Form 6-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 6-K

 

 

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16

under the Securities Exchange Act of 1934

For the month of August 2018

Commission File Number: 001-14550

 

 

China Eastern Airlines Corporation Limited

(Translation of Registrant’s name into English)

 

 

Board Secretariat’s Office

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

36 Hongxiang 3rd Road, Minhang District

Shanghai, China 200335

(Address of principal executive offices)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:    ☒ Form 20-F    ☐ Form 40-F

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ☐

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934:    ☐  Yes    ☒  No

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):  n/a

 

 

 


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

   

China Eastern Airlines Corporation Limited

      (Registrant)

Date August 31, 2018     By   /s/ Wang Jian
      Name: Wang Jian
      Title: Company Secretary

 

2


Certain statements contained in this announcement may be regarded as “forward-looking statements” within the meaning of the U.S. Securities Exchange Act of 1934, as amended. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual performance, financial condition or results of operations of the Company to be materially different from any future performance, financial condition or results of operations implied by such forward-looking statements. Further information regarding these risks, uncertainties and other factors is included in the Company’s filings with the U.S. Securities and Exchange Commission. The forward-looking statements included in this announcement represent the Company’s views as of the date of this announcement. While the Company anticipates that subsequent events and developments may cause the Company’s views to change, the Company specifically disclaims any obligation to update these forward-looking statements, unless required by applicable laws. These forward-looking statements should not be relied upon as representing the Company’s views as of any date subsequent to the date of this announcement.

 

3


Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

 

LOGO

(A joint stock limited company incorporated in the People’s Republic of China with limited liability)

(Stock code: 00670)

2018 INTERIM RESULTS ANNOUNCEMENT

The board of directors (the “Board”) of China Eastern Airlines Corporation Limited (the “Company”) hereby presents the interim financial information of the Company and its subsidiaries (collectively, the “Group”) for the six months ended 30 June 2018 prepared in accordance with International Financial Reporting Standards (“IFRS”) (which were reviewed and approved by the Board and the audit and risk management committee of the Company (the “Audit and Risk Management Committee”) on 30 August 2018), with comparative figures for the corresponding period in 2017.

As the Company completed the transfer of 100% equity interest in Eastern Air Logistics Co., Ltd.* (“Eastern Logistics”) to Eastern Airlines Industry Investment Company Limited* (“Eastern Airlines Industry Investment”, a wholly-owned subsidiary of China Eastern Air Holding Company (“CEA Holding”), the controlling shareholder of the Company) in February 2017, the interim condensed consolidated statement of profit or loss and other comprehensive income, interim condensed consolidated statement of changes in equity, interim condensed consolidated statement of cash flows as well as the financial information under corresponding notes to the financial statements of the Group and the operating data of the Group for the first half of 2017 still included the corresponding data of Eastern Logistics in January 2017. The interim condensed consolidated statement of financial position and financial information under corresponding notes to the financial statements of the Group and the fleet data of the Group as at 30 June 2017 and 30 June 2018 did not include the corresponding data of Eastern Logistics.

The interim financial information of the Group for the six months ended 30 June 2018 is not necessarily indicative of annual or future results of the Group. Investors should not place undue reliance on the interim financial information of the Group for the six months ended 30 June 2018.

 

*

For identification purpose only

 

1


INTERIM FINANCIAL INFORMATION

INTERIM CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For the six months ended 30 June 2018

 

           

For the

six months ended 30 June

 
            2018     2017  
     Notes      RMB million     RMB million  
            (Unaudited)     (Unaudited)  

Revenue

     5        54,500       48,423  

Other operating income and gains

     6        3,390       4,766  

Operating expenses

       

Aircraft fuel

        (15,252     (12,139

Take-off and landing charges

        (7,097     (6,430

Depreciation and amortisation

        (7,534     (6,547

Wages, salaries and benefits

        (9,831     (8,860

Aircraft maintenance

        (1,649     (2,165

Impairment charges

        (6     (9

Food and beverages

        (1,665     (1,501

Aircraft operating lease rentals

        (2,016     (2,235

Other operating lease rentals

        (473     (401

Selling and marketing expenses

        (1,813     (1,593

Civil aviation development fund

        (1,093     (1,004

Ground services and other expenses

        (1,651     (1,916

Fair value changes of equity instrument at fair value through profit or loss

        (30     —    

Indirect operating expenses

        (2,334     (2,059
     

 

 

   

 

 

 

Total operating expenses

        (52,444     (46,859
     

 

 

   

 

 

 

Operating profit

        5,446       6,330  

Share of results of associates

        57       113  

Share of results of joint ventures

        28       31  

Finance income

        52       703  

Finance costs

     8        (2,416     (1,404
     

 

 

   

 

 

 

Profit before income tax

        3,167       5,773  

Income tax expense

     9        (665     (1,152
     

 

 

   

 

 

 

Profit for the period

        2,502       4,621  
     

 

 

   

 

 

 

 

2


           

For the

six months ended 30 June

 
            2018     2017  
     Note      RMB million     RMB million  
            (Unaudited)     (Unaudited)  

Other comprehensive income for the period

       

Other comprehensive income to be reclassified to profit or loss in subsequent periods:

       

Cash flow hedges, net of tax

        110       (137

Fair value changes of available-for-sale investments, net of tax

        —         99  

Share of other comprehensive income of an associate, net of tax

        —         5  
     

 

 

   

 

 

 

Net other comprehensive income to be reclassified to profit or loss in subsequent periods

        110       (33
     

 

 

   

 

 

 

Other comprehensive income not to be reclassified to profit or loss in subsequent periods:

       

Fair value changes of equity instruments, net of tax

        (7     —    

Fair value changes of equity instruments held by an associate, net of tax

        (16     —    

Actuarial (losses)/gains on the post-retirement benefit obligations, net of tax

        (126     184  
     

 

 

   

 

 

 

Net other comprehensive income not to be reclassified to profit or loss in subsequent periods

        (149     184  
     

 

 

   

 

 

 

Other comprehensive income, net of tax

        (39     151  
     

 

 

   

 

 

 

Total comprehensive income for the period

        2,463       4,772  
     

 

 

   

 

 

 

Profit attributable to:

       

Equity holders of the Company

        2,279       4,341  

Non-controlling interests

        223       280  
     

 

 

   

 

 

 

Profit for the period

        2,502       4,621  
     

 

 

   

 

 

 

Total comprehensive income attributable to:

       

Equity holders of the Company

        2,240       4,486  

Non-controlling interests

        223       286  
     

 

 

   

 

 

 

Total comprehensive income for the period

        2,463       4,772  
     

 

 

   

 

 

 

Earnings per share attributable to the equity holders of the Company during the period

       

— Basic and diluted (RMB)

     10        0.16       0.30  
     

 

 

   

 

 

 

 

3


INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 June 2018

 

            30 June      31 December  
            2018      2017  
     Notes      RMB million      RMB million  
            (Unaudited)      (Audited)  

Non-current assets

        

Property, plant and equipment

     12        171,253        166,856  

Investment properties

        287        302  

Lease prepayments

        1,693        1,717  

Intangible assets

     13        11,602        11,596  

Advanced payments on acquisition of aircraft

     14        25,938        24,752  

Investments in associates

        1,680        1,654  

Investments in joint ventures

        601        557  

Available-for-sale investments

        —          800  

Equity instruments at fair value through other comprehensive income

        1,562        —    

Derivative financial instruments

        289        151  

Other non-current assets

        2,969        2,927  

Deferred tax assets

        112        122  
     

 

 

    

 

 

 
        217,986        211,434  
     

 

 

    

 

 

 

Current assets

        

Flight equipment spare parts

        2,210        2,185  

Trade and notes receivables

     15        2,272        2,124  

Equity instrument at fair value through profit or loss

        93        —    

Prepayments and other receivables

        12,922        9,314  

Restricted bank deposits and short-term bank deposits

        44        51  

Cash and cash equivalents

        3,143        4,605  

Assets held for sale

        103        14  
     

 

 

    

 

 

 
        20,787        18,293  
     

 

 

    

 

 

 

Current liabilities

        

Sales in advance of carriage

        —          7,043  

Trade and bills payables

     16        2,623        3,184  

Contract liabilities

        9,703        —    

Other payables and accruals

        21,240        19,864  

Current portion of obligations under finance leases

     17        8,247        9,241  

Current portion of borrowings

     18        33,304        39,090  

Income tax payable

        145        593  

Current portion of provision for return condition checks for aircraft under operating leases

        630        981  

Derivative financial instruments

        43        324  

Liabilities directly associated with the assets classified as held for sale

        —          8  
     

 

 

    

 

 

 
        75,935        80,328  
     

 

 

    

 

 

 

Net current liabilities

        (55,148)        (62,035)  
     

 

 

    

 

 

 

Total assets less current liabilities

        162,838        149,399  
     

 

 

    

 

 

 

 

4


            30 June      31 December  
            2018      2017  
     Notes      RMB million      RMB million  
            (Unaudited)      (Audited)  

Non-current liabilities

        

Obligations under finance leases

     17        61,028        57,627  

Borrowings

     18        31,076        24,711  

Provision for return condition checks for aircraft under operating leases

        2,385        2,038  

Contract liabilities

        1,792        —    

Derivative financial instruments

        —          1  

Post-retirement benefit obligations

        2,708        2,502  

Other long-term liabilities

        2,013        3,724  

Deferred tax liabilities

        302        18  
     

 

 

    

 

 

 
        101,304        90,621  
     

 

 

    

 

 

 

Net assets

        61,534        58,778  
     

 

 

    

 

 

 

Equity

        

Equity attributable to the equity holders of the Company

        

— Share capital

     19        14,467        14,467  

— Reserves

        43,423        40,893  
     

 

 

    

 

 

 
        57,890        55,360  
     

 

 

    

 

 

 

Non-controlling interests

        3,644        3,418  
     

 

 

    

 

 

 

Total equity

        61,534        58,778  
     

 

 

    

 

 

 

 

5


INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 June 2018

 

     Attributable to equity holders of the Company              
    

Share

capital

RMB million

    

Other

reserves

RMB million

   

Retained
profits

RMB million

   

Subtotal

RMB million

   

Non-
controlling
interests

RMB million

   

Total

equity

RMB million

 
     (Unaudited)      (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)  

Balance at 1 January 2018

     14,467        26,688       14,205       55,360       3,418       58,778  

Change in accounting policy

     —          667       361       1,028       3       1,031  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Restated total equity as at 1 January 2018

     14,467        27,355       14,566       56,388       3,421       59,809  

Profit for the period

     —          —         2,279       2,279       223       2,502  

Other comprehensive income

     —          (39     —         (39     —         (39
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income for the period

     —          (39     2,279       2,240       223       2,463  

Final 2017 dividend declared

     —          —         (738     (738     —         (738
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at 30 June 2018

     14,467        27,316     16,107     57,890       3,644       61,534  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     Attributable to equity holders of the Company              
    

Share

capital

RMB million

    

Other

reserves

RMB million

   

Retained
profits

RMB million

   

Subtotal

RMB million

   

Non-
controlling
interests

RMB million

   

Total

equity

RMB million

 
     (Unaudited)      (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)  

Balance at 1 January 2017

     14,467        26,199       8,784       49,450       2,916       52,366  

Profit for the period

     —          —         4,341       4,341       280       4,621  

Other comprehensive income

     —          145       —         145       6       151  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income for the period

     —          145       4,341       4,486       286       4,772  

Disposal of a subsidiary

     —          —         —         —         87       87  

Dividends paid to non-controlling interests

     —          —         —         —         (22     (22
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at 30 June 2017

     14,467        26,344       13,125       53,936       3,267       57,203  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

*

These reserve accounts comprise the unaudited consolidated reserve of RMB43,423 million in the unaudited interim condensed consolidated statement of financial position.

 

6


INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the six months ended 30 June 2018

 

    

For the six months

ended 30 June

 
     2018     2017  
     RMB million     RMB million  
     (Unaudited)     (Unaudited)  

Cash flows from operating activities

    

Profit before tax

     3,167       5,773  

Adjustments to reconcile profit before tax to net cash flows:

    

Depreciation of property, plant and equipment

     7,207       6,445  

Depreciation of investment properties

     6       6  

Amortisation of intangible assets

     81       70  

Amortisation of lease prepayments

     24       26  

Amortisation of other long-term assets

     216       180  

Impairment of trade receivables

     2       2  

Loss on disposal of property, plant and equipment

     10       2  

Fair value adjustment of equity instrument at fair value through profit or loss

     30       —    

Fair value adjustment of derivative financial instrument

     (273     —    

Share of results of associates and joint ventures

     (85     (144

Gain on disposal of investment in a subsidiary

     —         (1,754

Gain on disposal of an associate

     —         (12

Dividend income from equity instrument at fair value through profit or loss

     (5     (5

Net foreign exchange losses/(gains)

     768       (535

Interest income

     (52     (29

Interest expense

     1,870       1,353  

Provisions for flight equipment spare parts

     4       7  
  

 

 

   

 

 

 

Increase in flight equipment spare parts

     (29     (170

Increase in trade and other receivables and prepayments

     (3,752     (3,214

Increase in trade and other payables

     3,277       423  
  

 

 

   

 

 

 

Cash generated from operations

     12,466       8,424  
  

 

 

   

 

 

 

Income tax paid

     (1,829     (1,152
  

 

 

   

 

 

 

Net cash flows from operating activities

     10,637       7,272  
  

 

 

   

 

 

 

 

7


    

For the six months

ended 30 June

 
     2018     2017  
     RMB million     RMB million  
     (Unaudited)     (Unaudited)  

Cash flows from investing activities

    

Additions to property, plant and equipment

     (4,326     (5,341

Additions to intangible assets

     (86     (50

Advanced payments on acquisition of aircraft

     (6,780     (7,569

Investment in an associate

     (16     (33

Proceeds from disposal of a subsidiary

     (11     1,897  

Proceeds from disposal of property, plant and equipment

     579       172  

Proceeds from novation of purchase rights

     644       —    

Proceeds from disposal of investment in an associate

     —         12  

Increase in short-term deposits

     —         (4

Interest received

     52       29  

Dividends received

     57       29  

Loans to a joint venture

     (22     —    
  

 

 

   

 

 

 

Net cash flows used in investing activities

     (9,909     (10,858
  

 

 

   

 

 

 

Cash flows from financing activities

    

Proceeds from draw-down of short-term bank loans

     12,537       25,103  

Proceeds from issuance of short-term debentures

     10,500       19,000  

Proceeds from issuance of long-term debentures and bonds

     2,971       —    

Proceeds from draw-down of long-term bank loans and other financing activities

     11,046       6,466  

Repayments of short-term debentures

     (14,000     (21,000

Repayments of short-term bank loans

     (17,886     (11,165

Repayments of long-term bank loans

     (530     (2,832

Repayments of principal of finance lease obligations

     (4,282     (3,276

Interest paid

     (2,227     (1,826

Settlement relating to derivative financial instruments

     (384     —    

Dividends paid to non-controlling interests of subsidiaries

     —         (22
  

 

 

   

 

 

 

Net cash flows (used in)/from financing activities

     (2,255     10,448  
  

 

 

   

 

 

 

Net (decrease)/increase in cash and cash equivalents

     (1,527     6,862  

Cash and cash equivalents at beginning of period

     4,616       1,695  

Effect of foreign exchange rate changes

     50       6  
  

 

 

   

 

 

 

Cash and cash equivalents at 30 June

     3,139       8,563  
  

 

 

   

 

 

 

 

8


NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended 30 June 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 14 April 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, tour operations 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”), 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.

