citizens or tax residents who are residents of the PRC;

•

U.S. citizens or tax residents who are subject to Hong Kong profits tax;

•

certain U.S. expatriates;

•

certain accrual method taxpayers subject to special tax accounting rules as a result of their use of financial statements;

•

a partnership (or other entity or arrangement treated as a partnership for U.S. federal income tax purposes) or pass-through entity (or a partner, member, or owner thereof);

•

persons who are resident or have a permanent establishment outside of the United States;

•

dual resident corporations; or

•

U.S. Holders whose functional currency is not the U.S. dollar.

Moreover, this description does not address U.S. federal estate, gift or alternative minimum taxes, the U.S. federal unearned Medicare contribution tax, or any state or local tax consequences of the acquisition, ownership and disposition of the H Shares or ADSs.

This discussion is based on the Code, its legislative history, final, temporary and proposed U.S. Treasury regulations promulgated thereunder, published rulings and court decisions as in effect on the date hereof, all of which are subject to change, or changes in interpretation, possibly with retroactive effect. In addition, this discussion is based in part upon representations of the depositary and the assumption that each obligation in the deposit agreement and any related agreements will be performed according to its terms.

You are a “U.S. Holder” if you are a beneficial owner of H Shares or ADSs and are:

•

an individual citizen or resident of the United States for U.S. federal income tax purposes;

•

a corporation, or other entity treated as a corporation for U.S. federal income tax purposes, created or organized under the laws of the United States or any political subdivision thereof;

•

an estate the income of which is subject to U.S. federal income tax without regard to its source; or

•

a trust if (i) a court within the United States is able to exercise primary supervision over it’s administration, and one or more U.S. persons have the authority to control all of the substantial decisions of such trust, or (ii) such trust has a valid election in effect to be treated as a U.S. person for U.S. federal income tax purposes.

If a partnership (including any entity treated as a partnership for U.S. federal tax purposes) is a beneficial owner of the H Shares or ADSs, the treatment of the partner in such partnership will generally depend upon the status of the partner and the activities of the partnership. If an investor is a partner in a partnership that holds H Shares or ADSs, such investor should consult its tax advisor.

In general, if you hold ADRs evidencing ADSs, you will be treated as the owner of the H Shares represented by the ADSs. Exchanges of H shares for ADRs, and ADRs for H shares, generally will not be subject to U.S. federal income tax.

INVESTORS SHOULD CONSULT THEIR TAX ADVISORS AS TO THE PARTICULAR TAX CONSIDERATIONS APPLICABLE TO THEM RELATING TO THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE H SHARES OR ADSs, INCLUDING THE APPLICABILITY OF U.S. FEDERAL, STATE AND LOCAL TAX LAWS OR NON-U.S. TAX LAWS, ANY CHANGES IN APPLICABLE TAX LAWS AND ANY PENDING OR PROPOSED LEGISLATION OR REGULATIONS.

Distributions on the H Shares or ADSs

Subject to the discussion below under “— Passive Foreign Investment Company”, the gross amount of any distribution (without reduction for any withheld PRC tax) we make on the H Shares or ADSs out of our current or accumulated earnings and profits (as determined for U.S. federal income tax purposes) will be includible in your gross income as ordinary dividend income when the distribution is actually or constructively received by you, or by the depositary in the case of ADSs. Distributions that exceed our current and accumulated earnings and profits will be treated as a return of capital to you to the extent of your basis in the H Shares or ADSs and thereafter as capital gain. We, however, may not calculate earnings and profits in accordance with U.S. tax principles. Accordingly, it is expected that distributions by us to U.S. Holders, if any, will generally be treated as dividends. Any dividend will not be eligible for the dividends-received deduction generally allowed to U.S. corporations in respect of dividends received from U.S. corporations or foreign corporations. The amount of any distribution of property other than cash will be the fair market value of such property on the date of such distribution.

Subject to certain exceptions for short-term and hedged positions, the U.S. dollar amount of dividends received by certain non-corporate U.S. Holders will be subject to taxation at a maximum rate of 20% if the dividends are “qualified dividends.” Dividends paid on H Shares or ADSs will be treated as qualified dividends if either (i) we are eligible for the benefits of a comprehensive income tax treaty with the United States that the Internal Revenue Service, or IRS, has approved for the purposes of the qualified dividend rules, or (ii) the dividends are, with respect to ADSs, readily tradable on a U.S. securities market, provided that we were not, in each case, in the year prior to the year in which the dividend was paid, and are not, in the year in which the dividend is paid, a passive foreign investment company, or PFIC. The Agreement Between the Government of the United States of America and the Government of the People’s Republic of China for the Avoidance of Double Taxation and the Prevention of Tax Evasion with Respect to Taxes on Income (the “Treaty”) has been approved for the purposes of the qualified dividend rules, and we expect to qualify for benefits under the Treaty. We are considered a qualified foreign corporation with respect to the ADSs because our ADSs are listed on the NYSE. There can be no assurance that our shares will be considered readily tradable on an established securities market in later years. Finally, based on our audited consolidated financial statements and relevant market data, we believe that we did not satisfy the definition for PFIC status for U.S. federal income tax purposes with respect to our 2018 taxable year. In addition, based on our audited consolidated financial statements and our current expectations regarding the value and nature of our assets, the sources and nature of our income, and relevant market data, we do not anticipate becoming a PFIC for our 2019 taxable year or any future year. However, our status in the current year and future years will depend on our income and assets (which for this purpose depends in part on the market value of the H Shares or ADSs) in those years. See the discussion below under “— Passive Foreign Investment Company”. Our U.S. counsel expresses no opinion with respect to our expectations contained in this paragraph.

Holders of H Shares or ADSs should consult their own tax advisors regarding the availability of the reduced dividend tax rate in light of their own particular circumstances.

If we make a distribution paid in Hong Kong dollars, you may be treated as recognizing currency gain or loss to the extent the distributions on the H Shares or ADSs are affected by currency gains or losses. U.S. Holders should consult their own tax advisors regarding the calculation of non-U.S. currency gain or loss.

Subject to various limitations, any PRC tax withheld from distributions in accordance with the Treaty may be deductible or creditable against your U.S. federal income tax liability depending on the application of the section 904 foreign tax credit limitation provisions. Dividends paid by us generally will constitute income from sources outside the United States, however, there can be no assurance that you will be eligible to benefit from a foreign tax credit. The foreign tax credit rules are complex and U.S. Holders should consult their own tax advisors regarding the effect of these rules in their particular circumstance.

In the event we are required to withhold PRC income tax on dividends paid to U.S. Holders on the H Shares or ADSs (see discussion under “— China Taxation”), you may be able to claim a reduced 10% rate of PRC withholding tax if you are eligible for benefits under the Treaty. You should consult your own tax adviser about the eligibility for reduction of PRC withholding tax.

Sale, Exchange or Other Disposition

Subject to the discussion below under “— Passive Foreign Investment Company”, upon a sale, exchange or other disposition of the H Shares or ADSs, you will generally recognize capital gain or loss for U.S. federal income tax purposes in an amount equal to the difference between the U.S. dollar value of the amount realized and your tax basis, determined in U.S. dollars, in such H Shares or ADSs. Generally, gain or loss recognized upon the sale or other disposition of H Shares or ADSs, will be long-term capital gain or loss if the U.S. Holder’s holding period for such H Shares or ADSs exceeds one year, and generally will be income or loss from sources within the United States. For non-corporate U.S. Holders, the U.S. income tax rate applicable to net long-term capital gain currently will not exceed 20%. The deductibility of capital losses is subject to significant limitations.

A U.S. Holder that receives foreign currency from a sale or disposition of H Shares or ADSs may be treated as recognizing currency gain or loss. U.S. Holders should consult their own tax advisors regarding the calculation of non-U.S. currency gain or loss.

Any gain or loss will generally be U.S. source gain or loss for foreign tax credit limitation purposes and as a result of the U.S. foreign tax credit limitation, foreign taxes, if any, imposed upon capital gains in respect of H Shares or ADSs may not be currently creditable. Under the Treaty, however, if any PRC tax were to be imposed on any gain from the disposition of H Shares or ADSs, the gain could be treated as PRC-source income. U.S. Holders are urged to consult their tax advisors regarding the interaction of the foreign tax credit and the Treaty “resourcing” rule.

Passive Foreign Investment Company

In general, a foreign corporation is a PFIC for any taxable year in which, after applying relevant look-through rules with respect to the income and assets of subsidiaries:

•

75% or more of its gross income consists of passive income, such as dividends, interest, rents, royalties, and gains from the sale of assets that give rise to such income; or

•

50% or more of the average quarterly value of its gross assets consists of assets that produce, or are held for the production of, passive income.

“Passive income” for this purpose includes, for example, dividends, interest, royalties, rents and gains from commodities and securities transactions. Passive income does not include rents and royalties derived from the active conduct of a trade or business. If the stock of a non-U.S. corporation is publicly traded for the taxable year, the asset test is applied using the fair market value of the assets for purposes of measuring such corporation’s assets. If we own, directly or indirectly, at least 25% (by value) of the stock of another corporation, we will be treated, for purposes of the PFIC tests, as owning our proportionate share of the other corporation’s assets and receiving our proportionate share of the other corporation’s income for purposes of the PFIC income and asset tests.

Based on the current and anticipated composition of our assets and income and the current expectations regarding the price of the H Shares and ADSs, we believe that we were not a PFIC for U.S. federal income tax purposes with respect to our 2019 taxable year and we do not intend to become or anticipate becoming a PFIC for the current or any future taxable year. However, the determination of PFIC status is a factual determination that must be made annually at the close of each taxable year and therefore, there can be no certainty as to our status in this regard until the close of the 2020 taxable year. Changes in the nature of our income or assets or a decrease in the trading price of the H Shares or ADSs may cause us to be considered a PFIC in the current or any subsequent year. Our U.S. counsel expresses no opinion with respect to our expectations contained in this paragraph.

If we were a PFIC in any taxable year that you held the H Shares or ADSs, certain adverse U.S. federal income tax rules would apply. You generally would be subject to special rules with respect to “excess distributions” made by us on the H Shares or ADSs and with respect to gain from your disposition of the H Shares or ADSs. An “excess distribution” generally is defined as the excess of the distributions you receive with respect to the H Shares or ADSs in any taxable year over 125% of the average annual distributions you have received from us during the shorter of the three preceding years, or your holding period for the H Shares or ADSs. Generally, you would be required to allocate any excess distribution or gain from the disposition of the H Shares or ADSs ratably over your holding period for the H Shares or ADSs. The portion of the excess distribution or gain allocated to a prior taxable year, other than a year prior to the first year in which we became a PFIC, would be taxed at the highest U.S. federal income tax rate on ordinary income in effect for such taxable year, and you would be subject to an interest charge on the resulting tax liability, determined as if the tax liability had been due with respect to such particular taxable years. The portion of the excess distribution or gain that is not allocated to prior taxable years, together with the portion allocated to the years prior to the first year in which we became a PFIC, would be included in your gross income for the taxable year of the excess distribution or disposition and taxed as ordinary income. If we were a PFIC in any year during a U.S. Holder’s holding period, we would generally be treated as a PFIC for each subsequent year absent a “purging” election by the U.S. Holder.

Under certain attribution rules, if we are a PFIC, you will be deemed to own your proportionate share (by value) of lower-tier PFICs, and will be subject to U.S. federal income tax on (i) a distribution on the shares of a lower-tier PFIC and (ii) a disposition of shares of a lower-tier PFIC, both as if you directly held the shares of such lower-tier PFIC.

These adverse tax consequences may be avoided if the U.S. Holder is eligible to and does elect to annually mark-to-market the H Shares or ADSs. If a U.S. Holder makes a mark-to-market election, such holder will generally include as ordinary income the excess, if any, of the fair market value of the H Shares or ADSs at the end of each taxable year over their adjusted basis, and will be permitted an ordinary loss in respect of the excess, if any, of the adjusted basis of the H Shares or ADSs over their fair market value at the end of the taxable year (but only to the extent of the net amount of income previously included as a result of the mark-to-market election). Any gain recognized on the sale or other disposition of the H Shares or ADSs will be treated as ordinary income. The mark-to-market election is available only for “marketable stock,” which is stock that is traded in other than de minimis quantities on at least 15 days during each calendar quarter on a qualified exchange or other market, as defined in the applicable Treasury regulations. The ADSs should qualify as “marketable stock” because the ADSs are listed on the NYSE. There can be no assurance that our shares will be considered readily tradable on an established securities market in later years. Further, the stock of any of our subsidiaries that were PFICs that is deemed owned pursuant to the attribution rules discussed above would not be eligible for the mark-to-market election.

A U.S. Holder’s adjusted tax basis in the H Shares or ADSs will be increased by the amount of any income inclusion and decreased by the amount of any deductions under the mark-to-market rules. If a U.S. Holder makes a mark-to-market election it will be effective for the taxable year for which the election is made and all subsequent taxable years, unless the H Shares or ADSs are no longer regularly traded on a qualified exchange or the IRS consents to the revocation of the election. U.S. Holders are urged to consult their tax advisors about the availability of the mark-to-market election, and whether making the election would be advisable in their particular circumstances.

Alternatively, a timely election to treat us as a qualified electing fund could be made to avoid the foregoing rules with respect to excess distributions and dispositions. You should be aware, however, that if we become a PFIC, we do not intend to satisfy record keeping requirements that would permit you to make a qualified electing fund election; you will, therefore, not be able to make or maintain such an election with respect to your H Shares or ADSs.

If we were regarded as a PFIC, a U.S. Holder of H Shares or ADSs generally would be required to file an information return on IRS Form 8621 for any year in which the holder received a direct or indirect distribution with respect to the H Shares or ADSs, recognized gain on a direct or indirect disposition of the H Shares or ADSs, or made an election with respect to the H Shares or ADSs, reporting distributions received and gains realized with respect to the H Shares or ADSs. In addition, if we were regarded as a PFIC, a U.S. Holder would be required to file an annual information return (also on IRS Form 8621) relating to the holder’s ownership of the shares or ADSs. This requirement would be in addition to other reporting requirements applicable to ownership in a PFIC.

We encourage you to consult your own tax adviser concerning the U.S. federal income tax consequences of holding the H Shares or ADSs that would arise if we were considered a PFIC.

Backup Withholding and Information Reporting

In general, information reporting requirements will apply to dividends in respect of the H Shares or ADSs or the proceeds of the sale, exchange, or redemption of the H Shares or ADSs paid within the United States, and in some cases, outside of the United States, other than to various exempt recipients, including corporations. In addition, you may, under some circumstances, be subject to “backup withholding” with respect to dividends paid on the H Shares or ADSs or the proceeds of any sale, exchange or transfer of the H Shares or ADSs, unless you:

are a corporation or fall within various other exempt categories, and, when required, demonstrate this fact; or

provide a correct taxpayer identification number on a properly completed IRS Form W-9 or a substitute form, certifying that you are exempt from backup withholding and otherwise comply with applicable requirements of the backup withholding rules.

Any amount withheld under the backup withholding rules generally will be creditable against your U.S. federal income tax liability or may be refunded to the extent they exceed such liability provided that you furnish the required information to the IRS in a timely manner. If you do not provide a correct taxpayer identification number you may be subject to penalties imposed by the IRS.

Certain U.S. Holders may be required to report information with respect to such holder’s interest in “specified foreign financial assets” (as defined in Section 6038D of the Code), including stock of a non-U.S. corporation that is not held in an account maintained by certain financial institutions, if the aggregate value of all such assets exceeds certain dollar thresholds. Persons who are required to report specified foreign financial assets and fail to do so may be subject to substantial penalties. U.S. Holders are urged to consult their own tax advisors regarding the foreign financial asset reporting obligations and their possible application to the holding of H Shares or ADSs.

Potential FATCA Consequences relating to the H Shares and ADSs

Under sections 1471-1474 of the Code and applicable U.S. Treasury regulations promulgated thereunder (commonly referred to as the Foreign Account Tax Compliance Act (“FATCA”)) as well as certain intergovernmental agreements between the United States and certain other countries together with implementing legislation and regulations, certain holders of the H Shares and ADSs may be required to provide information and tax documentation regarding their identities as well as that of their direct and indirect owners. It is also possible that payments in respect of the H Shares and ADSs may be subject to withholding tax of 30% (“FATCA withholding”) to the extent that such payments are considered to be “foreign passthru payments” to non-U.S. financial institutions (including intermediaries) that have not entered into agreements with the U.S. Treasury pursuant to FATCA or otherwise established an exemption from FATCA, or to other holders that fail to provide sufficient identifying information. Regulations defining “foreign passthru payments” have not yet been adopted or proposed, and the IRS has indicated in proposed Treasury regulations (the preamble to which specifies that taxpayers can rely on them prior to their finalization) that no withholding on foreign passthru payments will be required before the date that is two years after the date of publication of final Treasury regulations defining the term “foreign passthru payments”. Under current guidance it is not clear whether and to what extent payments on the H Shares and ADSs will be considered foreign passthru payments subject to FATCA withholding or the extent to which foreign passthru payment withholding will be required under intergovernmental agreements or implementing legislation or regulations. Holders of H Shares and ADSs should consult their tax advisers as to the potential implications of FATCA on their investment in the H Shares and ADSs.

F. Dividends and Paying Agents

Not applicable.

G. Statement by Experts

Not applicable.

H. Documents on Display

You may read and copy documents referred to in this Annual Report on Form 20-F that have been filed with the Securities and Exchange Commission at its public reference room located at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms and their copy charges. The SEC also maintains a website at http://www.sec.gov that contains reports, proxy statements and other information regarding registrants that file electronically with the SEC.

As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.

The SEC allows us to “incorporate by reference” the information we file with the SEC. This means that we can disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is considered to be part of this Annual Report on Form 20-F.

l. Subsidiary Information

For a listing of our significant subsidiaries, see “Item 4. Information on the Company — History and Development of the Company”.

Item 11. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

Our interest rate risk primarily arises from borrowings and lease liabilities. Borrowings issued at variable rates expose us to cash flow interest rate risk. Borrowings and finance leases issued at fixed rates expose us to fair value interest rate risk. We determine the proportion of borrowings and finance leases issued at variable rates and fixed rates based on the market environment.

Our finance department has been monitoring the level of interest rates. The increase in the interest rates will increase the interest costs of borrowings and finance leases issued at variable rates, which will further impact our performance. To hedge against the variability in the cash flows arising from a change in market interest rates, we have entered into certain interest rate swaps to swap variable rates into fixed rates. The interest rates and terms of repayment of borrowings made to us and interest rate swaps are disclosed in Notes 36 and 23 to the consolidated financial statements.

The following tables detail the interest rate profiles of our interest-bearing financial instruments at the reporting date:


	2020			2019
	RMB million			RMB million
Floating rate instruments
Cash and cash equivalents		7,651			1,350
Restricted bank deposits		12			6
Borrowings		(13,328	)		(3,943	)
Lease liabilities		(44,541	)		(49,851	)
Interest rate swaps at notional amount		4,504			6,194


	2020			2019
	RMB million			RMB million
Fixed rate instruments
Borrowings		(74,567	)		(47,929	)
Lease liabilities		(51,710	)		(60,424	)

The following table indicates the approximate change in our profit or loss and other comprehensive income, taking the interest rate swap into consideration, if interest rate had been 25 basis points higher with all other variables held constant:

2020

2019

Effect on
profit or loss

Effect on other
comprehensive
income

Effect on
profit or loss

Effect on other
comprehensive
income

RMB million

Floating rate instruments

(94

)

(98

)

Foreign Currency Exchange Rate Risk

We operate our business in many countries and territories. We generate our revenue in different currencies, and the amount of our foreign currency liabilities at the end of the period is much higher than that of our foreign currency assets. Our major liability items (mainly resulting from purchases of aircraft) are mainly priced and settled in foreign currencies, primarily USD. We are exposed to currency risks from fluctuations in various foreign currency exchange rates against RMB.

The RMB is not freely convertible into other currencies, however, under Mainland China’s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, we are permitted to exchange RMB for other currencies through banks authorized to conduct foreign exchange business.

In addition, fluctuations in foreign currency exchange rates will affect our future costs for purchases of aircraft, flight equipment and aviation fuel, and take-off and landing charges in foreign airports.

The following tables detail our exposure to major currency risk at the reporting date:


	2020
	USD			EUR			SGD			JPY
	RMB million			RMB million			RMB million			RMB million
Trade receivables		10			2			—			2
Cash and cash equivalents		968			4			3			3
Other receivables		115			3			1			12
Other non-current assets		150			—			—			—
Trade and other payables		(108	)		(1	)		—			—
Lease liabilities		(36,267	)		(8	)		(85	)		(142	)
Borrowings		(375	)		(2,664	)		(2,466	)		(3,162	)


	2019
	USD			EUR			SGD			JPY
	RMB million			RMB million			RMB million			RMB million
Trade receivables		28			47			5			59
Cash and cash equivalents		635			63			5			10
Other receivables		2,065			3			1			13
Other non-current assets		180			—			—			—
Trade and other payables		(105	)		(3	)		—			(6	)
Lease liabilities		(45,674	)		—			(397	)		(183	)
Borrowings		(870	)		(3,073	)		(2,587	)		(3,205	)

The following tables indicate the approximate change in our consolidated statement of profit or loss and other comprehensive income in response to a 1% appreciation or depreciation of the RMB against the following major currencies at the reporting date:

2020

2019

Effect on
profit or loss

Effect on other
comprehensive
income

Effect on
profit or loss

Effect on other
comprehensive
income

RMB million

If RMB (weakens)/strengthens against USD

(266)/266

—

(328)/328

41/(41)

If RMB (weakens)/strengthens against JPY

(25)/25

—

(25)/25

—

If RMB (weakens)/strengthens against EUR

(20)/20

—

(22)/22

—

If RMB (weakens)/strengthens against SGD

(19)/19

—

(22)/22

—

Fuel Price Fluctuation Risk

Jet fuel is a major component of our operating expenses and our results are significantly affected by the volatility in the price of jet fuel. For the year ended December 31, 2020, if fuel price had been 5% lower/higher with all other variables held constant, our fuel cost would have been RMB692 million lower/higher (2019: RMB1,710 million lower/higher).

Our policy is to reduce fuel price risk by hedging a percentage of its expected fuel consumption. Fuel forward contracts are used to achieve our desired hedging position. An increase of 5 percent in the jet fuel price at the reporting date would have resulted in a change in other comprehensive income by the amounts shown below. It represents the change in fair value of fuel forward contracts at the reporting date.The analysis assumes that all other variables remain constant.


	2020		2019
	Effect on other comprehensive income		Effect on other comprehensive income
	RMB million		RMB million
Fuel forward contracts		62		—

Equity Price Risk

We are exposed to equity price risk arising from individual equity investments included in financial asset at fair value through profit or loss (Note 28) and equity investments designated at fair value through other comprehensive income (Note 22) as of December 31, 2020. Our listed investments are listed on the Hong Kong and Shanghai stock exchanges and are valued at quoted market prices at the end of the reporting period.

The market equity indices for the following stock exchanges, at the close of business of the nearest trading day in the year to the end of the reporting period, and their respective highest and lowest points during the year were as follows:

December 31,
2020

High/Low

2020

December 31,
2019

High/Low
2019

Hong Kong – Hang Seng Index

27,231

29,056/21,696

28,190

30,157/25,064

Shanghai – A Share Index

3,640

3,640/2,788

3,196

3,426/2,580

The following table demonstrates the sensitivity to every 10% change in the fair values of the equity investments, with all other variables held constant, based on their carrying amounts at the end of the reporting period. For the purpose of this analysis, for the equity investments at fair value through other comprehensive income, the impact is deemed to be on the fair value reserve as of December 31, 2020.

Carrying amount
of equity investment

Increase/(decrease)
in profit or loss

Increase/(decrease)
in comprehensive
income

RMB million

2020

Investments listed in:

Hong Kong – Equity investment designated at fair value through other comprehensive income

457

—

34/(34)

Shanghai – Financial asset at fair value through profit or loss

7/(7)

—

Unlisted investments at fair value:

– Equity investment designated at fair value through other comprehensive income

538

—

40/(40)

2019

Investments listed in:

Hong Kong – Equity investment designated at fair value through other comprehensive income

496

—

37/(37)

Shanghai – Financial asset at fair value through profit or loss

121

9/(9)

—

Unlisted investments at fair value:

– Equity investment designated at fair value through other comprehensive income

778

—

58/(58)

Item 12. Description of Securities Other than Equity Securities

A. Debt Securities

Not applicable.

B. Warrants and Rights

Not applicable.

C. Other Securities

Not applicable.

D. American Depositary Shares

Our ADSs, each representing 50 H shares, are traded on the NYSE under the symbol “CEA”. The ADSs are evidenced by American Depositary Receipts, or ADRs, issued by BNYM, as depositary under the Deposit Agreement, dated as of February 5, 1997, among the Company, BNYM and holders and beneficial owners of ADSs. BNYM’s principle executive office is at 240 Greenwich Street, New York City, New York, U.S. ADS holders are required to pay the following service fees to BNYM:


Service		Fees (in U.S. dollars)
Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property		US$5.00 (or less) per ADSs (or portion of 100 ADSs)

Cancelation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates		Cancelation fees

Any cash distribution to ADS registered holders		N/A

Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADS registered holders		A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited for issuance of ADSs

Depositary services		N/A

Transfer and registration of shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw shares		Registration or transfer fees

Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement)		Expenses of the depositary



Converting foreign currency to U.S. dollars		Foreign exchange fees

As necessary		Taxes and other governmental charges the depositary or the custodian have to pay on any ADS or share underlying an ADS, for example, stock transfer taxes, stamp duty or withholding taxes

As necessary		Any charges incurred by the depositary or its agents for servicing the deposited securities

For the past annual period, from January 1, 2020 to December 31, 2020, the Company received no continuing stock exchange annual listing fees and reimbursement fees from the depositary, and the depositary waived standard out-of-pocket maintenance costs for the ADRs (consisting of administrative expenses) of US$115,987.6.

BNYM, as depositary, has agreed to reimburse the Company for expenses incurred in the future in relation to the establishment and maintenance of the ADS program, which include standard out-of-pocket expenses such as postage and envelopes for mailing annual and interim financial reports and all related administrative and documentary expenses. BNYM has agreed to reimburse the Company annually for certain investor relationship programs and promotional activities. There are limits as to the amount of reimbursable expenses and this amount is not necessarily commensurate with the amount of fees BNYM collects from ADS investors. BNYM collects fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal. BNYM collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay fees. BNYM may also collect its annual fee by deducting cash distributions or by directly billing investors, or by charging the book-entry system accounts of participants acting for investors.

PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies

None.

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds

On August 10, 2010, we effected an ADS split whereby each ADS now represents 50 H shares. There was no change to the rights and preferences of the underlying H shares.

Item 15. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our President and Chief Financial Officer, our management conducted an evaluation of the effectiveness of our Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, as of the end of the period covered by this Annual Report. Our management, with the participation of President and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures, have concluded that as of the end of the period covered by this Form 20-F, our disclosure controls and procedures were effective to ensure that material information required to be disclosed in the reports that we file and furnish under Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and regulations.

Disclosure controls and procedures means controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information required to be disclosed by us in the reports that we file or submit under Exchange Act is accumulated and communicated to our management, including our President and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosures.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) and has designed internal control procedures over financial reporting or caused internal control procedures over financial reporting to be designed under our supervision in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles, as applicable. Under the supervision and with the participation of our President and our Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2020 based upon the criteria in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework)(the COSO criteria). Based on that evaluation, our management has concluded that our internal control over financial reporting was effective as of December 31, 2020 in providing reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with IFRSs.

Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness of our internal control over financial reporting to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

Attestation Report of the Registered Public Accounting Firm

The effectiveness of our internal control over financial reporting as of December 31, 2020 has been audited by Ernst & Young Hua Ming LLP, an independent registered public accounting firm in Shanghai, the PRC, as stated in their report which is included herein.

Changes in Internal Control over Financial Reporting

During 2020, there have been no changes in our internal control over financial reporting that occurred during the fiscal year covered by this annual report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 16A. Audit Committee Financial Expert

Our Board of Directors has determined that Mr. Shao Ruiqing, the chairman of our audit committee, is an independent financial expert serving on our audit committee, given his experience in the academic aspects of accounting and notable achievements in accounting education and academic research. Mr. Shao Ruiqing is independent of the Board of Directors, senior management, supervisors or substantial shareholders of our Company.

