UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM20-F
FORM 20-F
☐ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2015
2018
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _________ to
OR
☐ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report _____________
Commission file number1-14660
中国南方航空股份有限公司
(Exact name of Registrant as specified in its charter)
CHINA SOUTHERN AIRLINES COMPANY LIMITED
(Translation of Registrant’s name into English)
THE PEOPLE’S REPUBLIC OF CHINA
(Jurisdiction of incorporation or organization)
68 QI XIN ROAD
278 JI CHANG ROAD
GUANGZHOU, 510405510403
PEOPLE’S REPUBLIC OF CHINA
(Address of principal executive offices)
Mr. Xie Bing
Telephone: +86 20 86124462
E-mail:ir@csair.com
Fax: +86 20 86659040
Address: 278 JI CHANG68 QI XIN ROAD
GUANGZHOU, 510405
510403
PEOPLE’S REPUBLIC OF CHINA
(Name, Telephone,E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class | Name of each exchange on which registered | |
Ordinary H Shares of par value RMB1.00 per share represented by American Depositary Shares | New York Stock Exchange | |
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 7,022,650,0008,600,723,089 A Shares of par value RMB1.00 per share and 2,794,917,0003,666,449,197 H Shares of par value RMB1.00 per share.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
¨ ☐ Yes þ☒ No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
o ☐ Yes þ☒ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
þ ☒ Yes o☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
o ☒ Yes þ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of "accelerated“accelerated filer and large accelerated filer"filer” in Rule12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ☒ | Accelerated filer | ☐ | |||||
Non-accelerated filer | ☐ | Emerging growth company | ☐ |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
† | The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012. |
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP | International Financial Reporting Standards by the International Accounting Standards Board ☒ | Other |
If "Other"“Other” has been checked in response to the previous question, indicate by check mark which financial statement Item the registrant has elected to follow.
o ☐ Item 17 o☐ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). ☐ Yes ☒ No
o Yes þ No
i
ITEM 9. | THE OFFER AND LISTING | 73 | |||||
73 | |||||||
73 | |||||||
C. Markets | 73 | ||||||
73 | |||||||
E. Dilution | 74 | ||||||
74 |
ii
This Annual Report containsincludes forward-looking statements.statements for the purpose of the safe harbor provided by Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements appear in a number of different places in this Annual Report. A forward-looking statement is usually identified by the use in this Annual Report of certain terminology such as "estimate"“estimate”, "project"“project”, "expect"“expect”, "intend"“intend”, "believe"“believe”, "plan"“plan”, "anticipate"“anticipate”, "may"“may”, or their negatives or other comparable words. Also look for discussions of strategy that involve risks and uncertainties. Forward-looking statements include statements regarding the outlook for our future operations, forecasts of future costs and expenditures, evaluation of market conditions, the outcome of legal proceedings (if any), the adequacy of reserves, orand other business plans. You are cautioned that such forward-lookingForward-looking statements are, not guaranteesby their nature, subject to inherent risks and involve risks,uncertainties, some of which are beyond our control, and are based on assumptions and uncertainties. Ouranalyses made by us in light of our experience and our perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in particular circumstances. We caution you that a number of risks and assumptions could cause actual results mayoutcomes to differ, or differ materially, from those expressed in the forward-looking statements due to risks facing the Company or due to actual facts differing from the assumptions underlying thoseany forward-looking statements.
Some of theseThese risks and assumptions, in addition to those identified under Item 3, "Key“Key Information - Risk Factors,"” include:
general economic and business conditions in markets where our Company operates, including changes in interest rates;
the effects of competition on the demand for and price of our services;
natural phenomena;
the impact of unusual events on our business and operations;
actions by government authorities, including changes in government regulations, and changes in CAAC’s regulatory policies;
our relationship with China Southern Air Holding Limited Company (“CSAH”);
uncertainties associated with legal proceedings;
technological development;
our ability to attract key personnel and attract new talent;
future decisions by management in response to changing conditions;
the Company’s ability to execute prospective business plans;
the availability of qualified flight personnel and airport facilities; and
misjudgments in the course of preparing forward-looking statements.
TheOur Company advises you that these cautionary remarks expressly qualify in their entirety all forward-looking statements attributable to theour Company, theour Group and persons acting on their behalf.
In this Annual Report, unless the context indicates otherwise, the "Company"“we”, "we"“us”, "us"“our”, “the Company” and "our" means“our Company” refer to China Southern Airlines Company Limited, a joint stock company incorporated in China on March 25, 1995, the "Group"our “Group” means theour Company and itsour consolidated subsidiaries, and "CSAHC"“CSAH” means China Southern Air Holding Limited Company, theour Company’s parent company which directly and indirectly holds a 51.99%50.54% interest in theour Company as of April 18, 2016. 26, 2019.
References to "China"“China” or the "PRC"“PRC” are to the People’s Republic of China, excluding Hong Kong, Macau and Taiwan. References to "Renminbi"“Renminbi” or "RMB"“RMB” are to the currency of China, references to "U.S. dollars"“U.S. dollars”, "$"“$” or "US$"“US$” are to the currency of the United States of America (the "U.S."“U.S.” or "United States"“United States”), and referencereferences to "HK$" is“HK$” are to the currency of Hong Kong. ReferenceReferences to the "Chinese government" is“Chinese government” are to the national government of China. References to "Hong Kong"“Hong Kong” or "Hong“Hong Kong SAR"SAR” are to the Hong Kong Special Administrative Region of the PRC. References to "Macau"“Macau” or "Macau SAR"“Macau SAR” are to the Macau Special Administrative Region of the PRC.
The CompanyOur Group presents itsour consolidated financial statements in Renminbi. The consolidated financial statements of the Company for the year ended December 31, 2015 (the "Financial Statements")our Group have been prepared in accordance with all applicable International Financial Reporting Standards ("IFRSs"(“IFRSs”), which collective term includesinclude all applicable individual IFRSs, International Accounting Standards ("IASs"(“IASs”) and Interpretations issued by the International Accounting Standards Board (the "IASB"“IASB”).
Solely for the convenience of the readers, this Annual Report contains translationsconversions of certain Renminbi amounts into U.S. dollars at the rate of US$1.00 = RMB6.4936,RMB6.8632, which is the average of the buying and selling rates as quoted by the People’s Bank of China at the close of business on December 31, 2015.28, 2018. No representation is made that the Renminbi amounts or U.S. dollar amounts included in this Annual Report could have been or could be converted into U.S. dollars or Renminbi, as the case may be, at any particular rate or at all. Any discrepancies in the tables included herein between the amounts listed and the totals are due to rounding.
GLOSSARY OF AIRLINE INDUSTRY TERMS
In this Annual Report, unless the context indicates otherwise, the following terms have the respective meanings set forth below.
Capacity | |||
the number of seats made available for sale multiplied by the kilometers flown | |||
the | |||
Traffic | |||
“revenue passenger kilometers” or “RPK” | |||
traffic volume, the number of passengers carried multiplied by the kilometers flown | |||
“revenue tonne kilometers” or “RTK” | |||
i.e. total traffic volume, the load (passenger and cargo) in | |||
“revenue tonne kilometers-cargo” or“RFTK” | |||
the load | |||
a metric ton, equivalent to | |||
Yield | |||
“yield per RFTK” | revenue from cargo operations divided by RFTK | ||
revenue from passenger operations divided by RPK | |||
revenue from airline operations (passenger and cargo) divided by RTK | |||
Cost | |||
operating expenses divided by ATK |
Load Factors | |||
RTK expressed as a percentage of ATK | |||
RPK expressed as a percentage of ASK | |||
Utilization | |||
“utilization rates” | flight hours that aircraft can service during specified time | ||
Equipment | |||
aircraft parts that are ordinarily used up and replaced with new parts | |||
aircraft parts that are ordinarily repaired and reused | |||
Others | |||
American Depositary | |||
Shares issued by | |||
Civil Aviation Administration of China | |||
China Aviation Oil Supplies Company | |||
“CSAH” | China Southern Air Holding Limited Company | ||
“CSRC” | China Securities Regulatory Commission |
“Hong Kong Stock Exchange” | Stock Exchange of Hong Kong Limited | ||
“H | Shares issued by | ||
Nan Lung Holding Limited (a wholly-owned subsidiary of | |||
National Development and Reform Commission of China | |||
State Administration of Foreign Exchange of China | |||
“SA Finance” | Southern Airlines Group Finance Company Limited | ||
“SASAC” | State-owned Assets Supervision and Administration Commission of the State Council | ||
“SEC” | United States Securities and Exchange Commission | ||
“SPVs” | special purpose vehicles exclusively set up by China Southern Airlines and its subsidiaries for leased aircraft | ||
“ton” | a metric ton, equivalent to 2,204.6 pounds |
ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND |
Not applicable.
ITEM 2. | OFFER STATISTICS AND EXPECTED |
Not applicable.
ITEM 3. | KEY |
A. | SELECTED FINANCIAL DATA. |
The following tables present selected financial data for the five-year period ended December 31, 2015.2018. The selected consolidated income statement data (other than ADS data) for the three-year period ended December 31, 2013,2016, 2017 and 2018 and selected consolidated statement of financial position data as of December 31, 2017 and 2018 are derived from the audited consolidated financial statements of us, included elsewhere in this Annual Report. The selected consolidated income statement data (other than ADS data) for the years ended December 31, 2014 and 2015 and selected consolidated statement of financial position data as of December 31, 2014, 2015 and 2015 excluding basic and diluted earnings per ADR,2016 are derived from the audited consolidated financial statements of the Company, including the related notes, included elsewhere in this Annual Report. The selected consolidated income statement data for the years ended December 31, 2011 and 2012 and selected consolidated statement of financial position data as of December 31, 2011, 2012 and 2013 are derived from the Company’sour audited consolidated financial statements that are not included in this Annual Report.
Moreover, the selected financial data should be read in conjunction with our consolidated financial statements together with accompanying notes and "Item“Item 5. Operating and Financial Review and Prospects"Prospects” which are included elsewhere in this Annual Report. Our consolidated financial statements are prepared and presented in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, or IFRSs.
Year ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||
2015 US$ | 2015 RMB | 2014 RMB | 2013 RMB | 2012 RMB | 2011 RMB | Year ended December 31, | ||||||||||||||||||||||||||||||||||||||||||
(in million, except per share and per ADR data) | 2018 US$ | 2018 RMB | 2017 RMB | 2016 RMB | 2015 RMB | 2014 RMB | ||||||||||||||||||||||||||||||||||||||||||
(in million, except per share and per ADS data) | ||||||||||||||||||||||||||||||||||||||||||||||||
Consolidated Income Statement Data: | ||||||||||||||||||||||||||||||||||||||||||||||||
Consolidated Income Statement Data | ||||||||||||||||||||||||||||||||||||||||||||||||
Operating revenue | 17,194 | 111,652 | 108,584 | 98,547 | 99,514 | 90,395 | 20,927 | 143,623 | 127,806 | 114,981 | 111,652 | 108,584 | ||||||||||||||||||||||||||||||||||||
Operating expenses | (15,630 | ) | (101,492 | ) | (106,026 | ) | (98,280 | ) | (95,877 | ) | (87,063 | ) | (20,434 | ) | (140,242 | ) | (123,098 | ) | (106,204 | ) | (101,492 | ) | (106,026 | ) | ||||||||||||||||||||||||
Operating profit | 2,069 | 13,438 | 4,748 | 1,510 | 5,099 | 4,353 | 1,285 | 8,819 | 9,156 | 12,612 | 13,438 | 4,748 | ||||||||||||||||||||||||||||||||||||
Profit before income tax | 942 | 6,118 | 3,066 | 3,484 | 4,738 | 6,930 | 636 | 4,364 | 8,874 | 7,661 | 6,118 | 3,066 | ||||||||||||||||||||||||||||||||||||
Profit for the year | 742 | 4,818 | 2,398 | 2,750 | 3,784 | 6,090 | 490 | 3,364 | 6,898 | 5,898 | 4,818 | 2,398 | ||||||||||||||||||||||||||||||||||||
Profit attributable to: | ||||||||||||||||||||||||||||||||||||||||||||||||
Equity shareholders of the Company | 575 | 3,736 | 1,777 | 1,986 | 2,619 | 5,110 | ||||||||||||||||||||||||||||||||||||||||||
Equity shareholders of our Company | 422 | 2,895 | 5,961 | 5,044 | 3,736 | 1,777 | ||||||||||||||||||||||||||||||||||||||||||
Non-controlling interests | 167 | 1,082 | 621 | 764 | 1,165 | 980 | 68 | 469 | 937 | 854 | 1,082 | 621 | ||||||||||||||||||||||||||||||||||||
Basic and diluted earnings per share | 0.06 | 0.38 | 0.18 | 0.20 | 0.27 | 0.52 | 0.04 | 0.27 | 0.60 | 0.51 | 0.38 | 0.18 | ||||||||||||||||||||||||||||||||||||
Basic and diluted earnings per ADR(1) | 2.93 | 19.03 | 9.05 | 10.11 | 13.34 | 26.02 | ||||||||||||||||||||||||||||||||||||||||||
Basic and diluted earnings per ADS(1) | 2.00 | 13.50 | 30.03 | 25.69 | 19.03 | 9.05 | ||||||||||||||||||||||||||||||||||||||||||
Other Financial Data | ||||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends declared per share | 0.01 | 0.05 | 0.10 | 0.10 | 0.08 | 0.04 |
(1) Basic and diluted earnings per share have been computed by dividing profit attributable to equity shareholders of the Company by the weighted average number of shares in issue. Basic and diluted earnings per ADR have been computed as if all of our issued or potential ordinary shares, including domestic shares and H shares, are represented by ADRs during each of the years presented. Each ADR
(1) | Basic and diluted earnings per share have been computed by dividing profit attributable to our equity shareholders by the weighted average number of shares in issue. Basic and diluted earnings per ADS have been computed as if all of our issued or potential ordinary shares, including domestic shares and H shares, are represented by ADSs during each of the years presented. Each ADS represents 50 H shares. |
Year ended December 31, | ||||||||||||||||||||||||
2015 US$ | 2015 RMB | 2014 RMB | 2013 RMB | 2012 RMB | 2011 RMB | |||||||||||||||||||
(in million) | ||||||||||||||||||||||||
Consolidated Statement of Financial Position Data: | ||||||||||||||||||||||||
Cash and cash equivalents | 702 | 4,560 | 15,414 | 11,748 | 10,082 | 9,863 | ||||||||||||||||||
Other current assets | 1,471 | 9,553 | 12,127 | 8,825 | 6,705 | 9,622 | ||||||||||||||||||
Property, plant and equipment, net | 22,002 | 142,870 | 134,453 | 119,777 | 100,040 | 87,711 | ||||||||||||||||||
Total assets | 28,642 | 185,989 | 189,688 | 165,207 | 142,454 | 129,412 | ||||||||||||||||||
Bank and other loans, including long-term bank and other loans due within one year | 4,620 | 30,002 | 20,979 | 20,242 | 21,899 | 18,789 | ||||||||||||||||||
Obligations under capital leases due within one year | 988 | 6,416 | 5,992 | 3,636 | 2,494 | 1,784 | ||||||||||||||||||
Bank and other loans, excluding balance due within one year | 2,446 | 15,884 | 42,066 | 37,246 | 30,196 | 29,037 | ||||||||||||||||||
Obligations under capital leases, excluding balance due within one year | 7,609 | 49,408 | 43,919 | 31,373 | 19,371 | 14,053 | ||||||||||||||||||
Total equity | 7,642 | 49,624 | 44,493 | 42,451 | 39,734 | 37,777 | ||||||||||||||||||
Number of shares (in million) | 9,818 | 9,818 | 9,818 | 9,818 | 9,818 | 9,818 |
Year ended December 31, | ||||||||||||||||||||||||
2018 US$ | 2018 RMB | 2017 RMB | 2016 RMB | 2015 RMB | 2014 RMB | |||||||||||||||||||
(in million, except per share and per ADS data) | ||||||||||||||||||||||||
Consolidated Statement of Financial Position Data: | ||||||||||||||||||||||||
Cash and cash equivalents | 1,009 | 6,928 | 6,826 | 4,152 | 4,560 | 15,414 | ||||||||||||||||||
Total current assets, excluding cash and cash equivalents | 2,498 | 17,144 | 11,058 | 9,612 | 9,553 | 12,127 | ||||||||||||||||||
Property, plant and equipment, net | 24,871 | 170,692 | 158,926 | 146,746 | 142,870 | 134,453 | ||||||||||||||||||
Total assets | 35,982 | 246,949 | 218,718 | 200,442 | 185,989 | 189,688 | ||||||||||||||||||
Current borrowings | 5,645 | 38,741 | 27,568 | 26,746 | 30,002 | 20,979 | ||||||||||||||||||
Current portion of obligations under finance leases | 1,392 | 9,555 | 8,341 | 8,695 | 6,416 | 5,992 | ||||||||||||||||||
Non-current borrowings | 2,284 | 15,676 | 20,719 | 18,758 | 15,884 | 42,066 | ||||||||||||||||||
Obligations under finance leases, excluding current portion | 9,131 | 62,666 | 59,583 | 53,527 | 49,408 | 43,919 | ||||||||||||||||||
Total equity | 11,433 | 78,469 | 62,543 | 54,976 | 49,624 | 44,493 | ||||||||||||||||||
Number of shares (in million) | 12,267 | 12,267 | 10,088 | 9,818 | 9,818 | 9,818 |
Selected Operating Data
The operating data and the profit analysis and comparison for other years below is calculated and disclosed in accordance with the statistical standards, which have been implemented by theour Group since January 1, 2001. See "Glossary“Glossary of Airline Industry Terms"Terms” at the front of this Annual Report for definitions of certain terms used herein.
Year ended December, 31 | ||||||||||||||||||||
2015 | 2014 | 2013 | 2012 | 2011 | ||||||||||||||||
Capacity | ||||||||||||||||||||
ASK (million) | 235,616 | 209,807 | 186,800 | 169,569 | 151,064 | |||||||||||||||
ATK (million) | 32,205 | 28,454 | 24,952 | 23,065 | 20,795 | |||||||||||||||
Kilometers flown (thousand) | 1,408,500 | 1,275,570 | 1,147,070 | 1,052,495 | 939,233 | |||||||||||||||
Hours flown (thousand) | 2,238 | 2,026 | 1,829 | 1,681 | 1,507 | |||||||||||||||
Number of landing and take-offs | 936,750 | 884,070 | 809,870 | 757,022 | 702,264 | |||||||||||||||
Traffic | ||||||||||||||||||||
RPK (million) | 189,588 | 166,629 | 148,417 | 135,535 | 122,344 | |||||||||||||||
RTK (million) | 22,388 | 19,780 | 17,469 | 16,160 | 14,461 | |||||||||||||||
Passengers carried (thousand) | 109,422 | 100,919 | 91,791 | 86,485 | 80,677 | |||||||||||||||
Cargo and mail carried (tons) | 1,511,550 | 1,433,250 | 1,276,350 | 1,232,000 | 1,135,000 | |||||||||||||||
Load Factors | ||||||||||||||||||||
Passenger load factor (RPK/ASK) (%) | 80.5 | 79.4 | 79.4 | 79.9 | 81.0 | |||||||||||||||
Overall load factor (RTK/ATK) (%) | 69.5 | 69.5 | 70.0 | 70.1 | 69.5 | |||||||||||||||
Yield | ||||||||||||||||||||
Yield per RPK (RMB) | 0.53 | 0.58 | 0.59 | 0.66 | 0.67 | |||||||||||||||
Yield per RFTK (RMB) | 1.21 | 1.42 | 1.48 | 1.59 | 1.61 | |||||||||||||||
Yield per RTK (RMB) | 4.78 | 5.27 | 5.42 | 5.95 | 6.03 | |||||||||||||||
Fleet | ||||||||||||||||||||
- Boeing | 351 | 311 | 282 | 243 | 223 | |||||||||||||||
- Airbus | 290 | 276 | 253 | 225 | 208 | |||||||||||||||
- McDonnell Douglas | - | - | - | - | - | |||||||||||||||
- Others | 26 | 25 | 26 | 23 | 13 | |||||||||||||||
Total aircraft in service at period end | 667 | 612 | 561 | 491 | 444 | |||||||||||||||
Overall utilization rate (hours per day) | 9.6 | 9.6 | 9.6 | 9.8 | 9.8 |
Year ended December 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
Capacity | ||||||||||||||||||||
ASK (million) | 314,421 | 280,646 | 255,992 | 235,616 | 209,807 | |||||||||||||||
ATK (million) | 42,728 | 38,332 | 34,980 | 32,205 | 28,454 | |||||||||||||||
Kilometers flown (thousand) | 1,762,920 | 1,623,014 | 1,504,310 | 1,408,500 | 1,275,570 | |||||||||||||||
Hours flown (thousand) | 2,773 | 2,567 | 2,375 | 2,238 | 2,026 | |||||||||||||||
Number of landing and take-offs | 1,069,430 | 1,010,460 | 959,110 | 936,750 | 884,070 | |||||||||||||||
Traffic | ||||||||||||||||||||
RPK (million) | 259,194 | 230,697 | 206,106 | 189,588 | 166,629 | |||||||||||||||
RTK (million) | 30,334 | 27,321 | 24,387 | 22,388 | 19,780 | |||||||||||||||
Passengers carried (thousand) | 139,885 | 126,299 | 114,619 | 109,422 | 100,919 | |||||||||||||||
Cargo and mail carried (tons) | 1,732,280 | 1,672,162 | 1,612,550 | 1,511,550 | 1,433,250 | |||||||||||||||
Load Factors | ||||||||||||||||||||
Passenger load factor (RPK/ASK) (%) | 82.4 | 82.2 | 80.5 | 80.5 | 79.4 | |||||||||||||||
Overall load factor (RTK/ATK) (%) | 71.0 | 71.3 | 69.7 | 69.5 | 69.5 | |||||||||||||||
Yield | ||||||||||||||||||||
Yield per RPK (RMB) | 0.49 | 0.49 | 0.50 | 0.53 | 0.58 | |||||||||||||||
Yield per RFTK (RMB) | 1.33 | 1.30 | 1.16 | 1.21 | 1.42 | |||||||||||||||
Yield per RTK (RMB) | 4.55 | 4.46 | 4.50 | 4.78 | 5.27 | |||||||||||||||
Fleet | ||||||||||||||||||||
- Boeing | 460 | 407 | 372 | 351 | 311 | |||||||||||||||
- Airbus | 354 | 321 | 304 | 290 | 276 | |||||||||||||||
- Others | 26 | 26 | 26 | 26 | 25 | |||||||||||||||
Total aircraft in service at period end | 840 | 754 | 702 | 667 | 612 | |||||||||||||||
Average daily utilization rate (hours per day) | 9.73 | 9.79 | 9.53 | 9.6 | 9.6 |
Exchange Rate Information
The following table sets forth certain information concerning exchange rates, based on the noon buying rates in New York City for cable transfers in foreign currencies, as certified for customs purposes by the Federal Reserve Bank of New York (the "Noon“Noon Buying Rate"Rate”), between Renminbi and U.S. dollars for the five most recent financial years.
Period | Period End | Average(1) (RMB per US$) | High | Low | ||||||||||||
Annual Exchange Rate | ||||||||||||||||
2011 | 6.2939 | 6.4630 | 6.6364 | 6.2939 | ||||||||||||
2012 | 6.2301 | 6.3088 | 6.3879 | 6.2221 | ||||||||||||
2013 | 6.0537 | 6.1412 | 6.2213 | 6.0537 | ||||||||||||
2014 | 6.2046 | 6.1704 | 6.2591 | 6.0402 | ||||||||||||
2015 | 6.4778 | 6.2869 | 6.4896 | 6.1870 |
Renminbi per U.S. Exchange Rate (1) | ||||||||||||||||
Period | Average(2) | Low | High | Period-end | ||||||||||||
Exchange Rate | ||||||||||||||||
2014 | 6.1704 | 6.0402 | 6.2591 | 6.2046 | ||||||||||||
2015 | 6.2869 | 6.1870 | 6.4896 | 6.4778 | ||||||||||||
2016 | 6.6400 | 6.4480 | 6.9580 | 6.9430 | ||||||||||||
2017 | 6.7569 | 6.4773 | 6.9575 | 6.5063 | ||||||||||||
2018 | 6.6090 | 6.2649 | 6.9558 | 6.8755 | ||||||||||||
October | 6.9191 | 6.8680 | 6.9737 | 6.9737 | ||||||||||||
November | 6.9367 | 6.8894 | 6.9558 | 6.9558 | ||||||||||||
December | 6.8837 | 6.8343 | 6.9077 | 6.8755 | ||||||||||||
2019 | ||||||||||||||||
January | 6.7863 | 6.6958 | 6.8708 | 6.6958 | ||||||||||||
February | 6.7367 | 6.6822 | 6.7907 | 6.6912 | ||||||||||||
March | 6.7119 | 6.6916 | 6.7381 | 6.7112 | ||||||||||||
April (through 19, 2019) | 6.6870 | 6.7223 | 6.7032 |
(1) | Source: The source of the |
The following table sets out the range of high and low exchange rates, based on the Noon Buying Rate, between Renminbi and U.S. dollars, for the following periods.
Period | High | Low | ||||||
Monthly Exchange Rate | ||||||||
October 2015 | 6.3591 | 6.3180 | ||||||
November 2015 | 6.3945 | 6.3180 | ||||||
December 2015 | 6.4896 | 6.3883 | ||||||
January 2016 | 6.5932 | 6.5219 | ||||||
February 2016 | 6.5795 | 6.5154 | ||||||
March 2016 | 6.5500 | 6.4480 | ||||||
April 2016 (up to April 18, 2016) | 6.4810 | 6.4580 |
B. | CAPITALIZATION AND INDEBTEDNESS |
Not applicable.
C. | REASONS FOR THE OFFER AND USE OF PROCEEDS |
Not applicable.
D. | RISK FACTORS |
Risks Relating to our Business
We are indirectly majority owned by the Chinese government, which may exert influence in a manner that may conflict with the interests of holders of ADRs,ADSs, H Shares and A Shares.
Major Chinese airlines are wholly-wholly or majority-ownedmajority owned by either by the Chinese government or by provincial or municipal governments in China. CSAHC,CSAH, an entity wholly-owned by the Chinese government, directly and indirectly holds and exercises the rights of ownership of 51.99%50.54 % of theour equity of the Company.Thestake. The interests of the Chinese government in the Companyus and in other Chinese airlines maycould conflict with the interests of the holders of the ADRs,ADSs, H Shares and A Shares. The public policy considerations of the Chinese government in regulating the Chinese commercial aviation industry maycould also conflict with its indirect ownership interest in the Company.us. In addition, the Companywe may accept further capital injectioninjections from CSAHCCSAH throughnon-public subscriptions, which may have dilutive impact fordilute the stakes of other holders of ADRs,ADSs, H Shares and A Shares.
7
Due to a high degree of operating leverage and high fixed costs, a decrease in revenues of the Groupour revenue could result in a disproportionately higher decrease in its profit for the year.our profit. The results of the Group’sour operations are also significantly exposed to fluctuations in foreign exchange rates.
The airline industry is generally characterized by a high degree of operating leverage. In addition, due to high fixed costs, the expenses relating to the operation of any flight do not vary proportionately with the number of passengers carried, while revenues generated from a flight are directly related to the number of passengers carried and the fare structure of such flight. Accordingly, a decrease in revenuesrevenue could result in a disproportionately higher decrease in its profit for the year.our profit. Moreover, as the Group haswe have substantial obligations denominated in foreign currencies, itsour results of operations are significantly affected by fluctuations in foreign exchange rates, particularly by fluctuations in theRenminbi-U.S. dollar exchange rate. NetOur net foreign exchange gains were RMB1,801 million in 2017, whereas our net foreign exchange losses of RMB292were RMB1,853 million was recorded in 2014 mainly2018, primarily due to Renminbi depreciated slightly against U.S. dollarthe translation of balances of borrowings and obligations under finance leases which are denominated in 2014. Our net exchange losses of RMB5,953 million was recorded in 2015 as Renminbi depreciated significantly against U.S. dollar in 2015.
USD.
The Group hasWe have significant committed capital expenditures in the next three years, butand may face challenges and difficulties as it seeks to maintainin maintaining our liquidity.
We have, a substantial amount of debt, lease and other obligations, and will continue to have a substantial amount of debt, lease and other obligations in the future. As of December 31, 2015, the Group’s2018, our current liabilities exceeded itsour current assets by RMB51,422RMB59,615 million. The Group generally maintains soundWe generated net cash inflow from operating cash flow.activities of RMB17,732 million and RMB15,388 million for the years ended December 31, 2017 and 2018, respectively. However, our substantial indebtedness and other obligations may in the future negatively impact our liquidity.liquidity in the future. In addition, the Group haswe have significant committed capital expenditures in the next three years, mainly due to aircraft acquisitions.acquisition. In 20152018 and thereafter, theour liquidity of the Group is primarily dependent on itsour ability to maintain adequate cash inflow from operations to meet itsour debt obligations as they fall due, and itsour ability to obtain adequate external financing to meet itsour committed future capital expenditures. If our operating cash flow is materially and adversely affected by factors, such as increased competition, a significant decrease insignificantly reduced demand for our services, or a significant increase insignificantly increased jet fuel prices, our liquidity would be materially and adversely affected. Moreover, the Groupwe may not be able to meet itsour debt obligations as they fall due and commit futurefurther capital expenditures if certain assumptions about the availability of external financing on acceptable terms are inaccurate. If we are unable to obtain adequate financing for our capital requirements, our liquidity and operations would be materially and adversely affected.
As of December 31, 2015, the Group2018, we had committed banking facilities with several PRC commercial banks for providing loan financefinancing up to approximately RMB173,739RMB243,910 million, of which approximately RMB131,021RMB193,871 million was unutilized. Our directors believe that sufficient financing will be available to theour Group in 2016.2019. However there can be no assurance that such loan financing will be available on terms acceptable to theour Group or at all.
CSAHCCSAH will continue to be our controlling shareholder, and itsour interests may conflict with those of the Group. CSAHCCSAH. CSAH and certain of its affiliates will continue to provide certain important services to theour Group. Any disruption of the provision of services by CSAHCCSAH or its affiliates could affect the Group’sour operations and financial conditions.condition.
CSAHCCSAH will continue to be theour controlling shareholder of the Company. CSAHCshareholder. CSAH and certain of its affiliates will continue to provide certain important services to the Group,us, including the import and export of aircraft spare parts and other flight equipment, advertising services, provision of air ticket sellingsales services, property management services, leasing of properties and financial services, and repair, overhaul and maintenance services on jet engines.services. The interests of CSAHCCSAH may conflict with those of theour Group. In addition, any disruption of the provision of services by CSAHC’sCSAH’s affiliates or a default by CSAHC of CSAH on its obligations owed to theour Group could affect the Group’sour operations and financial conditions.condition. In particular, as part of itsour cash management system, the Groupwe periodically placesplace certain amount of demand deposits after independent shareholders’ approval with SA Finance, a PRC authorized financial institution controlled by CSAHCCSAH and an associateone of the Company. The Group hasour associates. We have taken certain measures to monitor the fund flows between itselfus and SA Finance and the placement of funds by SA Finance. Such monitoring measures may help to enhance the safety of the Group’skeep our deposits with SA Finance.Finance safe. In addition, we have received a letter of undertakings from CSAHCCSAH dated March 31, 2009, in which, among other things, CSAHCCSAH warranted that the Group’sour deposits and loans with SA Finance were definitely secure and that SA Finance would continue to operate in strict compliance with the relevant rules and regulations. However, the deposits may be exposed to risks associated with theSA Finance’s business of SA Finance over which the Group doeswe do not have control. As of December 31, 20142017 and 2015, the Group2018, we had deposits of RMB4,264RMB6,095 million and RMB2,934,RMB5,583 million, respectively, with SA Finance.
Unfavorable economic conditions, in China and globally, could affect the demand for air travel.
8
We have experienced incidentsThe airline industry is highly cyclical, and the level of employee misconduct indemand for air travel is correlated to the past,strength of domestic and mayglobal economies. During periods of unfavorable or volatile economic conditions, demand for air travel can be unable to prevent similar incidents in the future, which could adversely impact our reputation, ourimpacted as business and the trading priceleisure travelers choose not to travel, seek alternative forms of transportation for short trips or conduct business through videoconferencing. If unfavorable economic conditions occur, particularly for an extended period, our securities.
On January 5, 2015, we were informed that Mr. Xu Jie Bo, then Executive Director, Executive Vice President, Chief Financial Officer and Chief Accountant of the Company and Mr. Zhou Yue Hai, then Executive Vice President of the Company were under investigation for suspicion of job-related crimes. On October 17, 2015, we were informed by PRC authorities that Mr. Liu Qian, then Executive Vice President of the Company was under investigation due to the suspicion of bribery crime. We responded immediately to this information in accordance with our internal policies, and removed each of the affected employees from office. We were informed by PRC authorities on November 5, 2015 that Mr. Si Xian Min, Chairman of the Board was under investigation for suspected severe disciplinary violations.We had no prior knowledge of the incidents that led to the investigation by the PRC authorities. On November 5, 2015, the Board passed resolutions to authorize Mr. Tan Wan Geng, Vice Chairman of the Board to assume the role and duties of the Chairman of the Board. On 15 January 2016, the Board received resignation from Mr. Si Xian Min as the Chairman of the Board. As of the date of this Annual Report, the investigation of Mr. Si Xian Min by the government authorities is on-going. Legal proceedings are subject to many uncertainties and we cannot predict the outcome of individual matters with absolute assurance. However, after due inquiry and to the best of our knowledge, neither we nor any of our current senior management or controlling shareholders is subject to any investigation by PRC authorities involved in these incidents or otherwise, and based on current information, we do not, believe there will be any material impact on our financial condition or results of operations or impact on the internal control over financial reporting caused by the incident.
We may not be able to detect or prevent employee misconduct, including misconduct by senior management, and such misconduct may damage our reputation and could adversely affect the financial condition of the Company and results of our operations. We have limited knowledge of the status or scope of the on-going investigation against our former executives by PRC authorities and currently are unaware of what determinations and conclusions may be reached by the authorities against these former executives. Based on current information, we do not, however, believe there will be any material impact on the Company’s financial condition or results of operations or internal control over our financial reporting. We will further enhance our training and corporate governance policies and procedures in order to strengthen our ability to detect and prevent similar and other misconduct. Despite our proactive actions, however, we cannot assure you that we will be able to detect or prevent such alleged personal misconduct in a timely fashion, or at all. If we fail to prevent employee personal misconduct, our reputation may be harmed, andbusiness, financial condition and results of operations couldmay be adversely affected.
Both internationalFollowing a referendum in June 2016 in which voters in the U.K. approved an exit from the EU, the U.K. government has initiated a process to leave the EU (often referred to as Brexit) and domesticbegun negotiating the terms of the U.K.’s future relationship with the EU. Currently, the new deadline for the proposed exit is October 31, 2019. The airline industry faces substantial uncertainty regarding the impact of the exit of the U.K. from the EU. Adverse consequences such as deterioration in economic fluctuations and Chinese government’s macroeconomic controls affectconditions, volatility in currency exchange rates, or adverse changes in regulation of the demand forairline industry or bilateral agreements governing air travel which will in turn cause volatility to the Group’s businesscould have a negative impact on our operations, financial condition and results of our operations.
Both international and domestic economic fluctuations and Chinese macroeconomic controls, affect the demand for air travel. For example, the demand for air travel significantly decreased during the few years after the U.S. subprime crisis and European debt crisis. In addition, the continuing global economic slowdown may have a negative effect on the growth rate of the Chinese economy. Chinese macroeconomic controls, taken to counteract such slowdown, such as financing adjustments, credit adjustments, taxation policies, price controls and exchange rate policies would also present unexpected changes to the aviation industry. As a result, the changing economic situation and Chinese macroeconomic controls may cause volatility to the Group’sour business and results of our operations.
The financial crisisoperations may be adversely affected by the changing economic situations and other global events may reduce consumer spending or cause shifts in spending. A general reduction or shift in discretionary spending can result in decreased demand for leisure and business travel and can also impact the Group’s ability to raise fares to counteract increased fuel and labor costs. No assurance can be given that capacity reductions or other steps we may take will be adequate to offset the effects of reduced demand.Chinese macroeconomic controls.
The GroupWe could be adversely affected by an outbreak of a disease, a similar public health threat or large scalea large-scale natural disasters that affect travel behavior.disaster.
An outbreak of a disease, a similar public health threat or a large-scale natural disaster that affects travel demand, travel behavior, or travel restrictions could have a material adverse impact on our business, financial condition and operating results.
The outbreak of the H1N1 swine flu in March 2009 has had an adverse impact on the aviation industry globally (includingand our international routes operations in 2009 were adversely affected by the Group). The spread of the swine flu adversely affected the Group’s international routes operations in 2009. Recently, there have been a number of outbreaks of H7N9 bird flu in several provinces in the PRC. A further spread of H7N9 bird flu may have a negative impact on the economic and business activities in China and thereby adversely affect our results of operation. A future outbreak of an infectious disease or any other serious public health concerns in Asia and elsewhere could have a material adverse effect on our business, financial condition and results of operations.
flu. In 2011, a number of large-scale natural disasters occurred, globally, such as the nuclear meltdown in Japan caused by earthquakes and subsequent tsunami, the hurricane on the East Coast of the United States, the flooding in Thailand and the typhoon in the Philippines. Disasters such as these can affectPhilippines, materially and adversely affected the aviation industry and the Group by reducing revenues and impacting travel behavior.
industry.
Lack of adequate documentation for land use rights and ownership of buildings subjectsmay subject us to challenges and claims by third parties with respect to the Company’s use of such land and buildings.parties.
Although systems for registration and transfer of land use rights and related real property interests in China have been implemented, such systems do not yet comprehensively account for all land and related property interests. The GroupWe leased certain properties and buildings, from CSAHC which are located in Guangzhou, Wuhan, Haikou and other PRC cities.cities from CSAH. However, CSAHCCSAH lacks adequate documentation evidencing CSAHC’sCSAH’s rights to such land and buildings, and, as a result, the lease agreements between CSAHCCSAH and the Companyus for such land hashave not been registered with the relevant authorities. As a result, such lease agreements may not be enforceable. Lack of adequate documentation for land use rights and ownership of buildings subjects the Companymay subject us to challenges and claims by third parties with respect to the Company’sour use of such land and buildings.
As of the date of this Annual Report, we had been occupyingoccupied all of the land and buildings describedmentioned above without any challenge or claim by third parties. However, ifwe cannot assure you that we would not be subject to any challenges in the future. If any challenges to the property ownership or other claims are successful, our operation and business may be materially adversely affected. CSAHCCSAH has agreed to indemnify us against any loss or damage caused by or arising from any challenge of, or interference with, the Company’sour right to use certainsuch land and buildings.
Any discontinuity or disruption in the direct flight arrangement between Taiwan and Mainland China may negatively affect the Group's results.our results of operations.
The policy restraintrestrictions on direct flights between Taiwan and Mainland China has been further loosened in the past few years.years, but there has been no further negotiations on the expansion of such arrangement between Taiwan and Mainland China sincemid-2016. As of April 18, 2016,26, 2019, there were 69880 cross-Strait direct passenger flights per week. The Company wasWe were the first Chinese carrier to operatenon-stop flights frombetween Mainland China toand Taiwan and as a result hashave benefited from the operation of such flights. However, given the cross-Strait flight arrangement is subject to the political relationship between Taiwan and Mainland China, any deterioration in such political relationship may cause the discontinuity or disruption in the flight arrangement, and therefore may havelead to a material adverse impact on the Group's results.
10
our results of operations.
Terrorist attacks or the fear of such attacks, even if not made directly on the airline industry, could adversely affect the Companyus and the airline industry as a whole.industry. The travel industry continues to faceon-going security concerns and cost burdens.
The aviation industry as a whole has been beset with high-profile terrorist attacks, most notably the terrorist attack on September 11, 2001 in the United States. Terrorist attacks could also affect the aviation industry in China. Airlines in China have experienced several incidents of terrorist attacks or threats recently.threats. For example, on March 7, 2008, on a China Southern Airlines flight boarding in Urumqi, crew members discovered a terrorist suspect. On July 14, 2010, a passenger jet en route from Urumqi to Guangzhou was forced to make an emergency landing after receiving an anonymous call claiming there was a bomb on the aircraft. On June 29, 2012, there was an attempted hijacking on a passenger flight operated by Tianjin Airlines between Hotan and Urumqi in China'sChina’s Xinjiang region. CAAC has enhanced security measures but the effectivenessto prevent potential threats of such measures cannot be ascertained. Additional terrorist attacks. Terrorist attacks, even if not made on or targeted directly onat the airline industry, or the fear of or the precautions taken in anticipation of such attacks (including elevated threat warnings, travel restrictions, or selective cancellation or redirection of flights) could materially and adversely affect the Companyus and the aviation industry. Potential impacts that terroristTerrorist attacks could have on the Company includemay result in substantial flight disruption costs caused by grounding of fleet, significant increase in security costs and associated passenger inconvenience, increased insurance costs, substantially higher ticket refunds and significant decrease in traffic measured in revenue passenger kilometers. Additionally, increasingly strict security measures make air travel a hassle in the eyes of some consumers.may cause inconvenience to passengers. These factors can have an uncertain impact on the development of the aviation industry.
We may suffer losses in the event of an accident involving our aircraft or the aircraft of any other airline.
An accident involving one of ouran aircraft that we operate could requireexpose us to additional repair or replacement of a damaged aircraft, and result in its consequentialexpenses, temporary or permanent losslosses from service and/ordisruption of services and significant liability to injured passengers and others.tort liabilities. Although we believe that we currently maintain liability insurance in amounts and of the types generally consistent with industry practice, the amounts of such coverage may not be adequate to fully cover the costs related to the accident or incident, which could result in harm to our results of operations and financial condition. In addition, anysuch an aircraft accident even if fully insured, could causecreate a public perception that weour operations are not as safe or reliable as those of other airlines, which wouldcould harm our competitive position and result incause a decrease in our operating revenues.revenue. Moreover, a major accident involving the aircraft of any of our competitors may causereduce demand for air travel to decrease in general, which would adversely affect our results of operations and financial condition.
On March 11, 2019, the CAAC issued the notice “CAAC Request Domestic Transportation Airlines to Suspend the Commercial Operation of the Boeing737-8 Aircraft”, requiring domestic transportation airlines to suspend the commercial operation of the Boeing737-8 aircraft. As of December 31, 2018, we owned some Boeing737-8 aircraft and currently suspend commercial operations in accordance with the requirements of the CAAC. At this point, the effects of such suspension on us still remain unclear, and our operations may be affected.
The GroupWe could be adversely affected by a failure or disruption of our computer, communications or other technology systems.
The Group isWe are increasingly dependent on technology to operate itsour business. In particular, to enhance itsour management of flight operations, the Groupwe launched the computerized flight operations control system in May 1999. The system utilizes advanced computer and telecommunications technology to manage the Group’sour flights on a centralized, real-time basis. The Group believesWe believe that the system will enhance the efficiency of flight schedule, increase the utilization of aircraft and improve the coordination of the Group’sour aircraft maintenance and ground servicing functions. However, the computer and communications systems on which we rely could be disruptedsuffer substantial or repeated disruptions due to various factors, some of which are beyond our control, including natural disasters, power failures, terrorist attacks, equipment failures,or software failures and computer viruses and hackers. The Group hasWe cannot assure you that the measures we have taken certain steps to reduce the risk of some of these potential disruptions. There can be no assurance, however, that the measures we have takendisruptions are adequate to prevent or remedy disruptions to or failures of thosethese systems. Any substantial or repeated failure of those systems could adversely affect our operations and customer services, and result in the loss of important data, loss of revenues,revenue, and increased costs, and generally harm our business.costs. Moreover, a failure of certain of our vital systems could limit our ability to operate our flights for an extended period of time, which wouldcould have a material adverse effect on our operations and our business.
11
We may lose investor confidence in the reliability of our financial statements if we fail to achieve and maintain effective internal control over financial reporting, which in turn could harm our business and negatively impact the trading prices of our ADRs,ADSs, H Shares or A Shares.
The United States Securities and Exchange Commission, or the SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring every public company, including us, in the United States to include a management report on such company’s internal control over financial reporting in its annual report, which contains management’s assessment of the effectiveness of the company’s internal control over financial reporting. In addition, the Company’sour independent registered public accounting firm is required to report on the effectiveness of the Company’sour internal control over financial reporting.
Since 2011, pursuant toin accordance with the Basic Standard for Enterprise Internal Control jointly issued by the Ministry of Finance, China Securities Regulatory Commission ("CSRC"(“CSRC”) and other three PRC authorities on May 22, 2008, and its application guidelines and other relevant regulations issued subsequently (collectively, "PRC“PRC internal control requirements"requirements”) , the Company haswe have carried out a self-assessment of the effectiveness of its internal control and issueissued a self-assessment report annually in accordance with the PRC internal control requirements, and the Company’sour auditor for itsour PRC GAAP financial statements (the "PRC Auditor"“PRC Auditor”) is required to report on the effectiveness of the Company’sour internal control over financial reporting.
However, our independent registered public accounting firm or PRC Auditor may not be satisfied with our internal controls, the level at which our controls are documented, designed, operated and reviewed. Our independent registered public accounting firm or PRC Auditor may also interpret the requirements, rules and regulations differently, and reach a different conclusion regarding the effectiveness of our internal control over financial reporting. Although our management have concluded that our internal control over financial reporting as of December 31, 20152018 was effective, we may discover deficiencies in the course of our future evaluation of our internal control over financial reporting and may be unable to remediate such deficiencies in a timely manner. If we fail to maintain the adequacy of our internal control over financial reporting, we may not be able to conclude that we have effective internal control over financial reporting on an ongoing basis, as required under the above mentioned rules and regulations. Moreover, effective internal control is necessary for us to produce reliable financial reports and is important to prevent fraud. As a result, our failure to achieve and maintain effective internal control over financial reporting could result in the loss of investor confidence in the reliability of our financial statements, which in turn could harm our business and negatively impact the trading prices of our ADRs,ADSs, H Shares or A Shares.
The CompanyWe could be classified as a passive foreign investment company by the United States Internal Revenue Service and may therefore be subject to adverse tax impact.
Depending upon the relative values of our passive assets and income as compared to our total assets and income each taxable year, we could be classified as a passive foreign investment company, or PFIC, by the United States Internal Revenue Service, or IRS, for U.S. federal income tax purposes. The Company believesWe believe that it waswe were not a PFIC for the taxable year 2015.2018. However, there can be no assurance that we will not be a PFIC for the taxable year 20162019 and/or later taxable years, as PFIC status isre-tested each year and depends on the facts in such year.
The Company
We will be classified as a PFIC in any taxable year if either: (1) the average value during the taxable year of itsour assets that produce passive income, or are held for the production of passive income, is at least 50% of the average value of itsour total assets for such taxable year (the "Asset Test"“Asset Test”) or (2) 75% or more of itsour gross income for the taxable year is passive income (such as certain dividends, interest or royalties) (the "Income Test"“Income Test”). For purposes of the Asset Test: (1) any cash, cash equivalents, and cash invested in short-term, interest bearing, debt instruments, or bank deposits that is readily convertible into cash, will generally count as producing passive income or as being held for the production of passive income and (2) the average values of the Company’sour passive and total assets is calculated based on itsour market capitalization.
If we were a PFIC, youwe would generally be subject to additional taxes and interest charges on certain "excess distributions" the“excess distributions” our Company makes regardless of whether we continue to be a PFIC in the year in which you receive an "excess distribution"“excess distribution”. An "excess distribution"“excess distribution” would be either (1) the excess amount of a distribution with respect to ADRsADSs during a taxable year in which distributions to you exceed 125% of the average annual distributions to you over the preceding three taxable years or, if shorter, your holding period for the ADRs,ADSs, or (2) 100% of the gain from the disposition of ADRs.ADSs. For more information on the United States federal income tax consequences to you that would result from our classification as a PFIC, please see Item 10, "Taxation“Taxation - United States Federal Income Taxation - U.S. Holders - Passive Foreign Investment Company"Company”.
We may be unable to retain senior management team or other key management personnel.employees.
We are dependent on the experience and industry knowledge of our senior management team and other key management employees, and there can be no assurancewe cannot assure you that we will be able to retain them. Any inability to retain our key management employees, or attract and retain additionaltalented and highly qualified senior management team or other key employees, could have a negative impact on us.
Our exit from Sky Team Alliance may result in claims against us during the transition period, due to lack of detailed implementation rules regarding member passenger’s rights and interests .