The unaudited interim condensed consolidated financial statements were approved for issue by the Company’s Board on 30 August 2018.

 

2.

BASIS OF PREPARATION

The unaudited interim condensed consolidated financial statements, comprising interim condensed consolidated statement of financial position as at 30 June 2018, interim condensed consolidated statement of profit or loss and other comprehensive income, interim condensed consolidated statement of changes in equity and interim condensed consolidated statement of cash flows for six months ended 30 June 2018 (collectively refer to as the ”interim financial information”), have been prepared in accordance with International Accounting Standard (“IAS”) 34 “Interim Financial Reporting”. The interim financial information does not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the annual financial statements for the year ended 31 December 2017, which were prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standard Board (“IASB”).

As at 30 June 2018, the Group’s current liabilities exceeded its current assets by approximately RMB55.15 billion. In preparing the interim financial information, the Board conducts adequate and detailed review over the Group’s going concern ability based on the current financial situation.

The Board has taken actions to deal with the situation that current liabilities exceeded its current assets, and the Board is confident that the Group has obtained adequate credit facility from the banks to support the floating capital. As at 30 June 2018 the Group had total unutilised credit facilities of approximately RMB44.20 billion from banks.

Based on the bank facility obtained by the Group, the past record of the financing and the good working relationship with major banks and financial institutions, 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 Company and the Group fail to continue as a going concern.

 

3.

NEW STANDARDS, INTERPRETATIONS AND AMENDMENTS ADOPTED BY THE GROUP

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group’s annual consolidated financial statements for the year ended 31 December 2017, except for the adoption of new standards and interpretations effective as of 1 January 2018. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

 

9


3.

NEW STANDARDS, INTERPRETATIONS AND AMENDMENTS ADOPTED BY THE GROUP (continued)

 

This note explains the impact of the adoption of IFRS 9 “Financial Instruments” (“IFRS 9”) and IFRS 15 “Revenue from Contracts with Customers” (“IFRS 15”) on the Group’s financial information and the new accounting policies that have been applied from 1 January 2018, where they are different to those applied in prior periods. Certain of the Group’s accounting policies have been changed to comply with the adoption of IFRS 9 and IFRS 15.

3.1 Impact on the financial information

As explained in note 3.2 and 3.3 below, IFRS 9 and IFRS 15 were generally adopted by the Group without restating comparative information. As a result of the changes in the entity’s accounting policies, certain reclassifications and adjustments are therefore not reflected in the restated statement of financial position as at 31 December 2017, but are recognised in the opening statement of financial position on 1 January 2018.

The following tables show the adjustments recognised for each individual line item. Line items that were not affected by the changes have not been included. The adjustments are explained in more detail by standard below.

Impact on the statement of financial position (increase/(decrease)) as at 1 January 2018:

 

     31 December 2017
As originally
presented
RMB million
     IFRS 9
RMB million
     IFRS 15
RMB million
     1 January 2018
Restated
RMB million
 

Available-for-sale investments

     800        (800      —          —    

Equity instruments at fair value through other comprehensive income (“FVOCI”)

     —          1,572        —          1,572  

Equity instruments at fair value through profit or loss (“FVPL”)

     —          123        —          123  

Sales in advance of carriage

     7,043        —          (478      6,565  

Frequent flyer program liabilities

     2,030        —          (33      1,997  

Provision for impairment of trade receivables

     88        31        —          119  

Deferred tax liabilities

     18        216        128        362  
  

 

 

    

 

 

    

 

 

    

 

 

 

Equity

           

non-controlling interests

     3,418        3        —          3,421  

other reserves

     26,688        667        —          27,355  

retained profits

     14,205        (22      383        14,566  
  

 

 

    

 

 

    

 

 

    

 

 

 

3.2 Adoption of IFRS 9 Financial Instruments

IFRS 9 Financial Instruments — Impact of adoption

IFRS 9, “Financial instruments”, addresses the classification, recognition and measurement of financial assets and financial liabilities, introduces new rules for hedge accounting and a new impairment model for financial assets. The adoption of IFRS 9 has resulted in changes in the Group’s accounting policies for classification, recognition and measurement of financial assets and financial liabilities and impairment of financial assets.

Classification and measurement

On 1 January 2018 (the date of initial application of IFRS 9), the Group’s management has assessed which business models apply to the financial assets held by the Group and has classified its financial instruments into the appropriate IFRS 9 measurement categories including those to be measured subsequently at fair value (either through other comprehensive income, or through profit or loss) and those to be measured at amortised cost.

 

10


3.

NEW STANDARDS, INTERPRETATIONS AND AMENDMENTS ADOPTED BY THE GROUP (continued)

3.2 Adoption of IFRS 9 Financial Instruments (continued)

IFRS 9 Financial Instruments — Impact of adoption (continued)

 

Reclassification from available-for-sale investments to equity instruments at fair value through other comprehensive income (“FVOCI”)

The Group invested in a number of equity investments at a total cost of RMB107 million and those investments was classified as available-for-sale stated at cost under previous standard IAS 39. With the adoption of IFRS 9, those investments does not meet the IFRS 9 criteria for classification at amortised cost, because their cash flows do not represent solely payments of principal and interest. Therefore, those equity investments are classified as financial asset measured at fair value and the group elected to present any changes in the fair value in other comprehensive income (“FVOCI”), because those investments are held as long-term strategic investments that are not expected to be sold in the short to medium term.

As a result of the adoption of IFRS 9, the above available-for-sale investments has been fair valued as at 1 January 2018 by the management. The difference between the fair value and the carrying amount of those investments as at 1 January 2018 is approximately RMB895 million, and therefore relevant adjustment was recorded to opening equity.

Reclassification from available-for-sale investments to equity instrument at fair value through profit or loss (“FVPL”)

The Group holds certain listed stock shares and this investment was classified as available-for-sale stated at fair value under previous standard IAS 39. With the adoption of IFRS 9, the management reevaluate the intention of possession of this investment, as the management intends to sell this investment in the short to medium term. Therefore, the Group elected to classify this investment as financial asset measured at fair value and present any changes in the fair value in profit or loss (“FVPL”).

Summary of effects resulting from adoption of IFRS 9 is as follows:

 

     IAS 39      IFRS 9  
     Measurement
category
     Carrying
amount
RMB million
     Measurement
category
     Carrying
amount
RMB million
 

Financial assets

           

Equity investments at fair value through other comprehensive income

    

Available-for-sale
investments
stated at cost
 
 
 
     107        FVOCI        1,002  
     

 

 

       

 

 

 

Equity investments at fair value through other comprehensive income

    


Available-for-sale
investments
stated at fair
value
 
 
 
 
     570        FVOCI        570  
     

 

 

       

 

 

 

Equity investment at fair value through profit or loss

    


Available-for-sale
investments
stated at fair
value
 
 
 
 
     123        FVPL        123  
     

 

 

       

 

 

 

Impairment of financial assets

The new impairment model requires the recognition of impairment provisions based on expected credit losses (ECL) rather than only incurred credit losses as is the case under IAS 39. The Group has one type of financial assets measured at amortised cost that are subject to IFRS 9’s new expected credit loss model:

 

   

Trade and other receivable

 

11


3.

NEW STANDARDS, INTERPRETATIONS AND AMENDMENTS ADOPTED BY THE GROUP (continued)

3.2 Adoption of IFRS 9 Financial Instruments (continued)

IFRS 9 Financial Instruments — Impact of adoption (continued)

 

Impairment of financial assets (continued)

The Group was required to revise its impairment methodology under IFRS 9 for trade and other receivable. The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables and other receivables.

The Group established expected credit losses model based on historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment. The adoption of the ECL requirements of IFRS 9 resulted in increases in impairment allowances of the Group’s trade and other receivables. The increase in allowance resulted in adjustment to opening equity amounting to RMB31 million.

3.3 Adoption of IFRS 15 Revenue from Contracts with Customers

IFRS 15 Revenue from Contracts with Customers — Impact of adoption

IFRS 15, “Revenue from contracts with customers” (“IFRS 15”) deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard replaces IAS 18 “Revenue” and IAS 11 “Construction contracts” and related interpretations.

 

  (a)

Frequent flyer programs

Prior to the adoption of IFRS 15, the Group used residual method to allocate a portion of ticket sales to the mileage points issued in connection with the flights, which were valued based on the estimated redemption value. Revenue is recognised when the miles have been redeemed and used or for miles that expire unused at the expiration date. IFRS 15 requires the Group to apply relative stand-alone selling price approach to allocate a portion of sales to the mileage points issued and recognises in contract liabilities and frequent flyer program liabilities. The application of a relative selling price approach lowers the contract liabilities and frequent flyer program liabilities.

 

  (b)

Change fees

The Group charges customers to make changes to air tickets. The process of changing the customer’s itinerary generally will be regarded as a contract modification under IFRS 15 instead of considered as no additional goods or services transferred to the customer prior to the adoption of IFRS 15 and recognised in other revenue at the time of the ticket is changed. Under IFRS 15, change fees is recognised in passenger revenue when transportation is provided.

 

  (c)

Passenger ticket breakage

Passenger ticket breakage is defined as the tickets for which the passenger will not use and will expire unused. Prior to the adoption of IFRS 15, the Group recognised revenue from the ticket breakage upon expiration of the ticket. Under IFRS 15, the Group recognises the estimated breakage in proportion to revenue recognised for tickets acquired during the same period using a portfolio based approach.

 

12


4.

FINANCIAL ASSETS AND FINANCIAL LIABILITIES

 

  (a)

Financial risk factors

The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and fuel price risk), credit risk, and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. The Group uses derivative financial instruments to manage risk exposures whenever management considers necessary.

The interim financial information does not include all financial risk management information and disclosures required in the annual financial statements, and should be read in conjunction with the Group’s annual financial statements for the year ended 31 December 2017.

There have been no changes in the risk management department since the 2017 year end or in any risk management policies.

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 long-term finance 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
RMB million
(Unaudited)
    

1 and 2 years

RMB million

(Unaudited)

    

2 and 5 years

RMB million
(Unaudited)

    

Over

5 years
RMB million

(Unaudited)

    

Total
RMB million

(Unaudited)

 

At 30 June 2018

              

Borrowings

     35,200        7,551        18,860        4,734        66,345  

Derivative financial instruments

     43        —          —          —          43  

Obligations under finance leases

     10,625        11,692        29,695        29,527        81,539  

Trade, bills and other payables

     19,483        —          —          —          19,483  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     65,351        19,243        48,555        34,261        167,410  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     Less than
1 year
RMB million
(Audited)
     1 and 2 years
RMB million
(Audited)
     2 and 5 years
RMB million
(Audited)
    

Over

5 years
RMB million
(Audited)

     Total
RMB million
(Audited)
 

At 31 December 2017

              

Borrowings

     41,060        7,325        10,161        10,014        68,560  

Derivative financial instruments

     324        —          1        —          325  

Obligations under finance leases

     11,651        10,408        27,895        30,196        80,150  

Trade, bills and other payables

     16,148        —          —          —          16,148  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     69,183        17,733        38,057        40,210        165,183  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

13


4.

FINANCIAL ASSETS AND FINANCIAL LIABILITIES (continued)

 

  (b)

Fair value estimation of financial assets and liabilities

 

Financial instruments not measured at fair value

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:

 

     30 June 2018      31 December 2017  
     Carrying
amounts
RMB million
(Unaudited)
    

Fair values

RMB million

(Unaudited)

     Carrying
amounts
RMB million
(Audited)
     Fair values
RMB million
(Audited)
 

Financial assets

           

Deposits relating to aircraft held under operating leases included in other non-current assets

     189        163        217        193  
  

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities

           

Long-term borrowings

     31,076        30,289        24,711        23,812  

Obligations under finance leases

     61,028        58,964        57,627        57,352  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     92,104        89,253        82,338        81,164  
  

 

 

    

 

 

    

 

 

    

 

 

 

Management has assessed that the fair values of cash and cash equivalents, restricted bank deposits and short-term bank deposits, trade and notes 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 guaranteed bonds 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 operating leases included in other non-current assets, long-term borrowings and obligations under finance leases 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.

Financial instruments measured at fair value

The Group enters into derivative financial instruments, including Foreign exchange 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 and forward rates and interest rate curves. As at 30 June 2018, 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 recognised at fair value.

 

14


4.

FINANCIAL ASSETS AND FINANCIAL LIABILITIES (continued)

 

  (b)

Fair value estimation of financial assets and liabilities (continued)

 

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 30 June 2018

 

     Fair value measurement using  
    

Quoted prices in
active markets
(Level 1)

RMB million
(Unaudited)

    

Significant
observable
inputs

(Level 2)
RMB million
(Unaudited)

    

Total

RMB million
(Unaudited)

 

Assets

        

Derivative financial assets

        

— Interest rate swaps

     —          289        289  

Equity instrument at fair value through profit or loss

     93        —          93  

Equity instruments at fair value through other comprehensive income

     560        1,002        1,562  
  

 

 

    

 

 

    

 

 

 

Total

     653        1,291        1,944  
  

 

 

    

 

 

    

 

 

 

Liabilities

        

Derivative financial liabilities

        

— Interest rate swaps

     —          5        5  

— Foreign exchange forward contract

     —          38        38  
  

 

 

    

 

 

    

 

 

 

Total

     —          43        43  
  

 

 

    

 

 

    

 

 

 

 

15


4.

FINANCIAL ASSETS AND FINANCIAL LIABILITIES (continued)

 

  (b)

Fair value estimation of financial assets and liabilities (continued)

As at 31 December 2017

 

     Fair value measurement using  
    

Quoted prices in
active markets
(Level 1)

RMB million
(Audited)

    

Significant
observable
inputs

(Level 2)
RMB million
(Audited)

     Total
RMB million
(Audited)
 

Assets

        

Derivative financial assets

        

— Interest rate swaps

     —          151        151  

Available-for-sale investments

     693        —          693  
  

 

 

    

 

 

    

 

 

 

Total

     693        151        844  
  

 

 

    

 

 

    

 

 

 

Liabilities

        

Derivative financial liabilities

        

— Interest rate swaps

     —          14        14  

— Foreign exchange forward contracts

     —          311        311  
  

 

 

    

 

 

    

 

 

 

Total

     —          325        325  
  

 

 

    

 

 

    

 

 

 

Available-for-sale investments and partial equity instruments are listed A share and H share stock investments, of which the fair value was measured based on quoted market prices at the reporting dates. The rest of the equity instruments are non-listed shares, mainly of which the fair value was measured using market approach at the reporting dates.