Item 16B. Code of Ethics

We have adopted a code of ethics that applies to our directors, supervisors, President, Chief Financial Officer and other senior managers of our Company. We have filed this code of ethics as Exhibit 11.1 to this annual report (which is incorporated by reference). A copy of our code of ethics will be provided to any person free of charge upon written request to Wang Jian, Secretary Office of the Board of Directors, China Eastern Airlines Corporation Limited at 5/F, Block A2, Northern District, CEA Building, 36 Hongxiang 3rd Road, Minhang District, Shanghai, China.

Item 16C. Principal Accountant Fees and Services

The following table sets forth the aggregate audit fees, audit-related fees and tax fees of our principal accountants, Ernst & Young Hua Ming LLP and its affiliates for the year ended December 31, 2019 and 2020, and all other fees (including value-added taxes) billed for products and services provided by our principal accountants other than the audit fees and audit-related fees and tax fees:


	Audit Fees		Audit-Related Fees		Tax Fees		All Other Fees
	(RMB)		(RMB)		(RMB)		(RMB)
2019		16,750,000		1,250,000		227,513		658,916
2020		15,900,000		430,000		484,374		—

Before our principal accountants were engaged by our Company or our subsidiaries to render audit or non-audit services, our audit committee approved the engagements.

Audit Fees

Audit fees primarily consist of fees for the audits of the Company’s financial statements prepared under both of IFRSs and PRC Accounting Standards for Business Enterprises as of and for the years ended December 31, 2019 and 2020.

Audit-Related Fees

Audit-Related fees for the year ended December 31, 2020 primarily consist of fees for the verification services of passenger aircraft cargo business.

Audit-Related fees for the year ended December 31, 2019 primarily consist of fees for the capital verification services, issuing comfort letters in respect of the statement relating to the sufficiency of working capital and the statement of indebtedness, and the verification services of revenue regarding the bellyhold space.

All Other Fees

All other fees for the year ended December 31, 2019 primarily consist of fees for the GDPR assessment service.

Audit Committee Pre-approval Policies and Procedures

Our audit committee has adopted procedures which set forth the manner in which the committee will review and approve all audit and non-audit services to be provided by our independent registered public accounting firm. The pre-approval procedures are as follows:

Any audit or non-audit service to be provided to us by the independent accountant must be submitted to the audit committee for review and approval, with a description of the services to be performed and the fees to be charged.

The audit committee in its sole discretion then approves or disapproves the proposed services and documents such approval, if given, through written resolutions or in the minutes of meetings, as the case may be.

Item 16D. Exemptions from the Listing Standards for Audit Committees

Not applicable.

Item 16E. Purchase of Equity Securities by the Issuer and Affiliated Purchasers

On November 9, 2012, we held an extraordinary general meeting to approve, among other things, the proposals for the non-public issuance of A Shares and H Shares to specific placees.

On April 9, 2013, the Company obtained an approval from the CSRC, pursuant to which the CSRC approved the non-public issue by the Company to CEA Holding and CES Finance of no more than 698,865,000 new A Shares. On April 16, 2013, the procedure for registration of the new A Shares with the Shanghai Branch of China Securities Depository & Clearing Co. Ltd. was completed. The 698,865,000 new A Shares under this issue, at an issue price of RMB3.28 per share, are subject to a lock-up period of 36 months from the completion date of the issue and are expected to be listed on April 17, 2016.

The issuance of new H Shares was completed on June 21, 2013. A total of 698,865,000 new H Shares were issued to CES Global at the price of HK$2.32 per share.

Item 16F. Changes in Registrant’s Certifying Accountant

(a) Change of Principal Accountant

Not Applicable

(b) Engagement of New Principal Accountant

Not Applicable

Item 16G. Corporate Governance

The NYSE has imposed a series of corporate governance listing standards for companies listed on the NYSE in Section 303A of its listing rules. However, the NYSE provides that listed companies that are foreign private issuers, subject to certain limitations and conditions, are permitted to follow “home country” practice in lieu of the provisions of Section 303A of the NYSE Listed Company Manual. To qualify for this exemption, a listed foreign private issuer must disclose any significant differences between their corporate governance practices and the requirements of the NYSE corporate governance standards.

As a foreign private issuer, we are subject to more than one set of corporate governance requirements. In the table below, we set out material differences between our corporate governance practices and the NYSE’s corporate governance requirements as set out in Section 303A of the Listed Company Manual:


	NYSE Listed Company Manual Requirements on Corporate Governance	Company’s Practices
Majority independent requirement of the Board of Directors	Section 303A.01 of the Listed Company Manual requires that listed companies must have a majority of independent directors.	There is no identical corporate governance requirement in the PRC. As a company listed in the PRC, the Company is subject to the requirement under the Independent Director Guidance that at least one-third of the Board of Directors be independent as determined thereunder. The standards for establishing independence set forth under the Independent Director Guidance of the PRC differ, to some extent, from those set forth in the NYSE Listed Company Manual. We currently have three independent directors out of a total of seven directors.

Non-management directors must meet at regularly scheduled executive sessions without management participation	Section 303A.03 of the Listed Company Manual requires non- management directors of each listed company to meet at regularly scheduled executive sessions without management participation.	There is no identical corporate governance requirement in the PRC.

Audit and Risk Management Committee	Sections 303A.06 and 303A.07 of the NYSE Listed Company Manual provides that listed companies must have an audit committee composed entirely of independent directors. In addition, audit committee members must satisfy the independence requirements set forth in Section 303A.02(a)(ii). The factors to be considered for independence include whether the committee member receives any consulting, advisory or other compensatory fees from the company and whether such director is affiliated with the listed company or its subsidiary.	There is no identical corporate governance requirement in the PRC. Under the PRC laws and the applicable listing rules in the PRC, a majority of the members of the audit committee must be independent directors. The Audit and Risk Management Committee of the Company is composed of three members, all of which are independent non-executive directors.

Nominating/Corporate Governance Committee	Section 303A.04 of the Listed Company Manual requires that (i) listed companies must have a nominating/corporate governance committee composed entirely of independent directors and (ii) the nominating/corporate governance committee must have a written charter that addresses the committee’s purposes and responsibilities and an annual performance evaluation of the committee.	The merger of the Nomination Committee and Remuneration and Appraisal Committee into the Nominations and Remuneration Committee was agreed at the ordinary meeting of the Board of Directors held on March 19, 2010. The Nominations and Remuneration Committee currently consists of three members, two of which are independent non-executive directors. The Nominations and Remuneration Committee is a specialized committee under the Board of Directors. It is responsible for the discussion in regard to nominees, standards and procedures for selecting directors and senior management of the Company and making recommendations; responsible for studying and examining the remuneration policy and solutions of directors and senior management of the Company; responsible for studying the performance appraisal standards for directors and senior management of the Company, conducting appraisals and making recommendation.


	NYSE Listed Company Manual Requirements on Corporate Governance	Company’s Practices

Compensation Committee	Section 303A.05 of the Listed Company Manual requires that listed companies must (i) have a compensation committee composed entirely of independent directors and (ii) the compensation committee must have a written charter that addresses the committee’s purposes and responsibilities and an annual performance evaluation of the committee.	We have established a Nominations and Remuneration Committee. The merger of the Nomination Committee and Remuneration and Appraisal Committee into the Nominations and Remuneration Committee was agreed at the ordinary meeting of the Board of Directors held on March 19, 2010. The Nominations and Remuneration Committee currently consists of three members, two of which are independent non-executive directors.

Code of Business Conduct and Ethics	Section 303A.10 requires a listed company to adopt and disclose a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers from the code for directors or executive officers.	As required under the Sarbanes-Oxley Act of 2002, the Company has adopted a code of ethics that is applicable to the Company’s directors, Supervisors, President, Chief Financial Officer and other senior managers.

In addition, we have posted a description of such differences under the section entitled “Report of Directors” of our 2020 Hong Kong Annual Report, which can be accessed through the following link:

https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0427/2021042701934.pdf

Item 16H. Mine Safety Disclosures

Not applicable.

PART III

Item 17. Financial Statements

We have elected to provide the financial statements and related information specified in Item 18 in lieu of Item 17.

Item 18. Financial Statements

Reference is made to pages F-1 to F-88.

Item 19. Exhibits

(a) See Item 18 for a list of the financial statements filed as part of this Annual Report.

(b) Exhibits to this Annual Report:

Exhibit Index


Exhibits		Description

1.1		Articles of Association as amended on December 31, 2019 (English translation) (Furnished to the Securities and Exchange Commission on our Form 6-K as filed on January 2, 2020).**

2.1		Specimen Certificate for the H Shares.**

2.2		Form of Deposit Agreement among the Registrant, The Bank of New York, as depositary, and Owners and Beneficial Owners from time to time of American Depositary Receipts (Filed as FORM OF DEPOSIT AGREEMENT on our Form F-6 as filed on July 26, 2010).**

4.1		Aircraft Sale and Purchase Agreement relating to the disposal of eight Bombardier CRJ-200 Aircraft and ten Embraer ERJ-145 Aircraft, dated November 23, 2012, among our Company, Airbus SAS and other parties (Filed as Exhibit 4.27 to our Form 20-F as filed on April 24, 2013)./*

4.2		Amendment No. 2 to the A 320 Family Purchase Agreement dated December 30, 2010, dated November 23, 2012, between our Company and Airbus SAS (Filed as Exhibit 4.28 to our Form 20-F as filed on April 24, 2013)./*


4.3		Acquisition Agreement for Used Aircraft relating to five Airbus Model A340-642 Aircraft, dated April 27, 2012, between our Company and Boeing Aircraft Holding Company (Filed as Exhibit 4.29 to our Form 20-F as filed on April 24, 2013)./*

4.4		Purchase Agreement Number PA-03746 relating to Boeing Model 777-300ER Aircraft, dated April 27, 2012, between our Company and the Boeing Company (Filed as Exhibit 4.30 to our Form 20-F as filed on April 24, 2013)./*

4.5		Purchase Agreement Number PA-4076 relating to Boeing Model 737-8 Aircraft, dated June 13, 2014, between our Company and the Boeing Company (Filed as Exhibit 4.5 to our Form 20-F as filed on April 25, 2015)./*

4.6		Purchase Agreement Number PA-4077 relating to Boeing Model 737-800 Aircraft, dated June 13, 2014, between our Company and the Boeing Company (Filed as Exhibit 4.6 to our Form 20-F as filed on April 25, 2015)./*

4.7		Purchase Agreement relating to Airbus A320NEO Aircraft, dated February 28, 2014, between our Company and Airbus SAS (Filed as Exhibit 4.7 to our Form 20-F as filed on April 25, 2015)./*

4.8		Supplemental Agreement No.1 to Purchase Agreement Number PA-4077 relating to Boeing Model 737-800 Aircraft, dated July 9, 2015, between our Company and the Boeing Company (Filed as Exhibit 4.8 to our Form 20-F as filed on April 25, 2016). /*

8.1		List of Subsidiaries (as of December 31, 2020).

11.1		Code of Ethics (English translation) (Filed as Exhibit 11.1 to our Form 20-F as filed on June 24, 2008).**

12.1		Certification of the President pursuant to Rule 13a-14(a).

12.2		Certification of the Chief Financial Officer pursuant to Rule 13a-14(a).

13.1		Certification of the President pursuant to Rule 13a-14(b).

13.2		Certification of the Chief Financial Officer pursuant to Rule 13a-14(b).

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

Note:

*	Portions of this document have been omitted pursuant to a confidential treatment request, and the full, unredacted document has been separately submitted to the Securities and Exchange Commission with a confidential treatment request.

**	Incorporated by reference.

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.

CHINA EASTERN AIRLINES CORPORATION LIMITED


By:		/s/ Liu Shaoyong
		Name: Liu Shaoyong
		Title: Chairman of the Board of Directors

Date: April 28, 2021

Audited Financial Statements

CHINA EASTERN AIRLINES CORPORATION LIMITED

(Established in the People’s Republic of China with limited liability)

December 31, 2020, 2019 and 2018

F-1

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of China Eastern Airlines Corporation Limited

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of financial position of China Eastern Airlines Corporation Limited (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated April 28, 2021 expressed an unqualified opinion thereon.

Adoption of New Accounting Standard

As discussed in Note 2.4 to the consolidated financial statements, the Company changed its method for accounting for leases using the modified retrospective method in 2019.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Recognition of contract liabilities for frequent flyer program

Description of the Matter

As disclosed in Notes 2.4, 3, 5 and 34 to the consolidated financial statements, the Group operates a frequent flyer program that issues mileage points to program members for future redemption. The Group defers a portion of passenger revenue attributable to the mileage points issued using the relative stand-alone selling price approach and recognizes revenue when the mileage points are redeemed and performance obligations are fulfilled or the mileage points expire unused. The standalone selling price of the mileage points was estimated based on the historical prices of equivalent flights and goods provided for mileage points redeemed, adjusted for mileage points that are not expected to be redeemed (“Breakage”). At December 31, 2020, the Group’s contract liabilities for frequent flyer program amounted to RMB 1,781 million.

Auditing the Group’s estimation was complex due to the significant assumptions used in determining the estimated stand-alone selling price of mileage points, which include the testing of historical prices of equivalent flights and goods provided for redemption of mileage points and the estimated Breakage. Changes in the significant assumptions could have a significant effect on the balance of contract liabilities for frequent flyer program and the results of operations.

F-2

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Group’s accounting for its frequent flyer program, including controls over management’s review of the significant assumptions discussed above and the completeness and accuracy of the underlying data used.

Our audit procedures included, among others, evaluating the Group’s methodology for estimating the stand-alone selling price of mileage points including Breakage. We tested the historical prices of equivalent flights and goods provided for redemption of mileage points, including the completeness and accuracy of the underlying data used in the calculation. We also compared the estimated Breakage with the Group’s historical redemption pattern and further considered current industry and economic trends and other relevant factors that might trigger changes to the estimated Breakage. Additionally, we tested the completeness and accuracy of the underlying mileage points data used in the Group’s methodology and performed sensitivity analyses to evaluate the changes to the Group’s contract liabilities that would result from changes in the Breakage.

Provision for lease return costs for aircraft and engines

Description of the Matter

At December 31, 2020, the Group’s provision for lease return costs for aircraft and engines under lease arrangements totaled RMB6,990 million. As described in Notes 2.4, 3 and 37 to the consolidated financial statements, certain lease arrangements contain provisions for the Group’s obligations to fulfill certain return conditions at the end of their respective lease terms. The Group estimates its provision for lease return costs for aircraft and engines by taking into account anticipated aircraft and engines’ utilization patterns and the anticipated return costs derived from historical experience of actual return costs incurred. These costs are recognized as part of the right-of-use assets on the Group’s consolidated statement of financial position and are depreciated over their respective lease terms.

Auditing the Group’s provision for lease return costs for aircraft and engines involved complex auditor judgment due to the estimation uncertainty of the anticipated aircraft and engines’ utilization patterns and anticipated return costs used by management to quantify the provision. Different estimates could significantly affect the estimated provision for lease return costs for aircraft and engines.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of the Group’s controls over the measurement of the provision for lease return costs, including testing controls over management’s review of anticipated aircraft and engines’ utilization patterns and anticipated return costs.

To test the Group’s lease return provision, our audit procedures included, among others, evaluating the estimation used by the Group to determine the provision based on contractual clauses by testing a sample of lease arrangements with return condition clauses. We compared management’s plans for future utilization of aircraft and engines against the respective historical utilization patterns. Additionally, we evaluated anticipated return costs by comparing management’s prior years’ anticipated return costs estimates with actual return costs incurred by the Group.

Impairment testing of aircraft and engines and allocated goodwill

Description of the Matter

At December 31, 2020, the carrying amount of the Group’s owned and leased aircraft and engines and allocated goodwill included in the cash-generating unit of airline transportation operations was RMB80,959 million, RMB115,678 million and RMB11,270 million, respectively. As disclosed in Notes 2.4, 3, 16 and 19 to the consolidated financial statements, the Group performs an impairment test on aircraft and engines when an indication of impairment exists, and performs a goodwill impairment test annually or more frequently if events or changes in circumstances indicate that the value may be impaired. This requires an estimation of the recoverable amount which is the higher of its value in use and its fair value less costs of disposal. Management uses the value in use of the cash-generating unit of airline transportation operations to determine the recoverable amount. Estimating the value in use requires the Group to estimate the projected future cash flows from the cash-generating unit and to choose a suitable discount rate to calculate the present value of those projected cash flows.

F-3

Auditing the Group’s impairment test of owned and leased aircraft and engines and allocated goodwill included in the cash generating unit of airline transportation operations was complex due to the significant estimation required in determining the value in use of the cash-generating unit. In particular, the estimated value in use was sensitive to significant assumptions such as revenue growth rate, terminal growth rate and the discount rate applied to the projected cash flows. These assumptions may be affected by unexpected changes in future market or economic conditions.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Group’s impairment testing of owned and leased aircraft and engines and allocated goodwill included in the cash generating unit of airline transportation operations, including controls over management’s review of the significant assumptions described above and the data used in the valuation.

To test the value in use estimates of the cash-generating unit of airline transportation operations, our audit procedures included, among others, evaluating the valuation methodology and testing the significant assumptions discussed above and the underlying data used by the Group in its assessment. We involved our valuation specialists to assist in evaluating management’s valuation methodology and assessing the terminal growth rate and discount rate applied. We compared the significant assumptions used by management to current industry and economic trends and other relevant factors and assessed management’s projected cash flows by comparing the Group’s historical estimates to actual results. Additionally, we performed sensitivity analyses to evaluate the changes in the value in use of the cash-generating unit that would result from changes in the significant assumptions.

/s/ Ernst & Young Hua Ming LLP

We have served as the Company’s auditor since 2013.

Shanghai, the People’s Republic of China

April 28, 2021

F-4

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of China Eastern Airlines Corporation Limited

Opinion on Internal Control Over Financial Reporting

We have audited China Eastern Airlines Corporation Limited’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, China Eastern Airlines Corporation Limited (the “Company”) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial position of the Company as of December 31, 2020 and 2019, the related consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and our report dated April 28, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying “Management’s Report on Internal Control over Financial Reporting”. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young Hua Ming LLP

Shanghai, the People’s Republic of China

April 28, 2021

F-5

CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For the years ended December 31, 2020, 2019 and 2018

(Amounts in millions except for per share data)


			2020			2019			2018
	Notes		*RMB million*			*RMB million*			*RMB million*
Revenue		5		58,727			120,986			115,278
Other operating income and gains		6		5,698			7,202			6,592

Operating expenses
Aircraft fuel				(13,840	)		(34,191	)		(33,680	)
Take-off and landing charges				(9,331	)		(16,457	)		(14,914	)
Depreciation and amortization				(22,255	)		(22,080	)		(15,313	)
Wages, salaries and benefits		8		(20,827	)		(24,152	)		(22,134	)
Aircraft maintenance				(3,451	)		(3,380	)		(3,738	)
Food and beverages				(1,589	)		(3,667	)		(3,383	)
Low value and short-term lease rentals				(358	)		(631	)		—
Aircraft operating lease rentals				—			—			(4,306	)
Other operating lease rentals				—			—			(928	)
Selling and marketing expenses				(1,570	)		(4,134	)		(3,807	)
Civil aviation development fund				—			(1,831	)		(2,235	)
Ground services and other expenses				(872	)		(2,476	)		(2,845	)
Impairment charges		9		(184	)		(4	)		(318	)
Impairment losses on financial assets, net		10		(32	)		(16	)		(27	)
Fair value changes of financial asset at fair value through profit or loss				(26	)		25			(27	)
Gain on fair value changes of derivative financial instruments				—			—			311
Indirect operating expenses				(3,930	)		(5,113	)		(5,217	)

Total operating expenses				(78,265	)		(118,107	)		(112,561	)

Operating (loss)/profit		7		(13,840	)		10,081			9,309
Share of results of associates		20		(82	)		265			170
Share of results of joint ventures		21		(13	)		17			34
Finance income		11		2,660			96			110
Finance costs		12		(5,213	)		(6,160	)		(5,767	)

(Loss)/profit before income tax				(16,488	)		4,299			3,856
Income tax credit/(expense)		13		3,927			(819	)		(926	)

(Loss)/profit for the year				(12,561	)		3,480			2,930

(Loss)/profit attributable to:
Equity holders of the Company				(11,836	)		3,192			2,698
Non-controlling interests				(725	)		288			232

				(12,561	)		3,480			2,930

(Loss)/earnings per share attributable to the equity holders of the Company
– Basic and diluted (RMB)		15		(0.72	)		0.21			0.19

F-6

CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For the years ended December 31, 2020, 2019 and 2018

(Amounts in millions except for per share data)


			2020			2019			2018
	Notes		*RMB million*			*RMB million*			*RMB million*
Other comprehensive income
Other comprehensive income that may be reclassified to profit or loss in subsequent periods:
Cash flow hedges
Effective portion of changes in fair value of hedging instruments arising during the year				153			40			64
Reclassification adjustments for losses/(gains) included in the consolidated statement of profit or loss				57			(186	)		(7	)
Income tax effect				(52	)		36			(14	)

				158			(110	)		43

Net other comprehensive income that may be reclassified to profit or loss in subsequent periods				158			(110	)		43

Other comprehensive income that will not be reclassified to profit or loss in subsequent periods:
Fair value changes of equity investments designated at fair value through other comprehensive income, net of tax				(209	)		16			(247	)
Share of other comprehensive income of an associate, net of tax		20		2			7			(24	)
Actuarial (losses)/gains on the post-retirement benefit obligations, net of tax		38		(61	)		40			(115	)

Net other comprehensive income that will not be reclassified to profit or loss in subsequent periods				(268	)		63			(386	)

Other comprehensive income for the year, net of tax				(110	)		(47	)		(343	)

Total comprehensive income for the year				(12,671	)		3,433			2,587

Total comprehensive income attributable to:
Equity holders of the Company				(11,940	)		3,141			2,358
Non-controlling interests				(731	)		292			229

				(12,671	)		3,433			2,587

F-7

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

As of December 31, 2020 and 2019

(Amounts in millions except for per share data)


	Notes			2020 *RMB million*			2019 *RMB million*
Non-current assets
Property, plant and equipment		16			101,043			99,437
Investment properties		17			166			653
Right-of-use assets		18	(a)		118,210			128,704
Intangible assets		19			11,718			11,698
Advanced payments on acquisition of aircraft					17,240			16,222
Investments in associates		20			1,793			1,977
Investments in joint ventures		21			594			627
Equity investments designated at fair value through other comprehensive income		22			995			1,274
Derivative financial instruments		23			37			27
Other non-current assets		24			5,345			3,970
Deferred tax assets		25			5,011			853

					262,152			265,442

Current assets
Flight equipment spare parts		26			2,054			2,407
Trade receivables		27			1,124			1,717
Financial asset at fair value through profit or loss		28			95			121
Prepayments and other receivables		29			11,198			14,093
Derivative financial instruments		23			362			43
Restricted bank deposits		30			12			6
Cash and cash equivalents		31			7,651			1,350
Assets classified as held for sale		32			2			6

					22,498			19,743

Current liabilities
Trade and bills payables		33			3,220			3,877
Contract liabilities		34			3,671			10,178
Other payables and accruals		35			21,619			22,602
Current portion of lease liabilities		18	(b)		14,073			15,590
Current portion of borrowings		36			57,150			25,233
Income tax payable					48			351
Current portion of provision for lease return costs for aircraft and engines		37			24			519
Derivative financial instruments		23			3			13

					99,808			78,363

Net current liabilities					(77,310	)		(58,620	)

Total assets less current liabilities					184,842			206,822

F-8

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

As of December 31, 2020 and 2019

(Amounts in millions except for per share data)


	Notes			2020 *RMB million*		2019 *RMB million*
Non-current liabilities
Lease liabilities		18	(b)		82,178		94,685
Borrowings		36			30,745		26,604
Provision for lease return costs for aircraft and engines		37			6,966		6,659
Contract liabilities		34			1,320		1,499
Derivative financial instruments		23			138		10
Post-retirement benefit obligations		38			2,373		2,419
Other long-term liabilities		39			1,955		2,278
Deferred tax liabilities		25			13		22

					125,688		134,176

Net assets					59,154		72,646

Equity
Equity attributable to the equity holders of the Company
– Share capital		40			16,379		16,379
– Reserves		41			39,870		52,629

					56,249		69,008

Non-controlling interests					2,905		3,638

Total equity					59,154		72,646

F-9

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the years ended December 31, 2020, 2019 and 2018

(Amounts in millions except for per share data)


	Attributable to the equity holders of the Company
	Share capital *RMB million*		Other reserves *RMB million*			Retained profits *RMB million*			Total *RMB million*			Non-controlling interests *RMB million*			Total equity *RMB million*
At January 1, 2018		14,467		26,688			14,205			55,360			3,418			58,778
Effect of adoption of IFRS 9		—		667			(22	)		645			—			645
Effect of adoption of IFRS 15		—		—			383			383			3			386

At January 1, 2018		14,467		27,355			14,566			56,388			3,421			59,809

Profit for the year		—		—			2,698			2,698			232			2,930
Other comprehensive income		—		(340	)		—			(340	)		(3	)		(343	)

Total comprehensive income for the year		—		(340	)		2,698			2,358			229			2,587
Final 2017 dividend		—		—			(738	)		(738	)		—			(738	)
Dividend paid to non-controlling interests		—		—			—			—			(57	)		(57	)
Transfer from retained profits		—		30			(30	)		—			—			—

At December 31, 2018		14,467		27,045	*		16,496	*		58,008			3,593			61,601

At January 1, 2019		14,467		27,045	*		16,496	*		58,008			3,593			61,601
Effect of adoption of IFRS16		—		—			(1,595	)		(1,595	)		(163	)		(1,758	)

At January 1, 2019		14,467		27,045			14,901			56,413			3,430			59,843

Profit for the year		—		—			3,192			3,192			288			3,480
Other comprehensive income		—		(51	)		—			(51	)		4			(47	)

Total comprehensive income for the year		—		(51	)		3,192			3,141			292			3,433
Issue of shares		1,912		7,530			—			9,442			—			9,442
Dividend paid to non-controlling interests		—		—			—			—			(84	)		(84	)
Transfer from retained profits		—		212			(212	)		—			—			—
Others		—		11			1			12			—			12

At December 31, 2019		16,379		34,747	*		17,882	*		69,008			3,638			72,646

Loss for the year		—		—			(11,836	)		(11,836	)		(725	)		(12,561	)
Other comprehensive income		—		(104	)		—			(104	)		(6	)		(110	)

Total comprehensive income for the year		—		(104	)		(11,836	)		(11,940	)		(731	)		(12,671	)
Final 2019 dividend		—		—			(819	)		(819	)		—			(819	)
Dividend paid to non-controlling interests		—		—			—			—			(2	)		(2	)

At December 31, 2020		16,379		34,643	*		5,227	*		56,249			2,905			59,154

*	As at December 31, 2020, these reserve accounts comprise the consolidated reserves of RMB39,870 million (2019: RMB52,629 million, 2018: RMB 43,541 million) in the consolidated statement of financial position.