During the reporting period, given the requirements from our own development strategy and the new trend of cooperation model in the global air transport industry, we decided not to renew the Sky Team Alliance Agreement from January 1, 2019. We and Sky Team Alliance will continue to work closely during the transition period (January 1, 2019 - December 31, 2019) to ensure a smooth transition for passengers and partners. At this point, we and Sky Team Alliance have reached some agreements on the member passenger’s rights and interests during the transition period. However, due to lack of detailed implementation rules regarding member passenger’s rights and interests, claims may arise against us during the transition period.
Risks Relating to the Chinese Commercial Aviation Industry
The Group’sOur business is subject to extensive government regulations, and there can be no assurance as to the equal treatment of all airlines under those regulations.
The Group’s abilityChinese commercial aviation industry is subject to implement its business strategy will continue to be affected byextensive regulatory and legal oversight. The CAAC issues and implements several regulations and policies issued or implemented by relevant government agencies, particularly CAAC,polices, which encompassesencompass substantially all aspects of the Chinese commercial aviation industry, such as the approval of route allocation, the administration of certain airport operations and air traffic control. Such regulationsAs a result, we may face significant constraints on our flexibility and policies limit the flexibility of the Groupability to respond to market conditions, competitionconduct our business or changes in the Group’s cost structure. The implementation of specific government policies could from time to time adversely affect the Group’s operations.maximize our profitability.
The Group’sOur results of operations may be negatively impacted by theany jet fuel shortages or any fluctuation in domestic prices for jet fuel, and we would be adversely affected by disruptions in the supply of fuel.
The availability and cost of jet fuel have a significant impact on the Group’sour financial condition and results of operations. The Group’sPrior to 1993, jet fuel cost for 2015 accounted for 52.12% of its flight operations expenses. All of the domestic jet fuel requirements of Chinese airlines (other than at the Shenzhen, Zhuhai, Sanya, Haikou, Shanghai Pudong and other small airports) must be purchased from the exclusive providers, CAOSC and Bluesky Oil Supplies Company, which are supervised by the CAAC. Chinese airlines may also purchase jet fuel at the Shenzhen, Zhuhai, Sanya, Haikou, Shanghai Pudong and other small airports from joint venturesshortages occurred in which the CAOSC is a partner. Jet fuel obtained from the CAOSC’s regional branches is purchased at uniform prices throughout China, that are determined and adjusted by the CAOSC from time to time with the approval of the CAAC and the pricing department of the NDRC based on market conditions and other factors. Asas a result the costs of transportationwhich we had to cancel or delay flights. We cannot assure you that such shortages would not occur again, and storage of jet fuel in all regions of China are spreadif such a shortage occurs and causes us to delay or cancel flights, our reputation among all domestic airlines.
passengers as well as our operations may suffer.
Domestic price for jet fuel has experienced fluctuations in the past few years. The Group’s profityears and may continue to fluctuate in the future due to various factors including changes of fuel surcharge. In 2018, our jet fuel cost for the year may suffer from an unexpected change2018 accounted for 56.32% of our flight operation expenses. Therefore, any foregoing fluctuation in the fuel surcharge collection policies and other factors beyondprice may affect our control.financial performance due to our sensitivity to fuel prices. For more information on the jet fuel prices, please see "Item“Item 4, Information on the Company - Business Overview - Jet Fuel"Fuel” section below for further discussion.
In summary, given the constant fluctuation of volatile fuel price, no assurance can be given that the Group’s operation and financial results will not be negatively impacted by the fluctuation in domestic prices for jet fuel.
In addition, China has experienced jet fuel shortages. On some rare occasions prior to 1993, the Group had to delay or even cancel flights. Although such shortages have not materially affected the Group’s operations since 1993, there can be no assurance that such a shortage will not occur in the future. If such a shortage occurs in the future to the extent that the Group has to delay or cancel flights due to fuel shortage, its operational reputation among passengers as well as its operations may suffer.
In 2015,2018, a reasonable possible increase or decrease of 10% in average jet fuel price (VAT inclusive) with volume of fuel consumed and all other variables held constant, would have increased or decreased the Group’sour annual fuel costs by approximately RMB2,627RMB4,292 million. Accordingly, even if the jet fuel supply remains stable, increases in jet fuel prices will nevertheless adversely impact our financial results.
The Group’sOur profit for the year may suffer from an unexpected volatility caused by any fluctuation in the level of fuel surcharges.
The level of fuel surcharges, which is regulated by Chinese government, affects domestic customers’ air travel demanddemands as well as the Group’sour ability to generate profits. On January 14, 2009, the NDRC and the CAAC jointly announced that the collection of passenger fuel surcharge for domestic routes should be suspended from January 15, 2009 onwards. Subsequently, in response to the increase in international fuel prices, the NDRC and CAAC issued a notice on November 11, 2009 to introduce a new pricing mechanism of fuel surcharge that links it with airlines’ jet fuel costs, which was further adjusted subsequently. On October 14, 2011, the NDRC and the CAAC issued a notice to adjust such pricing mechanism. As a result of this adjustment, the maximum rates for fuel surcharge can be adjusted according to the pricing mechanism of fuel surcharge, if the aggregated change in jet fuel costs exceeds RMB250 per ton. Due to the decrease in the jet fuel cost, the fuel surcharge has been suspended since February 5, 2015. In March 2015, the NDRC and the CAAC issued the “Notice on Adjusting the Base Oil Price of the Passenger Transportation Fuel Addition and Aviation Kerosene Price Linkage Mechanism of Civil Aviation Domestic Routes”, pursuant to which, when the domestic aviation kerosene comprehensive procurement cost exceeds RMB5,000 per ton, an air transport enterprise can collect fuel surcharge according to the linkage mechanism. In accordance with the above regulations, we adjusted the fuel surcharges for domestic routes from June 5, 2018 (the date of issue), and, as a result, each passenger is charged RMB10 for domestic flight segments (including domestic segments of international routes) under 800 kilometers, 800 kilometers and above 800 kilometers. We cannot guarantee that fuel surcharges would not be adjusted further in the future or adjusted in our favor. If fuel surcharges are not adjusted in correspondence to the increase in jet fuel, our profit for the year may be materially adversely affected.
The Group’sOur results of operations are subjecttend to be volatile and fluctuate due to seasonality.
The Group’saviation industry is characterized by annual high and low travel seasons. Our operating revenue is substantially dependent on the passenger and cargo traffic volume carried, which is subject to seasonal and other changes in traffic patterns, the availability of appropriate time slots for the Group’sour flights and alternative routes, the degree of competition from other airlines and alternate means of transportation, as well as other factors that may influence passenger travel demand and cargo and mail volume. In particular, the Group’sour airline revenue is generally higher in the second and third quartershalf of the year than in the first and fourth quarters.half of the year due to the greater demand for air travel during the summer months. As a result, the Group’sour results may fluctuate from seasontend to season.be volatile and subject to rapid and unexpected change.
The Group’sOur operations may be adversely affected by insufficient aviation infrastructure in Chinese commercial aviation industry.
The rapid increase in air traffic volume in China in recent years has put pressure on many components of the Chinese commercial aviation industry, including China’s air traffic control system, the availability of qualified flight personnel and airport facilities. Airlines, such as the Group,our Company, which have route networks that emphasize short- to medium-haul routes, are generally more affected by insufficient aviation infrastructure in terms ofon-time performance and high operating costs due to fuel inefficiencies resulting from the relatively short segments flown, as well as the relatively high proportion of time on the ground during turnaround. All of these factors may adversely affect the perception of the service provided by an airline and, consequently, the airline’s operating results. In recent years, the CAAC has placed increasingincreasingly emphasis on the safety of Chinese airline operations and has implemented measures aimed at improving the safety record of the industry. The ability of the Groupus to increase utilization rates and to provide safe and efficient air transportation in the future will depend in part on factors, such as the improvement of national air traffic control, and navigation systems and ground control operations at Chinese airports, factors which are beyond the control of the Group.our control.
The Group facesWe face increasingly intense competition in both in domestic aviation industry and in the international market, as well as from alternative means of transportation.
The CAAC’s extensive regulation of the Chinese commercial aviation industry has had the effect of managing competition among Chinese airlines. Nevertheless, competitionCompetition has become increasingly intense in recent years in domestic market, due to a number of factors, including relaxation of certain regulations by the CAAC, and an increase in the capacity, routes and flights of Chinese airlines. Competition in the Chinese commercial aviation industryairlines, etc. Such intense competition has led to widespread price-cutting practices, thatwhich do not comply with applicable regulations in all respects comply with applicable regulations.. Until CAAC finalizes and strictly enforces the interpretation of CAACrelevant regulations limiting such price-cutting, has been finalized and strictly enforced, discounted tickets from competitors will continue to have an adverse effect on the Group’sour sales.
The Group facesWe face varying degrees of competition on its regional routes from certain Chinese airlines and Cathay Pacific, Airways, DragonairCathay Dragon and Air Macau, and on itsour international routes, primarily fromnon-Chinese airlines, most of which have significantly longer operating histories, substantially greater financial and technological resources and greater name recognition than the Group.us. In addition, the public’s perception of the safety and service records of Chinese airlines could adversely affect the Group’sour ability to compete against itsour regional and international competitors. Many of the Group’sour international competitors have larger sales networks, and participate in reservation systems that are more comprehensive and convenient than those of the Group,reservation systems, or engage in more promotional activities, which may enhance their ability to attract international passengers.
Furthermore, for short-distance transportation, airplanes, trains and buses are alternatives to each other. Given the recent development of high-speed trains (as discussed below), the construction of nationwide high-speed railway network and the improvement of inter-city expressway network, the commercial aviation sector as a whole faces increasingincreasingly competition from the alternative means of transportation such as railways and highways.
aforementioned.
We expect to face substantial competition from the rapid development of the Chinese rail network.
The PRC government is aggressively implementing the expansion ofexpanding its high-speed rail network, which provides train services at a speednetwork. The mileage of up to 300 kilometers per hour connecting major cities such as Beijing, Shanghai, Wuhan, Zhengzhou, Xi'an, Qingdao, Guangzhou, Harbinnew railway lines put into operation in 2018 reached 4,600 kilometers. In 2018, the Harbin-Jiamusi Rapid Railway, Jianmeng-Zhanjiang, and Dalian. In December 2012, the Beijing-Guangzhou and Harbin-Dalian High-Speed RailwaysKunming Chuxiong Dali Intercity Railway commenced operation, the expansion of the coverage of this network and improvements in railway service quality, increased passenger capacity and stations located closer to urban centers than competing airports could enhance the relative competitiveness of the railway service and affect our market share on some of our key routes, in particular routes below 800 kilometers. The aggregate high-speed railway mileage in China reached over 19,000 kilometers asoperation. As of December 31, 2015. The construction of all railways in2018, China’s "Four Longitudinal and Four Horizontal"railway traffic mileage reached 131,000 kilometers, among which 29,000 kilometers are covered by high-speed railway, network is expectedaccounting for more than 60% of the world’s total high-speed railway traffic mileage. According to completethe latest development goal of the China Railway, China’s railway traffic mileage will reach 175,000 kilometers by the end of 2020. We expect it will bring further negative impact on the domestic aviation industry. Increased competition and pricing pressures from railway service may have a material adverse effect on our financial condition and2025, among which 38,000 kilometers are covered by high-speed railway. The operating results of operations.our air routes, which overlap with the high-speed railway corridors (especially air routes with a distance of less than 800 kilometers), will be affected in the future.
Due to limitationLimitations on foreign ownership imposed byof Chinese government policies, the Companyairlines may have limitedaffect our access to funding in the international equity capital markets.
The current Chinese government policies limit foreign ownership inof Chinese airlines. Under these policies, the percentagenon-PRC, Hong Kong, Macau, Taiwan residents can only hold up to 49% of equity interest in a Chinese airline. As of December 31, 2018, we estimate that 29.89% of our total outstanding ordinary shares were held bynon-PRC, Hong Kong, Macau, Taiwan residents. According to The Provisions on Domestic Investment in Civil Aviation Industry, effective on January 19, 2018, Chinese government has loosen up restrictions on state ownership of our total outstanding ordinary shares, held by investors in Hong Kong and any country outside China ("Foreign Investors") may not inwhich allows the aggregate exceed 49%percentage of state-owned shares to be under 50%. Currently, we estimate that 28.47% of the total outstanding ordinary shares of the Company are held by Foreign Investors. ForHowever, for so long as the limitation on foreign ownership is in force, we will have limited access to funding in the international equity capital markets.
The European Emissions Trading Scheme may increase our operational cost of the Group.cost.
Starting on January 1, 2012, aviation sector will behas been included in the European Emissions Trading Scheme (ETS), EU’s mandatorycap-and-trade system for reduction of greenhouse gas emissions. Airline operators in the EU will receive tradable emission permits (aviation allowances) covering a certain level of their CO2 emissions per year for their flights operating to and from EU airports. If an airline fails to obtainfree-of-charge emission permits from the EU, it will have to buy around EUR10 million (RMB100 million) worth of CO2 emissions allowances from other greener industries. Pursuant to this policy, the domesticChinese airlines having flight points in Europe undertake the same carbon emission reductions obligation as the European local airlines, which will result in a significant increase in the operating cost of domesticChinese airlines in Europe, including our Company, and further have an adverse impact on the results of operations and financial condition. In March 2011, a group representing China’s largest airlines sent a formal notice to the EU expressing strong opposition tonon-member-state airlines’ inclusion in the EU’s Emissions Trading Scheme. Also, in early February 2012, the CAAC issued instructions to various airlines announcing that without approval from the relevant government authorities, the major airlines are prohibited from joining the ETS and the transport airlines are also prohibited from raising the freight price or increasing fee items by adducing this reason. On November 12, 2012, EU announced to temporarily suspend the implementation of the ETS in the aviation sector in 2013 in order to forge a positive negotiation environment for all parties. In November 2014,2016, our Company had finished 2015 compliance cycle and in 2017, our Company had finished 2016 compliance cycle. In March 2018, the CAAC issued aanother notification on the ETS. The notification provided that the CAAC would not prohibit Chinese airlines to take part in the ETS if the relevant flights take off and land between the airports within the EU during 20122017 and 2016. We operated few flights between airports within2018. By the EU since 2012. We expect we would operate few flights between airports within the EU in the future. Therefore, we will submit emissions reportend of reporting period, our Company has finished 2017 compliance cycle and pay the quota between 2012 and 2016 fornow is performing 2018 compliance cycle. On 2019-2020 compliance cycle, our flights between airports within the EU. In April 2015, the Company had completed submission of emissions reports for the years 2012 to 2014 and fulfilled our obligations under the ETS. Going forward, the Company will be in strict compliance withsubject to the requirements of relevant PRC laws and the ETS, and continue to implement our respective obligations of EU carbon emissions trading in 2015 and 2016.ETS. There can be no assurance that the new implementation proposal will not have negative impact on our financial condition and resultresults of operation.operations.
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We may utilize fuel hedging arrangements which may result in losses.
While we have not entered into any fuel hedging transactions since the fourth quarter of 2008, we may in the future consider to hedge a portion of our future fuel requirements through various financial derivative instruments linked to certain fuel commodities to lock in fuel costs within a hedged price range. However, these hedging strategies may not always be effective and high fluctuations in aviation fuel prices exceeding thelocked-in price ranges may result in losses. Significant declines in fuel prices may substantially increase the costs associated with our fuel hedging arrangements. In addition, wherewhile we seek to manage the risk of fuel price increases by using derivative contracts, we cannot assure you that, at any given point in time, our fuel hedging transactions will provide any particular level of protection against increased fuel costs.
Risks Relating to the PRC
The Group hasWe have significant exposure to foreign currency risk as majoritypart of the Group’sour lease obligations and certain bank and other loans are denominated in foreign currencies. Due to rigid foreign exchange control by Chinese government, the Groupwe may face difficulties in obtaining sufficient foreign exchange to pay dividends or satisfy our foreign exchange liabilities.
Under current Chinese foreign exchange regulations, the Renminbi is fully convertible for current account transactions, but is not freely convertible for capital account transactions. All foreign exchange transactions involving Renminbi must take place either through the People’s Bank of China or other institutions authorized to buy and sell foreign exchange or at a swap centre.center.
The Group hasWe have significant exposure to foreign currency risk as substantially all of the Group’sour obligations under leases, certain bank and other loans and operating lease commitment are denominated in foreign currencies, principally U.S. dollars, Euros and Japanese Yen. Depreciation or appreciation of the Renminbi against foreign currencies affects the Group’sour results significantly because the Group’sour foreign currency liabilities generally exceed itsour foreign currency assets. The Group isWe are not able to hedge itsour foreign currency exposure effectively other than by retaining itsour foreign currency denominated earnings and receipts to the extent permitted by SAFE, or subject to certain restrictive conditions, entering into foreign exchange forward option contracts with authorized banks. However, SAFE may limit or eliminate the Group’sour ability to purchase and retain foreign currencies in the future. In addition, foreign currency transactions under the capital account are still subject to limitations and require approvals from SAFE. This may affect our ability to obtain foreign exchange through debt or equity financing, including by means of loans or capital contributions. No assurance can be given that the Groupwe will be able to obtain sufficient foreign exchange to pay dividends or satisfy our foreign exchange liabilities.
The Group also has exposure to foreign currency risk in respect of net cash inflow denominated in Japanese Yen from ticket sales in overseas branch office after payment of expenses. The Group entered into certain foreign exchange forward option contracts, which were fully settled in 2011, to manage this foreign currency risk. However, like other derivative products, there can be no assurance that such option contracts can provide, at any given time, particular level of protection against foreign exchange risks.
The Group’sOur operations are subject to immature development of legal system in China. Lack of uniform interpretation and effective enforcement of laws and regulations may cause significant uncertainties to our operations.
Our Company and the Group’s operations.
The membersmajor subsidiaries of the Groupus are organized under the laws of China. The Chinese legal system is based on written statutes and is a system, unlike common law systems, in which decided legal cases have little precedential value. Since 1979, the Chinese government has been developing a comprehensive system of commercial laws and considerable progress has been made in the promulgation of laws and regulations dealing with economic matters, such as corporate organization and governance, foreign investments, commerce, taxation and trade. These laws, regulations and legal requirements are relatively recent, and, like other laws, regulations and legal requirements applicable in China (including with respect to the commercial aviation industry), their interpretation and enforcement involve significant uncertainties.
The PRC tax law may in the future deprive us of preferential tax treatments, which we currently enjoy.
On March 16, 2007, the Fifth Plenary Session of the Tenth National People’s Congress passed the Corporate Income Tax Law of the PRC which took effect on January 1, 2008. As a result of the tax law, the statutory income tax rate adopted by the Company and its subsidiaries has been changed to 25% with effect starting from January 1, 2008. Prior to January 1, 2008, certain branches and subsidiaries of the Company were taxed at rates ranging from 15% to 33%. Pursuant to the current tax law, the income tax rates of entities that previously enjoyed preferential tax rates of 15% and 18% have been revised to 18%, 20%, 22%, 24% and 25% for 2008, 2009, 2010, 2011 and 2012 onwards respectively. To the extent that there are any withdrawals of, or changes in, the preferential tax treatment that we currently enjoy, our tax liability may increase correspondingly and our financial condition and results of operations may be adversely affected.
On July 31, 2012, the Ministry of Finance ("MOF") and the State Administration of Taxation ("SAT") jointly issued a pilot program (the "Pilot Program"), pursuant to which, commencing on November 1, 2012, business tax is replaced by a value-added tax ("VAT"). According to the Pilot Program, all traffic revenues and the other revenues that fall within the scope of the Pilot Program, including ground service income and cargo handling income, are subjected to VAT levied at the applicable tax rates of 17%, 11% or 6%. Other revenues that are not within the scope of the Pilot Program continue to be subject to business tax at applicable tax rates. However, as the Pilot Program has only been implemented recently, there is uncertainty as to how its impact on our financial condition and results of operations is not certain, but it may affect the way we record our revenues and taxes in our financial statements. As a result, it may be difficult to compare our financial statements in future periods with these before the Pilot Program was implemented.
The PRC tax law may have negative tax impact on holders of our H Shares or ADRs of the Company,ADSs, by requiring the imposition of a withholding tax on dividends paid by a Chinese company to anon-resident enterprise.
The current tax law generally provides for a withholding tax on dividends paid by a Chinese company to anon-resident enterprise at a rate of 10%.
For individuals, the PRC tax law generallyCaishui Notice [2014] No. 81 provides that, an“for dividends derived by Mainland individual who receives dividendsinvestors from investing in H Shares listed on the Company is subject to a 20% income tax. However, certain reduction of taxable income is granted by Chinese tax law for an individual receiving dividends from a listed company on ShanghaiHong Kong Stock Exchange or Shenzhenthrough Shanghai Hong Kong Stock Exchange. UnderConnect,H-Share companies shall apply to the current PRC tax law, dividends received by any foreignChina Securities Depository and Clearing Corporation Limited (CSDC). CSDC shall provide the list of Mainland individual that holds overseas shares in Chinese enterprise is generally subjectinvestors toH-Share companies who shall withhold individual income tax at a tax rate rangingof 20%. For Mainland securities investment funds investing in shares listed on the Hong Kong Stock Exchange through Shanghai Hong Kong Stock Connect, the above rules shall also apply and individual income tax shall be levied on dividends derived therefrom.”
Caishui Notice [2014] No. 81 further provides that, “dividends derived by Mainland enterprise investors from 5%investing in shares listed on the Hong Kong Stock Exchange through Shanghai Hong Kong Stock Connect shall be included in their gross income and subject to 20% (usually 10%), whichenterprise income tax. For dividends derived by Mainland enterprises where the relevant H Shares have been continuously held for no less than 12 months, enterprise income tax may be entitled to tax reductions or exemptions,exempt according to the applicable tax implementation regulations or applicablelaw.H-Share companies listed on the Hong Kong Stock Exchange shall apply to CSDC to obtain the list of Mainland enterprise investors from CSDC.H-Share companies are not required to withhold income tax treaties betweenon dividends to Mainland enterprise investors which shall report the home country ofincome and make the individual and the PRC.
tax payment by themselves.”
In addition, to date, relevant tax authorities have not collected capital gains tax on the gains realized upon the sale or other disposition of overseas shares in Chinese enterprise held by foreign individuals. If relevant tax authorities promulgate implementation rules on the taxation of capital gains realized by individuals upon the sale or other disposition of the shares, individual holders of the shares may be required to pay capital gains tax.
Our investors in the U.S. who rely on our auditor’s audit reports currently do not have the benefit of PCAOB oversight.
UnderAuditors of companies that are registered with the Sarbanes-Oxley Act of 2002,SEC and traded publicly in the United States, including our independent registered public accounting firm, must be registered with the Public Company Accounting Oversight Board, or PCAOB, has the authority and is required to conduct continuing inspections of registered public accounting firms that provide audit services to public companies subject to the reporting requirements of the SEC. Our external auditor is registered with the PCAOB, and is subjectare required by the laws of the United States to undergo regular inspections by the PCAOB. However,PCAOB to assess their compliance with the laws of the United States and professional standards. The PCAOB, however, is currently unable to inspect a registered public accounting firm’s audit work relating to a company’s operations in China where the documentation of such audit work is located in China, such asChina. Accordingly, our independent registered public accounting firm’s audit work relating toof our operations in China. As a result,China is not subject to the PCAOB inspection.
The PCAOB has conducted inspections of independent registered public accounting firms outside of China and has at times identified deficiencies in the audit procedures and quality control procedures of those accounting firms. Such deficiencies may be addressed in those accounting firms’ future inspection process to improve their audit quality. Due to the lack of PCAOB inspections of audit work undertaken in China, our investors may be depriveddo not have the benefit of the benefitsregular evaluation by PCAOB of PCAOB’s oversightthe audit works, audit procedures and quality control procedures of our independent registered public accounting firm through such inspections.
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firm.
If additional remedial measures are imposed against fourPRC-based accounting firms, including our independent registered public accounting firm, in administrative proceedings brought by the SEC, it could result in our financial statements being determined to not be in compliance with the requirements of the Securities Exchange Act of 1934.
In December 2012, the SEC instituted administrative proceedings against fourPRC-based accounting firms, including our independent registered public accounting firm, alleging that these firmsthey had violated U.S. securities laws and the SEC's rules and regulations thereunder by failingrefused to provide to the SEC the firms'produce audit work papers related to their auditsaudit of certainPRC-based companies that are publicly traded in the United States. On January 22, 2014, an initial administrative law decision was issued, which determined that the fourPRC-based accounting firms should be censured and barred from practicing before the SEC for a period of six months. The fourPRC-based accounting firms appealed the initial administrative law decision to the SEC. The initial law decision is neither final nor legally effective unless and until it is endorsed by the full SEC. In February 2015, each of the fourPRC-based accounting firms agreed to a censure and to pay a fine to the SEC to settle the dispute and avoid suspension of their ability to practice before the SEC. The settlement requires the firms to follow detailed procedures to provide the SEC with access toPRC-based firms’ audit documents via the CSRC.
We were not and are not the subject of any SEC investigations nor are we involved in the proceedings brought by the SEC against the accounting firms. If the firms do not follow these procedures or if there is a failure in the process between the SEC and the CSRC, the SEC could impose penalties such as suspensions, or it could restart the administrative proceedings. If the accounting firms including our independent registered public accounting firm were denied, temporarily or permanently, the ability to practice before the SEC, and we arewere unable to find timely another registered public accounting firm which canin a timely manner to audit and issue a report on our financial statements, our financial statements could be determined to not be in compliance with the requirements for financial statements of public companies registered under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Such a determination could ultimately lead to theour delisting of our common stock from the NYSE for CSA's case or deregistration from the SEC, or both, which would substantially reduce or effectively terminate the trading of our common stockADSs in the United States.
Recent international trade tensions could materially and adversely affect our business, financial condition, and results of operations.
Economic conditions in China are sensitive to global economic conditions. The global financial markets have experienced significant disruptions in the past, including the recent international trade disputes and tariff actions announced by the United States, the PRC and certain other countries. The U.S. administration has imposed significant amount of tariffs on Chinese goods, and the PRC government has imposed tariffs on certain goods manufactured in the United States. There is no assurance that the list of goods impacted by additional tariffs will not be expanded or the tariffs will not be increased materially. It is difficult to predict how PRC or U.S. government policy, in particular, the outbreak of a trade war between the PRC and the United States and the imposition in 2018 of additional tariffs on bilateral imports, may continue to impact the PRC. If the list of goods is further expanded or the tariff is further increased, the volume ofChina-U.S. import and export trade would drop significantly, which will lead to deterioration in economic conditions of both countries and decrease of business and official activities between both countries. Demand for air travel as well as cargo and mail volume may also be impacted.
ITEM 4. | INFORMATION ON THE |
A. | HISTORY AND DEVELOPMENT OF OUR COMPANY |
We were incorporated under the PRC laws on March 25, 1995 as a joint stock company with limited liability under the name of China Southern Airlines Company Limited. The address of our principal place of business is 278 Ji Chang68 Qi Xin Road, Guangzhou 510403, People’s Republic of China 510405.China. Our telephone number is +86 20 8612 4462 and our website iswww.csair.com.
www.csair.com.
In July 1997, we issued 1,174,178,000 H Shares, par value RMB1.00 per share, and completed the listing of theour H Shares on the Hong Kong Stock Exchange of Hong Kong Limited (the "Hong Kong Stock Exchange") and the ADRsADSs representing our H shares on the New York Stock Exchange.
On March 13, 2003, we obtained an approval certificate from the Ministry of Commerce to change to a permanent limited company with foreign investments, and on October 17, 2003, we obtained a business license for itsour new status, as a permanent limited company with foreign investments issued by the State Administration of Industry and Commerce of the People’s Republic of China.
In July 2003, we issued 1,000,000,000 A Shares, par value RMB1.00 per share, and completed the listing of theour A shares on the Shanghai Stock Exchange.
Pursuant to a sale and purchase agreement dated November 12, 2004 between theour Company, CSAHC,CSAH, China Northern Airlines ("CNA"(“CNA”) and Xinjiang Airlines ("XJA"(“XJA”), which was approved by our shareholders in an extraordinary general meeting held on December 31, 2004, we acquired the airline operations and certain related assets of CNA and XJA with effect from December 31, 2004 at a total consideration of RMB1,959 million.
On May 30, 2007, we, together with an independent third party, established Chongqing Airlines Company Limited ("(“Chongqing Airlines"Airlines”). As of December 31, 2012, the Company had transferred four aircraft were transferred to Chongqing Airlines by us as a capital contribution. We own a total of 60% equity interest in Chongqing Airlines.
On August 14, 2007, we acquired a 51% equity interest in Nan Lung International Freight Limited beneficially owned by and registered in the name of Nan Lung Travel & Express (Hong Kong) Limited, and a 100% equity interest in China Southern Airlines Group Air Catering Company Limited, both a wholly ownedwholly-owned subsidiary of CSAHC,CSAH, for a total consideration of RMB112 million.
In December 2008, we acquired a 26% equity interest in China Southern West Australian Flying College Pty Ltd. ("(“Flying College"College”) from CSAHC,CSAH, and Flying College became a 91% owned subsidiary of theour Company.
In June 2009, we acquired a 50% equity interest in Beijing Southern Airlines Ground Services Company Limited ("(“Beijing Ground Service"Service”) from the other shareholder, and Beijing Ground Service became a wholly-owned subsidiary of theour Company.
On September 28, 2009, we entered into an agreement with CSAHCCSAH to sell our 50% equity interest in MTU Maintenance Zhuhai Co., Ltd ("(“Zhuhai MTU"MTU”), a jointly controlled entity of theour Company, to CSAHCCSAH at a consideration of RMB 1,607,850,000. The transfer was completed in February 2010.
On June 2, 2010, a third party company injected capital to Flying College, which diluted the Company’sour interest in Flying College from 91% to 48.12%. Flying College became a jointly controlled entity of theour Company since then. The retainednon-controlling equity interest in Flying College isre-measured to itsthe fair value at the date when control was lost and a gain on deemed disposal of a subsidiary of RMB17 million was recorded in 2010.
In December 2010, we entered into an agreement with Xiamen Jianfa Group Co., Ltd. and Hebei Aviation Investment Group Corporation Limited ("(“Hebei Investment"Investment”), pursuant to which Hebei Investment agreed to inject a cash capital of RMB1,460 million into Xiamen Airlines Company Limited ("(“Xiamen Airlines"Airlines”). In March 2011, the capital injection was received in full and the Company’sour equity interest in Xiamen Airlines was diluted from 60% to 51%. Xiamen Airlines remains a subsidiary of theour Company.
On June 29, 2012, Xiamen Airlines, a subsidiary of theour Company and Southern Airlines Culture and Media Co., Ltd. ("SACM"(“SACM”) entered into an agreement, pursuant to which Xiamen Airlines agreed to sell and SACM agreed to purchase a 51% equity interestsinterest in Xiamen Airlines Media Co., Ltd.("XAMC"(“XAMC”), at a consideration of approximately RMB43.12 million. Immediate prior to the transaction, XAMC was wholly owned by Xiamen Airlines and primarily engaged in providing advertising, corporate branding, publicity and exhibition services and was responsible for the overall brand building and publicity of Xiamen Airlines.
On September 24, 2012, we entered into a joint venture agreement with Henan Civil Aviation Development and Investment Co., Ltd. ("(“Henan Aviation Investment"Investment”) for the establishment of China Southern Airlines Henan Airlines Company Limited (“Henan Airlines”), a joint venture company with a total registered capital of RMB6 billion, which will beis owned as to 60% and 40% by the Companyus and Henan Aviation Investment, respectively. The first installment of paid-in capital of RMB1.2 billion was received in full. On September 28, 2013, Henan Aviation InvestmentAirlines was established.
On October 13, 2014, Xiamen Airlines and Hebei Airlines Investment Group Company Limited (the "Hebei“Hebei Airlines Investment"Investment”) entered into an agreement, pursuant to which Hebei Airlines Investment agreed to sell and Xiamen Airlines agreed to purchase a 95.4% equity interestsinterest in Hebei Airlines at the consideration of RMB680 million.
The acquisition was completed in December 2014.
On July 14, 2015, we and Xiamen Jianfa entered into an agreement, pursuant to which Xiamen Jianfa agreed to sell and we agreed to purchase a 4% equity interestsinterest in Xiamen Airlines at the consideration of RMB586,666,670. The acquisition was completed in December 2015.
On February 2, 2016, we and CSAH entered into an agreement, pursuant to which CSAH agreed to sell and we agreed to purchase a 100% equity interest in Southern Airlines (Group) Import And Export Trading Co. Ltd. at the consideration of RMB400,570,400. The acquisition was completed in August 2016.
On March 27, 2017, according to the authorization under the general mandate approved by the 2015 annual general meeting and as approved by the Board, we entered into a share subscription agreement with American Airlines, pursuant to which American Airlines agreed to subscribe for 270,606,272 new H Shares of us, at the consideration of HK$1,553.28 million, representing a subscription price of HK$5.74 per share. The closing price of the H Shares as at the date of the share subscription agreement was HK$5.49. The subscription was completed on August 10, 2017.
On May 18, 2017, we entered into a joint venture agreement regarding Guangzhou Nanland Air Catering Company Limited with Hong Kong Sharpland Investments Ltd., Servair S.A and Hong Kong Ginkgo Group Company Limited, pursuant to which we contributed RMB76,206,300 cash and the equity interests in a subsidiary with a valuation of RMB513,727,300 into Guangzhou Nanland Air Catering Co., Ltd.. After the capital contribution, we held 70.5% equity interest in Guangzhou Nanland Air Catering Co., Ltd..
On July 10, 2017, we entered into a share transfer agreement with CAE International Holdings Limited for an acquisition of 49% equity interest in Zhuhai Xiang Yi Aviation Technology Company Limited held by CAE with an amount of US$99.52 million (equivalent to approximately RMB678 million). After the completion of this acquisition, Zhuhai Xiang Yi Aviation Technology Company Limited became our wholly-owned subsidiary.
On October 13, 2017, Xiamen Airlines entered into a share transfer agreement with SACM for an acquisition of 51% equity interest in Xiamen Airlines Media Co., Ltd. held by SACM with an amount of RMB47 million. After the completion of this acquisition, Xiamen Airlines Media Co., Ltd. became a wholly-owned subsidiary of Xiamen Airlines.
On June 29, 2018, we established a wholly-owned subsidiary, Xiongan Airlines in Xiong’an New Area. We intend to make a total contribution of RMB10 billion by stages, among which RMB2.5 billion will be made in cash, and RMB7.5 billion will be made in kind. This investment is conducive to promoting the development of the Company’s main aviation industry and enhancing our competitiveness in the aviation market.
On September 29, 2018, we completed thenon-public issuance of A shares, and CSAH participated in thenon-public issuance of A shares subscription with its 50.00% equity interest in Zhuhai MTU and part of cash. The appraisal value of 50% equity interest in Zhuhai MTU assessed and filed by the SASAC is the benchmark, and the asset consideration is determined to be RMB1,741,080,000 after the adjustment of 2016 annual dividend of Zhuhai MTU. As of the end of the reporting period, transfer of all 50.00% of equity interest of Zhuhai MTU and the procedures and the registration with Administration for Industry and Commerce had been completed, and we hold 50.00% of equity interest in Zhuhai MTU.
On September 11, 2018, we issued 600,925,925 H shares to Nan Lung with the proceeds of approximately HK$3.626 billion. On September 27, 2018, we, by way ofnon-public issuance, issued 1,578,073,089 A shares to seven investors including CSAH. The proceeds is approximately RMB9.5 billion. After the completion of ournon-public issuance, our total share capital increased to 12,267,172,286 shares.
Aircraft Acquisitions
Pursuant to an aircraft acquisition agreement dated April 18, 2008 between Xiamen Airlines and the Boeing Company ("Boeing"), Xiamen Airlines will acquire 20 Boeing B737 series aircraft from Boeing. According to the information provided by Boeing, the aggregate catalogue price for those aircraft including the airframe and engines is around US$1.5 billion. The aggregate consideration for the acquisition will be partly payable in cash by Xiamen Airlines, and partly through financing arrangements with banking institutions. The Boeing aircraft will be delivered in stages to Xiamen Airlines during the period commencing from April 2014 to October 2015.
Pursuant to an A320 Series Aircraft Purchase Agreementseries aircraft purchase agreement dated January 20, 2010 between theour Company and Airbus SNC, we will acquire 20 Airbus 320 series aircraft from Airbus SNC. According to the information provided by Airbus SNC, the catalogue price of an Airbus 320 aircraft, including airframe and engines, is around US$76.9 million. The aggregate consideration for the acquisition will bewas partly payablepaid in cash and partly through financing arrangements with banking institutions. The Airbus aircraft have beenwere delivered in stages to our Company during the Company.
period from 2011 to 2013.
On September 30, 2010, Xiamen Airlines entered into a supplemental agreement with Boeing to purchase additional 10 Boeing B737 series aircraft. The aggregate catalogue price for those aircraft, including airframe and engines, is around US$699 million. According to the information provided by Boeing, the aggregate consideration for the acquisition will bewas partly payablepaid in cash by Xiamen Airlines, and partly through financing arrangements with banking institutions. The Boeing aircraft will bewere delivered in stages to Xiamen Airlines during the period commencing from 2015 to October 2016.
On November 4, 2010, we entered into an A320 series aircraft purchase agreement and anA330-300 aircraft purchase agreement with Airbus S.A.S. to purchase 30 Airbus A320 series aircraft and six Airbus A330 series aircraft. According to the information provided by Airbus S.A.S., the catalogue price of six Airbus A330 series aircraft and 30 Airbus A320 series aircraft, including airframe and engines, is US$1.205 billion and US$2.575 billion, respectively. The aggregate consideration for the acquisition will bewas partly payable bypaid in cash and partly bythrough financing arrangements with banking institutions. The six Airbus A330 aircraft will bewere delivered in stages to theour Company during the period commencing from 2013 to 2014 and the 30 Airbus A320 series aircraft will bewere delivered in stages to theour Company during the period commencing from 2012 to 2015.
On May 31, 2011, we entered into an aircraft acquisition agreement with Boeing to purchase six Boeing B777F freighters. According to the information provided by Boeing, the catalogue price of six Boeing B777F aircraft, including airframe and engines, is US$1,584 million. The aggregate consideration for the Acquisition will bewas partly payable bypaid in cash and partly bythrough financing arrangements with banking institutions. The six Boeing B777F freighters will bewere delivered in stages to us during the period commencing from 2013 to 2015.
On May 9, 2011, Xiamen Airlines entered into an aircraft acquisition agreement to purchase six Boeing B787 series aircraft. According to the information provided by Boeing, the aggregate catalogue price, including airframe and engines, for the six Boeing B787 series aircraft is US$1,098 million. The aggregate consideration for the acquisition will bewas partly payablepaid in cash and partly through financing arrangements with banking institutions. The Boeing aircraft will bewere delivered in stages to Xiamen Airlines during the period commencing from 2014 to 2015.
On February 28, 2012, we entered into an agreement with the Boeing Company to purchase 10 Boeing777-300ER aircraft. According to the information provided by Boeing, the catalogue price of one Boeing B777-300ER aircraft, including airframe and engines, is around US$298 million. The aggregate consideration for the acquisition will bewas partly payablepaid in cash and partly through financing arrangements with banking institutions. The Boeing aircraft will bewere delivered in stages to theour Company during the period from 2014 to 2016.
On August 3, 2012, Xiamen Airlines entered into an agreement with Boeing to purchase 40 Boeing B737 series aircraft from Boeing. The aggregate catalogue price of the 40 Boeing B737 series aircraft is US$3.36 billion. The aggregate consideration for the acquisition will bewas partly payable bypaid in cash and partly bythrough financing arrangements with banking institutions. The Boeing27 Boeing737 series aircraft were delivered in stages to Xiamen Airlines during the period from 2016 to 2017 and the 13 Boeing737 series aircraft will be delivered in stages to Xiamen Airlines during the period commencing from 20162018 to 2019.
On December 5, 2012, we entered into the Airbus aircraft acquisition agreement with Airbus S.A.S. to purchase 10 AirbusA330-300 aircraft. The catalogue price of one AirbusA330-300 aircraft is US$188 million. The aggregate consideration for the acquisition will bewas partly payable bypaid in cash and partly bythrough financing arrangements with banking institutions. The Airbus aircraft will bewere delivered in stages to theour Company during the period commencing from 2014 to 2016.
20
On May 16, 2014, we entered into the aircraft acquisition agreement with Airbus S.A.S to purchase 30 Airbus A320 series aircraft and 50 A320 NEO series aircraft. The catalogue price of one Airbus A320 series aircraft is priced differently in the range of US$85.8 million and US$110.1 million and one A320 NEO series aircraft is priced differently in the range ofdiffers, ranging from US$85.8 million to US$110.1 million and US$94.4 million to US$120.5 million.million, respectively. The aggregate consideration for the acquisition will be funded partly by internal resources of theour Company and partly through commercial loans by commercial banks. The Airbus30 Airbus320 aircraft were delivered in stages to our Company during the period from 2016 to 2017 and the 50 Airbus320 NEO aircraft will be delivered in stages to theour Company during the period commencing from 20162018 to 2020.
On December 17, December 2015, we entered into the aircraft acquisition agreement with Boeing to purchase 30 B737NG series aircraft and 50 B737 MAX series aircraft. The catalogue price of each B737NG series aircraft and B737 MAX series aircraft is priced about US$81.2 million and US$96.1 million, respectively. The aggregate consideration for the acquisition will be funded partly payable byin cash and partly bythrough financing arrangements with banking institutions. The Boeing30 Boeing737NG aircraft were delivered in stages to our Company in 2017 and the 50 Boeing737 MAX aircraft will be delivered in stages to theour Company during the period commencing from 20172018 to 2021.
On December 23, December 2015, we entered into the aircraft acquisition agreement with Airbus S.A.S to purchase 10 AirbusA330-300 series aircraft. The catalogue price of one AirbusA330-300 series aircraft is priced about US$227.4 million. The aggregate consideration for the acquisition will be funded partly payable byin cash and partly bythrough financing arrangements with banking institutions. The Airbus aircraft will be delivered in stages to theour Company during the period commencing from 2017 to 2019. The 3 AirbusA330-300 aircraft were delivered in stages to our Company in 2017 and the 7 AirbusA330-300 aircraft will be delivered in stages to our Company during the period from 2018 to 2019.
On April 26, 2016, Xiamen Airlines entered into the aircraft acquisition agreement with Boeing to purchase 10B737-800 series aircraft. The catalogue price of oneB737-800 series aircraft is about US$85.06 million. The aggregate consideration for the acquisition will be funded partly by internal sources of our Company and partly through commercial loans by commercial banks. The fourBoeing787-800 series aircraft were delivered in stages to Xiamen Airlines g in 2017 and the sixBoeing787-800 series aircraft were delivered in stages to Xiamen Airlines in 2018.
On July 27, 2016, Xiamen Airlines entered into the aircraft acquisition agreement with Boeing to purchase sixB787-9 series aircraft. The catalogue price of one is about US$230 million. The aggregate consideration for the acquisition will be funded partly by internal sources of our Company and partly through commercial loans by commercial banks. The Boeing787-9 series aircraft were delivered in stages to Xiamen Airlines during the period from 2016 to 2018.
On October 12, 2016, we entered into the aircraft acquisition agreement with Boeing to purchase 12B787-9 series aircraft. The catalogue price of one is about US$271 million. The aggregate consideration for the acquisition will be funded partly by internal sources of our Company and partly through commercial loans by commercial banks. The Boeing aircraft will be delivered in stages to our Company during the period from 2018 to 2020.
On April 26, 2017, we entered into the aircraft acquisition agreement with Airbus S.A.S to purchase 20A350-900 series aircraft. The catalogue price of one A350 series aircraft is about US$299 million. The aggregate consideration for the acquisition will be funded partly by internal sources of our Company and partly through commercial loans by commercial banks. The Airbus aircraft will be delivered in stages to us during the period from 2019 to 2022.
On October 20, 2017, we entered into the aircraft acquisition agreement with Boeing to purchase 8 B777-300ER and 30B737-8 series aircraft. The catalogue price of each B777-300ER series aircraft andB737-8 series aircraft is about US$318 million and US$104 million, respectively. The aggregate consideration for the acquisition will be funded partly by internal sources of our Company and partly through commercial loans by commercial banks. The Boeing aircraft will be delivered in stages to our Company during the period from 2019 to 2020. On February 28, 2019, we entered into the supplemental Boeing aircraft acquisition agreement with Boeing to amend the terms of the aforesaid aircraft acquisition agreement to change the 2 B777-300ER aircraft originally agreed to be acquired by the Company to 2 B777F aircraft.
On March 21, 2018, Xiamen Airlines entered into the Boeing Aircraft Acquisition Agreement with Boeing to purchase the 20B737-8 aircraft and 10B737-10 aircraft. The catalogue price of eachB737-8 series aircraft andB737-10 series aircraft is about US$104 million and US$116 million, respectively. The aggregate consideration for the acquisition will be funded partly by internal sources of our Company and partly through commercial loans by commercial banks. The Boeing aircraft will be delivered in stages to Xiamen Airlines during the period from 2019 to 2022.
Capital Expenditure
The Group had RMB23,390We expended RMB37,210 million, RMB26,481RMB31,129 million and RMB29,576RMB29,454 million in capital expenditures in 2015, 20142018, 2017 and 20132016, respectively. Of such capital expenditures in 2015, RMB11,2512018, RMB13,290 million was financed by capital leases, RMB11,258RMB22,499 million was financed by bank borrowings while the remaining RMB881RMB1,421 million was financed by internal resources. The capital expenditures were primarily incurred on the additional investments in aircraft and flight equipment under the Group’sour fleet expansion plans and, to a small extent, additional investments in other facilities and buildings for operations. As of December 31, 2015,2018, we had total capital commitments for aircraft, engines and related equipment of approximately RMB83,427RMB82,199 million.
General
The Group provides commercial airline services throughout Mainland China, Hong Kong, Macau and Taiwan regions, Southeast Asia and other parts of the world. Based on the statistics from the CAAC, the Group is one of the largest Chinese airlines and, as of the year end of 2015, ranked first in terms of number of passengers carried, number of scheduled flights per week, number of hours flown, number of routes and size of aircraft fleet. During the three years ended December 31, 2015, the Group’s RPKs increased at a compound annual growth rate of 6.31% from 148,417 million in 2013 to 166,629 million in 2014 and 189,588 million in 2015 while its capacity, measured in terms of ASKs, increased at a compound annual growth rate of 5.97%, from 186,800 million in 2013 to 209,807 million in 2014 and 235,616 million in 2015. In 2015, the Group carried 109 million passengers and had passenger revenue of RMB100,238 million (approximately US$15,436 million).
The Group conducts a portion of its airline operations through its airline subsidiaries namely Xiamen Airlines, Shantou Airlines Company Limited ("Shantou Airlines"), Zhuhai Airlines Company Limited ("Zhuhai Airlines"), Guizhou Airlines Company Limited ("Guizhou Airlines"), Chongqing Airlines Company Limited ("Chongqing Airlines") and Henan Airlines Company Limited (“Henan Airlines”), (collectively, the "Airline Subsidiaries"). In 2015, the Airline Subsidiaries carried 39.6 million passengers and had passenger revenue of RMB29,636 million (approximately US$4,564 million) and accounted for 36.3% and 29.6% of the Group’s passengers carried and passenger revenue, respectively.
The Group also provides air cargo and mail services. The cargo and mail revenue of the Group decreased by 4.5% to RMB6,861 million (approximately US$1,057 million) in 2015 as compared with that of 2014. The Group’s airline operations are fully integrated with its airline-related businesses, including aircraft and engine maintenance, flight simulation and air catering operations.
As of December 31, 2015, the Group operated 1,032 routes, of which 775 were domestic, 214 were international and 43 were regional. The Group operates the most extensive domestic route network among all Chinese airlines. Its route network covers commercial centers and rapidly developing economic regions in Mainland China.
The Group’s corporate headquarters and principal base of operations are located in Guangzhou, the capital of Guangdong Province and the largest city in southern China. Located in the rapidly developing Pearl River Delta region, Guangzhou is also the transportation hub of southern China and one of China’s major gateway cities. Guangzhou’s significance has increased as the transportation infrastructure of Guangdong Province has developed through the construction and development of expressways, an extensive rail network and the port cities of Guangzhou, Shenzhen, Zhanjiang, Zhuhai and Shantou.
In December 2005, we established a branch company in Beijing and have added wide-body airplanes to our operation base in Beijing, with the view to expanding our Beijing aviation business and building another main hub there in addition to our Guangzhou base. The establishment of Guangzhou and Beijing hubs will facilitate strategic refinement and enhancement of our route network operations, putting us in a better position to explore and seize the opportunities in the aviation market.