The fair values of derivative financial instruments are determined by using valuation techniques. These valuation techniques use applicable models and maximise the use of observable market data where it is available and also use quoted market prices or dealer quotes for reference.

Assets and liabilities for which fair values are disclosed:

As at 30 June 2018

 

     Fair value measurement using  
     Quoted prices in
active markets
(Level 1)
RMB million
(Unaudited)
    

Significant
observable
inputs

(Level 2)
RMB million
(Unaudited)

     Total
RMB million
(Unaudited)
 

Assets

        

Deposits relating to aircraft
held under operating
leases included in other
non-current assets

     —          163        163  
  

 

 

    

 

 

    

 

 

 

Liabilities

        

Long-term borrowings

     2,811        27,478        30,289  

Obligations under finance leases

     —          58,964        58,964  
  

 

 

    

 

 

    

 

 

 
     2,811        86,442        89,253  
  

 

 

    

 

 

    

 

 

 

 

16


4.

FINANCIAL ASSETS AND FINANCIAL LIABILITIES (continued)

 

  (b)

Fair value estimation of financial assets and liabilities (continued)

As at 31 December 2017

 

     Fair value measurement using  
     Quoted prices in
active markets
(Level 1)
RMB million
(Audited)
    

Significant
observable
inputs

(Level 2)
RMB million
(Audited)

     Total
RMB million
(Audited)
 

Assets

        

Deposits relating to aircraft
held under operating
leases included in other
non-current assets

     —          193        193  
  

 

 

    

 

 

    

 

 

 

Liabilities

        

Long-term bank borrowings

     2,678        21,134        23,812  

Obligations under finance leases

     —          57,352        57,352  
  

 

 

    

 

 

    

 

 

 
     2,678        78,486        81,164  
  

 

 

    

 

 

    

 

 

 

 

17


5.

REVENUE

The Group is principally engaged in the operation of civil aviation, including the provision of passenger, cargo, mail delivery, tour operations and other extended transportation services.

Revenue from contracts with customers

 

     For the six months ended 30 June 2018  

Segments

   Airline
transportation
operations
     Other
segments
     Total  
Type of goods or service    RMB million      RMB million      RMB million  

Traffic revenues

        

— Passenger

     49,045        —          49,045  

— Cargo and mail

     1,745        —          1,745  

Tour operations income

     —          1,182        1,182  

Ground service income

     625        —          625  

Commission income

     46        —          46  

Ticket cancellation fee

     991        —          991  

Others

     159        691        850  
  

 

 

    

 

 

    

 

 

 

Total revenue from contracts with customers

     52,611        1,873        54,484  
  

 

 

    

 

 

    

 

 

 

Geographical markets

        

Domestic (the PRC, excluding Hong Kong, Macau and Taiwan)

     34,570        1,873        36,443  

International

     16,111        —          16,111  

Regional (Hong Kong, Macau and Taiwan)

     1,930        —          1,930  
  

 

 

    

 

 

    

 

 

 

Total revenue from contracts with customers

     52,611        1,873        54,484  
  

 

 

    

 

 

    

 

 

 

Timing of revenue recognition

        

Transferred at a point in time

     1,066        85        1,151  

Transferred over time

     51,545        1,788        53,333  
  

 

 

    

 

 

    

 

 

 

Total revenue from contracts with customers

     52,611        1,873        54,484  
  

 

 

    

 

 

    

 

 

 

Rental income

     16        —          16  
  

 

 

    

 

 

    

 

 

 

Revenue

     52,627        1,873        54,500  
  

 

 

    

 

 

    

 

 

 

 

     For the six months
ended 30 June 2017
RMB million
(Unaudited)
 

Traffic revenues

  

— Passenger

     43,106  

— Cargo and mail

     1,777  

Tour operations income

     1,070  

Ground service income

     701  

Cargo handling and processing income

     69  

Commission income

     56  

Others

     1,644  
  

 

 

 
     48,423  
  

 

 

 

 

18


6.

OTHER OPERATING INCOME AND GAINS

 

     For the six months ended 30 June  
     2018      2017  
     RMB million      RMB million  
     (Unaudited)      (Unaudited)  

Subsidy income (Note (a))

     2,815        2,742  

Gain on disposal of property, plant and equipment

     5        2  

Dividend income from equity instrument at fair value through profit or loss

     5        5  

Gain on disposal of an associate

     —          12  

Compensation from ticket sales agents

     154        126  

Fair value changes of derivative financial instruments

     273        —    

Gain on disposal of investment in a subsidiary

     —          1,754  

Others

     138        125  
  

 

 

    

 

 

 
     3,390      4,766  
  

 

 

    

 

 

 

Note:

 

  (a)

Subsidy income mainly represents (i) subsidies granted by various local governments based on certain amounts of tax paid; (ii) subsidies granted by various local governments and other parties to encourage the Group to operate certain routes to cities where these governments are located.

There are no unfulfilled conditions and other contingencies related to subsidies that were recognised for the six months ended 30 June 2018 and 2017.

 

7.

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, ground service and cargo handling services.

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 IFRS in certain aspects. The amount of each material reconciling items from the Group’s reportable segment revenues and profit before income tax, arising from different accounting policies are set out in Note 7(c) below.

 

19


7.

SEGMENT INFORMATION (continued)

The segment results for the six months ended 30 June 2018 were as follows:

 

    

Airline
transportation
operations

RMB million
(Unaudited)

    

Other
segments

RMB million
(Unaudited)

     Eliminations
RMB million
(Unaudited)
    Unallocated*
RMB million
(Unaudited)
    

Total

RMB million
(Unaudited)

 

Reportable segment revenue from external customers

     52,533        1,889        —         —          54,422  

Inter-segment sales

     —          379        (379     —          —    
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Reportable segment revenue

     52,533        2,268        (379     —          54,422  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Reportable segment profit before income tax

     2,512        326        —         333        3,171  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Other segment information

             

Depreciation and amortisation

     7,415        115        —         —          7,530  

Impairment charges

     5        1        —         —          6  

Interest income

     54        164        (166     —          52  

Interest expenses

     1,880        156        (166     —          1,870  

Capital expenditure

     13,088        598        —         —          13,686  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

The segment results for the six months ended 30 June 2017 were as follows:

 

    
     Airline
transportation
operations
RMB million
(Unaudited)
     Other
segments
RMB million
(Unaudited)
     Eliminations
RMB million
(Unaudited)
    Unallocated*
RMB million
(Unaudited)
    

Total

RMB million
(Unaudited)

 

Reportable segment revenue from external customers

     46,340        1,680        —         —          48,020  

Inter-segment sales

     —          334        (334     —          —    
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Reportable segment revenue

     46,340        2,014        (334     —          48,020  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Reportable segment profit before income tax

     3,818        46        —         1,915        5,779  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Other segment information

             

Depreciation and amortisation

     6,636        85        —         —          6,721  

Impairment charges

     9        —          —         —          9  

Interest expenses

     1,337        117        (50     —          1,404  

Capital expenditure

     15,259        184        —         —          15,443  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

 

20


7.

SEGMENT INFORMATION (continued)

The segment assets and liabilities as at 30 June 2018 and 31 December 2017 were as follows:

 

     Airline
transportation
operations
RMB million
(Unaudited)
     Other
segments
RMB million
(Unaudited)
     Eliminations
RMB million
(Unaudited)
    Unallocated*
RMB million
(Unaudited)
    

Total

RMB million
(Unaudited)

 

At 30 June 2018

             

Reportable segment assets

     218,485        17,061        (3,263     4,231        236,514  

Reportable segment liabilities

     165,540        14,701        (3,263     258        177,236  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 
     Airline
transportation
operations
RMB million
(Audited)
     Other
segments
RMB million
(Audited)
     Eliminations
RMB million
(Audited)
    Unallocated*
RMB million
(Audited)
    

Total

RMB million
(Audited)

 

At 31 December 2017

             

Reportable segment assets

     216,591        13,376        (5,514     3,011        227,464  

Reportable segment liabilities

     165,148        11,301        (5,514     11        170,946  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

 

*

Unallocated assets primarily represent investments in associates and joint ventures, derivative financial instruments, equity instrument at fair value through profit or loss and equity instruments at fair value through other comprehensive income. Unallocated results primarily represent the share of results of associates and joint ventures, fair value changes of derivative financial instruments and dividend income relating to equity instrument at fair value through profit or loss.

 

  (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:

 

  1)

Traffic revenue from services within the 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.

 

  2)

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

 

     For the six months ended 30 June  
     2018      2017  
     RMB million      RMB million  
     (Unaudited)      (Unaudited)  

Domestic (the PRC, excluding Hong Kong, Macau and Taiwan)

     36,459        32,142  

International

     16,111        14,528  

Regional (Hong Kong, Macau and Taiwan)

     1,930        1,753  
  

 

 

    

 

 

 
     54,500      48,423  
  

 

 

    

 

 

 

 

  3)

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.

 

21


7.

SEGMENT INFORMATION (continued)

 

  (c)

Reconciliation of reportable segment revenues, profit, assets and liabilities to the consolidated figures as reported in the consolidated financial statements:

 

            For the six months ended 30 June  
     Note     

2018

RMB million
(Unaudited)

    

2017

RMB million
(Unaudited)

 

Revenue

        

Reportable segment revenue

        54,422        48,020  

— Reclassification of expired sales in advance of carriage

     (i      —          354  

— Reclassification of taxes relating to the expired tickets

     (i      78        49  
     

 

 

    

 

 

 

Consolidated revenue

        54,500        48,423  
     

 

 

    

 

 

 
            For the six months ended 30 June  
     Note     

2018

RMB million
(Unaudited)

    

2017

RMB million
(Unaudited)

 

Profit before income tax

        

Reportable segment profit

        3,171        5,779  

— Differences in depreciation charges for aircraft and

        
engines due to different depreciation lives      (ii      (4      (6
     

 

 

    

 

 

 

Consolidated profit before income tax

        3,167        5,773  
     

 

 

    

 

 

 
     Notes      30 June 2018
RMB million
(Unaudited)
    

31 December 2017

RMB million
(Audited)

 

Assets

        

Reportable segment assets

        236,514        227,464  

— Differences in depreciation charges for aircraft and engines due to different depreciation lives

     (ii      17        21  

— Difference in intangible asset arising from the acquisition of Shanghai Airlines

     (iii      2,242        2,242  
     

 

 

    

 

 

 

Consolidated assets

        238,773        229,727  
     

 

 

    

 

 

 
            30 June 2018
RMB million
(Unaudited)
     31 December 2017
RMB million
(Audited)
 

Liabilities

        

Reportable segment liabilities

        177,236        170,946  

— Others

        3        3  
     

 

 

    

 

 

 

Consolidated liabilities

        177,239        170,949  
     

 

 

    

 

 

 

 

22


7.

SEGMENT INFORMATION (continued)

 

  Notes:

 

  (i)

The difference represents the different classification of expired sales in advance of carriage and related taxes under the PRC Accounting Standards and IFRS. After the adoption of CAS 14, the expired sales in advance of carriage is recognised in passenger revenue under the PRC Accounting Standards. As a result, only the taxes relating to the expired tickets will be reclassified.

 

  (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 IFRS. Despite the depreciation policies of these assets which have been unified under IFRS 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 IFRS 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 IFRS, which results in the different measurement of goodwill.

 

8.

FINANCE COSTS

 

     For the six months ended 30 June  
    

2018

RMB million

(Unaudited)

    

2017

RMB million

(Unaudited)

 

Interest on bank borrowings

     814        688  

Interest relating to obligations under finance leases

     1,176        827  

Interest relating to post-retirement benefit obligations

     48        53  

Interest on bonds and debentures

     230        184  

Interest relating to interest rate swap contracts

     13        39  

Interest relating to bills discounted

     —          18  

Less: amounts capitalised into advanced payments on acquisition of aircraft (Note (a)) (Note 14)

     (411      (405
  

 

 

    

 

 

 
     1,870        1,404  

Foreign exchange losses, net (note (b))

Less: amounts capitalised into advanced payments on acquisition of aircraft (Note 14)

    

588

(42

 

     —    
  

 

 

    

 

 

 
     2,416        1,404  
  

 

 

    

 

 

 

 

  Notes:

 

  (a)

The weighted average interest rate used for interest capitalization is 3.50% per annum for the six months ended 30 June 2018 (for the six months ended 30 June 2017: 3.46%).

 

  (b)

The exchange losses primarily related to the translation of the Group’s foreign currency denominated borrowings and obligations under finance leases for the six months ended 30 June 2018. The exchange gains for the six months ended 30 June 2017 was recorded in finance income.

 

23


9.

INCOME TAX EXPENSE

Income tax charged to profit or loss was as follows:

 

     For the six months ended 30 June  
    

2018

RMB million
(Unaudited)

    

2017

RMB million
(Unaudited)

 

Income tax

     750        1,166  

Deferred taxation

     (85      (14
  

 

 

    

 

 

 
     665      1,152  
  

 

 

    

 

 

 

Pursuant to the “Notice of the Ministry of Finance, the State Administration of Taxation and the General Administration of Customs on Issues Concerning Relevant Tax Policies for Enhancing the Implementation of Western Region Development Strategy” (Cai Shui [2011] No.58), 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 2011 to 2020 upon approval from tax authorities. CEA Yunnan, a subsidiary of the Company, obtained approval from tax authorities and has been entitled to a reduced corporate income tax rate of 15% from 1 January 2011. The Company’s Sichuan branch, Gansu branch and Xibei branch also obtained approvals from 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% (2017:16.5%).

The Company and its subsidiaries except for CEA Yunnan, Sichuan branch, Gansu branch and Xibei branch and those incorporated in Hong Kong, are generally subject to the PRC standard corporate income tax rate of 25% (2017: 25%).

 

10.

EARNINGS PER SHARE

The calculation of basic earnings per share is based on the unaudited consolidated profit attributable to equity holders of the Company of approximately RMB2,279 million and the weighted average number of shares of 14,467 million in issue during the six months ended 30 June 2018. The Company has no potentially dilutive ordinary shares in issue for the six months ended 30 June 2018 (for the six months ended 30 June 2017: Nil).

 

11.

PROFIT APPROPRIATION

No appropriation to the statutory reserves has been made for the six months ended 30 June 2018 (for the six months ended 30 June 2017: Nil). Such appropriations will be made at year end in accordance with the relevant PRC regulations and the Articles of Association of individual group companies.

 

24


12.