F-10

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended December 31, 2020, 2019 and 2018

(Amounts in millions except for per share data)


	Note			2020 *RMB million*			2019 *RMB million*			2018 *RMB million*
Cash flows from operating activities
Cash generated from operations		43	(a)		1,480			30,137			24,047
Income tax paid					(269	)		(1,165	)		(1,709	)

Net cash flows from operating activities					1,211			28,972			22,338

Cash flows from investing activities
Additions to property, plant and equipment and other non-current assets					(7,247	)		(7,589	)		(26,194	)
Investments in joint ventures					—			(110	)		(16	)
(Net) proceeds from disposal of a subsidiary					—			(90	)		(11	)
Proceeds from disposal of property, plant and equipment					894			157			5,493
Proceeds from novation of purchase rights					—			2,366			7,483
Proceeds from disposal of intangible assets					5			2			1
Proceeds from disposal of an equity investment					—			5			—
Proceeds from disposal of prepayments for land use rights					—			—			158
Interest received					—			—			71
Dividends received					100			241			252
Settlement relating to derivative financial instruments					(28	)		104			1
Loan to a joint venture					(7	)		—			(20	)
Proceeds from repayment of loans to a joint venture					—			15			2

Net cash flows used in investing activities					(6,283	)		(4,899	)		(12,780	)

Cash flows from financing activities
Proceeds from issue of shares					—			9,442			—
Proceeds from draw-down of short-term bank loans					28,883			6,986			19,144
Proceeds from draw-down of long-term bank loans					10,823			300			8,000
Proceeds from issuance of short-term debentures					77,200			39,000			31,000
Proceeds from issuance of long-term debentures and bonds					1,998			7,755			2,938
Proceeds from draw-down of other financing activities					—			—			10,693
Repayments of short-term bank loans					(9,130	)		(12,868	)		(36,066	)
Repayments of long-term bank loans					(1,948	)		(4,033	)		(7,592	)
Repayments of short-term debentures					(69,200	)		(35,000	)		(26,500	)
Repayments of long-term debentures and bonds					(2,453	)		(5,567	)		—
Repayments of principal of lease liabilities					(18,439	)		(23,895	)		—
Repayments of principal of finance lease obligations					—			—			(9,629	)
Interest paid					(5,482	)		(5,494	)		(4,359	)
Settlement relating to derivative financial instruments					(4	)		82			(392	)
Dividends paid					(819	)		—			(738	)
Dividends paid to non-controlling interests of subsidiaries					(3	)		(83	)		(57	)

Net cash flows from/(used in) financing activities					11,426			(23,375	)		(13,558	)

Net increase/(decrease) in cash and cash equivalents					6,354			698			(4,000	)
Cash and cash equivalents at beginning of year					1,350			646			4,616
Effect of foreign exchange rate changes, net					(53	)		6			30

Cash and cash equivalents at December 31					7,651			1,350			646

F-11

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

1	CORPORATE AND GROUP INFORMATION

China Eastern Airlines Corporation Limited (the “Company”), a joint stock company limited by shares, was established in the People’s Republic of China (the “PRC”) on April 14, 1995. The address of the Company’s registered office is 66 Airport Street, Pudong International Airport, Shanghai, the PRC. The Company and its subsidiaries (together, the “Group”) are principally engaged in the operation of civil aviation, including the provision of passenger, cargo, mail delivery and other extended transportation services.

In the opinion of the directors, the holding company and ultimate holding company of the Company is China Eastern Air Holding Company Limited (“CEA Holding”), formerly named as China Eastern Air Holding Company, a state-owned enterprise established in the PRC.

The A shares, H shares and American Depositary Shares are listed on the Shanghai Stock Exchange, The Stock Exchange of Hong Kong Limited and The New York Stock Exchange, respectively.

These financial statements were approved and authorized for issue by the Company’s Board of Directors (the “Board”) on April 28, 2021.

Information about subsidiaries

Particulars of the Company’s principal subsidiaries at the end of the reporting period are as follows:

Place and date of
incorporation/
registration and

Issued ordinary/

registered share

Percentage of
equity attributable
to the Company

Name

place of business

capital

Direct

Indirect

Principal activities

million

China Eastern Airlines Jiangsu Co., Ltd. (“CEA Jiangsu”)

PRC/Mainland China

April 7, 1993

RMB2,000

62.56

—

Provision of airline services

China Eastern Airlines Wuhan Co., Ltd. (“CEA Wuhan”)

PRC/Mainland China

August 16, 2002

RMB1,750

—

Provision of airline services

Shanghai Eastern Flight Training Co., Ltd. (“Shanghai Flight Training”)

PRC/Mainland China

December 18, 1995

RMB694

100

—

Provision of flight training services

Shanghai Airlines Co., Ltd. (“Shanghai Airlines”)

PRC/Mainland China

March 16, 2010

RMB500

100

—

Provision of airline services

China Eastern Airlines Technology Co., Ltd. (“Eastern Technology”)

PRC/Mainland China

November 19, 2014

RMB4,300

100

—

Provision of airline

maintenance services

One two three Airlines Co., Ltd. (“OTT Airlines”) (Originally named Eastern Business Airlines Co., Ltd.)

PRC/Mainland China

September 27, 2008

RMB1,500

100

—

Provision of business aviation services

China Eastern Airlines Yunnan Co., Ltd. (“CEA Yunnan”)

PRC/Mainland China

August 2, 2011

RMB3,662

90.36

—

Provision of airline services

Eastern Air Overseas (Hong Kong) Co., Ltd. (“Eastern Air Overseas”)

Hong Kong

June 10, 2011

HKD280

100

—

Provision of import and export, investment, leasing and consultation services

China United Airlines Co., Ltd. (“China United Airlines”)

PRC/Mainland China

September 21, 1984

RMB1,320

100

—

Provision of airline services

Eastern Airlines Hotel Co., Ltd.

PRC/Mainland China

March 18, 1998

RMB70

100

—

Provision of hotel services primarily to crew

China Eastern Airlines Application Development Center Co., Ltd. (“Application Development Center”)

PRC/Mainland China

November 21, 2011

RMB498

100

—

Provision of research and development of technology and products in the field of aviation

China Eastern Airlines E-Commerce Co., Ltd. (“Eastern E-Commerce”)

PRC/Mainland China

December 1, 2014

RMB50

100

—

E-commerce platform and ticket agent

The above table lists the subsidiaries of the Company which, in the opinion of the directors, principally affected the results for the years ended December 31, 2020, 2019 and 2018 or formed a substantial portion of the net assets of the Group. To give details of other subsidiaries would, in the opinion of the directors, result in particulars of excessive length.

All of the subsidiaries of the Company listed above are limited liability companies.

F-12

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

2.1	BASIS OF PREPARATION

These financial statements have been prepared in accordance with all applicable International Financial Reporting Standards (“IFRSs”) issued by the International Accounting Standards Board (“IASB”) and the disclosure requirements of the Hong Kong Companies Ordinance. They have been prepared under the historical cost convention, except for equity investments designated at fair value through other comprehensive income, financial assets at fair value through profit or loss and derivative financial instruments which have been measured at fair value. Disposal groups held for sale are stated at the lower of their carrying amounts and fair values less costs to sell as further explained in Note 2.4. These financial statements are presented in Renminbi (“RMB”) and all values are rounded to the nearest million except when otherwise indicated.

Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries for the years ended December 31, 2020, 2019 and 2018. A subsidiary is an entity (including a structured entity), directly or indirectly, controlled by the Company. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee (i.e., existing rights that give the Group the current ability to direct the relevant activities of the investee).

When the Company has, directly or indirectly, less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

(a)

the contractual arrangement with the other vote holders of the investee;

(b)

rights arising from other contractual arrangements; and

(c)

the Group’s voting rights and potential voting rights.

The financial statements of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies. The results of subsidiaries are consolidated from the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases.

Profit or loss and each component of other comprehensive income are attributed to the owners of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control described above. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.

If the Group loses control over a subsidiary, it derecognizes (i) the assets (including goodwill) and liabilities of the subsidiary, (ii) the carrying amount of any non-controlling interest and (iii) the cumulative translation differences recorded in equity; and recognizes (i) the fair value of the consideration received, (ii) the fair value of any investment retained and (iii) any resulting surplus or deficit in profit or loss. The Group’s share of components previously recognized in other comprehensive income is reclassified to profit or loss or retained profits, as appropriate, on the same basis as would be required if the Group had directly disposed of the related assets or liabilities.

Going concern

As at December 31, 2020, the Group’s current liabilities exceeded its current assets by approximately RMB77.31 billion. In preparing the financial statements, the Board has conducted a detailed review over the Group’s going concern ability based on the current financial situation. The Board has considered the Group’s available sources of funds as follows:

•

Unutilized banking facilities of approximately RMB33.67 billion as at December 31, 2020;

•

Other available sources of financing from banks and other financial institutions given the Group’s credit history; and

•

The Group’s expected net cash inflows from operating activities in 2021.

The Board considers that the Group will be able to obtain sufficient financing to enable it to operate, as well as to meet its liabilities as and when they become due, and the capital expenditure requirements for the upcoming twelve months. Accordingly, the Board believes that it is appropriate to prepare these financial statements on a going concern basis without including any adjustments that would be required should the Group fail to continue as a going concern.

2.2	CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES

The Group has adopted the Conceptual Framework for Financial Reporting 2018 and the following revised IFRSs for the first time for the current year’s financial statements.


		Amendments to IFRS 3		Definition of a Business
		Amendments to IFRS 9 IAS 39 and IFRS 7		Interest Rate Benchmark Reform
		Amendment to IFRS 16		COVID-19-Related Rent Concessions (early adopted)
		Amendments to IAS 1 and IAS 8		Definition of Material

The nature and the impact of the Conceptual Framework for Financial Reporting 2018 and the revised IFRSs are described below.

F-13

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

2.2	CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES (continued)

(a)

Conceptual Framework for Financial Reporting 2018 (the “Conceptual Framework”) sets out a comprehensive set of concepts for financial reporting and standard setting, and provides guidance for preparers of financial statements in developing consistent accounting policies and assistance to all parties to understand and interpret the standards. The Conceptual Framework includes new chapters on measurement and reporting financial performance, new guidance on the derecognition of assets and liabilities, and updated definitions and recognition criteria for assets and liabilities. It also clarifies the roles of stewardship, prudence and measurement uncertainty in financial reporting. The Conceptual Framework is not a standard, and none of the concepts contained therein override the concepts or requirements in any standard. The Conceptual Framework did not have any significant impact on the financial position and performance of the Group.

(b)

Amendments to IFRS 3 clarify and provide additional guidance on the definition of a business. The amendments clarify that for an integrated set of activities and assets to be considered a business, it must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. A business can exist without including all of the inputs and processes needed to create outputs. The amendments remove the assessment of whether market participants are capable of acquiring the business and continue to produce outputs. Instead, the focus is on whether acquired inputs and acquired substantive processes together significantly contribute to the ability to create outputs. The amendments have also narrowed the definition of outputs to focus on goods or services provided to customers, investment income or other income from ordinary activities. Furthermore, the amendments provide guidance to assess whether an acquired process is substantive and introduce an optional fair value concentration test to permit a simplified assessment of whether an acquired set of activities and assets is not a business. The Group has applied the amendments prospectively to transactions or other events that occurred on or after January 1, 2020. The amendments did not have any impact on the financial position and performance of the Group.

(c)

Amendments to IFRS 9, IAS 39 and IFRS 7 address issues affecting financial reporting in the period before the replacement of an existing interest rate benchmark with an alternative risk-free rate (“RFR”). The amendments provide temporary reliefs which enable hedge accounting to continue during the period of uncertainty before the introduction of the alternative RFR. In addition, the amendments require companies to provide additional information to investors about their hedging relationships which are directly affected by these uncertainties. The Group has applied the temporary reliefs to continue its existing interest rate hedging relationships. Information of the hedging relationships to which the Group applies the temporary reliefs is disclosed in Note 23 to the financial statements.

(d)

Amendment to IFRS 16 provides a practical expedient for lessees to elect not to apply lease modification accounting for rent concessions arising as a direct consequence of the COVID-19 pandemic. The practical expedient applies only to rent concessions occurring as a direct consequence of the pandemic and only if (i) the change in lease payments results in revised consideration for the lease that is substantially the same as, or less than, the consideration for the lease immediately preceding the change; (ii) any reduction in lease payments affects only payments originally due on or before June 30, 2021; and (iii) there is no substantive change to other terms and conditions of the lease. The amendment is effective for annual periods beginning on or after June 1, 2020 with earlier application permitted and shall be applied retrospectively.

During the year ended December 31, 2020, certain monthly lease payments for the leases of the Group’s buildings, aircraft and engines have been reduced or waived by the lessors upon reducing the scale of production as a result of the pandemic and there are no other changes to the terms of the leases. The Group has early adopted the amendment on January 1, 2020 and elected not to apply lease modification accounting for all rent concessions granted by the lessors as a result of the pandemic during the year ended December 31, 2020. Accordingly, a reduction in the lease payments arising from the rent concessions of RMB3 million has been accounted for as a variable lease payment by derecognizing part of the lease liabilities and crediting to profit or loss for the year ended December 31, 2020.

(e)

Amendments to IAS 1 and IAS 8 provide a new definition of material. The new definition states that information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements. The amendments clarify that materiality will depend on the nature or magnitude of information, or both. The amendments did not have any significant impact on the financial position and performance of the Group.

F-14

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

2.3	ISSUED BUT NOT YET EFFECTIVE INTERNATIONAL FINANCIAL REPORTING STANDARDS

The Group has not applied the following new and revised IFRSs, that have been issued but are not yet effective, in these financial statements.


Amendments to IFRS 3		Reference to the Conceptual Framework²
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16		Interest Rate Benchmark Reform—Phase 2¹
Amendments to IFRS 10 and IAS 28		Sale or Contribution of Assets between an Investor and its Associate or Joint Venture⁴
IFRS 17		Insurance Contracts³
Amendments to IFRS 17		Insurance Contracts^3,5
Amendments to IAS 1		Classification of Liabilities as Current or Non-current³
Amendments to IAS 1		Disclosure of Accounting Policies³
Amendments to IAS 8		Definitions of Accounting Estimates³
Amendments to IAS 16		Property, Plant and Equipment: Proceeds before Intended Use²
Amendments to IAS 37		Onerous Contracts—Cost of Fulfilling a Contract²
Annual Improvements to IFRS Standards 2018-2020		Amendments to IFRS 1, IFRS 9, Illustrative Examples accompanying IFRS 16, and IAS 41²

Effective for annual periods beginning on or after January 1, 2021

Effective for annual periods beginning on or after January 1, 2022

Effective for annual periods beginning on or after January 1, 2023

⁴

No mandatory effective date yet determined but available for adoption

⁵

As a consequence of the amendments to IFRS 17 issued in June 2020, IFRS 4 was amended to extend the temporary exemption that permits insurers to apply IAS 39 rather than IFRS 9 for annual periods beginning before January 1, 2023

Further information about those IFRSs that are expected to be applicable to the Group is described below:

Amendments to IFRS 3 are intended to replace a reference to the previous Framework for the Preparation and Presentation of Financial Statements with a reference to the Conceptual Framework for Financial Reporting issued in March 2018 without significantly changing its requirements. The amendments also add to IFRS 3 an exception to its recognition principle for an entity to refer to the Conceptual Framework to determine what constitutes an asset or a liability. The exception specifies that, for liabilities and contingent liabilities that would be within the scope of IAS 37 or IFRIC 21 if they were incurred separately rather than assumed in a business combination, an entity applying IFRS 3 should refer to IAS 37 or IFRIC 21 respectively instead of the Conceptual Framework. Furthermore, the amendments clarify that contingent assets do not qualify for recognition at the acquisition date. The Group expects to adopt the amendments prospectively from January 1, 2022. Since the amendments apply prospectively to business combinations for which the acquisition date is on or after the date of first application, the Group will not be affected by these amendments on the date of transition.

Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 address issues not dealt with in the previous amendments which affect financial reporting when an existing interest rate benchmark is replaced with an alternative RFR. The Phase 2 amendments provide a practical expedient to allow the effective interest rate to be updated without adjusting the carrying amount when accounting for changes in the basis for determining the contractual cash flows of financial assets and liabilities, if the change is a direct consequence of the interest rate benchmark reform and the new basis for determining the contractual cash flows is economically equivalent to the previous basis immediately preceding the change. In addition, the amendments permit changes required by the interest rate benchmark reform to be made to hedge designations and hedge documentation without the hedging relationship being discontinued. Any gains or losses that could arise on transition are dealt with through the normal requirements of IFRS 9 to measure and recognize hedge ineffectiveness. The amendments also provide a temporary relief to entities from having to meet the separately identifiable requirement when an RFR is designated as a risk component. The relief allows an entity, upon designation of the hedge, to assume that the separately identifiable requirement is met, provided the entity reasonably expects the RFR risk component to become separately identifiable within the next 24 months. Furthermore, the amendments require an entity to disclose additional information to enable users of financial statements to understand the effect of interest rate benchmark reform on an entity’s financial instruments and risk management strategy. The amendments are effective for annual periods beginning on or after January 1, 2021 and shall be applied retrospectively, but entities are not required to restate the comparative information.

The Group had certain interest-bearing bank borrowings and lease liabilities denominated in USD, EUR and SGD based on London Interbank Offered Rate (“LIBOR”), Euro Interbank Offered Rate (“EURIBOR”) and Singapore Interbank Offered Rate (“SIBOR”) as at December 31, 2020. If those interest rates of these borrowings and lease liabilities are replaced by RFRs in a future period, the Group will apply this practical expedient upon the modification of these borrowings when the “economically equivalent” criterion is met and expects that no significant modification gain or loss will arise as a result of applying the amendments to these changes.

F-15

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

2.3	ISSUED BUT NOT YET EFFECTIVE INTERNATIONAL FINANCIAL REPORTING STANDARDS (continued)

Amendments to IFRS 10 and IAS 28 address an inconsistency between the requirements in IFRS 10 and in IAS 28 in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The amendments require a full recognition of a gain or loss when the sale or contribution of assets between an investor and its associate or joint venture constitutes a business. For a transaction involving assets that do not constitute a business, a gain or loss resulting from the transaction is recognized in the investor’s profit or loss only to the extent of the unrelated investor’s interest in that associate or joint venture. The amendments are to be applied prospectively. The previous mandatory effective date of amendments to IFRS 10 and IAS 28 was removed by the IASB in December 2015 and a new mandatory effective date will be determined after the completion of a broader review of accounting for associates and joint ventures. However, the amendments are available for adoption now.

Amendments to IAS 1 clarify the requirements for classifying liabilities as current or non-current. The amendments specify that if an entity’s right to defer settlement of a liability is subject to the entity complying with specified conditions, the entity has a right to defer settlement of the liability at the end of the reporting period if it complies with those conditions at that date. Classification of a liability is unaffected by the likelihood that the entity will exercise its right to defer settlement of the liability. The amendments also clarify the situations that are considered a settlement of a liability. The amendments are effective for annual periods beginning on or after January 1, 2023 and shall be applied retrospectively. Earlier application is permitted. The amendments are not expected to have any significant impact on the Group’s financial statements.

Amendments to IAS 16 prohibit an entity from deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Instead, an entity recognizes the proceeds from selling any such items, and the cost of those items, in profit or loss. The amendments are effective for annual periods beginning on or after January 1, 2022 and shall be applied retrospectively only to items of property, plant and equipment made available for use on or after the beginning of the earliest period presented in the financial statements in which the entity first applies the amendments. Earlier application is permitted. The amendments are not expected to have any significant impact on the Group’s financial statements.

Amendments to IAS 37 clarify that for the purpose of assessing whether a contract is onerous under IAS 37, the cost of fulfilling the contract comprises the costs that relate directly to the contract. Costs that relate directly to a contract include both the incremental costs of fulfilling that contract (e.g., direct labor and materials) and an allocation of other costs that relate directly to fulfilling that contract (e.g., an allocation of the depreciation charge for an item of property, plant and equipment used in fulfilling the contract as well as contract management and supervision costs). General and administrative costs do not relate directly to a contract and are excluded unless they are explicitly chargeable to the counterparty under the contract. The amendments are effective for annual periods beginning on or after January 1, 2022 and shall be applied to contracts for which an entity has not yet fulfilled all its obligations at the beginning of the annual reporting period in which it first applies the amendments. Earlier application is permitted. Any cumulative effect of initially applying the amendments shall be recognized as an adjustment to the opening equity at the date of initial application without restating the comparative information. The amendments are not expected to have any significant impact on the Group’s financial statements.

Annual Improvements to IFRS Standards 2018-2020 sets out amendments to IFRS 1, IFRS 9, Illustrative Examples accompanying IFRS 16, and IAS 41. Details of the amendments that are expected to be applicable to the Group are as follows:

•

IFRS 9 Financial Instruments: clarifies the fees that an entity includes when assessing whether the terms of a new or modified financial liability are substantially different from the terms of the original financial liability. These fees include only those paid or received between the borrower and the lender, including fees paid or received by either the borrower or lender on the other’s behalf. An entity applies the amendment to financial liabilities that are modified or exchanged on or after the beginning of the annual reporting period in which the entity first applies the amendment. The amendment is effective for annual periods beginning on or after January 1, 2022. Earlier application is permitted. The amendment is not expected to have a significant impact on the Group’s financial statements.

•

IFRS 16 Leases: removes the illustration of payments from the lessor relating to leasehold improvements in Illustrative Example 13 accompanying IFRS 16. This removes potential confusion regarding the treatment of lease incentives when applying IFRS 16.

2.4	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Group initially applied IFRS 16 Leases on January 1, 2019 and elected not to reflect the figures on a retrospective basis in comparative periods. Different accounting policies for each accounting period as a result of the application of new accounting standards are listed by year separately.

Segmental reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker (“CODM”). The CODM, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the office of the General Manager that makes strategic decisions.

F-16

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

2.4	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Investments in associates and joint ventures

An associate is an entity in which the Group has a long-term interest of generally not less than 20% of the equity voting rights and over which it is in a position to exercise significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies.

A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

The Group’s investments in associates and joint ventures are stated in the consolidated statement of financial position at the Group’s share of net assets under the equity method of accounting, less any impairment losses.

The Group’s share of the post-acquisition results and other comprehensive income of associates and joint ventures is included in the consolidated statement of profit or loss and other comprehensive income. In addition, when there has been a change recognized directly in the equity of the associate or joint venture, the Group recognizes its share of any changes, when applicable, in the consolidated statement of changes in equity. Unrealized gains and losses resulting from transactions between the Group and its associates or joint ventures are eliminated to the extent of the Group’s investments in the associates or joint ventures, except where unrealized losses provide evidence of an impairment of the assets transferred. Goodwill arising from the acquisition of associates or joint ventures is included as part of the Group’s investments in associates or joint ventures.

If an investment in an associate becomes an investment in a joint venture or vice versa, the retained interest is not remeasured. Instead, the investment continues to be accounted for under the equity method. In all other cases, upon loss of significant influence over the associate or joint control over the joint venture, the Group measures and recognizes any retained investment at its fair value. Any difference between the carrying amount of the associate or joint venture upon loss of significant influence or joint control and the fair value of the retained investment and proceeds from disposal is recognized in profit or loss.

When an investment in an associate or a joint venture is classified as held for sale, it is accounted for in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.

Foreign currencies

(i)

Functional currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The financial statements are presented in “RMB”, which is the Company’s functional currency.

(ii)

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in profit or loss, except when deferred in other comprehensive income as qualifying cash flow hedges or qualifying net investment hedges..

Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in profit or loss within “finance income” or “finance costs”.

Revenue recognition

Revenue from contracts with customers

Revenue from contracts with customers is recognized when control of goods or services is transferred to the customers at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods or services.

When the consideration in a contract includes a variable amount, the amount of consideration is estimated to which the Group will be entitled in exchange for transferring the goods or services to the customer. The variable consideration is estimated at contract inception and constrained until it is highly probable that a significant revenue reversal in the amount of cumulative revenue recognized will not occur when the associated uncertainty with the variable consideration is subsequently resolved.

F-17

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

2.4	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenue recognition (continued)

When the contract contains a financing component which provides the customer with a significant benefit of financing the transfer of goods or services to the customer for more than one year, revenue is measured at the present value of the amount receivable, discounted using the discount rate that would be reflected in a separate financing transaction between the Group and the customer at contract inception. When the contract contains a financing component which provides the Group with a significant financial benefit for more than one year, revenue recognized under the contract includes the interest expense accreted on the contract liability under the effective interest method. For a contract where the period between the payment by the customer and the transfer of the promised goods or services is one year or less, the transaction price is not adjusted for the effects of a significant financing component, using the practical expedient in IFRS 15.

(a)

Passenger, cargo and mail revenues are recognized as traffic revenue when the transportation is provided or when ticket breakage occurs. The value of sold but unused tickets is included in contract liabilities as sales in advance of carriage (“SIAC”). The Group estimates the value of passenger ticket breakage based on historical trends and experience and recognizes revenue at the scheduled flight date.

(b)

Revenues from the provision of ground services, tour services, ticket cancellation services and other travel related services are recognized when the services are rendered.

(c)

Commission income represents amounts earned from other carriers in respect of sales made by the Group on their behalf, and is recognized upon ticket sales.

(d)

The Group operates a frequent flyer program called “Eastern Miles” that issues mileage points to program members based on accumulated mileage. The Group defers a portion of passenger revenue attributable to the mileage points issued based on the relative stand-alone selling price approach and recognizes revenue when the mileage points are redeemed and performance obligations are fulfilled or the mileage points expire unused. The stand-alone selling price of the mileage points was estimated based on the historical prices of equivalent flights and goods provided for mileage points redeemed and was adjusted for mileage points that are not expected to be redeemed (“Breakage”).

(e)

Revenue from the sale of goods is recognized at the point in time when control of the asset is transferred to the customer.

Revenue from other sources

Other income

Dividend income is recognized when the shareholders’ right to receive payment has been established, it is probable that the economic benefits associated with the dividend will flow to the Group and the amount of the dividend can be measured reliably.

Contract liabilities

A contract liability is recognized when a payment is received or a payment is due (whichever is earlier) from a customer before the Group transfers the related goods or services. Contract liabilities are recognized as revenue when the Group performs under the contract (i.e., transfers control of the related goods or services to the customer).

Government grants

Government grants are recognized at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions. When the grant relates to an expense item, it is recognized as income on a systematic basis over the periods that the costs, for which it is intended to compensate are expensed.

Where the grant relates to an asset, the fair value is credited to a deferred income account and is released to profit or loss over the expected useful life of the relevant asset by equal annual instalments.

Maintenance and overhaul costs

Certain lease arrangements contain provisions for the Group‘s obligations to fulfil certain return conditions at the end of lease term. The Group estimated lease return costs for aircraft and engines and recognized such costs as part of the right-of-use asset and are depreciated over their respective lease term. (applicable from January 1, 2019)

Provision for the estimated lease return costs for aircraft and engines was made on a straight-line basis over the lease term. (applicable before January 1, 2019)

F-18

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

2.4	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Maintenance and overhaul costs (continued)

All other repairs and maintenance costs are charged to profit or loss as and when incurred.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, i.e., assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalized as part of the cost of those assets. The capitalization of such borrowing costs ceases when the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs capitalized. All other borrowing costs are expensed in the period in which they are incurred. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

Income tax

Deferred tax liabilities are recognized for all taxable temporary differences, except:

•

Deferred tax assets and deferred tax liabilities are offset if and only if the Group has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realize the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.

F-19

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

2.4	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Business combinations and goodwill

Business combinations not under common control are accounted for using the acquisition method. The consideration transferred is measured at the acquisition date fair value which is the sum of the acquisition date fair values of assets transferred by the Group, liabilities assumed by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree that are present ownership interests and entitle their holders to a proportionate share of net assets in the event of liquidation at fair value or at the proportionate share of the acquiree’s identifiable net assets. All other components of non-controlling interests are measured at fair value. Acquisition-related costs are expensed as incurred.

The Group determines that it has acquired a business when the acquired set of activities and assets includes an input and a substantive process that together significantly contribute to the ability to create outputs.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts of the acquiree.

If the business combination is achieved in stages, the previously held equity interest is remeasured at its acquisition date fair value and any resulting gain or loss is recognized in profit or loss.

Any contingent consideration to be transferred by the acquirer is recognized at fair value at the acquisition date. Contingent consideration classified as an asset or liability is measured at fair value with changes in fair value recognized in profit or loss. Contingent consideration that is classified as equity is not remeasured and subsequent settlement is accounted for within equity.

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred, the amount recognized for non-controlling interests and any fair value of the Group’s previously held equity interests in the acquiree over the identifiable net assets acquired and liabilities assumed. If the sum of this consideration and other items is lower than the fair value of the net assets acquired, the difference is, after reassessment, recognized in profit or loss as a gain on bargain purchase.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. The Group performs its annual impairment test of goodwill as at December 31. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units.

Intangible assets (other than goodwill)

Computer software costs

Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortized using the straight-line method over their estimated useful lives of 5 years. Costs associated with developing or maintaining computer software programs are recognized as expenses when incurred.

Deferred pilot recruitment costs

Deferred pilot recruitment costs represent the costs borne by the Group in connection with securing a certain minimum period of employment of pilots and are amortized on a straight-line basis over the anticipated beneficial period of 5 years, starting from the date the pilot joins the Group.

Related parties

A party is considered to be related to the Group if:

(a)

the party is a person or a close member of that person’s family and that person:

(i)

has control or joint control over the Group;

(ii)

has significant influence over the Group; or

F-20

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

2.4	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Related parties (continued)

(iii)

is a member of the key management personnel of the Group or of a parent of the Group;

(b)

the party is an entity where any of the following conditions applies:

(i)

the entity and the Group are members of the same group;

(ii)

one entity is an associate or joint venture of the other entity (or of a parent, subsidiary or fellow subsidiary of the other entity);

(iii)

the entity and the Group are joint ventures of the same third party;

(iv)

one entity is a joint venture of a third entity and the other entity is an associate of the third entity;

(v)

the entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group and the sponsoring employers of the post-employment benefit plan;

(vi)

the entity is controlled or jointly controlled by a person identified in (a);

(vii)

a person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity); and

(viii)

the entity, or any member of a group of which it is a part, provides key management personnel services to the Group or to the parent of the Group.