The Group’s operations primarily focus on the domestic market. In addition, the Group also operates regional routes and international flights. As of December 31, 2015, the Group had 43 regional routes and 214 international routes.The Group’s regional operations include flights between destinations in Mainland China, Hong Kong, Macau and Taiwan. The Group’s international operations include scheduled services to cities in Australia, Azerbaijan, Bangladesh, United Kingdom, Burma, Cambodia, Canada, Dutch, France, Georgia, German, India, Indonesia, Japan, Kenya, Kazakhstan, Kyrgyzstan, Malaysia, Maldives, Nepal, New Zealand, Pakistan, Philippines, Russia, Singapore, South Korea, Tajikistan, Thailand, Turkey, Turkmenistan, United Arab Emirates (UAE), United States of American (USA), Vietnam, Mauritius, Uzbekistan, Iran, Italy .
After joining Skyteam Alliance, the Group has established a network reaching over 73 destinations globally, connecting 41 countries and regions and covering major cities around the world.
As of December 31, 2015, the Group had a fleet of 667 aircraft, consisting primarily of Boeing 737 series, 747, 757, 777, 787, Airbus 320 series, 330, 380 etc. The average age of the Group’s registered aircraft was 6.3 years as of December 31, 2015.
Restructuring and Initial Public Offering
As part of China’s economic reforms in the 1980’s, the PRC State Council directed the CAAC to separate its governmental, administrative and regulatory role from the commercial airline operations that were being conducted by the CAAC and its regional administrators. As a result, CSAHCCSAH was established on January 26, 1991 for the purpose of assuming the airline and airline-related commercial operations of the Guangzhou Civil Aviation Administration, one of the then six regional bureaus of the CAAC. CSAHCCSAH was one of the 55 large-scale enterprises designated by the Chinese government to play a leading role in their respective industries.
CSAHCCSAH was restructured in 1994 and 1995 in anticipation of our initial public offering. The restructuring was effective through the establishment of theour Company and the execution of theDe-merger Agreement on March 25, 1995 by and between CSAHCCSAH and theour Company. Upon the restructuring, theour Company assumed substantially the entire airline and airline-related businesses, assets and liabilities of CSAHC,CSAH, and CSAHCCSAH retained itsnon-airline-related businesses, assets and liabilities. All interests, rights, duties and obligations of CSAHC,CSAH, whenever created or accrued, were divided between theour Company and CSAHCCSAH based on the businesses, assets and liabilities assumed by each of them under theDe-merger Agreement. Under theDe-merger Agreement, CSAHCCSAH agreed not to conduct, or participate or hold any interest in, either directly or indirectly, any business, activity or entity in or outside China that competes or is likely to compete with the commercial interests of theour Group, although CSAHCCSAH may continue to hold and control its affiliates existing on the date of theDe-merger Agreement and may continue to operate the businesses of such associates. Under theDe-merger Agreement, CSAHCCSAH and theour Company also agreed to indemnify each other against any losses, claims, damage, debts or expenses arising out of or in connection with the restructuring. As of the date of this Annual Report, no indemnity has been provided by either CSAHCCSAH or us.
In July 1997, we completed a private placement of 32,200,000 H Shares to certain limited partnership investment funds affiliated with Goldman Sachs & Co. and an initial public offering of 1,141,978,000 H Shares, par value RMB1.00 per share, and the listing of the H Shares on the Hong Kong Stock Exchange and ADRsADSs on the New York Stock Exchange. Prior to the private placement and the initial public offering, all of our issued and outstanding shares of capital stock, consisting of 2,200,000,000non-tradable domestic shares ("(“Domestic Shares"Shares”), par value RMB1.00 per share, were owned by CSAHC,CSAH, which owned and exercised, on behalf of the Chinese government and under the supervision of the CAAC, the rights of ownership of such Domestic Shares. After giving effect to the private placement and the initial public offering, CSAHCCSAH maintained its ownership of the 2,200,000,000 Domestic Shares (representing approximately 65.2% of the total share capital of theour Company), and became entitled to elect all the directors of theour Company and to control the management and policies of theour Group. The Domestic Shares and H Shares are both ordinary shares of theour Company.
In July 2003, we issued 1,000,000,000 A Shares, par value of RMB1.00 per share, and listed these shares on the Shanghai Stock Exchange. Subsequent to the issuance of the A Shares, the shareholding of CSAHCCSAH in theour Company was reduced from 65.2% to 50.30%.
Share Reform Scheme
Pursuant to relevant PRC laws, we launched the share reform scheme in May 2007, whereby all the 2,200,000,000non-tradable Domestic Shares held by CSAHCCSAH would be converted into tradable A Shares. Upon the completion of such scheme on June 20, 2008, all thenon-tradable Domestic Shares have been successfully converted into tradable A Shares, subjectShares. Subject to the restriction, that CSAHCCSAH shall not transfer or trade these shares within 36 months after the commencement date of the share reform scheme, (whichwhich is June 18, 2007).
2007.
Bonus Shares IssueIssuance by Conversion of Share Premium
On June 25, 2008, our shareholders approved issuance of bonus shares by way of conversion of share premium, and on August 14, 2008, the Ministry of Commerce approved the bonus share issue.issuance. The issue has beenissuance was effected by conversion of share premium on the basis of 5five new shares, credited as fully paid, for every 10ten existing shares. Upon the completion of the bonus share issue, which is based on 4,374,178,000issuance of 2,187,089,000 shares, in issue as of December 31, 2007, the number of paid up shares has increased by 2,187,089,000from 4,374,178,000 shares to 6,561,267,000 shares.
Non-Public Subscriptions
On December 10, 2008, we entered into an A Shares subscription agreement with CSAHC,CSAH, pursuant to which CSAHCCSAH conditionally agreed to subscribe and the Companywe conditionally agreed to allot and issue 721,150,000 new A Shares for a consideration of RMB2,278,834,000, equivalent to the subscription price of RMB3.16 per new A Share. Separately and on the same date, theour Company and Nan Lung (a wholly-owned subsidiary of CSAHC)CSAH) entered into an H Shares subscription agreement, pursuant to which Nan Lung conditionally agreed to subscribe and theour Company conditionally agreed to allot and issue 721,150,000 new H Shares for a consideration of RMB721,150,000, equivalent to the subscription price of RMB1.00 (equivalent to approximately HK$1.13) per new H Share. The subscription agreements were approved in the Extraordinary General Meetingextraordinary general meeting and the respective Class Meetingsclass meetings of shareholders of A and H Shares on February 26, 2009. On June 3, 2009, we received the formal approval from CSRC for the proposednon-public issue issuance of H Shares. On August 14, 2009, we received the formal approval from CSRC for the proposednon-public issue issuance of A Shares. The issuance of 721,150,000 new A Shares to CSAHCCSAH and 721,150,000 new H Shares to Nan Lung were completed on August 20, 2009 and August 21, 2009, respectively.
On March 8, 2010, our board approved the placement of up to 1,766,780,000 new A shares to not more than 10 specific investors including CSAHCCSAH and the placement of not more than 312,500,000 new H shares to Nan Lung, a wholly-owned subsidiary of CSAHC.CSAH. On the same date, the Companywe entered into the A shares subscription agreement with CSAHC,CSAH, pursuant to which CSAHCCSAH conditionally agreed to subscribe and theour Company conditionally agreed to allot and issue new A shares of not more than 132,510,000 at the subscription price of not less than RMB5.66 per A share. In addition, theour Company and Nan Lung entered into the H shares subscription agreement, pursuant to which Nan Lung conditionally agreed to subscribe and theour Company conditionally agreed to allot and issue new H shares of not more than 312,500,000 at the subscription price of not less than HK$2.73 per H share. The above placement and subscription agreements were approved in the Extraordinary General Meetingextraordinary general meeting and the respective Class Meetingsclass meetings of shareholders of A and H shares on April 30, 2010. On September 8, 2010, we received the formal approval from CSRC for the proposednon-public issuance of H Shares. On September 15, 2010, we received the formal approval from CSRC for the proposednon-public issue issuance of A Shares. In November 2010, we completed the placements of 1,501,500,000 new A shares and 312,500,000 H shares, among which 123,900,000 new A shares were issued to CSAHCCSAH at the subscription price of RMB6.66 per share, and 312,500,000 H shares were issued to Nan Lung at the subscription price of HK$2.73 per share.
On June 11, 2012, we entered into an A Shares subscription agreement with CSAHC,CSAH, pursuant to which CSAHCCSAH conditionally agreed to subscribe and we conditionally agreed to allot and issue up to 487,804,878 A Shares for a consideration of not more than RMB2 billion, equivalent to the subscription price of approximately RMB4.1RMB4.10 per new A Share. The subscription agreement was approved in the Extraordinary General Meetingextraordinary general meeting on August 10, 2012, which remained effective for a period of twelve months from the date of approval of the resolution at the general meeting. As of August 9, 2013, the relevant work regarding the 2012Non-public A Share IssueIssuance of theour Company hadwas not been completed. The proposal for the 2012Non-public A Share IssueIssuance of theour Company and A Shares subscription agreement therefore were lapsed automatically due to the expiration of the resolution passed at the general meeting.
Issuance of Short-term Financing Bills and Medium Term Notes
On April 18, 2008, our Board approvedMarch 27, 2017, we entered into an H Shares subscription agreement as well as a framework agreement with American Airlines, Inc. (“American Airlines”), pursuant to which American Airlines conditionally agreed to subscribe and we conditionally agreed to issue 270,606,272 H Shares for a consideration of HK$1,553.28 million, equivalent to the subscription price of HK$5.74 per new H Share. In July 2017, we received the formal approval from CSRC for the proposednon-public issuance of short-term financing bills inH Shares. The issuance of 270,606,272 new H Shares American Airlines was completed on August 10, 2017. Key principles of the principal amountabove mentioned framework agreement include: (i) except for certain permitted transfers, American Airlines shall not dispose of up to RMB4 billion inany of the PRC, and the submission of this proposal to the annual general meeting for the shareholders’ approval. On June 25, 2008, our shareholders approved such proposed bill issuance at the annual general meeting for the year 2007. We believed that the bill issuance would provide a further source of funding at an interest rate which was expected to be lower than that for loans from commercial banks, lower the financing cost of borrowings for us, and was in the interests of us and our shareholders as a whole. The Company received the acceptance from National Association of Financial Market Institutional Investors to register the Company’s short-term financing bills in the amount of RMB3.5 billionsubscription shares for a period upof three years (the“Lock-up Period”) following the purchase of the subscription shares unless anyLock-up termination event occurs; (ii) after the expiry ofLock-up Period, American Airlines shall have the right to dispose of the subscription shares, and we shall have a right of first refusal to purchase such subscription shares; after theLock-Up Period, American Airlines shall notify us of its first disposal of subscription shares within three business days following the consummation of such sale, and shall announce any subsequent disposals as and if required by applicable law; (iii) whilst the Framework Agreement is in effect, in the event we or any of our subsidiaries intends to sell or issue, or enter into any agreement to sell or issue, equity or equity linked securities or any such subsidiary to any airline that is then a member of or is participating in an airline alliance as agreed by American Airlines and us (other than a PRC Mainland airline company), or any affiliate of any such airline, American Airlines shall have a right of first refusal to purchase such securities; and (iv) subject to applicable laws (including the Hong Kong Listing Rules), our Board will appoint one person to serve as an observer to our Board at the request of American Airlines (the “Board Observer”), and the Board Observer is allowed to attend all meetings of our Board whetherin-person or by telephone or video-conference but will not be entitled to vote as a director; the Board Observer will be subject to the samenon-disclosure, insider trading restrictions and conflicts of interest policies and procedures as and to the extent the same apply to the members of our Board from time to time, and the Board Observer will no longer serve as the observer to our Board if any Board Observer termination event occurs.
On June 26, 2017, our board proposed to put forward to the extraordinary general meeting and the class meetings to approve and authorize our board (i) to issue not more than 1,800,000,000 new A Shares to not more than 10 specific investors including CSAH, and as part of such A Share issuance, to enter into the A Share subscription agreement with CSAH, pursuant to which CSAH subscribes for no less than 31% of such new A Shares, the consideration of which shall be satisfied by transfer 50% of the Zhuhai MTU shares to our Company and cash; and (ii) to issue no more than 590,000,000 new H Shares to Nan Lung at the subscription price of HK$6.27 per H Share (subject to adjustments) and to enter into the H Share subscription agreement with Nan Lung. The total funds to be raised from the aforesaid A Share issuance and the H Share issuance will be not more than RMB12,737.00 million, which will be used for procurement of aircraft, the project for selection and installation of lightweight seats for A320 series aircraft and the supplemental to the general working capital. The aforesaid A Share issuance and the H Share issuance are inter-conditional upon each other. On September 10, 2010. The bills19, 2017, our board considered and approved that (i) our Company to enter into the supplemental agreement I to the A Share subscription agreement with CSAH, pursuant to which 50% of the Zhuhai MTU shares as partial consideration payable by CSAH for its subscription of new A Shares under the A Share subscription agreement has been adjusted to RMB1,741.08 million according to the final assessment results as filed and approved by the SASAC; and (ii) the subscription price and the number of H Shares to be issued pursuant to the H Share subscription agreement shall be adjusted to HK$6.156 and not more than 600,925,925 new H Shares, respectively due to the implementation of the 2016 dividend distribution plan of our Company. On November 8, 2017, the aforesaid A Share issuance and the H Share issuance were jointly underwritten by China CITIC Bank Cooperation Limitedapproved in the extraordinary general meeting and Bankthe respective class meetings of China Limited. In October 2008,shareholders of A and H shares on November 8, 2017. We have received the approval from CSRC for the aforesaid H Share issuance in March 2018, and the aforesaid A Share issuance in August 2018.
On August 30, 2018, as our 2017 profit distribution plan was completed, the issue price of the H Shares was adjusted to HK$6.034 per H Share.
On September 11, 2018, we issued short-term financing bills with total face value600,925,925 H shares in to Nan Lung at the issue price of RMB2 billion with a bearing coupon interest rate at 4.7% and a maturity period of one year for funding of the business activities of the Company.
HKD6.034 per share.
On May 28, 2008,September 27, 2018, we published the Board approved the proposed“announcement of results ofnon-public issuance of medium term notesA shares by the Company and change in the principal amount of up to RMB1.5 billion and the submission of such proposal to the shareholders for their consideration and approval. On June 25, 2008, shareholders of the Company approved such notes issuance at the annual general meeting for the year 2007. The Company believed that the notes issue would provide a further source of medium to long term funding at an interest rate lower than the best lending rate for loans from commercial banks, lower the finance costs of borrowings for us and improve our debt structure. As of the date of this Annual Report, we have not issued any medium term notes, even though it has been approved by the Board and shareholders.
In order to capitalize on opportunities in the market and improve the flexibility and efficiency of financing, on June 25, 2012, the Board resolved to obtain a general and unconditional mandate from shareholders to issue potential debt financing instruments, in one or multiple tranches, within the permissible size for debt issuanceshareholdings”. We, in accordance with the provisionsissuance proposal, issued 1,578,073,089 domestically listed RMB ordinary shares (A shares) throughnon-public issuance, at the issue price of the applicable lawsRMB6.02 per share, to a total of seven investors, including CSAH, China National Aviation Fuel Group Corporation, Spring Airlines Co., Ltd., Guo Xin Central Enterprise Operation (Guangzhou) Investment Fund (LLP), China Structural Reform Fund Co., Ltd., Hotland Innovation Asset Management Co., Ltd. and regulations. On the extraordinary general meeting held on August 10, 2012, shareholders approved the authorization given to the Board, generally and unconditionally, to determine the specific debt financing instruments and issuance plan, and to issue, in one or multiple tranches, debt financing instruments within the permissible size for debt issuance in accordance with the provisions of the applicable laws and regulations. According to the resolution, on October 31, 2012, the Board approved to apply to National Association of Financial Market Institutional Investors for registration to issue, in one or multiple tranches, ultra-short-term financing bills with an aggregate principal amount of to RMB10 billion, according to its capital needs and the market conditions. TheChina Life Asset Management Company has completed the issuance of the first tranche of ultra-short-term financing bills on February 8, 2013. The total issuance amount of the first tranche financing bills was RMB0.5 billion,Limited, with a maturity periodtotal proceeds of 180 days, a par value per unit of RMB100 and a nominal interest rate of 3.9%.RMB9,499,999,995.78.
On March 21, 2014, the Company completed the issuance of the first tranche of ultra-short-term financing bills for the year 2014 of China Southern Airlines Company Limited (the "2014 First Tranche Financing Bills"). The total issuance amount of the 2014 First Tranche Financing Bills was RMB3 billion, with a maturity period of 180 days, a par value per unit of RMB100 and a nominal interest rate of 5.1%.
On April 17, 2014, the Company completed the issuance of the second tranche of ultra-short-term financing bills for the year 2014 of China Southern Airlines Company Limited (the "2014 Second Tranche Financing Bills"). The total issuance amount of the 2014 Second Tranche Financing Bills was RMB3 billion, with a maturity period of 270 days, a par value per unit of RMB100 and a nominal interest rate of 5.1%.
On August 14, 2014, the Board approved to make an application to National Association of Financial Market Institutional Investors for the registration and issuance of medium-term notes with an aggregate maximum principal amount of RMB10 billion for the purpose of replenishing the working capital and optimizing the debt structure of the Company. The annual general meeting for the year 2014 of the Company held on June 30, 2015 approved to make an application to the National Association of Financial Market Institutional Investors for the registration of ultra-short-term financing bills with the aggregate maximum principal amount of RMB14 billion (the "Ultra-short-term Financing Bills"), and the Ultra-short-term Financing Bills within the mentioned issuance size will be issued in one tranche or multiple tranches according to the funding needs and the market conditions. As of the date of this Annual Report, we have not issued any medium term notes.
On November 19, 2015, the Company completed the issuance of the first tranche of ultra-short-term financing bills for the year 2015 (the "2015 First Tranche Financing Bills"). The total issuance amount of the 2015 First Tranche Financing Bills was RMB3 billion, with a maturity period of 270 days, a par value per unit of RMB 100 and a nominal interest rate of 3.20%.
On November 24, 2015, the Company completed the issuance of the second tranche of ultra-short-term financing bills for the year 2015 (the "2015 Second Tranche Financing Bills"). The total issuance amount of the 2015 Second Tranche Financing Bills was RMB2 billion, with a maturity period of 180 days, a par value per unit of RMB 100 and a nominal interest rate of 3.04%.
On November 30, 2015, the Company completed the issuance of the third tranche of ultra-short-term financing bills for the year 2015 (the "2015 Third Tranche Financing Bills"). The total issuance amount of the 2015 Third Tranche Financing Bills was RMB3 billion, with a maturity period of 268 days, a par value per unit of RMB 100 and a nominal interest rate of 3.16%.
Issuance of Corporate Bonds
On November 13, 2015, the Company waswe were approved by the CSRC to publicly issue corporate bonds (the "Corporate Bonds"“Corporate Bonds”) in the amount of not more than RMB19 billion to qualified investors. The issuance of the Corporate Bonds shall be conducted in multiple tranches. The issuance of the first tranche must be completed within 12 months from the date of the approval and the issuance of the remaining tranches must be completed within 24 months from the date of the approval. On November 20, 2015, the Companywe issued the first tranche of 2015 corporate bonds of RMB3,000 million with an interest rate of 3.63% per annum due 2020.On2020. On March 3, 2016, the Companywe issued the first tranche of 2016 corporate bonds of RMB5,000 million with an interest rate of 2.97% per annum due 2019. On May 25, 2016, we issued the second tranche of 2016 corporate bonds of RMB5,000 million with an interest rate of 3.12% per annum due 2021. On November 26, 2018, we issued the first tranche of 2018 corporate bonds of RMB2,000 million with an interest rate of 3.92% per annul due 2021.
Our website is located atwww.csair.com. The information contained on or connected to our website is not incorporated by reference into this Annual Report and should not be considered part of this or any other report filed with the SEC. Our filings with the SEC, including reports, proxy and information statements, and other information regarding us that file electronically with the SEC are available on the SEC’s websites atwww.sec.gov.
B. | BUSINESS OVERVIEW |
General |
We provide commercial airline services throughout Mainland China, Hong Kong, Macau and Taiwan regions, Southeast Asia and other parts of the world. Based on the statistics of the CAAC, we are one of the largest Chinese airlines and, as of December 31, 2018, ranked the first in terms of number of passengers carried, number of scheduled flights per week, number of hours flown, number of routes and size of aircraft fleet. During the three years ended December 31, 2018, our RPKs increased at a compound annual growth rate of 8.71 % from 206,106 million in 2016 to 230,697 million in 2017 and 259,194 million in 2018 while its capacity, measured in terms of ASKs, increased at a compound annual growth rate of 8.65%, from 255,992 million in 2016 to 280,646 million in 2017 and 314,421 million in 2018. In 2018, our Group carried 139.89 million passengers and had passenger revenue of RMB128,038 million (approximately US$18,656 million).
The following table sets forth certain statistical information with respect toWe conduct a portion of our airline operations through our airline subsidiaries, namely Xiamen Airlines, Shantou Airlines Company Limited (“Shantou Airlines”), Zhuhai Airlines Company Limited (“Zhuhai Airlines”), Guizhou Airlines Company Limited (“Guizhou Airlines”), Chongqing Airlines Company Limited (“Chongqing Airlines”) and China Southern Airlines Henan Airlines Company Limited (“Henan Airlines”), (collectively, the Group’s“Airline Subsidiaries”). In 2018, the Airline Subsidiaries carried 54.58 million passengers and had passenger revenue of RMB41,521 million (approximately US$6,050 million) and accounted for 39.02% and 32.43% of our passengers carried and passenger revenue, respectively.
We also provide air cargo and mail trafficservices. Our cargo and mail revenue increased by 10.39% to RMB10,026 million (approximately US$1,461 million) in 2018 as compared with that of 2017. Our airline operations are fully integrated with our airline-related businesses, including aircraft maintenance, ground services and air catering operations.
Our operations primarily focus on the domestic market. In addition, we also operate regional routes and international flights. As of December 31, 2018, we operated 950 routes, of which 772 were domestic, 154 were international and 24 were regional. We operate the most extensive domestic route network among all Chinese airlines. Our route network covers commercial centers and rapidly developing economic regions in Mainland China. Our regional operations include flights between destinations in Mainland China, Hong Kong, Macau and Taiwan. Our international operations include scheduled services to cities in Australia, Azerbaijan, Bangladesh, Cambodia, Canada, Dutch, France, German, India, Indonesia, Iran, Italy, Japan, Kenya, Kazakhstan, Kyrgyzstan, Malaysia, Maldives, Nepal, New Zealand, Pakistan, Philippines, Russia, Singapore, South Korea, Tajikistan, Thailand, Turkmenistan, United Arab Emirates (UAE), United Kingdom, United States of American (USA), Uzbekistan and Vietnam, Mexico, Laos, and Sri Lanka.
We focused on building the“Guangzhou-Beijing Dual Hub” strategic layout and acceleration of all the preparation work for stationing in Beijing’s new Airport. On October 10, 2017, we held the opening ceremony of Beijing’s new airport’s base project. During 2018, we continued to optimize the Guangzhou hub and completed the transfer operation to T2 terminal of Guangzhou Baiyun Airport. Meanwhile, we were fully committed to building the Beijing hub, and launched Beijing-Istanbul and other new routes, and Xiongan Airlines was approved for establishment. We built the base project of Beijing Daxing International Airport with high standards, and actively prepared for the operation and studied the transfer plan in advance. This new base will be completed simultaneously with Beijing’s new airport. Through Beijing’s new airport base, we will spare no effort to make Beijing core hub. By 2025, it is estimated to station 250 aircraft to build the network covering international and domestic destinations.
Our corporate headquarters and principal base of operations are located in Guangzhou, the capital of Guangdong Province and the largest city in southern China. Located in the rapidly developing Pearl River Delta region, Guangzhou is also the transportation hub of southern China and one of China’s major gateway cities. Guangzhou’s significance has increased as the transportation infrastructure of Guangdong Province has developed through the construction and development of expressways, an extensive rail network and the port cities of Guangzhou, Shenzhen, Zhanjiang, Zhuhai and Shantou.
As of December 31, 2018, we had a fleet of 840 aircraft, consisting primarily of Boeing737, 747, 777, 787 series, Airbus 320, 330, 380 series, etc. The average age of our registered aircraft was 6.5 years indicated.
Passenger carried | Cargo and Mail arrived (tons) | Total traffic (tons kilometers) | ||||||||||||||||||||||
Year | Total (in millions) | Increase (decrease) over previous year (%) | Total (in thousands) | Increase (decrease) over previous year (%) | Total (in millions) | Increase (decrease) over previous year (%) | ||||||||||||||||||
2013 | 91.79 | 6.1 | 1,276 | 3.6 | 17,469 | 8.1 | ||||||||||||||||||
2014 | 100.91 | 9.9 | 1,433 | 12.3 | 19,780 | 13.2 | ||||||||||||||||||
2015 | 109.42 | 8.4 | 1,511 | 5.4 | 22,388 | 13.2 |
as of December 31, 2018.
Route Network
Overview
The Group operatesWe operate the most extensive route network among all Chinese airlines. As of December 31, 2015, the Group2018, we operated 1,032950 routes consisting of 775772 domestic routes, 4324 regional routes and 214154 international routes.
The GroupWe continually evaluates itsevaluate our network of domestic, regional and international routes in light of itsour operating profitability and efficiency. The Group seeksWe seek to coordinate flight schedules with the Airline Subsidiaries on shared routes to maximize load factors and utilization rates. The acquisition of domestic, regional and international routes is subject to approval of the CAAC, and the acquisition of regional and international routes is also subject to the existence and the terms of agreements between the Chinese government and the government of the Hong Kong SAR, the government of the Macau SAR, the government of Taiwan province and the government of the proposed foreign destination.
In order to expand the Group’sour international route network, the Group haswe have entered into code-sharing agreements with several international airlines, including Aeroflot-RussianAmerican Airlines, INC., Japan Airlines International Company Ltd., British Airways PLC, Qantas Airways Limited., Aeroflot Russian Airlines, Air France, Asiana Airlines,AlitaliaLinee Aeree Italiane, China Airlines, China Eastern Airlines, CSA Czech Airlines, Delta Air Lines, Japan Airlines International, Kenya Airways, KLM Royal Dutch Airline, Korean Air, Mandarin Airlines, Pakistan International Airlines, PT Garuda Indonesia (Persero) Tbk., Qantas Airways Limited,Saudi Arabian Airlines, Vietnam Airlines, Virgin America, WestJetXiamen Airlines., Asiana Airlines, Chongqing Airlines Company Limited, Etihad Airways PJSC, Pakistan International Airlines, Sichuan Airlines Co., Ltd., and Xiamen Airlines.WestJet. Under the code-sharing agreements, the participating airlines are permitted to sell tickets on certain international routes operated by the Groupus to passengers using the Group’stheir codes. Similarly, the Group iswe are permitted to sell tickets for the other participating airlines using its "CZ"CZ code. The code-sharing agreements help increase the number of the Group’sour international sales outlets. After joining Skyteam Alliance,At present, we share codes with 31 international and domestic airlines in 790 routes, including trunk routes and beyond routes, and serve more than 253 destinations in more than 41 countries. This further enlarged our sales channels and flight route network.
The following table sets forth certain statistical information with respect to our passenger, cargo and mail traffic for the Group has further established a network reaching over 1057 destinations globally, connecting 179 countries and regions and covering major cities around the world.years indicated.
Passenger carried | Cargo and Mail arrived (tons) | Total traffic (tons kilometres) | ||||||||||||||||||||||
Year | Total (in millions) | Increase (decrease) over previous year (%) | Total (in millions) | Increase (decrease) over previous year (%) | Total (in millions) | Increase (decrease) over previous year (%) | ||||||||||||||||||
2016 | 114.62 | 4.8 | 1,613 | 6.7 | 24,387 | 8.9 | ||||||||||||||||||
2017 | 126.30 | 10.2 | 1,672 | 3.7 | 27,321 | 12.03 | ||||||||||||||||||
2018 | 139.89 | 10.76 | 1,732 | 3.6 | 30,334 | 11.03 |
Route Bases
In addition to itsour main route bases including Guangzhou and Beijing as core hub, Beijing as major hub, Urumqi as regional hub and Chongqing as seasonal hub, the Group maintainswe maintain regional route bases in Urumqi, Chongqing, Zhengzhou, Wuhan, Changsha, Shenzhen, Shenyang, Changchun, Dalian, Harbin, Haikou, Zhuhai, Xiamen, Shanghai, Xi’an, Fuzhou, Nanning, Guilin, Shantou, Guiyang, Sanya, Chengdu and Sanya.Kunming. Most of itsour regional route bases are located in provincial capitals or major commercial centers in the PRC.
The Group believesWe believe that itsour extensive network of route bases enable itenables us to coordinate flights and deploy itsour aircraft more effectively and to provide more convenient connecting flight schedules and access service and maintenance facilities for itsour aircraft. The Group believesWe believe that the number and location of these route bases may enhance the Group’sour ability to obtain the CAAC’s approval of requests by theour Group to open new routes and provide additional flights between these bases and other destinations in China. Current regulations of the CAAC generally limit airlines to operations principally conducted from their respective route bases.
Domestic Routes
The Group’sOur domestic routes network serves substantially all provinces and autonomous regions in China, including Guangdong, Fujian, Hubei, Hunan, Hainan, Guangxi, Guizhou, Henan, Heilongjiang, Jilin, Liaoning, Sichuan and Xinjiang, and serves all four centrally-administered municipalities in China, namely, Beijing, Shanghai, Tianjin, and Chongqing. In 2015, the Group’s2018, our most profitable domestic routes were between: Shenzhen-Beijing,were: Beijing-Shenzhen, Guangzhou-Beijing,Shanghai-Shengzhen,Guangzhou-Shanghai,Guangzhou-Haikou, Beijing-Guangzhou, Beijing-Shenyang, Shenyang-Beijing, Shanghai-Guangzhou, Guangzhou-Shanghai.
Beijing-Changsha, Beijing-Changchun, Beijing-Dalian, Beijing-Guiyang, andGuangzhou-Hangzhou.
Regional Routes
The Group offersWe offer scheduled service between Hong Kong and Beijing, Shenyang, Meixian, Wuhan, Yiwu, Shantou, Xiamen, Wuyishan, Zhangjiajie, Changchun, Yinchuan, Xiamen, Shantou, Beijing, Guilin, Meixian, Haikou, Wuhan, Zhengzhou, Nanning, Changsha, Sanya and Hohhot; between Macau and Hangzhou, Xiamen and Tianjin;Quanzhou; and between Taipei and Guangzhou, Shanghai, Fuzhou, Hangzhou, Xiamen, Shenyang, Changsha, Wuhan, Dalian, Guilin, Harbin, Guiyang, Zhengzhou, Changchun, Zhangjiajie, Nanning, Shantou, Yiwu, Quanzhou, Yanji and Shenzhen. In 2015,2018, the most profitable scheduled regional routes were between: Taipei-Guangzhou, were:Shenzhen-Taipei,Guangzhou-Taipei,Shenzhen-Taipei,Taipei-Shenzhen,Taipei-Harbin,Harbin-Taipei,Shanghai-Taipei,Taipei-Shanghai,Taipei-Changchun.
Changsha-Taipei,Wuhan-Hong Kong, Guiyang-Taipei,Zhengzhou-Taipei, Nanning-Taipei, Guilin-Taipei, and Wuhan-Taipei.
In 2015, the Group2018, we conducted a total of 20,66219,440 flights on itsour regional routes, accounting for approximately 25.2%22.4% of all passengers carried by Chinese airlines on routes between Hong Kong, Macau or Taiwan and destinations in Mainland China according to CAAC statistics briefing.
Previously, direct flights between Taiwan and Mainland China were only available during certain festivals. Other than that, travelers between Taiwan and Mainland China had to make use of intermediate stops in Hong Kong or elsewhere. Since July 2008, however, the ban on direct flights was further liberalized to allow direct charter flights on weekends. We were the first Chinese carrier to fly nonstop to Taiwan. On November 4, 2008, the Mainland China and Taiwan agreed to have regular direct passenger charter flights across the Taiwan Strait. On August 31, 2009, the Mainland China and Taiwan increased the number of regular cross-Strait direct passenger flights from 108 to 270 a week. Cross-Strait direct passenger flights were further increased in the following years. As of April 18, 2016,26, 2019, there were 69880 cross-Strait direct passenger flights a week.
In order to further strengthen its presence in Taiwan, the Company entered into a memorandum of cooperation with China Airlines on June 23, 2008, which is the largest carrier in Taiwan in terms of route network. Based on the memorandum, the scope of cooperation between the parties will cover passenger and cargo carrying, maintenance, and ground handling services.
International Routes
The Group isWe are the principal Chinese airlineairlines serving southeastSoutheast Asian destinations and Australasia, including Singapore and major cities in Australia, New Zealand, Bangladesh, Indonesia, Thailand, Malaysia, Philippines, Vietnam, Myanmar and Cambodia.
In addition, the Groupwe also providesprovide scheduled services to cities in Australia, Azerbaijan, Bangladesh, United Kingdom, Burma, Cambodia, Canada, Dutch, France, Georgia, German, India, Iran, Italy, India, Indonesia, Japan, Kenya, Kazakhstan, Kenya, Kyrgyzstan, Malaysia, Maldives, Nepal, New Zealand, Pakistan, Philippines, Russia, Singapore, South Korea, Tajikistan, Thailand, Turkey, Turkmenistan, United Arab Emirates (UAE), United Kingdom, United States of American (USA), Vietnam, Mauritius, Uzbekistan, Iran. Since joining Skyteam Alliance, the Group has established a network reaching over 1057 destinations globally, connecting 179 countries and regions and covering major cities around the world.
Uzbekistan.
In 2015, the Group’s2018, our most profitable international routes were: Guangzhou–Guangzhou-Tokyo,Sydney, Guangzhou-Los Angeles, Guangzhou Yanji-Seoul, Shenyang-Seoul,–Guangzhou-Dhaka,Melbourne, Guangzhou Shanghai-Seoul,–Haikou-Guangzhou-Seoul,Auckland, Dalian Shanghai-Osaka,–Guangzhou-Manila,Sanya-Guangzhou-Seoul, Seoul–Shenyang,Seoul–Dalian, Osaka, and Shenyang-Seoul.Dalian-Seoul.
Aircraft Fleet
The Group’sOur fleet plan in recent years has emphasized expansion and modernization through the acquisition of new aircraft and the retirement of less efficient and old aircraft. As of December 31, 2015, the Group2018, we operated a fleet of 667840 aircraft with an average age of 6.36.5 years. Most aircraft of theour Group are Boeing and Airbus aircraft. The Group hasWe have the largest fleet among Chinese airline companies. Among all the aircraft, 424558 aircraft operated by theour Group are leased pursuant to various types of leasing arrangements. Please see the table below for an analysis of our aircraft in terms of average age and respective passenger capacity.
Model | Number of Aircraft | Passenger Capacity | ||
Boeing 787 | 16 | 228/237 | ||
Boeing 777-300ER | 7 | 309 | ||
Boeing 777-200 | 4 | 360 | ||
Boeing 757-200 | 17 | 174/180/192/196/197/204 | ||
Boeing 737-800 | 240 | 159/160/161/164/170 | ||
Boeing 737-700 | 50 | 120/128 | ||
Boeing 737-300 | 3 | 126 | ||
Boeing 747-400F | 2 | N/A | ||
Boeing 777-200F | 12 | N/A | ||
Airbus 380-800 | 5 | 506 | ||
Airbus 330-300 | 19 | 275/284 | ||
Airbus 330-200 | 16 | 218/258 | ||
Airbus 321 | 79 | 179 | ||
Airbus 320 | 128 | 152 | ||
Airbus 319 | 43 | 122/138 | ||
EMB190 | 26 | 98 | ||
Total | 667 | N/A |
Model | Number of Aircraft | Passenger Capacity | ||||||
Airbus 380 series | 5 | 506 | ||||||
Airbus 330 series | 50 | 218/258/259/260/278/283/284/286 | ||||||
Airbus 320 series | 299 | 94/122/130/138/152/160/166/168/179/189/195 | ||||||
Boeing 787 series | 30 | 228/237/266/276/287/297 | ||||||
Boeing 777 series | 10 | 309/361 | ||||||
Boeing 757 series | 4 | 174/180 | ||||||
Boeing 737 series | 402 | 128/134/159/161/164/169/170/172/178/184 | ||||||
EMB190 | 26 | 98 | ||||||
Boeing 747 series | 2 | N/A | ||||||
Boeing 777 series Freighter | 12 | N/A | ||||||
Total | 840 | N/A |
In 2015, the Group2018, we continued to expand and modernize itsour aircraft fleet. During 2015, the Group2018, we (i) took scheduled delivery of twenty46 aircraft under purchase agreements, including six A320s, four A321s, four B777Fs, two B777-300ERs, and four A330-300s;1 A320neo, 1 A321, 1 A321neo, 5A330-300, 18B737-8, 13B737-800, 7B787-9 aircraft; (ii) took scheduled delivery of fourteen B737-800s12 A320neo, 13 A321neo, 8B737-8, 22B737-800, 3B787-9 aircraft under operating leases; and (iii) returned one 3B737-700 and 11B737-800 aircraft under operating leases upon expiry.expiry; and (iv) disposed of 2B757-200 and 2 B777-200A aircraft.
During 2015,In specfic, Xiamen Airlines (i) took scheduled delivery of 1612B737-800 aircraft under operating leases, including two B787-8leases; and fourteen B737-800 aircraft; (ii) took scheduled delivery of five B737-800s two B787-89B737-8, 4B737-800, 2B787-9 aircraft under financing leases.
In December 2015, weOn March 21, 2018, Xiamen Airlines entered into the aircraft acquisition agreement with Boeing for the acquisition of 30 B737NG series aircraft20B737-8 and 50 B737 MAX series10B737-10 aircraft, to be delivered from 20172019 to 2021. In December 2015, we entered into the aircraft acquisition agreement with Airbus S.A.S for the acquisition of 10 Airbus A330-300 series aircraft to be delivered from 2017 to 2019.
2022.
Aircraft Financing Arrangements
Overview
A significant portion of the Group’sour aircraft is acquired under long-term capital or operating leases or long-term mortgage loans with remaining terms to maturity mainly ranging from one to eleven years. As of December 31, 2015, 1982018, of theour Group’s 667840 aircraft, 232 aircraft were operated under capital leases, 226326 were operated under operating leases, 243and 282 were either owned aircraft financed by long-term mortgage loans, or acquired either with cash proceeds or acquired by exercising the purchase options upon expiry of the respective capital leases. The Group’sOur planned acquisition of aircraft in the foreseeable future will generally be made through acquisition by bank loans and the Group’sour own funds, and pursuant toin accordance with operating leases or capital leases. The Group’sOur determination as to itsour acquisition strategy depends on the Group’sour evaluation at the time of itsour capacity requirements, anticipated deliveries of aircraft, the Group’sour capital structure and cash flow, prevailing interest rates and other general market conditions.
The following table sets forth, as of December 31, 2015,2018, the number of aircraft operated by theour Group pursuant to capital and operating leases and the average remaining terms, of such leases.
Capital Lease | Operating Lease | Average Remaining Lease Term | ||||||||||
Model | Number of Aircraft | Number of Aircraft | Year | |||||||||
Boeing 787 | 14 | 2 | 9 | |||||||||
Boeing 737-800 | 63 | 94 | 6.48 | |||||||||
Boeing 737-700 | 11 | 9 | 1.23 | |||||||||
Boeing 777-200F | 7 | 0 | 8.82 | |||||||||
Boeing 777-300ER | 7 | 0 | 10.37 | |||||||||
Airbus 380-800 | 2 | 0 | 7.67 | |||||||||
Airbus 330-300 | 10 | 8 | 7.39 | |||||||||
Airbus 330-200 | 11 | 2 | 4.92 | |||||||||
Airbus 321-200 | 25 | 22 | 6.29 | |||||||||
Airbus 320-200 | 43 | 40 | 6.7 | |||||||||
Airbus 319-100 | 1 | 29 | 3.13 | |||||||||
EMB190 | 4 | 20 | 4.3 | |||||||||
Total | 198 | 226 | 6.09 |
Capital Lease | Operating Lease | Average Remaining Lease Term | ||||||||||
Model | Number of Aircraft | Number of Aircraft | Year | |||||||||
Boeing787-8 | 11 | 2 | 6.11 | |||||||||
Boeing787-9 | 10 | 3 | 9.62 | |||||||||
Boeing737-800 | 64 | 157 | 6.31 | |||||||||
Boeing777-200F | 5 | 0 | 7.82 | |||||||||
Boeing777-300ER | 9 | 0 | 7.64 | |||||||||
Airbus 380 | 2 | 0 | 4.66 | |||||||||
Airbus330-300 | 23 | 8 | 6.35 | |||||||||
Airbus330-200 | 7 | 2 | 3.56 | |||||||||
Airbus321-200 | 42 | 22 | 5.62 | |||||||||
Airbus320-200 | 41 | 55 | 4.45 | |||||||||
Airbus319-100 | 0 | 17 | 1.62 | |||||||||
Airbus320-200 NEO | 0 | 19 | 11.25 | |||||||||
Airbus321-200 NEO | 0 | 13 | 11.60 | |||||||||
Boeing737-8 MAX | 18 | 8 | 10.11 | |||||||||
EMB190 | 0 | 20 | 1.33 | |||||||||
Total | 232 | 326 | 6.12 |
Capital leases
The majority of the capital leases in respect to aircraft and related equipment have terms of ten10 to fifteen15 years expiring during the years 20162019 to 2030.As of December 31, 2015, the Group’s2018, our aggregate future minimum lease payments (including future finance charges) required under its capital leases were RMB62,723RMB82,765 million. The Group’sOur capital leases typically cover a significant portion of the relevant aircraft’s useful life and transfer the benefits and risks of ownership to theour Group. Under its capital leases, the Groupwe generally hashave an option to purchase the aircraft at or near the end of the lease term. As is customary in the case of capital leases, the Group’sour obligations are secured by the related aircraft, as well as other collateral.collaterals.
28
Operating Leases
As of December 31, 2015, the Group’s2018, our aggregate future minimum lease payments required under its operating leases were RMB36,109RMB75,729 million. As of the year end of 2015, the Group’sDecember 31, 2018, our operating leases had original terms generally ranging from five5 to fifteen15 years from the date of delivery of the relevant aircraft, and the remaining terms of these leases ranged from one1 to eleven12 years.Pursuant to the terms of the operating leases, the Group iswe are obligated to make rental payments based on the lease term, with no termination payment obligations or purchase option, and the lessor bears the economic benefits and risks of ownership. Under itsour operating leases, the Group haswe have no option to purchase the aircraft and is required to return the aircraft in the agreed condition at the end of the lease term. Although title to the aircraft remains with the lessor, the Group iswe are responsible during the lease term for the maintenance, servicing,service, insurance, repair and overhaul of the aircraft.
For capital leases or operating leases, the Group iswe are obligated to indemnify the lessors against any withholding or similar taxes that may be imposed on the lessors by taxing authorities in China with regard to payments made pursuant to such leases. In accordance with relevant PRC tax regulations, a PRC lessee is liable to withhold PRC withholding tax in respect of any lease payments regularly made to an overseas lessor. Depending on the circumstances, this tax is generally imposed at a fixed rate ranging from nil6% to 10.0%10% of the lease payments, or in certain cases, the interest components of such payments for capital lease. The PRC withholding tax payable in respect of the lease arrangements amounting RMB291RMB240 million, RMB257RMB234 million, and RMB198RMB237 million during 2015, 20142018, 2017 and 2013 respectively,2016, has been included as part of the lease charges.
Aircraft Flight Equipment
The jet engines used in the Group’sour aircraft fleet are manufactured by General Electric Corporation, Rolls-Royce plc, United Technologies International, Inc., CFM International, Inc. and International Aviation Engines Corporation. The GroupWe had 5990 and 6094 spare jet engines for itsour fleet as of the year end of 2015December 31, 2018 and 2014,2017, respectively. The Group determines itsWe determine our requirements for jet engines based on all relevant considerations, including manufacturers’ recommendations, the performance history of the jet engines and the planned utilization of its aircraft. Acquisition of rotables and certain of the expendables for the Group’sour aircraft are generally handled by Southern Airlines (Group) Import and Export Trading Company Limited ("SAIETC"(“SAIETC”), a subsidiary of CSAHC acting as agent for the Group,we acquired from CSAH in August 2016, in consideration of an agency fee. The Group arrangesWe arrange the ordering of aircraft, jet engines and other flight equipment for the Airline Subsidiaries and keepskeep an inventory of rotables and expendables for the Airline Subsidiaries.
Aircraft Maintenance
A major part of the maintenance for the Group’sour fleet other than overhauls of jet engines is performed by Guangzhou Aircraft Maintenance Engineering Company Limited ("GAMECO"(“GAMECO”), an entity jointly controlled by theour Company, Hutchison Whampoa ("Hutchison"(“Hutchison”) and South China International Aircraft Engineering Company Limited, consistent with the Group’sour strategy to achieve fully integrated airline operations and to assure continued access to a stable source of high quality maintenance services. The remaining part of the maintenance for the Group’sour fleet other than overhauls of jet engines is performed by service providers in China and overseas. GAMECO performs all types of maintenance services, ranging from maintenance inspections performed on aircraft ("(“line maintenance services"services”) to major overhaul performed at specified intervals. GAMECO was the first of three aircraft maintenance facilities in China havingthat has been certified as a repair station by both the CAAC and the Federal Aviation Administration. In March 1998, GAMECO received the Joint Civil Aviation Authorities certificate, which was transferred to European Aviation Safety Agency certification in November 2004, for the repair and maintenance of aircraft and aircraft engines.
The Group believes
We believe that GAMECO performs major maintenance checks on the Group’sour aircraft within time periods generally consistent with those of large international airline maintenance centers. GAMECO’s repair and maintenance capacity include overhaul of more than 47.4%36% of the Group’sour aircraft. Although rotables for the Group’sour aircraft are generally imported through SAIETC, a portion of expendables and other maintenance materials are directly imported by GAMECO. Our agreement with GAMECO usually has a term of one year.
Overhauls of jet engines are performed by Zhuhai MTU, a former jointly controlled entity of the Company and MTU Aero Engines GmbH, and also by domestic qualified service providers in Beijing (AMECO), Xiamen (TEXL) and, Hong Kong (HAESL) and Taiwan (EGAT), and by overseas qualified service providers in USA, Scotland, Malaysia,Germany, Korea, Singapore, France.France, Malaysia, Netherlands and UK . On September 28, 2009, the19, 2017, our Company entered into an agreement with CSAHCCSAH to sellbuy its 50% equity interest in Zhuhai MTU to CSAHC at a consideration of RMB1,607,850,000.MTU. The transfer was completed in February 2010.
August 2018.
The amounts incurred by theour Group for comprehensive maintenance services provided by GAMECO and Zhuhai MTU were RMB3,028RMB4,521 million, RMB2,095RMB3,925 million, and RMB2,579RMB3,897 million for the years ended December 31, 2015, 20142018, 2017 and 2013,2016, respectively.
Safety
The Group endeavorsWe endeavor to maintain strict compliance with all laws and regulations applicable to flight safety. In addition, the Group haswe have adopted measures to eliminate or minimize factors that may impair flight safety, including specialized training programs and safety manuals. The Air Safety Management Department of theour Company implements safety-related training programs on an ongoingon-going basis in all of the Group’sour operations to raise the safety awareness of all employees. As a result, overall flight safety has gradually improved. For "incidents"“incidents” which include various events and conditions prescribed by the CAAC whichthat do not involve serious personal injury or material damage to flight equipment, theour Group has kept the number consistently below what is prescribed by the CAAC. For example, the Company’s "Airour “Air Transportation Incidents Per Ten Thousands Hours Ratio"Ratio” was 0.034, 0.0120.005, 0.01, and 0.020.005 in 2015, 20142018, 2017 and 2013,2016, respectively. In comparison, CAAC’s published maximum acceptable Air Transportation Incidents Per Ten Thousands Hours Ratio was 0.5,0.6, 0.5, and 0.50.14 in 2015, 20142018, 2017 and 2013,2016, respectively. This ratio is defined as the number of occurrences of air transportation incident for every 10,000 hours of flight time. In 2013, the Group strengthened its flight safety management on the internal and external safety requirements. In 2008, the Groupwe received the "Five-Star“Five-Star Flight Safety Award"Award” from CAAC, being the first in domestic aviation industry to receive such a great honor. Subsequently in 2012, we were awarded the "Safe“Safe Flight Diamond Award"Award” by CAAC for our 10,000,000 safety flight hours record, also beingrecord. On June 15, 2018, our company was honored with the first2-Star Flight Safety Diamond Award by the CAAC, becoming the leading Chinese carrier to maintain the highest safety records in domestic aviation industry to receive such a great honor.China. By December 31, 2015, the Company’s2018, our continuous safe flight span totaled to 15.29were 21.265 million hours.