PROPERTY, PLANT AND EQUIPMENT

 

    

Aircraft, engines
and flight
equipment

RMB million
(Unaudited)

     Others
RMB million
(Unaudited)
     Total
RMB million
(Unaudited)
 

Carrying amount at 1 January 2018

     153,754        13,102        166,856  

Transfers from advanced payments on acquisition of aircraft (Note 14)

     4,754        —          4,754  

Other additions

     4,872        2,368        7,240  

Transfer from investment properties

     —          9        9  

Transfer from other non-current assets

     —          293        293  

Depreciation charges

     (6,697      (510      (7,207

Assets included in held for sale

     (103      —          (103

Disposals

     (558      (31      (589
  

 

 

    

 

 

    

 

 

 

Carrying amount at 30 June 2018

     156,022        15,231        171,253  
  

 

 

    

 

 

    

 

 

 
    

Aircraft, engines
and flight
equipment

RMB million
(Unaudited)

    

Others

RMB million
(Unaudited)

    

Total

RMB million
(Unaudited)

 

Carrying amount at 1 January 2017

     141,913        11,267        153,180  

Transfers from advanced payments on acquisition of aircraft (Note 14)

     6,761        —          6,761  

Other additions

     5,842        975        6,817  

Depreciation charges

     (6,013      (432      (6,445

Transfer to other non-current assets

     —          (4      (4

Disposal of a subsidiary

     (1,419      (600      (2,019

Disposals

     (165      (8      (173
  

 

 

    

 

 

    

 

 

 

Carrying amount at 30 June 2017

     146,919        11,198        158,117  
  

 

 

    

 

 

    

 

 

 

 

25


13.

INTANGIBLE ASSETS

 

     Goodwill
(Note(a))
RMB million
(Unaudited)
     Computer
software
RMB million
(Unaudited)
     Others
(Note(b))
RMB million
(Unaudited)
    

Total

RMB million
(Unaudited)

 
Carrying amount at 1 January 2018      11,270        293        33        11,596  
Additions      —          87        —          87  
Amortisation      —          (65      (16      (81
  

 

 

    

 

 

    

 

 

    

 

 

 
Carrying amount at 30 June 2018      11,270        315        17        11,602  
  

 

 

    

 

 

    

 

 

    

 

 

 
    

Goodwill

(Note(a))
RMB million
(Unaudited)

     Computer
software
RMB million
(Unaudited)
    

Others

(Note(b))
RMB million
(Unaudited)

     Total
RMB million
(Unaudited)
 
Carrying amount at 1 January 2017      11,270        288        66        11,624  
Additions      —          53        —          53  
Disposals      —          (1      —          (1
Amortisation      —          (54      (16      (70
Disposal of a subsidiary      —          (14      —          (14
  

 

 

    

 

 

    

 

 

    

 

 

 
Carrying amount at 30 June 2017      11,270        272        50        11,592  
  

 

 

    

 

 

    

 

 

    

 

 

 

Notes:

 

  (a)

The balance represents goodwill arising from the acquisition of Shanghai Airlines. Goodwill is attributable to strengthening the competitiveness of the Group’s airline transportation operations, attaining synergy through integration of the resources and providing the evolution of Shanghai international air transportation centre. For the purpose of impairment assessment, goodwill was allocated to the CGU that the Group operates and benefits from the acquisition.

 

  (b)

The balance represents the costs incurred to acquire the use right of certain flight schedules (i.e. timeslots for flights’ taking off/landing).

 

14.

ADVANCED PAYMENTS ON ACQUISITION OF AIRCRAFT

 

     For the six months ended 30 June  
    

2018

RMB million
(Unaudited)

    

2017

RMB million
(Unaudited)

 

At 1 January

     24,752        23,357  

Additions

     5,487        8,031  

Interest capitalised (Note 8)

     453        405  

Transfer to property, plant and equipment (Note 12)

     (4,754      (6,761
  

 

 

    

 

 

 

At 30 June

     25,938        25,032  
  

 

 

    

 

 

 

 

26


15.

TRADE AND NOTES RECEIVABLES

The credit terms given to trade customers are determined on an individual basis.

An ageing analysis of the trade and notes receivables as at the end of the reporting period, based on the invoice/billing date, was as follows:

 

     30 June 2018      31 December 2017  
     RMB million
(Unaudited)
     RMB million
(Audited)
 

Within 90 days

     2,137        1,912  

91 to 180 days

     34        38  

181 to 365 days

     20        100  

Over 365 days

     201        162  
  

 

 

    

 

 

 

Provision for expected credit losses

     2,392        2,212  
     (120      (88
  

 

 

    

 

 

 
     2,272      2,124  
  

 

 

    

 

 

 

Balances with related parties included in trade and notes receivables are summarised in Note 21(c)(i).

 

16.

TRADE AND BILLS PAYABLES

An ageing analysis of the trade and bills payables as at the end of the reporting period, was as follows:

 

     30 June 2018      31 December 2017  
     RMB million
(Unaudited)
     RMB million
(Audited)
 

Within 90 days

     1,517        2,791  

91 to 180 days

     545        59  

181 to 365 days

     325        161  

1 to 2 years

     106        71  

Over 2 years

     130        102  
  

 

 

    

 

 

 
     2,623      3,184  
  

 

 

    

 

 

 

Balances with related parties included in trade and bills payables are summarised in Note 21(c)(ii).

 

17.

OBLIGATIONS UNDER FINANCE LEASES

 

     30 June 2018      31 December 2017  
     RMB million
(Unaudited)
     RMB million
(Audited)
 

Within one year

     8,247        9,241  

In the second year

     9,554        8,162  

In the third to fifth year inclusive

     25,133        22,847  

After the fifth year

     26,341        26,618  
  

 

 

    

 

 

 

Total

     69,275        66,868  

Less: amount repayable within one year

     (8,247      (9,241
  

 

 

    

 

 

 

Long-term portion

     61,028        57,627  
  

 

 

    

 

 

 

 

27


18.

BORROWINGS

 

            30 June 2018
RMB million
    

31 December 2017

RMB million

 
            (Unaudited)      (Audited)  

Non-current

        

Long-term bank borrowings

        

— secured

        2,220        4,816  

— unsecured

        9,141        108  

Guaranteed bonds

        13,894        10,956  

Unsecured bonds

        5,821        8,831  
     

 

 

    

 

 

 
            31,076      24,711  
     

 

 

    

 

 

 

Current

        

Current portion of long-term bank borrowings

        

— secured

        3,071        1,028  

— unsecured

        1,030        3,103  

Current portion of unsecured bonds

        3,000        —    

Short-term bank borrowings

        

— unsecured

        19,703        24,959  

Short-term debentures

     Note        6,500        10,000  
     

 

 

    

 

 

 
        33,304        39,090  
     

 

 

    

 

 

 
        64,380        63,801  
     

 

 

    

 

 

 

Note:

As at 30 June 2018, the balance represented short-term debentures of RMB6,500 million (31 December 2017: RMB10,000 million) and bore interests at the rates ranging from 3.99% to 4.20% per annum with maturity ranging from 45 days to 90 days.

 

19.

SHARE CAPITAL

 

     30 June 2018
RMB million
    

31 December 2017

RMB million

 
     (Unaudited)      (Audited)  

Registered, issued and fully paid of RMB1.00 each

     

A shares listed on The Shanghai Stock Exchange (“A Shares”)

     

— Tradable shares without trading moratorium

     9,808        9,808  

H shares listed on The Stock Exchange of Hong Kong Limited (“H Shares”)

     4,659        4,659  
  

 

 

    

 

 

 
     14,467        14,467  
  

 

 

    

 

 

 

Pursuant to articles 49 and 50 of the Company’s articles of association, both the listed A shares and listed H shares are registered ordinary shares and carry equal rights.

 

28


20.

COMMITMENTS

 

  (a)

Capital commitments

The Group had the following capital commitments:

 

     30 June 2018
RMB million
    

31 December 2017

RMB million

 
     (Unaudited)      (Audited)  

Contracted for:

     

— Aircraft, engines and flight equipment (Note)

     76,295        87,030  

— Other property, plant and equipment

     3,785        7,572  

— Investments

     104        208  
  

 

 

    

 

 

 
     80,184        94,810  
  

 

 

    

 

 

 

Note:

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:

 

     30 June 2018
RMB million
    

31 December 2017

RMB million

 
     (Unaudited)      (Audited)  
Within one year      34,442        28,322  
In the second year      21,100        27,516  
In the third year      13,447        19,273  
In the fourth year      5,794        7,829  
Over four years      1,512        4,090  
  

 

 

    

 

 

 
     76,295        87,030  
  

 

 

    

 

 

 

 

  (b)

Operating lease commitments

As at the reporting date, the Group had commitments under operating leases to pay future minimum lease rentals as follows:

 

     30 June 2018
RMB million
    

31 December 2017

RMB million

 
     (Unaudited)      (Audited)  

Aircraft, engines and flight equipment

     

Within one year

     3,728        3,048  

In the second year

     3,039        2,559  

In the third to fifth years, inclusive

     7,879        7,112  

After the fifth year

     8,609        7,528  
  

 

 

    

 

 

 
     23,255        20,247  
  

 

 

    

 

 

 

Land and buildings

     

Within one year

     346        332  

In the second year

     72        164  

In the third to fifth years, inclusive

     66        156  

After the fifth year

     32        37  
  

 

 

    

 

 

 
     516        689  
  

 

 

    

 

 

 
     23,771        20,936  
  

 

 

    

 

 

 

 

29


21.

RELATED PARTY TRANSACTIONS

The Group is controlled by CEA Holding, which directly owns 35.06% of the Company’s shares as at 30 June 2018 (2017: 35.06 %). 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 18.15% and 3.16% respectively as at 30 June 2018 (2017: 18.15% and 3.16% ).

The Company is controlled by CEA Holding, which is a state-owned enterprise established in the PRC and is controlled by the PRC government, the Company 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

Eastern Aviation Advertising Service Co., Ltd.
(“Eastern Advertising”)

   Associate of the Company

Shanghai Collins Aviation Maintenance Service Co., Ltd. (“Collins Aviation”)

   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

CEA Development Co., Limited and its subsidiaries
(“CEA Development”)

   Controlled by the same parent company

China Eastern Air Catering Investment Co., Limited and its subsidiaries (“Eastern Air Catering”)

   Controlled by the same parent company

CES International Financial Leasing Corporation Limited and its subsidiaries (“CES Lease Company”)

   Controlled by the same parent company

Shanghai Eastern Airlines Investment Co., Ltd.
(“Eastern Investment”)

   Controlled by the same parent company

Shanghai Eastern Airlines Logistics Co., Ltd. and its subsidiaries
(“Eastern Logistics”) (Note)

   Controlled by the same parent company

Eastern Airlines Industry Investment Company Limited
(“Eastern Airlines Industry Investment”)

   Controlled by the same parent company

CES Finance Holding Co., Limited (“CES Finance”)

   Controlled by the same parent company and a substantial shareholder of the Company

CES Global Holdings (Hong Kong) Limited (“CES Global”)

   Controlled by the same parent company and a substantial shareholder of the Company

 

30


21.

RELATED PARTY TRANSACTIONS (continued)

 

  (a)

Nature of related parties that do not control or controlled by the Group: (continued)

 

Name of related party    Relationship with the Group
Hong Kong Securities Clearing Company Ltd. (“HKSCC”)    A substantial shareholder of the 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

Note:

Eastern Logistics has become a related party of the Group as it was acquired by Eastern Airlines Industry

Investment at of 8 February 2017 and ceased to be a subsidiary of the Company.

 

  (b)

Related party transactions

 

             

Income or receipts/

(expense or payments)

 
              For the six months  
          Pricing policy   ended 30 June  
Nature of transaction    Related party    and decision   2018     2017  
   process   RMB million     RMB million  
              (Unaudited)     (Unaudited)  

Payments on food and beverages*

   Eastern Air Catering    (i)     (634     (556
   CEA development    (i)     (30     (37
   Eastern Import & Export    (i)     (34     (22

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    (ii)     (94     (63

Payments on logistics services

   Eastern Import & Export    (ii)     (48     —    

Repairs and maintenance expense for aircraft and engines

   Shanghai P&W    (ii)     (1,347     (957
   Technologies Aerospace    (ii)     (129     (135
   Shanghai Hute    (ii)     (34     (26
   Wheels & Brakes    (ii)     (64     (78

Payments on system services

   China Kaiya    (ii)     (6     (2

Payments on cabin cleaning services

   Eastern Advertising    (ii)     (9     (9

Advertising expense*

   Eastern Advertising    (ii)     (9     (9

Media royalty fee

   Eastern Advertising    (iii)     8       7  

Automobile maintenance service, aircraft maintenance, providing transportation automobile and other products*

   CEA Development    (ii)     (31     (38

Equipment maintenance fee*

   Collins Aviation    (ii)     (13     (16
   CEA Development    (ii)     (17     (22

 

31


21.

RELATED PARTY TRANSACTIONS (continued)

 

  (b)

Related party transactions (continued)

 

             

Income or receipts/

(expense or payments)

 
              For the six months  
          Pricing policy   ended 30 June  
Nature of transaction    Related party    and decision   2018     2017  
   process   RMB million     RMB million  
              (Unaudited)     (Unaudited)  

Property management and green maintenance expenses*

   CEA Development    (ii)     (63     (20

Payments on hotel accommodation service*

   CEA Development    (ii)     (66     (19

Interest income on deposits

   Eastern Air Finance Company    (iv)     31       8  

Interest expense on loans

   CEA Holding    (iv)     (2     —    

Payments on finance leases*

   CES Lease Company    (ii)     (1,808     (664

Payments on operating leases*

   CES Lease Company    (ii)     (58     —    

Civil aviation information network services**

   TravelSky    (ii)     (333     (343

Flight training fee

   CAE Melbourne    (ii)     (30     (28

Land and building rental*

   CEA Holding    (ii)     (27     (27

Disposal of a subsidiary

   Eastern Airlines Industry Investment    (v)     —         2,433  

Cargo terminal business support services*

   Eastern Logistics    (ii)     (8     (2

Bellyhold space management*

   Eastern Logistics    (ii)     (32     (44

Bellyhold space operation cost*

   Eastern Logistics    (ii)     (80     —    

Contractual income from Bellyhold space*

   Eastern Logistics    (ii)     912       —    

Transfer of pilots

   Eastern Logistics    (ii)     (22     (7

Freight logistics support services

   Eastern Logistics    (iii)     50       42  

Flight equipment spare parts maintenance**

   CASC    (ii)     (51     (67

Payments on aviation transportation cooperation and support services**

   AFK    (ii)     (209     —    

Aviation transportation cooperation and support services**

   AFK    (ii)     440       —    

 

32


21.

RELATED PARTY TRANSACTIONS (continued)

 

  (b)

Related party transactions (continued)

 

  (i)

The Group’s pricing policies on products purchased from related parties are mutually agreed between contract parties.