Property, plant and equipment


Owned aircraft and engines			20 years
Other flight equipment, including rotables			10 years
Buildings			8 to 35 years
Other property, plant and equipment			3 to 20 years

F-21

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

2.4	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Investment properties

Investment properties are interests in land and buildings held to earn rental income and/or for capital appreciation, rather than for use in the production or supply of goods or services or for administrative purposes; or for sale in the ordinary course of business. Such properties are measured initially at cost, including transaction costs. After initial recognition, the Group chooses the cost model to measure all of its investment properties.

Depreciation is calculated on the straight-line basis to write off the cost to its residual value over its estimated useful life. The estimated useful lives are as follows:


Buildings		20 to 35 years

The carrying amounts of investment properties measured using the cost method are reviewed for impairment when events or changes in circumstances indicate that the carrying amounts may not be recoverable.

Any gains or losses on the retirement or disposal of an investment property are recognized in profit or loss in the year of the retirement or disposal.

Impairment of non-financial assets (other than goodwill)

Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than inventories, deferred tax assets, financial assets, and non-current assets/a disposal group classified as held for sale), the asset’s recoverable amount is estimated. An asset’s recoverable amount is the higher of the asset’s or cash-generating unit’s value in use and its fair value less costs of disposal, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is determined for the cash-generating unit to which the asset belongs. The Group’s owned and leased aircraft and engines are included in the airline transportation operations cash-generating unit. Management uses the value in use of the cash-generating unit of airline transportation operations to determine the recoverable amount.

Non-current assets and disposal groups held for sale

Non-current assets and disposal groups are classified as held for sale if their carrying amounts will be recovered principally through a sales transaction rather than through continuing use. For this to be the case, the asset or disposal group must be available for immediate sale in its present condition subject only to terms that are usual and customary for the sale of such assets or disposal groups and its sale must be highly probable. All assets and liabilities of a subsidiary classified as a disposal group are reclassified as held for sale regardless of whether the Group retains a non-controlling interest in its former subsidiary after the sale.

Non-current assets and disposal groups (other than investment properties and financial assets) classified as held for sale are measured at the lower of their carrying amounts and fair values less costs to sell. Property, plant and equipment and intangible assets classified as held for sale are not depreciated or amortized.

Advanced payments on acquisition of aircraft

Advanced payments on acquisition of aircraft represent payments to aircraft manufacturers to secure deliveries of aircraft in future years, including attributable borrowing costs, and are included in non-current assets. The balance is transferred to property, plant and equipment upon delivery of the aircraft.

Flight equipment spare parts

Flight equipment spare parts are stated at the lower of cost and net realizable value. Cost is determined using the weighted average method. The cost of flight equipment spare parts comprises the purchase price (net of discounts), freight charges, duty and other miscellaneous charges. Net realizable value is the estimated selling price of the flight equipment spare parts in the ordinary course of business, less applicable selling expenses.

F-22

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

2.4	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Investments and other financial assets

Initial recognition and measurement

Financial assets are classified, at initial recognition, as subsequently measured at amortized cost, fair value through other comprehensive income, and fair value through profit or loss.

The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Group’s business model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient of not adjusting the effect of a significant financing component, the Group initially measures a financial asset at its fair value, plus in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient are measured at the transaction price determined under IFRS 15 in accordance with the policies set out for “Revenue recognition”.

The Group’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both. Financial assets classified and measured at amortized cost are held within a business model with the objective to hold financial assets in order to collect contractual cash flows, while financial assets classified and measured at fair value through other comprehensive income are held within a business model with the objective of both holding to collect contractual cash flows and selling. Financial assets which are not held within the aforementioned business models are classified and measured at fair value through profit or loss.

All regular way purchases and sales of financial assets are recognized on the trade date, that is, the date that the Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace.

Subsequent measurement

The subsequent measurement of financial assets depends on their classification as follows:

Financial assets at amortized cost (debt instruments)

Financial assets at fair value through other comprehensive income (debt instruments)

Financial assets designated at fair value through other comprehensive income (equity investments)

Upon initial recognition, the Group can elect to classify irrevocably its equity investments as equity investments designated at fair value through other comprehensive income when they meet the definition of equity under IAS 32 Financial Instruments: Presentation and are not held for trading. The classification is determined on an instrument-by-instrument basis.

Gains and losses on these financial assets are never recycled to the statement of profit or loss. Dividends are recognized as other income in the statement of profit or loss when the right of payment has been established, it is probable that the economic benefits associated with the dividend will flow to the Group and the amount of the dividend can be measured reliably, except when the Group benefits from such proceeds as a recovery of part of the cost of the financial asset, in which case such gains are recorded in other comprehensive income. Equity investments designated at fair value through other comprehensive income are not subject to impairment assessment.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value recognized in the statement of profit or loss.

This category includes derivative instruments and equity investments which the Group had not irrevocably elected to classify at fair value through other comprehensive income. Dividends on equity investments classified as financial assets at fair value through profit or loss are also recognized as other income in the statement of profit or loss when the right of payment has been established, it is probable that the economic benefits associated with the dividend will flow to the Group and the amount of the dividend can be measured reliably.

F-23

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

2.4	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Investments and other financial assets (continued)

Derecognition of financial assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognized (i.e., removed from the Group’s consolidated statement of financial position) when:

•

the rights to receive cash flows from the asset have expired; or

•

the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a “pass-through” arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if, and to what extent, it has retained the risk and rewards of ownership of the asset. When it has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the Group continues to recognize the transferred asset to the extent of the Group’s continuing involvement. In that case, the Group also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

Impairment of financial assets

The Group recognizes an allowance for expected credit losses (“ECLs”) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.

General approach

At each reporting date, the Group assesses whether the credit risk on a financial instrument has increased significantly since initial recognition. When making the assessment, the Group compares the risk of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument as at the date of initial recognition and considers reasonable and supportable information that is available without undue cost or effort, including historical and forward-looking information.

The Group considers a financial asset in default when contractual payments are past due. However, in certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.


Stage 1 –		Financial instruments for which credit risk has not increased significantly since initial recognition and for which the loss allowance is measured at an amount equal to 12-month ECLs

Stage 2 –		Financial instruments for which credit risk has increased significantly since initial recognition but that are not credit-impaired financial assets and for which the loss allowance is measured at an amount equal to lifetime ECLs

Stage 3 –		Financial assets that are credit-impaired at the reporting date (but that are not purchased or originated credit-impaired) and for which the loss allowance is measured at an amount equal to lifetime ECLs

F-24

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

2.4	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Impairment of financial assets (continued)

Simplified approach

For trade receivables and contract assets that do not contain a significant financing component or when the Group applies the practical expedient of not adjusting the effect of a significant financing component, the Group applies the simplified approach in calculating ECLs. Under the simplified approach, the Group does not track changes in credit risk, but instead recognizes a loss allowance based on lifetime ECLs at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.

Financial liabilities

Initial recognition and measurement

Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.

All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.

The Group’s financial liabilities include trade and other payables, derivative financial instruments, lease liabilities, interest-bearing bank and other borrowings.

Subsequent measurement

The subsequent measurement of financial liabilities depends on their classification as follows:

Financial liabilities at amortized cost (loans and borrowings)

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost, using the effective interest rate method unless the effect of discounting would be immaterial, in which case they are stated at cost. Gains and losses are recognized in the statement of profit or loss when the liabilities are derecognized as well as through the effective interest rate amortization process.

Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortization is included in finance costs in the statement of profit or loss.

Derecognition of financial liabilities

A financial liability is derecognized when the obligation under the liability is discharged or cancelled, or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and a recognition of a new liability, and the difference between the respective carrying amounts is recognized in the statement of profit or loss.

Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial position if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously.

Derivative financial instruments and hedge accounting

Initial recognition and subsequent measurement

The Group uses derivative financial instruments, such as forward currency contracts, interest rate swaps and fuel forward contracts, to hedge its foreign currency risk, interest rate risk and fuel price risk, respectively. Such derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.

The fair value of commodity purchase contracts that meet the definition of a derivative as defined by IFRS 9 is recognized in the statement of profit or loss as cost of sales. Commodity contracts that are entered into and continue to be held for the purpose of the receipt or delivery of a non-financial item in accordance with the Group’s expected purchase, sale or usage requirements are held at cost.

F-25

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

2.4	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Derivative financial instruments and hedge accounting (continued)

For the purpose of hedge accounting, hedges are classified as:

•

fair value hedges when hedging the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment; or

•

hedges of a net investment in a foreign operation.

At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting, the risk management objective and its strategy for undertaking the hedge.

The documentation includes identification of the hedging instrument, the hedged item, the nature of the risk being hedged and how the Group will assess whether the hedging relationship meets the hedge effectiveness requirements (including the analysis of sources of hedge ineffectiveness and how the hedge ratio is determined). A hedging relationship qualifies for hedge accounting if it meets all of the following effectiveness requirements:

•

There is “an economic relationship” between the hedged item and the hedging instrument.

•

The effect of credit risk does not “dominate the value changes” that result from that economic relationship.

•

The hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Group actually hedges and the quantity of the hedging instrument that the Group actually uses to hedge that quantity of hedged item.

Hedges which meet all the qualifying criteria for hedge accounting are accounted for as follows:

Cash flow hedges

Fair value hedges

F-26

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

2.4	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Derivative financial instruments and hedge accounting (continued)

Current versus non-current classification

•

Where the Group expects to hold a derivative as an economic hedge (and does not apply hedge accounting) for a period beyond 12 months after the end of the reporting period, the derivative is classified as non-current (or separated into current and non-current portions) consistently with the classification of the underlying item.

•

Embedded derivatives that are not closely related to the host contract are classified consistently with the cash flows of the host contract.

•

Cash and cash equivalents

For the purpose of the consolidated statement of cash flows, cash and cash equivalents comprise cash on hand and demand deposits, and short term highly liquid investments that are readily convertible into known amounts of cash, are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired, less bank overdrafts which are repayable on demand and form an integral part of the Group’s cash management.

For the purpose of the consolidated statement of financial position, cash and cash equivalents comprise cash on hand and at banks, including assets similar in nature to cash, which are not restricted as to use.

Provisions

A provision is recognized when a present obligation (legal or constructive) has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation.

When the effect of discounting is material, the amount recognized for a provision is the present value at the end of the reporting period of the future expenditures expected to be required to settle the obligation. The increase in the discounted present value amount arising from the passage of time is included in finance costs in the statement of profit or loss.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognized even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

For the contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it, the present obligation under the contract is recognized and measured as a provision.

Leases (applicable from January 1, 2019)

The Group assesses at contract inception whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

(i)

As lessee

The Group applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Group recognizes lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.

(a) Right-of-use assets


Aircraft and engines under leases			5 to 20 years
Buildings			2 to 10 years
Prepayments for land use rights			40 to 50 years
Others			2 to 5 years

If ownership of the leased asset transfers to the Group by the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset.

F-27

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

2.4	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Leases (applicable from January 1, 2019) (continued)

(b) Lease liabilities

Lease liabilities are recognized at the commencement date of the lease at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for termination of a lease, if the lease term reflects the Group exercising the option to terminate the lease. The variable lease payments that do not depend on an index or a rate are recognized as an expense in the period in which the event or condition that triggers the payment occurs.

In calculating the present value of lease payments, the Group uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in lease payments (e.g., a change to future lease payments resulting from a change in an index or rate) or a change in assessment of an option to purchase the underlying asset.

The Group applies the short-term lease recognition exemption to its short-term leases (that is those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the recognition exemption for leases of low-value assets to leases of assets that are considered to be of low value. Lease payments on short-term leases and leases of low-value assets are recognized as an expense on a straight-line basis over the lease term.

(ii)

As lessor

When the Group acts as a lessor, it classifies at lease inception (or when there is a lease modification) each of its leases as either an operating lease or a finance lease.

Leases in which the Group does not transfer substantially all the risks and rewards incidental to ownership of an asset are classified as operating leases. When a contract contains lease and non-lease components, the Group allocates the consideration in the contract to each component on a relative stand-alone selling price basis. Rental income is accounted for on a straight-line basis over the lease terms and is included in revenue in the statement of profit or loss due to its operating nature. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income. Contingent rents are recognized as revenue in the period in which they are earned.

Leases that transfer substantially all the risks and rewards incidental to ownership of an underlying asset to the lessee are accounted for as finance leases.

Leases (applicable before January 1, 2019)

(i)

As lessee

Finance leases

Leases where the Group has acquired substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalized at the lease’s commencement at the lower of the fair value of the assets and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges. The corresponding rental obligations, net of finance charges, are included in the current portion of obligations under finance leases and obligations under finance leases, respectively. The interest element of the finance costs is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Leased assets are depreciated using a straight-line basis over their expected useful lives to residual values. For sale and leaseback transactions resulting in a finance lease, the Group continues to recognize the transferred asset and recognize a financial liability equal to the transfer proceeds.

Operating leases

(ii)

As lessor

Retirement benefits

(i)

Defined contribution plans

F-28

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

2.4	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Retirement benefits (continued)

The Group participates in schemes regarding pension and medical benefits for employees organized by the municipal governments of the relevant provinces. Contributions to these schemes are expensed as incurred.

The Group also implements an additional defined contribution pension benefit scheme (annuity) for voluntary eligible employees. Contributions are made based on a percentage of the employees’ total salaries and are charged to profit or loss as incurred.

(ii)

Defined benefit plan

The Group provides eligible retirees with certain post-retirement benefits including retirement subsidies, transportation allowance as well as other welfare. The defined post-retirement benefits are unfunded. The cost of providing benefits under the post-retirement benefit plan is determined using the projected unit credit actuarial valuation method.

Past service costs are recognized in profit or loss at the earlier of :

•

the date of the plan amendment or curtailment; and

•

the date that the Group recognizes restructuring-related costs

Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. The Group recognizes the following changes in the net defined benefit obligation under “Wages, salaries and benefits” and “Finance costs” in profit or loss:

•

service costs comprising current service costs, past-service costs, gains and losses on curtailments and non-routine settlements

•

net interest expense

Dividend distribution

Dividend distribution to the Company’s shareholders is recognized as a liability in the consolidated financial statements in the period in which the dividends are approved by the Company’s shareholders. Proposed final dividends are disclosed in the notes to the consolidated financial statements.

Fair value measurement

The Group measures its derivative financial instruments and equity investments at fair value at the end of each reporting period. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability, or in the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:


Level 1 –		based on quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2 –		based on valuation techniques for which the lowest level input that is significant to the fair value measurement is observable, either directly or indirectly
Level 3 –		based on valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable

For assets and liabilities that are recognized in the financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by reassessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

3	SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES

Estimates and judgments used in preparing the financial statements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

F-29

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

3	SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES (continued)

(a)

Passenger ticket breakage

The Group recognizes traffic revenues in accordance with the accounting policy stated in Note 2.4 to the consolidated financial statements. Passenger ticket breakage is recognized as revenue based on estimates. The Group estimates the value of passenger ticket breakage, reduces contract liabilities and recognizes revenue at the scheduled flight date using a portfolio based approach. The breakage rate is estimated and constrained by reference to the historical trend of passenger ticket breakage.

(b)

Recognition of contract liabilities for frequent flyer program

(c)

Provision for lease return costs for aircraft and engines

(d)

Retirement benefits

The Group operates and maintains a defined retirement benefit plan which provides eligible retirees with benefits including retirement subsidies, transportation allowance as well as other welfare. The cost of providing the aforementioned benefits in the defined retirement benefit plan is actuarially determined and recognized over the employee’s service period by utilizing various actuarial assumptions and using the projected unit credit method in accordance with the accounting policy stated in Note 2.4 to the consolidated financial statements. These assumptions include, without limitation, the selection of discount rate and annual rate of increase of per capita benefit payment. The discount rate is based on management’s review of government bonds. The annual rate of increase of benefit payments is based on the general local economic conditions.

Additional information regarding the retirement benefit plan is disclosed in Note 38 to the consolidated financial statements.

(e)

Deferred income tax

(f)

Provision for flight equipment spare parts

(g)

Estimated impairment of long-term assets (other than goodwill)

The Group tests whether property, plant and equipment, right-of-use assets, intangible assets (other than goodwill), advanced payments on acquisition of aircraft and other non-current assets have been impaired in accordance with the accounting policy stated in Note 2.4 to the consolidated financial statements. The recoverable amount of the cash-generating unit has been determined based on the higher of its value in use and its fair value less costs of disposal. The cash flow projections used to determine the value in use of a cash-generating unit, including the airline transportation operations cash-generating unit, is based on significant assumptions, such as revenue growth rates and the discount rate applied to the projected cash flows. These assumptions may be affected by unexpected changes in future market or economic conditions.

F-30

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

3	SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES (continued)

(h)

Impairment of goodwill

The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the recoverable amount which is the higher of its value in use and its fair value less costs of disposal. The Group uses the value in use of the cash-generating unit to which the goodwill is allocated to determine the recoverable amount. The cash flow projections used to determine the value in use of a cash-generating unit, including the airline transportation operations cash-generating unit, is based on significant assumptions, such as revenue growth rate, terminal growth rate and the discount rate applied to the projected cash flows. These assumptions may be affected by unexpected changes in future market or economic conditions.

(i)

Fair value of unlisted equity investments

The unlisted equity investments have been valued based on a market-based valuation technique as detailed in Note 47 to the consolidated financial statements. The valuation requires the Group to determine the comparable companies (peers) and select the price multiple. In addition, the Group makes estimates about the discount for illiquidity and size differences. The Group classifies the fair value hierarchy of these investments as Level 3.

(j)

Leases – Estimating the incremental borrowing rate

The Group cannot readily determine the interest rate implicit in a lease, and therefore, it uses an incremental borrowing rate (“IBR”) to measure lease liabilities. The IBR is the rate of interest that the Group would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The IBR therefore reflects what the Group “would have to pay”, which requires estimation when no observable rates are available (such as for subsidiaries that do not enter into financing transactions) or when it needs to be adjusted to reflect the terms and conditions of the lease (for example, when leases are not in the subsidiary’s functional currency). The Group estimates the IBR using observable inputs (such as market interest rates) when available and is required to make certain entity-specific estimates (such as the subsidiary’s stand-alone credit rating) when necessary.

4	OPERATING SEGMENT INFORMATION

(a)

CODM, office of the General Manager, reviews the Group’s internal reporting in order to assess performance and allocate resources.

The Group has one reportable operating segment, reported as “airline transportation operations”, which comprises the provision of passenger, cargo, mail delivery and ground service.

Other services including primarily tour operations, air catering and other miscellaneous services are not included within the airline transportation operations segment, as their internal reports are separately provided to the CODM. The results of these operations are included in the “other segments” column.

Inter-segment transactions are entered into under normal commercial terms and conditions that would be available to unrelated third parties.

In accordance with IFRS 8, segment disclosure has been presented in a manner that is consistent with the information used by the Group’s CODM. The Group’s CODM monitors the results, assets and liabilities attributable to each reportable segment based on financial results prepared under the PRC Accounting Standards for Business Enterprises (the “PRC Accounting Standards”), which differ from IFRSs in certain aspects. The amount of each material reconciling item from the Group’s reportable segment revenues and (loss)/profit before income tax, arising from different accounting policies is set out in Note 4(c) below.

The segment results for the year ended December 31, 2020 were as follows:


	Airline transportation operations *RMB million*			Other segments *RMB million*		Eliminations *RMB million*			Unallocated* *RMB million*			Total *RMB million*
Segment revenue
Reportable segment revenue from external customers		58,337			302		—			—			58,639
Intersegment sales		—			1,499		(1,499	)		—			—

Reportable segment revenue		58,337			1,801		(1,499	)		—			58,639

Reportable segment (loss)/profit before income tax		(17,062	)		684		—			(103	)		(16,481	)

F-31

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

4	OPERATING SEGMENT INFORMATION (continued)

(a)

CODM, office of the General Manager, reviews the Group’s internal reporting in order to assess performance and allocate resources. (continued)


	Airline transportation operations *RMB million*		Other segments *RMB million*		Eliminations *RMB million*			Unallocated* *RMB million*		Total *RMB million*
Other segment information
Depreciation and amortization		21,965		283		—			—		22,248
Impairment charges/impairment losses on financial assets, net**		215		1		—			—		216
Interest income		178		1		(13	)		—		166
Interest expense		5,212		15		(13	)		—		5,214
Capital expenditure		17,778		639		—			—		18,417

The segment results for the year ended December 31, 2019 were as follows:


	Airline transportation operations *RMB million*		Other segments *RMB million*		Eliminations *RMB million*			Unallocated* *RMB million*		Total *RMB million*
Segment revenue
Reportable segment revenue from external customers		119,240		1,620		—			—		120,860
Intersegment sales		—		2,052		(2,052	)		—		—

Reportable segment revenue		119,240		3,672		(2,052	)		—		120,860

Reportable segment profit before income tax		2,745		1,164		—			393		4,302

Other segment information
Depreciation and amortization		21,816		261		—			—		22,077
Impairment charges/impairment losses on financial assets, net**		20		—		—			—		20
Interest income		108		1		(13	)		—		96
Interest expense		5,152		30		(13	)		—		5,169
Capital expenditure		42,853		303		—			—		43,156

The segment assets and liabilities as at December 31, 2020 and December 31, 2019 were as follows:


	Airline transportation operations *RMB million*		Other segments *RMB million*		Eliminations *RMB million*			Unallocated* *RMB million*		Total *RMB million*
At December 31, 2020
Reportable segment assets		275,028		5,510		(1,736	)		3,606		282,408
Reportable segment liabilities		224,862		2,228		(1,736	)		142		225,496

At December 31, 2019
Reportable segment assets		274,578		6,225		(1,943	)		4,076		282,936
Reportable segment liabilities		211,035		3,146		(1,943	)		301		212,539

Unallocated assets primarily represent investments in associates and joint ventures, derivative financial instruments, equity investments designated at fair value through other comprehensive income and a financial asset at fair value through profit or loss. Unallocated results primarily represent the share of results of associates and joint ventures, fair value changes of derivative financial instruments, fair value change of a financial asset at fair value through profit or loss and dividend income relating to equity investments.

**	It included impairment loss on property, plant and equipment of RMB31 million (Note 16).

F-32

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

4	OPERATING SEGMENT INFORMATION (continued)

(b)

The Group’s business operates in three main geographical areas, even though they are managed on a worldwide basis.

The Group’s revenues by geographical area are analysed based on the following criteria:

Traffic revenue from services within Mainland China (the PRC excluding the Hong Kong Special Administrative Region (“Hong Kong”), Macau Special Administrative Region (“Macau”) and Taiwan, collectively known as “Regional”) is classified as domestic operations. Traffic revenue from inbound and outbound services between overseas markets excluding Regional is classified as international operations.

Revenue from ticket handling services, ground services and other miscellaneous services are classified on the basis of where the services are performed.


	2020		*2019*		*2018*
	*RMB million*		*RMB million*		*RMB million*
Domestic (the PRC, excluding Hong Kong, Macau and Taiwan)		45,479		80,058		76,517
International		12,759		37,082		34,744
Regional (Hong Kong, Macau and Taiwan)		489		3,846		4,017

		58,727		120,986		115,278

The major revenue-earning assets of the Group are its aircraft, all of which are registered in the PRC. Since the Group’s aircraft are deployed flexibly across its route network, there is no suitable basis of allocating such assets and the related liabilities by geographic area and hence segment non-current assets and capital expenditure by geographic area are not presented. Except the aircraft, most non-current assets (except financial instruments) are registered and located in the PRC.

(c)

Reconciliation of reportable segment revenues, (loss)/profit and assets to the consolidated figures as reported in the consolidated financial statements:


			2020			2019			2018
	*Note*		*RMB million*			*RMB million*			*RMB million*
Revenue
Reportable segment revenue				58,639			120,860			114,930
- Reclassification of taxes relating to the expired tickets		(i)		88			126			348

Consolidated revenue				58,727			120,986			115,278


			2020			2019			2018
	*Note*		*RMB million*			*RMB million*			*RMB million*
(Loss)/profit before income tax
Reportable segment (loss)/profit				(16,481	)		4,302			3,867
- Differences in depreciation charges for aircraft and engines due to different depreciation lives		(ii)		(7	)		(3	)		(11	)

Consolidated (loss)/profit before income tax				(16,488	)		4,299			3,856


						2020			2019
	*Notes*					*RMB million*			*RMB million*
Assets
Reportable segment assets							282,408			282,936
- Differences in depreciation charges for aircraft and engines due to different depreciation lives		(ii)					—			7
- Difference in intangible asset arising from the acquisition of Shanghai Airlines		(iii)					2,242			2,242

Consolidated assets							284,650			285,185

F-33

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

4	OPERATING SEGMENT INFORMATION (continued)

(c)

Reconciliation of reportable segment revenues, (loss)/profit and assets to the consolidated figures as reported in the consolidated financial statements (continued):

Notes:

(i)	The difference represents the different classification of sales related taxes under the PRC Accounting Standards and IFRSs.

(ii)

The difference is attributable to the differences in the useful lives and residual values of aircraft and engines adopted for depreciation purposes in prior years under the PRC Accounting Standards and IFRSs. Despite the depreciation policies of these assets which have been unified under IFRSs and the PRC Accounting Standards in recent years, the changes were applied prospectively as changes in accounting estimates which result in the differences in the carrying amounts and related depreciation charges under IFRSs and the PRC Accounting Standards.

(iii)

The difference represents the different measurement of the fair value of acquisition cost of the shares from Shanghai Airlines between the PRC Accounting standards and IFRSs, which results in the different measurement of goodwill.

REVENUE

An analysis of revenue is as follows:


	2020		*2019*		*2018*
	*RMB million*		*RMB million*		*RMB million*
Revenue from contracts with customers		58,470		120,796		115,210
Revenue from other sources
Rental income		257		190		68

		58,727		120,986		115,278

Revenue from contracts with customers

(i)

Disaggregated revenue information

For the year ended December 31, 2020


	Airline
	transportation		Other
Segments	operations		operations		Total
	*RMB million*		*RMB million*		*RMB million*
Types of goods or services
Traffic revenues
- Passenger		49,215		—		49,215
- Cargo and mail		4,895		—		4,895
Tour operations income		—		14		14
Ground service income		818		—		818
Commission income		2,206		—		2,206
Others		1,034		288		1,322

Total revenue from contracts with customers		58,168		302		58,470

Geographical markets
Domestic (the PRC, excluding Hong Kong, Macau and Taiwan)		44,920		302		45,222
International		12,759		—		12,759
Regional (Hong Kong, Macau and Taiwan)		489		—		489

Total revenue from contracts with customers		58,168		302		58,470

F-34

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

5	REVENUE (continued)

Revenue from contracts with customers (continued)

(i)

Disaggregated revenue information (continued)

For the year ended December 31, 2019


	Airline
	transportation		Other
Segments	operations		operations		Total
	*RMB million*		*RMB million*		*RMB million*
Types of goods or services
Traffic revenues
- Passenger		110,416		—		110,416
- Cargo and mail		3,826		—		3,826
Tour operations income		—		878		878
Ground service income		1,180		—		1,180
Commission income		2,485		—		2,485
Others		1,269		742		2,011

Total revenue from contracts with customers		119,176		1,620		120,796

Geographical markets
Domestic (the PRC, excluding Hong Kong, Macau and Taiwan)		78,248		1,620		79,868
International		37,082		—		37,082
Regional (Hong Kong, Macau and Taiwan)		3,846		—		3,846

Total revenue from contracts with customers		119,176		1,620		120,796

Set out below is the reconciliation of the revenue from contracts with customers to the amounts disclosed in the segment information:

For the year ended December 31, 2020


Segments	Airline transportation operations *RMB million*		Other operations *RMB million*			Total *RMB million*
Revenue from contracts with customers
External customers		58,168		302			58,470
Intersegment sales		—		1,499			1,499

Intersegment adjustment and eliminations		—		(1,499	)		(1,499	)

Total revenue from contracts with customers		58,168		302			58,470

For the year ended December 31, 2019


Segments	Airline transportation operations *RMB million*		Other operations *RMB million*			Total *RMB million*
Revenue from contracts with customers
External customers		119,176		1,620			120,796
Intersegment sales		—		2,052			2,052

Intersegment adjustment and eliminations		—		(2,052	)		(2,052	)

Total revenue from contracts with customers		119,176		1,620			120,796

The following table shows the amount of revenue recognized in the current reporting period that was included in the contract liabilities at the beginning of the reporting period:


	2020 *RMB million*		2019 *RMB million*
Revenue recognized that was included in contract liabilities at the beginning of the year:
Passenger transportation services		6,699		7,216

F-35

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

5	REVENUE (continued)

Revenue from contracts with customers (continued)

(i)

Disaggregated revenue information (continued)

As at December 31, 2020, the contract liabilities for frequent flyer program amounted to RMB1,781 million. The table below presents the activity of the contract liabilities for frequent flyer program.