Jet Fuel
Jet fuel costs typically represent a major component of an airline’s operating expenses. The Group’sOur jet fuel costs accounted for 30.6%, 25.9%, 35.6% and 36.2%22.4% of the Group’sour operating expenses for the years ended December 31, 2015, 20142018, 2017 and 2013,2016, respectively. Like allother Chinese airlines, the Group iswe are generally required by the Chinese government to purchase itsour jet fuel requirements from regional branches of CAOSC and Bluesky Oil Supplies Company, except at the Shenzhen, Sanya, Haikou, Shanghai Pudong where jet fuel is supplied by Sino-foreign joint venture in which CAOSC is a joint venture partner. CAOSC is a State-owned organization controlled and supervised by the CAAC that controls the importation and distribution of jet fuel throughout China.
Jet fuel obtained from CAOSC’s regional branches is purchased at uniform prices throughout China that are determined and adjusted by CAOSC from time to time with the approval of the CAAC and the pricing department of the NDRC based on market conditions and other factors. As a result, the costs of transportation and storage of jet fuel in all regions of China are spread among all domestic airlines. Jet fuel costs in China are influenced by costs at state-owned oil refineries and limitations in the transportation infrastructure, as well as by insufficient storage facilities for jet fuel in certain regions of China.
Prior to 1994, domestic jet fuel prices were generally below international jet fuel prices. The Chinese government had gradually increased domestic jet fuel prices in order to reflect more accurately the costs of supplying jet fuel in China. As a result, domestic jet fuel prices have become higher than those in the international market since the beginning of 1994. InFor 2007 throughand the first half of 2008, the crude oil prices in the international market reached historic highs. In response to the pressure imposed by such soaring prices, on November 1, 2007 and June 20, 2008, respectively, the NDRC increased the domestic price for jet fuel.fuel prices. Thereafter, in order to reduce fuel cost pressure faced by Chinese airlines, the NDRC approved reductions in domestic prices for jet fuel prices in 2008 and 2009. However, startingduring a period from February 2009 to 2013, the crude oil price in the international market continued to increase and maintained at a high level in 2013.level. However, influenced by excessive oil supply, global economic weakness and the strong USD,US$, the international oil prices have been trending downward since 2014. Our jet fuel costs decreasedincreased from RMB37,728RMB 31,895 million in 20142017 to RMB26,274RMB42,922 million in 20152018 as a result of a decreasethe increase in average jet fuel prices from 20142017 to 2015.2018.
In addition to purchases of jet fuel from CAOSC, the Group iswe are also permitted by the Chinese government to purchase a portion of itsour jet fuel requirements for itsour international flights from foreign fuel suppliers located outside China at prevailing international market prices. Jet fuel purchased from such sources outside China accounted for approximately 16.44%17.55% and 14.48%17.31% of the Group’sour total jet fuel consumption in 20152018 and 2014,2017, respectively.
Fuel Surcharge
Our profit for the year may suffer from an unexpected change in the fuel surcharge collection policies and other factors beyond our control. The level of fuel surcharges, which is regulated by Chinese government, affects domestic customers’ air travel demand as well as our ability to generate profits. On January 14, 2009, the NDRC has loweredand the rateCAAC jointly announced that the collection of passenger fuel surcharge for domestic routes should be suspended from January 15, 2009 onwards. Subsequently, in response to the increase in international fuel prices, the NDRC and CAAC issued a notice on November 11, 2009 to introduce a new pricing mechanism of fuel surcharge from RMB 0.00002541 per kilometer to RMB 0.00002656 per kilometer, starting from April 1, 2013 and ending on March 31, 2014.Based on that rate, for every RMB100 by which the cost oflinks it with airlines’ jet fuel exceeds RMB4,140 per ton, the airlines are allowed to charge RMB0.00002656 per kilometer for the flight distance.costs, which was further adjusted subsequently.
From April 1, 2015, Thethe NDRC has adjusted the benchmark oil price to RMB5000RMB5,000 per ton, for every RMB100 by which the cost of jet fuel exceeds that price, the airlines are allowed to charge RMB0.00002543RMB0.00002566 per kilometer for the flight distance. Based on that rate, for every RMB100 by which the cost of jet fuel exceeds RMB5,000 per ton, the airlines are allowed to charge RMB 0.0002566 per kilometer for the flight distance. The Group’s profit forNDRC decreased the year may suffer from an unexpected change in therate of fuel surcharge collection policies and other factors beyond our control.
from RMB 0.00002641 per kilometer to RMB 0.00002566 per kilometer, from April 1, 2017 to March 31, 2018.
Flight Operations
Flight operations for the Group’sour flights originating in Guangzhou are managed by our flight operations and marketing divisions, which are responsible for formulating flight plans and schedules consistent with route and flight approvals received from the CAAC. The Company’sOur flight operations center in Guangzhou is responsible for theon-site administration of flights, including the dispatch and coordination of flights, deployment of aircraft, ground services and crew staffing. In addition, each of the Airline Subsidiaries maintains flight operations centers at all servicing airports foron-site administration of their flights. Our general dispatch offices are responsible for monitoring conditions of the Group’sour route network, administering the Group’sour flight plans, collecting and monitoring navigation data and analyzing and monitoring airport conditions.
To enhance itsour management of flight operations, the Group’sour computerized flight operations control system (SOC) began operation in May 1999. The system utilizes advanced computer and telecommunications technology to manage the Group’sour flights on a centralized, real-time basis. The Group believesWe believe that the system will assist itus to (i) compile flight schedules more efficiently; (ii) increase the utilization of aircraft; (iii) allow real-time tracking of all of the Group’sour flights; and (iv) improve coordination of the Group’sour aircraft maintenance and ground servicing functions.
Training of Pilots and Flight Attendants
The Group believesWe believe that itsour pilot training program, which was established in cooperation with the CAAC affiliated Beijing University of Aeronautics and Astronautics (the "BUAA"“BUAA”), has significantly improved the quality of the training received by the Group’sour pilots and has helped maintain the quality of the Group’sour staff of pilots at a level consistent with the expansion of operations called for by the Group’sour business strategy.
In the Group’s pilot training program, trainees have two years of theoretical training at the BUAA. After successful completion of academic and physical examinations, the trainees receive flight training for a period of approximately 20 months at the Flying College, a company that is 48.12% owned by the Company, 4.76% owned by CSAHC and 47.12% owned by a third party shareholder. Each trainee at the Flying College is required to fly at least 250 hours before being awarded a flight certificate. Graduates of the BUAA and the Flying College are hired by the Group as trainee pilots after passing a CAAC-administered examination to obtain a pilot license. The total training period for the Group’s trainee pilots is approximately four years. The Group had about 2,853 trainees as of April 18, 2016. Approximately 450 trainees are expected to graduate by the end of 2016.
As part of the pilot training program, trainee pilots receive their initial training in the operation of a specific aircraft with Zhuhai Xiang Yi Aviation Technology Company Limited ("(“Zhuhai Xiang Yi"Yi”), a jointly controlled entity betweenwholly-owned subsidiary of the Company, and CAE International Holdings Limited, which also provides training to pilots from other Chinese airlines. Zhuhai Xiang Yi is equipped with simulators for majority models of aircraft currently operated by the Groupus and provides flight simulation training services to the Group.us.
The Group’sOur pilots are required to be licensed by the CAAC, which requires an annual proficiency check. The Group’sOur pilots attend courses in simulator training twice annually and in emergency survival training once annually. The GroupWe also conductsconduct regular advanced training courses for captains and captain candidates. Pilots advance in rank based on number of hours flown, types of aircraft flown and their performance history.
The GroupWe funded the training of itsour recruited pilots in previous years and, as a result, incurred significant costs over the years. Recently, there has beenis a trend in the financing of pilot training worldwide from employer-sponsored to self-sponsored scheme. Such a change willdoes not only cut down the Group’sour training expenses significantly, but also ensures the long-term dedicated service of the pilots. Starting from 2007, the Groupwe began to recruit pilots under the self-sponsored training arrangement. On December 5, 2007, August 27, 2008, August 27, 2009, August 26, 2010 and September 9, 2011, the Board approved the Company to provide a guarantee with joint liability for the loans incurred under the self-sponsored pilot training program in an aggregate amount of RMB90,858,000, not more than RMB213,600,000, not more than RMB184,750,000, not more than RMB179,269,600 and not more than RMB83,850,000, respectively. On December 29, 2009, Xiamen Airlines, 51% owned subsidiary of the Company agreed to provide a guarantee with joint liability for the loans incurred under the partial self-sponsored pilot training program in an aggregate amount of not more than RMB100 million up to December 31, 2013. As of December 31, 2015, the Group has provided guarantees with joint liability for the loans of such self-sponsored pilots in an aggregate amount of RMB627 million under which an aggregate of personal bank loans of RMB454 million were drawn down from the banks. For the year ended December 31, 2015, the Group made repayments of RMB4 million due to the default of payments of certain pilot trainees.
Under the program, the self-sponsored pilots are bound to enter into service contracts with the Groupus when they finish their training courses. They have the choice to repay their loans in advance or in installments.
The Group conductsWe conduct theoretical and practical training programs for itsour flight attendants at itsour Flight Attendants Training Center in Guangzhou (the "Guangzhou“Guangzhou Training Center"Center”). The Guangzhou Training Center is equipped with computerized training equipment, as well as simulator cabins for all models of aircraft currently operated by the Group.us. At the Guangzhou Training Center, our flight attendants of the Group receive comprehensive training in areas such as in-flight service, emergency evacuation and water rescue.
Ground Services
The Group makesWe make arrangements with airport authorities, other airlines or ground services companies for substantially all ground facilities, including runway, ramp, terminal and support services buildings, at each airport that it serves. The Group paysthey serve. We pay landing, parking and other fees to such airports, including Guangzhou Baiyun International Airport (the "Guangzhou“Guangzhou Baiyun Airport"Airport”). At domestic airports, such fees are generally determined by the CAAC.
At Guangzhou Baiyun Airport, the Group operates itswe operate our own passengercheck-in, cargo, mail and baggage handling, aircraft maintenance and cleaning services. The GroupWe also providesprovide such services to itsour customer airlines that operate in Guangzhou Baiyun Airport.
Ground services at the airports, such as those in Shenzhen, Changsha, Wuhan, Zhengzhou, Haikou, Zhuhai, Xiamen, Guilin, Jieyang, Guiyang, Shenyang, Harbin, Dalian, Changchun, Sanya, Nanning, Chongqing, Shanghai Hongqiao, Shanghai Pudong and Urumqi, are operated directly by the Group.us. Ground services at the airport in Beijing have been primarily provided by Beijing China Southern Airlines Ground Services Co., Ltd, which became awholly-own subsidiary of the Company in June 2009. Ground services at other airports in China are provided to the Groupus by local airport authorities or local airlines pursuant to variousin accordance with relevant service agreements. Ground services and other services at airports outside China are provided to the Groupus by foreign services providers pursuant to variousin accordance with relevant service agreements with such parties. All our such agreements of the Group are short-term and otherwise on customary terms that are customary in the industry.
Air Catering
We own a 55%70.5% equity interest in Guangzhou Nanland Air Catering Company Limited ("Nanland"(“Nanland”). Nanland providesin-flight meals, snacks, drinks and related services for all of the Group’sour flights originating in Guangzhou and substantially all other flights departing from Guangzhou Baiyun Airport. The Group contractsWe contract with various air catering suppliers with respect toin-flight catering services for flights originating from other airports, generally on an annual basis and otherwise on customary terms that are customary in the industry.
In order to optimize assets structure, tighten cost control, reduce the number of connected transactions and enhance the independence of operations in the long-run, the Company acquired a 100% equity interest in China Southern Airlines Group Air Catering Company Limited ("SAG Air Catering") on August 31, 2007 from CSAHC. SAG Air Catering provides in-flight meals for flights of the Group originating or stopping at domestic airports, mainly in northern China and Xinjiang regions.
Cargo and Mail
The GroupWe also providesprovide air cargo and mail services. A significant portion of these services are combined with passenger flights services. In 2015, the Group2018, we had two2 Boeing 747 freighters and twelve12 Boeing 777 freighters, mainly servicing 1613 international cargo routes, including Guangzhou–Chongqing–Amsterdam–Guangzhou–Chongqing–Amsterdam–Guangzhou, Guangzhou–Amsterdam–Guangzhou–Amsterdam–Guangzhou, Guangzhou–London–Frankfurt–Guangzhou,–London-Frankfurt-Guangzhou, Guangzhou-Frankfurt-Guangzhou, Guangzhou-Paris-Vienna-Guangzhou, Guangzhou-Anchorage-LosAngeles-Guangzhou, Guangzhou-Anchorage-Chicago-Tianjin-Guangzhou, Guangzhou-HoChiMinh-Hanoi-Guangzhou, ShanghaiPudong–Amsterdam–Vienna-ShanghaiPudong, ShanghaiPudong-Amsterdam-Chongqing-ShanghaiPudong, ShanghaiPudong-Amesterdam-ShanghaiPudong, ShanghaiPudong–Frankfurt–ShanghaiPudong, ShanghaiPudong–Anchorage–Chicago–ShanghaiPudong, ShanghaiPudong–LosAngeles–Vancouver–ShanghaiPudong,ShanghaiPudong–LosAngeles–Tianjin–ShanghaiPudong Guangzhou–London–Guangzhou, Guangzhou–Frankfurt–Guangzhou, Guangzhou–Anchorage–Los Angeles–Guangzhou, Guangzhou–Ho Chi Minh City–Hanoi–Guangzhou, Shanghai Pudong–Amsterdam–Chongqing–Shanghai Pudong, Shanghai Pudong–Amsterdam–Shanghai Pudong, Shanghai Pudong–Frankfurt–Shanghai Pudong, Shanghai Pudong–Anchorage–Chicago–Shanghai Pudong, Shanghai Pudong–LosAngeles–Shanghai Pudong, and ShanghaiPudong–LosAngeles–ShanghaiPudong. The Group conducts itsShanghai Pudong–Luxembourg–Shanghai Pudong. We conduct our cargo business primarily through itsour cargo hubs in Guangzhou and Shanghai.
Sales, Reservations and Marketing
Passenger Ticket Sales and Reservations
The Group’sOur ticket sales and reservations are conducted by or through independent sales agents and the Group’sour own network of exclusive sales offices, as well as the CAAC’s sales offices and CSAHC’sCSAH’s affiliates. The Group hasWe have sales offices in Guangzhou and itsour other route bases. In addition, the Group maintainswe maintain regional sales offices in other cities in China, including Beijing and Shanghai. The Group maintainsWe maintain international sales offices in Almaty, Amsterdam, Ashkhabad, Auckland, Baku, Bangkok, Bishkek, Brisbane, Busan, Chicago, Christchurch, Daegu, Daejeon, Delhi, Dhaka, Dubai (Sharjah), Dushanbe, Frankfurt, Fukuoka, Hanoi, Hiroshima, Ho Chi Minh City, Irkutsk, Islamabad, Istanbul, Jakarta, Jeddah, Kathmandu, Khabarovsk, Khudzhand, Kitakyushu, Kuala Lumpur, London, Los Angeles, Manila, Melbourne, Mexico City, Moscow, Nagoga, New York, Niigata, Novosibirsk, Nairobi, Oakland, Osaka, Osh, Paris, Penang, Perth, Phnom Penh, Phuket, Roma, San Francisco, Sapporo, Sendai, Seoul, Siem Reap, Singapore, Sydney, Tashkent, Tehran, Toronto, Tokyo, Toyama, Tbilisi, Vancouver, Vladivostok, ViennaVientiane and Yangon.
The Group has
We have agency agreements with airlines in the Asia-Pacific region, Europe, the United States and Africa for the processing of ticket sales and reservations on a reciprocal basis. In 2015, approximately 32.3%2018, over 50.63% of all ticket sales for the Group’sour scheduled flights were made by the Group’sour network of sales offices and CSAHC’sCSAH’s affiliates. The GroupWe also sellssell tickets and acceptsaccept reservations through an extensive network ofnon-exclusive independent sales agents. Under the agency agreements with these sales agents, the Group paysthem, we pay commissions based on the value of tickets sold. The Group pays independent sales agents a commission of 3.32% of the ticket price. Sales agents are typically permitted to withhold their commission from the proceeds of ticket sales that are remitted to the Group. In 2015,2018, sales by independent sales agents accounted for approximately 67.7%less than 49.37% of the Group’sour ticket sales of itsour scheduled flights.
Substantially all of the Group’sour sales offices and agents in China are linked electronically to the TravelSky Technology Limited’s computerized ticketing and reservations system, which is in turn linked to all domestic airlines for flights throughout China.The Group has We have also entered into membership agreements with several international reservation systems, including ABACUS in Southeast Asia, SABRE and GALILEO in the United States, AMADEUS in Europe and INFINI in Japan. These systems facilitate reservations and sales of tickets for the Group’sour international flights. In 2008,Since 2016, we have been focusing on improving the Group further improveddigitalization and optimized its online sales network,intelligence level. We have launched the “China Southern e Travel” strategy, which aims to explore the needs of passengers and launched Tencent sales countersplan and design products from the perspective of passengers. We have built a number of quality products such as flight dynamics, seat selection andcheck-in, electronic invoices, face recognition, full-channel self-service refund, and meal service. The grand vision of “one machine in cooperation with Tencent Technology Limited, thus expandedhand, the consumer sales networkwhole journey worry-free” has become a reality in technology, and the digitalization of the Group. Meanwhile,entire process of passenger travel has been realized. In 2018, we released the Group upgraded“Internet +” strategy centering on “China Southern e Travel”, and reconstructed the SMSformally built aone-stop service mobile application platform which provided SMS information services on mileage, flight schedule, flight status and air ticket price, and launched the "95539" services hotlines.
to provide passengers with excellentdoor-to-door service experience. Intelligence has become our core competitiveness.
Cargo
The Group’sOur cargo and mail services are promoted through itsour own cargo divisions and independent cargo agents both within and outside China that track available space among all airlines. In particular, the Group employswe employ a number of cargo agents in the Pearl River Delta region. In 2015, the Group2018, we generally payspay the cargo agents an average commission of 0.75%0.39% of the relevant cargo freight rate for domestic and international services, of which theand a commission of 0.70% to cargo agents in the Pearl River Delta region is 0.69%.
region.
Promotional and Marketing Activities
The Group engagesWe engage in regular promotional and marketing activities in an effort to increase itsour market share. The Group’sOur promotional and marketing activities for domestic routes emphasize safety, passenger comfort and the frequency of the Group’sour flights. The Group’sOur promotional and marketing activities for international and regional passengers emphasize the Group’sour quality of service, extensive route network in China and greaterhigher frequency of flights relativecompared to other Chinese airlines. The Group wasWe were among the first to launch premium economy class of seating. In addition, the Groupwe also promotespromote and markets itsmarket our regional and international routes on the basis of price competitiveness.
The Group seeksWe seek to increase itsour name recognition by offering new services to passengers. For example, the Group waswe were the first Chinese airline to provide off-airport check-inoff-airportcheck-in services. The GroupWe also offered transfer and baggage "through-handling"“through-handling” services to passengers connecting to other airlines, including passengers connecting in Hong Kong for flights to Taiwan. The GroupWe widened itsour use of information technology and introduced new services such as cell phonecheck-in, SMS platforms and online meal booking. In 2015,2017, our Company reached a strategic cooperation agreement with American Airlines. According to this agreement, American Airlines subscribed our Company’s shares in August 2017 by USD200 million. Our Company and American Airlines also established a code sharing partnership on January 18, 2018 to provide more convenient and diversified trip options for passengers. During the Group strengthenedreporting period, given the demand from our own development strategy and the new trend of cooperation model in the global air transport industry, we decided not to renew the SkyTeam Alliance Agreement from January 1, 2019. We will continue to properly carry out the work of exit and fully guarantee the rights and interests of passengers. We will carry out bilateral and multilateral cooperation in a more targeted manner while deepening the cooperation with Air France-KLM by co-promotion, agentthe existing partners such as France Airlines and corporate joint visitsKLM Royal Dutch Airlines, expand code sharing and workshops, further integrating resourcesfrequent passenger cooperation with American Airlines, and launch strategic cooperation with numbers of internationally renowned airlines such as British Airways, Finnair and Emirates to benefitprovide passengers with more convenient and high-quality travel options. At the same time, we continue to both parties. Along with new route launches of Guangzhou - Nairobi, Guangzhou - Christchurch and Guangzhou - San Francisco,strengthen the Group held workshops in the origin and destination cities, announcing our new flights to local agents and clients. Besides, the Group cooperated with government agencies, Tourism Australasia and Tourism New Zealand, to promote and attract people to Australia and New Zealand. In addition, the Group broadcast the first micro film “Dream from the Heart”, successfully expressed its brand, social responsibility and customer-oriented services.
The Group engages in regular promotional and marketing activities in an effort to increase its market share. The Group’s promotional and marketing activities for domestic routes emphasize safety, passenger comfort and the frequencycoordinated development of the Group’s flights. The Group’s promotional“China Southern Alliance” by gradually integrating with Xiamen Airlines and marketing activities forSichuan Airlines in terms of capacity layout, route cooperation, resource sharing and customer collaboration. At present, we share codes with 31 international and regional passengers emphasize the Group’s quality of service, extensivedomestic airlines, such as, France Airlines, KLM Royal Dutch Airlines, American Airlines, Qantas Airways, Finnair in 790 routes (including trunk routes and beyond routes). This further enlarged our sales channels and flight route network in China and greater frequency of flights relative to other Chinese airlines. The Group was among the first to launch premium economy class of seating. In addition, the Group also promotes and markets its regional and international routes on the basis of price competitiveness.network.
On the wake of permitted direct flights on weekends between Taiwan and Mainland China starting from July 4, 2008, theour Company became the first Chinese carrier to fly nonstop to Taiwan. By taking advantage of such further liberalized air travel policy between Taiwan and Mainland China, theour Company has taken measures to explore opportunities presented by and increase itsour name recognition in Taiwan market. On June 23, 2008, theour Company entered into a memorandum of cooperation with China Airlines, which is the largest carrier in Taiwan by route network. Based on the memorandum, the scope of cooperation between the parties will cover passenger, cargo, maintenance and ground handling services. The Company believesWe believe that itsour strategic collaboration with China Airlines will be beneficial to both parties, expand their route network worldwide, increase their freight load factors, reduce labor and operating costs, and enhance the competitiveness of both airlines in the global air travel market.
To enhance relationships with itsour passengers, the Group haswe have launched two major frequent flyer programs, namely the "China“China Southern Airlines Sky Pearl Club"Club” and the "Xiamen“Xiamen Airlines’ Egret Card Frequent Flyer Program"Program”. By the end of 2015, the Group2018, we had approximately 3139.78 million members (including those of Xiamen Airlines) under these programs.
Regulation
The Chinese commercial aviation industry is subject to a high degree of regulation and oversight by the CAAC. Regulations and policies issued or implemented by the CAAC encompass substantially all aspects of airline operations, including route allocation, pricing of domestic airfare, the administration of air traffic control systems and certain airports, air carrier certifications and air operator certification and aircraft, registration and aircraft airworthiness certification. The Civil Aviation Law, which became effective in March 1996, provides a framework for regulation of many of these aspects of commercial aviation activities. Although China’sChinese airlines operate under the supervision and regulation of the CAAC, they are accorded an increasingly significant degree of operational autonomy including with respect toin the application for domestic, regional and international routes, the allocation of aircraft among routes, the purchase of flight equipment, the pricing of air fares within a certain range, the training and supervision of personnel and theirday-to-day operations.
As an airline providing services on international routes, the Group iswe are also subject to a variety of bilateral civil air transport agreements that provide for the exchange of air traffic rights between China and various other countries. In addition, China is a contracting state, as well as a permanent member, of the International Civil Aviation Organization (the "ICAO"“ICAO”), an agency of the United Nations established in 1947 to assist in the planning and development of international air transport, and is a party to many other international aviation conventions. The ICAO establishes technical standards for the international aviation industry. The Group believesWe believe that it,we, in all material respects, compliescomply with all such technical standards.
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Route Rights
Domestic Routes. The right of any Chinese airline to carry passengers or cargo on any domestic route must be obtained from the CAAC.Non-Chinese airlines are not permitted to provide domestic air service between destinations in China. The CAAC’s policy is to assign a domestic route to the Chinese airline that is best suited to serve the route based, in part, on the location of the airline’s main or regional base at the point of origin. Under current regulations, airlines are generally expected to operate mainly from their route bases, and flights within a particular region are expected to be served by airlines based in that region. The Group believesWe believe that these regulatory parameters benefit airlines, such as theour Group, that have a large number of regional route bases. The CAAC also considers other factors that may make a particular airline suitable to operate a domestic route, including the applicant’s general operating authority, compliance with pricing regulations and regulations applicable to safety and service quality, market demand, the ability of the applicant in terms of its existing routes, airport facilities and related support services.
The CAAC considers market conditions for a domestic route in determining whether the route should be allocated to one or more airlines. Generally, the CAAC requires the passenger load factor on certain route should be above the average rate of the whole market in the last flight season before additional flights and participants may be put on that route.
Regional Routes. Hong Kong and Macau routes and landing rights are derived from agreements between the Chinese government and the government of the Hong Kong SAR, and between the Chinese government and the government of Macau SAR. The rights to fly between Beijing and Hong Kong, Beijing and Macau, Shanghai and Hong Kong and Shanghai and Macau are allocated by the CAAC among the four Chinese airlines. The Group understandsWe understand that the criteria for determining whether a Hong Kong and Macau route will be allocated to a particular airline include market demand, the ability of the airline to service the route and the appropriateness of the airline’s aircraft for such route.
A number of Hong Kong routes are operated by Chinese airlines on a "charter" flight basis. Permission to operate these flights is in theory subject to monthly review by the CAAC and the Hong Kong Civil Aviation Department. The CAAC has informally indicated that it primarily considers market demand and airline capability in granting permission for such flights.
Previously, direct flights between Taiwan and Mainland China were only available during certain festivals. Since July 4, 2008, however, the ban on direct flights has been further liberalized to allow direct charter flights on weekends. On November 4, 2008, the Mainland China and Taiwan agreed to regular direct passenger charter flights across the Taiwan Strait. On August 31, 2009, the Mainland China and Taiwan extended the number of regular cross-Strait direct passenger flights from 108 to 270 a week. Cross-Strait direct passenger flights were further increased in the following years. As of April 18, 2016,26, 2019, there were 69880 cross-Strait direct passenger flights a week.
International Routes. International route rights, as well as the corresponding landing rights, are derived from air services agreements negotiated between the Chinese government, through the CAAC, and the government of the relevant foreign country. Each government grants to the other the right to designate one or more domestic airlines to operate scheduled service between certain destinations within each of such countries. Upon entering into an air services agreement, the CAAC determines the airline to be awarded such routes based on various criteria, including the availability of appropriate aircraft, flight and management personnel, safety record, the overall size of the airline, financial condition and sufficiency of assets to bear civil liabilities in international air services. These route rights may be terminated by the CAAC under special circumstances.
The criteria for determining whether an international route will be allocated to a second airline generally include (i) the terms of the relevant bilateral civil aviation agreement; (ii) consistency with overall national plans and the national interest and the enhancement of reasonable competition; and (iii) whether the international airports to be used are sufficient for the aircraft flown and employ security measures consistent with international standards.
In addition, if the relevant bilateral civil aviation agreement permits more than one Chinese airline to operate a particular international route, the CAAC will only permit a second airline to operate on such route if during a specific season, the average load factor is more than 75%, or for a particular international route, if the flight capacity provided by Chinese airlines is 50% less than that provided by foreign airlines.
Air Fare Pricing Policy
In recent years, there were a series of air fare reform to deregulate the control on the air fare pricing policy step by step. Pursuant to "Pricing“Pricing Reform of Domestic Civil Aviation"Aviation” as approved by the State Council of the PRC effective on April 20, 2004, prices on domestic routes now fluctuate freely within a predetermined range. Instead of direct supervision by setting prices of air tickets through a local price bureau, the government now provides guidance on domestic flights and domestic civil aviation is controlled by the government indirectly. Market-oriented pricing policy was introduced and pricing system has been adjusted as a result of the above pricing reform. The CAAC and NDRC issued a notice on April 13, 2010, pursuant to which, effective on June 1, 2010, airlines may set first-class and business-class airfares freely in accordance with market prices, subject to relevant PRC laws. The economy-class airfares remain to be subject to the predetermined range. The CAAC and NDRC further issued a notice, pursuant to which, effective on October 20, 2013, airlines are free to set domestic flights airfares not exceeding up to 25% above the bench mark prices where governmental pricing guidance is applicable. In recent years, there were a series of air fare reformapplicable; and to deregulatefreely determine the controlairfares for domestic routes with the market-oriented pricing policy based on the air faremarket demand and supply situation. On September 29, 2016, the CAAC and NDRC further issued the Notice on Deepening the Pricing Reform of Demotic Civil Aviation to further expand the scope of the routes with the market-oriented pricing policy steppolicy: airfares for the routes below 800 kilometers or the routes above 800 kilometers and in the competing relationship with the high-speed rail EMU trains can be freely determined by step.airlines. Airlines may raise thenon-discounted announced airfares for a certain amount of routes with the market-oriented pricing policy. In principle, such amount shall be no more than 10 per flight season, and the accumulative increase rate of airfares shall be no more than 10 percent per route per flight season. On December 17, 2017, the CAAC further issued the Notice on Further Deepening the Pricing Reform of Demotic Civil Aviation, pursuant to which the airlines will be allowed to decide their own prices on domestic routes that have at least five carriers competing. Price increases of no more than 10 percent would be also allowed for each travel season.
On December 17, 2017, the CAAC further issued the Notice on Further Deepening the Pricing Reform of Demotic Civil Aviation, pursuant to which the airlines will be allowed to decide their own prices on domestic routes that have at least five carriers competing. For each airline, the total number of the routes which the airline can decide itself shall be no less than 10 but shall generally not exceed 15 percent of the total number of the market-oriented routes operated by such airline in one flight season. On April 13, 2018, CAAC issued the Notice on Distributing the Catalog of Domestic Routes adopting Market Regulation Price. The catalog of domestic routes is published together with such notice.
Published air fares of Chinese airlines for the Hong Kong and Taiwan routes are determined by the CAAC and the relevant civil aviation authorities in Hong Kong or Taiwan. Airlines may offer discounts on flights on their Hong Kong and Taiwan regional routes.
Published air fares of Chinese airlines for international routes (except for Japan) are determined by Chinese airlines at their own discretion, taking into account the international air fare standards established through the International Air Transport Association. For Japan routes, air fares must be approved by the relevant civil aviation authorities in Japan, and discounting of published international air fares is permitted.
Acquisition of Aircraft and Flight Equipment
If a Chinese airline plans to acquire an aircraft, the airline must first seek approval from the CAAC and NDRC. The airline must, as a condition of approval, provide specific acquisition plans, which are subject to modification by the CAAC and NDRC. If the CAAC and NDRC approve an aircraft acquisition, the airline negotiates the terms of the acquisition with the manufacturer together with China Aviation Suppliers Import and Export Corporation ("CASC"Holding Company (“CASC”), an entity controlled by CAAC, because CASC possesses the license required to import or export aircraft, and CASC receives a commission in respect thereof. Most Chinese airlines are also required to acquire their aircraft engines, spare parts and other flight equipment through CASC. TheOur Company and a few other Chinese airlines are permitted to import jet engines and other flight equipment for their own use without the participation of CASC. In the case of theour Company, SAIETC acts as itsour import agent and receives an agency fee for itsour services.
Jet Fuel Supply and Pricing
CAOSC and Bluesky Oil Supplies Company, companies supervised by the CAAC, are the only jet fuel supply companies in China, with the exception of the joint venture jet fuel supply companies that supply Shenzhen, Zhuhai, Sanya, Haikou, Shanghai Pudong and other small airports. Airlines are generally not permitted to buy jet fuel from other suppliers in their domestic operations, since the direct import of jet fuel for domestic purposes is prohibited. As a result, all Chinese airlines purchase their domestic jet fuel supply requirements (other than the above mentioned exceptions) from the seven regional branches of CAOSC. Jet fuel obtained from such regional branches is purchased at uniform prices throughout China that are determined and adjusted by CAOSC from time to time with the approval of the CAAC and the pricing department of the NDRC based on market conditions and other factors.
37
Safety
The CAAC has madeputs the improvement of air traffic safety in China on a high priority and is responsible for the establishment of operational safety, maintenance and training standards for all Chinese airlines. The Chinese airlines are required to provide monthly flight safety reports to the CAAC, including reports of flight or other incidents or accidents and other safety related problems involving such airline’s aircraft occurring during the relevant reporting period. The CAAC periodically conducts safety inspections on individual airlines.
Every pilot is required to pass CAAC-administered examinations before obtaining a pilot license and is subject to an annual recertification examination.
All aircraft operated by Chinese airlines, other than a limited number of leased aircraft registered in foreign countries, are required to be registered with the CAAC. All aircraft operated by Chinese airlines must have a valid certificate of airworthiness, which is issued annually by the CAAC. In addition, maintenance permits are issued to a Chinese airline only after its maintenance capabilities have been examined and assessed by the CAAC. Such maintenance permits are renewed annually. All aircraft operated by Chinese airlines may be maintained and repaired only by CAAC-certified maintenance facilities, whether located within or outside China. Aircraft maintenance personnel must be certified by the CAAC before assuming aircraft maintenance posts.
positions.
Security
The CAAC establishes and supervises the implementation of security standards and regulations for the Chinese commercial aviation industry. Such standards and regulations are based on Chinese laws, as well as standards developed by international commercial aviation organizations. Each airline and airport in China is required to submit to the CAAC an aviation security handbook describing specific security procedures established by such airline or airport for theday-to-day operations of commercial aviation and procedures for staff training on security. Such security procedures must be based on relevant CAAC regulations and international commercial aviation treaties. Chinese airports and airlines that operate international routes must also adopt security measures in accordance with the requirements of the relevant international agreements.
Noise and Environmental Regulation
All airlines in China must comply with the noise and environmental regulations of the PRC State Environmental Protection Agency. Applicable regulations of the CAAC permit Chinese airports to refuse to granttake-off and landing rights to any aircraft that does not comply with noise regulations.
Chinese Airport Policy
The CAAC supervises and regulates all civilian airports in China. The local government of the PRC manages the administration of most civilian airports in China. Airports in China are also subject to regulation and ongoing review by the CAAC, which determinestake-off and landing charges, as well as charges for the use of airports and airport services.
Competition
The CAAC’s extensive regulation of the Chinese commercial aviation industry has had the effect of managing competition among Chinese airlines. Nevertheless, competition has become increasingly intense in recent years due to a number of factors, including relaxation of certain regulations by the CAAC, an increase in the number of Chinese airlines and an increase in the capacity, routes and flights of Chinese airlines.
In the Chinese aviation industry, the three dominant airlines are theour Group, Air China Limited (the "Air China"“Air China”) and China Eastern Airlines Corporation Limited (the "China“China Eastern Airlines"Airlines”). In 2015,2018, these three airlines together controlled approximately 66%60.1% of the commercial aviation market in China as measured by passengers carried.
Most major Chinese airlines have in recent years significantly expanded their fleets, while at the same time passenger traffic may not increase proportionately. In some years, this has resulted in a reduction in our passenger load factors. As a result, we are required to be more competitive with respect to, for example, quality of service, including ticketing and reservations,in-flight services, flight scheduling and timeliness.
The Group expects that competition in China’s commercial aviation industry will continue to be intense. The Group will also face increasing competition from alternative means of transport, such as highway and rail, as China’s transportation infrastructure improves. In particular, the so-called "Four Longitudinal and One Horizontal" high-speed railways have brought negative impact to the domestic commercial aviation sector.
In June 2011, the Beijing-Shanghai High-Speed Railway commenced operation. We currently have only one daily flight onnext few years, the Beijing-Shanghai aviation route. The openingtarget customers of the Beijing-Shanghai High-Speed Railway has had a little direct impact on us. The aviation routes along the way, in particular, short-haul routes have experienced a greater loss of customers, but such losses are within our expectations and have had minimal impact on the entire industry. In December 2012, the Beijing-Guangzhou and Harbin-Dalian High-Speed Railways commenced operation. Currently, the Four Longitudinal High-Speed Railways, including Beijing-Shanghai, Beijing-Guangzhou-Shenzhen, Harbin-Dalian, Shanghai-H hangzhou-Shenzhen High-Speed Railways, have commenced operation. the Four Horizontal High-Speed Railways, including Shijiazhuang-Taiyuan, Jinan-Qingdao, Zhenzhou-Xi'an-Baoji, Nanjing-Wuhan-Chongqing, Hangzhou-Nanchang-Changsha High-Speed Railways, have partly commenced operation, and the rest will be finished at the end of 2015. The expansion of the coverage of this network, improvements in the railway service quality, increased passenger capacity and stations located closer to urban centers than competing airports could enhance the relative competitiveness of the railway service and affect our market share on some of our key routes, in particular routes below 800 kilometers. The aggregate high-speed railway mileage in China reached over 19,000 kilometers asand airline will gradually differenciate, so passengers of December 31, 2015. The construction of all railways in China’s "Four Longitudinal and Four Horizontal"airline will not be massively redirected to high-speed railway network is expected to complete byrailway. However, the end of 2020. We expect it will bring further negative impact on the domestic aviation industry.
From the perspective of long term development, with the continuous improvementpositive changes in the high-speed railway lineswill continue to erode the aviation market. First of all, the “eight horizontal and services,eight vertical” high-speed railway corridors are gradually being perfected. The advantages of scale are becoming obvious. Secondly, in the domestic flightsfuture, the railway system will gradually release its own pricing, adopt flexible pricing and market pricing. Passengers can get discounts on more routes. Hence, the competition that aviation industry faces will become more intense. Thirdly,one-third of high-speed railway will speed up, which may attract more passengers. The competition on passengers whose trip distance are from 750 kilometers to 1000 kilometers is intense. Following the airlinesincrease of speed, high-speed railway may attract passengers who travel longer than 1000 kilometers. In addition, the operational efficiency of high-speed railways and train capacity will face competition from all sides, which spurs the airlines to constantly improve its network of aviation routes while stepping up efforts to upgrade service quality and brand influence for the enhancement of its competitiveness as a whole.increase.
The Group believesWe believe that itour Company possesses certain competitive advantages as compared to other Chinese airlines. The Group hasWe have the most extensive route network and the largest number of regional route bases among Chinese airlines, which the Group believeswe believe places itus in a favorable position in the route allocation process. The GroupWe also hashave the largest aircraft fleet among all Chinese airlines, which, together with the Group’sour planned aircraft acquisitions, will permit the Groupus to expand itsour operations and to improve the deployment of the aircraft in itsour fleet. The GroupWe also believesbelieve that itsour dominant presence in the populous and economically developed southern and central regions of China provides itus with a competitive advantage in attracting new customers, and that itsour fully integrated flight training, aircraft and engine maintenance and air catering operations enable itus to achieve and maintain high quality service to itsour customers. In light of increasing competition from high speedhigh-speed trains, the Group intendswe intend to place more flight fleet to the international routes, where the Groupwe will make an effort for a stronger market position. The GroupWe also believesbelieve that itsour optimized route network, increased operational efficiency and improved service quality will attract more customers. The proposed cooperation between the Companyus and the high speed trains operators will also enable the Groupus to render a seamlessair-ground service to customers which willand bring awin-win situation for both the Groupus and the high speed trains operators.
According to CAAC statistics briefing, the following table sets forth the Group’sour market share of passengers carried, cargo and mail carried and total traffic of Chinese airlines for the years indicated.
Passenger Carried | Cargo and Mail Carried (tons) | Total Traffic (tons kilometers) | Passenger Carried | Cargo and Mail Carried (tons) | Total Traffic (tons kilometers) | |||||||||||||||||||||||||||||||||||||||||||
Year | Industry Total (in millions) | Group's Share (% of total) | Industry Total (in thousands) | Group's Share (% of total) | Industry Total (in billions) | Group's Share (% of total) | Industry Total (in millions) | Group’s Share (% of total) | Industry Total (in millions) | Group’s Share (% of total) | Industry Total (in millions) | Group’s Share (% of total) | ||||||||||||||||||||||||||||||||||||
2011 | 292.2 | 27.6 | 5,528 | 20.5 | 57.3 | 25.2 | ||||||||||||||||||||||||||||||||||||||||||
2012 | 319.4 | 27.1 | 5,450 | 22.6 | 61.0 | 26.6 | ||||||||||||||||||||||||||||||||||||||||||
2013 | 354.0 | 25.9 | 5,613 | 22.7 | 67.2 | 26.0 | ||||||||||||||||||||||||||||||||||||||||||
2014 | 391.7 | 25.8 | 5,933 | 24.2 | 74.9 | 26.4 | 391.7 | 25.8 | 5,933 | 24.2 | 74.9 | 26.4 | ||||||||||||||||||||||||||||||||||||
2015 | 435.6 | 25.1 | 6,253 | 24.2 | 85.0 | 26.3 | 435.6 | 25.1 | 6,253 | 24.2 | 85.0 | 26.3 | ||||||||||||||||||||||||||||||||||||
2016 | 487.8 | 23.5 | 6,669 | 22.7 | 96.1 | 25.4 | ||||||||||||||||||||||||||||||||||||||||||
2017 | 551.6 | 25.2 | 7,058 | 23.7 | 108.3 | 22.9 | ||||||||||||||||||||||||||||||||||||||||||
2018 | 611.7 | 22.9 | 7,385 | 23.5 | 120.7 | 25.1 |
39
Domestic Routes
The Group competesWe compete against itsour domestic competitors primarily on the basis of flight schedule, route network, quality of service, safety, type and age of aircraft and, to a lesser extent, and until recently, price. The Group competesWe compete against other major Chinese airlines in itsour various domestic route markets. Of these competitors, the largest two are two airlinesAir China Limited and China Eastern Airlines Corporation Limited, which are owned or controlled by the Chinese government, and the remaining airlines are operated by or under the control of various Chinese provincial or municipal governments.
government.
The following table sets forth the Group’sour market share in terms of passengers carried, cargo and mail carried on departing flights and total departing flights at the ten10 busiest airports in China in 20152018 according to passenger volume data from CAAC statistics briefing.
Airport | Passenger Carried (% of total) | Cargo and Mail Carried (% of total) | Departing Flight (% of total) | |||||||||
Beijing | 17.18 | 10.88 | 17.5 | |||||||||
Shanghai Pudong | 8.77 | 6.62 | 9.91 | |||||||||
Guangzhou | 48.82 | 33.54 | 50.46 | |||||||||
Chengdu | 12.82 | 13.55 | 11.8 | |||||||||
Shenzhen | 27.27 | 15.51 | 25.83 | |||||||||
Shanghai Hongqiao | 13.45 | 21.91 | 13.66 | |||||||||
Kunming | 12.7 | 19.86 | 11.92 | |||||||||
Xi’an | 15.24 | 14.42 | 16.07 | |||||||||
Chongqing | 23.1 | 20.54 | 24.81 | |||||||||
Hangzhou | 26.88 | 17.96 | 27.9 |
Airport | Passenger Carried (% of total) | Cargo and Mail Carried (% of total) | Departing Flight (% of total) | |||||||||
Beijing | 16.4 | 9.3 | 16.7 | |||||||||
Shanghai Pudong | 9.1 | 7.4 | 9.8 | |||||||||
Guangzhou | 48.5 | 32.4 | 49.0 | |||||||||
Chengdu | 11.2 | 10.9 | 10.5 | |||||||||
Shenzhen | 28.2 | 15.4 | 26.4 | |||||||||
Kunming | 11.0 | 15.4 | 10.2 | |||||||||
Xi’an | 13.1 | 11.2 | 13.2 | |||||||||
Shanghai Hongqiao | 13.3 | 24.2 | 13.3 | |||||||||
Chongqing | 21.9 | 19.1 | 23.3 | |||||||||
Hangzhou | 25.7 | 13.2 | 24.8 |
The following table sets forth the Group’sour market share in terms of passengers carried, cargo and mail carried on departing flights and total departing flights at eight busiest airports in southern and central China (excluding Guangzhou and Shenzhen, which are included in the table above) in 20152018 according to passenger volume data from CAAC statistics briefing.
Airport | Passenger Carried (% of total) | Cargo and Mail Carried (% of total) | Departing Flight (% of total) | |||||||||
Haikou | 25.1 | % | 32.8 | % | 24.1 | % | ||||||
Sanya | 25.4 | % | 31.7 | % | 26.8 | % | ||||||
Wuhan | 38.5 | % | 36.6 | % | 39.3 | % | ||||||
Changsha | 34.7 | % | 39.5 | % | 36.1 | % | ||||||
Zhengzhou | 37.0 | % | 15.0 | % | 37.3 | % | ||||||
Nanning | 28.6 | % | 33.9 | % | 28.6 | % | ||||||
Zhuhai | 42.3 | % | 48.0 | % | 33.6 | % | ||||||
Guilin | 25.5 | % | 28.4 | % | 27.4 | % |
Airport | Passenger Carried (% of total) | Cargo and Mail Carried (% of total) | Departing Flight (% of total) | |||||||||
Zhengzhou | 28.6 | 9.3 | 29.1 | |||||||||
Changsha | 31.0 | 31.7 | 31.5 | |||||||||
Wuhan | 36.0 | 28.9 | 35.7 | |||||||||
Haikou | 21.7 | 28.5 | 20.9 | |||||||||
Sanya | 23.8 | 31.7 | 25.0 | |||||||||
Nanning | 20.5 | 22.1 | 21.2 | |||||||||
Zhuhai | 29.3 | 37.0 | 29.0 | |||||||||
Guilin | 18.5 | 22.4 | 19.5 |
Regional Routes
In 2015, the Group2018, we conducted a total of 20.66 thousands19,440 flights on itsour regional routes, accounting for approximately 25.2%22.40 % of all passengers carried by Chinese airlines on routes between Hong Kong, Macau or Taiwan and destinations in China. The Group facesWe face less competition on regional routes than that on domestic and international routes, and earnsearn higher operating margin. Air China, China Eastern Airlines, Air Macau, Cathay Dragon, Air and Cathay Pacific, China Airlines and Eva Airways compete with theour Group in the regional traffic markets.
International Routes
The Group competesWe compete with a number of Chinese airlines, including Air China and China Eastern Airlines and many well-established foreign airlines on itsour international routes. Most of these international competitors have significantly longer operating histories, substantially greater financial and technological resources and greater name recognition than the Group.us. In addition, the public’s perception of the safety and service records of Chinese airlines may adversely affect the Group’sour ability to compete against itsour regional and international competitors. Many of the Group’sour international competitors have larger sales networks and participate in reservation systems that are more comprehensive and convenient than those of the Group,reservation systems, or engage in promotional activities that may enhance their ability to attract international passengers.
In Southeast Asian routes, our competitors mainly include Thai Airways International, Singapore Airlines, Malaysian Airlines System, Vietnam Airlines, Garuda Indonesia, Philippine Airlines, Air China and China Eastern Airlines. In European routes, our competitors mainly include Air China, China Eastern Airlines, Cathay Pacific Airways and Lufthansa German Airlines. In the United States routes, our competitors mainly include Air China, China Eastern Airlines, Cathay Pacific Airways and United Airlines. In Australian routes, our competitors include Air China, China Eastern Airlines, Cathay Pacific Airways and Qantas Airways. The Group competesWe compete in the international market primarily on the basis of safety, price, timeliness and convenience of scheduling.
Airline Subsidiaries
TheOur Airline Subsidiaries are joint ventures established by theour Company and local companies in the provinces or special economic zones where theour Airline Subsidiaries are based and are engaged in providing airline and related services. As of December 31, 2015, the2018, our Company owns a 51%, 55% or 60%equity interest in each of theour Airline Subsidiaries.
As of December 31, 2015,2018, Xiamen Airlines operated under its own "MF"the “MF” code with a fleet of 146210 aircraft. In 2015,2018, Xiamen Airlines carried a total of about 24.8735.89 million passengers, or approximately 22.7%25.66% of the passengers carried by theour Group in that year, and had RMB18,931RMB28,727 million in traffic revenue.
As of December 31, 2015,2018, Shantou Airlines operated under the Group’s "CZ"“CZ” code with a fleet of 1416 aircraft. In 2015,2018, under the centralized allocation of flight routes of theour Group, Shantou Airlines carried a total of about 2.923.22 million passengers, or 2.7%2.30 % of the passengers carried by theour Group in that year. Total traffic revenue of Shantou Airlines for the year ended December 31, 20152018 was RMB2,193RMB 2,271 million.