 

  (ii)

The Group’s pricing policies on services provided by related parties are mutually agreed between contract parties.

 

  (iii)

The Group’s pricing policies on services provided to related parties are mutually agreed between contract parties.

 

  (iv)

The Group’s pricing policies on related party interest rates are mutually agreed based on benchmark interest rates.

 

  (v)

The Group’s pricing policies on transfer of equity or disposal of investments are mutually agreed based on the valuation prices.

 

  *

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”).

 

  **

This related party transaction constitutes a continuing connected transaction pursuant to the Rules Governing the Listing of Stocks on the Shanghai Stock Exchange.

 

  (c)

Balances with related parties

(i) Amounts due from related parties

 

     30 June 2018
RMB million
    

31 December 2017

RMB million

 
     (Unaudited)      (Audited)  

Trade and notes receivables

     

Eastern Logistics

     162        194  

Eastern Air Catering

     1        1  

Eastern Import & Export

     80        —    
  

 

 

    

 

 

 
     243        195  
  

 

 

    

 

 

 
     30 June 2018
RMB million
    

31 December 2017

RMB million

 
     (Unaudited)      (Audited)  

Prepayments and other receivables

     

Eastern Import & Export

     358        379  

Technologies Aerospace

     —          10  

Eastern Air Catering

     141        135  

Eastern Advertising

     —          28  

CEA Development

     7        2  

CEA Holding

     11        9  

TravelSky

     6        5  

Others

     5        1  
  

 

 

    

 

 

 
     528        569  
  

 

 

    

 

 

 

All the amounts due from related parties are trade in nature, interest-free and payable within normal credit terms.

 

33


21.

RELATED PARTY TRANSACTIONS (continued)

 

  (c)

Balances with related parties (continued)

 

 

  (ii)

Amounts due to related parties

 

     30 June 2018
RMB million
(Unaudited)
    

31 December 2017
RMB million

(Audited)

 

Trade and bills payables

     

Eastern Import & Export

     254        51  

Eastern Air Catering

     24        31  

Technologies Aerospace

     101        105  

CEA development

     10        25  

Collins Aviation

     1        1  

CEA Holding

     11        4  

CASC

     7        9  

Shanghai Hute

     14        14  

Others

     8        1  
  

 

 

    

 

 

 
     430        241  
  

 

 

    

 

 

 
    

30 June 2018

RMB million

(Unaudited)

     31 December 2017
RMB million
(Audited)
 
Other payables and accruals      

Eastern Import & Export

     43        2  

Shanghai P&W

     491        578  

Eastern Air Catering

     315        10  

CEA Holding

     930        302  

Shanghai Hute

     10        11  

Technologies Aerospace

     3        1  

Wheels & Brakes

     49        16  

CEA Development

     104        50  

TravelSky

     333        551  

Eastern Advertising

     11        2  

CAE Melbourne

     267        316  

Eastern Investment

     —          269  

CES Global

     135        —    

CES Finance

     24        —    

HKSCC

     215        —    

CASC

     3        —    

Others

     102        3  
  

 

 

    

 

 

 
     3,035        2,111  
  

 

 

    

 

 

 

 

34


21.

RELATED PARTY TRANSACTIONS (continued)

 

  (c)

Balances with related parties (continued)

 

  (ii)

Amounts due to related parties (continued)

 

     30 June 2018
RMB million
(Unaudited)
     31 December 2017
RMB million
(Audited)
 

Contract liabilities

     

Eastern Investment

     269        —    
  

 

 

    

 

 

 
     30 June 2018
RMB million
(Unaudited)
     31 December 2017
RMB million
(Audited)
 

Obligations under finance leases

     

CES Lease Company

     12,835        11,934  
  

 

 

    

 

 

 

Except for the amounts due to CES Lease Company, which are related to the aircraft under finance 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
For the six months

ended 30 June

              
     2018
(Unaudited)
    2017
(Unaudited)
    30 June 2018
RMB million
(Unaudited)
     31 December 2017
RMB million
(Audited)
 

Short-term deposits (included in cash and cash equivalents)

         

Eastern Air Finance Company

     0.35     0.35     1,673        4,053  

Long-term borrowings (included in borrowings)

         

CEA Holding

     3.70     3.48     528        28  

Loan to joint venture

         

CEA Melbourne

     8.00     —         22        —    

 

  (d)

Guarantees by the holding company

As at 30 June 2018, bonds of the Group guaranteed by CEA Holding amounted to RMB7.8 billion (2017: RMB7.8 billion).

 

35


22.

SEASONALITY

The civil aviation industry is subject to seasonal fluctuations, with peak demand during the holiday season in the second half of the year. As such, the revenues and results of the Group in the first half of the year are generally lower than those in the second half of the year.

 

23.

DIVIDEND

The Board has not recommended any dividend for the six months ended 30 June 2018 (for the six months ended 30 June 2017: Nil).

 

24.

EVENTS AFTER THE REPORTING PERIOD

<The Proposal of Non-public Issuance of A Shares and H Shares to Specified Objects by The Company Under a

Specific Mandate> was approved at the fifteenth ordinary meeting of the eighth session of the Board held on 10 July

2018. The Company will issue no more than 1,616,438,355 A shares (1,616,438,355 shares inclusive) and the gross proceeds of A Shares shall be not more than RMB11,800,000,000 (RMB11,800,000,000 inclusive) to Juneyao Airlines Co., Ltd. (“Juneyao Airlines”), Juneyao (Group) Co., Ltd. and/or its designated controlled subsidiaries and Structural Reform Fund. Meanwhile, the Company will issue no more than 517,677,777 H shares (517,677,777 shares inclusive) and the gross proceeds of H Shares shall be not more than HK$3,550,300,000 (HK$3,550,300,000 inclusive) to Juneyao Airlines and/or its designated controlled subsidiaries. The Non-public Issuance of A Shares and H Shares shall be subject to various approvals by the EGM and relevant government authorities.

 

36


SUMMARY OF OPERATING DATA

 

     For the six months ended 30 June  
     2018      2017      Change  

Passenger transportation data

        

ASK (available seat – kilometres) (millions)

     118,830.71        108,527.22        9.49

— Domestic routes

     74,288.78        67,631.92        9.84

— International routes

     41,410.00        37,984.36        9.02

— Regional routes

     3,131.93        2,910.94        7.59

RPK (revenue passenger – kilometres) (millions)

     97,957.33        88,271.24        10.97

— Domestic routes

     62,223.69        56,250.41        10.62

— International routes

     33,169.46        29,722.13        11.60

— Regional routes

     2,564.19        2,298.71        11.55

Number of passengers carried (thousands)

     58,899.98        53,389.06        10.32

— Domestic routes

     49,004.50        44,531.38        10.04

— International routes

     8,025.06        7,155.91        12.15

— Regional routes

     1,870.43        1,701.77        9.91

Passenger load factor (%)

     82.43        81.34        1.09 pts 

— Domestic routes

     83.76        83.17        0.59 pts 

— International routes

     80.10        78.25        1.85 pts 

— Regional routes

     81.87        78.97        2.90 pts 

Passenger – kilometres yield (RMB)
(including fuel surcharge)
Note 1

  

 

0.523

 

  

 

0.509

 

  

 

2.75

— Domestic routes

     0.549        0.534        2.81

— International routes

     0.459        0.447        2.68

— Regional routes

     0.712        0.713        -0.14

Passenger – kilometres yield (RMB)
(excluding fuel surcharge)
Note 1

  

 

0.487

 

  

 

0.478

 

  

 

1.88

— Domestic routes

     0.549        0.534        2.81

— International routes

     0.359        0.359        0.00

— Regional routes

     0.657        0.655        0.31

 

37


     For the six months ended 30 June  
     2018      2017
(comparable
basis)Note 2
     Change     2017 (non-
comparable
basis)Note 2
 

Freight transportation data

          

AFTK (available freight tonne – kilometres)

          

(millions)

     3,909.79        3,269.60        19.58     3,529.90  

— Domestic routes

     1,379.04        1,121.93        22.92     1,124.28  

— International routes

     2,433.59        2,058.64        18.21     2,305.79  

— Regional routes

     97.15        89.04        9.11     99.83  

RFTK (revenue freight tonne – kilometres)

          

(millions)

     1,244.97        1,161.12        7.22     1,365.92  

— Domestic routes

     425.14        426.16        -0.24     427.62  

— International routes

     803.13        718.48        11.78     914.07  

— Regional routes

     16.70        16.48        1.32     24.23  

Weight of freight carried (million kg)

     439.86        422.79        4.04     461.87  

— Domestic routes

     311.22        306.77        1.45     308.75  

— International routes

     114.37        101.94        12.19     132.83  

— Regional routes

     14.28        14.09        1.37     20.29  

Freight load factor (%)

     31.84        35.51        -3.67 pts      38.70  

— Domestic routes

     30.83        37.98        -7.16 pts      38.04  

— International routes

     33.00        34.90        -1.90 pts      39.64  

— Regional routes

     17.19        18.51        -1.32 pts      24.27  

Freight tonne – kilometres yield (RMB)

          

(including fuel surcharge)Note 1

     1.402        N/A        N/A       1.307  

— Domestic routes

     1.181             1.097  

— International routes

     1.436             1.351  

— Regional routes

     5.389             3.343  

Freight tonne – kilometres yield (RMB)

          

(excluding fuel surcharge)Note 1

     1.369             1.239  

— Domestic routes

     1.134             0.982  

— International routes

     1.414             1.306  

— Regional routes

     5.150             3.219  

 

38


     For the six months ended 30 June  
     2018      2017
(comparable
basis)Note 2
     Change     2017 (non-
comparable
basis)Note 2
 

Consolidated data

          

ATK (available tonne – kilometres) (millions)

     14,604.55        13,037.05        12.02     13,297.35  

— Domestic routes

     8,065.03        7,208.80        11.88     7,211.15  

— International routes

     6,160.49        5,477.23        12.47     5,724.38  

— Regional routes

     379.03        351.02        7.98     361.81  

RTK (revenue tonne – kilometres) (millions)

     9,896.19        8,983.17        10.16     9,187.97  

— Domestic routes

     5,926.99        5,416.99        9.41     5,418.45  

— International routes

     3,726.61        3,346.71        11.35     3,542.30  

— Regional routes

     242.59        219.47        10.53     227.21  

Overall load factor (%)

     67.76        68.90        -1.14 pts      69.10  

— Domestic routes

     73.49        75.14        -1.65 pts      75.14  

— International routes

     60.49        61.10        -0.61 pts      61.88  

— Regional routes

     64.00        62.52        1.48 pts      62.80  

Revenue tonne – kilometres yield (RMB)

          

(including fuel surcharge)Note 1

     5.351        N/A        N/A       5.089  

— Domestic routes

     5.850             5.631  

— International routes

     4.392             4.099  

— Regional routes

     7.898             7.566  

Revenue tonne – kilometres yield (RMB)

          

(excluding fuel surcharge)Note 1

     4.994             4.778  

— Domestic routes

     5.840             5.622  

— International routes

     3.498             3.346  

— Regional routes

     7.296             6.967  

Notes:

 

1.

In calculating unit revenue index, the relevant revenue includes income generated from co-operation routes.

2.

Under comparable basis, the operating data of the Group in the first half of 2017 did not include the whole cargo flight data of the Group in January 2017;

Under non-comparable basis, the operating data of the Group in the first half of 2017 comprised of the whole cargo flight data of the Group in January 2017.

 

39


FLEET STRUCTURE

The Group has been continuously optimising its fleet structure in recent years. In the first half of 2018, the Group introduced a total of 22 aircraft of major models and a total of 7 aircraft retired. With the introduction of B737-8MAX and A320NEO aircraft and the gradual retirement of B767 aircraft, the Group’s fleet age structure has maintained to be young.

As at 30 June 2018, the Group operated a fleet of 654 aircraft, which included 642 passenger aircraft and 12 business aircraft held under trust.

Fleet structure as at 30 June 2018

 

                                      (Units)  
No.    Model    Self-
owned
     Under
finance
lease
     Under
operating
lease
     Sub-
total
     Average
fleet age
(Years)
 

1

   B777-300ER      9        11        0        20        2.4  

2

   A330-300      2        19        6        27        6.0  

3

   A330-200      15        15        0        30        5.2  

4

   B767      3        0        0        3        21.0  

Total number of wide-body aircraft

     29        45        6        80        5.4  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

5

   A321      39        38        0        77        5.0  

6

   A320      80        51        49        180        7.5  

7

   A319      13        20        2        35        5.3  

8

   A320NEO      0        2        0        2        0.1  

9

   B737-800      46        71        86        203        4.2  

10

   B737-700      43        12        0        55        9.1  

11

   B737-8MAX      0        10        0        10        0.5  

Total number of narrow-body aircraft

     221        204        137        562        5.8  

Total number of passenger aircraft

     250        249        143        642        5.7  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total number of business aircraft held under trust

              12     
              

 

 

    

Total number of aircraft

              654     
              

 

 

    

 

40


REPORT OF THE BOARD

In the first half of 2018, the global economy continued to recover and maintained the growth momentum of the previous year, while also facing the challenges of intensified trade protectionism and the shift in global monetary easing policy. Chinese economy continued its overall stable and moderate trend, with optimisation in economic structural adjustment and continuous improvement in consumption contribution. The global aviation industry had a continuous rise in the demand of travellers. China’s civil aviation industry continued to maintain a rapid above double-digit growth rate, yet also faced challenges such as sharp rise in fuel prices, large fluctuations in RMB-USD exchange rate and intensifying market competition.

The Group adhered to maintaining a steady progress and upholding the requirements for high- quality development. It made concerted efforts and achieved smooth progress to promote production, operation, reform and transformation. The Group highly emphasised and comprehensively enhanced its corporate party building works. On the basis of ensuring safe operations, the Group has strengthened its sales and marketing, enhanced service quality, proactively promoted external partnerships, expedited the pace of its business transformation and steadily advanced major projects such as non-public issuance of shares of the Company, promoted the reform and development of the Group and obtained new achievements.

In the first half of 2018, the Group served 58.90 million passengers, representing a year-on-year increase of 10.3%. Revenue amounted to RMB54,500 million, representing a year-on-year increase of 12.6%. Due to reasons such as the rise in fuel prices, the exchange losses as a result of exchange rate fluctuations and the one-off gain of RMB1,750 million acquired from the transfer of equity interests in Eastern Logistics in the first half of 2017, the Company’s net profit attributable to shareholders of the parent company in the first half of 2018 amounted to RMB2,280 million.

 

   

Safe Operation

The Group continuously attached great importance to safe operation and our safety standard has maintained stable. In the first half of 2018, the Group’s fleet had 1.076 million safe flying hours, representing a year-on-year increase of 7.0%. The Group’s fleet had 0.453 million take-off and landing flights, representing a year-on-year increase of 6.4%.