	2020 *RMB million*			2019 *RMB million*
At January 1		2,245			2,286
Deferred during the year		843			1,613
Recognized as revenue during the year		(1,122	)		(1,654	)

At December 31		1,966			2,245
Less: the related pending output value added tax therein		185			188

		1,781			2,057

(ii)

Performance obligations

Information about the Group’s performance obligations is summarized below:

Passenger transportation services

The performance obligation is satisfied upon transportation service provided. Payment in advance is required and reflected in sales in advance of carriage or frequent flyer program, both of which are included in contract liabilities.

Cargo and mail transportation services

The performance obligation is satisfied as services are rendered and payment is generally due within 30 days after the end of each month.

Tour services

The performance obligation is satisfied as services are rendered and payment in advance is generally required.

Ground services

The performance obligation is satisfied as services are rendered and payment is generally due within 45 days from the date of billing.

Ticket cancellation and commission services

The performance obligation is satisfied as the process of ticket cancellation or sales is completed and consideration normally has been received before the services are rendered.

6	OTHER OPERATING INCOME AND GAINS


	2020 *RMB million*		2019 *RMB million*		2018 *RMB million*
Co-operation routes income (note (a))		3,650		5,436		4,536
Routes subsidy income (note (b))		372		353		441
Other subsidy income (note (c))		1,326		535		453
Gain on disposal of items of property, plant and equipment		55		40		290
Gain on disposal of prepayments for land use rights		—		—		210
Gain on disposal of an associate		—		—		5
Dividend income from a financial asset at fair value through profit or loss		6		3		6
Dividend income from equity investments designated at fair value through other comprehensive income		12		19		23
Compensation from ticket sales agents		53		331		348
Gain on disposal of a subsidiary		—		64		—
Others		224		421		280

		5,698		7,202		6,592

Notes:

(a)

Co-operation routes income represents subsidies granted by various local authorities and other parties, with which the Group developed certain routes to support the development of local economy. The amounts granted are calculated based on the agreements entered into by all parties.

F-36

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

6	OTHER OPERATING INCOME AND GAINS (continued)

Notes: (continued)

(b)

Routes subsidy income represents subsidies granted by various authorities to support certain international and domestic routes operated by the Group .

(c)

Other subsidy income represents subsidies granted by various local authorities based on certain amounts of tax paid and other government grants.

(d)

There are no unfulfilled conditions or other contingencies related to subsidies that were recognized for the years ended December 31, 2020, 2019 and 2018.

7	OPERATING PROFIT

Operating profit is stated after charging/(crediting) the following items:


	2020 *RMB million*			2019 RMB million		2018 RMB million
Amortization of intangible assets (Note 19)		239			143		160
Depreciation of property, plant and equipment (Note 16)
– owned		9,067			9,078		7,926
– leased (finance leases)		—			—		6,690
Depreciation of right-of-use assets (Note 18(a)) (2018: amortization of prepayments for land use rights)		12,367			12,298		43
Depreciation of investment properties (Note 17)		12			25		26
Amortization of long-term deferred assets included in other non-current assets		570			536		468
Impairment charge on property, plant and equipment (Note 9)		31			4		—
Write-down of flight equipment spare parts to net realizable value (Note 9)		153			—		—
Consumption of flight equipment spare parts		1,135			1,013		1,088
Auditors’ remuneration		17			18		17
Foreign exchange differences, net (Note 11 and 12)		(2,494	)		990		2,040

8	WAGES, SALARIES AND BENEFITS


	2020 *RMB million*		2019 RMB million		2018 RMB million
Wages, salaries, bonuses and allowances		16,412		19,385		17,865
Employee welfare and benefits		128		143		170
Pension (Note 38(a))		2,149		2,571		2,306
Medical insurance (note (a))		725		789		706
Staff housing fund (note (b))		1,195		1,056		948
Staff housing allowances (note (c))		214		186		109
Early retirement benefits (note (d))		4		22		30

		20,827		24,152		22,134

Notes:

(a)

Medical insurance

Majority of the Group’s PRC employees participate in the medical insurance schemes organized by municipal governments.

(b)

Staff housing fund

In accordance with the relevant PRC housing regulations, the Group is required to contribute to the state-sponsored housing fund for its employees. At the same time, the employees are required to contribute an amount equal to the Group’s contribution. The employees are entitled to claim the entire sum of the fund contributed under certain specified withdrawal circumstances. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits.

(c)

Staff housing allowances

The Group also provides staff housing allowances in cash to eligible employees. The total entitlement of an eligible employee is principally provided over a period of 20 years. Upon an eligible employee’s resignation or retirement, his or her entitlement would cease and any unpaid entitlement related to past service up to the date of resignation or retirement would be paid.

F-37

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

8	WAGES, SALARIES AND BENEFITS (continued)

Notes:

(continued)

(d)

Early retirement benefits

The Group implements an early retirement scheme which allows eligible employees to early retire on a voluntary basis. The Group undertakes the obligations to pay the early retirement employees’ basic salaries and certain welfare in the future on a monthly basis according to the early retirement scheme, together with social insurance and housing fund pursuant to the regulation of the local government. The benefits of the early retirement scheme are calculated based on factors including the remaining number of years of service from the date of early retirement to the normal retirement date and the benefits the early retirement employees enjoyed. The present value of the future cash flows expected to be required to settle the obligations is recognized as a provision in “other long-term liabilities”.

(e)

Directors’ and executive’s remuneration

Directors’ and executive’s remuneration for the year, disclosed pursuant to the Listing Rules, section 383(1)(a), (b), (c) and (f) of the Hong Kong Companies Ordinance and Part 2 of the Companies (Disclosure of Information about Benefits of Directors) Regulation, is as follows:


	2020 RMB’000		2019 RMB’000		2018 RMB’000
Fees		460		805		800

Other emoluments:
Salaries, allowances and benefits in kind		2,906		665		1,464
Performance related bonuses*		—		—		—
Pension scheme contributions		61		21		41

		3,427		1,491		2,305

*	No executive directors of the Company are entitled to bonus payments which are determined as a percentage of the profit after tax of the Group.

2020


	Fees *RMB’000*		Salaries, allowances and benefits in kind *RMB’000*		Performance related bonuses *RMB’000*		Pension scheme contributions *RMB’000*		Total *RMB’000*
Executive Directors
Liu Shaoyong*		—		—		—		—		—
Wang Junjin***		—		—		—		—		—
Li Yangmin*		—		—		—		—		—
Tang Bing*		—		—		—		—		—
Yuan Jun^&**		—		—		—		—		—
Jiang Jiang*****		—		2,325		—		36		2,361
Independent non-executive Directors
Lin Wanli***		—		—		—		—		—
Shao Ruiqing		200		—		—		—		200
Cai Hongping		200		—		—		—		200
Dong Xuebo		60		—		—		—		60
Supervisors
Xi Sheng*		—		—		—		—		—
Gao Feng***		—		536		—		23		559
Zhou Huaxin*****		—		45		—		2		47
Fang Zhaoya*		—		—		—		—		—

Total		460		2,906		—		61		3,427

F-38

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

8	WAGES, SALARIES AND BENEFITS (continued)

Notes:

(continued)

(e)

Directors’ and executive’s remuneration (continued)

2019


	Fees *RMB’000*		Salaries, allowances and benefits in kind *RMB’000*		Performance related bonuses *RMB’000*		Pension scheme contributions *RMB’000*		Total *RMB’000*
Executive Directors
Liu Shaoyong*		—		—		—		—		—
Ma Xulun^&***		—		—		—		—		—
Wang Junjin**		—		—		—		—		—
Li Yangmin^&*		—		—		—		—		—
Tang Bing^&*		—		—		—		—		—
Yuan Jun*		—		—		—		—		—
Independent non-executive Directors
Lin Wanli		—		—		—		—		—
Li Ruoshan***		200		—		—		—		200
Ma Weihua***		200		—		—		—		200
Shao Ruiqing		200		—		—		—		200
Cai Hongping		200		—		—		—		200
Dong Xuebo**		5		—		—		—		5
Supervisors
Xi Sheng*		—		—		—		—		—
Gao Feng		—		665		—		21		686
Li Jinde^&**		—		—		—		—		—
Fang Zhaoya^&*		—		—		—		—		—

Total		805		665		—		21		1,491

2018


	Fees *RMB’000*		Salaries, allowances and benefits in kind *RMB’000*		Performance related bonuses *RMB’000*		Pension scheme contributions *RMB’000*		Total *RMB’000*
Executive Directors
Liu Shaoyong*		—		—		—		—		—
Ma Xulun^&***		—		—		—		—		—
Xu Zhao^&**		—		—		—		—		—
Gu Jiadan^&**		—		—		—		—		—
Li Yangmin^&**		—		—		—		—		—
Tang Bing^&**		—		—		—		—		—
Tian Liuwen^&**		—		—		—		—		—
Yuan Jun**		—		867		—		14		881
Independent non-executive Directors
Lin Wanli**		—		—		—		—		—
Li Ruoshan		200		—		—		—		200
Ma Weihua		200		—		—		—		200
Shao Ruiqing		200		—		—		—		200
Cai Hongping		200		—		—		—		200
Supervisors
Xi Sheng*		—		—		—		—		—
Gao Feng**		—		251		—		19		270
Li Jinde^&*		—		—		—		—		—
Ba Shengji^&**		—		—		—		—		—
Hu Jidong^&**		—		—		—		—		—
Feng Jinxiong******		—		346		—		8		354
Jia Shaojun^&**		—		—		—		—		—

Total		800		1,464		—		41		2,305

F-39

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

8	WAGES, SALARIES AND BENEFITS (continued)

Notes:

(continued)

(e)

Directors’ and executive’s remuneration (continued)

These directors and supervisors of the Company received emoluments from CEA Holding, the parent company, part of which were in respect of their services to the Company and its subsidiaries. No apportionment has been made as it is impracticable to apportion those amounts between their services to the Group and their services to CEA Holding.

**	These directors and supervisors of the Company were newly appointed or elected during the years ended December 31, 2020, 2019 and 2018, respectively.

***	These directors and supervisors of the Company resigned during the years ended December 31, 2020, 2019 and 2018, respectively.

****	Mr. Ma Xulun resigned on February 1, 2019.

*****

Mr. Jiang Jiang was newly appointed as Employee Representative Director on December 28, 2020 and Mr. Zhou Huaxin was newly appointed as Supervisor on December 10, 2020. Their salaries, allowances and benefits in kind were listed as being Managers.

******

Mr. Feng Jinxiong passed away due to illness during the year ended December 31, 2018.

During the years ended December 31, 2020, 2019 and 2018, no directors and supervisors waived their emoluments.

(f)

Five highest paid individuals

One of the Company’s directors and supervisors was among the five highest paid individuals in the Group for the year ended December 31, 2020 (2019: Nil). The emoluments payable to the five highest paid individuals were as follows:


	2020 *RMB’000*		2019 *RMB’000*
Wages, salaries and allowances		10,495		11,413
Performance related bonuses*		—		—
Pension scheme contributions		172		185

		10,667		11,598

*	None of the above highest paid individuals are entitled to bonus payments which are determined as a percentage of the profit after tax of the Group.

The number of five highest paid individuals whose emoluments fell within the following bands is as follows:


	Number of individuals
	2020		2019
HK$2,000,001 to HK$2,500,000		2		2
HK$2,500,001 to HK$3,000,000		3		2
HK$3,000,001 to HK$3,500,000		—		1

During the year ended December 31, 2020, no emoluments were paid by the Group to the directors, supervisors and the five highest paid individuals as an inducement to join or upon joining the Group, or as a compensation for loss of office (2019: Nil).

F-40

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

9	IMPAIRMENT CHARGES


	2020 *RMB million*		2019 *RMB million*		2018 *RMB million*
Impairment charge on property, plant and equipment (Note 16)		31		4		15
Write-down of flight equipment spare parts to net realizable value (Note 26)		153		—		301
Impairment charge on assets classified as held for sale		—		—		2

		184		4		318

10	IMPAIRMENT LOSSES ON FINANCIAL ASSETS, NET


	2020 *RMB million*		2019 *RMB million*			2018 *RMB million*
Impairment losses on trade receivable, net (Note 27)		15		(6	)		(21	)
Impairment losses on other receivables (Note 29)		17		22			48

		32		16			27

11	FINANCE INCOME


	2020 *RMB million*		2019 *RMB million*		2018 *RMB million*
Interest income		166		96		110
Foreign exchange gains, net (Note 12(b))		2,494		—		—

		2,660		96		110

12	FINANCE COSTS


	2020 *RMB million*			2019 *RMB million*			2018 *RMB million*
Interest on bank borrowings		1,112			1,149			1,569
Interest relating to lease liabilities (Note 18(c))		3,655			3,894			—
Interest relating to obligations under finance leases		—			—			2,440
Interest relating to post-retirement benefit obligations		85			92			106
Interest relating to provision for lease return costs for aircraft and engines		283			270			—
Interest on bonds and debentures		632			520			468
Interest relating to interest rate swap contracts		4			(68	)		(6	)
Less: amounts capitalized into advanced payments on acquisition of aircraft (note (a))		(558	)		(687	)		(850	)

		5,213			5,170			3,727
Foreign exchange losses, net (note (b))		—			990			2,040

		5,213			6,160			5,767

Notes:

(a)

The weighted average interest rate used for interest capitalization was 3.55% per annum for the year ended December 31, 2020 (For the year ended December 31, 2019: 3.51%; For the year ended December 31, 2018: 3.54%).

(b)

The exchange gains and losses primarily related to the translation of the Group’s foreign currency denominated borrowings and lease liabilities for the years ended December 31, 2020, 2019 and 2018.

F-41

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

13	INCOME TAX

Income tax (credited)/charged to profit or loss was as follows:


	2020 *RMB million*			2019 *RMB million*			2018 *RMB million*
Current		222			942			1,220
Deferred		(4,149	)		(123	)		(294	)

		(3,927	)		819			926

Pursuant to the “Notice on the continuation of the Income Tax Policies for Enhancing the Implementation of Western Region Development Strategy.” (Ministry of Finance Announcement [2020] No.23), and other series of tax regulations, enterprises located in the western regions and engaged in the industrial activities as listed in the “Catalogue of Encouraged Industries in Western Regions”, will be entitled to a reduced corporate income tax rate of 15% from 2021 to 2030 upon approval from the tax authorities. CEA Yunnan, a subsidiary of the Company, obtained approval from the tax authorities and has been entitled to a reduced corporate income tax rate of 15% from January 1, 2011. The Company’s Sichuan branch, Gansu branch and Xibei branch also obtained approvals from the respective tax authorities and are entitled to a reduced corporate income tax rate of 15%. The subsidiaries incorporated in Hong Kong are subject to Hong Kong profits tax rate of 16.5% (2019: 16.5%). Eastern E-Commerce, a subsidiary of the Company, qualified for High and New Technology Enterprise (HNTE) status with HNTE certificate No.GR201831003647 issued by the relative authorities, has been entitled to a reduced corporate income tax rate of 15% from January 1, 2018 as approved by the tax authorities.

A reconciliation of the tax expense applicable to (loss)/profit before tax at the statutory rate for the country in which the Company and the majority of its subsidiaries are domiciled to the tax expense at the effective tax rate is as follows:


	2020 *RMB million*			2019 *RMB million*			2018 *RMB million*
(Loss)/profit before income tax		(16,488	)		4,299			3,856

Tax calculated at the tax rate of 25% (2019: 25%, 2018:25%)		(4,122	)		1,075			964
Lower tax rates enacted by local authority		56			(139	)		(93	)
Share of results of associates and joint ventures		24			(71	)		(51	)
Income not subject to tax		(12	)		(36	)		(9	)
Expenses not deductible for tax		169			128			88
Utilization of previously unrecognized tax losses		(16	)		(11	)		(60	)
Unrecognized tax losses for the year		21			17			28
Utilization of previously unrecognized deductible temporary differences		(10	)		(8	)		(1	)
Unrecognized deductible temporary differences		3			3			23
Adjustments in respect of current tax of previous periods		(4	)		(34	)		61
Additional deduction of research and development costs		(31	)		(27	)		(24	)
Income tax deduction of purchase of special equipment for production safety		(5	)		(78	)		—

Tax (credit)/charge		(3,927	)		819			926

Effective tax rate		23.82	%		19.05	%		24.01	%

The Group operates international flights to overseas destinations. There was no material overseas taxation for the years ended December 31, 2020, 2019 and 2018, as there are tax treaties between the PRC and the corresponding jurisdictions relating to the aviation business.

DIVIDENDS

2020

2019

2018

RMB million

Proposed final – Nil (2019: 0.050, 2018: Nil) per ordinary share

—

819

—

On March 30, 2021, the Group has no profit distribution plan to propose cash dividend for 2020 (2019: RMB0.050 per share before tax).

F-42

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

15	LOSS/EARNINGS PER SHARE

The calculation of basic loss per share for the year ended December 31, 2020 was based on the loss attributable to equity holders of the Company of RMB11,836 million and the weighted average number of shares of 16,379,509,203 in issue during the year.

The calculation of basic earnings per share for the year ended December 31, 2019 was based on the profit attributable to equity holders of the Company of RMB3,192 million and the weighted average number of shares of 15,104,893,522 in issue during the year.

The calculation of basic earnings per share for the year ended December 31, 2018 was based on the profit attributable to equity holders of the Company of RMB2,698 million and the weighted average number of shares of 14,467,585,682 in issue during the year.

The Company had no potentially dilutive options or other financial instruments relating to the ordinary shares in issue during the years ended December 31, 2020, 2019 and 2018.

16	PROPERTY, PLANT AND EQUIPMENT


	Aircraft,			Buildings			Other property, plant and equipment
	engines and flight equipment			Buildings			Other property, plant and equipment			Construction in progress			Total
	*RMB million*			*RMB million*			*RMB million*			*RMB million*			*RMB million*
December 31, 2020
At January 1, 2020
Cost		133,845			14,153			10,217			3,857			162,072
Accumulated depreciation and impairment		(54,366	)		(2,499	)		(5,770	)		—			(62,635	)

Net carrying amount		79,479			11,654			4,447			3,857			99,437

At January 1, 2020, net of accumulated depreciation and impairment		79,479			11,654			4,447			3,857			99,437
Additions		3,517			69			528			1,055			5,169
Disposals		(781	)		(22	)		(102	)		(425	)		(1,330	)
Transfer from construction in progress		—			1,102			21			(1,123	)		—
Transfer from advanced payments on acquisition of aircraft		53			—			—			—			53
Transfer from investment properties (Note 17)		—			425			—			—			425
Transfer from right-of-use assets (Note 18(a))		6,402			—			—			—			6,402
Transfer to investment properties (Note 17)		—			(13	)		—			—			(13	)
Transfer to other non-current assets		—			—			—			(2	)		(2	)
Depreciation provided during the year		(7,680	)		(501	)		(886	)		—			(9,067	)
Impairment (note)		(31	)		—			—			—			(31	)

At December 31, 2020, net of accumulated depreciation and impairment		80,959			12,714			4,008			3,362			101,043

At December 31, 2020:
Cost		144,827			15,816			10,337			3,362			174,342
Accumulated depreciation and impairment		(63,868	)		(3,102	)		(6,329	)		—			(73,299	)

Net carrying amount		80,959			12,714			4,008			3,362			101,043

Note: During the year ended December 31, 2020, the Group made an impairment provision of RMB31 million for certain retired engines, the recoverable amount is determined based on the estimated market prices.

As at December 31, 2020, the ownership certificates of buildings with a net carrying amount of RMB8,453 million (2019: RMB9,206 million) have not been obtained. The directors of the Company are of the opinion that the Group legally owns and has the rights to use the aforesaid buildings, and that there is no material adverse impact on the overall financial position of the Group.

The Group’s parcels of land in Mainland China where the buildings are situated are held under medium-term leases.

The following table indicates the cost and net carrying amount of the Group’s aircraft pledged as collateral under certain borrowing arrangements (Note 36):

2020

2019

Cost

Net carrying amount

Cost

Net carrying amount

RMB million

Aircraft

- pledged as collateral

26,149

17,515

10,819

7,243

F-43

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

16	PROPERTY, PLANT AND EQUIPMENT (continued)


	Aircraft,			Buildings			Other property, plant and equipment
	engines and flight equipment			Buildings			Other property, plant and equipment			Construction in progress			Total
	*RMB million*			*RMB million*			*RMB million*			*RMB million*			*RMB million*
December 31, 2019
At January 1, 2019
Cost		111,968			10,689			9,462			4,419			136,538
Accumulated depreciation and impairment		(43,403	)		(2,159	)		(5,288	)		—			(50,850	)

Net carrying amount		68,565			8,530			4,174			4,419			85,688

At January 1, 2019 net of accumulated depreciation and impairment		68,565			8,530			4,174			4,419			85,688
Additions		4,137			(41	)		716			3,242			8,054
Disposals		(10	)		(40	)		(41	)		—			(91	)
Transfer from construction in progress		—			3,523			214			(3,737	)		—
Transfer from advanced payments on acquisition of aircraft		335			—			—			—			335
Transfer from investment properties (Note 17)		—			76			—			—			76
Transfer from right-of-use assets (Note 18(a))		14,264			—			—			—			14,264
Transfer to investment properties (Note 17)		—			(23	)		—			—			(23	)
Transfer from/(to) other non-current assets		—			—			309			(67	)		242
Disposal of a subsidiary		—			(8	)		(18	)		—			(26	)
Depreciation provided during the year		(7,812	)		(363	)		(903	)		—			(9,078	)
Impairment		—			—			(4	)		—			(4	)

At December 31, 2019, net of accumulated depreciation and impairment		79,479			11,654			4,447			3,857			99,437

At December 31, 2019:
Cost		133,845			14,153			10,217			3,857			162,072
Accumulated depreciation and impairment		(54,366	)		(2,499	)		(5,770	)		—			(62,635	)

Net carrying amount		79,479			11,654			4,447			3,857			99,437

17	INVESTMENT PROPERTIES


	2020			2019
	*RMB million*			*RMB million*
Cost
At January 1		883			940
Transfer from property, plant and equipment (Note 16)		25			35
Transfer from right-of-use assets (Note 18(a))		11			13
Transfer to property, plant and equipment (Note 16)		(565	)		(101	)
Transfer to right-of-use assets (Note 18(a))		(91	)		(4	)

At December 31		263			883

Accumulated depreciation
At January 1		230			216
Transfer from property, plant and equipment (Note 16)		12			12
Transfer from right-of-use assets (Note 18(a))		3			3
Transfer to property, plant and equipment (Note 16)		(140	)		(25	)
Transfer to right-of-use assets (Note 18(a))		(20	)		(1	)
Charge for the year (Note 7)		12			25

At December 31		97			230

Net book amount
At December 31		166			653

As at December 31, 2020, the fair value of the investment properties was approximately RMB445 million (2019: RMB1,125 million) according to a valuation performed by an independent professionally qualified valuer.

The investment properties are leased to third parties and related parties under operating leases. Rental income totaling RMB139 million (2019: RMB100 million, 2018: RMB 63 million) was received by the Group during the year in respect of the leases.

As at December 31, 2020, the Group had no pledged investment properties (2019: Nil).

F-44

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

17	INVESTMENT PROPERTIES (continued)

Fair value hierarchy

The following table illustrates the fair value measurement hierarchy of the Group’s investment properties:

Buildings

Fair value measurement using

Quoted prices

in active

markets

(Level 1)

Significant
observable
inputs
(Level 2)

Significant

unobservable

inputs

(Level 3)

Total

RMB million

Not measured at fair value but fair value is disclosed:

As at December 31, 2020

—

119

326

445

As at December 31, 2019

—

144

981

1,125

During the year, there were no transfers of fair value measurements between Level 1 and Level 2 and no transfers into or out of Level 3 (2019: Nil).

The fair values of the buildings with comparable market prices have been estimated using significant observable inputs and calculated by adjusted market prices considering the condition and location of the buildings.

The fair values of the buildings without comparable market prices have been estimated by a discounted cash flow valuation model using significant unobservable inputs such as the estimated rental value, rent growth, long term vacancy rate and discount rate.

LEASES

The Group as a lessee

The Group has lease contracts for various items of aircraft, engines, buildings and others used in its operations. Lump sum payments were made upfront to acquire the leased land from the owners with lease periods of 40 to 50 years, and no ongoing payments will be made under the terms of these land leases. As at December 31, 2020, the Group had 440 aircraft (2019: 462 aircraft) under leases, which generally have lease terms between 5 and 20 years. Leases of engines generally have lease terms between 5 and 20 years, while buildings generally have lease terms between 2 and 10 years. Others, including motor vehicles, generally have lease term between 2 to 5 years. The Group also has lease contracts for buildings and equipment with lease terms of 12 months or less or is individually of low value. Generally, the Group is restricted from assigning and subleasing the leased assets outside the Group.

(a)

Right-of-use assets

The carrying amounts of the Group’s right-of-use assets and the movements during the year are as follows:


	Aircraft, and engines *RMB million*			Prepayments for land use rights *RMB million*			Buildings *RMB million*			Others *RMB million*			Total *RMB million*
At January 1, 2019, net of accumulated depreciation		126,417			1,387			496			12			128,312
Additions		26,315			1			622			73			27,011
Transfer from investment properties (Note 17)		—			3			—			—			3
Transfer to property, plant and equipment (Note 16)		(14,264	)		—			—			—			(14,264	)
Transfer to investment properties (Note 17)		—			(10	)		—			—			(10	)
Disposal of a subsidiary		—			—			(10	)		—			(10	)
Disposals		(40	)		—			—			—			(40	)
Depreciation provided during the year		(11,964	)		(38	)		(284	)		(12	)		(12,298	)

At December 31, 2019 and January 1, 2020, net of accumulated depreciation		126,464			1,343			824			73			128,704

Additions		7,109			—			1,145			135			8,389
Transfer from investment properties (Note 17)		—			71			—			—			71
Transfer to property, plant and equipment (Note 16)		(6,402	)		—			—			—			(6,402	)
Transfer to investment properties (Note 17)		—			(8	)		—			—			(8	)
Disposals		(171	)		—			(6	)		—			(177	)
Depreciation provided during the year		(11,322	)		(38	)		(948	)		(59	)		(12,367	)

At December 31, 2020		115,678			1,368			1,015			149			118,210

F-45

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

18	LEASES (continued)

The Group as a lessee (continued)

(b)

Lease liabilities

The carrying amount of lease liabilities and the movements during the year are as follows:


	2020 *RMB million*			2019 *RMB million*
Carrying amount at January 1		110,275			109,306
New leases		7,191			24,023
Effect of foreign exchange		(2,768	)		851
COVID-19-related rent concessions from lessors		(3	)		—
Disposal of a subsidiary		—			(10	)
Accretion of interest recognized during the year		3,655			3,894
Payments		(22,099	)		(27,789	)

Carrying amount at December 31		96,251			110,275

Analyzed into:

Current portion		14,073			15,590

Non-current portion		82,178			94,685

The maturity analysis of lease liabilities is disclosed in Note 48 to the consolidated financial statements.

(c)

The amounts recognized in profit or loss in relation to leases are as follows:


	2020 *RMB million*			2019 *RMB million*
Interest on lease liabilities		3,655			3,894
Depreciation charge of right-of-use assets		12,367			12,298
COVID-19-related rent concessions from lessors		(3	)		—
Low value and short-term lease rental		358			631

Total amount recognized in profit or loss		16,377			16,823

(d)

The Group has no significant lease contracts that include extension and termination options or contain variable payments.

(e)

The total cash outflow for leases and future cash outflows relating to leases that have not yet commenced are disclosed in Notes 43(d) and 44, respectively, to the consolidated financial statements.