As of December 31, 2015, Chongqing2018, Zhuhai Airlines operated under the "OQ"“CZ” code with a fleet of 13 aircraft. In 2015,2018, under the centralized allocation of flight routes of our Group, Zhuhai Airlines carried a total of about 2.19 million passengers, or approximately 1.57% of the total number of passengers carried by our Group in that year. Total traffic revenue of Zhuhai Airlines for the year ended December 31, 2018 was RMB1,670 million.
As of December 31, 2018, Guizhou Airlines operated under the “CZ” code with a fleet of 20 aircraft. In 2018, under the centralized allocation of flight routes of our Group, Guizhou Airlines carried a total of about 3.57 million passengers, or approximately 2.55% of the total number of passengers carried by our Group in that year. Total traffic revenue of Guizhou Airlines was approximately RMB2,767 million for the year ended December 31, 2018.
As of December 31, 2018, Chongqing Airlines operated under the “OQ” code with a fleet of 27 aircraft. In 2018, under the centralized allocation of flight routes of our Group, Chongqing Airlines carried a total of about 2.643.66 million passengers, or 4.9%2.62% of the total number of passengers carried by theour Group in that year. Total traffic revenue of Chongqing Airlines for the year ended December 31, 20152018 was RMB1,756RMB2,635 million.
As of December 31, 2015, Zhuhai2018, Henan Airlines operated under the "CZ"“CZ” code with a fleet of 1031 aircraft. In 2015,2018, under the centralized allocation of flight routes of theour Group, ZhuhaiHenan Airlines carried a total of about 1.676.05 million passengers, or approximately 1.5%4.32% of the total number of passengers carried by the Group in that year. Total traffic revenue of Zhuhai Airlines for the year ended December 31, 2015 was RMB1,428 million.
As of December 31, 2015, Guizhou Airlines operated under the "CZ" code with a fleet of 18 aircraft. In 2015, under the centralized allocation of flight routes of the Group, Guizhou Airlines carried a total of about 2.87 million passengers, or approximately 2.6% of the total number of passengers carried by the Group in that year. Total traffic revenue of Guizhou Airlines was approximately RMB2,340 million for the year ended December 31, 2015.
As of December 31, 2015, Henan Airlines operated under the "CZ" code with a fleet of 26 aircraft. In 2015, under the centralized allocation of flight routes of the Group, Henan Airlines carried a total of about 4.62 million passengers, or approximately 4.2% of the total number of passengers carried by theour Group in that year. Total traffic revenue of Henan Airlines was approximately RMB3,722RMB4,508 million for the year ended December 31, 2015.
2018.
Insurance
The CAAC maintains fleet and legal liability insurance on behalf of the Groupus and all other Chinese airlines with PICC Property and Casualty Company Limited, or PICCP&C, and China Pacific Property Insurance Company Ltd., Ping An Property and Casualty Insurance Company of China, Ltd. under the PICCP&C master policy. The Group maintainsWe maintain aviation hull all risks, spares and airline liability insurance, aircraft hull all risks and spare engines deductible insurance, aviation hull war and allied perils policy of the type and in the amount customary in the Chinese aviation industry.
Under the relevant PRC laws, civil liability of Chinese airlines for death or injuries suffered by passengers on domestic flights is limited to RMB400,000 (approximately US$61,599)64,538) per passenger. As of July 31, 2006, the Convention for the Unification of Certain Rules for International Carriage by Air of 1999, or Montreal Convention, became effective in China. Under the Montreal Convention, carriers of international flights are strictly liable for proven damages up to 100,000 Special Drawing Rights and beyond that, carriers are only able to exclude liability if they can prove that the damage was not dueattributable to negligence or other wrongful act of the carrier (and its agents), or the damage arose solely from the negligence or other wrongful act of a third party. The Group believesWe believe that it maintainswe maintain adequate insurance coverage for the civil liability that can be imposed in respect of death or injuries to passengers under Chinese law, the Montreal Convention and any agreement which the Group iswe are subject to.
The CAAC allocates insurance premiums payable in respect of the PICCP&C master policy to each participating airline based on the value of the airline’s insured aircraft or, in the case of leased aircraft, based on the amount required by the terms of the lease. Insurance claims made by any participating airline may cause the premiums paid by the Groupus under the PICCP&C master policy to increase. PICCP&C’s practice has been to reinsure a substantial portion of its aircraft insurance business through reinsurance brokers on the London reinsurance market.
Intellectual Property
The Group’sOur businesses and operations, other than the businesses and operations of Xiamen Airlines and Chongqing Airlines, are conducted under the names "China Southern"“China Southern” and "China“China Southern Airlines"Airlines” in both English and Chinese. The Group usesWe use as itsour logo a stylized rendition of a kapok plant. Xiamen Airlines conducts its businesses and operations under the name of "Xiamen Airlines"“Xiamen Airlines” in English and Chinese and uses its own logo depicting a stylized rendition of an egret. Chongqing Airlines conducts its business and operations under the name of "Chongqing Airlines"“Chongqing Airlines” in English and Chinese and uses its own logo depicting a cross of two rivers.
We own various trademarks and trade names related to our business. The names "China Southern"“China Southern” and "China“China Southern Airlines"Airlines” contain Chinese words of common usage and are therefore not eligible for registration as trade names under current Chinese law. The kapok logo is a trademark registered in China and recorded with the International Air Transport Association ("IATA"(“IATA”), the rights to which are owned by CSAHC. TheCSAH. Our Company and CSAHCCSAH have entered into a trademark license agreement (the "Trademark“Trademark License Agreement"Agreement”), pursuant to which CSAHCCSAH has licensed to theour Group the right to use the names "China Southern"“China Southern” and "China“China Southern Airlines"Airlines” in both English and Chinese and granted theour Company aten-year renewable license from 1997 to use the kapok logo on a world-wide basis. CSAHCCSAH has retained the right to use the kapok logo in connection with itsnon-airline related businesses conducted as of the date of the Trademark License Agreement and to permit its affiliates that do not compete, directly or indirectly, with theour Group to use the kapok logo. Unless CSAHCCSAH gives a written notice of termination three months before the expiration of the agreement, the agreement will be automatically renewed for anotherten-year term. In May of 2007,2017, the Trademark License Agreement has been automatically renewed by the two parties for anotherten-year term ending 2017.2027. Xiamen Airlines owns all rights to its egret logo, which is a trademark registered in China, and recorded with the IATA. Chongqing Airlines also owns all rights to its logo, which is a trademark registered in China, and recorded with the IATA.
Iran Sanctions Disclosure
Pursuant to Section 13(r) of the Securities Exchange Act of 1934, or the Exchange Act, if during 2015, the2018, our Company or any of itsour affiliates have engaged in certain transactions with Iran or with persons or entities designated under certain executive orders, theour Company would be required to disclose information regarding such transactions in our Annual Report as required under Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, or ITRA. During 2015, the2018, our Company operated air services to and from Iran through the specifically designated route of "Beijing - Urumqi“Beijing - Tehran - Urumqi - Beijing"Beijing” (the “Iran Route”) and engages in international traffic in passengers, cargo and mail.
In order to provide itsour aviation service in Iran, theour Company has entered into certain grounding service agreement with Iran Air, whereby Iran Air provides theour Company with grounding service, maintenance and other support services in return for certain service fees to be paid by theour Company in accordance with the agreement. TheOur Company does not provide, nor has it ever provided any equipment, component, or technology to Iran. The service rendered by theour Company to Iran is limited to the provision of international traffic in passengers, cargo and mail and those services provided by itsour local offices and agents to customers. TheOur Company does not operate flights within Iran.
The
Our Company’s international route rights, as well as the corresponding landing rights, are derived from air services agreements negotiated between the Chinese government, through the Civil Aviation Administration of China,CAAC, and the governments of the relevant foreign countries. With respect to the Iran Route, theour Company’s international route rights associated thereto are derived from and based on the bilateral air transport agreement (the “Bilateral Agreement”) entered into by and between the Chinese government and the Iranian government. Both parties are contracting parties to the Convention on International Civil Aviation, opened for signature at Chicago on December 7, 1944, and entered into the Bilateral Agreement with an aim to establish and operate scheduled air services between and beyond the two countries’ respective territories. The Bilateral Agreement, which has been registered with the International Civil Aviation Organization, sets forth general principles and specific rules governing the Company'sour Company’s aviation services in Iran.
TheOur Company understands that Iran Air is Iran'sIran’s national airline carrier and is designated by the U.S. Department of the Treasury pursuant to Executive Order No. 13382. However, Executive Order No. 13382 only "prohibits“prohibits all transactions between the designees and any U.S. person." The” Our Company is incorporated in the People'sPeople’s Republic of China and is a foreign issuer in the United States. As theour Company is not a U.S. person, itsour transactions with Iran Air are not prohibited by Executive Order No. 13382. TheOur Company further understands that it has an obligation to disclose itsour transactions with Iran Air as described above under Exchange Act Section 13(r)(1)(D)(iii). Iran Air is Iran'sIran’s national airline carrier and is controlled or owned by the Government of Iran. TheOur Company believes that Iran Air can be identified as the Government of Iran under Section 560.304 of title 31, Code of Federal Registration (relating to the definition of the Government of Iran). TheOur Company has not obtained any specific authorization of a Federal department or agency of the United States concerning itsour transactions with Iran Air.
TheOur Company does not anticipate any significant change in itsour service to Iran, either by way of increasing significantly the size of or altering the nature of itsour operations in the territory. For the year ended December 31, 2015,2018, the asset of Iran office and revenue generated from the air services to Iran amounted to USD0.74 millionUS$17,465.39 and USD3.68 million,US$3.72million, representing only 0.0025%0.000049% and 0.0212%0.017765% of the total asset and total revenue generated by theour Group for the year ended December 31, 2015,2018, respectively. Therefore, theour Company believes that itsour operations in Iran for the year ended December 31, 20152018 are inconsequential and quantitatively immaterial to itsour business, financial condition and results of operations.
C. | ORGANIZATIONAL STRUCTURE |
The following chart illustrates the corporate structure of theour Group as of December 31, 20152018 and the aggregate effective equity interest of theour Company in each of itsour principal subsidiaries, associates and jointly controlled entities.
Note a: Including 12.89% ownership interest held by CSA’s subsidiaries.
The particulars of the Group’sour principal subsidiaries as of December 31, 20152018 are as follows:
Name of Company | Place and Date of Establishment/Operation | Proportion of Ownership Interest Held by Company | ||||||
Xiamen Airlines Company Limited | PRC August 11, 1984 | 55 | % | |||||
Shantou Airlines Company Limited | PRC July 20, 1993 | 60 | % | |||||
Zhuhai Airlines Company Limited | PRC May 8, 1995 | 60 | % | |||||
Guizhou Airlines Company Limited | PRC | |||||||
60 | % | |||||||
Chongqing Airlines Company Limited | PRC May 30, 2007 | 60 | % | |||||
China Southern Airlines Henan Airlines Company Limited | PRC September 27, 2013 | 60 | % | |||||
China Southern Airlines Xiong’an Airlines Company Limited | PRC June 29, 2018 | 100 | % | |||||
Southern Air Cargo Logistics (Guangzhou) Co., Ltd. | PRC June 8, 2018 | 100 | % | |||||
Southern Airlines General Aviation Company Limited | PRC November 17, 2014 | 100 | % | |||||
Guangzhou Nanland Air Catering Company Limited | PRC November 21, 1989 | % | ||||||
Beijing Southern Airlines Ground Services Company Limited | PRC April 1, 2004 | 100 | % | |||||
Southern Airlines Group Import and Export Trading Company | PRC June 8, 1993 | |||||||
% |
The particulars of the Group’sour principal associates and jointly controlled entitiesjoint ventures as of December 31, 20152018 are as follows:
Proportion of Ownership Interest Held by | ||||||||||||||
Name of Company | Place and Date of Establishment/Operation | Group Effective Interest | The Company | Subsidiaries | ||||||||||
Guangzhou Aircraft Maintenance Engineering Company Limited | PRC October 28, 1989 | 50 | % | 50 | % | — | ||||||||
Southern Airlines Group Finance Company Limited | PRC June 28, 1995 | 33.98 | % | 21.09 | % | 12. 89 | % | |||||||
Sichuan Airlines Corporation Limited | PRC August 28, 2002 | 39 | % | 39 | % | — | ||||||||
Zhuhai Xiang Yi Aviation Technology Company Limited | PRC July 10, 2002 | 51 | % | 51 | % | — | ||||||||
Southern Airlines Culture and Media Co., Ltd. | PRC May 13, 2004 | 40 | % | 40 | % | — | ||||||||
China Southern West Australian Flying College Pty Ltd. | Australia October 1,1993 | 48.12 | % | 48.12 | % | — | ||||||||
Guangzhou China Southern Zhongmian Dutyfree Store Co., Limited | PRC March 1, 2001 | 50 | % | 50 | % | — |
Proportion of Ownership Interest Held by | ||||||||||||||||
Name of Company | Place and Date of Establishment/Operation | Group Effective Interest | Our Company | Subsidiaries | ||||||||||||
Guangzhou Aircraft Maintenance Engineering Co., Ltd. | PRC October 28, 1989 | 50 | % | 50 | % | — | ||||||||||
Southern Airlines Group Finance Company Limited | PRC June 28, 1995 | 33.98 | % | 25.28 | % | 8.7 | % | |||||||||
Sichuan Airlines Co., Ltd. | PRC August 28, 2002 | 39 | % | 39 | % | — | ||||||||||
Southern Airlines Culture and Media Co., Ltd. | PRC May 13, 2004 | 40 | % | 40 | % | |||||||||||
MTU Maintenance Zhuhai Co., Ltd. | PRC March 1, 2001 | 50 | % | 50 | % |
D. | PROPERTY, PLANT AND EQUIPMENT |
For a discussion of the Group’sour aircraft, see Item 4 "Information“Information on the Company — Historyour Company-History and development of theour Company — Aircraft Acquisitions."”
The Company’sOur headquarters in Guangzhou occupy an area of approximately 1,172,531square1,532,491 square meters of land and a total gross floor area of approximately 761,4091,016,105 square meters. The Company leases from CSAHCWe lease the land in Guangzhou on which the Company’sour headquarters and other facilities are located. The Companylocated from CSAH. We also leaseslease from CSAHCCSAH certain buildings mainly at the Haikou, Wuhan, Nanyang, Shenyang, Dalian, Jilin, Harbin, Xinjiang and other PRC cities.
The Company’sOur principal properties are located at itsour headquarters site and at itsour route bases. The following table sets forth certain information with respect to the Company’sour properties at itsour headquarters in Guangzhou and certain route bases as of the date hereof.
Land (in square meters) | Building (in square meters) | |||||||||||||||
Owned | Leased | Owned | Leased | |||||||||||||
Guangzhou | 1,172,531 | 88,929 | 761,409 | 47,540 | ||||||||||||
Shenzhen | 256,280 | — | 101,502 | — | ||||||||||||
Zhuhai | 179,415 | 30,000 | 61,973 | 3,047 | ||||||||||||
Changsha | 302,794 | 11,386 | 97,100 | 8,860 | ||||||||||||
Zhengzhou | 449,290 | — | 73,391 | 9,270 | ||||||||||||
Haikou | 332,961 | 12,497 | 65,231 | 1,288 | ||||||||||||
Wuhan | 16,784 | 47,882 | 33,527 | 37,491 | ||||||||||||
Nanyang | — | — | 12,156 | 60,035 | ||||||||||||
Sanya | 106,680 | — | 38,513 | 5,421 | ||||||||||||
Shenyang | 142,199 | 39,582 | 130,303 | 64,804 | ||||||||||||
Dalian | — | 158,240 | 36,188 | 32,862 | ||||||||||||
Jilin | 134,488 | 65,076 | 78,536 | 7,767 | ||||||||||||
Harbin | 11,896 | 278,973 | 40,599 | 43,722 | ||||||||||||
Xinjiang | 2,143 | 631,094 | 137,932 | 3,396 | ||||||||||||
Guangxi | 108,133 | — | 61,093 | 2,892 | ||||||||||||
Beijing | 85,453 | — | 49,314 | 19,790 | ||||||||||||
Shanghai | 42,292 | — | 35,512 | 7,253 | ||||||||||||
Xi an | — | — | 4,276 | — | ||||||||||||
Chengdu | — | — | 1,964 | 209 | ||||||||||||
Sydney | — | — | 1,151 | 2,449 |
Land (in square meters) | Building (in square meters) | |||||||||||||||
Owned | Leased | Owned | Leased | |||||||||||||
Guangzhou | 1,443,562 | 88,929 | 933,974 | 82,131 | ||||||||||||
Shenzhen | 256,280 | — | 124,505 | 5,730 | ||||||||||||
Zhuhai | 152,993 | 81,413 | 20,124 | 3,601 | ||||||||||||
Changsha | 255,422 | 6,238 | 81,293 | 12,536 | ||||||||||||
Haikou | 346,820 | — | 58,443 | 4,763 | ||||||||||||
Wuhan | 284,339 | 32,579 | 36,429 | 18,669 | ||||||||||||
Nanyang | — | 1,140,015 | 11,936 | 16,439 | ||||||||||||
Sanya | 106,680 | — | 64,698 | — | ||||||||||||
Shenyang | 142,199 | 31,226 | 28,743 | 60,002 | ||||||||||||
Dalian | — | 158,240 | 64,226 | 33,322 | ||||||||||||
Jilin | 150,246 | 65,076 | 85,274 | 9,332 | ||||||||||||
Harbin | 30,969 | 267,871 | 51,832 | 32,372 | ||||||||||||
Xinjiang | 3,754 | 540,493 | 137,932 | 3,497 | ||||||||||||
Guangxi | 73,787 | — | 52,554 | — | ||||||||||||
Beijing | 85,453 | — | 91,124 | 8,195 | ||||||||||||
Shanghai | 42,292 | — | 37,013 | 6,360 | ||||||||||||
Chengdu | — | — | 1,964 | — | ||||||||||||
Qingdao | 767 | |||||||||||||||
Hefei | — | — | 2,321 | — | ||||||||||||
Sydney | — | — | 1,151 | — | ||||||||||||
Amsterdam | 555 | |||||||||||||||
Xi’an | — | — | 4,364 | — |
The following table sets forth certain information with respect to the properties of the Airline Subsidiaries as of the date hereof.
Land (in square meters) | Building (in square meters) | Land (in square meters) | Building (in square meters) | |||||||||||||||||||||||||||||
Owned | Leased | Owned | Leased | Owned | Leased | Owned | Leased | |||||||||||||||||||||||||
Xiamen Airlines | 1,534,087 | — | 723,851 | 51,290 | 710,181 | — | 543,367 | 10,229 | ||||||||||||||||||||||||
Shantou Airlines | 260,639 | 53,000 | 73,499 | 2,407 | 137,075 | 2,660 | 73,419 | 5,891 | ||||||||||||||||||||||||
Zhuhai Airlines | 99,306 | — | 52,793 | 2,954 | 99,306 | — | 54,971 | — | ||||||||||||||||||||||||
Guizhou Airlines | 259,879 | — | 20,783 | 4,884 | 254,871 | — | 53,717 | — | ||||||||||||||||||||||||
Chongqing Airlines | 82,449 | — | 8,943 | 3,660 | 82,449 | — | 68,242 | — | ||||||||||||||||||||||||
Henan Airlines | 364,255 | — | 64,892 | — | ||||||||||||||||||||||||||||
Zhuhai Xiang Yi Aviation Technology Co., Ltd.. | 213,973 | — | 52,323 | 3,570 |
As systems for registration and transfer of land use rights and related real property interests in China have been implemented relatively recently, such systems do not yet comprehensively account for all land and related property interests. The land in Guangzhou on which the Company’sour headquarters and other facilities are located and the buildings that theour Company uses at itsour route bases in Wuhan and Haikou are leased by theour Company from CSAHC.CSAH. However, CSAHCCSAH lacks adequate documentation evidencing CSAHC’sCSAH’s rights to such land and buildings, and, as a consequence, the lease agreements between CSAHCCSAH and theour Company for such land may not be registered with the relevant authorities. Lack of registration may affect the validity of such lease agreements. There are certain other parcels of land and buildings owned or used by the Groupus that lack adequate documentation. Lack of adequate documentation for land use rights and ownership of buildings may impair theour ability of the Group to dispose of or mortgage such land use rights and buildings. As of April 18, 2016, the Group wasDecember 31, 2018, we were in the process of applying for the land use right certificates and property title certificates in respect of the properties located in Guangzhou (including Guangzhou Baiyun International Airport), Guangxi, Guizhou, Chengdu, Xiamen, Heilongjiang, Jilin, Dalian, Nanning, Hunan, Beijing, Zhuhai, Shenyang, Shenzhen, Henan, Shantou, Xinjiang, Hainan, Shanghai, Sanya, Zhuhai, Shenzhen, Shenyang, Xinjiang, Henan, ChengduHubei and ShantouChongqing , in which the Group haswe have interests and for which such certificates have not been granted.The Our directors of the Company are of the opinion that the use of and the conduct of operating activities at the properties referred to above are not affected by the fact that the Group haswe have not yet obtained the relevant land use right certificates and property title certificates.
ITEM 4A. |
Not applicable.
ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
The following discussion and analysis should be read in conjunction with the Financial Statements of the Group contained elsewhere in this Annual Report. The Group maintains its books and accounts in accordance with the Accounting Standards for Business Enterprises-Basic Standard and 38 Specific Standards, application guidance, bulletins and other relevant accounting regulations (collectively "PRC GAAP") and prepares its financial statements in accordance with both PRC GAAP and IFRSs. The Financial Statements contained elsewhere in this Annual Report have been prepared in accordance with IFRSs.
The discussion and analysis of the Group’s financial position and results of operations are based on theour consolidated financial statements, which have been prepared in accordance with IFRSs.IFRSs, included elsewhere in this Annual Report.
The preparation of the consolidated financial statements requires theour Group to make estimates and judgments that affect the reported amountamounts of assets and liabilities revenues and expenses, and relatedthe disclosure of contingent assets and liabilities at the dateend of each reporting period, and the consolidated financial statements.reported revenues and expenses during each reporting period. Actual results may differ from these estimates under different assumptions or conditions.
Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions. Our principal accounting policies are set forth in Note 23 to the consolidated financial statements. The Group believesWe believe that the following critical accounting policies involve the most significantkey accounting judgments and estimates used in the preparation of our financial statements.
Impairment of account receivableslong-lived assets (other than goodwill)
Trade receivables are recognised initially at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the assets is reduced through the use of an allowance account, and the amount of the loss is recognized in the income statement. When a trade receivable is uncollectible, it is written off against the provision account for trade receivables. Subsequent recoveries of amounts previously written off are credited in the income statement.
46
Impairment for Long-lived Assets
If circumstances indicate that the carrying amount of a long-lived asset may not be recoverable, the asset may be considered “impaired”, and an impairment loss may be recognisedrecognized in accordance with IAS36,IAS 36, Impairment of Assets. The carrying amounts of long-lived assets are reviewed periodically in order to assess whether the recoverable amounts have declined below the carrying amounts. These assets are tested for impairment whenever events or changes in circumstances indicate that their recorded carrying amounts may not be recoverable. When such a decline has occurred, the carrying amount is reduced to the recoverable amount. The recoverable amount is the greaterhigher of the fair value less costs to sellof disposal and value in use. In particular, in determining the value in use of the Group’s aircraft fleet, expected future cash flows to be generated by the asset are discounted to their present value, which requires significant judgement relating to the level offorecast traffic revenue, forecast operating costs and the amount of operating costs.discount rate applied. The Group uses all readily available information in determining an amount that is a reasonable approximation of recoverable amount, including estimates based on reasonable and supportable assumptions for projections of traffic revenue and operating costs and application of discount rate.
Provision for major overhauls
Provision for the cost of major overhauls to fulfil the lease return conditions for airframes and engines held under operating leases are accrued and charged to the income statement over the estimated overhaul period. This requires estimation of the expected overhaul cycles and overhaul costs, which are based on the historical experience of actual costs incurred for overhauls of airframes and engines of the same or similar types and current economic and airline-related developments. Different estimates could significantly affect the estimated provision and the results of operations.
Frequent flyer revenue
According to the frequent flyer award programs, the allocation of stand-alone selling price of the mileage awarded involves the estimation of the expected redemption rate. The expected redemption rate is estimated based on historical experience, anticipated redemption patterns and the frequent flyer programs’ design. Different estimates could significantly affect the estimated contract liabilities and the results of operations.
In the comparative periods, the amount of operating costs.
revenue attributable to the mileage earned by the members of the Group’s frequent flyer award programs was estimated based on the fair value of the mileage awarded and the expected redemption rate. The fair value of mileage awarded was estimated by reference to external sales. The method to estimate the expected redemption rate remains unchanged.
Depreciation
Property, plant and equipment are depreciated on a straight-line basis over the estimated useful lives, after taking into account the estimated residual value. The Group reviews the estimated useful lives of assets annually in order to determine the amount of depreciation expense to be recorded during any financial year. The useful lives are based on the Group’s historical experience with similar assets and take into account anticipated technological changes. The depreciation expense for future periods is adjusted if there are significant changes from previous estimates.
Provision for Major Overhauls
Provision for the cost of major overhauls to fulfil certain return condition for airframes and engines under operating leases is accrued and charged to the income statement over the estimated overhaul period. This requires estimation of the expected overhaul cycle and overhaul cost, which are based on the historical experience of actual cost incurred for overhauls of airframes and engines of the same or similar types. Different estimates could significantly affect the estimated provision and the results of operations.
Frequent Flyer Revenue
The amount of revenue attributable to the mileages earned by the members of the Group’s frequent flyer award programmes is estimated based on the fair value of the mileages awarded and the expected redemption rate. The fair value of the mileages awarded is estimated by reference to external sales. The expected redemption rate was estimated based on historical experience, anticipated redemption pattern and the frequent flyer programme design.
Provision for consumable spare parts and maintenance materials
Provision for consumable spare parts and maintenance materials is made based on the difference between the carrying amount and the net realisablerealizable value. The net realisablerealizable value is estimated based on current market condition, historical experience and Company’sthe Group’s future operation plan for the consumable spare parts and maintenance materials. The net realisablerealizable value may be adjusted significantly due to the change of market condition and the future plan for the consumable spare parts and maintenance materials.
47
Income tax
Significant judgment is required in determining the provision for income tax. There are manycertain transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognisesrecognizes liabilities for anticipated tax audit issues based on estimates of whether additional tax will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the year in which such determination is made.
Loss allowances
Loss allowances for trade receivables are always measured at an amount equal to lifetime ECLs. The ECLs are estimated using a provision matrix based on the Group’s historical credit loss experience, adjusted for factors that are specific to the debtors and an assessment of both the current and forecast general economic conditions at the reporting date. Different estimates could significantly affect the results of operations.
In the comparative periods, when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables, a provision for impairment of trade receivables is established based on the difference between the receivable’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate.
Ticket breakage revenue
The Group recognizes, in proportion to the pattern of rights exercised by the customer, the breakage amount to which the Group expects to be entitled as ticket breakage revenue. Such portion is estimated based on the Group’s historical experiences, and the estimated revenue is recognized only to the extent that it is highly probable that a significant reversal in cumulative revenue recognized will not occur when the uncertainty is resolved. Different estimates could significantly affect the ticket breakage revenue recognized in the current financial year.
In the comparative periods, ticket breakage revenue was recognized when the tickets expired, and such revenue recognition did not involve significant accounting estimates.
Retirement benefits
According to IAS 19, Employee Benefits, an entity shall account not only for its legal obligation under the formal terms of a defined benefit plan, but also for any constructive obligation that arises from the entity’s informal practices where the entity has no realistic alternative but to pay the employee benefits. The Company believes the payments of welfare subsidy to those retirees who retired before the establishment of Pension schemeScheme (as defined in Note 49 (a)52(a)) are discretionary and have not created a legal or constructive obligation. Such payments are made according to the Group’s business performance, and can be suspended at any time (Note 14)13).
Recently Pronounced International Financial Reporting Standards
Information relating to the recently pronounced IFRSs is presented in Note 260 to the consolidated financial statements.
Key Factors Affecting Results of operations
In 2015, with slowdown in world economic growth, and the ruggedness and hardship on the road of global recovery, China faced constant downward economic pressure. Meanwhile, in addition to the grim situation of global aviation safety, domestic and international civil aviation market confronted with continuous market competition with drastic fluctuations of the RMB exchange rate and continuously decreasing aviation fuel price. Facing the intricate external environment, the Group adhered to the line of steady development. On one hand, the Group withstood the pressure and made the best efforts to ensure the aviation safety. On the other hand, the Group seized the opportunity of decreasing fuel price and increasing outbound tourism, which significantly improved the profit level. In addition, the Group actively responded to the depreciation of RMB and other challenges so as to reduce exchange loss. Under the common efforts of the management and all employees, the Group’s business achievement hit new high and comprehensive competitive force was constantly improved. The following achievements were made:
Safety and Efficiency
We continuously laid solid foundation for safety, strengthened safety trainings and further perfected the development of safety dynamic management and optimized information system, especially the capability to deal with special situations. During the reporting period, the Group realized 2,200,000 safe flight hours, accumulatively 15,720,000 safe flight hours and 10,166 hours of general aviation service, which maintained over 16 years of aviation safety and 21 years of aviation security. The Group continued to keep the best safety records among Chinese airlines. We exerted ourselves to improve operating efficiency and strengthened flights, capacity and crew resources management, by which we improved our capability to respond to complex situation. Throughout the whole year, we launched extensive delay warning for 216 times and optimized over 10,000 flights in total. We focused on improving comprehensive operating efficiency of intercontinental routes, continued shortening deviation of flight plan and saved over 5,000 hours of flying time. Taking advantage of Hub Control Center, we kept improving the transit process, by which the hub operation efficiency has been promoted effectively.
Fleet and Network
In order to actively respond to market demands, we further enlarged the fleet size and optimized fleet structure. During the reporting period, the Group introduced 58 aircraft including B777-300ER and B787 and retired 3 aircraft including B757. We entered into an agreement with Boeing Company, by which we proposed to purchase 110 aircraft of B737NG and B737MAX series from Boeing Company and sell 13 B757 aircraft and 3 B733 aircraft to Boeing Company. We entered into an agreement with Airbus S.A.S, by which we purchased 10 aircraft of A330-300 series from Airbus Company. By the end of the reporting period, the Group owned 667 aircraft, ranking top in Asia and fifth in the world in terms of fleet size.
We constantly deepen the strategic transformation by giving full play to existing advantages and continuing developing the network layout. During the reporting period, we focused on key market competitive strengths and leading position in the domestic market. At the same time, we firmly seized the strategic opportunity of“One Belt One Road” to perfect international layout. We focused on strengthening involvement in Europe and North America and appropriately opened new flights to Australia and New Zealand. During the reporting period, we launched flights to Nairobi, Christchurch and Rome besides opening more flights from Guangzhou to Sydney, Melbourne, Perth, Los Angeles, New York, etc. In addition, we strengthened the Urumqi hub and opened flights from Urumqi to Tehran, Islamabad, etc.
Market and Service
During the reporting period, the Group closely followed the hot spots of market and adhered to precision, internationalization and E-commercialization on passenger service marketing. Based on the market characteristics and competitive environments of different times and regions, we optimized the transport capacity input and price strategy in an efficient and precision way. We leveraged the outbound tourism boom and strengthened international marketing. Throughout the year, the passenger load factor of international flights exceeded 80%, and the revenue from the first class and business class of international flights increased by nearly 20% compared with the same period of the previous year, and the intercontinental flights realized annual profit-making for the first time. We continued optimizing the official website and mobile application of the Company and attached high importance to flow acquisition, which constantly improved conversion rate of electronic marketing. In the whole year, our official website had 90,930,000 views, the total number of social media followers reached as much as 8,050,000, and the APP had 2,170,000 new downloads, which was leading among domestic airlines. During the reporting period, the sales volume of mobile application and WeChat nearly doubled, and the ability of applying“Internet +”was improved efficiently.
During the reporting period, we constantly improved the operation level of freighter, optimized the capacity input and network layout of Shanghai and Guangzhou hubs. We explored the market potential of bellyhold, and the international transit cargo volume of Guangzhou increased by 11% compared with the same period of the previous year; the transport volume of“China Southern Airlines Express” increased by 27% compared with the same period of the previous year. We seized the opportunity of cross-border online retailers which developed rapidly with a sound trend. During the reporting period, based on consolidating the marine oil business of the Company, we actively developed onshore business, and the general aviation business was diversified gradually, realizing profit-making for 11 consecutive years.
During the reporting period, the Group improved services with full series of service products and whole-process service care and tried to bring passengers a relaxed and pleasant experience. We spared no effort to push service electronization, becoming the number one Chinese airlines in the number of electronic check-ins. We launched Nan Hang Xing and Guan Ai Qing series products and provided special passengers with warm services. We launched kid’s gift packs, kid’s meal and in-flight kid’s exclusive channel, creating surprises for child passengers. We pushed“Fast Pass”service, transit hotel booking on our official website and a through bill of international transit flight, and perfected onlineordering products. We also realized quarterly Premiree mechanism of blockbuster on board to make passengers more relaxed. We specially set up the customer care center, preliminarily realized wholeprocess customer care and the complaint ratio of passengers was substantially lower than the industry average.
Alliance and Cooperation
During the reporting period, we continued deepening the cooperation relationship with SKYTEAM partners, which enlarged the market coverage and overseas recognition of the Company in Europe and other regions. We established interaction mechanism with alliance partners in the pilot cities in China and Europe, the sales revenue of relevant flights increased remarkably. During the reporting period, we entered into a strategic cooperation framework agreement with Capital Airports Holding Company–an indication of the Group’s status as the leading operation airline of Beijing new airport. We continued acting as the leading partner and exclusive official airline sponsor of Sydney Festival and Melbourne Festival and the major partner of Melbourne Football Club which was the most time-honored sport club in Australia, so as to deepen into the mainstream market of Australia through sports and culture. Furthermore, we closely cooperated with key international regional tourism agencies and airports to push the all-round publicity of the international image brand of the Group.
Member and Employee
During the reporting period, Sky Pearl Club had another 4,200,000 new members, breaking through 25,000,000 in total number. The customer-oriented Group continued optimizing the exclusive products for members and launched high-end member exclusive interests, especially improving the experience of high value members. We actively tried the cooperation projects in the fields of automobile and real estate, so as to create more values for members. In addition, we initiated the member’s day activity on the 28th day of every month for the first time, constantly launched more exclusive preferential products and services for members and set off the member theme marketing of domestic airline companies. During the reporting period, we focused on key issues, optimized the compensation and welfare policies and motivated the vitality of employees. We perfected post development channel and realized longterm employee incentive; we officially launched the“Young Employee Cultivation Program” which comprehensively promoted the growth of young employees. We innovated the services for employees, and enhanced employees’sense of belonging by providing value-added and creative services. During the reporting period, the Group was named“National Top 30 Employers of China” and“the Employer with the Most Woman Concerns of China” of the year.
Environment and Society
As a responsible corporate citizen, we have been adhering to the ideas of“Green Flight, Green Consumption and Green Innovation”, actively responding to and practising the national policies. The Company’s environmental protection policies cover various areas, including energy conservation and emission reduction, improvement of energy efficiency, optimization of waste disposal, transformation of the airframe for energy conservation, optimization of flight route, and paperless office. In addition, we have been sharing the idea of environmental protection with our clients to make them enjoy our quality services, and at the same time understand our efforts in environmental protection and become a part of it.
We highly value the opinions and suggestions from all stakeholders such as investors, governments, clients, employees, industrial associations, partners, communities, experts, media and peers. We hold the firm belief that only by establishing a stable, open and transparent mechanism for communication among the stakeholders can we achieve a win-win situation by promoting sustainable development of the Company and the construction of a harmonious society. During the reporting period, we have communicated with approximately 8,000 stakeholders on matters in relation to our social responsibilities by ways of questionnaires, group discussions and interviews, the theOur results of such communication will be used as important references tooperations are affected by the reviewfactors discussed below.
Financial and promotion of our plans for sustainable development.
Because the Group finances its aircraft acquisitions mainly through capital leases or bank loans in U.S. dollars, and there are a substantial amount of transactions and obligations denominated in U.S. dollars in relation to its global purchases of jet fuel, lease and purchase of aviation equipment as well as major repairs, in addition to the landing fees of its international flights in the airports of other countries, the Group benefited from the Renminbi appreciation. Renminbi appreciation has brought exchange gain to the Group and reduced its operating costs which are denominated in foreign currencies. However, Renminbi appreciation also presents the Group with a challenge in price competition in international route operations.
The Group’s operating revenue is substantially dependent on the passenger and cargo traffic volume carried, which is subject to seasonal and other changes in traffic patterns, the availability of appropriate time slots for the Group’s flights and alternative routes, the degree of competition from other airlines and alternate means of transportation, as well as other factors that may influence passenger travel demand and cargo and mail volume. In particular, the Group’s airline revenue is generally higher in the second and third quarters than in the first and fourth quarters.
leverage
Like most airlines, the Group iswe are subject to a high degree of financial and operating leverage. A significant percentage of the Group’sour operating expenses are fixed costs that do not vary proportionally based on the Group’sto our yields or the load factors. These fixed costs include depreciation expense, jet fuel costs, landing and navigation fees, financing costs, operating lease payments, aircraft maintenance costs and labor costs for flight crew, cabin crew and ground personnel. Thus, a minor change in the Group’sour yields or load factors wouldcould have a material effect on the Group’sour results of operations. In addition, certain of these expenses, primarily financing costs and operating lease payments, labor costs and depreciation do not vary based onproportionally to the number of flights flown. Thus, the Group’s operating results can also be substantially affected byeven minor changeschange in aircraft utilization rates. The Group isrates may affect our results of operations. We are and will continue to be highly leveraged with substantial obligations denominated in foreign currencies and, accordingly, the results of itsour operations are significantly affected by fluctuations in foreign exchange rates, particularly for the U.S. dollar. NetOur net exchange lossesloss of RMB292RMB1,853 million was recorded in 2014 as Reminbi depreciated slightly against U.S. dollar in 2014. Our net exchange losses of RMB5,953 million was recorded in 20152018 mainly due to Renminbi depreciated significantlythe translation of balances of borrowings and obligations under finance lease which are denominated in USD and the depreciation of RMB against U.S. dollar in 2015.USD.
Political and economic conditions and regulations
A number of other external variables,factors including political and economic conditions in China, tend to have a major impact on the Group’sour performance. The Group’sOur financial performance is also significantly affected by factors arising from operating in a regulated industry. As substantially all aspects of the Group’sour airline operations are regulated by the PRC government, the Group’sour operating revenues and expenses are directly affected by the PRC government’s policies with respect to domestic air fares, jet fuel prices and landing and navigation fees, among others. The nature and extent of airline competition and the ability of Chinese airlines to expand are also affected by CAAC’s control over route allocations. Any changes in the PRC government’s regulatory policies or any implementation of such policies could have a significant impact on the Group’sour future operations and itsour ability to implement itsour operating strategy.
Foreign exchange risk
In 2015, we learned that certain former executives wereWe finance our aircraft acquisitions mainly through capital leases or bank loans in U.S. dollars, and remain the subjecthave a substantial amount of investigation by PRC authorities. See "Risk Factors - We have experienced incidents of employee personal misconducttransactions and obligations denominated in the past, and may be unable to prevent similar incidentsU.S. dollars in the future, which could adversely impact our reputation and our business". Upon learning of this information, we took a number of steps to determine the appropriate response, and learn whether the alleged personal misconduct of these former executives had impacted the Company’s financial condition or results of operations or internal control over financial reporting. These steps included efforts to seek clarification from the investigating authorities regarding the alleged personal misconduct of the former executives and performance of a detailed review of those areas which may be impacted. Additionally, our Audit Committee retained outside counsel, a major international law firm, and independent forensic accountants from an accounting firm unrelatedrelation to our external auditors, to gain an understandingglobal purchases of whether the alleged personal misconductjet fuel, lease and purchase of the former executives had any impact on the Company’s financial condition, results of operations or internal control over financial reporting.
As of the date of this Annual Report, our management has completed its review and the Audit Committee has completed its investigation and analysis of the information provided by the external experts it retained and has reported to the Board of Directors regarding its findings. Based on our careful evaluation of the results of such work performed and the investigative findings, we do not believe that the alleged personal misconduct of the former executives had a material impact on our financial condition, results of operations or our internal control over financial reporting.
In response to learning of the alleged personal misconduct of the former executives, the Group has decided to enhance further its corporate governance and processes control environmentaviation equipment as well as major repairs, in an effort to reduce, to the maximum extent possible, the chance that personal misconduct of this type of event might recur in future periods with other of our employees or management. We are currently working to determine the procedures and policies that we will implement to accomplish this goal. We expect that our enhanced measures to include additional training programs tailored to our employees' area of responsibilities. While we know that we can never completely eliminate the possibility that an employee or manager will engage in inappropriate or illegal personal misconduct, we believe our policies and procedures will minimize the chance of that happening.
Certain Financial Information and Operating Data by Geographic Region
The following table sets forth certain financial information and operating data by geographic region for the years ended December 31, 2015, 2014 and 2013:
Year ended December 31, | 2015 vs. 2014 % increase | 2014 vs. 2013 % increase | ||||||||||||||||||
Traffic | 2015 | 2014 | 2013 | (decrease) | (decrease) | |||||||||||||||
RPK (million) | ||||||||||||||||||||
Domestic | 138,769.05 | 127,681.88 | 116,105.71 | 8.68 | 9.97 | |||||||||||||||
Regional | 3,526.99 | 3,214.52 | 2,574.27 | 9.72 | 24.87 | |||||||||||||||
International | 47,291.67 | 35,732.78 | 29,736.57 | 32.35 | 20.16 | |||||||||||||||
Total | 189,587.71 | 166,629.18 | 148,416.55 | 13.78 | 12.27 | |||||||||||||||
RTK (million) | ||||||||||||||||||||
Domestic | 13,916.26 | 12,916.60 | 11,765.27 | 7.74 | 9.79 | |||||||||||||||
Regional | 331.50 | 300.65 | 241.05 | 10.26 | 24.73 | |||||||||||||||
International | 8,140.24 | 6,562.71 | 5,462.27 | 24.04 | 20.15 | |||||||||||||||
Total | 22,388.00 | 19,779.96 | 17,468.59 | 13.19 | 13.23 | |||||||||||||||
Passengers carried (thousand) | ||||||||||||||||||||
Domestic | 95,121.91 | 89,363.18 | 82,172.28 | 6.44 | 8.75 | |||||||||||||||
Regional | 2,571.15 | 2,385.37 | 2,019.28 | 7.79 | 18.13 | |||||||||||||||
International | 11,728.96 | 9,170.47 | 7,599.41 | 27.90 | 20.67 | |||||||||||||||
Total | 109,422.02 | 100,919.02 | 91,790.97 | 8.43 | 9.94 | |||||||||||||||
Cargo and mail carried (thousand tons) | ||||||||||||||||||||
Domestic | 1,030.10 | 1,014.90 | 923.73 | 1.50 | 9.87 | |||||||||||||||
Regional | 19.18 | 16.40 | 13.70 | 16.95 | 19.71 | |||||||||||||||
International | 462.27 | 401.95 | 338.92 | 15.01 | 18.60 | |||||||||||||||
Total | 1,511.55 | 1,433.25 | 1,276.35 | 5.46 | 12.29 |
Year ended December 31, | 2015 vs. 2014 %increase | 2014 vs. 2013 %increase | ||||||||||||||||||
Capacity | 2015 | 2014 | 2013 | (decrease) | (decrease) | |||||||||||||||
ASK (million) | ||||||||||||||||||||
Domestic | 172,104.99 | 160,482.40 | 144,732.62 | 7.24 | 10.88 | |||||||||||||||
Regional | 4,762.25 | 4,379.07 | 3,594.29 | 8.75 | 21.83 | |||||||||||||||
International | 58,749.02 | 44,945.99 | 38,472.93 | 30.71 | 16.82 | |||||||||||||||
Total | 235,616.26 | 209,807.46 | 186,799.84 | 12.30 | 12.32 | |||||||||||||||
ATK (million) | ||||||||||||||||||||
Domestic | 20,055.09 | 18,640.00 | 16,486.17 | 7.59 | 13.06 | |||||||||||||||
Regional | 562.65 | 497.79 | 407.59 | 13.03 | 22.13 | |||||||||||||||
International | 11,586.92 | 9,315.94 | 8,058.23 | 24.38 | 15.61 | |||||||||||||||
Total | 32,204.66 | 28,453.73 | 24,951.99 | 13.18 | 14.03 | |||||||||||||||
Load Factors | ||||||||||||||||||||
Passenger load factor (RPK/ASK) (%) | ||||||||||||||||||||
Domestic | 80.6 | 79.6 | 80.2 | 1.26 | (0.8 | ) | ||||||||||||||
Regional | 74.1 | 73.4 | 71.6 | 0.95 | 2.5 | |||||||||||||||
International | 80.5 | 79.5 | 77.3 | 1.26 | 2.9 | |||||||||||||||
Overall | 80.5 | 79.4 | 79.4 | 1.39 | (0.1 | ) | ||||||||||||||
Overall load factor (RTK/ATK) (%) | ||||||||||||||||||||
Domestic | 69.4 | 69.3 | 71.4 | 0.14 | (2.9 | ) | ||||||||||||||
Regional | 58.9 | 60.4 | 59.1 | (2.48 | ) | 2.1 | ||||||||||||||
International | 70.3 | 70.4 | 67.8 | (0.14 | ) | 3.9 | ||||||||||||||
Overall | 69.5 | 69.5 | 70.0 | - | (0.7 | ) | ||||||||||||||
Yield | ||||||||||||||||||||
Yield per RPK (RMB) | ||||||||||||||||||||
Domestic | 0.55 | 0.60 | 0.61 | (8.33 | ) | (1.6 | ) | |||||||||||||
Regional | 0.71 | 0.78 | 0.84 | (8.97 | ) | (7.1 | ) | |||||||||||||
International | 0.45 | 0.50 | 0.50 | (10.00 | ) | - | ||||||||||||||
Overall | 0.53 | 0.58 | 0.59 | (8.62 | ) | (1.7 | ) | |||||||||||||
Yield per RTK (RMB) | ||||||||||||||||||||
Domestic | 5.65 | 6.10 | 6.24 | (7.38 | ) | (2.2 | ) | |||||||||||||
Regional | 7.89 | 8.64 | 9.33 | (8.68 | ) | (7.4 | ) | |||||||||||||
International | 3.18 | 3.50 | 3.49 | (9.14 | ) | 0.3 | ||||||||||||||
Overall | 4.78 | 5.27 | 5.42 | (9.30 | ) | (2.8 | ) | |||||||||||||
Financial | ||||||||||||||||||||
Passenger revenue (RMB million) | ||||||||||||||||||||
Domestic | 76,570 | 76,647 | 71,277 | (0.10 | ) | 7.5 | ||||||||||||||
Regional | 2,517 | 2,497 | 2,162 | 0.80 | 15.5 | |||||||||||||||
International | 21,151 | 18,001 | 14,832 | 17.50 | 21.4 | |||||||||||||||
Total | 100,238 | 97,145 | 88,271 | 3.18 | 10.1 | |||||||||||||||
Cargo and mail revenue (RMB million) | 6,861 | 7,183 | 6,413 | (4.48 | ) | 12.0 |
The historical results of operations discussed below may not be indicative of the Group’s future operating performance. In addition to the landing fees of our international flights in the airports of other countries, and, as a result, our business will be affected by the Renminbi depreciation. Renminbi depreciation has caused exchange loss to our Group and increased our operating costs which are denominated in foreign currencies.
Seasonality
Our operating revenue is substantially dependent on the passenger and cargo traffic volume carried, which is subject to seasonal and other changes in traffic patterns, the availability of appropriate time slots for our flights and alternative routes, the degree of competition from other airlines and alternate means of transportation, as well as other factors discussed under "Overview" above,that may influence passenger travel demand and cargo and mail volume. In particular, our airline revenue is generally higher in the Group’ssecond half of the year than in the first half of the year due to the greater demand for air travel during the summer months .
In addition, our future operations will be affected by, among other things, changes in the aviation market, the cost of jet fuel, aircraft acquisition and leasing costs, aircraft maintenance expenses,take-off and landing charges, wages, salaries and benefits and other operating expenses, foreign exchange rates and the rates of income taxes paid.
Certain Financial Information and Operating Data by Geographic Region
The following table sets forth certain financial information and operating data by geographic region for the years ended December 31, 2018, 2017 and 2016.