The Group earnestly implemented the requirements for “Focusing on the Local Communities, Laying the Foundation, Training Basic Skills” as established by the Civil Aviation Administration of China (“CAAC”), and solidly carried out the special rectification of typical risk-prone events; enhanced our practical ability in anti-terrorism, anti-hijacking, anti-explosion, anti-attacks and anti-destruction to ensure air defence security. Targeting the implementation of the General Data Protection Regulations by the European Union, the Group has appointed a “data protection officer” to strengthen passenger information protection and prevent network security risks.

 

   

Marketing

In the first half of 2018, the Group completed 118,830 million of seat-kilometres, representing a year-on-year increase of 9.5%. Passenger revenue amounted to RMB49,050 million, representing a year-on-year increase of 13.8%. Passenger load factor of the Group amounted to 82.4%, representing a year-on-year increase of 1.1 percentage points. Significant progress has been made in key business indicators such as passenger load factor and revenue quality.

 

41


Focusing on the hub network strategy, we focused on enhancing the Group’s share and influence in the core market. In the first half of 2018, the Group’s market share in Shanghai, Beijing, Kunming and Xi’an hubs amounted to 40.8%, 18.3%, 37.4% and 28.4%, respectively. Through the coordination of route network layout and optimisation of transit connection, the effect of hub network has gradually appeared, with transit revenue increased by 9.3% year-on- year. In the first half of 2018, the Group introduced new international routes such as Shanghai- Stockholm and Shanghai-Xi’an-St. Petersburg, and new domestic routes such as Xi’an-Dali and Kunming-Hohhot, as well as international routes such as Shanghai-Moscow, St. Petersburg and Macau, and domestic routes such as Shanghai-Kunming and Xi’an-Xiamen. As at the end of June 2018, with the matching route networks with the SkyTeam Airline Alliance members, the route networks of the Group reached 177 countries and 1,074 destinations.

The Group’s level of yield management continuously improved, and the operational capacity of international routes constantly increased. The Group intensified the application of the OD (Original and Destination, i.e. the whole route) yield management system to strengthen the scientific analysis and forecast of customer structure and passenger reservation trends, and strengthened the refined control of space and freight rates. Guided by the Group’s internationalisation strategy, the operational capability of international routes was improved, with operational quality of long-haul routes enhanced. In the first half of 2018, passenger load factor of international routes increased by 1.9 percentage points year-on-year. Revenue per seat-kilometre of Europe, North America and Australia routes increased by 5.5%, 2.1% and 3.3% year-on-year, respectively.

The Group continuously enriched the sales product lines and constantly promoted sales transformation. Focusing on the development of various types of transformation products and value-added products, the Group further explored multi-model transport products, improved “preferred seats” and “upgrade products” and enriched value-added products such as ticket package and point redemption to effectively increase revenue from value-added services. The Group placed emphasis on maintaining sales channels and strengthened cooperation with overseas channels such as TMC (Travel Management Companies) and OTA (Online Travel Agency) channels. TMC’s sales revenue increased by 38.1% year-on-year. Through actively exploring customer resources, the customers of the two groups increased to 3,567, representing a year-on-year increase of 11.5%, and customer revenue of the two groups increased by 12.1% year-on-year.

 

   

External Partnerships

The Group continuously intensified its cooperation with strategic partners and core partners to enhance the quality of cooperation. The Group entered into a new term cooperation agreement with Air France-KLM (“AFK”), adding new joint cooperation of routes such as Kunming-Paris and Wuhan-Paris from 1 January 2019. The Group implemented inter-airline transit business and joint baggage transport services with Delta Air Lines, Inc. (“Delta”). The Group jointly planned the optimisation of flight network connection and the joint establishment of ground services and process standards of the new airport in Beijing with AFK and Delta. The Group has signed a business agreement with Qantas Airways Limited to commence further extensive cooperation in areas such as capacity investment and joint marketing, and commenced joint operation with Japan Airlines Co., Ltd. to strengthen cooperation in areas such as route network and capacity sharing.

 

42


In addition, the Group also actively explored cooperation with world-renowned brands to realise resource sharing. In the first half of 2018, the Group commenced cross-sector cooperation with more than 20 renowned companies such as Standard Chartered Bank and Hertz Car Rental to carry out joint marketing activities.

 

   

Customer Services

The Group is dedicated to offering sincere services and improving its brand image. The Group adheres to the service philosophy of “Customer-Oriented and Dedicated Service”, with which the Group provided services that specifically catered to the demand of its customers. The Group continuously improved service software and hardware to optimise customer experiences throughout the journey, aiming to become a representative for Shanghai’s services. We actively protect and develop frequent flyer members. As at the end of June 2018, the number of frequent flyer members of the Group’s “Eastern Miles” reached 36.20 million, representing a year-on-year increase of 15.1%.

In terms of service system construction, with the punctuality of flights as the focus and passenger satisfaction as the target, the Group continuously improved flight operation quality, with flight punctuality rate reached 80.5%, ranked at the top among the top ten Chinese domestic airlines. We further established a sound service quality standard system and released the first “Air Medical First Aid Handbook” in China, which was well-received by the media and passengers. With Beijing-Shanghai boutique route as a benchmark, by establishing a flight operation quality standard system through data indicators, the Group improved the comprehensive operation quality of flights. The Group promoted the baggage transportation management system and strengthened the monitoring of the whole process of baggage transportation to effectively reduce baggage transportation errors and breakage. Through the introduction of new aircraft models such as B787 and A350 as well as research and development and design of catering products, the Group brought a brand new experience to passengers.

In terms of online service integration, self-service boarding and self-service airport navigation were officially launched in Terminal 2 of Shanghai Hongqiao International Airport. With digital service experience optimised and mobile phones, online and overseas self-check-in rate increased, domestic self-check-in rate reached 77.4%, representing a year-on-year increase of 9.2 percentage points, and international self-check-in rate reached 32.4%, representing a year-on-year increase of 12.5 percentage points. The Group implemented self-checking function for flight information and baggage check-in through WeChat mobile to bring convenient experience for passengers.

 

   

Reform and Transformation

The Group adhered to comprehensively intensifying reform to promote the transformation and development of the Group. The Group focused on the operation and development of passenger transportation business, optimised the functions of its e-commerce platform, enhanced the standard of low cost airline operation of China United Airlines Co., Limited (“China United Airlines”), intensified protective marketisation reform, promoted the reform of its branches and subsidiaries as well as internal marketing and service organisations, and persistently reinforced the effect of reform and transformation to its production and operation.

 

43


In relation to e-commerce, the Group expedited the construction of its in-flight internet connection platform and became the first in China to fully promote the use of in-flight portable electronic devices. The Group’s fleet size, number of flights and number of users with “in-flight internet connection” rank “first in China and top in Asia”. As at the end of June 2018, 78 wide-body passenger aircraft of the Group all equipped with in-flight internet connection services, covering Europe, the United States, Australia, Southeast Asia and key domestic business routes. The Group planned to jointly establish an aviation internet joint venture with a telecom operator to reinforce and enhance the Company’s first-mover advantage in the field of in-flight internet business. The Group continuously optimised the customer experience of the Group’s official website and mobile application. The Group’s official website and mobile application iteratively upgraded 16 versions, adding and optimising more than 200 functional experiences. New overseas websites were launched, and sales amount increased by 31.5% year-on-year. The Group strengthened the operation of points mall, enriched point redemption products, promoted the transformation of income system points based on the contribution of passengers to the Company’s revenue, and optimised the point payment function.

In terms of low-cost airline, China United Airlines focused on improving direct sales capability and increasing auxiliary revenue to intensify low-cost transformation. In the first half of 2018, China United Airlines achieved revenue of RMB2,690 million, representing a year-on- year increase of 13.2%, and achieved net profit of RMB440 million, representing a year-on- year increase of 23.4%. China United Airlines launched new media and self-media marketing through diversified marketing methods and improved its direct sales capability by enhancing its mobile direct sales platform, with direct sales revenue accounted for 72.2%. Through the online sales promotion of duty-free products, upgrade products and sky mall products, the source of auxiliary revenue was broadened, with ancillary revenue increased by 46.0% year-on-year.

In terms of protective marketisation reform, the Group thoroughly implemented the transformation of protective assets into operational assets. Through indicators such as per capita output and yield, a subsidiary of the Group, Eastern Airlines Technology Company Limited (“CEA Technology”) explicitly identified seven aspects, such as accessories maintenance and airframe maintenance, as the focus for intensifying future reforms. The Group actively explored third-party markets, realised third-party revenue significantly increased by 70.0% year-on-year.

In terms of system, mechanism and institutional reform, the Group restructured its marketing service functions focusing on its customers, optimised and adjusted the management and control model of its marketing service system and organisation, established business committee, sales committee and customer committee, and further explored and steadily promoted the mixed-ownership reform of its subsidiaries.

 

   

Major Projects

On 10 July 2018, the Company announced a major capital project regarding the proposed non- public issuance of A shares and H shares, which planned to introduce Juneyao Airlines Company Limited (“Juneyao Airlines”) and Shanghai Juneyao (Group) Co., Limited (“Juneyao Group”), its controlling shareholder, or its subsidiaries and China Structural Reform Fund Corporation Limited as strategic investors. The capital project has been steadily advancing, and shall be implemented upon fulfilment of certain market conditions and as at 30 August 2018, it has received the approval from the State-owned Assets Supervision and Administration Commission (“SASAC”) and has been considered and approved by the Company’s general meeting. It still requires the approvals from the CAAC, the China Securities Commission (“CSRC”) and the Stock Exchange of the Hong Kong Limited (the “Hong Kong Stock Exchange”).

 

44


   

Corporate Culture

The Group promoted corporate culture construction, strengthened the employment integrity education and created harmonious labour relations, provided strong support for the smooth development and continuous improvement of the safe operation, customer services, marketing, reform and development of the Group.

 

   

Establishment of Internal Risk Control and Governance

In light of the implementation of the General Data Protection Regulation by the European Union, the Group strengthened the protection of passenger information to prevent network security risks; carried out special audits on key business areas focusing on the Group’s development strategy to enhance the management performance of the Group; and strengthened system construction, supervision and inspection to promote the sound, standardised and effective operation of the Group’s internal control system.

The Group steadily promoted the construction of a “Lawful CEA” to ensure the lawful and compliant operation of the Group. Focusing on its internationalisation strategy, the Group strengthened the prevention of legal risk of overseas business and continuously reinforced the management of contracts and litigation cases to safeguard the legitimate rights and interests of the Group.

 

   

Social Responsibilities and Awards

The Group insisted on the five development visions of “Innovation, Coordination, Green Development, Openness, Sharing” and actively engaged in economic, social and environmental responsibilities. The Group insisted on the vision of green development and implemented pollution prevention and control work. The Group advocated low-carbon flights, continuously optimised fleet structure and promoted the application of new technologies for energy conservation and emission reduction. The Group adhered to the concept of joint development, strived to achieve targeted poverty alleviation and targeted poverty elimination by continuously performing fixed-point poverty alleviation works in Shuangjiang and Cangyuan in Yunnan. The Group was awarded the Shanghai Listed Company Corporate Social Responsibility Outstanding Enterprise Award ( 上海上市公司企業社會責任杰出企業獎 ), and was rated as a “State-owned Enterprise Poverty Alleviation and Development Unit” ( 中央企業扶貧開發工作先進單位 ) and a “Targeted Poverty Alleviation Demonstration Enterprise” ( 精準扶貧典範企業 ) by the World Charity Forum ( 世界公益慈善論壇 ). The Group’s large-scale charitable programme “Love at CEA” continued to spread positive messages to society. In the first half of 2018, the Group launched 459 projects in total, with 20,160 participants from our staff team and served a total of 19,994 people for 51,153 hours.

 

45


In the first half of 2018, the Company was awarded the “Best China Airline” award in the “TTG China Travel Awards” for the fourth consecutive year, named as the “2017 Most Influential Airline” (2017 最具影響力航空公司 ) by Sina Travel and won CAPSE’s Cabin Facility Excellent Progress Award and Innovative Service Award ( 客艙設施卓越進步獎和創新服務獎 ), further enhancing the Group’s brand influence.

Operating Revenues

In the first half of 2018, the Group’s passenger revenue amounted to RMB49,045 million, representing an increase of 13.78% from the same period last year, and accounted for 96.56% of the Group’s traffic revenues. Passenger traffic volume was 97,957.33 million passenger-kilometres, representing an increase of 10.97% from the same period last year.

The passenger revenue of domestic routes amounted to RMB32,455 million, representing an increase of 13.65% from the same period last year, and accounted for 66.17% of the passenger revenue. The passenger traffic volume was 62,223.69 million passenger-kilometres, representing an increase of 10.62% from the same period last year.

The passenger revenue of international routes amounted to RMB14,775 million, representing an increase of 14.40% from the same period last year, and accounted for 30.13% of the passenger revenue. The passenger traffic volume was 33,169.46 million passenger-kilometres, representing an increase of 11.60% from the same period last year.

The passenger revenue of regional routes amounted to RMB1,815 million, representing an increase of 11.15% from the same period last year, and accounted for 3.70% of the passenger revenue. The passenger traffic volume was 2,564.19 million passenger-kilometres, representing an increase of 11.55% from the same period last year.

In the first half of 2018, the Group’s cargo and mail traffic revenues amounted to RMB1,745 million, accounted for 3.44% of the Group’s traffic revenue. Cargo and mail traffic volume was 1,244.97 million tonne-kilometres.

In the first half of 2018, the Group’s other revenue were RMB3,710 million, representing an increase of 4.80% from the same period last year.

In the first half of 2018, the Group’s other operating income amounted to RMB3,390 million, representing a decrease of 28.87% from the same period last year, primarily due to the data of the first half of 2017 comprised the gains from the transfer of 100% equity interests of Eastern Logistics.

Operating Expenses

In the first half of 2018, the Group’s total operating expenses was RMB52,444 million, representing an increase of 11.92% from the same period last year. Under the influence of further expansion of the Group’s operational scale and the rapid growth in the passenger traffic volume and the number of passengers carried, the Group’s various costs such as take-off and landing costs, depreciation and amortisation, salaries and benefits, catering and selling expenses increased from last year. Analysis of the changes in items under operating costs of the Group is set out as follows:

 

46


Aircraft fuel costs accounted for the most substantial part of the Group’s operating expenses. In the first half of 2018, the Group’s total aircraft fuel cost was RMB15,252 million, representing an increase of 25.64% from the same period last year, mainly due to an increase in the volume of refueling of 6.27% from last year for the Group, leading to an increase in aircraft fuel costs by RMB762 million. The average price of fuel increased by 18.23% from the same period last year, and the aircraft fuel costs increased by RMB2,351 million.

In the first half of 2018, the Group’s take-off and landing charges amounted to RMB7,097 million, representing an increase of 10.37% from the same period last year, and was primarily due to the increase in the number of take-offs and landings of the Group and the adjustment of pricing standards of China’s airports (CAAC 2017 Notice No.18), resulting in a rise in domestic take-off and landing charges.