The Group as a lessor

The Group leases its investment properties (Note 17) consisting of around 33 properties in the PRC under operating lease arrangements, with leases negotiated for terms ranging from one to fourteen years. The terms of the leases generally require the tenants to pay security deposits and provide for periodic rent adjustments according to the then prevailing market conditions. Rental income recognized by the Group during the year was RMB257 million (2019: RMB190 million), details of which are included in Note 5 to the consolidated financial statements.

At December 31, 2020, the undiscounted lease payments receivable by the Group in future periods under non-cancellable operating leases with its tenants are as follows:


	2020 *RMB million*		2019 *RMB million*
Within one year		150		165
After one year but within two years		141		149
After two years but within three years		135		144
After three years but within four years		134		139
After four years but within five years		114		138
After five years		197		221

		871		956

F-46

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

19	INTANGIBLE ASSETS


	Goodwill (note (a))		Others			Total
	*RMB million*		*RMB million*			*RMB million*
December 31, 2020
Cost at January 1, 2020, net of accumulated amortization		11,270		428			11,698
Additions		—		263			263
Transfer from construction in process		—		1			1
Disposals		—		(5	)		(5	)
Amortization provided during the year		—		(239	)		(239	)

At December 31, 2020		11,270		448			11,718

At December 31, 2020:
Cost		11,270		1,462			12,732
Accumulated amortization		—		(1,014	)		(1,014	)

Net carrying amount		11,270		448			11,718


	Goodwill (note (a))		Others			Total
	*RMB million*		*RMB million*			*RMB million*
December 31, 2019
Cost at January 1, 2019, net of accumulated amortization		11,270		339			11,609
Additions		—		199			199
Transfer from construction in process		—		36			36
Disposals		—		(3	)		(3	)
Amortization provided during the year		—		(143	)		(143	)

At December 31, 2019		11,270		428			11,698

At December 31, 2019:
Cost		11,270		1,301			12,571
Accumulated amortization		—		(873	)		(873	)

Net carrying amount		11,270		428			11,698

Note:

(a)

The balance represents goodwill arising from the acquisition of Shanghai Airlines. The value of the goodwill is attributable to strengthening the competitiveness of the Group’s airline transportation operations, attaining synergy through integration of the resources and accelerating the development of international air transportation in Shanghai. For the purpose of impairment assessment, goodwill was allocated to the cash-generating unit (“CGU”) of airline transportation operations that the Group operates and benefits from the acquisition.

The recoverable amount of the CGU has been determined based on a value-in-use calculation using cash flow projections based on a financial budget approved by senior management covering a five-year period. The discount rate after tax applied to the post-tax cash flow projections is 9.5% (2019: 9.5%). The growth rate used to extrapolate the cash flows of the above cash-generating unit beyond the five-year period is 2.60% (2019: 3.00%), which does not exceed the long-term average growth rate for the business in which the CGU operates. No impairment for the goodwill was required based on the value-in-use calculation as at the reporting date.

F-47

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

20	INVESTMENTS IN ASSOCIATES


	*2020*		*2019*
	*RMB million*		*RMB million*
Share of net assets		1,793		1,977

The movements in investments in associates were as follows:


	*2020*			*2019*
	*RMB million*			*RMB million*
At January 1		1,977			1,696
Additions		—			95
Share of results of associates		(82	)		265
Share of revaluation on equity investments designated at fair value through other comprehensive income held by an associate		2			7
Share of other equity changes of an associate		—			8
Dividend declared during the year		(104	)		(85	)
Disposal of a subsidiary		—			(9	)

At December 31		1,793			1,977

Particulars of the principal associates, which are limited liability companies, are as follows:

Company name

Place of
establishment and
operation and date of
establishment

Registered capital

Attributable
equity interest

Principal activities

2020

2019

2020

2019

Million

Eastern Air Group Finance Co., Ltd. (“Eastern Air Finance Company”)

PRC/Mainland
China
December 6, 1995

RMB2,000

25%

Provision of financial
services to group
companies of CEA
Holding

China Eastern Air Catering Investment Co., Ltd.

PRC/Mainland
China
November 17, 2003

RMB350

45%

Provision of air
catering services

Shanghai Pratt & Whitney Aircraft Engine Maintenance Co., Ltd. (“Shanghai P&W”) (note)

PRC/Mainland
China
March 28, 2008

USD40

51%

Provision of aircraft,
engine and other
related component
maintenance services

New Shanghai International Tower Co., Ltd.

PRC/Mainland
China
November 17, 1992

RMB167

20%

Property development
provision and
management services

Eastern Aviation

PRC/Mainland

RMB80

45%

Provision of aviation

Import & Export Co., Ltd. (“Eastern Import & Export”)

China

June 9, 1993

equipment and
purchase of spare
parts

Eastern Aviation Advertising Service Co., Ltd. (“Eastern Advertising”)

PRC/Mainland
China
March 4, 1986

RMB200

45%

Provision of aviation
advertising agency
services

Shanghai Collins Aviation Maintenance Service Co., Ltd. (“Collins Aviation”)

PRC/Mainland
China
September 27, 2002

USD7

35%

Provision of airline
electronic product
maintenance services

Shanghai Airlines Tours International (Group) Co., Ltd. (“Shanghai Airlines Tours”)

PRC/Mainland
China
August 29, 1992

RMB143

35%

Tour operations,
travel and air
ticketing agency and
transportation

Note:

In 2008, the Company entered into an agreement with United Technologies International Corporation (“Technologies International”) to establish Shanghai P&W, in which the Company holds a 51% interest. According to the shareholder’s agreement, Technologies International has the power to govern the financial and operating policies and in this respect the Company accounts for Shanghai P&W as an associate.

F-48

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

20	INVESTMENTS IN ASSOCIATES (continued)

The following table illustrates the aggregate financial information of the Group’s associates that were not individually material:


	2020			*2019*
	*RMB million*			*RMB million*
Share of the associates’ (loss)/profit for the year		(82	)		265
Share of the associates’ other comprehensive income		2			7

Share of the associates’ total comprehensive income		(80	)		272
Aggregate carrying amount of the Group’s interests in the associates		1,793			1,977

21	INVESTMENTS IN JOINT VENTURES


	2020		*2019*
	*RMB million*		*RMB million*
Share of net assets		594		627

The movements in investments in joint ventures were as follows:



	2020			*2019*
	*RMB million*			*RMB million*
At January 1		627			577
Additions		—			102
Share of results		(13	)		17
Dividend declared during the year		(20	)		(69	)

At December 31		594			627

Particulars of the principal joint ventures, which are limited liability companies, are as follows:

Company name

Place of establishment
and operation and
date of establishment

Registered capital

Attributable
equity
interest

Principal activities

2020

2019

2020

2019

Million

Shanghai Technologies Aerospace Co., Ltd. (“Technologies Aerospace”) (note)

PRC/Mainland China
September 28, 2004

USD73

51%

Provision of repair and
maintenance services

Shanghai Eastern Union Aviation Wheels & Brakes Maintenance Services Overhaul Engineering Co., Ltd. (“Wheels & Brakes”)

PRC/Mainland China
December 28, 1995

USD2

40%

Provision of spare
parts repair and
maintenance services

Eastern China Kaiya System Integration Co., Ltd. (“China Kaiya”)

PRC/Mainland China
May 21, 1999

RMB10

41%

Provision of computer
system development
and maintenance
services

CAE Melbourne Flight Training Pty Ltd. (“CAE Melbourne”)

Australia

March 9, 2007

AUD11

50%

Provision of flight
training services

Shanghai Hute Aviation Technology Co., Ltd. (“Shanghai Hute”)

PRC/Mainland China
April 9, 2003

RMB30

50%

Provision of
equipment
maintenance services

Xi’an CEA SAFRAN Landing Systems Services Co., Ltd. (“XIESA”)

PRC/Mainland China
July 12, 2017

USD40

50%

Provision of aircraft,
engine and other
related component
maintenance services

Note:

Under a joint venture agreement with a joint venture partner of Technologies Aerospace dated March 10, 2003, the Group and the joint venture partner have agreed to share the control over the economic activities of Technologies Aerospace. Any strategic financial and operating decisions relating to the activities of Technologies Aerospace require the unanimous consent of the Company and the joint venture partner.

F-49

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

21	INVESTMENTS IN JOINT VENTURES (continued)

The following table illustrates the aggregate financial information of the Group’s joint ventures that were not individually material:


	2020			*2019*
	*RMB million*			*RMB million*
Share of the joint ventures’ (loss)/profit and total comprehensive income for the year		(13	)		17

Aggregate carrying amount of the Group’s interests in the joint ventures		594			627

22	EQUITY INVESTMENTS DESIGNATED AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME


	2020		2019
	*RMB million*		*RMB million*
Listed equity investment, at fair value
TravelSky Technology Limited		457		496

		457		496

Unlisted equity investments, at fair value
Sichuan Airlines Corporation Limited		194		336
Aviation Data Communication Corporation Limited		182		244
Others		162		198

		538		778

		995		1,274

The above equity investments were irrevocably designated at fair value through other comprehensive income as the Group considers these investments to be strategic in nature.

During the year ended December 31, 2020, the Group received dividends in the amounts of RMB8 million and RMB4 million from TravelSky Technology Limited and other non-listed equity investments designated at fair value through other comprehensive income, respectively.

23	DERIVATIVE FINANCIAL INSTRUMENTS


	Assets				Liabilities
	2020		2019		2020		2019
	*RMB million*		*RMB million*		*RMB million*		*RMB million*
Fuel forward contracts		399		—		1		—
Interest rate swaps		—		27		140		10
Forward foreign currency contracts		—		43		—		13

Total		399		70		141		23

Less: current portion
– Fuel forward contracts		362		—		1		—
– Interest rate swaps		—		—		2		—
– Forward foreign currency contracts		—		43		—		13

Current portion		362		43		3		13

Non-current portion		37		27		138		10

F-50

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

23	DERIVATIVE FINANCIAL INSTRUMENTS (continued)

Cash flow hedge – Fuel price risk

The Group entered into fuel forward contracts to mitigate its jet fuel price risk. The fuel forward contracts had been designated as cash flow hedge of the Group’s highly probable forecast fuel purchase transactions. As at December 31, 2020, the notional principal of the outstanding fuel forward contracts amounted to USD252 million (December 31, 2019: Nil). These contracts would expire between 2021 and 2022.

Cash flow hedge – Interest rate risk

The Group entered into interest rate swap contracts to mitigate its interest rate risk. The interest rate swap contracts had been designated as cash flow hedge against the variability in market interest rates of lease liabilities. As at December 31, 2020, the notional principal of the outstanding interest rate swap contracts amounted to USD690 million (December 31, 2019: USD888 million). These contracts would expire between 2021 and 2025.

Cash flow hedge – Foreign currency risk

The Group entered into forward foreign currency contracts to mitigate its forward currency risk. The forward foreign currency contracts had been designated as cash flow hedge against forecasted capital expenditures and highly probable forecast fuel purchase transactions in USD. As at December 31, 2020, there were no forward foreign currency contracts.

F-51

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

24	OTHER NON-CURRENT ASSETS


	2020		2019
	*RMB million*		*RMB million*
Deposits relating to aircraft held under leases		143		156
Deferred pilot recruitment costs		2,100		1,873
Rebate receivables on aircraft acquisitions		1,264		42
Prepayment for acquisition of property, plant and equipment		1,055		1,095
Others		783		804

		5,345		3,970

25	DEFERRED TAXATION

Deferred tax assets and liabilities are offset when there is a legally enforceable right of offsetting and when the deferred income taxes relate to the same authority. The following amounts, determined after appropriate offsetting, are shown in the consolidated statement of financial position:


	2020			2019
	*RMB million*			*RMB million*
Deferred tax assets		5,011			853
Deferred tax liabilities		(13	)		(22	)

Net deferred tax assets		4,998			831

Movements in the net deferred tax assets were as follows:


	2020		2019
	*RMB million*		*RMB million*
At January 1		831		677
Credited to profit or loss (Note 13)		4,149		123
Charged to other comprehensive income		18		31

At December 31		4,998		831

F-52

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

25	DEFERRED TAXATION (continued)

The deferred tax assets and liabilities (prior to the offsetting of balances within the same tax jurisdiction) were made up of the taxation effects of the following:


	2020			2019
	*RMB million*			*RMB million*
Deferred tax assets:
Provision for lease return costs for aircraft and engines		1,109			1,075
Lease liabilities/Right-of-use assets		94			—
Impairment provision for flight equipment spare parts		61			53
Impairment provision for receivables		80			76
Impairment provision for property, plant and equipment		115			101
Derivative financial instruments		36			6
Financial asset at fair value through profit or loss		7			—
Other payables and accruals		70			71
Government grants related to assets		29			35
Loss available for offsetting against future taxable profits		3,699			66
Safety equipment tax credit		10			—
Aged payables		1			1

		5,311			1,484

Deferred tax liabilities:
Lease liabilities/Right-of-use assets		—			(352	)
Equity investments designated at fair value through other comprehensive income		(213	)		(283	)
Derivative financial instruments		(100	)		(18	)

		(313	)		(653	)

		4,998			831

Movements in the net deferred tax assets/(liabilities) of the Group for the year were as follows:


	At January 1, 2020 RMB million			(Charged)/ credited to profit or loss RMB million			(Charged)/ credited to other comprehensive income RMB million			At December 31, 2020 RMB million
For the year ended December 31, 2020
Provision for lease return costs for aircraft and engines		1,075			34			—			1,109
Lease liabilities/Right-of-use assets		—			94			—			94
Impairment provision for flight equipment spare parts		53			8			—			61
Impairment provision for receivables		76			4			—			80
Impairment provision for property, plant and equipment		101			14			—			115
Derivative financial instruments		6			—			30			36
Financial asset at fair value through profit or loss		—			7			—			7
Other payables and accruals		71			(1	)		—			70
Government grants related to assets		35			(6	)		—			29
Loss available for offsetting against future taxable profits		66			3,633			—			3,699
Safety equipment tax credit		—			10			—			10
Aged payables		1			—			—			1

		1,484			3,797			30			5,311

Lease liabilities/Right-of-use assets		(352	)		352			—			—
Equity investments designated at fair value through other comprehensive income		(283	)		—			70			(213	)
Derivative financial instruments		(18	)		—			(82	)		(100	)

		(653	)		352			(12	)		(313	)

Net deferred tax assets		831			4,149			18			4,998

F-53

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

25	DEFERRED TAXATION (continued)

Movements in the net deferred tax assets/(liabilities) of the Group for the year were as follows: (continued)


	At January 1, 2019 RMB million			(Charged)/ credited to profit or loss RMB million			(Charged)/ credited to other comprehensive income RMB million			At December 31, 2019 RMB million
For the year ended December 31, 2019
Provision for lease return costs for aircraft and engines		882			193			—			1,075
Impairment provision for flight equipment spare parts		126			(73	)		—			53
Impairment provision for receivables		75			1			—			76
Impairment provision for property, plant and equipment		103			(2	)		—			101
Derivative financial instruments		7			—			(1	)		6
Financial asset at fair value through profit or loss		6			(6	)		—			—
Other payables and accruals		89			(18	)		—			71
Government grants related to assets		42			(7	)		—			35
Deferred gains in sale and leaseback transactions		6			(6	)		—			—
Loss available for offsetting against future taxable profits		—			66			—			66
Aged payables		2			(1	)		—			1

		1,338			147			(1	)		1,484

Lease liabilities/Right-of-use assets		(328	)		(24	)		—			(352	)
Equity investments designated at fair value through other comprehensive income		(278	)		—			(5	)		(283	)
Derivative financial instruments		(55	)		—			37			(18	)

		(661	)		(24	)		32			(653	)

Net deferred tax assets		677			123			31			831

The temporary differences associated with investments in subsidiaries, branches and associates and interests in joint arrangements, for which deferred tax has not been recognized in the periods presented, totaled RMB7,087 million (2019: RMB12,558 million).

As at the reporting date, the Group had the following balances in respect of which deferred tax assets have not been recognized:


	2020				2019
	Deferred taxation *RMB million*		Temporary differences *RMB million*		Deferred taxation *RMB million*		Temporary differences *RMB million*
Tax losses carried forward		34		135		54		217
Other deductible temporary differences		8		35		7		30

Total unrecognized deferred tax assets		42		170		61		247

In accordance with the PRC tax law, tax losses can be carried forward for a period of five to eight years to offset against future taxable income. The Group’s tax losses carried forward will expire between 2021 and 2028.

As at December 31, 2020, management carried out an assessment to determine whether future taxable profits will be available to utilize the tax losses and deductible temporary differences. The Group has recognized deferred tax assets of RMB3,699 million (2019: RMB66 million) for tax losses of RMB15,175 million (2019: RMB296 million) and RMB1,612 million (2019: RMB1,418 million) for deductible temporary differences. As there are still uncertainties around the Group’s future operating results, such as future fuel prices and market competition, management assessed that for certain subsidiaries there are significant uncertainties that future taxable profits will be available and the deferred tax assets arising from aforementioned tax losses and deductible temporary differences were not recognized.

F-54

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

26	FLIGHT EQUIPMENT SPARE PARTS


	2020			*2019*
	*RMB million*			*RMB million*
Flight equipment spare parts		2,299			2,732
Less: provision for spare parts		(245	)		(325	)

		2,054			2,407

Movements in the Group’s provision for impairment of flight equipment spare parts were as follows:


	2020			*2019*
	*RMB million*			*RMB million*
At January 1		325			828
Accrual (Note 9)		153			—
Amount written off in relation to disposal of spare parts		(233	)		(503	)

At December 31		245			325

27	TRADE RECEIVABLES

The credit terms given to trade customers are determined on an individual basis.


	2020			*2019*
	*RMB million*			*RMB million*
Trade receivables		1,210			1,793
Less: impairment		(86	)		(76	)

		1,124			1,717

An ageing analysis of the trade receivables as at the end of the reporting period, based on the invoice/billing date and net of loss allowance, is as follows:


	2020		2019
	*RMB million*		*RMB million*
Within 90 days		1,054		1,615
91 to 180 days		46		33
181 to 365 days		8		39
Over 365 days		16		30

		1,124		1,717

Balances with related parties included in trade receivables are summarized in Note 45(c)(i).

The movements in the loss allowance for impairment of trade receivables are as follows:


	2020			2019
	*RMB million*			*RMB million*
At January 1		76			93
Impairment losses, net (Note 10)		15			(6	)
Amount written off as uncollectible		(5	)		(4	)
Disposal of a subsidiary		—			(7	)

At December 31		86			76

An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses. The provision rates are based on days past due for groupings of various customer segments with similar loss patterns. The calculation reflects the probability-weighted outcome, the time value of money and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions.

F-55

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

27	TRADE RECEIVABLES (continued)

Set out below is the information about the credit risk exposure on the Group’s trade receivables using a provision matrix:

As at December 31, 2020


			Past due
			Less than		90 to 365		Over
	Current		90 days		days		365 days		Total
Expected credit loss rate (%)		0.85		4.79		6.87		76.93		7.08
Gross carrying amount (RMB million)		1,063		42		9		96		1,210
Expected credit losses (RMB million)		9		1		1		75		86
As at December 31, 2019


			Past due
			Less than		90 to 365		Over
	Current		90 days		days		365 days		Total
Expected credit loss rate (%)		0.12		2.94		2.50		70.59		4.24
Gross carrying amount (RMB million)		1,617		34		40		102		1,793
Expected credit losses (RMB million)		2		1		1		72		76

Trade receivables that were neither past due nor impaired relate to a large number of independent sales agents for whom there was no recent history of default.

The net impacts of recognition and reversal of provisions for impaired receivables have been included in “Impairment losses on financial assets, net” in profit or loss (Note 10). Amounts charged to the allowance account are generally written off when there is no expectation of recovering.

28	FINANCIAL ASSET AT FAIR VALUE THROUGH PROFIT OR LOSS


	2020		2019
	*RMB million*		*RMB million*
Listed equity investment, at fair value:
Shanghai Pudong Development Bank Co., Ltd.		95		121

The above equity investment was classified as a financial asset at fair value through profit or loss as it was held for trading.

29	PREPAYMENTS AND OTHER RECEIVABLES


	2020			2019
	*RMB million*			*RMB million*
Value added tax recoverable		7,997			6,991
Value added tax refundable		174			800
Subsidy receivable		1,421			2,072
Prepaid corporate income tax		347			608
Advance to suppliers		121			129
Refundable advanced payment on acquisition of aircraft		—			538
Rebate receivables on aircraft acquisitions		90			1,582
Amounts due from related parties (Note 45(c)(i))		769			776
Deposits relating to aircraft held under leases		7			29
Other deposits		161			168
Others		380			663

		11,467			14,356
Provision for impairment of other receivables		(269	)		(263	)

		11,198			14,093

F-56

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

29	PREPAYMENTS AND OTHER RECEIVABLES (continued)

Set out below are the movements of loss allowances measured at 12-month and lifetime expected credit losses for the financial assets included in other receivables.


	12-month ECLs			Lifetime ECLs
	Stage 1			Stage 2		Stage 2		Stage 3			Total
				(Individually)		(Collectively)
As at January 1, 2020		33			—		108		122			263
Transferred - to stage 2		(2	)		—		2		—			—
Accrual		5			—		12		—			17
Write-off		—			—		—		(11	)		(11	)

As at December 31, 2020		36			—		122		111			269


	12-month ECLs			Lifetime ECLs
	Stage 1			Stage 2		Stage 2			Stage 3		Total
				(Individually)		(Collectively)
As at January 1, 2019		16			—		108			122		246
Transferred - to stage 2		(1	)		—		1			—		—
Accrual		18			—		4			—		22
Disposal of a subsidiary		—			—		(5	)		—		(5	)

As at December 31, 2019		33			—		108			122		263

30	RESTRICTED BANK DEPOSITS


	2020		2019
	*RMB million*		*RMB million*
Restricted bank deposits		12		6

31	CASH AND CASH EQUIVALENTS


	2020		2019
	*RMB million*		*RMB million*
Cash		—		1
Bank balances		7,651		1,349

		7,651		1,350

At the end of the reporting period, the cash and bank balances of the Group denominated in RMB amounted to RMB6,658 million (2019: RMB547 million). The RMB is not freely convertible into other currencies. However, under Mainland China’s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, the Group is permitted to exchange RMB for other currencies through banks authorized to conduct foreign exchange business.

Cash at banks earns interest at floating rates based on daily bank deposit rates. The bank balances are deposited with creditworthy banks and financial institutions with no recent history of default.

32	ASSETS CLASSIFIED AS HELD FOR SALE

The Group entered into agreements with China Aviation Supplies Co., Ltd. to dispose of certain flight equipment. The flight equipment with an aggregate carrying amount of RMB2 million (2019: RMB6 million) was recognized as assets classified as held for sale by the Group as at December 31, 2020, which are stated at the lower of their carrying amounts and their fair value less cost to sell.

F-57

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

33	TRADE AND BILLS PAYABLES

An ageing analysis of the trade and bills payables as at the end of the reporting period was as follows:


	2020		2019
	*RMB million*		*RMB million*
Within 90 days		2,868		3,622
91 to 180 days		35		52
181 to 365 days		109		94
1 to 2 years		111		40
Over 2 years		97		69

		3,220		3,877

Balances with related parties included in trade and bills payables are summarized in Note 45(c)(ii).

As at December 31, 2020, bills payable of the Group accounted to RMB610million (2019: Nil).

34	CONTRACT LIABILITIES


	2020		2019
	*RMB million*		*RMB million*
Sales in advance of carriage		2,155		8,754
Frequent flyer program (Note 5)		1,781		2,057
Advances from customers		1,055		866

		4,991		11,677

Current portion		3,671		10,178
Non-current portion		1,320		1,499

35	OTHER PAYABLES AND ACCRUALS


	2020		2019
	*RMB million*		*RMB million*
Salaries, wages and benefits		3,806		2,794
Take-off and landing charges		2,330		3,052
Fuel cost		451		1,109
Expenses related to aircraft overhaul conducted		2,853		1,810
Duties and levies payable		1,353		1,983
Food and beverages		125		253
Payments on system services		1,643		879
Lease rentals of property, plant and equipment		484		515
Other accrued operating expenses		567		991
Payable for purchase of property, plant and equipment		2,310		3,454
Interest payable		1,161		1,249
Pending output value added tax		250		412
Deposits received from ticket sales agents		420		507
Other deposits		529		588
Current portion of other long-term liabilities (Note 39)		235		294
Staff housing allowance		196		224
Amounts due to related parties (Note 45(c)(ii))		398		383
Current portion of post-retirement benefit obligations (Note 38(b))		165		165
Others		2,343		1,940

		21,619		22,602

F-58

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

36	BORROWINGS


	2020		2019
	*RMB million*		*RMB million*
Non-current
Long-term bank borrowings
– secured (note (a))		8,638		2,995
– unsecured		4,526		828
Guaranteed bonds (note (b))		9,585		12,784
Unsecured bonds (note (b))		7,996		9,997

		30,745		26,604

Current
Current portion of long-term bank borrowings
– secured (note (a))		1,498		939
– unsecured		28		1,009
Current portion of guaranteed bonds (note (b))		3,158		2,585
Current portion of unsecured bonds (note (b))		4,000		—
Short-term bank borrowings
– unsecured		21,966		2,200
Short-term debentures (note (c))		26,500		18,500

		57,150		25,233

		87,895		51,837

The borrowings are repayable as follows:


	2020		2019
	*RMB million*		*RMB million*
Within one year		57,149		25,233
In the second year		5,936		8,104
In the third to fifth years, inclusive		17,680		14,821
After the fifth year		7,130		3,679

		87,895		51,837

F-59

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

36	BORROWINGS (continued)

Notes:

(a)

As at December 31, 2020, the secured bank borrowings of the Group were secured by the related aircrafts with a net carrying amount of RMB17,515 million (2019: RMB7,243 million) (Note 16).

(b)

Detailed borrowings from banks are listed below:


	Issue date		Principal	Notes			Interest rate
Ten-year guaranteed bonds		2013/03/18	RMB4.8 billion		(i	)		5.05	%
Five-year medium-term bonds		2016/07/13	RMB4 billion		(ii	)		3.39	%
Ten-year corporate bonds		2016/10/24	RMB1.5 billion		(iii	)		3.03	%
Ten-year corporate bonds		2016/10/24	RMB1.5 billion		(iii	)		3.30	%
Three-year credit enhanced bonds		2018/03/16	JPY10 billion		(iv	)		0.33	%
Three-year credit enhanced bonds		2018/03/16	JPY20 billion		(v	)		0.64	%
Three-year credit enhanced bonds		2018/03/16	JPY20 billion		(vi	)		0.64	%
Three-year medium-term bonds		2019/03/05	RMB3 billion		(vii	)		3.70	%
Five-year corporate bonds		2019/08/19	RMB3 billion		(viii	)		3.60	%
Three-year corporate bonds		2019/12/06	KRW300 billion		(ix	)		2.40	%
Three-year corporate bonds		2020/04/24	RMB2 billion		(x	)		2.39	%

(i) On March 18, 2013, the Company issued ten-year guaranteed bonds with a principal amount of RMB4.8 billion at an issue price equal to the face value of the bonds. The bonds bear interest at the rate of 5.05% per annum, which is payable annually. The principal of the bonds will mature and become repayable on March 18, 2023. CEA Holding has unconditionally and irrevocably guaranteed the due payment and performance of the above bonds (Note 45(d)).

(ii) On July 13, 2016, the Company issued five-year medium-term bonds with a principal amount of RMB4 billion, at an issue price equal to the face value of the bonds. The bonds bear interest at the rate of 3.39% per annum, which is payable annually. The principal of the bonds will mature and become repayable on July 14, 2021.

(iii) On October 24, 2016, the Company issued ten-year corporate bonds with a total principal amount of RMB3 billion, of which bonds of RMB1.5 billion bear interest at the rate of 3.03% per annum and the remaining bonds of RMB1.5 billion bear interest at the rate of 3.30% per annum. The bonds interest is payable annually. The principal of the bonds will mature and become repayable on October 24, 2026. CEA Holding has unconditionally and irrevocably guaranteed the due payment and performance of the above bonds (Note 45(d)).

(iv) On March 16, 2018, the Company issued three-year credit enhanced bonds with a total principal amount of JPY10 billion, The bonds bear interest at the rate of 0.33% per annum, which is payable semi-annually. The principal of the bonds will mature and become repayable on March 16, 2021. Sumitomo Mitsui Banking Corporation (Hong Kong) has unconditionally and irrevocably guaranteed the due payment and performance of the above bonds.