Year ended December 31, | 2018 vs. 2017% increase | 2017 vs. 2016% increase | ||||||||||||||||||
Traffic | 2018 | 2017 | 2016 | (decrease) | (decrease) | |||||||||||||||
RPK (million) | ||||||||||||||||||||
Domestic | 178,972.96 | 160,427.72 | 144,979.57 | 11.56 | 10.66 | |||||||||||||||
Regional | 3,304.83 | 2,934.65 | 3,083.71 | 12.61 | (4.83 | ) | ||||||||||||||
International | 76,916.01 | 67,334.50 | 58,042.36 | 14.23 | 16.01 | |||||||||||||||
Total | 259,193.80 | 230,696.87 | 206,105.64 | 12.35 | 11.93 | |||||||||||||||
RTK (million) | ||||||||||||||||||||
Domestic | 17,437.56 | 15,833.96 | 14,551.2 | 10.13 | 8.82 | |||||||||||||||
Regional | 315.39 | 282.52 | 292.46 | 11.63 | (3.40 | ) | ||||||||||||||
International | 12,580.72 | 11,204.15 | 9,542.9 | 12.29 | 17.41 | |||||||||||||||
Total | 30,333.67 | 27,320.63 | 24,386.56 | 11.03 | 12.03 | |||||||||||||||
Passengers carried (thousand) | ||||||||||||||||||||
Domestic | 119,494.01 | 108,616.65 | 98,463.43 | 10.01 | 10.31 | |||||||||||||||
Regional | 2,527.08 | 2,329.80 | 2,340.68 | 8.47 | (0.46 | ) | ||||||||||||||
International | 17,863.96 | 15,352.29 | 13,814.52 | 16.36 | 11.13 | |||||||||||||||
Total | 139,885.04 | 126,298.75 | 114,618.63 | 10.76 | 10.19 | |||||||||||||||
Cargo and mail carried (thousand tons) | ||||||||||||||||||||
Domestic | 1,043.91 | 1,048.18 | 1083.68 | (0.41 | ) | (3.28 | ) | |||||||||||||
Regional | 21.85 | 22.01 | 19.73 | (0.71 | ) | 11.56 | ||||||||||||||
International | 666.52 | 601.97 | 509.14 | 10.72 | 18.23 | |||||||||||||||
Total | 1,732.28 | 1,672.16 | 1612.55 | 3.60 | 3.70 | |||||||||||||||
Capacity | ||||||||||||||||||||
ASK (million) | ||||||||||||||||||||
Domestic | 216,160.94 | 194,354.34 | 179655.46 | 11.22 | 8.18 | |||||||||||||||
Regional | 4,383.59 | 3,843.89 | 4193.19 | 14.04 | (8.33 | ) | ||||||||||||||
International | 93,876.41 | 82,447.49 | 72143.29 | 13.86 | 14.28 | |||||||||||||||
Total | 314,420.95 | 280,645.72 | 255991.94 | 12.03 | 9.63 | |||||||||||||||
ATK (million) | ||||||||||||||||||||
Domestic | 24,549.52 | 22,168.17 | 20740.93 | 10.74 | 6.88 | |||||||||||||||
Regional | 503.53 | 446.80 | 491.23 | 12.70 | (9.04 | ) | ||||||||||||||
International | 17,674.93 | 15,717.21 | 13748.02 | 12.46 | 14.32 | |||||||||||||||
Total | 42,727.99 | 38,332.18 | 34980.18 | 11.47 | 9.58 | |||||||||||||||
Load Factors | ||||||||||||||||||||
Passenger load factor (RPK/ASK) (%) | ||||||||||||||||||||
Domestic | 82.80 | 82.5 | 80.7 | 0.25 | 1.84 | |||||||||||||||
Regional | 75.39 | 76.4 | 73.5 | (0.96 | ) | 2.81 | ||||||||||||||
International | 81.93 | 81.7 | 80.5 | 0.26 | 1.22 | |||||||||||||||
Overall | 82.44 | 82.2 | 80.5 | 0.23 | 1.69 | |||||||||||||||
Overall load factor (RTK/ATK) (%) | ||||||||||||||||||||
Domestic | 71.03 | 71.4 | 70.2 | (0.40 | ) | 1.27 | ||||||||||||||
Regional | 62.63 | 63.2 | 59.5 | (0.60 | ) | 3.69 | ||||||||||||||
International | 71.18 | 71.3 | 69.4 | (0.11 | ) | 1.88 | ||||||||||||||
Overall | 70.99 | 71.3 | 69.7 | (0.28 | ) | 1.55 | ||||||||||||||
Yield | ||||||||||||||||||||
Yield per RPK (RMB) | ||||||||||||||||||||
Domestic | 0.54 | 0.53 | 0.53 | 1.89 | / | |||||||||||||||
Regional | 0.74 | 0.78 | 0.72 | (5.13 | ) | 8.33 | ||||||||||||||
International | 0.39 | 0.37 | 0.4 | 5.41 | (7.50 | ) | ||||||||||||||
Overall | 0.49 | 0.49 | 0.5 | / | (2.00 | ) | ||||||||||||||
Yield per RTK (RMB) | ||||||||||||||||||||
Domestic | 5.60 | 5.52 | 5.45 | 1.45 | 1.28 | |||||||||||||||
Regional | 8.13 | 8.45 | 7.92 | (3.79 | ) | 6.69 | ||||||||||||||
International | 3.00 | 2.87 | 2.94 | 4.53 | (2.38 | ) | ||||||||||||||
Overall | 4.55 | 4.46 | 4.5 | 2.02 | (0.89 | ) | ||||||||||||||
Financial | ||||||||||||||||||||
Passenger revenue (RMB million) | ||||||||||||||||||||
Domestic | 95,773 | 85,392 | 77257 | 10.53 | ||||||||||||||||
Regional | 2,446 | 2,281 | 2230 | 2.29 | ||||||||||||||||
International | 29,819 | 25,118 | 23015 | 9.14 | ||||||||||||||||
Total | 128,038 | 112,791 | 102502 | 10.04 | ||||||||||||||||
Cargo and mail revenue (RMB million) | 10,026 | 9,082 | 7191 | 26.30 |
2015
A. | OPERATING RESULTS |
The following discussion is based on our historical results of operations. As a result of the factors discussed above, such results of operations may not be indicative of our future operating performance.
2018 compared with 2014
2017
The profit attributable to our equity shareholders of the Company of RMB3,736was RMB2,895 million was recorded in 2015 as2018, compared to the profit attributable to equity shareholders of the Company of RMB1,777RMB5,961 million in 2014. The Group’s2017. Our operating revenue increased by RMB3,068RMB15,817 million or 2.83%12.38% from RMB108,584RMB127,806 million in 20142017 to RMB111,652RMB143,623 million in 2015.2018. Passenger load factor was 80.5%82.44% in 20152018, compared to 79.4%82.2% in 2014.2017. Passenger yield (in passenger revenue per RPK) decreased by 8.62% from RMB0.58remained RMB0.49 in 2014 to RMB0.53 in 2015.2018. Average yield (in traffic revenue per RTK) increased by 2.02% from RMB4.46 in 2017 to RMB4.55 in 2018. Operating expenses increased by RMB17,144 million or 13.93% from RMB123,098 million in 2017 to RMB140,242 million in 2018. Operating profit decreased by 9.30%RMB337 million from RMB5.27 in 2014 to RMB4.78 in 2015. Operating expenses decreased by RMB4,534 million or 4.28% from RMB106,026RMB9,156 million in 20142017 to RMB101,492RMB8,819 million in 2015. Operating profit of RMB13,438 million was recorded in 2015 as compared to operating profit of RMB4,748 million in 2014, increased by RMB8,690 million.
2018.
Operating Revenue
2015 | 2014 | |||||||||||||||||||
Operating revenue | Operating revenue | Change in | ||||||||||||||||||
RMB million | Percentage % | RMB million | Percentage % | revenue % | ||||||||||||||||
Traffic revenues | 107,099 | 95.9 | 104,328 | 96.1 | 2.7 | |||||||||||||||
Including: Passenger revenues | 100,238 | 97,145 | 3.2 | |||||||||||||||||
– Domestic | 76,570 | 76,647 | (0.1 | ) | ||||||||||||||||
– Hong Kong, Macau and Taiwan | 2,517 | 2,497 | 0.8 | |||||||||||||||||
– International | 21,151 | 18,001 | 17.5 | |||||||||||||||||
Cargo and mail revenues | 6,861 | 7,183 | (4.5 | ) | ||||||||||||||||
Other operating revenues | 4,553 | 4.1 | 4,256 | 3.9 | 7.0 | |||||||||||||||
Mainly including: Commission income | 1,545 | 1,335 | 15.7 | |||||||||||||||||
Ground services income | 345 | 293 | 17.7 | |||||||||||||||||
Expired sales in advance of carriage | 459 | 459 | - | |||||||||||||||||
General aviation income | 490 | 576 | (14.9 | ) | ||||||||||||||||
Hotel and tour operation income | 621 | 508 | 22.2 | |||||||||||||||||
Total operating revenues | 111,652 | 100.0 | 108,584 | 100.0 | 2.8 | |||||||||||||||
Less: fuel surcharge income | (6,300 | ) | (13,746 | ) | (54.2 | ) | ||||||||||||||
Total operating revenue excluding fuel surcharge | 105,352 | 94,838 | 11.1 |
TrafficThe following table sets forth operating revenue compositionfor the years indicated:
2015 | 2014 | |||||||||||||||||||
Traffic revenue | Traffic revenue | Change in traffic | ||||||||||||||||||
RMB million | Percentage % | RMB million | Percentage % | revenue % | ||||||||||||||||
Passenger Revenues | 100,238 | 93.6 | 97,145 | 93.1 | 3.2 | |||||||||||||||
Cargo and Mail Revenues | 6,861 | 6.4 | 7,183 | 6.9 | (4.5 | ) | ||||||||||||||
Traffic revenues | 107,099 | 100.0 | 104,328 | 100.0 | 2.7 |
Passenger revenue composition
2018 | 2017 | |||||||||||||||||||
Operating revenue RMB million | Percentage % | Operating revenue RMB million | Percentage % | Change in revenue % | ||||||||||||||||
Traffic revenue | 138,064 | 96.13 | 121,873 | 95.36 | 13.29 | |||||||||||||||
Including: Passenger revenue | 128,038 | 112,791 | 13.52 | |||||||||||||||||
– Domestic | 95,773 | 85,392 | 12.16 | |||||||||||||||||
– Hong Kong, Macau and Taiwan | 2,446 | 2,281 | 7.23 | |||||||||||||||||
– International | 29,819 | 25,118 | 18.72 | |||||||||||||||||
Cargo and mail revenue | 10,026 | 9,082 | 10.39 | |||||||||||||||||
Other operating revenue | 5,559 | 3.87 | 5,933 | 4.64 | (6.30 | ) | ||||||||||||||
Mainly including: | ||||||||||||||||||||
Commission income | 2,619 | 2,781 | (5.83 | ) | ||||||||||||||||
Hotel and tour operation income | 676 | 547 | 23.58 | |||||||||||||||||
General aviation income | 476 | 467 | 1.93 | |||||||||||||||||
Ground services income | 429 | 429 | — | |||||||||||||||||
Expired sales in advance of carriage | — | 396 | (100.00 | ) | ||||||||||||||||
Total operating revenue | 143,623 | 100.00 | 127,806 | 100.00 | 12.38 | |||||||||||||||
Less: fuel surcharges income | (7,454 | ) | (5,355 | ) | 39.20 | |||||||||||||||
Total operating revenue excluding fuel surcharges | 136,169 | 122,451 | 11.20 | |||||||||||||||||
2018 | 2017 | |||||||||||||||||||
Traffic revenue RMB million | Percentage % | Traffic revenue RMB million | Percentage % | Change in traffic revenue % | ||||||||||||||||
Passenger Revenue | 128,038 | 92.74 | 112,791 | 92.55 | 13.52 | |||||||||||||||
Cargo and Mail Revenue | 10,026 | 7.26 | 9,082 | 7.45 | 10.39 | |||||||||||||||
Traffic revenue | 138,064 | 100.00 | 121,873 | 100.00 | 13.29 |
2015 | 2014 | |||||||||||||||||||||||||||||||||||||||
Passenger revenue | Percentage | Passenger revenue | Percentage | Change in passenger revenue | 2018 | 2017 | ||||||||||||||||||||||||||||||||||
RMB million | % | RMB million | % | % | Passenger revenue RMB million | Percentage % | Passenger revenue RMB million | Percentage % | Change in passenger revenue % | |||||||||||||||||||||||||||||||
Domestic | 76,570 | 76.4 | 76,647 | 78.9 | (0.1 | ) | 95,773 | 74.80 | 85,392 | 75.71 | 12.16 | |||||||||||||||||||||||||||||
Hong Kong, Macao and Taiwan | 2,517 | 2.5 | 2,497 | 2.6 | 0.8 | |||||||||||||||||||||||||||||||||||
Hong Kong, Macau and Taiwan | 2,446 | 1.91 | 2,281 | 2.02 | 7.23 | |||||||||||||||||||||||||||||||||||
International | 21,151 | 21.1 | 18,001 | 18.5 | 17.5 | 29,819 | 23.29 | 25,118 | 22.27 | 18.72 | ||||||||||||||||||||||||||||||
Passenger revenue | 100,238 | 100.0 | 97,145 | 100.0 | 3.2 | |||||||||||||||||||||||||||||||||||
Total | 128,038 | 100.00 | 112,791 | 100.00 | 13.52 |
Substantially all of the Group’sour operating revenue is attributable to airline and airline-relatedgenerated from airlines transport operations. Traffic revenue accounted for 95.9%96.13% and 96.1%95.36% of total operating revenue in 20152018 and 20142017, respectively. Passenger revenue and cargo and mail revenue accounted for 93.6%92.74% and 6.4% respectively7.26% of the total traffic revenue in 2015.2018, respectively. During the reporting period, the Group’sour total traffic revenuesrevenue was RMB107,099RMB138,064 million, representing an increase of RMB2,771RMB16,191 million or 2.7%13.29% from prior year, mainly due to the increase of RPK by 13.78% which leads to the increase of passenger revenues.in traffic capacity and traffic volume. The other operating revenue is mainly derived from commission income, expired sales in advance of carriage hotel and tour operation income, general aviation income and ground services income.
The increase in operating revenue was primarily due to a 13.52% increase in passenger revenue from RMB112,791 million in 2017 to RMB128,038million in 2018. The total number of passengers carried increased by 10.76% from 2017 to 13,989 million passengers in 2018. RPKs increased by 12.35% from 230,697 million in 2017 to 259,194 million in 2018, primarily as a result of the increase in number of passengers carried. Passenger yield per RPK remained RMB0.49 in 2017 and 2018.
Domestic passenger revenue, which accounted for 74.80% of the total passenger revenue in 2018, increased by 12.16% from RMB85,392 million in 2017 to RMB95,773million in 2018. Domestic capacity in ASKs increased by 11.22%, while passenger traffic in RPKs increased by 11.56%, resulting in an increase in passenger load factor by 0.25 percentage points from 82.54% in 2017 to 82.80% in 2018. Domestic passenger yield per RPK was RMB0.54 in 2018, compared to RMB0.53 in 2017.
Hong Kong, Macau and Taiwan passenger revenue, which accounted for 1.91% of total passenger revenue, increased by 7.23% from RMB2,281 million in 2017 to RMB2,446million in 2018. For Hong Kong, Macau and Taiwan flights, passenger traffic in RPKs increased by 12.61%, while passenger capacity in ASKs increased by 14.04%, resulting in an decrease in passenger load factor by 0.96percentage points from 76.35% in 2017 to 75.39% in 2018. Passenger yield per RPK decreased from RMB0.78 in 2017 to RMB0.74in 2018.
International passenger revenue, which accounted for 23.29% of total passenger revenue, increased by 18.72% from RMB25,118 million in 2017 to RMB29,819million in 2018. For international flights, passenger traffic in RPKs increased by 14.23%, while passenger capacity in ASKs increased by 13.86% resulting in 0.26 percentage points increase in passenger load factor from 81.67% in 2017 to 81.93% in 2018. Passenger yield per RPK increased from RMB0.37 in 2017 to RMB0.39 in 2018.
Cargo and mail revenue, which accounted for 7.26% of the Group’s total traffic revenue and 6.98% of total operating revenue, increased by 10.39% from RMB9,082 million in 2017 to RMB10,026 million in 2018. The increase was attributable to the increase in cargo and mail carried.
Other operating revenue decreased by 6.30% from RMB5,933 million in 2017 to RMB5,559 million in 2018. The decrease was primarily due to the reclassification of expired sales in advance of carriage and fees, totaling amounted to RMB1,353 million, from other operating revenue to traffic revenue, as a result of the adoption of IFRS 15.
Operating Expenses
Total operating expenses in 2018 amounted to RMB140,242 million, representing an increase of 13.93% or RMB17,144 million over 2017, primarily due to the increase in flight operation expenses and aircraft and transportation service expenses, as a result of the increase in traffic volume. Total operating expenses as a percentage of total operating revenue increased from 96.32% in 2017 to 97.65% in 2018.
The table below sets forth operating expense for the years indicated:
2018 | 2017 | |||||||||||||||||||
Operating expense RMB million | Percentage % | Operating expense RMB | Percentage % | Change % | ||||||||||||||||
Flight operation expenses | 76,216 | 54.35 | 62,978 | 51.16 | 21.02 | |||||||||||||||
Mainly including: | ||||||||||||||||||||
Jet fuel costs | 42,922 | 31,895 | 34.57 | |||||||||||||||||
Aircraft operating lease charges | 8,726 | 8,022 | 8.78 | |||||||||||||||||
Flight personnel payroll and welfare | 11,467 | 10,574 | 8.45 | |||||||||||||||||
Maintenance expenses | 12,704 | 9.06 | 11,877 | 9.65 | 6.96 | |||||||||||||||
Aircraft and transportation service expenses | 24,379 | 17.38 | 22,935 | 18.63 | 6.30 |
Promotion and selling expenses General and administrative expenses Depreciation and amortization Impairment on property, plant and equipment Hotel and tour operation expenses External air catering service expenses Financial institution charges Cargo handling expenses Others Total operating expenses 7,036 5.02 6,881 5.59 2.25 3,770 2.69 3,391 2.75 11.18 14,308 10.20 13,162 10.69 8.71 — — 324 0.26 (100 ) 587 0.42 467 0.38 25.70 326 0.23 265 0.21 23.02 289 0.21 254 0.21 13.78 236 0.17 235 0.19 0.43 319 0.28 329 0.27 (0.03 ) 140,242 100.00 123,098 100.00 13.93
Flight operation expenses, which accounted for 54.35% of total operating expenses, increased by 21.02% from RMB62,978 million in 2017 to RMB76,216 million in 2018, primarily due to the drastic increase in jet fuel costs. Jet fuel costs, which accounted for 56.32% of flight operation expenses, increased by 34.57% from RMB31,895 million in 2017 to RMB42,922 million in 2018.
Maintenance expenses, which accounted for 9.06% of total operating expenses, increased by 6.96% from RMB11,877 million in 2017 to RMB12,704 million in 2018. The increase was mainly due to the expansion of our aircraft fleet.
Aircraft and transportation service expenses, which accounted for 17.38% of total operating expenses, increased by 6.30% from RMB22,935 million in 2017 to RMB24,379 million in 2018. The increase was primarily due to a 7.78% increase in landing and navigation fee and ground service fees from RMB15,540 million in 2017 to RMB16,749 million in 2018, which resulted from the increase in the number of flights.
Promotion and selling expenses, which accounted for 5.02% of total operating expenses, increased by 2.25% from RMB6,881 million in 2017 to RMB7,036 million in 2018, mainly due to the increase in handling charges and ticket office expenses.
General and administrative expenses, which accounted for 2.69% of the total operating expenses, increased by 11.18% from RMB3,391 million in 2017 to RMB3,770 million in 2018, mainly due to the increase in general corporate expenses.
Depreciation and amortization, which accounted for 10.20% of the total operating expenses, increased by 8.71% from RMB13,162 million in 2017 to RMB14,308 million in 2018, mainly due to the expansion of aircraft fleet of the Company.
Operating Profit
Operating profit was RMB8,819 million and RMB9,156 million in 2018 and 2017, respectively. The decrease in operating profit was mainly due to the increase of operating revenue netted off by the increase of operating expense. The increase in operating revenue by RMB15,817 million or 12.38% compared with that of 2017, as a result of the increase in transport capacity and traffic volume; and the increase in operating expenses by RMB17,144 million or 13.93% compared with that of 2017, due to the increase in jet fuel costs and traffic volume.
Other Income or Expenses
Other net income increased by RMB990 million from RMB4,448 million in 2017 to RMB5,438 million in 2018, mainly due to the increase in government grants. Details of other net income of the Group are set out in note 14 to the financial statements prepared under IFRS.
Interest expense increased by RMB455 million from RMB2,747 million in 2017 to RMB3,202 million in 2018, which was mainly due to the increase in the interest rate and the weighted average balance of obligations under finance leases during the year. Net exchange loss of RMB1,853 million was recorded in 2018, compared with net exchange gain of RMB1,801 million in 2017, mainly due to the translation of balances of borrowings and obligations under finance lease which are denominated in USD and the depreciation of RMB against USD.
Income Tax
Income tax expense decreased by RMB976 million from RMB1,976 million in 2017 to RMB1,000 million in 2018, mainly due to the decrease of profit before income tax in the reporting period.
2017 compared with 2016
The profit attributable to equity shareholders of our Company of RMB5,961 million was recorded in 2017 as compared to the profit attributable to equity shareholders of our Company of RMB5,044 million in 2016. Our operating revenue increased by RMB12,825 million or 11.15% from RMB114,981 million in 2016 to RMB127,806 million in 2017. Passenger load factor was 82.2% in 2017 and 80.51% in 2016. Passenger yield (in passenger revenue per RPK) decreased by 2.00% from RMB0.50 in 2016 to RMB0.49 in 2017. Average yield (in traffic revenue per RTK) decreased by 0.89% from RMB4.50 in 2016 to RMB4.46 in 2017. Operating expenses increased by RMB16,894 million or 15.91% from RMB106,204 million in 2016 to RMB123,098 million in 2017. Operating profit of RMB9,156 million was recorded in 2017 as compared to operating profit of RMB12,612 million in 2016, decreased by RMB3,456 million.
Operating Revenue
2017 | 2016 | |||||||||||||||||||
Operating revenue RMB million | Percentage % | Operating revenue RMB million | Percentage % | Change in revenue % | ||||||||||||||||
Traffic revenue | 121,873 | 95.36 | 109,693 | 95.4 | 11.10 | |||||||||||||||
Including: Passenger revenue | 112,791 | 102,502 | 10.04 | |||||||||||||||||
– Domestic | 85,392 | 77,257 | 10.53 | |||||||||||||||||
– Hong Kong, Macau and Taiwan | 2,281 | 2,230 | 2.29 | |||||||||||||||||
– International | 25,118 | 23,015 | 9.14 | |||||||||||||||||
Cargo and mail revenue | 9,082 | 7,191 | 26.30 | |||||||||||||||||
Other operating revenue | 5,933 | 4.64 | 5,288 | 4.6 | 12.20 | |||||||||||||||
Mainly including: | ||||||||||||||||||||
Commission income | 2,781 | 2,518 | 10.44 | |||||||||||||||||
Hotel and tour operation income | 547 | 625 | (12.48 | ) | ||||||||||||||||
General aviation income | 467 | 461 | 1.30 | |||||||||||||||||
Ground services income | 429 | 384 | 11.72 | |||||||||||||||||
Expired sales in advance of carriage | 396 | 376 | 5.32 | |||||||||||||||||
Total operating revenue | 127,806 | 100.00 | 114,981 | 100.0 | 11.15 | |||||||||||||||
Less: fuel surcharges income | (5,355 | ) | (5,798 | ) | (7.64 | ) | ||||||||||||||
Total operating revenue excluding fuel surcharges | 122,451 | 109,183 | 12.15 |
2017 | 2016 | |||||||||||||||||||
Traffic revenu RMB million | Percentage % | Traffic revenu RMB million | Percentage % | Change in traffic revenue % | ||||||||||||||||
Passenger Revenue | 112,791 | 92.55 | 102,502 | 93.4 | 10.04 | |||||||||||||||
Cargo and Mail Revenue | 9,082 | 7.45 | 7,191 | 6.6 | 26.30 | |||||||||||||||
Traffic revenue | 121,873 | 100.00 | 109,693 | 100.0 | 11.10 |
2017 | 2016 | |||||||||||||||||||
Passenger revenu RMB million | Percentage % | Passenger revenu RMB million | Percentage % | Change in passenger revenue % | ||||||||||||||||
Domestic | 85,392 | 75.71 | 77,257 | 75.4 | 10.53 | |||||||||||||||
Hong Kong, Macau and Taiwan | 2,281 | 2.02 | 2,230 | 2.2 | 2.29 | |||||||||||||||
International | 25,118 | 22.27 | 23,015 | 22.4 | 9.14 | |||||||||||||||
Passenger revenue | 85,392 | 75.71 | 102,502 | 100.00 | 10.04 |
Substantially all of our operating revenue is attributable to airlines transport operations. Traffic revenue accounted for 95.36% and 95.4% of total operating revenue in 2017 and 2016 respectively. Passenger revenue and cargo and mail revenue accounted for 92.55% and 7.45% respectively of the total traffic revenue in 2017. During the reporting period, our total traffic revenue was RMB121,873 million, representing an increase of RMB12,180 million or 11.10% from prior year, mainly due to the increase in traffic capacity and traffic volume. The other operating revenue is mainly derived from commission income, hotel and tour operation income, general aviation income, ground services income and expired sales in advance of carriage.
The increase in operating revenue was primarily due to a 3.2%10.04% increase in passenger revenue from RMB97,145RMB102,502 million in 20142016 to RMB100,238RMB112,791 million in 2015.2017. The total number of passengers carried increased by 8.43%10.19% to 109.42126.3 million passengers in 2015.2017. RPKs increased by 13.78%11.93% from 166,629206,106 million in 20142016 to 189,588230,697 million in 2015,2017, primarily as a result of the increase in number of passengers carried. Passenger yield per RPK decreased from RMB0.58RMB0.50 in 20142016 to RMB0.53RMB0.49 in 2015,2017, which is mainly due to a slightly fellthe drop of domestic passengeraverage ticket prices.
price.
Domestic passenger revenue, which accounted for 76.4%75.71% of the total passenger revenue in 2015, decreased2017, increased by 0.1%10.53% from RMB76,647RMB77,257 million in 20142016 to RMB76,570RMB85,392 million in 2015.2017. Domestic capacity in ASKs increased by 8.18%, while passenger traffic in RPKs increased by 8.68%, while passenger capacity in ASKs increased by 7.24%10.66%, resulting in aan increase in passenger load factor by 11.84 percentage points from 79.6%80.70% in 20142016 to 80.6%82.54% in 2015.2017. Domestic passenger yield per RPK decreased from RMB0.60was RMB0.53 in 2014 to RMB0.552017 which is consistent with the same in 2015.2016.
Hong Kong, Macau and Taiwan passenger revenue, which accounted for 2.5%2.02% of total passenger revenue, increased by 0.8%2.29% from RMB2,497RMB2,230 million in 20142016 to RMB2,517RMB2,281 million in 2015.2017. For Hong Kong, Macau and Taiwan flights, passenger traffic in RPKs increaseddecreased by 9.72%4.83%, while passenger capacity in ASKs increaseddecreased by 8.75%8.33%, resulting in an increase in passenger load factor by 0.72.81 percentage points from 73.4%73.54% in 20142016 to 74.1%76.35% in 2015.2017. Passenger yield per RPK decreasedincreased from RMB0.72 in 2016 to RMB0.78 in 2014 to RMB0.71 in 2015.
2017.
International passenger revenue, which accounted for 21.1%22.27% of total passenger revenue, increased by 17.5%9.14% from RMB18,001RMB23,015 million in 20142016 to RMB21,151RMB25,118 million in 2015.2017. For international flights, passenger traffic in RPKs increased by 32.25%16.01%, while passenger capacity in ASKs increased by 30.71%,14.28% resulting in a 11.22 percentage points increase in passenger load factor from 79.5%80.45% in 20142016 to 80.5%81.67% in 2015.2017. Passenger yield per RPK decreased from RMB0.50RMB0.40 in 20142016 to RMB0.45RMB0.37 in 2015.
2017.
Cargo and mail revenue, which accounted for 6.41%7.45% of the Group’s total traffic revenue and 6.14%7.11% of total operating revenue, decreasedincreased by 4.5%26.30% from RMB7,183RMB7,191 million in 20142016 to RMB6,861RMB9,082 million in 2015.2017. The decreaseincrease was attributable to the depression of freight marketincrease in cargo and drop of freight rates.
mail carried.
Other operating revenue increased by 7.0%12.20% from RMB4,256RMB5,288 million in 20142016 to RMB4,553RMB5,933 million in 2015.2017. The increase was primarily due to the riseincrease of commission income, hotel and tour operation income.
Operating Expenses
Total operating expenses in 20152017 amounted to RMB101,492RMB123,098 million, representing a decreasean increase of RMB4,534RMB16,894 million or 4.28%15.91% over 2014,2016, primarily due to the decrease of jetincrease in staff cost, fuel cost.cost and aircraft and transportation service expense. Total operating expenses as a percentage of total operating revenue was 90.9%96.32% in 20152017 and 97.6%92.37% in 2014.2016.
2015 | 2014 | |||||||||||||||||||
Operating expense RMB million | Percentage % | Operating expense RMB million | Percentage % | Change in operating expenses % | ||||||||||||||||
Flight operations | 50,412 | 49.7 | 58,901 | 55.6 | (14.4 | ) | ||||||||||||||
Mainly including: Jet fuel costs | 26,274 | 37,728 | (30.4 | ) | ||||||||||||||||
Aircraft operating lease charges | 6,153 | 5,383 | 14.3 | |||||||||||||||||
Flight personnel payroll and welfare | 8,070 | 6,803 | 18.6 | |||||||||||||||||
Maintenance | 10,407 | 10.3 | 8,304 | 7.8 | 25.3 | |||||||||||||||
Aircraft and transportation service expenses | 17,908 | 17.6 | 16,402 | 15.5 | 9.2 | |||||||||||||||
Promotion and selling expenses | 6,976 | 6.9 | 7,841 | 7.4 | (11.0 | ) | ||||||||||||||
General and administrative expenses | 2,464 | 2.4 | 2,337 | 2.2 | 5.4 | |||||||||||||||
Depreciation and amortization | 11,845 | 11.7 | 10,828 | 10.2 | 9.4 | |||||||||||||||
Impairment on property, plant and equipment | 90 | 0.1 | 215 | 0.2 | (58.1 | ) | ||||||||||||||
Others | 1,390 | 1.4 | 1,198 | 1.1 | 16.0 | |||||||||||||||
Total operating expenses | 101,492 | 100.0 | 106,026 | 100.0 | 4.3 |
2017 | 2016 | |||||||||||||||||||
Operating expense RMB million | Percentage % | Operating expense RMB million | Percentage % | Change in Operating expenses % | ||||||||||||||||
Flight operation expenses | 62,978 | 51.16 | 51,461 | 48.4 | 22.38 | |||||||||||||||
Mainly including: | ||||||||||||||||||||
Jet fuel costs | 31,895 | 23,799 | 34.02 | |||||||||||||||||
Aircraft operating lease charges | 8,022 | 7,330 | 9.44 | |||||||||||||||||
Flight personnel payroll and welfare | 10,574 | 9,215 | 14.75 | |||||||||||||||||
Maintenance expenses | 11,877 | 9.65 | 11,318 | 10.7 | 4.94 | |||||||||||||||
Aircraft and transportation service expenses | 22,935 | 18.63 | 20,215 | 19.0 | 13.46 | |||||||||||||||
Promotion and selling expenses | 6,881 | 5.59 | 6,304 | 5.9 | 9.15 | |||||||||||||||
General and administrative expenses | 3,391 | 2.75 | 2,815 | 2.7 | 20.46 |
Depreciation and amortization | 13,162 | 10.69 | 12,619 | 11.9 | 4.30 | |||||||||||||||
Impairment on property, plant and equipment | 324 | 0.26 | 71 | 0.1 | 356.34 | |||||||||||||||
Others | 1,550 | 1.27 | 1,401 | 1.3 | 10.64 | |||||||||||||||
Total operating expenses | 123,098 | 100.00 | 106,204 | 100.0 | 15.91 |
Flight operations expenses, which accounted for 49.7%51.16% of total operating expenses, decreasedincreased by 14.4%22.38% from RMB58,901RMB51,461 million in 20142016 to RMB50,412RMB62,978 million in 2015,2017, primarily as a result of decreaseincrease in RTK due to the increase of capacity and the increase in jet fuel costs because of decreaseincrease in average fuel prices. Jet fuel costs, which accounted for 52.12%50.64% of flight operations expenses in 2015, decreased2017, increased by 30.4%34.02% from to RMB37,728RMB23,799 million in 20142016 to RMB26,274RMB31,895 million in 2015.
2017.
Maintenance expenses, which accounted for 10.2%9.65% of total operating expenses, increased by 25.3%4.94% from RMB8,304RMB11,318 million in 20142016 to RMB10,407RMB11,877 million in 2015.2017. The increase was mainly due to fleet expansion.
Aircraft and transportation service expenses, which accounted for 17.6%18.63% of total operating expenses, increase by 9.2%13.46% from RMB16,402RMB20,215 million in 20142016 to RMB17,908RMB22,935 million in 2015.2017. The increase was primarily due to a 9.7%13.74% rise in landing and navigation fees from RMB10,496RMB13,109 million in 20142016 to RMB11,510RMB 14,910 million in 2015,2017, resulted from the increase in the number of flights due to the increase of capacity.
take-off and landings for international flights.
Promotion and selling expenses, which accounted for 6.9%5.59% of total operating expenses, decreasedincreased by 11.0%9.15% from RMB7,841RMB6,304 million in 20142016 to RMB6,976RMB6,881 million in 2015.
2017, mainly due to the decrease in ticket office expenses.
General and administrative expenses, which accounted for 2.4%2.75% of the total operating expenses, increased by 5.4%20.46% from RMB2,337RMB2,815 million in 20142016 to RMB2,464RMB3,391 million in 2015.
2017, mainly due to the increase in general corporate expenses.
Depreciation and amortization, which accounted for 11.7%10.69% of total operating expenses, increased by 9.4%4.30% from RMB10,828RMB12,619 million in 20142016 to RMB11,845RMB13,162 million in 2015,2017, mainly due to the increase of fixed assets.
fleet expansion.
Operating Profit
Operating profit of RMB13,438RMB9,156 million and RMB4,748 was recorded in 2015 and 2014 respectively.2017 (2016: RMB12,612 million). The increasedecrease in operating profit was mainly due to the net effect of increase in operating revenue by RMB3,068RMB12,825 million or 2.8% in 201511.15% and decreaseincrease in operating expenses by RMB4,534RMB16,894 million or 4.3%.
15.91% compared with 2016.
Other Income or Expenses
Other net income increased by RMB1,088RMB613 million from RMB2,190RMB3,835 million in 20142016 to RMB3,278RMB4,448 million in 2015,2017, mainly due to the increase of government grants andin gain on disposaltransfer of aircrafts.
aircraft purchase quota.
Interest expense decreasedincreased by RMB5RMB282 million from RMB2,193RMB2,465 million in 20142016 to RMB2,188RMB2,747 million in 20152017 was mainly due to the increase in number of aircraft held through a finance leasethe interest rate and the increaseweighted average balance of interest payment of borrowings.
obligations under finance leases during the year. Net exchange lossesgain of RMB5,953RMB1,801 million was recorded in 2015 as2017, compared with net exchange loss of RMB3,276 million in 2016, mainly due to the translation of balances of borrowings and obligations under finance lease which are denominated in USD and the appreciation of RMB depreciated against US dollar in 2015. Net exchange losses of RMB292 million was recorded in 2014 as RMB depreciated slightly against US dollar in 2014.
againt USD.
Income Tax
Income tax expense of RMB1,300RMB1,976 million was recorded in 2015,2017, increased by RMB632RMB213 million from RMB668RMB1,763 million in 2014, mainly due to the decrease of profit before income tax.
2014 Compared With 2013
The profit attributable to equity shareholders of the Company of RMB1,777 million was recorded in 2014 as compared to the profit attributable to equity shareholders of the Company of RMB1,986 million in 2013. The Group’s operating revenue increased by RMB10,037 million or 10.2% from RMB98,547 million in 2013 to RMB108,584 million in 2014. Passenger load factor was 79.4% in 2014 which was stable compared to 79.4% in 2013. Passenger yield (in passenger revenue per RPK) decreased by 1.7% from RMB0.59 in 2013 to RMB0.58 in 2014. Average yield (in traffic revenue per RTK) decreased by 2.8% from RMB5.42 in 2013 to RMB5.27 in 2014. Operating expenses increased by RMB7,746 million or 7.9% from RMB98,280 million in 2013 to RMB 106,026 million in 2014. Operating profit of RMB4,748 million was recorded in 2014 as compared to operating profit of RMB1,510 million in 2013, increased by RMB3,238 million.
Operating Revenue
2014 | 2013 | |||||||||||||||||||
Operating revenue | Operating revenue | Change in | ||||||||||||||||||
RMB million | Percentage % | RMB million | Percentage % | revenue % | ||||||||||||||||
Traffic revenues | 104,328 | 96.1 | 94,684 | 96.1 | 10.2 | |||||||||||||||
Including: Passenger revenues | 97,145 | 88,271 | 10.1 | |||||||||||||||||
– Domestic | 76,647 | 71,277 | 7.5 | |||||||||||||||||
– Hong Kong, Macau and Taiwan | 2,497 | 2,162 | 15.5 | |||||||||||||||||
– International | 18,001 | 14,832 | 21.4 | |||||||||||||||||
Cargo and mail revenues | 7,183 | 6,413 | 12.0 | |||||||||||||||||
Other operating revenues | 4,256 | 3.9 | 3,863 | 3.9 | 10.2 | |||||||||||||||
Mainly including: Commission income | 1,335 | 1,040 | 28.4 | |||||||||||||||||
Ground services income | 293 | 349 | (16.1 | ) | ||||||||||||||||
Expired sales in advance of carriage | 459 | 684 | (32.9 | ) | ||||||||||||||||
General aviation income | 576 | 484 | 19.0 | |||||||||||||||||
Hotel and tour operation income | 508 | 565 | (10.1 | ) | ||||||||||||||||
Total operating revenues | 108,584 | 100.0 | 98,547 | 100.0 | 10.2 | |||||||||||||||
Less: fuel surcharge income | (13,746 | ) | (13,062 | ) | ||||||||||||||||
Total operating revenue excluding fuel surcharge | 94,838 | 85,485 |
55
Traffic revenue composition
2014 | 2013 | |||||||||||||||||||
Traffic revenue | Traffic revenue | Change in traffic | ||||||||||||||||||
RMB million | Percentage % | RMB million | Percentage % | revenue % | ||||||||||||||||
Passenger Revenues | 97,145 | 93.1 | 88,271 | 93.2 | 10.1 | |||||||||||||||
Cargo and Mail Revenues | 7,183 | 6.9 | 6,413 | 6.8 | 12.0 | |||||||||||||||
Traffic revenues | 104,328 | 100.0 | 94,684 | 100.0 | 10.2 |
Passenger revenue composition
2014 | 2013 | |||||||||||||||||||
Passenger revenue | Percentage | Passenger revenue | Percentage | Change in passenger revenue | ||||||||||||||||
RMB million | % | RMB million | % | % | ||||||||||||||||
Domestic | 76,647 | 78.9 | 71,277 | 80.8 | 7.5 | |||||||||||||||
Hong Kong, Macao and Taiwan | 2,497 | 2.6 | 2,162 | 2.4 | 15.5 | |||||||||||||||
International | 18,001 | 18.5 | 14,832 | 16.8 | 21.4 | |||||||||||||||
Passenger revenue | 97,145 | 100.0 | 88,271 | 100.0 | 10.1 |
Substantially all of the Group’s operating revenue is attributable to airline and airline-related operations. Traffic revenue accounted for 96.1% and 96.1% of total operating revenue in 2014 and 2013 respectively. Passenger revenue and cargo and mail revenue accounted for 93.1% and 6.9% respectively of the total traffic revenue in 2014. During the reporting period, the Group’s total traffic revenues was RMB104,328 million, representing an increase of RMB 9,644 million or 10.2% from prior year,2016, mainly due to the increase of RPK by 12.27% which leads to the increase of passenger revenues. The other operating revenue is mainly derived from commission income, expired sales in advance of carriage hotel and tour operation income, general aviation income and ground services income.
The increase in operating revenue was primarily due to a 10.1% increase in passenger revenue from RMB88,271 million in 2013 to RMB97,145million in 2014. The total number of passengers carried increased by 9.9% to 101 million passengers in 2014. RPKs increased by 12.3% from 148,417 million in 2013 to 166,629 million in 2014, primarily as a result of the increase in number of passengers carried. Passenger yield per RPK decreased from RMB0.59 in 2013 to RMB 0.58 in 2014, which is mainly due to a slightly fell of domestic passenger ticket prices.
Domestic passenger revenue, which accounted for 78.9% of the total passenger revenue in 2014, increased by 7.5% from RMB 71,277 million in 2013 to RMB 76,647 million in 2014. Domestic passenger traffic in RPKs increased by 10.0%, while passenger capacity in ASKs increased by 10.9%, resulting in a decrease in passenger load factor by 0.6 percentage points from 80.2% in 2013 to 79.6% in 2014. Domestic passenger yield per RPK decreased from RMB0.61 in 2013 to RMB0.60 in 2014.
Hong Kong, Macau and Taiwan passenger revenue, which accounted for 2.6% of total passenger revenue, increased by 15.5% from RMB2,162 million in 2013 to RMB 2,497 million in 2014. For Hong Kong, Macau and Taiwan flights, passenger traffic in RPKs increased by 24.9%, while passenger capacity in ASKs increased by 21.8 %, resulting in an increase in passenger load factor by 1.8 percentage points from 71.6% in 2013 to 73.4% in 2014. Passenger yield per RPK decreased from RMB0.84 in 2013 to RMB0.78 in 2014.
International passenger revenue, which accounted for 18.5% of total passenger revenue, increased by 21.4% from RMB14,832 million in 2013 to RMB18,001 million in 2014. For international flights, passenger traffic in RPKs increased by 20.2 %, while passenger capacity in ASKs increased by 16.8%, resulting in a 2.2 percentage points increase in passenger load factor from 77.3% in 2013 to 79.5% in 2014. Passenger yield per RPK remained at RMB0.50 in 2013 and 2014.
Cargo and mail revenue, which accounted for 6.9% of the Group’s total traffic revenue and 6.6% of total operating revenue, increased by 12.0% from RMB6,413 million in 2013 to RMB7,183 million in 2014. The increase was attributable to the increase of cargo and mail in RTKs by 16.8% as the demand in the cargo market was warming up.
Other operating revenue increased by 10.2% from RMB3,863 million in 2013 to RMB4,256 million in 2014. The increase was primarily due to the general growth in income from commission and general aviation.
Operating Expenses
Total operating expenses in 2014 amounted to RMB106,026 million, representing an increase of RMB7,746 million or 7.9% over 2013, primarily due to the total effect of increases in jet fuel cost, payroll, landing and navigation fees, and depreciation and amortisation. Total operating expenses as a percentage of total operating revenue was 97.6 % in 2014 and 99.7% in 2013.
2014 | 2013 | |||||||||||||||||||
Operating expense RMB million | Percentage % | Operating expense RMB million | Percentage % | Change in operating expenses % | ||||||||||||||||
Flight operations | 58,901 | 55.6 | 54,010 | 55.0 | 9.1 | |||||||||||||||
Mainly including: Jet fuel costs | 37,728 | 35,538 | 6.2 | |||||||||||||||||
Aircraft operating lease charges | 5,383 | 4,767 | 12.9 | |||||||||||||||||
Flight personnel payroll and welfare | 6,803 | 5,799 | 17.3 | |||||||||||||||||
Maintenance | 8,304 | 7.8 | 7,805 | 7.9 | 6.4 | |||||||||||||||
Aircraft and transportation service expenses | 16,402 | 15.5 | 15,091 | 15.4 | 8.7 | |||||||||||||||
Promotion and selling expenses | 7,841 | 7.4 | 7,754 | 7.9 | 1.1 | |||||||||||||||
General and administrative expenses | 2,337 | 2.2 | 2,470 | 2.5 | (5.4 | ) | ||||||||||||||
Depreciation and amortization | 10,828 | 10.2 | 9,347 | 9.5 | 15.8 | |||||||||||||||
Impairment on property, plant and equipment | 215 | 0.2 | 536 | 0.5 | (59.9 | ) | ||||||||||||||
Others | 1,198 | 1.1 | 1,267 | 1.3 | (5.4 | ) | ||||||||||||||
Total operating expenses | 106,026 | 100.0 | 98,280 | 100.0 | 7.9 |
Flight operations expenses, which accounted for 55.6% of total operating expenses, increased by 9.1% from RMB54,010 million in 2013 to RMB58,901 million in 2014, primarily as a result of increase in RTK due to the increase of capacity. Jet fuel costs, which accounted for 64.1% of flight operations expenses in 2014, increased by 6.2% from to RMB35,538 million in 2013 to RMB37,728 million in 2014.
Maintenance expenses, which accounted for 7.8% of total operating expenses, increased by 6.4% from RMB7,805 million in 2013 to RMB8,304 million in 2014. The increase was mainly due to the expansion of the fleet by increasing 53 aircraft.
Aircraft and transportation service expenses, which accounted for 15.5% of total operating expenses, increase by 8.7% from RMB15,091 million in 2013 to RMB16,402 million in 2014. The increase was primarily due to a 10.4% rise in landing and navigation fees from RMB9,510 million in 2013 to RMB10,496 million in 2014, resulted from the increase in number of flights due to the increase of capacity.
Promotion and selling expenses, which accounted for 7.4% of total operating expenses, increased by 1.1% from RMB7,754 million in 2013 to RMB7,841million in 2014.
General and administrative expenses, which accounted for 2.2% of the total operating expenses, decreased by 5.4% from RMB2,470 million in 2013 to RMB2,337million in 2014.
Depreciation and amortization, which accounted for 10.2% of total operating expenses, increased by 15.8% from RMB9,347 million in 2013 to RMB10,828million in 2014, mainly due to the increase of 53 aircraft and flight equipment.
Operating Profit
Operating profit of RMB4,748 million and RMB1,510 was recorded in 2014 and 2013 respectively. The increase in profit was mainly due to the net effect of increase in operating revenue by RMB10,037 million or 10.2% in 2014 and increase in operating expenses by RMB7,746 million or 7.9%.
Other Income or Expenses
Other net income increased by RMB947million from RMB1,243 million in 2013 to RMB2,190 million in 2014, mainly due to the increase of government grants and gain on disposal of aircrafts.
Interest expense increased by RMB542 million from RMB1,651 million in 2013 to RMB2,193 million in 2014 was mainly due to the increase in number of aircraft held through a finance lease and the increase of interest payment of borrowings.
Net exchange losses of RMB292 million was recorded in 2014 as RMB depreciated slightly against US dollar in 2014. Net exchange gains of RMB2,903 million was recorded in 2013 mainly due to RMB appreciated significantly against US dollar in 2013.
Income Tax
Income tax expense of RMB668 million was recorded in 2014, decreased by RMB66 million from RMB734 million in 2013, mainly due to the decrease of profit before income tax.tax in the reporting period.
B. | LIQUIDITY AND CAPITAL RESOURCES |
Generally, the Group meets itswe meet our working capital and capital expenditure requirements through cash from itsour operations, the proceeds of certain long-term and short-term bank loans, capital lease financing and rebates available under certain of the Group’sour aircraft leases.
As of December 31, 2015, the Group2018, we had banking facilities with several PRC commercial banks for providing loan financefinancing up to an approximate amount of RMB173.7 billionapproximately RMB243,910 million to theour Group. As of December 31, 2015, an approximate amount of RMB131.0 billion2018, approximately RMB193,871 million was unutilized. As of December 31, 20152018 and 2014, the Group’s2017, our cash and cash equivalents totaled RMB4,560were RMB6,928 million and RMB15,414RMB6,826 million, respectively.
Net cash inflowsgenerated from operating activities in 2015, 20142018, 2017 and 20132016 were RMB23,734RMB15,388 million, RMB13,57017,732 million, and RMB9,703RMB23,764 million, respectively. OperatingOur Group’s operating cash inflows of the Group are primarily derived from the provision of air transportation and related service forto customers. The increase of operating cash inflows of the Group was mainly due to the increase of passenger revenue. The vast majority of tickets are purchased prior to the day on which transportation is provided. Operating cash outflows primarily are related to the recurring operating expenses, including flight operation, maintenance, aircraft and transportation service, etc.