In the first half of 2018, the Group’s depreciation and amortisation amounted to RMB7,534 million, representing an increase of 15.08% from the same period last year, and was primarily due to the net addition of 43 aircraft (self-owned and under finance leases) to the Group’s fleet as compared to the same period last year. The increase in the number of aircraft and engines led to an increase in the original value of fixed assets and a corresponding increase in depreciation.

In the first half of 2018, the Group’s wages, salaries and benefits amounted to RMB9,831 million, representing an increase of 10.96% from the same period last year, and was primarily due to the combined effect of the increase in the number of personnel, the increase in flight hours and the rise in the standard flight hour fees.

In the first half of 2018, the Group’s aircraft maintenance expenses amounted to RMB1,649 million, representing a decrease of 23.83% from the same period last year, and was primarily due to the non-occurence of overhauls of operating leased engines of the Group in the first half of 2018 and the cost-reduction and efficiency-enhancement measures of the Group such as reducing the order quantity of aviation materials and commencing maintenance business for aviation materials, which led to a decrease in maintenance fees.

In the first half of 2018, the Group’s catering supply expenses were RMB1,665 million, representing an increase of 10.93% from the same period last year, and was primarily due to the increase in the number of passengers in carriage and the rise in the standards required for the provision of catering.

In the first half of 2018, the Group’s aircraft operating lease rentals amounted to RMB2,016 million, representing a decrease of 9.80% from the same period last year, and was primarily due to the lower average exchange rate of USD to RMB in the first half of 2018 as compared to the same period last year, which led to a decrease in USD-denominated rental costs as compared to the same period last year.

In the first half of 2018, the Group’s other operating lease rentals amounted to RMB473 million, representing an increase of 17.96% from the same period last year, and was primarily due to the increase of fees for ground assets under lease by the Group.

 

47


In the first half of 2018, the Group’s selling and marketing expenses were RMB1,813 million, representing an increase of 13.81% from the same period last year, and was primarily due to the expansion of business scale of the Group, which led to an increase in selling expenses accordingly.

In the first half of 2018, the Group’s civil aviation development fund paid to the CAAC amounted to RMB1,093 million, representing an increase of 8.86% from the same period last year, and was primarily due to the increase in the length of miles flown during the year.

In the first half of 2018, the Group’s ground service and other expenses were RMB1,651 million, representing a decrease of 13.83% from the same period last year, which was primarily due to the fact that data of 2017 comprised data of ground service and other expenses of Eastern Logistics in January 2017, and data of 2018 no longer comprised data of Eastern Logistics.

In the first half of 2018, the Group’s indirect operating expenses were RMB2,334 million, representing an increase of 13.36% from the same period last year, which was primarily due to the expansion of operational scale of the Group, which led to an increase in relevant expenses.

Finance Income/Costs

In the first half of 2018, the Group’s finance income was RMB52 million, representing a decrease of RMB651 million from the same period last year. Finance costs amounted to RMB2,416 million, representing an increase of RMB1,012 million from the same period last year, primarily due to the RMB546 million net exchange losses arising from the appreciation of USD to RMB in the first half of 2018. In the same period of 2017, the appreciation of RMB to USD resulted in net exchange gains amounted to RMB674 million.

Profit

Net profit attributable to equity holders of the Company in the first half of 2018 was RMB2,279 million, representing a decrease of 47.50% from the same period last year. The earnings per share attributable to the equity holders of the Company were RMB0.16.

Liquidity and Capital Structure

As at 30 June 2018, the Group had total assets of RMB238,773 million, representing an increase of 3.94% from 31 December 2017. Its debt ratio was 74.23%, representing a 0.18 percentage point decrease from 31 December 2017.

In particular, the Group’s total current assets amounted to RMB20,787 million, accounted for 8.71% of the total assets and represented an increase of 13.63% from 31 December 2017. The Group’s non-current assets amounted to RMB217,986 million, accounted for 91.29% of the total assets and represented an increase of 3.10% from 31 December 2017.

As at 30 June 2018, the Group had total liabilities of RMB177,239 million, comprising current liabilities of RMB75,935 million which accounted for 42.84% of total liabilities, and non-current liabilities of RMB101,304 million which accounted for 57.16% of total liabilities.

 

48


Among the current liabilities, interest-bearing liabilities (short-term bank borrowings, short-term debentures, long-term bank borrowings due within one year, bonds payable due within one year and obligations under finance leases due within one year) amounted to RMB41,551 million or a decrease of 14.03% from 31 December 2017.

Among the non-current liabilities, interest-bearing liabilities (long-term bank borrowings, bonds payable and obligations under finance leases) amounted to RMB92,136 million or an increase of 11.90% from 31 December 2017.

In the first half of 2018, the Group proactively optimised and adjusted the structure of its foreign currency obligations in response to the currency exchange fluctuations, in order to lower its exchange rate risk. As at 30 June 2018, the breakdown of the Group’s interest-bearing obligations by currencies is as follows:

 

                          Unit: RMB million  
            RMB equivalent                
     As at 30 June 2018      As at 31 December 2017         
Currency    Amount     

Percentage

(%)

     Amount      Percentage
(%)
     Movement
(%)
 

USD

     32,108        24.02        36,809        28.17        -12.77  

RMB

     88,422        66.14        83,880        64.19        5.41  

Others

     13,157        9.84        9,980        7.64        31.83  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     133,687        100        130,669        100        2.31  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

As at 30 June 2018, the Group’s interest-bearing liabilities included long-term and short-term bank borrowings, bonds payable and short-term debentures equivalent to RMB64,412 million, representing an increase of 0.96% from RMB63,801 million as at 31 December 2017. The breakdown by currencies is as follows:

 

                   Unit: RMB million
 
            RMB equivalent         
Currency   

As at

30 June 2018

    

As at

31 December 2017

     Movement (%)  

USD

     4,548        7,555        -39.80  

SGD

     2,419        2,435        -0.66  

EUR

     5,279        4,921        7.27  

KRW

     1,033        1,058        -2.36  

JPY

     2,995        —          —    

RMB

     48,138        47,832        0.64  
  

 

 

    

 

 

    

 

 

 

Total

     64,412        63,801        0.96  
  

 

 

    

 

 

    

 

 

 

 

49


As at 30 June 2018, the Group’s interest-bearing liabilities included obligations under finance leases equivalent to RMB69,275 million, representing an increase of 3.60% from RMB66,868 million as at 31 December 2017. The breakdown by currencies is as follows:

 

                   Unit: RMB million  
            RMB equivalent         
Currency   

As at

30 June 2018

     As at
31 December
2017
     Movement (%)  

USD

     27,560        29,254        -5.79  

SGD

     560        627        -10.69  

JPY

     247        264        -6.44  

HKD

     624        675        -7.56  

RMB

     40,284        36,048        11.75  
  

 

 

    

 

 

    

 

 

 

Total

     69,275        66,868        3.60  
  

 

 

    

 

 

    

 

 

 

Interest Rate Fluctuation

The Group’s interest-bearing liabilities included short-term interest-bearing liabilities and long-term interest-bearing liabilities. Both the short-term interest-bearing liabilities and long-term interest- bearing liabilities were affected by fluctuations in current market interest rates. The Group’s total interest-bearing liabilities (including long-term and short-term bank borrowings, obligations under finance leases, bonds payable and short-term debentures) as at 30 June 2018 and 31 December 2017 were equivalent to RMB133,687 million and RMB130,669 million, respectively, of which short- term interest-bearing liabilities accounted for 31.08% and 36.99%, respectively.

The Group’s interest-bearing liabilities were primarily denominated in USD and RMB. As at 30 June 2018 and 31 December 2017, the Group’s liabilities denominated in USD accounted for 24.02% and 28.17%, respectively, of total liabilities while liabilities denominated in RMB accounted for 66.14% and 64.19%, respectively, of total liabilities. Fluctuations in the USD and RMB interest rates have relatively significant impact on the Group’s finance costs. The Group reduced the risk of floating interest rates in USD liabilities through interest rate swap contracts.

As at 30 June 2018 and 31 December 2017, the outstanding interest rate swap contracts held by the Group amounted to a notional amount of USD1,311 million and USD1,420 million, respectively. These contracts will expire between the second half of 2018 and 2025.

 

50


Exchange Rate Fluctuation

As at 30 June 2018, the Group’s total interest-bearing liabilities denominated in foreign currencies amounted to RMB45,265 million, of which USD liabilities accounted for 70.93% of the total interest-bearing liabilities. Therefore, a significant fluctuation in the USD exchange rates will subject the Group to significant foreign exchange loss or gain arising from the exchange of foreign currency denominated liabilities, which affects the profitability and development of the Group. The Group typically uses 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 at 30 June 2018 and 31 December 2017, the outstanding foreign currency hedging contracts held by the Group amounted to a notional amount of USD182 million and USD829 million, respectively, and will expire in 2018.

In the first half of 2018, the Group’s net exchange losses amounted to RMB546 million as compared to the net exchange gains of RMB674 million in the first half of 2017.

Fluctuation of Jet Fuel Prices

In the first half of 2018, if the average price of jet fuel had increased or decreased by 5%, jet fuel costs of the Group would have increased or decreased by approximately RMB763 million, assuming all other variables remain constant.

In the first half of 2018, the Group did not conduct any aviation fuel hedging activities.

Pledges on Assets and Contingent Liabilities

As at 30 June 2018, the value of the Group’s assets used to secure certain bank loans was equivalent to RMB8,720 million, representing a decrease of 22.19% from RMB11,207 million as at 31 December 2017.

As at 30 June 2018, the Group had no significant contingent liabilities.

Human Resources

As at 30 June 2018, the Group had 75,694 employees, the majority of whom were located in China. The wages of the Group’s employees primarily consisted of basic salaries and performance bonuses.

 

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COMPLIANCE WITH THE RELEVANT LAWS AND REGULATIONS WHICH MAY HAVE A SIGNIFICANT IMPACT ON THE COMPANY

As at 30 June 2018, the Board was not aware of any significant matters which may cause impact on the Group or any non-compliance with the laws and regulations which may have a significant impact on the Group.

OUTLOOK FOR THE SECOND HALF OF 2018

The Group would like to bring to the attention of readers of this report that this report contains certain forward-looking statements, including a general outlook of international and domestic economies and the aviation industry, and descriptions of the Group’s future operating plans for the second half of 2018 and beyond. Such forward-looking statements are subject to many uncertainties and risks. The actual events that occur may be different from forward-looking statements of the Group which, therefore, do not constitute any commitment by the Group to the future operating results.

Looking forward to the second half of 2018, according to the comprehensive analysis of the global and domestic economic situation, China’s civil aviation industry is expected to continue to maintain rapid growth rate. At the same time, uncertain factors kept increasing. The trade frictions have increased the uncertainty of future economic development, while the rising fuel prices and fluctuations in exchange rates have brought pressure and challenges to airlines’ production and operation.

Facing the complicated and severe external business environment, the Group will uphold its confidence, face challenges, be determined and innovative, work hard, be practical, and strive to promote new breakthroughs in the reform, development and stability of the Group. In the second half of 2018, the Group will focus on the following tasks:

 

1.

The Group will strengthen the construction of the “three basics” (focusing on the local communities, laying the foundation and training basic skills) and strive to establish the double prevention mechanism of safety risk grading management and hidden dangers check and management to continuously enhance the level of safety management; persevere in the construction of practice, capacity building and cultural establishment in respect of safe production and strengthen safety performance management to ensure safe operation.

 

2.

The Group will optimise route scheduling and flight model allocation to ensure its capacity during peak seasons and seize market opportunities during peak seasons; strengthen the scientific forecast of market demand and the precise control of freight rates to capture the market opportunities from the China International Import Expo and actively reinforce service guarantee work; steadily promote sales transformation and strengthen the development of international sales and group customer resources to enhance international business capabilities.

 

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3.

The Group will promote the service standard system of quality flights routes to enhance the service quality of the Group; improve the frequent flyer membership system and optimise the ticket refund and change process to enhance passenger satisfaction; establish a new generation passenger service system to comprehensively enhance customer experience leveraging on the opportunities from new aircraft models such as B787 and A350.

 

4.

The Group will intensify the reform and transformation of various business areas and stimulate the vitality of innovation; accelerate the transformation of income system points and expand the use of points to increase customer contribution value; optimise and adjust the China United Airlines management and control model, improve route network layout and expand marketing channels; optimise industrial layout and vigorously expand third-party market through matching the international advanced MRO (Maintenance, Repair & Overhaul) with CEA Technology.

 

5.

The Group will effectively enhance risk awareness, establish risk early warning mechanism and rapid response mechanism to actively prevent and resolve major risks in production and operation; comprehensively strengthen the control of various costs, use multi-measures to save fuel costs to increase aviation cost savings; steadily promote non-public issuance of shares and adhere to high standards to construct the CEA Base in the new airport in Beijing.

 

6.

The Group will develop intensive international anti-commercial bribery trainings and education to prevent overseas compliance and operational risks; reinforce the protection of passenger information to prevent safety risks of the information system; increase the legal protection of assets and intellectual properties of the Group to safeguard the legitimate interests of the Group.

 

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FLEET PLAN

Introduction and Retirement Plan of Aircraft for the Second Half of 2018 to 2020

 

                                        (Units)  
Model    Second Half of 2018      2019      2020  
     Introduction      Retirement      Introduction      Retirement      Introduction      Retirement  

A350 Series

     2        —          5        —          4        —    

A330 Series

     4        5        —          —          —          —    

A320 Series

     13        —          25        —          30        —    

B777 Series

     —          —          —          —          —          —    

B787 Series

     4        —          6        —          3        —    

B767 Series

     —          3        —          —          —          —    

B737 Series

     22        —          26        —          24        10  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     45        8        62        —          61        10  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Notes:

 

1.

As at 30 June 2018, according to confirmed orders, the Group planned to introduce 15 aircraft and retire 17 aircraft in 2021 and future years.

2.

The abovementioned models, quantity and timing for the future introduction and retirement of aircraft of the Group will be subject to adjustment based on market conditions and flight capacity allocation of the Group.

SIGNIFICANT EVENTS

 

1.

As at 30 June 2018 and up to the date of this results announcement, the share structure of the Group is set out as follows:

 

         

Total number

of shares

     Approximate
percentage in
shareholding
(%)
 
I    A shares      9,808,485,682        67.80  
   1. Listed shares with trading moratorium      —          —    
   2. Listed shares without trading moratorium      9,808,485,682        67.80  
II    H shares      4,659,100,000        32.20  
III    Total number of shares      14,467,585,682        100.00  

 

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2.