(v) On March 16, 2018, the Company issued three-year credit enhanced bonds with a total principal amount of JPY20 billion, The bonds bear interest at the rate of 0.64% per annum, which is payable semi-annually. The principal of the bonds will mature and become repayable on March 16, 2021. The bonds are secured by a standby letter of credit issued by Bank of China Limited acting through its Tokyo Branch.

(vi) On March 16, 2018, the Company issued three-year credit enhanced bonds with a total principal amount of JPY20 billion. The bonds bear interest at the rate of 0.64% per annum, which is payable semi-annually. The principal of the bonds will mature and become repayable on March 16, 2021. The bonds are secured by a standby letter of credit issued by Industrial and Commercial Bank of China Limited acting through its Shanghai Municipal Branch.

(vii) On March 5, 2019, the Company issued three-year medium-term bonds with a principal amount of RMB3 billion, at an issue price equal to the face value of the bonds. The bonds bear interest at the rate of 3.70% per annum, which is payable annually. The principal of the bonds will mature and become repayable on March 7, 2022.

(viii) On August 19, 2019, the Company issued five-year corporate bonds with a total principal amount of RMB3 billion. The bonds bear interest at the rate of 3.60% per annum, which is payable annually. The principal of the bonds will mature and become repayable on August 20, 2024.

(ix) On December 6, 2019, Eastern Air Overseas issued three-year corporate bonds with a principal amount of KRW300 billion, at an issue price equal to the face value of the bonds. The bonds bear interest at the rate of 2.40% per annum, which is payable annually. The principal of the bonds will mature and become repayable on December 6, 2022. The Company has unconditionally and irrevocably guaranteed the due payment and performance of the above bonds.

(x) On April 24, 2020, the Company issued three-year corporate bonds with a total principal amount of RMB2 billion. The bonds bear interest at the rate of 2.39% per annum, which is payable annually. The principal of the bonds will mature and become repayable on April 28, 2023.

F-60

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

36	BORROWINGS (continued)

(c)

Detailed short-term debentures are listed below:

Issue date

Maturity date

Principal

Interest rate

2020 22nd Short-term debentures

2020/06/04

2021/03/01

RMB2 billion

1.45

2020 25th Short-term debentures

2020/07/15

2021/01/11

RMB3 billion

1.60

2020 26th Short-term debentures

2020/07/20

2021/01/15

RMB3 billion

1.65

2020 27th Short-term debentures

2020/08/04

2021/01/29

RMB3 billion

1.60

2020 28th Short-term debentures

2020/08/10

2021/02/05

RMB2.5 billion

1.70

2020 30th Short-term debentures

2020/10/27

2021/01/26

RMB3 billion

1.98

2020 31st Short-term debentures

2020/10/28

2021/01/27

RMB3 billion

2.00

2020 32nd Short-term debentures

2020/11/18

2021/01/19

RMB5 billion

1.80

2020 33rd Short-term debentures

2020/12/01

2021/06/01

RMB2 billion

2.40

The terms of the long-term borrowings and bonds were summarized as follows:


	Interest rate and final maturities	2020		2019
		*RMB million*		*RMB million*
Long-term bank borrowings
RMB denominated	Interest rates ranging from 2.40% to 4.21% with final maturities through 2045 (2019: 2.65% to 3.92%)		11,651		1,828
USD denominated	Interest rates ranging from 6-month LIBOR +0.70% to 6-month LIBOR +0.85% with final maturities through 2022 (2019: 6-month LIBOR +0.70% to 6-month LIBOR +1.65%)		375		870
EUR denominated	Interest rates at 3-month EURIBOR +0.5% with final maturities through 2026 (2019: 3 months EURIBOR +0.5%)		2,664		3,073

Guaranteed bonds
RMB denominated	Interest rates ranging from 3.03% to 5.05% with final maturities through 2026 (2019: 3.03% to 5.05%)		7,798		7,796
SGD denominated	Interest rate at 2.80% with final maturities through 2020		—		2,585
JPY denominated	Interest rates ranging from 0.33% to 0.64% with final maturities through 2021 (2019: 0.33% to 0.64%)		3,158		3,197
KRW denominated	Interest rate at 2.40% with final maturities through 2022 (2019: 2.40%)		1,787		1,791

Unsecured bonds
RMB denominated	Interest rates ranging from 2.39% to 3.70% with final maturities through 2024 (2019: from 3.39% to 3.70%)		11,996		9,997

			39,429		31,137

Short-term borrowings of the Group are repayable within one year. As at December 31, 2020, the interest rates relating to such borrowings were 1.21% to 3.30% (2019: 3.30% per annum).

37	PROVISION FOR LEASE RETURN COSTS FOR AIRCRAFT AND ENGINES

Details of provision for lease return costs for aircraft and engines are as follows:


	2020			2019
	*RMB million*			*RMB million*
At January 1		7,178			6,560
Accrual		283			702
Utilization		(471	)		(84	)

At December 31		6,990			7,178
Less: current portion		(24	)		(519	)

Non-current portion		6,966			6,659

F-61

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

38	POST-RETIREMENT BENEFIT OBLIGATIONS

(a)

Pension—defined contribution

The group companies participate in defined contribution retirement schemes organized by municipal governments of various provinces in which the group companies operate. Substantially all of the Group’s PRC employees are eligible to participate in these defined contribution retirement schemes. Therefore, the employees are entitled to a monthly pension based on certain formulas. The relevant government agencies are responsible for the pension liability to these retired employees. In addition, the group companies have implemented an additional defined contribution retirement pension scheme for eligible employees since 2014.

As at December 31, 2020 and 2019, the Group cannot use forfeited contributions to reduce its contributions to the pension schemes.

(b)

Post-retirement benefits

In addition to the above schemes, the Group provides eligible retirees with other post-retirement benefits, including retirement subsidies, transportation allowance as well as other welfare. The expected cost of providing these post-retirement benefits is actuarially determined and recognized by using the projected unit credit method, which involves a number of assumptions and estimates, including inflation rate, discount rate and etc.

The plan is exposed to interest rate risk and the risk of changes in the life expectancy for pensioners.

The most recent actuarial valuation of the post-retirement benefit obligations was carried out at December 31, 2020 with assistance from a third party consultant using the projected unit credit actuarial valuation method.

The post-retirement benefit obligations recognized in the consolidated statement of financial position are as follows:


	2020			2019
	*RMB million*			*RMB million*
Post-retirement benefit obligations		2,538			2,584
Less: current portion		(165	)		(165	)

Non-current portion		2,373			2,419

The principal actuarial assumptions utilized as at the end of the reporting period are as follows:


	2020		2019
Discount rates for post-retirement benefits		3.40%		3.40%
Mortality rate		China Insurance Life Mortality		China Insurance Life Mortality
		Table (2010-2013). CL5 for Male and CL6 for Female		Table (2010-2013). CL5 for Male and CL6 for Female
Annual increase rate of post-retirement medical expenses		6.50%		6.50%
Inflation rate of pension benefits		2.50%		2.50%

A quantitative sensitivity analysis for significant assumptions at the end of the reporting period is shown below:


	Increase in rate %		Increase/ (decrease) in post-retirement benefit obligations RMB million			Decrease in rate %		Increase/ (decrease) in post-retirement benefit obligations RMB million
2020
Discount rate for post-retirement benefits		0.25		(78	)		0.25		81
Annual increase rate of pension benefits		1.00		244			1.00		(208	)
Annual increase rate of medical expenses		1.00		43			1.00		(36	)
2019
Discount rate for post-retirement benefits		0.25		(74	)		0.25		77
Annual increase rate of pension benefits		1.00		260			1.00		(222	)
Annual increase rate of medical expenses		1.00		36			1.00		(30	)

The sensitivity analyses above have been determined based on a method that extrapolates the impact on net post-retirement benefit obligations as a result of reasonable changes in key assumptions occurring at the end of the reporting period.

F-62

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

38	POST-RETIREMENT BENEFIT OBLIGATIONS (continued)

(b)

Post-retirement benefits (continued)

Expected contributions to be made in the future years out of the post-retirement benefit obligations were as follows:


	2020		2019
	*RMB million*		*RMB million*
Within the next 12 months		165		165
Between 2 and 5 years		660		661
Between 6 and 10 years		805		809
Over 10 years		2,449		2,534

Total expected payments		4,079		4,169

The average duration of the post-retirement benefit obligations at the end of 2020 was 13 years (2019: 13 years).

The movements in the post-retirement benefit obligations were as follows:

2020


			Pension cost charged to profit or loss						Remeasurement losses in other comprehensive income
	January 1 2020 RMB million		Service cost RMB million		Net interest RMB million		Sub-total included in profit or loss RMB million		Actuarial changes arising from changes in financial assumptions RMB million		Actuarial changes arising from changes in demographic assumptions RMB million		Experience adjustments RMB million		Sub-total included in other comprehensive income RMB million		Benefit settled RMB million			December 31 2020 RMB million
Defined benefit obligations/ benefit liability		2,584		—		85		85		—		—		61		61		(192	)		2,538

F-63

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

38	POST-RETIREMENT BENEFIT OBLIGATIONS (continued)

(b)

Post-retirement benefits (continued)

2019


			Pension cost charged to profit or loss						Remeasurement (gains)/losses in other comprehensive income
	January 1, 2019 RMB million		Service cost RMB million		Net interest RMB million		Sub-total included in profit or loss RMB million		Actuarial changes arising from changes in financial assumptions RMB million		Actuarial changes arising from changes in demographic assumptions RMB million		Experience adjustments RMB million			Sub-total included in other comprehensive income RMB million			Benefit settled RMB million			December 31, 2019 RMB million
Defined benefit obligations/ benefit liability		2,712		—		92		92		30		—		(70	)		(40	)		(180	)		2,584

F-64

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

39	OTHER LONG-TERM LIABILITIES


	2020			*2019*
	*RMB million*			*RMB million*
Long-term duties and levies payable relating to finance leases		1,159			1,487
Deferred gains relating to government grants		121			152
Provision for early retirement benefit obligations and other benefit obligations		251			295
Other long-term payables		659			638

		2,190			2,572
Less: current portion included in other payables and accruals (Note 35)		(235	)		(294	)

Non-current portion		1,955			2,278

40	SHARE CAPITAL


	2020		2019
	*RMB million*		*RMB million*
Registered, issued and fully paid of RMB1.00 each

A shares listed on the Shanghai Stock Exchange (“A Shares”)		11,202		11,202
- Tradable shares with trading moratorium		1,394		1,394
- Tradable shares without trading moratorium		9,808		9,808

H shares listed on the Stock Exchange of Hong Kong Limited (“H Shares”)		5,177		5,177
- Tradable shares with trading moratorium		518		518
- Tradable shares without trading moratorium		4,659		4,659

		16,379		16,379

Pursuant to articles 50 and 51 of the Company’s articles of association, both the listed A shares and listed H shares are registered ordinary shares and carry equal rights.

F-65

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

RESERVES


	Share premium		Capital reserve (note (a))			Hedging reserve			Statutory reserve (note (b))		Other reserves			Retained profits			Total
	RMB million		RMB million			RMB million			RMB million		RMB million			RMB million			RMB million
At January 1, 2019		29,540		(778	)		134			570		(2,421	)		14,901			41,946
Unrealized gains on cash flow hedges		—		—			(110	)		—		—			—			(110	)
Fair value movements in equity investments designated at fair value through other comprehensive income		—		—			—			—		13			—			13
Fair value changes of equity investments designated at fair value through other comprehensive income held by an associate		—		—			—			—		7			—			7
Actuarial gains on post-retirement benefit obligations		—		—			—			—		39			—			39
Transfer from retained profits		—		—			—			212		—			(212	)		—
Profit for the year		—		—			—			—		—			3,192			3,192
Issue of shares		7,530		—			—			—		—			—			7,530
Others		—		11			—			—		—			1			12

At December 31, 2019		37,070		(767	)		24			782		(2,362	)		17,882			52,629

At January 1, 2020		37,070		(767	)		24			782		(2,362	)		17,882			52,629
Unrealized gains on cash flow hedges		—		—			158			—		—			—			158
Fair value movements in equity investments designated at fair value through other comprehensive income		—		—			—			—		(203	)		—			(203	)
Fair value changes of equity investments designated at fair value through other comprehensive income held by an associate		—		—			—			—		2			—			2
Actuarial gains on post-retirement benefit obligations		—		—			—			—		(61	)		—			(61	)
Loss for the year		—		—			—			—		—			(11,836	)		(11,836	)
Final 2019 dividend		—		—			—			—		—			(819	)		(819	)

At December 31, 2020		37,070		(767	)		182			782		(2,624	)		5,227			39,870

Notes:

(a)	Capital reserve

Capital reserve mainly represents the difference between the fair value of the net assets injected and the nominal amount of the Company’s share capital issued in respect of the Group restructuring carried out in June 1996 for the purpose of the Company’s listing.

(b)	Statutory reserve

According to the PRC Company Law, the Company is required to transfer a portion of the profits to the statutory reserve. The transfer to this reserve must be made before distribution of dividends to shareholders and when there are retained profits at the end of the financial year.

F-66

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

42	PARTLY-OWNED SUBSIDIARIES WITH MATERIAL NON-CONTROLLING INTERESTS

Details of the Group’s subsidiaries that have material non-controlling interests are set out below:


	2020			2019
Percentage of equity interest held by non-controlling interests:
CEA Jiangsu		37.44	%		37.44	%
CEA Yunnan		9.64	%		9.64	%
CEA Wuhan		40.00	%		40.00	%


	2020 *RMB million*			2019 *RMB million*
(Loss)/profit for the year allocated to non-controlling interests:
CEA Jiangsu		(435	)		115
CEA Yunnan		(73	)		50
CEA Wuhan		(207	)		128

Dividends paid to non-controlling interests of CEA Jiangsu		—			37
Dividends paid to non-controlling interests of CEA Wuhan		—			45

Accumulated balances of non-controlling interests at the reporting date:
CEA Jiangsu		1,010			1,445
CEA Yunnan		631			704
CEA Wuhan		1,299			1,511

The following tables illustrate the summarized financial information of the above subsidiaries. The amounts disclosed are before any inter-company eliminations:


	CEA Jiangsu RMB million			CEA Yunnan RMB million			CEA Wuhan RMB million
2020
Revenue		4,550			6,048			1,650
Total expenses		(5,713	)		(6,809	)		(2,167	)
Loss for the year		(1,163	)		(761	)		(517	)
Total comprehensive income for the year		(1,164	)		(761	)		(532	)

Current assets		477			290			97
Non-current assets		12,724			17,999			7,590
Current liabilities		(4,109	)		(5,219	)		(1,998	)
Non-current liabilities		(6,395	)		(6,528	)		(2,441	)

Net cash flows from operating activities		1,833			3,232			642
Net cash flows used in investing activities		(331	)		(534	)		(99	)
Net cash flows used in financing activities		(1,556	)		(2,698	)		(543	)
Effect of foreign exchange rate changes, net		—			—			—

Net decrease in cash and cash equivalents		(55	)		—			—


	CEA Jiangsu RMB million			CEA Yunnan RMB million			CEA Wuhan RMB million
2019
Revenue		9,774			11,634			4,743
Total expenses		9,466			11,110			4,424
Profit for the year		308			524			319
Total comprehensive income for the year		309			524			328

Current assets		1,116			575			369
Non-current assets		12,620			19,210			7,917
Current liabilities		(2,486	)		(3,623	)		(1,611	)
Non-current liabilities		(7,390	)		(8,859	)		(2,897	)

Net cash flows from operating activities		1,930			2,457			885
Net cash flows used in investing activities		(16	)		(425	)		(222	)
Net cash flows used in financing activities		(1,874	)		(2,031	)		(666	)
Effect of foreign exchange rate changes, net		—			—			—

Net increase/(decrease) in cash and cash equivalents		40			1			(3	)

F-67

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

43	NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS

(a)

Cash generated from operations


	2020 *RMB million*			2019 *RMB million*			2018 *RMB million*
(Loss)/profit before income tax		(16,488	)		4,299			3,856
Adjustments for:
Depreciation of property, plant and equipment		9,067			9,078			14,616
Depreciation of right-of-use assets		12,367			12,298			—
Depreciation of investment properties		12			25			26
Amortization of intangible assets		239			143			160
Amortization of lease prepayments		—			—			43
Amortization of other non-current assets		570			536			468
Gain on disposal of property, plant and equipment		(17	)		(22	)		(267	)
Gain on disposal of prepayments for land use rights		—			—			(210	)
Gain on disposal of an investment in a subsidiary		—			(64	)		—
Gain on disposal of an investment in an associate		—			—			(5	)
Dividend income from equity investments at fair value through other comprehensive income		(12	)		(19	)		(23	)
Dividend income from a financial asset at fair value through profit or loss		(6	)		(3	)		(6	)
Share of results of associates		82			(265	)		(170	)
Share of results of joint ventures		13			(17	)		(34	)
Net foreign exchange (gains)/loss		(2,746	)		890			1,983
Fair value losses/(gains), net:

Financial asset at fair value through profit or loss		26			(25	)		27

(Gain)/loss on fair value changes of derivative financial instruments		—			—			(311	)
COVID-19-related rent concessions from lessors		(3	)		—			—
Impairment charges		184			4			318
Impairment losses on financial assets, net		32			16			27
Interest income		—			—			(110	)
Interest expense		5,214			5,169			3,727

Operating profit before working capital changes		8,534			32,043			24,115

Changes in working capital
Flight equipment spare parts		200			(457	)		(66	)
Trade and notes receivables		593			(275	)		708
Prepayments and other receivables		2,893			(2,336	)		(2,056	)
Contract liabilities		(6,686	)		1,281			1,051
Restricted bank deposits and short-term bank deposits		(6	)		9			35
Trade and bills payables		(657	)		(163	)		856
Other payables and accruals		(983	)		1,459			36
Staff housing allowances		—			—			(36	)
Other long-term liabilities		(2,174	)		(1,916	)		(525	)
Post-retirement benefit obligations		(46	)		(125	)		42
Provision for lease return costs for aircraft and engines		(188	)		617			(113	)

Cash generated from operations		1,480			30,137			24,047

(b)

Major non-cash transactions


	2020 RMB million		2019 *RMB million*		2018 *RMB million*
Additions to right-of-use assets and lease liabilities		7,191		24,434		—
Finance lease obligations incurred for acquisition of aircraft		—		—		7,945

F-68

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

43	NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS (continued)

(c)

Changes in liabilities arising from financing activities


	Bank and other loans *RMB million*			Obligations under finance leases/Lease liabilities *RMB million*
At January 1, 2018		63,801			66,868
Changes from financing cash flows		(9,076	)		(9,629	)
Foreign exchange movement		401			1,419
New finance leases		—			18,769

At December 31, 2018		55,126			77,427

Effect of adoption of IFRS 16		—			31,879
At January 1, 2019		55,126			109,306
Changes from financing cash flows		(3,427	)		(23,895	)
Foreign exchange movement		138			851
Disposal of a subsidiary		—			(10	)
New leases		—			24,023

At December 31, 2019		51,837			110,275

At January 1, 2020		51,837			110,275
Changes from financing cash flows		36,173			(18,444	)
COVID-19-related rent concessions from lessors		—			(3	)
Foreign exchange movement		(115	)		(2,768	)
New leases		—			7,191

At December 31, 2020		87,895			96,251

F-69

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

43	NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS (continued)

(d)

Total cash outflow for leases

The total cash outflow for leases included in the statement of cash flows is as follows:


	2020			2019
	*RMB million*			*RMB million*
Within operating activities		(358	)		(631	)
Within investing activities		(1,183	)		(1,449	)
Within financing activities		(22,099	)		(27,789	)

44	COMMITMENTS

(a)

The Group had the following capital commitments at the end of the reporting period:


	2020		2019
	*RMB million*		*RMB million*
Contracted for:
– Aircraft, engines and flight equipment (note)		37,277		47,822
– Other property, plant and equipment		3,646		4,917
– Investments		1,335		860

		42,258		53,599

Note:

(i)

Contracted expenditures for the above aircraft, engines and flight equipment, including deposits prior to delivery, subject to future inflation increase built into the contracts, were expected to be paid as follows:


	2020		2019
	*RMB million*		*RMB million*
Within one year		13,542		18,388
In the second year		13,692		12,442
In the third year		7,109		11,956
In the fourth year		2,934		3,892
Over four years		—		1,144

		37,277		47,822

The above capital commitments represent the future outflows of cash or other resources.

(ii)

On March 11, 2019, the Civil Aviation Administration of China ordered all domestic airlines to ground all 737MAX-8 aircraft. The Group has 46 737MAX-8 aircraft on order as at December 31, 2020 and has not taken delivery of any 737MAX-8 aircraft since the grounding. Due to uncertainty surrounding the timing of delivery of certain aircraft, the amounts in the above table represent the Group’s best estimate, including with respect to the delivery of Boeing 737MAX-8 aircraft. However, the actual delivery schedule may differ from the table above.

(b)

The Group has various lease contracts that have not yet commenced as at December 31, 2020. The future lease payments for these non-cancellable lease contracts are RMB62 million (2019: RMB62 million) due within one year, and RMB123 million (2019: RMB16 million) due in the second to fifth years.

(c)

As at December 31, 2020, lease commitments for short-term leases amounted to RMB130 million (2019: RMB83 million).

F-70

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

45	RELATED PARTY TRANSACTIONS

The Group is controlled by CEA Holding, which directly owns 30.97% of the Company’s shares as at December 31, 2020 (December 31, 2019: 30.97%). In addition, through CES Global Holdings (Hong Kong) Limited and CES Finance Holding Co., Limited, two wholly-owned subsidiaries of CEA Holding, CEA Holding indirectly owns additional shares of the Company of approximately 16.03% and 2.79% respectively as at December 31, 2020 (December 31, 2019:16.03% and 2.79%).

The Company is a state-owned enterprise established in the PRC and is controlled by the PRC government, which also owns a significant portion of the productive assets in the PRC. In accordance with IAS 24 “Related Party Disclosures”, government-related entities and their subsidiaries, directly or indirectly controlled, jointly controlled or significantly influenced by the PRC government are defined as related parties of the Group. On that basis, related parties include CEA Holding and its subsidiaries (other than the Group), other government-related entities and their subsidiaries (“Other State-owned Enterprises”), other entities and corporations over which the Company is able to control or exercise significant influence and key management personnel of the Company as well as their close family members.

For the purpose of the related party transaction disclosures, the directors of the Company believe that meaningful information in respect of related party transactions has been adequately disclosed.

(a)

Nature of related parties that do not control or controlled by the Group:


Name of related party		Relationship with the Group
Eastern Air Group Finance Co., Ltd. (“Eastern Air Finance Company”)		Associate of the Company
Eastern Aviation Import & Export Co., Ltd. and its subsidiaries (“Eastern Import & Export”)		Associate of the Company
Shanghai Pratt & Whitney Aircraft Engine Maintenance Co., Ltd. (“Shanghai P&W”)		Associate of the Company
China Eastern Airlines Media Co., Ltd. and its subsidiaries (“Eastern Advertising”)		Associate of the Company
Shanghai Collins Aviation Maintenance Service Co., Ltd. (“Collins Aviation”)		Associate of the Company
Shanghai Airlines Tours International (Group) Co., Ltd. and its subsidiaries (“Shanghai Airlines Tours”)		Associate of the Company
Beijing Xinghang Aviation Property Co., Ltd. (“Beijing Aviation Property”)		Associate of the Company
China Eastern Air Catering Investment Co., Ltd. and its subsidiaries (“Eastern Air Catering”)		Associate of the Company
CAE Melbourne Flight Training Pty Limited (“CAE Melbourne”)		Joint venture of the Company
Shanghai Eastern Union Aviation Wheels & Brakes Maintenance
Services Overhaul Engineering Co., Ltd. (“Wheels & Brakes”)		Joint venture of the Company
Shanghai Technologies Aerospace Co., Ltd. (“Technologies Aerospace”)		Joint venture of the Company
Eastern China Kaiya System Integration Co., Ltd. (“China Kaiya”)		Joint venture of the Company
Shanghai Hute Aviation Technology Co., Ltd. (“Shanghai Hute”)		Joint venture of the Company
Xi An Cea Safran Landing Systems Services Co., Ltd. (“XIESA”)		Joint venture of the Company
CEA Development Co., Ltd. and its subsidiaries (“CEA Development”)		Controlled by the same parent company
Eastern Airline Logistics Co., Ltd. and its subsidiaries (“Eastern Logistics”)		Controlled by the same parent company
Shanghai Eastern Airlines Investment Co., Ltd. and its subsidiaries (“Eastern Investment”)		Controlled by the same parent company
CES International Financial Leasing Corporation Limited and its subsidiaries (“CES Lease Company”)		Controlled by the same parent company
TravelSky Technology Limited (“TravelSky”)		A director and vice president of the Company is a director of TravelSky
China Aviation Supplies Holding Company and its subsidiaries (“CASC”)		A director and vice president of the Company is a director of CASC
Air France-KLM Group (“AFK”)		A director and vice president of the Company is a director of AFK
Juneyao Airlines Co., Ltd. and its subsidiaries (“Juneyao Air”)		A director and vice president of the Company is a director of Juneyao Air

F-71

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

45	RELATED PARTY TRANSACTIONS (continued)

(b)

Related party transactions


		Pricing policy
		and decision	2020		2019		2018
Nature of transaction	Related party	process	*RMB million*		*RMB million*		*RMB million*
*Purchase of goods and services*
Payments on food and beverages*	Eastern Air Catering	(i)		812		1,471		1,317
	CEA Development	(i)		—		—		78
	Eastern Import & Export	(i)		50		56		60
Handling charges for purchase of aircraft, flight equipment, flight equipment spare parts, other property, plant and flight equipment and repairs for aircraft and engines*	Eastern Import & Export	(i)		132		142		165
Repairs and maintenance expense for aircraft and engines	Shanghai P&W	(i)		1,180		1,762		2,394
	Technologies Aerospace	(i)		184		221		344
	Wheels & Brakes	(i)		45		144		129
	Shanghai Hute	(i)		116		88		74
	XIESA	(i)		67		2		—
Payments on cabin cleaning services	Eastern Advertising	(i)		9		22		20
Advertising expense*	Eastern Advertising	(i)		26		29		19
Payments on system services	China Kaiya	(i)		18		16		21
Equipment maintenance fee*	Collins Aviation	(i)		33		45		60
	CEA Development	(i)		81		98		71
Automobile maintenance service, aircraft maintenance, providing transportation automobile and other products*	CEA Development	(i)		4		13		13
Property management and green maintenance expenses*	CEA Development	(i)		195		205		102
Payments on hotel accommodation service*	CEA Development	(i)		122		134		127
	Shanghai Airlines Tours	(i)		10		23		—
Payments on construction and and management agent*	Eastern Investment	(i)		13		14		18
Payments on logistics services	Eastern Import & Export	(i)		—		49		142
	Eastern Logistics	(i)		115		53		—
Civil aviation information network services**	TravelSky	(i)		552		753		646
Flight equipment spare parts maintenance**	CASC	(i)		107		143		189
Flight training fee	CAE Melbourne	(i)		41		70		75
Payments on aviation transportation cooperation and support services**	AFK	(i)		221		537		425
Payments on aviation transportation cooperation services	Juneyao Air	(i)		2		2		—
Flight equipment spare parts maintenance and support services	AFK	(i)		10		19		2
Bellyhold space management *	Eastern Logistics	(i)		—		—		32
Bellyhold space operation cost*	Eastern Logistics	(i)		—		310		246
Transfer of pilots	Eastern Logistics	(i)		—		11		24

F-72

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

45	RELATED PARTY TRANSACTIONS (continued)

(b)

Related party transactions (continued)


		Pricing policy
		and decision	2020		2019		2018
Nature of transaction	Related party	process	*RMB million*		*RMB million*		*RMB million*
*Purchase of goods and services (continued)*
Cargo terminal business support services*	Eastern Logistics	(i)		286		481		348
Bellyhold container management	Eastern Logistics	(i)		13		13		11
*Provision of services*
Contractual revenue from bellyhold space* (note)	Eastern Logistics	(i)		—		3,826		2,795
Exclusive operation transportation in relation to the passenger aircraft cargo business*(note)	Eastern Logistics	(i)		4,895		—		—
Freight logistics support services*	Eastern Logistics	(i)		185		135		126
Software system and support services	Eastern Logistics	(i)		5		4		42
Transfer of freight depots and equipment	Eastern Logistics	(i)		—		—		28
Media royalty fee	Eastern Advertising	(i)		14		15		14
Aviation transportation cooperation and support services**	AFK	(i)		105		593		728
Aviation transportation cooperation services	Juneyao Air	(i)		14		11		—
Transfer of pilots	Juneyao Air	(i)		22		—		—
Flight equipment spare parts maintenance and support services	Juneyao Air	(i)		35		41		—
*Lease payments*
Lease payments for land and buildings*	CEA Holding	(ii)		36		40		33
	Eastern Investment	(ii)		98		83		—
(2018: Land and buildings rental)
Settlements of lease liabilities on aircraft and engines	CES Lease Company	(ii)		6,667		5,779		3,984
(2018: Payments on operating leases and financial leases)
Lease payments for special vehicle and equipment*	CEA Development	(ii)		37		21		—
*Rental income*
Rental income for land and buildings under short-term leases*	Eastern Air Catering	(ii)		15		—		—
*Interest expense*
Interest expense on loans	CEA Holding	(iii)		32		27		13
	Eastern Air Finance Company	(iii)		5		5		—
*Interest income*
Interest income on loans	CAE Melbourne	(iii)		1		—		—
Interest income on deposits	Eastern Air Finance Company	(iii)		24		15		26

F-73

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

45	RELATED PARTY TRANSACTIONS (continued)

(b)

Related party transactions (continued)

Note:

To address the business competition between the passenger aircraft cargo business of the Company and the all-cargo aircraft business of China Cargo Airlines Co., Limited (“China Cargo Airlines”), a subsidiary of Eastern Logistics, the Company gave China Cargo Airlines a long term contractual operation to operate and manage the passenger aircraft bellyhold space cargo business with independence and autonomy from April 2018. Against the backdrop of COVID-19’s immense impact on the aviation industry, in order to further clarify the passenger aircraft cargo business’s related business scope and pricing methods under unconventional circumstances such as “passenger-to-cargo conversion”, and taking into account certain limitations of adopting an evaluation-based pricing mechanism in the original passenger aircraft bellyhold space contractual operation transactions, the Company and China Cargo Airlines have negotiated and agreed to adjust and optimize the passenger aircraft cargo business’s scope, pricing methods and settlement methods without altering, amongst others, the business entities, rights and obligations, and business procedures of both parties, and adjust the original passenger aircraft bellyhold space contractual operation proposal to an exclusive operation proposal for passenger aircraft cargo business, pursuant to which China Cargo Airlines will have exclusive operation to independently operate and manage the Group’s passenger aircraft cargo business. The exclusive operation agreement was entered into by both parties on September 29, 2020 which was deemed to have become effective on January 1, 2020.