The decrease of net operating cash inflows from our Group from 2016 to 2018 was primarily due to the increase of jet fuel cost.
Net cash used in investing activities in 2015, 20142018, 2017 and 2013 was RMB6,9312016 were RMB20,517 million, RMB9,760RMB8,236 million, and RMB12,205RMB15,750 million, respectively. Cash capital expenditures in 2015, 20142018, 2017 and 20132016 were RMB12,139RMB24,033 million, RMB8,64913,846 million, and RMB12,308RMB18,967 million, respectively, reflecting predominantly additional investments in aircraft and flight equipment under the Group’sour fleet expansion plans and Guangzhou new airport, and, to a small extent, additional investments in other facilities and buildings used in operations.
FinancingNet cash generated from financing activities resultedwere RMB5,220 million in 2018, as compared to net cash (outflows)/inflowsused in financing activities of RMB(27,695) million, RMB(131)RMB6,976 million and RMB4,168RMB8,459 million in 2015, 20142017 and 2013,2016, respectively. Net cash (outflows)/inflow from new bank and other loansborrowings and repayments of bank and other loansborrowings amounted to RMB(28,042) million, RMB1,362RMB5,780 million and RMB7,0812,557 million in 2015, 20142018 and 2013, respectively.2017, respectively, and net cash outflow from borrowings and repayments of borrowings amounted to RMB481 million in 2016. The additions of bank loanborrowings were used for capital expenditures and general working capital. Repayment of capital leases in 2015, 20142018, 2017 and 2013 was RMB8,2092016 were 10,433 million, RMB4,072RMB9,835 million, and RMB2,895RMB6,994 million, respectively, resulting from the increase of aircraft acquisitions under capital leases.
As of December 31, 2015, the Group’s2018, our aggregate long-term bank and other loansborrowings and obligations under capital leases (including loansborrowings and capital leases obligations due within one year) totaled RMB74,227were RMB101,899 million. In 2016, 2017, 2018, 2019, 2020, 2021,2022 and thereafter, amounts payable under such loans and obligations will be RMB8,935RMB23,557 million, RMB14,143RMB17,329 million, RMB11,073RMB15,852 million, RMB7,245RMB10,773 million and RMB32,831RMB34,388 million respectively. Such borrowings and obligations were mainly denominated in U.S. dollars, Singapore dollarsEuro and Japanese Yen with a significant portion being floating interest rate borrowings.Yen. In the normal course of business, the Group iswe are exposed to fluctuations in foreign currencies. The Group’scurrency exchange. Our exposure to foreign currenciescurrency exchange primarily results from itsour foreign currency liabilities. Depreciation or appreciation of the Renminbi against foreign currencies affects the Group’sour results significantly because the Group’sour foreign currency liabilities generally exceed itsour foreign currency assets. The Group isWe are not able to hedge itsour foreign currency exposure effectively other than by retaining itsour foreign currency denominated earnings and receipts to the extent permitted by the SAFE, or subject to certain restrictive conditions, entering into forward foreign exchange contracts with authorized banks.
As of December 31, 2015, the Group’s2018, our short-term bank loans were RMB27,483was RMB20,739 million. The Group’sOur weighted average interest rate on short-term bank loans was 3.66%3.92% per annum as of December 31, 2015.2018. As of December 31, 2018, our outstanding ultra-short-term financing bills was RMB4,000 million. The primary use of the proceeds of the Group’sour short-term bank loans and ultra-short-term financing bills is to finance working capital and capital expenditure needs. The Group hasWe have generally been able to arrange short-term bank loansborrowings with domestic banks in China as necessary and believes itbelieve we can continue to obtain them based on itsour well-established relationships with various lenders.
As of December 31, 2018, the amounts of our obligations under operating leases were RMB75,729 million, predominately for aircraft, among which RMB9,217 million, RMB9,978 million, RMB8,850 million, RMB8,498 million, RMB8,103 million and RMB31,083 million, respectively, is due in 2019, 2020, 2021, 2022 and 2023 and thereafter.
As of December 31, 2015, the Group had obligations under operating leases totaling RMB36,109 million, predominately for aircraft. Of such amount, RMB6,560 million, RMB5,654 million, RMB4,965 million, RMB4,391 million, RMB3,572 million and RMB10,967 million, respectively, is due in 2016, 2017, 2018, 2019, 2020 and thereafter.
As of December 31, 2015, the Groupwe had a working capital deficit of RMB51,422RMB59,615 million, as compared to a working capital deficit of RMB26,545RMB51,693 million as of December 31, 2014.2017. Historically, the Groupwe operated in a negative working capital position, relying on cash inflow from operating activities and renewal of short-term bank loans to meet itsour short-term liquidity and working capital needs. In 20162019 and thereafter, theour liquidity of the Group is primarily dependent on itsour ability to maintain adequate cash inflows from operations to meet itsour debt obligations as they fall due, and itsour ability to obtain adequate external financing to meet itsour committed future capital expenditure. As of December 31, 2015, the Group2018, we had banking facilities with several PRC commercial banks for providing loan financefinancing up to approximately RMB173,739RMB243,910 million, (2014: RMB187,133 million), of which approximately RMB131,021RMB193,871 million (2014: RMB126,703 million)was unutilized, whereas in 2017, we got loan financing up to approximately RMB181,922 million, of which RMB142,239 million was unutilized.
The directors of the Company have carried out a detailed review of the cash flow forecast of the Group for the twelve months ending December 31, 2016. Based on such forecast, the directors have determined that adequate liquidity exists to finance the working capital, capital expenditure requirements and dividend payments of the Group during that period. In preparing the cash flow forecast, the directors have considered historical cash requirements of the Group as well as other key factors, including the availability of the above-mentioned bank financing which may impact the operations of the Group during the next twelve-month period. The directors of the Company are of the opinion that the assumptions and sensitivities which are included in the cash flow forecast are reasonable. However, as with all assumptions in regard to future events, these are subject to inherent limitations and uncertainties and some or all of these assumptions may not be realized.
As the Group iswe are subject to a high degree of operating leverage, a minor decrease in the Group’sour yield and/or load factor could result in a significant decrease in itsour operating revenue and hence itsour operating cash flows. This could arise in such circumstances as whereoccur when competition between Chinese airlines increases or where PRC aviation demand decreases. Similarly, a minor increase in the jet fuel prices, particularly in the domestic market, could result in a significant increase in the Group’sour operating expenses and hence a significant decrease in itsour operating cash flows. This could be caused by fluctuations in supply and demand in international oil market. Currently,We currently comply with the Group’s existing loans and lease facilities do not contain any financial covenants.covenants attached to certain of our borrowings. Nevertheless, as the Group iswe are subject to a high degree of financial leverage, an adverse change in the Group’sour operating cash flows could adversely affect itsour financial health and hence weaken itsour ability to obtain additional loans and lease facilities and to renew itsour short-term bank loans facilities as they fall due.
As of December 31, 2015, the Group2018, we had capital commitments as follows:
2016 | 2017 | 2018 | 2019 | 2020 and afterwards | Total | |||||||||||||||||||
(RMB million) | ||||||||||||||||||||||||
Acquisition of aircraft and related equipment | 19,074 | 22,359 | 18,898 | 14,309 | 8,787 | 83,427 | ||||||||||||||||||
Others | 4,204 | 628 | 1,485 | 299 | 117 | 6,733 | ||||||||||||||||||
Total capital commitments | 23,278 | 22,987 | 20,383 | 14,608 | 8,904 | 90,160 |
2019 | 2020 | 2021 | 2022 | 2023 and onwards | Total | |||||||||||||||||||
Acquisition of aircraft and related equipment | 38,141 | 32,395 | 8,628 | 3,035 | — | 82,199 | ||||||||||||||||||
Others | 14,757 | 3,857 | 981 | 859 | 832 | 21,286 | ||||||||||||||||||
Total capital commitments | 52,898 | 36,252 | 9,609 | 3,894 | 832 | 103,485 |
Others mainly represent airport and office facilities and equipment, overhaul and maintenance bases and training facilities.
As of December 31, 2015, the2018, our cash and cash equivalents of the Group totaled RMB4,560RMB6,928 million. Of such balance, 17.6%9% was denominated in U.S. Dollars, Hong Kong Dollars, Australian Dollars,Euro, Japanese Yen and other foreign currencies.
In view of the unutilized bank facilities of RMB131,021RMB193,871 million, the Group expectswe expect that itwe will have sufficient funding sources to meet itsour cash requirements in the foreseeable future.
C. | RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC. |
None.
D. | TREND INFORMATION |
Other than as disclosed in the foregoing disclosures and elsewhere in this Annual Report, we are not aware of any trends, uncertainties, demands, commitments or events for the period from January 1, 20162019 to December 31, 20162019 that are reasonably likely to have a material adverse effect on our net revenues,revenue, income, profitability, liquidity or capital resources, or that would cause our disclosed financial information to be not necessarily indicative of future operating results or financial conditions.
E. | OFF-BALANCE SHEET ARRANGEMENTS |
We have not entered into anyoff-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition that is material to investors. In particular, we (i) have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any unconsolidated entity; (ii) have not entered into any derivative contracts that are both indexed to our own stock and classified in stockholders’ equity, or not reflected in our statement of financial position; and (iii) do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity.
F. | TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS |
The following table sets forth the Group’sour obligations and commitments to make future payments under contracts and under commitments (excluding share of commitments of a joint venture) as of December 31, 2015.2018.
As of December 31, 2015 Payment due by period | As of December 31, 2014 | |||||||||||||||||||||||
Total | Less than 1 year | 1-3 years | 3-5 years | After 5 years | Total | |||||||||||||||||||
Short-term bank loans and ultra-short-term bills(Note 1) | 27,783 | 27,783 | - | - | - | 10,343 | ||||||||||||||||||
Long-term bank and other loans (Note 1) | 19,560 | 3,006 | 12,642 | 3,168 | 744 | 55,846 | ||||||||||||||||||
Obligations under capital leases | 62,723 | 7,864 | 15,417 | 12,711 | 26,731 | 56,577 | ||||||||||||||||||
Operating lease commitments | 36,109 | 6,560 | 10,619 | 7,963 | 10,967 | 28,798 | ||||||||||||||||||
Aircraft purchase commitments (Note 2) | 83,427 | 19,074 | 41,257 | 14,309 | 8,787 | 59,467 | ||||||||||||||||||
Other capital commitments | 6,733 | 4,204 | 2,113 | 299 | 117 | 5,122 | ||||||||||||||||||
Investment commitments | 34 | 34 | - | - | - | 70 | ||||||||||||||||||
Total | 236,369 | 68,525 | 82,048 | 38,450 | 47,346 | 216,223 |
As of December 31, 2018 Payment due by period | As of December 31, 2017 | |||||||||||||||||||||||
Total | Less than 1 year | 1 - 3 years | 3 - 5 years | After 5 years | Total | |||||||||||||||||||
Short-term bank loans and ultra-short-term bills (Note 1) | 25,271 | 25,271 | — | — | — | 20,953 | ||||||||||||||||||
Long-term bank and other loans (Note 1) | 31,645 | 14,850 | 14,128 | 479 | 2,188 | 29,502 | ||||||||||||||||||
Obligations under capital leases | 82,765 | 12,062 | 23,741 | 24,762 | 22,200 | 78,899 | ||||||||||||||||||
Operating lease commitments | 75,729 | 9,217 | 18,828 | 16,601 | 31,083 | 69,465 | ||||||||||||||||||
Aircraft purchase commitments (Note 2) | 82,199 | 38,141 | 41,023 | 3,035 | — | 86,834 | ||||||||||||||||||
Other capital commitments | 21,286 | 14,757 | 4,838 | 1,691 | — | 22,022 | ||||||||||||||||||
Investment commitments | 14 | 14 | — | — | — | — | ||||||||||||||||||
Total | 314,865 | 110,268 | 102,558 | 46,568 | 55,471 | 307,675 |
Note 1 Interest on variable rate loans was estimated based on the current rate in effect at December 31, 2015.
2018.
Note 2 Amounts shown are net of previously paid purchase deposits.
G. | SAFE HARBOR |
ITEM 6. See the section headed “Forward-looking Statements” at the beginning of this annual report.
ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
A. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
The following table sets forth certain information concerning our directors, senior management and supervisors of the Company.supervisors. There were certain changes in the Company’sour directors, senior management and supervisors as of April 18, 2016,26, 2019, details of which are set forth below.
Name | Position | Gender | Age | ||||
Wang Changshun | Executive Director, Chairman of our Board | Male | 61 | ||||
*Tan Wangeng | Vice Chairman, | Male | |||||
Ma Xulun | President | Male | 54 | ||||
Zhang Zifang | Executive Director and Executive | Male | 60 | ||||
Zheng Fan | IndependentNon-executive Director | Male | |||||
Gu Huizhong | IndependentNon-executive | ||||||
Male | |||||||
Tan Jinsong | IndependentNon-executive Director | Male | |||||
Jiao Shuge | IndependentNon-executive | ||||||
Male | 53 | ||||||
Pan Fu | Chairman of the Supervisory Committee | Male | |||||
Li | |||||||
Supervisor | Male | 57 | |||||
Mao Juan | Supervisor | Female | 46 | ||||
Han Wensheng | Executive Vice President | Male | |||||
Xiao Lixin | Executive Vice President, Chief Accountant and Chief Financial | Male | 52 | ||||
Zhang Zhengrong | Executive Vice President | Male | 56 | ||||
Luo Laijun | Executive Vice President | Male | 47 | ||||
Ren Jidong | Executive Vice President | Male | 54 | ||||
Cheng Yong | Executive Vice President | Male | 56 | ||||
Wang Zhixue | Executive Vice President | Male | 58 | ||||
Li | Executive Vice President and Chief Engineer | Male | |||||
Su Liang | Chief Economist | Male | |||||
Chen | Chief Legal Adviser | Male | |||||
*Guo | Male | ||||||
Xie Bing | Company Secretary | Male | |||||
Feng | COO Flight Safety | Male | |||||
*Yang Bensen | Chief | Male | 61 | ||||
Guo Jianye | Chief | Male | |||||
Luo Minghao | Chief Pilot | Male | 56 | ||||
Wang Renjie | Chief Operation Officer | Male | 54 |
Note 1. According toNotes: * represents the information disclosed onpersonnel has already resigned as at the website of CPC Central Commission for Discipline Inspection (中共中央紀律檢查委員會) and Ministry of Supervisionend of the People’s Republic of China (中華人民共和國監��部), Si Xian Min, former Chairman of the Board, is currently under investigation by the relevant authorities for suspected severe disciplinary violations. Please refer to“Item 3.Key Information – D. Risk Factors – Risks Relating to our Business” for further details. On November 5, 2015, the Board passed resolutions to authorize the Vice Chairman of the Board to assume the role and duties of the Chairman, to perform his duties in accordance with the provisions of the Company Law, the Articles of Association of the Company and other relevant management rules of the Company. The Board authorized the Vice Chairman and the President of the Company to further sub-delegate his powers to perform the duties in accordance with the actual business needs of the Company.reporting period.
Note 2. On October 16, 2015, the Board approved the removal of Mr. Liu Qian from his post as the Executive Vice President of the Company as he had been placed due to the suspicion of accepting bribes.
Note 3. On January 15, 2016, the Board received resignation from Mr. Si Xian Min as the Chairman of the Board.
Board of Directors
Mr. Tan Wan GengWang Changshun, male, born in August 1964, 51,July 1957 (aged 61), graduated from Zhongshan University of Science and Technology of China majoring in regional geography, with qualification of Master postgraduatemanagement science and engineering and he has a Ph.D. degree. He is an economista Doctor of Management and senior expert of political science. He began his career in February 1976. He joined the Chinese Communist Party in March 1982. He has acted as Vice Director and Director of aeronautical meteorology supervision department of CAAC Urumqi Administration, Vice President and a member of Communiststanding committee of Xinjiang Airlines (Vice Chairman of CAAC Urumqi Administration) and then as Party Secretary and Vice President of China (CPC)Xinjiang Airlines (Vice Chairman of CAAC Urumqi Administration). Mr. Tan began his career inIn November 2000, he acted as Vice Chairman, General Manager and Deputy Party Secretary of the Company. In September 2002, he acted as Vice President and Party member of CSAH and also as Vice Chairman, General Manager and Deputy Party Secretary of the Company. In August 1990 and2004, he served as the head of the Infrastructure Department and Director of Human Resources and Administration Department of the Beijing Aircraft Maintenance and Engineering Corporation from 1992 to 1996. He served as the Deputy Director Generaland Party member of Human Resources DivisionCivil Aviation Administration of theChina. In March 2008, he acted as Deputy Director and Party member of Civil Aviation Administration of China (CAAC) from May 1996 to September 1998. Subsequently, Mr. Tan served(Deputy ministerial). In October 2011, he was appointed as theGeneral Manager and Deputy Director General of Personnel and Education Division of the CAAC from September 1998 to December 2000. He had been the Director General and Party Secretary of the CAAC Northeastern Region from December 2000 to January 2006,China National Aviation Holding Company and became the Party Secretary and Executive Vice President of the Company from January 2006 to February 2007. He has been the Director of the Company since June 2006. He had been the Party Member of CSAHC and the Party Secretary and Executive Vice President and Director of the Company from February 2007 to January 2009. He had been the Party Member of CSAHC and the President, the Party Secretary and the Director of the Company from January 2009 to February 2009. He had been the Party Member of CSAHC and the President, the Deputy Party Secretary and the Director of the Company from February 2009 to May 2011. Healso was the Party Member of CSAHC and the President, the Deputy Party Secretary and the Director of the Company from May 2011 to January 2013. Since January 2013, Mr. Tan has been the Party Member of CSAHC and the President, the Deputy Party Secretary and the Vice Chairman of the Board of the Company. (Mr. Tan has been a member of the 11th CPC Guangdong Provincial Committee since January 2016.)
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Mr. Yuan Xin An, male, born in February 1957, 59, received university education in Aeronautical Machinery from Air Force Engineer University in Xi’an and is a senior engineer. Mr. Yuan is a CPC member and began his career in December 1976. He served as the Chief Inspection of Quality Supervision Division of Maintenance Factory of Guangzhou Bureau of the Civil Aviation Administration, the Manager of Inspection and Vice Director of Guangzhou Aircraft Maintenance Engineering Co., Ltd. from 1987 to 1997. He was the Vice President of Engineering Department of the Company from April 1997 to October 1998. Mr. Yuan then served as the Vice President of the Guangzhou Aircraft Maintenance Engineering Co., Ltd. from October 1998 to November 2000. He became the Chief Engineer and the General Manager of Engineering Department of the Company from November 2000 to April 2002. He was then the Standing Member of Party Committee and the Executive Vice President of the Company from April 2002 to February 2007. He served as the Assistant of President of CSAHC and was also the Standing member of Party Committee and the Executive Vice President of the Company from February 2007 to December 2007. He has been the Party Member and the Executive Vice President of CSAHC since September 2007, and has held a concurrent post of Chief Legal Adviser of CSAHC since July 2008. Since November 2011, Mr. Yuan has been the Director of the Company. For now, he is also appointed as the Chairman of MTU Maintenance Zhuhai Co., Ltd., Guangzhou Southern Airlines Construction Company Limited and Shenzhen Air Catering Co., Ltd., Non-executive Director of TravelSky Technology Limited and Director of China Aircraft Services Limited.
Ms. Yang Li Hua, female, born in November 1955, 60, graduated with a Master degree from the Party School of the Central Committee of CPC majoring in economics. Ms. Yang is a CPC member who began her career in February 1973. She served as the Deputy Head of In-flight Service Team of the Chief Flight Corps Team of the Beijing Bureau of Civil Aviation Administration and the Head of the In-flight Service Team, Manager of In-flight Service Division of Air China International Corporation from 1984 to 1995. She served as the Deputy Head of the Chief Flight Team of Air China International Corporation from July 1995 to September 2000. Subsequently, sheLimited. He was appointed as theVice Minister and Party Leadership Group Member of Ministry of Transport in January 2014, General Manager of the Passenger Cabin Service Division and Deputy Party Secretary of Air China International Corporation from September 2000 to October 2002. She was the Vice PresidentNational Aviation Holding Company in February 2016, General Manager and Deputy Party Secretary of Air China International Corporation from October 2002 to September 2004. After that, she served as Standing Member of Party CommitteeCSAH and the Executive Vice President of Air China Limited from September 2004 to May 2009. Since May 2009, Ms. Yang has been the Party Member and Executive Vice President of CSAHC. From July 2010 to August 2012, Ms. Yang also acted as the Chairman of the Labour Union of CSAHC. Since January 2013, Ms. YangCompany in May 2016. In December 2016, he has been the DirectorChairman, Party Secretary of CSAH and Chairman of the Company. For now, sheSince November 2017, he has been Chairman, Party Secretary of CSAH and Chairman, Party Secretary of the Company. He is also acts as Presidenta deputy to the 12th National People’s Congress. He is the representative of the 19th Communist Party of China Southern Airlines Group ImportNational Congress, a member of the 12th CPC Guangdong Provincial Committee and Export Trading Co., Ltd., China Southern Airlines Group Property Management Company Limited, Southern Airlines Culturestanding committee member and Media Co., Ltd. and China Southern Airlines Group Ground Services Co., Ltd.member of the 13th National Committee of the Chinese People’s Political Consultative Conference.
Mr. Zhang Zi FangZifang,, male, born in October 1958 57,(aged 60), graduated with a college degree from foundation science profession for Party administrative cadres of Liaoning University. While Mr. Zhang was at work, heHe obtained an Executive Master of Business Administration (EMBA) degree from Tsinghua University and is a senior expert of political science. Mr. Zhang is a CPC member andHe began his career in March 1976. He joined the Chinese Communist Party in February 1976.1980. He served as the Deputy CommissarCommissioner of the Office of Northern Airlines Company, Deputy CommissarCommissioner and Commissioner of Shenyang Flight Team as well as Director and Commissar of Political Department of the China Northern Airlines Company from 1993 to 2000. He served as the Party Secretary of the Jilin Branch of China Northern Airlines Company and Party Secretary of Jilin Branch of Northern Airlines Company. He served as the General Manager of Dalian Branch from 2000 toChina Northern Airlines Company in January 2003. He had been the Director of Political Works Department of CSAHC fromCSAH in October 2003 to February 2005.2003. Subsequently, Mr. Zhang was appointed as the Deputy Party Secretary and Secretary of the Commission for Discipline of the Company fromin February 2005 to December 2007.2005. He had been the Executive Vice President and the Deputy Party Secretary of the Company from December 2007 to February 2009. He was the Deputy Party Secretary and the Executive Vice President of the Company fromin December 2007. He was the Party Secretary and Executive Vice President of the Company since February 2009 to2009. Mr. Zhang has been the Director, the Party Secretary and Executive Vice President of the Company in June 2009. He had been the Party member of CSAH and the Director, the Party Secretary and Executive Vice President of the Company in August 2011. Mr. Zhang has been theDeputy Party Secretary, Executive Vice President of CSAH and Director, Party Secretary, Executive Vice President of the Company as well as the Chairman of China Southern Airlines Henan Airlines Company Limited since June 2009. HeAugust 2016. Since November 2017, he has been the Party member of CSAHC and theDeputy Party Secretary theand Executive Vice President of CSAH, Director, Deputy Party Secretary and the Director of the Company since August 2011. (For now, he also serves asExecutive Vice Director GeneralPresident of China Air Transport AssociationSouthern Airlines Company Limited; In November 2018, he ceased to act as Deputy Party Secretary and Guangdong Lingnan Culture Development Foundation.)
Executive Vice President of CSAH and Deputy Party Secretary of China Southern Airlines Company Limited due to his retirement. In January 2019, he ceased to act as Executive Vice President of China Southern Airlines Company Limited.
Mr. Li Shao BinZheng Fan, male, born in April 1964, 51,aged 63, graduated with a collegebachelor’s degree from Chinese Language and Literature of Xiangtan Teachers’ College. While Mr. Li was at work, he obtained a university degree from the Party School of the Central Committee of CPCBeijing Normal University majoring in economics and managementSchool Education and is ana senior expert of political science. Mr. LiZheng is a CPC member and began his career in July 1984.1974. He served as a teacher of Faculty of Education at Beijing Normal University from February 1982. He worked as a cadre at public relationship department of the DeputyChinese Communist Party Central Committee and was a deputy Director level investigator from January 1986, deputy Director-general (temporary post) of public relationship department of CBRC Shenzhen Municipality Luohu District Committee and deputy Director general (temporary post) of public relationship department of Shenzhen Committee of Communist Party of China from March 1988, deputy Director of public relationship department of CBRC Shenzhen Municipality Futian District Committee and office Director of working committee under the CBRC Shenzhen Municipality Committee from March 1991. Since August 1994, he has been appointed as general manager of general administration office of Overseas Chinese Town Economic Development Company, general manager’s assistant of OCT Group and managing Director of Overseas Chinese Town (HK) Company Limited since December 1997, deputy secretary of the Party Committee, secretary of Discipline Inspection Commission and Chief Cultural Officer of Overseas Chinese Group Company since August 2000, secretary of the Party Committee and vice-president of Overseas Chinese Group Company since March 2008, secretary of the Party Committee and vice-chairman of Overseas Chinese Town Company Limited since January 2010, chief supervisor since December 2014 and Professional External Director for Central State-owned Enterprises since February 2016. He acted as Council Member of China Overseas Exchange Association, Director of relation of the Two Shores Across the Strait Association, vice president of Guangdong’s Association For Promotion Divisionof Cooperation between Guangdong, Hong Kong and Macao and vice-chairman of Guangdong Province Association of Entrepreneurs. He was also a Congressman of the 4th term and 5th term of the People’s Congress for Shenzhen Municipality and a member of the 11th session of Guangdong Provincial Committee of Political Department of the Guangzhou Bureau of Civil Aviation Administration, the Director of Promotion Department of the Company and the Deputy Director of Promotion Department of the China Southern Airlines (Group) Company from 1992 to 1999. He had been the Director of Political Division of Flight Department of the Company from December 1999 to May 2002.Consultative Conference. Mr. Li was the Deputy Party Secretary of Flight Department and Director of Political Division of the Company from May 2002 to May 2004. Subsequently, he was appointed as the Party Secretary of Guangzhou Flight Operations Division of the Company from May 2004 to March 2006. Mr. Li served as the Party Secretary and Deputy General Manager of Guangzhou Flight Operations Division of the Company from March 2006 to July 2012. Mr. LiZheng has been the Chairman of the Labour Union of the Company since July 2012 and theindependentnon-executive Director of the the Companycompany since January 2013. For now, Mr. Li also serves as the Chairman of Guangzhou Southern Airline Project Supervision Co., Ltd. and Guangdong Southern Airline Pearl Service Co., Ltd.20 December 2017.
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Mr. Ning Xiang DongGu Huizhong, male, born in May 1965, 50,aged 62, graduated from the Quantitative Economics Faculty of the School of Economics and Management of Tsinghua University with a doctor degree.master degree from Beihang University majoring in International Finance and is a senior accountant with professor level. Mr. NingGu is a CPC member and began his career in 1990 and1974. He served as the assistant, lecturerdeputy chief and associate professor at Tsinghua University and the executive deputy directorchief of the National Center for Economic Research (NCER) at Tsinghua University. He was also a visiting scholar at Harvard Business School, UniversityGeneral Office of Illinois, UniversityFinancial Division of New South Wales, UniversityAviation Industry Department, Director of Sydney and the Chinese UniversityInternational Affairs Financial Division of Hong Kong, and the independent director of a number of listed companies including Datang Telecom Technology Co., Ltd., Shantui Construction Machine Co., Ltd., Hong Yuan Securities Co., Ltd. and Goer Tek Inc. Currently, he serves as the professor and the doctorate-tutor of the School of Economics and Management of Tsinghua University and the executive director of Centre for Corporate Governance of Tsinghua University. Mr. Ning has been the independent non-executive director of the Company since December 29, 2010. He is also the independent directorAviation Industry Corporation of China, Petroleum & Chemicalgeneral manager of Zhongzhen Accounting Consultative Corporation, and a numbervice Director general of listed companies including Aerospace Hi-Tech Holding Group Co., Ltd., Sichuan Changhong Electric Company Limited, Yango Group Co., Ltd. and Weichai Power Co., Ltd.
Mr. Liu Chang Le, male, born in November 1951, aged 64, was conferred an honorary doctoral degree in literature by the City UniversityFinancial Department of Hong Kong and an honorary fellow by the United International College, and is a founder of Phoenix Satellite Television. Mr. Liu has been the Chairman and Chief Executive Officer of Phoenix Satellite Television Company Limited since 1996 and the Chairman and Chief Executive Officer of Phoenix Satellite Television Holdings Limited, a company listed on the Stock Exchange since 2000. Mr. Liu gained widespread recognition both locally and overseas for his enthusiasm for and achievements in the media industry. Mr. Liu is the recipient of numerous titles and awards, among which include “Wiseman of the Media Industry”, “the Most Innovative Chinese Business Leaders in the Asia Pacific Region”, “the Most Entrepreneurial Chinese Business Leaders”, and has been awarded the “Robert Mundell Successful World CEO Award”, the “Man of Year for Asia Brand Innovation Award”, the “Person of the Year” award of the Chinese Business Leaders Annual Meeting and the “Business Person of the Year” award of DHL/SCMP Hong Kong Business Awards 2012. Since 2005, Mr. Liu has been the Chairman of the iEMMYs Festival. In 2008, Mr. Liu received the International Emmy Directorate Award granted by International Academy of Television Arts & Sciences. Mr. Liu was appointed as honorary chairman of World Chinese-language Media Cooperation Alliance in 2009 and appointed as special consultant to the 8th Council of the Buddhist AssociationAviation Industry Corporation of China in 2010. In 2014,and deputy Directorgeneral of Financial Department of State Commission of Science, Technology and Industry for National Defence. From June 1999 to February 2005, he was appointedacted as Vice President of the 6th council of The Buddha’s Light International Association, Board of Directors of Headquarters. Mr. Liu was a member of the TenthCommunist Party and the Eleventh National Committeevice president of the Chinese People’s Political Consultative Conference, served as the Vice ChairmanAviation Industry Corporation of the sub-committee on Education, Science, Culture, Health and Sport of the Eleventh National Committee of the Chinese People’s Political Consultative Conference, and is servingChina I. From February 2005 to August 2008, he acted as a member of standing committeeParty Leadership Group, vice president and chief accountant of Aviation Industry Corporation of China I. From August 2008 to January 2017, he acted as a member of Party Leadership Group, vice president and chief accountant of Aviation Industry Corporation of China. He previously served as chairman of AVIC I International Leasing Co., Ltd., chairman of AVIC I Financial Co., Ltd., chairman of CATIC International Holdings Limited, chairman of AVIC Capital Co., Ltd and chairman of AVIC International Vanke Company Limited. He is currently served as supervisors of the Twelfth NationalBank of Communications, is a chairman of the Expert Committee of government authorities in the Chinese People’s Political Consultative Conference.PRC and vice chairman of the Accounting Society of China. Since 20 December 2017, Mr. LiuGu has been appointed a Justiceindependentnon-executive Director of the Peace by the government of the Hong Kong Special Administrative Region. In 2010, Mr. Liu was awarded the Silver Bauhinia Star by the government of the Hong Kong Special Administrative Region. Mr. Liu has been the independent non-executive director of the Company since November 30, 2011.
Company.
Mr. Tan Jin SongJinsong, male, born in January 1965, aged 51,54, graduated from Renmin University of China with anon-job doctor degree in Accounting. Mr. Tan is a Chinese Certified Public Accountant.Accountant and a CPC member. Mr. Tan began his career in 1985 and was a teacher in Shaoyang School of Finance and Accounting of Hunan Province and the Deputy Dean of the School of Management of ZhongshanSunYat-sen University. Mr. Tan is currently a professor and a doctorate-tutor of the School of Management of ZhongshanSunYat-sen University. He is also a member of the MPAcc Education Instruction Committee, a member of China Institute of Internal Audit, Vice President of Guangdong Institute of Certified Public Accountants and a member of China Audit Society. Currently, Mr. Tan also serves as the independent directorDirector of Poly Real Estate Company Limited, Guangzhou Hengyun Enterprises Holdings Limited, Shanghai RAAS Blood Products Co., Ltd. and Zhuhai Huafa Industrial Co., Ltd. Zhuhai. In addition, Mr. Tan also acts as the independent non-executive director of Welling HoldingCompany Limited. Mr. Tan has been the independentnon-executive director Director of the Company since 26 December 26, 2013.
Mr. Guo WeiJiao Shuge, male, born in February 1963, aged 53, graduated from the Management Faculty of the Management Department of Graduate School of Chinese Academy of Social Sciences (formerly the Graduate School of University of Science and Technology of China) with a master degree in Engineering. Mr. Guo has extensive experience in business strategy development and business management. Mr. Guo was an executive director and Senior Vice President of Lenovo Group, Vice Chairman, President and the Chief Executive Officer of Digital China Holdings Limited (Digital China), director of Digiwin Software Co., Ltd. Currently, Mr. Guo serves as board chairman of Digital China and directors of a number of subsidiary and associated companies of Digital China. Mr. Guo also acts as the president of Digital China Information Service Company Ltd., the non-executive director of HC International Inc., the independent director of Shanghai Pudong Development Bank Co., Ltd. and the director of Kosalaki Investments Limited. In addition, Mr. Guo was also a member of the Twelfth National Committee of the Chinese People’s Political Consultative Conference, a member of the Fourth Committee of the Advisory Committee for State Informatization and the president of the Sixth Council of Chinese Private Technology Entrepreneur Association. Mr. Guo was the recipient of numerous titles and important awards, among which include Top Ten Outstanding Youths in China (2002), the Future Economic Leaders in China (2003) and the First Session of China Youth Entrepreneurs Management Innovation award (2005), and was rated as one of the TOP 50 Most Influential Business Leaders in China consecutively for 2011, 2012 and 2013. Mr Guo has been the Non-executive Director of this company since June 30, 2015.
Mr. Jiao Shu Ge, male, born in February 1966, aged 50, with a master degree, first graduated from the Control Theory Faculty of the Department of Mathematics of ShangdongShandong University with a bachelor degree, and then graduated from the Systems Engineering Faculty of No. 2 Research Institute of the Ministry of Aerospace Industry with a masterMaster’s degree in Engineering. Mr. Jiao has extensive experience in funds management and equity management. Currently, Mr. Jiao is the Director and President of CDH China Management Company Limited (CDH Investments).(“CDH Investments”) and is the founder of CDH Investments. He was a computer researcher of 710 Research Institute of the former Ministry of Aerospace Industry of China, the Deputy General Manager of Direct Investment Department of China International Capital Corporation Ltd. (CICC) and is the founder of CDH Investments.(“CICC”). Mr. Jiao was thenon-executive directors Director of China Yurun Food Group Limited and China Shanshui Cement Group Limited. Currently, he is also the Director of the associated companies of CDH Investments, the independentnon-executive director Director of China Mengniu Dairy Company Limited, the independent non-executive director Director and Vice Chairman of WH Group Limited, the directorDirector of Joyoung Co., Ltd., the Vice President of Henan Shuanghui Investment & Development Co.,Ltd. and the directorsDirector of a number of companies including Beijing TaiYangTaiyang Pharmaceutical Industry Company Limited, Chery Automobile Co., Ltd., Inner Mongolia Hetao Spirit Group Co., Ltd., Fujian Nanping Nanfu Battery Co.,Ltd. and Shanghai Qingchen Real Estate Development Co., Ltd. Mr Jiao has been the company’s Independent Non-executiveindependentnon-executive Director since June 30, 2015.
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Supervisory Committee
As required by the Company Law of the PRC and the Articles of Association of the Company we have a supervisory committee (the "Supervisory Committee") which is primarily responsible for the supervision of senior management of the Company, including the Board, executive officers and other senior management personnel, to ensure that they act in the interests of the Company, its shareholders and employees, as well as in compliance with applicable law. The Supervisory Committee consists of five Supervisors. Three of the Supervisors are appointed by shareholders, and the other two Supervisors are representatives of our employees. The Supervisors serve terms of three years and may serve consecutive terms.since 30 June 2015.
Supervisors
Mr. Pan Fu, male, born in February 1963, 53,February1963 (aged 56), graduated with a master degree from Chongqing University majoring in Electrical Engineering Department of Power Systems and Automation, andAutomation. He has a Master’s Degree of Science. Also, he is a senior engineer. Mr. Pan is a CPC member andHe began his career in July 1986 and joined the Chinese Communist Party in June 1986. He served successively as the Deputy Head of the Planning Department of Electric Power Industry Bureau of Yunnan Province, the Director of Yang Tsung Hai Electricity Supply Limited Liability Company of Yunnan Province, the Deputy Director of the Planning & Development DepartmentDivision of Electric Power Industry Bureau of Yunnan Electric Power Group Co., Ltd.,Province and the Deputy Director and directorDirector of Kunming Power Plant, the Deputy Chief Engineer and chief engineerChief Engineer of Yunnan Electric Power Corporation from 1994 to 2003.Corporation. He served as the deputy director (work as chair)Deputy Director and Director of the Department of Security Supervision of China Southern Power Grid Company Ltd. from February 2003 to April 2004; served as, the Director of the China Southern Power Grid TechnologyCompany Ltd. and Research Center, from April 2004 to January 2005, and served as the General Manager (legal representative) and Deputy Party Secretary of the Guizhou Power Grid Corporation from January 2005 to November 2007.Corporation. Mr. Pan served as the Director of the Planning Development Department of China Southern Power Grid Company Ltd. from November 2007 to November 2010.Ltd.. In October 2010, Mr. Pan has been the team leader and party member and team leader of the Discipline Inspection Commission of CSAHC since NovemberCSAH; in December 2010, he has been the team leader and the supervisor & chairmanparty member of the Discipline Inspection Commission of CSAH and Chairman of Supervisory Committee of China Southern Airlines Company Limited; In November 2017, he has been the team leader and party member of the Discipline Inspection Commission of China Southern Air Holding Limited Company since December 2010.and Secretary of the Commission for Discipline, Party member and Chairman of Supervisory Committee of China Southern Airlines Company Limited. In January 2019, he ceased to be the team leader and party member of the Discipline Inspection Commission of China Southern Air Holding Limited Company and Secretary of the Commission for Discipline and Party member of China Southern Airlines Company Limited due to his work reallocation.
Mr. Li Jia ShiJiaShi, male, born in May 1961 54,(aged 57), graduated from Guangdong Polytechnic Normal University majoring in Economics and Mathematics, and obtained an Economic Administration bachelor degree from Correspondence School under the Party School of the CPC Central Committeemajoring in Economic Administration and has a bachelor degree. He has an Executive Master of Business Administration (EMBA) degree from Tsinghua University and is an expert of political science. Mr. Li is a CPC member and began his career in August 1976. He1976 and joined the Chinese Communist Party in June 1986. In February 1998, he served as the party secretary of Guangzhou Nanland Air Catering Company Limited and the Deputy Head (work as chair) of the Organization Division of the Party Committee of the China Southern Airlines (Group) Company the party secretary of Guangzhou Nanland Air Catering Company Limited from 1994 toin April 1999. Mr. Li served as the head of the Organization Division of the Party Committee of CSAHC fromCSAH in December 1999 to December 2003;1999; and served as the Deputy Secretary of the Disciplinary Committee and the Director of the Disciplinary Committee Office of the Company fromin December 2003 to December 2007.2003. Mr. Li served as athe Secretary of the Disciplinary Committee, member of the Standing Committee of the CPC the Secretary of the Disciplinary Committee and the Director of the Disciplinary Committee Office of the Company fromin December 2007 to February 2012.2007. Mr. Li has been the supervisor of the Company since June 2009. He has been the team deputy leader of the Discipline Inspection Commission of CSAHC,CSAH, and member of the Standing Committee of the CPC, Secretary of the Disciplinary Committee, andthe Director of the Disciplinary Committee Office in February 2012, and supervisorthe Standing Member of Party Committee of China Southern Airlines Company Limited in November 2017. He has acted as the Labour Union chairman and the Standing Member of Party Committee of China Southern Airlines Company Limited in November 2017. He acted as the Chairman of the Labour Union of CSAH and the Chairman of the Labour Union and Standing Member of Party Committee of the Company from January 2018. He has served as the Chairman of the Labour Union of CSAH and the Chairman of the Labour Union of the Company since February 2012. He also serves as the Vice Chairman of Southern Airlines Culture and Media Co., Ltd.
July 2018.
Ms. Zhang WeiMao Juan, female, born September 1966, 49, hasin December 1972 (aged 46), obtained a master degree. She graduatedbachelor degree in Accounting from TianjinHarbin University majoring in Investment Skillsof Science and Economics and is a senior accountant.Technology. Ms. Zhang is a CPC member andMao began her career in September 1988.July 1993, and joined the Chinese Communist Party in April 1992. She successivelyserved as Deputy General Manager of Hainan Branch Comprehensive Trading Company, Deputy Manager of Finance Department in Hainan Branch of the Company and Manager of Audit and System Office of Finance Department in the Company. From August 2011, she acted as Deputy General Manager of Audit Department in the Company and acted as General Manager of Audit Department in the Company since June 2016. She has been the deputy general manager of Audit Department in the CSAH and the Company from April 2017. She has served as the General Manager Assistant of China Southern Airlines (Group) Company,CSAH and the Deputy General Manager ofCompany’s Audit Department since November 2017. She served as the Finance Departmentsupervisor of the Company, general manager of Audit Department of CSAH and the Deputy DirectorCompany since December 2017. Currently, she is the Chairman of the Supervisory Bureau and the Director of the Audit Division of CSAHC from 1999 to 2006. Ms. Zhang served as the General Manager and the Secretary of CPC General BranchCommittee of Southern Airlines Group Finance Company Limited from August 2006 to October 2007; servedand Nan Lung International Freight Limited, as well as the Deputy Director of the Supervisory Bureau and the Director of the Audit Division of CSAHC from October 2007 to October 2008. Since October 2008, she has been the Director of the Audit Division of CSAHC and the Supervisor of the Company since June 2008. Ms. Zhang has been a part-time Supervisor of the Board of Supervisors of Stated-owned Enterprises dispatched by SASAC on behalf of the State Council to CSAHC since January 2010, and has been a member of the Discipline Inspection Commission of CSAHC since February 2012. For now, she also acts as the Chairman of the Board of Supervisors of China Southern Airlines Group Import and Export Trading Co., Ltd., Southern Airlines Group Finance Company Limited, Southern Airlines Culture and Media Co., Ltd., Supervisor of MTU Maintenance Zhuhai Co., Ltd. and the Director of Guangzhou Southern Airline Construction Co., Ltd.
Ms. Yang Yi Hua, female, born in August 1960, 55, has an Economic Administration bachelor degree from Correspondence School under the Party School of the CPC Central Committee. She is an accountant and also a CPC member who began her career in August 1977. From 1996 to 2002, she first acted as Financial Manager of the Company and then Deputy General Manager of CSAHC’s Audit Department. Ms. Yang has been the General Manager of the Company’s Audit Department from May 2002 to September 2015, and the Supervisor of the Company since June 2004. For now, she is also appointed as Chairman of the Board of Supervisors of Guizhou Airlines and Nanlong International Freight Ltd., Convener of the Board of Supervisors of Beijing Southern Airline Ground Services Co., Ltd. and Zhuhai Airlines and Supervisorsupervisor of Xiamen Airlines Guangzhou Baiyun International Logistics Co., Ltd., Southern Airlines Group Finance Company Limited, Chongqing Airlines and Guangzhou Southern Airline Project Supervision Co., Ltd.Limited.
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Mr. Wu De Ming, male, born in April 1958, 57, obtained a university bachelor degree from South China Normal University College of Continuing Education majoring in Political Administration, and is an Administration Engineer. He is a CPC member and began his career in February 1976. From 1991 to 2001, he was first appointed as political section’s deputy director of the operation department of the Company, then member of the Party Committee, Deputy Secretary of the Party Committee and secretary of Committee for Discipline Inspection of Guangzhou ticket office of the Company, then Deputy Secretary and Secretary of Party General Branch of the ticket office at the Transportaion Department of the Company, and then Secretary of Party General Branch at Passenger Traffic Department of the Transportation Department of the Company. He was appointed as Director of the Disciplinary Supervision Department of CSAHC from March 2001 to December 2003, and General Director of the Supervision Bureau and Chief Officer of Disciplinary Committee Office of CSAHC from December 2003 to April 2009. He has been a member of Party Committee of the Marketing Management Committee of the Company, secretary to the Disciplinary Committee and Chairman of the Labour Union from April 2009 to November 2015, a member of Party Committee of the Marketing Management Committee of the Company, secretary to the Disciplinary Committee since November 2015 and has been the Supervisor of the Company since December 2013.
Senior Management
Mr. Ma Xulun, male, born in July 1964 (aged 54). He graduated from the School of Mechanical Science & Engineering of HUST, majoring in industrial engineering. He has a master degree of engineering and is a certified public accountant. He started his career in August 1984, and joined in the Chinese Communist Party in October 1990. He has been the deputy general manager of China Commodities Storing and Transportation Corporation, deputy director general of the Finance Department of the CAAC, vice president and Standing Member of Party Committee of Air China Corporation Limited. He was appointed as vice president of general affairs and deputy party secretary of Air China Corporation Limited in October 2002; and served as the director, president and deputy party secretary of Air China Corporation Limited in September 2004. He served as a party member of China National Aviation Holding Company and director, president and deputy party secretary of Air China Corporation Limited in December 2004, and deputy general manager and party member of China National Aviation Holding Company from February 2007. In December 2008, he was appointed as deputy party secretary of China Eastern Air Holding Company and general manager and deputy party secretary of China Eastern Airlines Corporation Limited. He served as secretary to the Party Committee and deputy general manager of China Eastern Air Holding Company and general manager of China Eastern Airlines Corporation Limited in October 2011. In November 2016, he served as the director, general manager and deputy party secretary of China Eastern Air Holding Company, and vice Chairman, general manager and deputy party secretary of China Eastern Airlines Corporation Limited in December 2016; In January 2019, he acted as the director, general manager and deputy party secretary of China Southern Air Holding Limited Company. In March 2019, he acted as the director, general manager and deputy party secretary of China Southern Air Holding Limited Company and president of China Southern Airlines Company Limited.
Mr. Ren Ji Dong Han Wensheng, male, born in January 1965, 51,1967 (aged 52), graduated from Management Department of Tianjin University, majoring in engineering management, with qualification of a Master’s degree. He obtained a Master’s Degree of Science and was a economist. He began his career in August 1987, and joined the Chinese Communist Party in May 1985. He was served as Deputy Director General of Cadre Training Center of the Company, Director of The Research Bureau of the Company, general manager of Labour Department and Secretary of CPC General Committee of the Company, Deputy Director General and a member of Party Committee of the Commercial Steering Committee and general manager as well as Deputy Party Secretary of the sales and marketing department of the Company, general manager and Deputy Party Secretary of Shanghai base. He acted as Deputy Party Secretary and Deputy Director General of the Commercial Steering Committee of the Company since December 2009 and Party Secretary and Deputy Director General of the Commercial Steering Committee of the Company since October 2011. He served as vice president and party member of China Southern Air Holding Company from October 2016. From November 2017, he served as vice president and party member of China Southern Air Holding Limited Company, the vice president and Party member of the Company. He was appointed as director and Deputy Party Secretary of China Southern Air Holding Limited Company, Vice president of the Company in November 2018. From January 2019, he served as director and Deputy Party Secretary of China Southern Air Holding Limited Company. Currently, he also served as Vice Chairman of Sichuan Airlines Corporation, director of China Travel Sky Holding Company and Vice Director General of China Air Transport Association.
Xiao Lixin, male, born in June 1966 (aged 52), graduated from Guangdong Academy of Social Sciences with a master degree in Economics and then obtained an Executive Master of Business Administration (EMBA) degree from Tsinghua University. He is a qualified senior accountant and a certified public accountant. Mr. Xiao began his career in July 1991, and joined the Chinese Communist Party in February 1998. He served as the Deputy General Manager of the Finance Department of the Company from March 2001. He served as the General Manager and Deputy Secretary of the General Party Branch of the Finance Department of the Company from January 2002. Mr. Xiao served as the deputy chief accountant and general manager of the Finance Department of the Company from February 2007, and served as the General Manager and Secretary of the General Party Branch of Southern Airlines Group Finance Company Limited from October 2007. He served as the General Manager and Party Secretary of Southern Airlines Group Finance Company Limited from February 2008. Mr. Xiao has been the Chief Accountant and Chief Financial Officer of the Company since March 2015. From October 2016, he has served as Chief Accountant and Party member of China Southern Air Holding Limited Company (CSAH) and Chief Accountant and Chief Financial Officer of the Company. From November 2017, he has served as Chief Accountant and Party member of CSAH and Executive Vice President, Chief Accountant, Chief Financial Officer and a member of the Party Committee of the Company. For now, he also serves as Chairman of Guizhou Airlines Company Limited, Chairman of Shantou Airlines Company Limited, Director of Xiamen Airlines Company Limited as well as Director of China Southern Airlines Overseas (Hong Kong) Co. Ltd.