Non-Public Issuance of A Shares and Non-public Issuance of H Shares

The resolutions of non-public issuance of A Shares and non-public issuance of H Shares were considered and approved at the 15th ordinary meeting of the eighth session of the Board held on 10 July 2018. The Company shall non-publicly issue A shares to Juneyao Airlines, Juneyao Group and/or its designated subsidiaries and structural reform fund for proceeds of not more than RMB11,800 million; and the Company shall non-publicly issue H shares to Juneyao Airlines and/or its designated controlled subsidiaries for proceeds of not more than HK$3,550.3 million. On 29 August 2018, the Company received the approval from the SASAC, which conditionally agreed to the Company’s non-public issuance of A shares and H shares proposal. The relevant resolutions were considered and approved at the 2018 third extraordinary general meeting, 2018 first A share class meeting and 2018 first H share class meeting of the Company held on 30 August 2018. On the same date, the resolution for the clarification and specification of subscribers of A shares and number of A shares to be issued regarding the non-public issuance of A shares by the Company in 2018 was considered and approved at the 2018 fourth regular meeting of the Board. The non-public issuance of A shares and H shares of the company are still pending approval by the CSRC, CAAC and the Hong Kong Stock Exchange.

For details, please refer to the announcements and circulars of the Company published on the website of Hong Kong Stock Exchange on 10 July, 10 August, 29 August and 30 August 2018.

 

3.

Dividends

The Board did not recommend the payment of an interim dividend for the half year ended 30 June 2018.

 

4.

Purchase, Sale or Redemption of Securities

During the first half of 2018, neither the Company nor its subsidiaries purchased, sold or redeemed any of its listed securities (“securities”, having the meaning ascribed thereto under Section 1 of Appendix 16 to the Listing Rules).

 

5.

Material Litigation

During the six months ended 30 June 2018, the Group was not involved in any material litigation, arbitration or claim.

 

6.

Corporate Governance

The Board has reviewed the relevant provisions and corporate governance practices under the codes of corporate governance adopted by the Company, and is of the view that the Company’s corporate governance practices during the six months ended 30 June 2018 met the requirements under the code provisions in the Corporate Governance Code set out in Appendix 14 of the Listing Rules (the “Code”).

Pursuant to the latest regulations promulgated by the CSRC, the Shanghai Stock Exchange, the Hong Kong Stock Exchange and in line with the Company’s development needs, the Company comprehensively reviewed the relevant regulations regarding the Board and securities affairs, revised the articles of association, rules for the meetings of the board of directors, rules for procedures for general meetings and the policy on the management of the provision of external guarantees of the Company etc., to effectively safeguard the standardised operation of the Company.

 

55


To further strengthen the awareness of compliance among the directors, supervisors and senior management of the Company, and to enhance their understanding and application of the relevant rules, the Company has comprehensively reviewed and implemented written monitoring rules for listed companies promulgated by regulatory bodies including the CSRC, the Shanghai Stock Exchange, the Hong Kong Stock Exchange and the New York Stock Exchange in the most recent half year, as well as the latest development of the relevant laws, rules and regulations regarding the duties and responsibilities of directors, supervisors and senior management of a listed company, and arranged training and learning sessions.

During the year ended 30 June 2018, the Company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers (the “Model Code”) as set out in Appendix 10 to the Listing Rules as the securities transactions code for the directors of the Company (the “Directors”). Having made specific enquiries to all the Directors, it is the Company’s understanding that the Directors have complied with the requirements as set forth in the Model Code regarding Directors’ securities transactions.

 

7.

Audit and Risk Management Committee

The Audit and Risk Management Committee has reviewed with the management of the Company the accounting principles and methods adopted by the Group, and has discussed with the Board the internal controls and financial reporting issues, including a review of the consolidated results for the six months ended 30 June 2018 prepared in accordance with IFRS.

The Audit and Risk Management Committee has no disagreement with the accounting principles and methods adopted by the Company.

 

56


8.

Changes in Personnel

Cessation

 

Name    Date of Cessation    Reason for Change    Position
Xu Zhao    6 February 2018    Personal reasons    Director, Member of the Audit and Risk Management Committee of the Board
Feng Jinxiong    13 July 2018    Passed away due to illness    Supervisor
Li Yangmin    30 August 2018    Work arrangement    Director, Member of the Aviation Safety and Environment Committee of the Board, Member and Chairman of the Planning and Development Committee of the Board
Gu Jiadan    30 August 2018    Work arrangement    Director
Tang Bing    30 August 2018    Work arrangement    Director, Member of the Planning and Development Committee of the Board
Tian Liuwen    30 August 2018    Work arrangement    Director
Ba Shengji    30 August 2018    Work arrangement    Supervisor
Hu Jidong    30 August 2018    Work arrangement    Supervisor
Jia Shaojun    30 August 2018    Work arrangement    Supervisor

 

57


Appointment

 

Name    Date of Appointment    Reason for Change    Position
Yuan Jun    8 February 2018    Elected at the general meeting of the employee representatives    Employee representative Director
   30 August 2018    Appointed by the Board    Member of the Planning and Development Committee of the Board
Cai Hongping    29 March 2018    Appointed by the Board    Member of the Audit and Risk Management Committee of the Board
Lin Wanli    30 August 2018    Elected at the general meeting    Independent non- executive Director
   30 August 2018    Appointed by the Board    Member of the Aviation Safety and Environment Committee of the Board
Li Jinde    30 August 2018    Elected at the general meeting    Supervisor
Gao Feng    30 August 2018    Elected at the general meeting of the employee representatives    Employee representative Director
Guo Junxiu    30 August 2018    Appointed by the Board    Chief legal adviser
Ma Xulun    30 August 2018    Appointed by the Board    Chairman of the Planning and Development Committee of the Board

 

58


For details, please refer to the announcements of the Company published on the website of Hong Kong Stock Exchange on 6 February, 8 February, 29 March, 13 July, 8 August and 30 August 2018.

 

9.

Change of Particulars of Directors or Supervisors under Rule 13.51B(1) of the Listing Rules

 

Name   

Name of shareholders

or other entities

   Position(s) held    Date of appointment    Date of cessation
Li Yangmin   

China Aircraft Services Limited

  

Director

   June 2006    March 2018
  

China Eastern Airlines Yunnan Co., Limited

  

Chairman

   November 2014    April 2018
  

China Eastern Airlines Media Co., Ltd.

  

Chairman

   June 2014    February 2018
  

TravelSky Technology Limited

  

Director

   December 2015    January 2018
  

China Aviation Supplies Co., Limited

  

Chairman

   October 2016    March 2018
  

China Eastern Airlines Technology Application Research Center Co., Limited

  

Executive director

   January 2018   
Tang Bing   

Shanghai Airlines Co., Limited

  

Chairman, Executive director

   January 2012    January 2018
  

Shanghai Eastern Airlines Investment Co., Limited

  

Chairman

   January 2018   
  

TravelSky Technology Limited

  

Non-executive director

   August 2018   
Tian Liuwen   

China Eastern Airlines Jiangsu Co., Limited

  

Chairman

   January 2018   
Yuan Jun   

CEA Holding

  

Chairman of labour union

   May 2018   
  

China Eastern Airlines Wuhan Limited

  

Chairman of the supervisory committee

   July 2018   
Li Ruoshan   

Xian Shaangu Power Co., Ltd.

  

Independent director

   November 2013    May 2018

 

59


Name   

Name of shareholders

or other entities

   Position(s) held    Date of appointment    Date of cessation
Ma Weihua   

RoadShow Holdings Limited

  

Non-executive director

   November 2017    March 2018
  

Bison Finance Group Limited (Previously known as RoadShow Holdings Limited)

  

Non-executive director

   March 2018    May 2018
  

Bison Finance Group Limited

  

Chairman of the company

   May 2018   
Shao Ruiqing   

Shenzhen Guangju Energy Co., Ltd.

  

Independent director

   May 2015    April 2018
Xi Sheng   

CEA Holding

  

Deputy general manager, Member of party committee

   January 2018   
  

China Air Express Co., Ltd. Vice chairman

      March 2018   
  

Shanghai Shine-link International Logistics Co., Ltd.

  

Director

   March 2018   
Ba Shengji   

CEA Holding

  

Chairman of labour union

   August 2013    January 2018
Hu Jidong   

CEA Holding

  

Chief economist, vice chairman of labour union

   November 2017    June 2018
  

China Eastern Airlines Wuhan Limited

  

Chairman of the supervisory committee

   February 2012    July 2018
  

China Eastern Airlines Jiangsu Co., Limited

  

Chairman

   September 2013    January 2018
  

China Eastern Airlines Yunnan Co., Limited

  

Supervisor

   September 2013    July 2018
  

Shanghai Airlines Co., Limited

  

Supervisor

   December 2013    July 2018
  

China Eastern Airlines Technology Application Research Center Co., Limited

  

Executive director

   June 2015    January 2018

 

60


Name   

Name of shareholders

or other entities

   Position(s) held    Date of appointment    Date of cessation
Feng Jinxiong   

China Eastern Airlines Media Co., Ltd.

  

Chairman of the supervisory committee

   April 2015    July 2018
  

CES International Financial Leasing Corporation Limited

  

Supervisor

   November 2014    July 2018
Jia Shaojun   

Shanghai Eastern Airlines Investment Co., Limited

  

Director

   December 2015    March 2018
  

CES Global Holdings (Hong Kong) Limited

  

Chairman

   January 2018   
  

UnionPay Insurance Brokers Limited

  

Director

   January 2018   
Wu Yongliang   

CEA Holding

  

Chief accountant

   June 2018   
  

China Eastern Airlines Wuhan Limited

  

Chairman

   April 2009    April 2018
  

Shanghai Airlines Co., Limited

  

Executive director

   January 2018   
  

China National Aviation Corporation (Hong Kong) Limited

  

Vice chairman

   May 2018   
  

China Eastern Airlines Yunnan Co., Limited

  

Chairman

   April 2018   
Feng Liang   

China Aircraft Services Limited

  

Director

   March 2018   
Feng Dehua   

China Eastern Airlines Wuhan Limited

  

Chairman

   April 2018   
Xu Zhao   

CEA Holding

  

Chief accountant

   November 2006    January 2018
  

China Air Express Co., Ltd.

  

Vice chairman

   October 2011    March 2018
  

China National Aviation Corporation (Hong Kong) Limited

  

Vice chairman

   May 2013    May 2018
  

Shanghai Shine-link International Logistics Co., Ltd.

  

Director

   July 2015    March 2018

 

61


10.

Miscellaneous

The Group makes reference to the following:

 

  1.

On 22 December 2017, the Company and CEA Holding entered into the supplemental agreement II to the reorganization and division agreement to amend the non-competition undertaking as set out in article 3 of the supplemental agreement to the reorganization and division agreement entered into by both parties in 1996. For details, please refer to the announcements and circular of the Company published on the website of Hong Kong Stock Exchange on 22 December 2017, 17 January and 8 February 2018.

 

  2.

On 19 January 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 agreed the Company to invest and establish not more than 67 special purpose vehicles in Dongjiang Free Trade Port Zone of Tianjin with the aggregate guarantee amount not exceeding RMB9.8 billion. For details, please refer to the announcements of the Company published on the website of Hong Kong Stock Exchange on 19 January and 8 February 2018.

 

  3.

On 2 February 2018, the Company’s application for the listing of JPY-denominated credit enhanced bonds was approved by the Tokyo Stock Exchange. On 9 March 2018, the Company issued JPY-denominated credit enhanced bonds. On 19 March 2018, the Company’s JPY-denominated credit enhanced bonds were listed. For details, please refer to the announcements of the Company published on the website of Hong Kong Stock Exchange on 2 February, 9 March and 19 March 2018.

 

  4.

On 1 March 2018, the Company entered into the contractual operation agreement and the operation cost agreement with China Cargo Airlines Ltd. (“China Cargo Airlines”), pursuant to which, China Cargo Airlines as a contractor shall operate the Bellyhold space business and pay contractual fee to the Company; and the Company shall reimburse the operation cost of the Bellyhold space business to China Cargo Airlines. For details, please refer to the announcements and circular of the Company published on the website of Hong Kong Stock Exchange on 1 March, 12 March and 29 March 2018.

 

  5.

On 8 February, 21 June and 30 August 2018, the general meetings of the Company considered and approved the resolutions in relation to the amendments to certain provisions of the articles of association, the rules for procedures for general meetings, the rules for the meeting of the board of directors and the rules for the meeting of the supervisory committee of the Company, respectively. For details, please refer to the announcements and circulars of the Company published on the website of Hong Kong Stock Exchange on 19 January, 8 February, 29 March, 21 June, 10 July, 10 August and 30 August 2018.

 

62


  6.

The estimated transaction caps for the continuing connected transactions, which were considered and approved by the Board and at the general meetings of the Company, and their actual amounts incurred up to 30 June 2018, are set out as follows:

 

            Unit: RMB thousand  
Approved category    Actual amount
incurred up to
30 June 2018
    

2018

estimated

transaction caps

 

Financial services (balance)

     

— balance of deposit

     1,672,722        11,500,000  

— balance of loans

     —          11,500,000  

Catering supply services

     634,143        1,650,000  

Flight support services

     177,325        690,000  

Import and export services

     94,101        490,000  

Property leasing

     26,691        85,000  

Advertising agency services

     9,085        85,000  

Aviation information technology services (pursuant to the Rules Governing the Listing of Stocks on the Shanghai Stock Exchange)

     333,382        1,048,000  

Aircraft finance lease services

     1,808,489       
USD2,415 million
or equivalent RMB
 
 

Aircraft operating lease services

     57,932        700,000  

Aviation supplies maintenance services (pursuant to the Rules Governing the Listing of Stocks on the Shanghai Stock Exchange)

     50,886        360,000  

Freight logistics support services (the Company provides services to Eastern Logistics)

     50,206        375,000  

Cargo terminal business support services (Eastern Logistics provides services to the Company)

     8,343        610,000  

Bellyhold space management (pursuant to the Rules Governing the Listing of Stocks on the Shanghai Stock Exchange)

     32,098        500,000  

Bellyhold space contractual operation

     

— contractual fee received

     912,217        3,000,000  

— operation cost paid

     80,485        265,000  

AFK aviation transportation cooperation and support services (pursuant to the Rules Governing the Listing of Stocks on the Shanghai Stock Exchange)

     

— amount received

     439,561        1,005,000  

— amount paid

     208,739        850,000  

 

63


By order of the Board

CHINA EASTERN AIRLINES CORPORATION LIMITED

Liu Shaoyong

Chairman

Shanghai, the People’s Republic of China

30 August 2018

As at the date of this announcement, the directors of the Company include Liu Shaoyong (Chairman), Ma Xulun (Vice Chairman, President), Lin Wanli (Independent non-executive Director), Li Ruoshan (Independent non-executive Director), Ma Weihua (Independent non-executive Director), Shao Ruiqing (Independent non-executive Director), Cai Hongping (Independent non- executive Director) and Yuan Jun (Employee Representative Director).

 

64