(i)

The Group’s pricing policies on goods and services purchased from and provided to related parties are mutually agreed between contract parties.

(ii)

The Group’s pricing policies on related party lease payments are mutually agreed between contract parties.

(iii)

The Group’s pricing policies on related party interest rates are mutually agreed based on benchmark interest rates.

These related party transactions also constitute connected transactions or continuing connected transactions as defined in Chapter 14A of the Rules Governing the Listing of Securities on the Stock Exchange (the “Listing Rules”).

These related party transactions constitute continuing connected transactions pursuant to the Rules Governing the Listing of Stocks on the Shanghai Stock Exchange.

During the years ended December 31, 2020 and 2019, the Group’s significant transactions with entities that are controlled, jointly controlled or significantly influenced by the PRC government mainly include most of its bank deposits/borrowings and the corresponding interest income/expense and part of sales and purchases of goods and services. The price and other terms of such transactions are set out in the agreements governing these transactions or as mutually agreed.

F-74

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

45	RELATED PARTY TRANSACTIONS (continued)

(c)

Balances with related parties

(i)

Amounts due from related parties


	2020		2019
	*RMB million*		*RMB million*
Trade receivables
Eastern Logistics		630		295
CASC		—		23
Juneyao Air		8		10
Eastern Air Catering		—		1
Others		4		5

		642		334


	2020		2019
	*RMB million*		*RMB million*
Prepayments and other receivables
Eastern Import & Export		158		272
Technologies Aerospace		6		7
Eastern Air Catering		36		6
Eastern Advertising		1		28
CEA Development		11		7
CEA Holding		228		—
CASC		13		13
TravelSky		49		7
Juneyao Air		4		10
Eastern Air Finance Company		240		405
Others		22		21

		768		776

All the amounts due from related parties are trade in nature, interest-free and payable within normal credit terms.

(ii)

Amounts due to related parties


	2020		2019
	*RMB million*		*RMB million*
Trade and bills payables
Eastern Import & Export		363		421
Eastern Air Catering		266		390
Technologies Aerospace		95		104
CEA Development		96		76
Shanghai P&W		213		465
Collins Aviation		9		7
CEA Holding		28		18
CASC		27		17
Shanghai Hute		32		13
TravelSky		7		22
Wheels & Brakes		14		17
Shanghai Airlines Tours		1		3
Eastern Investment		74		—
XIESA		32		—
Beijing Aviation Property		—		101
Others		13		7

		1,270		1,661

F-75

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

45	RELATED PARTY TRANSACTIONS (continued)

(c)

Balances with related parties (continued)

(ii)

Amounts due to related parties (continued)


	*2020*		*2019*
	*RMB million*		*RMB million*
Other payables and accruals
Eastern Import & Export		37		5
Eastern Air Catering		2		2
CEA Holding		99		111
CEA Development		1		1
Eastern Investment		61		86
CES Lease Company		189		166
CASC		2		2
XIESA		—		2
Others		7		8

		398		383


	2020		2019
	*RMB million*		*RMB million*
Lease liabilities
CES Lease Company		42,168		42,848

Except for the amounts due to CES Lease Company, which are related to the aircraft under leases, all other amounts due to related parties are interest-free and payable within normal credit terms given by trade creditors.

(iii)

Short-term deposits, loan and borrowings with related parties


	Average interest rate
	2020			2019			2020		2019
							*RMB million*		*RMB million*
Short-term deposits (included in cash and cash equivalents)
Eastern Air Finance Company		0.35	%		0.35	%		5,474		1,122
Short-term borrowings (included in borrowings)
Eastern Air Finance Company		2.80	%		—			4,000		—
Long-term borrowings (included in borrowings)
CEA Holding		3.86	%		3.86	%		828		828
Loan to a joint venture
CAE Melbourne		3.74	%		3.74	%		11		15

(d)

Guarantees by the holding company

As at December 31, 2020, bonds of the Group guaranteed by CEA Holding amounted to RMB7.8 billion (2019: RMB7.8 billion).

(e)

Key management compensation

The compensation paid or payable to key management for employee services mainly comprising salaries and other short-term employee benefits was analyzed as follows:


	2020		2019		2018
	*RMB million*		*RMB million*		*RMB million*
Directors and supervisors		4		1		2
Senior management		1		8		8

		5		9		10

F-76

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

46	FINANCIAL INSTRUMENTS BY CATEGORY

The carrying amounts of each of the categories of financial instruments as at the end of the reporting period are as follows:


	Financial assets at fair value through profit or loss		Financial assets at fair value through other comprehensive income		Financial assets at amortized cost		Derivatives designated as hedging instruments		Total
2020	RMB million		RMB million		RMB million		RMB million		RMB million
Financial assets
Equity investments designated at fair value through other comprehensive income		—		995		—		—		995
Derivative financial instruments		—		—		—		399		399
Financial assets included in other non-current assets		—		—		150		—		150
Trade receivables		—		—		1,124		—		1,124
Financial asset at fair value through profit or loss		95		—		—		—		95
Financial assets included in prepayments and other receivables		—		—		2,452		—		2,452
Restricted bank deposits		—		—		12		—		12
Cash and cash equivalents		—		—		7,651		—		7,651

		95		995		11,389		399		12,878


	Financial liabilities at amortized cost		Derivatives designated as hedging instruments		Total
	RMB million		RMB million		RMB million
Financial liabilities
Trade and bills payables		3,220		—		3,220
Financial liabilities included in other payables and accruals		15,790		—		15,790
Lease liabilities		96,251		—		96,251
Borrowings		87,895		—		87,895
Derivative financial instruments		—		141		141

		203,156		141		203,297

F-77

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

46	FINANCIAL INSTRUMENTS BY CATEGORY (continued)

The carrying amounts of each of the categories of financial instruments as at the end of the reporting period are as follows: (continued)


	Financial assets at fair value through profit or loss		Financial assets at fair value through other comprehensive income		Financial assets at amortized cost		Derivatives designated as hedging instruments		Total
2019	RMB million		RMB million		RMB million		RMB million		RMB million
Financial assets
Equity investments designated at fair value through other comprehensive income		—		1,274		—		—		1,274
Derivative financial instruments		—		—		—		70		70
Financial assets included in other non-current assets		—		—		180		—		180
Trade receivables		—		—		1,717		—		1,717
Financial asset at fair value through profit or loss		121		—		—		—		121
Financial assets included in prepayments and other receivables		—		—		3,906		—		3,906
Restricted bank deposits and short-term bank deposits		—		—		6		—		6
Cash and cash equivalents		—		—		1,350		—		1,350

		121		1,274		7,159		70		8,624


	Financial liabilities at amortized cost		Derivatives designated as hedging instruments		Total
	RMB million		RMB million		RMB million
Financial liabilities
Trade and bills payables		3,877		—		3,877
Financial liabilities included in other payables and accruals		16,934		—		16,934
Lease liabilities		110,275		—		110,275
Borrowings		51,837		—		51,837
Derivative financial instruments		—		23		23

		182,923		23		182,946

F-78

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

47	FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS

The carrying amounts and fair values of the Group’s financial instruments, other than those with carrying amounts that reasonably approximate to fair values, were as follows:


	December 31, 2020				December 31, 2019
	Carrying amounts		Fair values		Carrying amounts		Fair values
	RMB million		RMB million		RMB million		RMB million
Financial assets
Equity investments designated at fair value through other comprehensive income		995		995		1,274		1,274
Financial asset at fair value through profit or loss		95		95		121		121
Derivative financial assets		399		399		70		70
Deposits relating to aircraft held under leases included in other non-current assets		143		142		156		148

Total		1,632		1,631		1,621		1,613

Financial liabilities
Derivative financial liabilities		141		141		23		23
Long-term borrowings		30,745		32,355		26,604		23,754
Lease liabilities		82,178		82,653		94,685		89,491

Total		113,064		115,149		121,312		113,268

The Group has assessed that the fair values of cash and cash equivalents, restricted bank deposits, trade receivables, trade and bills payables, financial assets included in prepayments and other receivables, financial liabilities included in other payables and accruals, short-term bank borrowings and short-term debentures approximate to their carrying amounts largely due to the short-term maturities of these instruments.

The fair values of the deposits relating to aircraft held under leases included in other non-current assets, long-term borrowings and lease liabilities have been measured using significant observable inputs and calculated by discounting the expected future cash flows using rates currently available for instruments with similar terms, credit risk and remaining maturities.

The Group enters into derivative financial instruments, including forward currency contracts, fuel forward contracts and interest rate swaps with various counterparties, principally financial institutions with high credit ratings.

Derivative financial instruments are measured using valuation techniques similar to forward pricing and swap models, using present value calculations. The models incorporate various market observable inputs including the foreign exchange spot, forward rates, interest rate curves and fuel forward price. The carrying amounts of forward currency contracts, fuel forward contracts and interest rate swaps are the same as their fair values.

As at December 31, 2020, the marked to market value of the derivative asset position is net of a credit valuation adjustment attributable to derivative counterparty default risk. The changes in counterparty credit risk had no material effect on the hedge effectiveness assessment for derivatives designated in hedge relationship and other financial instruments recognized at fair value.

The fair values of listed equity investments are based on quoted market prices. The fair values of unlisted equity investments designated at fair value through other comprehensive income have been estimated using a market-based valuation technique based on assumptions that are not supported by observable market prices or rates. The valuation requires the directors to determine comparable public companies (peers) based on industry, size, leverage and strategy, and to calculate an appropriate price multiple, such as enterprise value to earnings before interest, taxes, depreciation and amortization (“EV/EBITDA”) multiple and price to earnings (“P/E”) multiple, for each comparable company identified. The multiple is calculated by dividing the enterprise value of the comparable company by an earnings measure. The trading multiple is then discounted for considerations such as illiquidity and size differences between the comparable companies based on company-specific facts and circumstances. The discounted multiple is applied to the corresponding earnings measure of the unlisted equity investments to measure the fair value. The directors believe that the estimated fair values resulting from the valuation technique, which are recorded in the consolidated statement of financial position, and the related changes in fair values, which are recorded in other comprehensive income, are reasonable, and that they were the most appropriate values at the end of the reporting period.

F-79

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

47	FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS (continued)

Set out below is a summary of the significant unobservable input to the valuation of financial instruments together with a quantitative sensitivity analysis as at December 31, 2020 and 2019:

Valuation

technique

Significant

unobservable input

Range

Sensitivity of fair

value to the input

Unlisted equity investments

Valuation multiples

Discount for lack of marketability

2020: 20% to 35%

(2019: 20% to 35%)

1% (2019: 1%) increase/decrease in multiple would result in increase/ decrease in fair value by RMB5 million (2019: RMB11 million)

The discount for lack of marketability represents the amounts of premiums and discounts determined by the Group that market participants would take into account when pricing the investments.

Fair value hierarchy

The following tables illustrate the fair value measurement hierarchy of the Group’s financial instruments:

Assets and liabilities measured at fair value:


As at December 31, 2020
	Fair value measurement using
	Quoted prices in active markets (Level 1) RMB million		Significant observable inputs (Level 2) RMB million		Significant unobservable inputs (Level 3) RMB million		Total RMB million
Assets
Equity investments designated at fair value through other comprehensive income		457		—		538		995
Derivative financial assets
- Forward fuel contracts		—		399		—		399
Financial asset at fair value through profit or loss		95		—		—		95

Total		552		399		538		1,489

Liabilities
Derivative financial liabilities
- Interest rate swaps		—		140		—		140
- Forward fuel contracts		—		1		—		1

Total		—		141		—		141

F-80

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

47	FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS (continued)

Fair value hierarchy (continued)

Assets and liabilities measured at fair value: (continued)

As at December 31, 2019


	Fair value measurement using
	Quoted prices in active markets (Level 1)		Significant observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total
	RMB million		RMB million		RMB million		RMB million
Assets
Equity investments designated at fair value through other comprehensive income		496		—		778		1,274
Derivative financial assets
- Interest rate swaps		—		27		—		27
- Forward foreign currency contracts		—		43		—		43
Financial asset at fair value through profit or loss		121		—		—		121

Total		617		70		778		1,465

Liabilities
Derivative financial liabilities
- Interest rate swaps		—		10		—		10
- Forward foreign currency contracts		—		13		—		13

Total		—		23		—		23

During the year, there were no transfers of fair value measurements between Level 1 and Level 2 and no transfers into or out of Level 3 for both financial assets and financial liabilities (2019: Nil).

Assets and liabilities for which fair values are disclosed:

As at December 31, 2020


	Fair value measurement using
	Quoted prices in active markets (Level 1)		Significant observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total
	RMB million		RMB million		RMB million		RMB million
Assets
Deposits relating to aircraft held under leases included in other non-current assets		—		142		—		142

		—		142		—		142

Liabilities
Long-term borrowings		4,936		27,419		—		32,355
Lease liabilities		—		82,653		—		82,653

		4,936		110,072		—		115,008

F-81

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

47	FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS (continued)

Fair value hierarchy (continued)

Assets and liabilities for which fair values are disclosed: (continued)

As at December 31, 2019


	Fair value measurement using
	Quoted prices in active markets (Level 1)		Significant observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total
	RMB million		RMB million		RMB million		RMB million
Assets
Deposits relating to aircraft held under leases included in other non-current assets		—		148		—		148

		—		148		—		148

Liabilities
Long-term borrowings		2,897		20,857		—		23,754
Lease liabilities		—		89,491		—		89,491

		2,897		110,348		—		113,245

48	FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group’s activities expose it to a variety of financial risks: market risk (including foreign currency risk, interest rate risk, fuel price risk and equity price risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance. The Group uses derivative financial instruments to manage risk exposures whenever management considers necessary.

Risk management is carried out by a central treasury department (the “Group Treasury”) under policies approved by the Board. The Group Treasury identifies, evaluates and hedges financial risks in close cooperation with the Group’s operating units. The overall risk management strategies, as well as written policies covering specific areas such as foreign currency risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, were approved by the Board.

Foreign currency risk

The Group operates its business in many countries and territories. The Group generates its revenue in different currencies, and the amount of its foreign currency liabilities at the end of the period is much higher than that of its foreign currency assets. The Group’s major liability items (mainly resulting from purchases of aircraft) are mainly priced and settled in foreign currencies, primarily USD. The Group is exposed to currency risks from fluctuations in various foreign currency exchange rates against RMB.

The RMB is not freely convertible into other currencies, however, under Mainland China’s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, the Group is permitted to exchange RMB for other currencies through banks authorized to conduct foreign exchange business.

In addition, fluctuations in foreign currency exchange rates will affect the Group’s future costs for purchases of aircraft, flight equipment and aviation fuel, and take-off and landing charges in foreign airports.

F-82

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

48	FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

Foreign currency risk (continued)

The following tables detail the Group’s exposure to major currency risk at the reporting date:


	2020
	USD			EUR			SGD			JPY
	RMB million			RMB million			RMB million			RMB million
Trade receivables		10			2			—			2
Cash and cash equivalents		968			4			3			3
Other receivables		115			3			1			12
Other non-current assets		150			—			—			—
Trade and other payables		(108	)		(1	)		—			—
Lease liabilities		(36,267	)		(8	)		(85	)		(142	)
Borrowings		(375	)		(2,664	)		(2,466	)		(3,162	)


	2019
	USD			EUR			SGD			JPY
	RMB million			RMB million			RMB million			RMB million
Trade receivables		28			47			5			59
Cash and cash equivalents		635			63			5			10
Other receivables		2,065			3			1			13
Other non-current assets		180			—			—			—
Trade and other payables		(105	)		(3	)		—			(6	)
Lease liabilities		(45,674	)		—			(397	)		(183	)
Borrowings		(870	)		(3,073	)		(2,587	)		(3,205	)

The following tables indicate the approximate change in the Group’s consolidated statement of profit or loss and other comprehensive income in response to a 1% appreciation or depreciation of the RMB against the following major currencies at the reporting date:

2020

2019

Effect on
profit or loss

Effect on other
comprehensive
income

Effect on
profit or loss

Effect on other
comprehensive
income

RMB million

If RMB (weakens)/strengthens against USD

(266)/266

—

(328)/328

41/(41)

If RMB (weakens)/strengthens against JPY

(25)/25

—

(25)/25

—

If RMB (weakens)/strengthens against EUR

(20)/20

—

(22)/22

—

If RMB (weakens)/strengthens against SGD

(19)/19

—

(22)/22

—

Interest rate risk

The Group’s interest rate risk primarily arises from borrowings and lease liabilities. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings and finance leases issued at fixed rates expose the Group to fair value interest rate risk. The Group determines the proportion of borrowings and finance leases issued at variable rates and fixed rates based on the market environment.

The Group’s finance department has been monitoring the level of interest rates. The increase in the interest rates will increase the interest costs of borrowings and finance leases issued at variable rates, which will further impact the performance of the Group. To hedge against the variability in the cash flows arising from a change in market interest rates, the Group has entered into certain interest rate swaps to swap variable rates into fixed rates. The interest rates and terms of repayment of borrowings made to the Group and interest rate swaps are disclosed in Notes 36 and 23 to the consolidated financial statements.

F-83

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

48	FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

Interest rate risk (continued)

The following tables detail the interest rate profiles of the Group’s interest-bearing financial instruments at the reporting date:


	2020			2019
	*RMB million*			*RMB million*
Floating rate instruments
Cash and cash equivalents		7,651			1,350
Restricted bank deposits		12			6
Borrowings		(13,328	)		(3,943	)
Lease liabilities		(44,541	)		(49,851	)
Interest rate swaps at notional amount		4,504			6,194


	2020			2019
	*RMB million*			*RMB million*
Fixed rate instruments
Borrowings		(74,567	)		(47,929	)
Lease liabilities		(51,710	)		(60,424	)

The following table indicates the approximate change in the Group’s profit or loss and other comprehensive income, taking the interest rate swap into consideration, if interest rate had been 25 basis points higher with all other variables held constant:

2020

2019

Effect on
profit or loss

Effect on other
comprehensive
income

Effect on
profit or loss

Effect on other
comprehensive
income

RMB million

Floating rate instruments

(94

)

(98

)

Fuel price risk

Jet fuel is a major component of the Group’s operating expenses and the Group’s results are significantly affected by the volatility in the price of jet fuel. For the year ended December 31, 2020, if fuel price had been 5% lower/higher with all other variables held constant, the Group’s fuel cost would have been RMB692 million lower/higher (2019: RMB1,710 million lower/higher).

The Group’s policy is to reduce fuel price risk by hedging a percentage of its expected fuel consumption. Fuel forward contracts are used to achieve the Group’s desired hedging position. An increase of 5 percent in the jet fuel price at the reporting date would have resulted in a change in other comprehensive income by the amounts shown below. It represents the change in fair value of fuel forward contracts at the reporting date. The analysis assumes that all other variables remain constant.


	2020		2019
	Effect on other comprehensive income		Effect on other comprehensive income
	RMB million		RMB million
Fuel forward contracts		62		—

Credit risk

The Group’s credit risk is primarily attributable to cash and cash equivalents, deposits and derivative financial instruments with banks and financial institutions, as well as credit exposures to sales agents.

A significant portion of the Group’s air tickets is sold by sales agents participating in the Billing and Settlements Plan (“BSP”), a clearing system between airlines and sales agents organized by the International Air Transportation Association. The balance due from BSP agents amounted to approximately RMB165 million as at December 31, 2020 (2019: approximately RMB835 million). The credit risk exposure to BSP agents and the remaining trade receivables are maintained by the Group on an on-going basis and the allowance for impairment of doubtful debts is within management’s expectations.

F-84

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

48	FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

Credit risk (continued)

The Group’s cash management policy is to deposit cash and cash equivalents mainly in state-owned banks and other reputable banks and financial institutions. The Group also deposits cash and cash equivalents in an associate financial institution owned by its holding company (Note 45(c)(iii)). Management does not expect any loss to arise from non-performance by these banks and the financial institution.

Transactions in relation to derivative financial instruments are only carried out with reputable banks and financial institutions. The Group has policies that limit the amount of credit exposure to any bank and financial institution. Management does not expect any losses from non-performance by these banks and financial institutions.

Maximum exposure and year-end staging

The tables below show the credit quality and the maximum exposure to credit risk based on the Group’s credit policy, which is mainly based on past due information unless other information is available without undue cost or effort, and year-end staging classification as at December 31.

The amounts presented are gross carrying amounts for financial assets and the exposure to credit risk.

At December 31, 2020


	12-month ECLs		Lifetime ECLs
	Stage 1		Stage 2		Stage 3		Simplified approach		Total
	RMB million		RMB million		RMB million		RMB million		RMB million
Trade receivable*		—		—		47		1,077		1,124
Financial assets included in prepayments and other receivables – Normal **		2,067		274		111		—		2,452
Restricted bank deposits – Not yet past due		12		—		—		—		12
Cash and cash equivalents – Not yet past due		7,651		—		—		—		7,651

At December 31, 2019


	12-month ECLs		Lifetime ECLs
	Stage 1		Stage 2		Stage 3		Simplified approach		Total
	RMB million		RMB million		RMB million		RMB million		RMB million
Trade receivable*		—		—		185		1,532		1,717
Financial assets included in prepayments and other receivables – Normal **		3,349		435		122		—		3,906
Restricted bank deposits – Not yet past due		6		—		—		—		6
Cash and cash equivalents – Not yet past due		1,350		—		—		—		1,350

*	For trade receivables to which the Group applies the simplified approach for impairment, information based on the provision matrix is disclosed in notes 27 to the financial statements, respectively.

The credit quality of the financial assets included in prepayments and other receivables is considered to be “normal” when they are not past due and there is no information indicating that the financial assets had a significant increase in credit risk since initial recognition. Otherwise, the credit quality of the financial assets is considered to be “doubtful”.

Further quantitative data in respect of the Group’s exposure to credit risk arising from trade receivables are disclosed in note 27 to the financial statements.

Since the Group trades only with recognized and creditworthy third parties, there is no requirement for collateral. Concentrations of credit risk are managed by customer/counterparty, by geographical region and by industry sector. There are no significant concentrations of credit risk within the Group as the customer bases of the Group’s trade receivables are widely dispersed in different sectors and industries.

F-85

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

48	FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

Liquidity risk

The Group’s primary cash requirements are for day-to-day operations, additions of and upgrades to aircraft, engines and flight equipment and repayments of related borrowings. The Group finances its working capital requirements through a combination of funds generated from operations and borrowings including bank loans, debentures and bonds (both short-term and long-term). The Group generally finances the acquisition of aircraft through leases or bank loans.

The table below analyses the Group’s financial liabilities that will be settled into relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.


	Less than
	1 year		1 to 2 years		2 to 5 years		Over 5 years		Total
	RMB million		RMB million		RMB million		RMB million		RMB million
At December 31, 2020
Borrowings		58,989		6,946		19,126		7,779		92,840
Derivative financial instruments		3		7		132		—		142
Lease liabilities		17,443		16,009		40,241		37,319		111,012
Trade, bills and other payables		19,010		—		—		—		19,010

		95,445		22,962		59,499		45,098		223,004


	Less than
	1 year		1 to 2 years		2 to 5 years		Over 5 years		Total
	RMB million		RMB million		RMB million		RMB million		RMB million
At December 31, 2019
Borrowings		26,422		8,796		15,882		3,872		54,972
Derivative financial instruments		14		—		8		2		24
Lease liabilities		19,870		15,276		39,935		45,129		120,210
Trade, bills and other payables		20,811		—		—		—		20,811

		67,117		24,072		55,825		49,003		196,017

Equity price risk

The Group is exposed to equity price risk arising from individual equity investments included in financial asset at fair value through profit or loss (Note 28) and equity investments designated at fair value through other comprehensive income (Note 22) as at December 31, 2020. The Group’s listed investments are listed on the Hong Kong and Shanghai stock exchanges and are valued at quoted market prices at the end of the reporting period.

December 31,
2020

High/Low 2020

December 31,
2019

High/Low

2019

Hong Kong – Hang Seng Index

27,231

29,056/21,696

28,190

30,157/25,064

Shanghai – A Share Index

3,640

3,640/2,788

3,196

3,426/2,580

F-86

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

48	FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

Equity price risk (continued)


	Carrying amount of equity investment		Increase/(decrease) in profit or loss			Increase/(decrease) in comprehensive income
	RMB million		RMB million			RMB million
2020
Investments listed in:
Hong Kong – Equity investment designated at fair value through other comprehensive income		457		—			34/	(34)
Shanghai – Financial asset at fair value through profit or loss		95		7/	(7)		—
Unlisted investments at fair value:
– Equity investment designated at fair value through other comprehensive income		538		—			40/	(40)
2019
Investments listed in:
Hong Kong – Equity investment designated at fair value through other comprehensive income		496		—			37/	(37)
Shanghai – Financial asset at fair value through profit or loss		121		9/	(9)		—
Unlisted investments at fair value:
– Equity investment designated at fair value through other comprehensive income		778		—			58/	(58)

Capital management

The primary objectives of the Group’s capital management are to safeguard the Group’s ability to continue as a going concern and to maintain healthy capital ratios in order to support its business and maximize shareholders’ value.

The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. The Group is not subject to any externally imposed capital requirements. No changes were made in the objectives, policies or processes for managing capital during the years ended December 31, 2020 and December 31, 2019.

The Group monitors capital on the basis of the debt ratio, which is calculated as total liabilities divided by total assets. The debt ratios as at the end of the reporting periods were as follows:


	December 31,			December31,
	2020			2019
	*RMB million*			*RMB million*
Total liabilities		225,496			212,539
Total assets		284,650			285,185

Debt ratio		79	%		75	%

F-87

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Prepared in accordance with International Financial Reporting Standards)

For the years ended December 31, 2020, 2019 and 2018

49	EVENTS AFTER THE REPORTING PERIOD

On March 29, 2021, the Group’s extraordinary general meeting approved the Proposal for the Non-public Issuance of A shares by China Eastern Airlines Corporation Limited, pursuant to which the Company will issue 2,494,930,875 A Shares to CEA Holding. It is expected that the proceeds to be raised will be not more than RMB10,828 million.

F-88