Zhang Zhengrong, male, born in September 1962 (aged 56), has a college degree from Civil Aviation Flight University of China majoring in Aircraft Piloting. He was graduated from Party School of the Central Committee of CPC majoring in economic management with a bachelor degree. He also obtained an Executive Master of Business Administration (EMBA) degree from Tsinghua University. He began his career in February 1982, and joined the Chinese Communist Party in April 1988. He served as Vice Captain of Third Flight Corps of Civil Aviation Administration, Vice Captain of Fourth Flight Corps and Captain of First Flight Corps of CSAH. From May 2002, he has been the Deputy General Manager of Civil Aviation Administration of the Company and Captain of First Flight Corps of the Company. From November 2002, he has been General Manager of Department of Security Supervision of the Company, as well as General Manager and Deputy Party Secretary of Guangzhou Flight Division of the Company in May 2004. In August 2007, he was appointed as Chief Pilot of the Company and General Manager and Deputy Party Secretary of Guangzhou Flight Division of the Company. From March 2009, he has been Chief Pilot and Director of Aviation Security Department of the Company. Since April 2012, he served as the Chief Pilot, COO Flight Safety and Director of Aviation Security Department of the Company and in July 2012, he served as the Chief Pilot and Aviation Security Minister of CSAH. Since April 2014, he has acted as Chief Pilot, COO Flight Safety and Director of Aviation Security Department of CSAH. Since December 2016, he has been Chief Pilot of CSAH. He has served as Chief Pilot of CSAH and Chief Operation Officer of the Company since January 2017. Since November 2017, he has been the General Manager Assistant of CSAH and Chief Operation Officer of the Company. From June 2018, he has been the Vice President, Party Member of CSAH and Chief Operation Officer of the Company. In August 2018, he served as the Deputy general manager, Party Member of CSAH and the Executive Vice President, Chief Operation Officer of the Company. Since November 2018, he acted as the Deputy General Manager, Party Member and the Executive Vice President of the Company.
Luo Laijun, male, born in October 1971 (aged 47), graduated from Nanjing University of Aeronautics and Astronautics, majoring in Accounting and also obtained an Executive Master of Business Administration (EMBA) degree from Tsinghua University’s school of economics and management. He began his career in July 1993 and joined the Communist Party of China in September 1992. He served as the Manager of Finance Department in Shanghai Branch of the Company, Deputy Director of the Purchasing Office in Finance Department of the Company, Deputy Manager and Manager of Finance Department of Guizhou Airlines Company Limited. He has acted as a member of the party committee, Chief Financial Officer and manager of Finance Department of Guizhou Airlines Company Limited in June 2003; Director of Business Assessment Office of the Company in June 2005; Deputy Director of Commercial Steering Committee and General Manager and Party member of Financing Plan Department of the Company in November 2005; General Manager and Deputy Party Secretary of Freight Department of the Company in February 2009; the General Manager and the Deputy Party Secretary of Dalian Branch of the Company in July 2012; Executive Deputy Director and the Deputy Party Secretary of Commercial Steering Committee of the Company in November 2016; Director and the Deputy Party Secretary of Commercial Steering Committee of the Company in August 2017; Executive Vice President and the Party member of China Southern Air Holding Limited Company in February 2019; Executive Vice President and the Party member of China Southern Air Holding Limited Company and Executive Vice President of the Company in March 2019.
Ren Jidong, male, born in January 1965 (aged 54), Bachelor of Engineering, graduated from Power Engineering Department of Nanjing University of Aeronautics and Astronautics with a bachelor’s degree, majoring in Aircraft Engine Design and obtained an Executive Master of Business Administration (EMBA) degree from Tsinghua University, and he is a senior engineer. Mr. Ren is a CPC member and began his career in August 1986. Mr. Ren served as1986 and joined the No. 2 Workshop Manager, Deputy Plant Manager and Deputy General Manager of Engineering Department of the aircraft maintenance factory of Urumqi Civil Aviation Administration (Xinjiang Airlines) from 1995 to 2000.Chinese Communist Party in June 1986. He served as the Deputy Director (deputy general manager) and a member of the Standing Committee of the CPC of Urumqi Civil Aviation Administration (Xinjiang Airlines) from January 2000 to December 2001,and the Deputy General Manager and a member of the party committee andStanding Committee of the Deputy General ManagerCPC of Xinjiang Airlines from December 2001 to June 2004, andAirlines. He acted as the Party Secretary and Deputy General Manager of CSAHCCSAH Xinjiang Company from June 2004 to December 2004, the Party Secretary and Deputy General Manager of Xinjiang Branch of the Company from January 2005, to February 2015, a member of the Standing Committee of the CPC of the Company from February 2005, Deputy General Manager and a member of the Executive Vice PresidentStanding Committee of the CPC of the Company from March 2005, to February 2007; a member of the Standing Committee of the CPC of the Company and the General Manager and Deputy Party Secretary of Xinjiang Branch from January 2007, to April 2009. Mr. Ren has been a member of the Standing Committee of the CPC of the Company from April 2009, Deputy General Manager and a member of the Standing Committee of the CPC of the Company from May 2009 and the Executive Vice President of the Company since May 2009.
from July 2018.
Mr. Cheng Yong, male, born in April 1962 (aged 56), graduated from Civil Aviation Flight College of China majoring in Aircraft Piloting and Civil Aviation Flight University of China majoring in Wingman ship, with a bachelor degree. He obtained an Executive Master of Business Administration (EMBA) degree from Tsinghua University School of Economics and Management and is a command pilot. He began his career in January 1982, and join the Chinese Communist Party in August 1984. He has been the Deputy Head of Shenyang Chief Flight Corps Team of China Northern Airlines Company, vice president of China Northern Airlines Company Tian’e LLC and president of China Northern Airlines Company Sanya Co., Ltd.. He served as the General Manager of CSAHC Northern Division in November 2004; president and deputy party secretary of Northern Branch of the Company in January 2005; deputy leader of stearing group for reoganazation of Liaoning Airport Management Group Company in January 2009; president and deputy party secretary of Beijing Branch of the Company in April 2009; a member of the Standing Member of Party Committee of the Company and General Manager and Deputy Party Secretary of Beijing Branch of the Company from April 2010; a Standing Member of Party Committee of the Company in July 2017; and Executive Vice President of the Company in August 2018.
Wang Zhi XueZhixue, male, born in January 1961 55,(aged 58), has a college degree from Civil Aviation Flight University of China majoring in Aircraft Piloting, and obtained an on-job universitya degree from Civil Aviation Flight University of China majoring in Wingmanship,Wingman ship, and is a command pilot. Mr. Wang is a CPC member, and began his career in February 1981.1981, and joined the Chinese Communist Party in December 1980. Mr. Wang successively served as the Deputy General Manager and Manager of the Flight Safety Technology Division of Zhuhai Airlines Company Limited, the Senior Flight Instructor of Model B737, Deputy Chief Pilot and Director of the Flight Safety Technology Division as well as theDepartment of Shantou Airlines Company Limited of CSAH, Deputy Chief Pilot and Manager of the Flight Safety Technology Management Division from 1995 to 2002 of Shantou Airlines Company Limited of CSAHC.CSAH. He also acted as the Deputy General Manager of Shantou Airlines Company Limited of CSAH from June 2002, to October 2004, and the General Manager of the Flight Management Division of the Company from October 2004, to February 2009, and the General Manager and Deputy Party Secretary of Guangzhou Flight Division of the Company from February 2009 to July 2012.2009. Mr. Wang has been Chief Pilot and a member of the Standing Committee of the CPC of the Company from July 2012, and Executive Vice President, chief pilot and a member of the Standing Committee of the CPC of the Company from August 2012. He has been Executive Vice President and chief pilota member of the Standing Committee of the CPC of the Company since August 2012.from December 2016. He has been Executive Vice President of the Company from July 2018, and was appointed as legal representative, vice chairman, president and Deputy Secretary of CPC of Xiamen Airlines Company Limited in February 2019. For now, he also serves as Chairman of Zhuhai Airlines.Airlines Company Limited.
Mr. Li Tong BinTongbin, male, born in December 1961 54, has college qualification and(aged 57), graduated with a bachelor degree from Civil Aviation Institute of ChinaNortheastern University majoring in Maintenance of Aircraft Electrical Equipment. He obtained on-job Master ofindustrial Electric Automation, and Business Administration (MBA) from School of Economics and Management of Hainan University andUniversity. He obtained an Executive Master of Business Administration (EMBA) Degree form Tsinghua University, and is a senior engineer. Mr. Li is a CPC member and began his career in August 1983, and joined the Chinese Communist Party in May 1983. He successively served as the Deputy Head of Technical Division of Aircraft Maintenance Plant, the head of Maintenance Plant and the deputy director of Aircraft Engineering Department (aircraft maintenance base), the Director of Aircraft Engineering Department (aircraftand the Director of aircraft maintenance base)base of China Northern Airlines Company, the General Manager of Jilin branch of China Northern Airlines Company from 1994 to 2003.Company. He also acted as the Deputy General Manager and Deputy Party Secretary of Zhuhai Airlines Company Limited from September 2004, to January 2005, the General Manager and Deputy Party Secretary of Zhuhai Airlines Company Limited from January 2005, to April 2012, and the party secretary and Deputy General Manager of Northern Branch of the Company from April 2012 to April 2014.2012. Mr. Li was the Chief Engineer, General Manager of Aircraft Engineering Department and Deputy Party Secretary of Aircraft Engineering Department of the Company from April 2014 to August 2015. Mr. Li2014. He has been the Chief Engineer, a member of the Standing Committee of the CPC, General Manager of Aircraft Engineering Department and Deputy Party Secretary of the Company from August 2015. Mr. Li has been the Executive Vice President, and Chief Manager,Engineer, a member of the Standing Committee of the CPC, as well as General Manager of Aircraft Engineering Department and Deputy Party Secretary of Aircraft Engineering Department of the Company since September 2015. From December 2016, he has been Executive Vice President, Chief Engineer and a member of the Standing Committee of the CPC. In July 2018, he was appointed as the Executive Vice President and Chief Engineer of the Company. For now, MrMr. Li also serves as Chairman of Guangzhou Aircraft Maintenance Engineering Co., Ltd. and Shenyang Northern Aircraft Maintenance Co., Ltd., Guangzhou Aircraft Maintenance Engineering Co., Ltd and MTU Maintenance Zhuhai Co., Ltd..
Mr.Su Liang, male, born in April 1962 53,(aged 56), graduated from the University of Cranfield, United Kingdom with a master degree majoring in Air Transport Management, and is an engineer. Mr. Su is a CPC member and began his career in December 1981. From 1998 to 2000, he1981, and joined the Chinese Communist Party in May 1996. He successively served as Deputy General Manager of the Flight Operations Division, Deputy General Manager and Manager of Planning and Management Division of CSAHCCSAH Shenzhen Company. Mr. Su was the Secretary to the Board of the Company from July 2000, to December 2003, the Secretary to the Board and Director of Board Secretariat of the Company from December 2003, to November 2005, the Secretary to the Board, Deputy Director and Vice DirectorParty member of Commercial Steering Committee of the Company from November 2005, to February 2006, the Company Secretary and director of Company Secretary Office and Vice Director of Commercial Steering Committee of the Company from February 2006 to January 2007, and the Secretary to the Board and Director of Company Secretary Office and Deputy Director of Commercial Steering Committee and Party member of the Company from January 2007 to December 2007.February 2006. Mr. Su has been the Chief Economist of the Company since December 2007. For now, he also serves as Director of Sichuan Airlines.
Airlines Company Limited, Chairman of Southern Airlines Culture and Media Co., Ltd. and China Southern West Australian Flying College Pty Ltd..
Mr. Chen Wei HuaWeihua,, male, born in October 1966 49,(aged 52), graduated from the School of Law of Peking University with a bachelor degree and obtained an Executive Master of Business Administration (EMBA) degree from Tsinghua University, who is an economist, a qualified lawyer in the PRC and a qualified corporate legal counselor. Mr. Chen is a CPC member and joined the aviation industry in July 1988.1988, and joined the Chinese Communist Party in February 2001. He successively served as Deputy Director of CSAHC,Legal Department of China Southern Airlines (Group) Corporation, Deputy Director of the Office (director(Director of the Legal Department)Division) of the Company and CSAHC from 1997 to 2004.China Southern Airlines (Group) Corporation. Mr. Chen was the Chief Legal Adviser of the Company and Director of the Legal DepartmentDivision of the Company from June 2004 to October 2008.December 2003. Mr. Chen has been the General CounselChief Legal Adviser and General Manager of the Legal DepartmentDivision of the Company since October 2008. He has served as Chief Legal Adviser of the Company since April 2017. For now, he also acts as Director of Xiamen Airlines.
67
Mr. Guo Zhi Qiang, male, born in July 1963, 52, is an economist who graduated with a master degree from Party School of Xinjiang Uyghur Autonomous Region majoring in Business Administration. Mr. Guo is a CPC member and began his career in January 1981. He successively served as the Xi’an Office manager, Beijing Office manager and General Manager of Transportation Department of Xinjiang Airlines Manager; the Deputy General Manager of Xinjiang Airlines; the Beijing Office Director of CSAHC, the General Manager and the Party Secretary of China Southern Airlines Beijing Office from 1995 to 2004. He served as a member of the Standing Committee of the CPC and the Deputy General Manager of CSAHC Xinjiang Branch from June 2004 to December 2004, a member of the Standing Committee of the CPC and the Deputy General Manager of China Southern Airlines Xinjiang Branch from January 2005 to December 2005. Mr. Guo served as a member of Party Committee and the Deputy General Manager of the Shenzhen Branch of the Company from December 2005 to February 2008 and the President and Chief Executive Officer as well as Deputy Party Secretary of Chongqing Airlines Company Limited from February 2008 to May 2009. He served as a member of Party Committee and the Deputy Director of the Commercial Steering Committee of the Company from May 2009 to September 2009, the Director and Deputy Party Secretary of the Commercial Steering Committee of the Company from September 2009 to September 2012. Mr. Guo acted as the COO Marketing and Sales of the Company, the Director and the Deputy Party Secretary of the Commercial Steering Committee of the Company from September 2012 to July 2014. Mr. Guo has been the COO Marketing and Sales of the Company since July 2014. For now, he also serves as President of Guangzhou Nanland Air Catering Co., Ltd. and Guangzhou Baiyun International Logistics Co., Ltd.
Limited.
Mr. Xie Bing, male, born in September 1973 42, with a university degree,(aged 45), graduated from Nanjing University of Aeronautics and Astronautics, majoring in Civil Aviation Management. He subsequently received a master degree of business administration from the Management School of Jinan University, a master degree of business administration (international banking and finance) from the University of Birmingham, Britain and a MBA, an Executive Master of Business Administration (EMBA) degree from Jinan University, the University of Birmingham, Britain and Tsinghua University, respectively. Mr. Xie is a Senior Economist, fellow member and FCS of The Hong Kong Institute of Chartered Secretaries, and has the qualification for Company Secretary of companies listed on Shanghai Stock Exchange and also has the qualification for Company Secretary of companies listed on Stock Exchange. Mr. Xie is a CPC member and began his career in July 1995.1995, and joined the Chinese Communist Party in January 1994. He successively served as the Assistant of Company Secretary of the Company, and the Executive Secretary of the General Office of CSAHC from 2003 to 2007.CSAH. Mr. Xie has been the Company Secretary and Deputy Director of the Company Secretary Office from November 2007 to2007. From December 2009.2009, Mr. Xie has been the Company Secretary to the Board and Director of the Company Secretary Office since December 2009.of the Company. Form April 2017, he has been the Secretary to the Board of the Company, Director of the Company Secretary Bureau of China Southern Air Holding Limited Company and Director of the Company Secretary Bureau of the Company. For now, he also acts as Chairman and Party Secretary of China Southern Airlines Group Capital Holding Limited and Chairman of CSA International Finance Leasing Co., Ltd., Deputy President of Central Enterprises Overseas students Sodality and a Council Member of The Hong Kong Institute of Chartered Secretaries.
Mr. Feng Hua NanHuanan, male, born in November 1962 53,(aged 56), graduated with a college degree from China Civil Aviation Flying College, majoring in Aircraft Piloting, and obtained an on-joba master degree in Aeronautical Engineering from School of Automation Science and Electrical Engineering of Beijing University of Aeronautics and Astronautics and an Executive Master of Business Administration (EMBA) from the School of Economics and Management of Tsinghua University. He is a commanding pilot. Mr. Feng is a CPC member and began his career in January 1983.1983, and joined the Chinese Communist Party in October 1986. He successively served as the Director of Zhuhai Flight Training Centre of China Southern Airlines (Group) Company and the Deputy General Manager of Flight Operation Division of the Company from 1994 to 1999.Company. He was the General Manager of Flight Safety Technology Department from December 1999, to October 2002, and the General Manager of Flight Technology Management Department of the Company from November 2002 to September 2004.2002. Mr. Feng also served as the Party Secretary and Deputy General Manager of Guizhou Airlines Company Limited from September 2004, to February 2006, and then served as the General Manager and Deputy Party Secretary of Guizhou Airlines Company Limited from February 2006 to July 2014.2006. He has been the COO Flight Safety of the Company since August 2014. For now, he also serves as Presidentthe Chairman of Zhuhai Xiang Yi Aviation Technology Co., Ltd. and China Southern West Australia Flight College.
Ltd..
Mr. Xiao Li XinGuo Jianye, male, born in June 1966, 49,December 1962 (aged 56), graduated from Party School of Civil Aviation Flight University of China majoring in Aircraft Piloting, South China Normal University majoring in Political Education in Education Management Department and the Party School of the Central Committee of CPC majoring in economic management. He obtained a master’s degree from the Party School of the Central Committee of CPC and also obtained a Bachelor of Philosophy. He is an expert of political science. He began his career in May 1980, and joined the Chinese Communist Party in May 1986. He was appointed as Secretary of Youth League Committee, Deputy Director of Advertising and Promotion Department of CAAC Central and Southern Regional Administration, Director of Political Department of Air traffic management bureau under CAAC Central and Southern Regional Administration, Vice Director of Air traffic management bureau under CAAC Central and Southern Regional Administration and General Manager of Guangdong AcademyCAAC Central and Southern Industrial Co., Ltd., Deputy Head of Social SciencesCAAC Hainan Safety Supervision Office, Head and Party Secretary of CAAC Henan Safety Supervision Office, Director and Party Secretary of CAAC Henan Safety Supervision Administration, the member of standing committee of CAAC Central and Southern Regional Administration, as well as the Vice Director. In July 2012, he served as General Manager and Deputy Party Secretary of Heilongjiang Branch of the Company. From July 2014, he acted as, Director and Deputy Party Secretary of Commercial Steering committee of the Company. Since January 2017, he has been the Chief Customer Officer of the Company. For now, he also acts as Chairman of Shenzhen Air Catering Co., Ltd., Guangzhou Nanland Air Catering Company Limited, Guangzhou China Southern Zhongmian Dutyfree Store Co., Limited, China Southern Jia Yuan (Guangzhou) Air Products Co., Ltd..
Luo Minghao, male, born in September 1962 (aged 56), graduated from the Civil Aviation Flight University of China for professional flying. He graduated with a master degree from the Party School of Hunan Provincial Committee majoring in Economics and theneconomics. He obtained an on-jobExecutive Master of Business Administration (EMBA) degree from Tsinghua University. He is Second Class Pilot. He began his career in July 1982, and joined the Communist Party of China in December 1984. He served as the deputy general manager of the flight division of Hunan Branch of CSAH and deputy manager of Bei Hai Sales Department in Hunan Branch of the Company. He served as the deputy general manager of Hunan Branch of the Company in May 2002, General Manager and Deputy Party Secretary of the Cabin Department of the Company in December 2006. He acted as General Manager and Deputy Party Secretary of Dalian Branch of the Company in December 2010, General Manager and Deputy Party Secretary of Guangzhou Flight Department of the Company in July 2012 and Chief Pilot of the Company in March 2018.
Wang Renjie, male, born in October 1964 (aged 54), has bachelor’s degrees from People’s Liberation Army Air Force No.1 Flight Academy majoring in Aircraft Piloting and Aviation Theory and obtained an Executive Master of Business Administration (EMBA) degree from Tsinghua University. He is a qualified senior accountant and a certified public accountant. Mr. Xiao is a CPC member andSecond Class Pilot. He began his career in July 1991.June 1983, and join in the Chinese Communist Party in December 1990. He has been the Vice President of the Flight Management Division of the Company, Vice President and a party member of Guangzhou Flight Division of the Company, President of the Flight Management Division of the Company. He served as the General Manager AssistantPresident and Deputy General ManagerParty Secretary of the Finance DepartmentXi’an branch of the Company from 1999 to 2002, and served as the General Manager and Deputy Secretaryin August 2014; President of the General Party Branch of the Finance DepartmentFlight Management Division of the Company from January 2002 to February 2007. Mr. Xiao served as the deputy chief accountantin December 2016, and general managerPresident of the Finance DepartmentFlight Management Division, a member of the Party Committee of Administrative Office of the Company fromin February 2007 to October 2007, and served as the General Manager and Secretary2017; President of the General Party BranchFlight Management Division of China Southern Airlines Group FinanceAir Holding Limited Company Limited from October 2007 to February 2008. He served asand the General Manager and Party Secretary of Southern Airlines Group Finance Company Limited from February 2008 to March 2015. Mr. Xiao has been thein April 2017; Deputy Chief Accountant and Chief FinancialOperation Officer of the Company since March 2015. For now, he also serves as Chairmanin May 2018; the Secretary of Guizhou Airlines, DirectorCPC General Branch of Xiamen Airlines andlaws & standards Division of China Southern Airlines Overseas (Hong Kong) Co. Ltd.Air Holding Limited Company and the Company in September 2018; Chief Operation Officer of the Company and Secretary of CPC General Branch of laws & standards Division of China Southern Air Holding Limited.
SaveNone of our Directors, supervisors or members of our senior management was selected or chosen as disclosed above, nonea result of any arrangement or understanding with any major shareholders, customers, suppliers or others. None of the above Directors or Supervisors, senior management of theour Company has any family relationship with any Directors, Supervisors, senior management, substantial shareholders of theour Company. None of our directors or senior management owns any shares or options in our Group as of April 26, 2019.
B. | COMPENSATION |
The aggregate compensation paid to all Directors, Supervisors and Senior Management for 20152018 was RMB11.45RMB17.38 million. For the year ended December 31, 2015, the Company2018, we paid an aggregate of approximately RMB1.87RMB1.80 million on behalf of itsour executive Directors, Supervisors and Senior Management pursuant to the pension scheme and the retirement plans operated by various municipal and provincial governments in which the Company participates.
we participate.
Details of the remuneration of directors’Directors’ and supervisors’Supervisors’ remuneration for the year ended December 31, 20152018 are set out below:
Directors’ fees RMB’000 | Salaries, allowances and benefits in kind RMB’000 | Retirement scheme contributions RMB’000 | Total RMB’000 | |||||||||||||
Non-executive Directors | ||||||||||||||||
Wang Quan Hua | - | - | - | - | ||||||||||||
Yuan Xin An | - | - | - | - | ||||||||||||
Yang Li Hua | - | - | - | - | ||||||||||||
Independent Non-executive Directors | ||||||||||||||||
Wei Jin Cai | 75 | - | - | 75 | ||||||||||||
Ning Xiang Dong | 150 | - | - | 150 | ||||||||||||
Liu Chang Le | 150 | - | - | 150 | ||||||||||||
Tan Jin Song | 150 | - | - | 150 | ||||||||||||
Guo Wei | 75 | - | - | 75 | ||||||||||||
Jiao Shu Ge | 75 | - | - | 75 | ||||||||||||
Executive Directors | ||||||||||||||||
Tan Wan Geng | - | - | - | - | ||||||||||||
Zhang Zi Fang | - | - | - | - | ||||||||||||
Li Shao Bin | - | 636 | 137 | 773 | ||||||||||||
Supervisors | ||||||||||||||||
Pan Fu | - | - | - | - | ||||||||||||
Li Jia Shi | - | 636 | 139 | 775 | ||||||||||||
Zhang Wei | - | - | - | - | ||||||||||||
Yang Yi Hua | - | 240 | 92 | 332 | ||||||||||||
Wu De Ming | - | 451 | 140 | 591 | ||||||||||||
Total | 675 | 1,963 | 508 | 3,146 |
Note: The Company's non-executive director and former chairman, Mr. Si Xian Min resigned on January 15, 2016. For the year ended December 31, 2015, Mr. Si Xian Min did not receive any remuneration for his service in the capacity of the non-executive director of the Company.
On November 30, 2011, the Company’s General Meeting, approved the "H Share Appreciation Rights Scheme of China Southern Airlines Company Limited" and "Initial Grant under the H Share Appreciation Rights Scheme of China Southern Airlines Company Limited" ("the Scheme").
Under the Scheme, 24,660,000 units of Share Appreciation Rights were granted to 118 employees of the Group at the exercise price of HK$3.92 per unit prior to or on at December 31, 2011. No shares will be issued under the Scheme and each of the Share Appreciation Rights is notionally linked to one existing H Share of the Company. Upon exercise of the Share Appreciation Rights, a recipient will receive an amount of cash equal to the difference between the market share price of the relevant H Share and the exercise price.
The Share Appreciation Rights will have an exercise period of six years from the date of grant. Upon the satisfaction of certain performance conditions after the second, third and fourth anniversary of the date of grant, each one third of the Share Appreciation Rights will become exercisable.
A dividend of RMB0.2 (equivalent to HKD0.25) (inclusive of applicable tax), a dividend of RMB0.05 (equivalent to HKD0.06) (inclusive of applicable tax), a dividend of RMB0.04 (equivalent to HKD0.05) (inclusive of applicable tax) and a dividend of RMB0.04 (equivalent to HKD0.05) (inclusive of applicable tax) per share was approved by the Company’s General Meeting on May 31, 2012, June 18, 2013, June 26, 2014 and June 30, 2015 respectively, therefore, the exercise price for the Share Appreciation Rights was adjusted to HKD3.51 per share in accordance with the predetermined formula stipulated in the Scheme. During the year, there were no granting or exercising of Share Appreciation Rights and 7,013,333 units of Share Appreciation Rights were forfeited.
The fair value of the liability for Share Appreciation Rights is measured using the Black-Scholes option pricing model. The risk free rate, expected dividend yield and expected volatility of the share price are used as the inputs into the model. As at December 31, 2015, 24,660,000 units of Share Appreciation Rights granted by the Company have all forfeited and correspondingly, the liability for Share Appreciation Right was RMB0.
Directors’ fees RMB’000 | Salaries, allowances and benefits in kind RMB’000 | Retirement scheme contributions RMB’000 | Total RMB’000 | |||||||||||||
Executive Directors | ||||||||||||||||
Wang Chang Shun | — | — | — | — | ||||||||||||
Tan Wan Geng | — | — | — | — | ||||||||||||
Zhang Zi Fang | — | — | — | — | ||||||||||||
IndependentNon-executive Directors | ||||||||||||||||
Tan Jin Song | 150 | — | — | 150 | ||||||||||||
Zheng Fan | — | — | — | — | ||||||||||||
Jiao Shu Ge | 150 | — | — | 150 | ||||||||||||
Gu Hui Zhong | 60 | — | — | 60 | ||||||||||||
Supervisors | ||||||||||||||||
Pan Fu | — | — | — | — | ||||||||||||
Li Jia Shi | — | 84 | 12 | 96 | ||||||||||||
Mao Juan | — | 658 | 124 | 782 | ||||||||||||
Total | 360 | 742 | 136 | 1,238 |
C. | BOARD PRACTICES |
Each Director’sdirector’s service contract with theour Company or any of its subsidiaries provides prorated monthly salary upon termination of employment in accordance with his contract. The Directordirector is entitled to paid leave under his contract. The term of office of a director is three years. The term of officethe eighth session of the currentour board of directors will end in 2016.expire on December 20, 2020. A Directordirector may serve consecutive terms uponre-election.
Strategic and Investment Committee
The Strategic and Investment Committee comprises three members and is chaired by Mr. Wang Changshun. The other two members are Mr. Gu Huizhong as an independentnon-executive Director and Mr. Jiao Shuge as an independentnon-executive Director.
The Strategic and Investment Committee held one meeting in 2018 in accordance with its rules and procedures, and considered a report on the Company’s proposed development program for world-class air transport enterprises.
Audit and Risk Management Committee
The Audit and Risk Management Committee is appointed by the Boardour board of Directors and consists of three independent Non-executive Directors.non-executive directors. The current members of the Audit Committeeand risk management committee are Tan Jing Song, Ning Xiang DongJinsong, Gu Huizhong and Jiao Shu Ge.Shuge. Tan Jing SongJinsong is the Chairman of the Audit and Risk Management Committee. The term of office of each member will end in 2016. A member may serve consecutive terms uponre-election. At least once a year, the committee is required to meet with theour Company’s external auditors without any executive members of the Boardour board in attendance. The quorum necessary for the transaction of any business is two committee members.two. The Audit and Risk Management Committee held 2213 meetings in 2015,2018, which were attended by all members.
members.
The Audit and Risk Management Committee is required, amongst other things, to oversee the relationship with the external auditors, to review the Group’sour interim results and annual financial statements, to monitor compliance with statutory and listing requirements, to review the scope, if necessary, to engage independent legal or other advisers as it determines is necessary and to perform investigations. In addition, the Audit and Risk Management Committee also examines the effectiveness of theour Company’s internal controls, which involves regular reviews of the internal controls of various corporate structures and business processes on a continuous basis, and takes into account their respective potential risks and severity, in order to ensure the effectiveness of theour Company’s business operations and the realization of itsour corporate objectives and strategies. The scope of such examinations and reviews includes finance, operations, regulatory compliance and risk management. The Audit and Risk Management Committee also reviews theour Company’s internal audit plan, and submits relevant reports and concrete recommendations to the Boardour board on a regular basis.
TheOur Company has an internal audit department which reviews procedures in all major financial and operational activities. This department is led by the head of internal audit.
Remuneration and Assessment Committee
Evaluation Committees
The Remuneration and Assessment CommitteeEvaluation Committees is comprised of three members. Currently, the Remuneration and Assessment CommitteeEvaluation Committees is chaired by Independent Non-executive Director Ning Xiang Dongindependentnon-executive director Gu Huizhong with Independent Non-executive Director Tan Jing Songthe independentnon-executive director Zhang Zifang and Non-executive Director Yuan Xin Anthenon-executive director Zheng Fan as members. The term of office of each member is three years. Wang Quan Hua resigned from office because of retirement in March 25, 2015. The term of office of the current members will end in 2016. A member may serve consecutive terms uponre-election. The Remuneration and Assessment CommitteeEvaluation Committees held 12 meeting in 2015,2018, which were attended by all members.
members.
The responsibilities of the Remuneration and Assessment CommitteeEvaluation Committees are to make recommendations on the remuneration policy and structure for Directorsdirectors and senior management of theour Company, to establish regular and transparent procedures on remuneration policy development and improvement and submit theour Company’s "Administrative“Administrative Measures on Remuneration of Directors"Directors” and "Administrative“Administrative Measures on Remuneration of Senior Management"Management”. In particular, the Remuneration and Assessment CommitteeEvaluation Committees has the duty to ensure that the Directorsdirectors or any of their associates shall not be involved in the determination of their own remuneration packages.
The Remuneration and Assessment CommitteeEvaluation Committees consulted, when appropriate, the Chairman and/or the President about its proposals relating to the remuneration of other executive Directors.directors. The Remuneration and Assessment CommitteeEvaluation Committees is provided with sufficient resources to discharge its duties and professional advice is available if necessary. The Remuneration and Assessment CommitteeEvaluation Committees is also responsible for assessing performance of executive Directorsdirectors and approving the terms of executive Directors’directors’ service contracts. The Remuneration and Assessment Committee hasEvaluation Committees performed all its responsibilities under its terms of reference in 2015.2018.
Nomination Committee
The Nomination Committee was established on June 28, 2007. Before that, nomination of Directors and other senior management was mainly undertaken by the Board.our board. According to the Articles of Association, the Boardour board has the authority to appoint from time to time any person as Directordirector to fill a vacancy or as additional Director.director. In selecting candidate Directors, the Boarddirectors, our board focuses on their qualifications, technical skills, experiences (in particular, the experience in the industry in which the Group operateswe operate in case of candidates of executive directors) and expected contributions to the Group.
us.
As of December 31, 2015,2018, the Nomination Committee consists of three members, including Si Xian MinZheng Fan as Chairman and Tan Jing Song (Independent Non-executive Director)Wang Changshun as an executive director) and Jiao Shu Ge (Independent Non-executive Director)Shuge as members.an independentnon-executive director. The responsibilities of the Nomination Committee are to make recommendations to the Boardour board in respect of the size and composition of the Boardour board based on the operational activities, assets and shareholding structure of theour Company; study the selection criteria and procedures of Directorsdirectors and executives and give advice to the Board;our board; identify qualified candidates for Directors and executives; investigate and propose candidates for Directorsdirectors and managers and other senior management members to the Board. On January 15, 2016, the Board received resignation from Mr. Si Xian Min as the Chairman of the Board. Si Xian Min tendered his resignation from the post of the chairman of the Nomination Committee under the Board. On April 9, 2015, pursuant to relevant requirements of Opinions on Further Regulation on Party and Political Leaders and Cadres Working Part-time (Holding Office) in Enterprises, Wei Jin Cai tendered his resignation as an Independent Non-executive Director of the Company to the Board which took effect upon the date of June 30, 2015.our board.
In accordance with relevant laws and regulations as well as the provisions of the Articles of Association of theour Company, the Nomination Committee shall study and resolve on the selection criteria, procedures and terms of office for directors and managers with reference to theour Company’s actual situation. Any resolution made in this regard shall be filed and proposed to the Boardour board for approval and shall be implemented accordingly. The Nomination Committee is provided with sufficient resources to discharge its duties and independently engages intermediate agencies to provide professional advice on its proposals if necessary.
The Nomination Committee held 3four meetings in 2015, which was attended2018, to nominate and appoint Mr. Luo Minghao as the Chief Pilot of the Company, Mr. Zhang Zhengrong and Mr. Cheng Yong as Executive Vice President of the Company, and Mr. Wang Renjie as Chief Operation Officer of the Company. The Nomination Committee performed all its obligations under their terms of reference in 2018.
Aviation Safety Committee
The Aviation Safety Committee comprises three members and is chaired by all members.Mr. Tan Wangeng as the former executive director. The other two members are Mr. Zheng Fan as an independentnon-executive Director and Mr. Tan Jinsong as an independentnon-executive Director. Mr. Tan Wangeng has resigned with effective from November 30, 2018.
D. | EMPLOYEES |
As of December 31, 2015,2016, 2017 and 2018, we had 93,132, 96,234 and 100,831 employees, respectively. The table below sets forth the Group had 87,202 employees, including 7,465 pilots, 16,505 flight attendants, 12,108 maintenance personnel, 7,321 passenger transportation personnel, 6,197 cargo transportation personnel, 9,146 ground service personnel, 2,343 flight operation officers, 1,065 flight security guards, 1,391 information system personnel, 2,366 financial personnel, and 21,295 other personnel. Allnumber of our pilots, flight attendants, maintenance personnel, administrative personnel and sales and marketing personnel are contract employees.employees by activity as of December 31, 2018. During 2018, we employed 1,443 temporary employees on an average.
Employees | % of Total | |||||||
Pilots | 9,698 | 9.62 | ||||||
Flight attendants | 21,297 | 21.12 | ||||||
Maintenance personnel | 16,589 | 16.45 | ||||||
Passenger transportation personnel | 9,108 | 9.03 | ||||||
Cargo transportation personnel | 6,370 | 6.32 | ||||||
Ground service personnel | 10,963 | 10.87 | ||||||
Flight operation officers | 2,546 | 2.53 | ||||||
Flight security guards | 2,595 | 2.57 | ||||||
Information system personnel | 1,855 | 1.84 | ||||||
Financial personnel | 2,376 | 2.36 | ||||||
Others | 17,434 | 17.29 | ||||||
Total | 100,831 | 100.00 |
The Company’sOur employees are members of a trade union organized under the auspices of theAll-China Federation of Trade Unions, which is established in accordance with the Trade Union Law of China. Two representativesOne representative of theour Company labor union currently serve on the Supervisory Committee of theour Company. Each of the Company’sour subsidiaries has its own trade union. The Group hasWe have not experienced any strikes, slowdowns or labor disputes that have interfered with itsour operations, and the Group believeswe believe that itsour relations with itsour employees are good.
All employees of theour Group receive cash remuneration and certainnon-cash benefits. Cash remuneration consists of salaries, bonuses and cash subsidies provided by theour Group. Salaries are determined in accordance with the national basic wage standards. The total amount of wages payable by theour Group to itsour employees is subject to a maximum limit based on the profitability of theour Group and other factors. Bonuses are based on the profitability of theour Group. Cash subsidies are intended as a form ofcost-of-living adjustment. In addition to cash compensation, the Group’sour contract employees receive certainnon-cash benefits, including housing, education and health services, and the Group’sour temporary employees also receive certain health services, housing fund and education.
Employee benefits
Employee benefits are all forms of considerations given and other related expenditures incurred in exchange for services rendered by employees. Except for termination benefits, employee benefits are recognized as a liability in the period in which the associated services are rendered by employees, with a corresponding increase in cost of relevant assets or expenses in the current period.
Retirement benefits
Employees of the GroupOur employees participate in several defined contribution retirement schemes organized separately by the PRC municipal and provincial governments in regions where theour major operations of the Group are located. The Group isWe are required to contribute to these schemes at rates ranging from 13% to 21% (2014: 11% to 21%)20% of salary costs including certain allowances.allowances in both 2018 and 2017. A member of the retirement schemes is entitled to pension benefits from the Local LabourLabor and Social Security Bureau upon his/her retirement. The retirement benefit obligations of all retired staff of theour Group are assumed by these schemes. The Group,We, at itsour sole discretion, had made certain welfare subsidy payments to these retirees.
In 2014, theour Company and itsour major subsidiaries joined a new defined contribution retirement scheme (“Pension Scheme”) that was implemented by CSAHC.CSAH. The annual contribution to the Pension Scheme is based on a fixed specified percentage of prior year’s annual wage. There will be no further obligation beyond the annual contribution according to the Pension Scheme. The total contribution into the Pension Scheme in 20152018 was approximately RMB438,000,000.
RMB 598 million.
Housing fund and other social insurances
The Group contributesWe contribute on a monthly basis to housing funds organized by municipal and provincial governments based on certain percentages of the salaries of employees. The Group’sOur liability in respect of these funds is limited to the contributions payable in each year. In addition to the housing funds, certain employees of the Group are eligible to one of the following housing benefit schemes:
Termination benefits
When the Group terminateswe terminate the employment relationship with employees before the employment contracts expire, or provides compensation as an offer to encourage employees to accept voluntary redundancy, a provision for the termination benefits provided is recognized in the consolidated income statement when both of the following conditions are satisfied:
We have a formal plan for the termination of employment or has made an offer to employees for voluntary redundancy, which will be implemented shortly; and
We are not allowed to withdraw from termination plan or redundancy offer unilaterally.
Workers’ Compensation
There is no workers’ compensation or other similar compensation scheme under the Chinese labor and employment system. As required by Chinese law, however, the Group,we, subject to certain conditions and limitations, payspay for the medical expenses of any contract employee who suffer a work-related illness, injury or disability, and continues to pay the full salary of, and provides all standard cash subsidies to, such employee during the term of such illness, injury or disability. The GroupWe also payspay for certain medical expenses of itsour temporary employees.
E. | SHARE OWNERSHIP |
On November 30, 2011, the Company’s General Meeting approved the "H Share Appreciation Rights Scheme of China Southern Airlines Company Limited" and "Initial Grant under the H Share Appreciation Rights Scheme of China Southern Airlines Company Limited" ("the Scheme").
Under the Scheme, 24,660,000 units of Share Appreciation Rights were granted to 118 employees of the Group at the exercise price of HK$3.92 per unit prior to or on at December 31, 2011. No shares will be issued under the Scheme and each of the SAR is notionally linked to one existing H Share of the Company. Upon exercise of the Share Appreciation Rights, a recipient will receive an amount of cash equal to the difference between the market share price of the relevant H Share and the exercise price.
The Share Appreciation Rights will have an exercise period of six years from the date of grant. Upon the satisfaction of certain performance conditions after the second, third and fourth anniversary of the date of grant, each one third of the Share Appreciation Rights will become exercisable.
A dividend of RMB0.2 (equivalent to HKD0.25) (inclusive of applicable tax), a dividend of RMB0.05 (equivalent to HKD0.06) (inclusive of applicable tax), a dividend of RMB0.04 (equivalent to HKD0.05) (inclusive of applicable tax) and a dividend of RMB0.04 (equivalent to HKD0.05) (inclusive of applicable tax) per share was approved by the Company’s General Meeting on May 31, 2012, June 18, 2013, June 26, 2014 and June 30, 2015 respectively, therefore, the exercise price for the Share Appreciation Rights was adjusted to HKD3.51 per share in accordance with the predetermined formula stipulated in the Scheme. During the year, there were no granting or exercising of Share Appreciation Rights and 7,013,333 units of Share Appreciation Rights were forfeited.
The fair value of the liability for Share Appreciation Rights is measured using the Black-Scholes option pricing model. The risk free rate, expected dividend yield and expected volatility of the share price are used as the inputs into the model. As at December 31, 2015, 24,660,000 units of Share Appreciation Rights granted by the Company have all forfeited and correspondingly, the liability for Share Appreciation Right was RMB0.
None of our directors andor senior management owns any shares or options in the Groupour Company as of April 18, 2016.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS26, 2019.
ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
A. | MAJOR SHAREHOLDERS |
The table below sets forth information regarding the ownership of our share capital as of April 18, 201626, 2019 by all persons who are known to us to be the beneficial owners of 5.0% or more of each class of our voting securities.
Title of Shares | Identity of Person or Group | Beneficially | Percentage of | Percentage of | ||||||||||||
A shares | CSAHC | 4,039,228,665 | 57.52 | % | 41.14 | % | ||||||||||
H shares | HKSCC Nominees Limited | 1,749,166,988 | 62.58 | % | 17.82 | % | ||||||||||
H shares | CSAHC(3) | 1,064,770,000 | 38.10 | % | 10.85 | % | ||||||||||
H shares | Nan Lung Holding Limited | 1,033,650,000 | 36.98 | % | 10.53 | % |
Title of Shares | Identity of Person or Group | Beneficially Owned(1) | Percentage of the Respective Class of Shares(2) | Percentage of Total Shares(2) | ||||||||||
A shares | CSAH | 4,528,431,323 | 52.65 | % | 36.92 | % | ||||||||
H shares | HKSCC Nominees Limited | 1,750,929,908 | 47.76 | % | 14.27 | % | ||||||||
H shares | CSAH (3) | 1,671,287,925 | 45.58 | % | 13.62 | % | ||||||||
H shares | Nan Lung Holding Limited | 1,671,287,925 | 45.58 | % | 13.62 | % | ||||||||
A shares | China National Aviation Fuel Group Corporation | 498,338,870 | 5.79 | % | 4.06 | % | ||||||||
H shares | Hong Kong Securities Clearing Company Limited | 483,433,236 | 13.19 | % | 3.94 | % | ||||||||
H shares | American Airlines Group Inc.(4) | 270,606,272 | 7.38 | % | 2.21 | % | ||||||||
A shares | Qatar Airways Group Q.C.S.C. | 430,036,166 | 5.00 | % | 3.51 | % | ||||||||
H shares | Qatar Airways Group Q.C.S.C. | 183,324,000 | 5.00 | % | 1.49 | % |
(1) | Beneficial ownership is determined in accordance with the rules of the SEC. |
(2) | Percentage of A Shares and percentage of H Shares is based on |
(3) | CSAH was deemed to be interested in an aggregate of 1,671,287,925 H Shares through its direct and indirect wholly-owned subsidiaries in Hong Kong, of which 31,150,000 H Shares were directly held by Perfect Lines (Hong Kong) Limited (representing approximately 0.85% of its then total issued H Shares) and 1,640,137,925 H Shares were directly held by Nan Lung (representing approximately 44.73% of its then total issued H Shares). As Perfect Lines (Hong Kong) Limited is a wholly-owned subsidiary of Nan Lung, Nan Lung was also deemed to be interested in the 31,150,000 H Shares held by |
(4) | American Airlines Group Inc. was deemed to be interested in 270,606,272 H Shares |
Shareholders of H Shares and A Shares enjoy the same voting rights with respect to each share. None of our major shareholders has voting rights that differ from the voting rights of other shareholders. We are not aware of any arrangement which may at a subsequent date result in a change of control of our Company.
As of April 18, 2016,December 31, 2018, there were 4756 registered holders of 2,706,7182,127,654 American Depositary Shares in the United States,U.S., consisting of 4.84%2.9% of our outstanding H shares. Since certain of the ADSs are held by nominees, the above number may not be representative of the actual number of U.S. beneficial holders of ADSs or the number of ADSs beneficially held by U.S. persons.
Our Company is currently a majority-owned subsidiary of CSAHC,CSAH, which is an entity wholly-owned by the Chinese government.
B. | RELATED PARTY TRANSACTIONS |
For a detailed description of our related party transactions, please see Note 4851 to the Financial Statements.consolidated financial statements. In particular, the following arrangements, which the Company believeswe believe are material to itsour operations, have been madeentered into between the Companyus and CSAHCCSAH and its affiliates during the year ended December 31, 20152018 and up to the latest practicable date. The Company believesWe believe that these arrangements have been entered into by the Companyus in the ordinary course of business and in accordance with the agreements governing such transactions.
Arrangements with CSAHC
CSAHDe-merger Agreement
The De-merger Agreement dated March 25, 1995 (such agreement was amended by the Amendment Agreement No.1 dated May 22, 1997) was entered into between CSAHC and the Company for the purpose of defining and allocating the assets and liabilities between CSAHC and the Company. Under the De-merger Agreement, CSAHC and the Company have agreed to indemnify the other party against claims, liabilities and expenses incurred by such other party relating to the businesses, assets and liabilities held or assumed by CSAHC or the Company pursuant to the De-merger Agreement.
Neither the Company nor CSAHC has made any payments in respect of such indemnification obligations from the date of the De-merger Agreement up to the date of this Annual Report.
Trademark License Agreement
The Company and CSAHCWe entered into aten-year trademark license agreement datedwith CSAH on May 22, 1997. Pursuant1997, pursuant to which CSAHC acknowledgesCSAH acknowledged that the Company haswe have the right to use the name "China Southern"“南方航空(China Southern)” and "China“中国南方航空(China Southern Airlines"Airlines)” in both Chinese and English, and grants the Companyus a renewable and royalty free license to use the kapok logo on a worldwide basis in connection with the Company’sour airline and airline-related businesses. Unless CSAHCCSAH gives a written notice of termination three months before the expiration of the agreement, the agreement will be automatically renewed for anotherten-year term. In May 2007,2017, the trademark license agreement entered into by the Companybetween us and CSAHCCSAH was automatically renewed for ten years.
Leases
The GroupWe (as lessee) and CSAHCCSAH or its subsidiaries (as lessor) entered into lease agreements as follows:
(1) | We and CSAH entered into an asset lease framework agreement on January 26, 2018 for a term of three years from January 1, 2018 to December |
The Company and CSAHC entered into the new Asset Lease Agreement (the "New Asset Lease Agreement") on September 25, 2012 to renew the leases transactions for a term of three years from January 1, 2012 to December 31, 2014. Pursuant to the New Asset Lease Agreement, CSAHC agrees to continue to lease to the Company certain parcels of land, properties, and civil aviation structures and facilities at existing locations in Guangzhou, Haikou, Wuhan, Hengyang, Jingzhou (previously known as "Shashi"), Zhanjiang and Changsha.
The Company also entered into the individual lease agreement (the "2012 Property Lease Agreement") with CSAHC on September 25, 2012 in relation to certain fragmented leases for properties located in Harbin, Changchun, Dalian, Beijing and Shanghai as originally covered in the Existing Asset Lease Agreement for an aggregate annual rental of RMB4,437,000 for a term of two years from January 1, 2012 to December 31, 2013.
The Company further entered into the Lease Agreement of Nanyang Base Assets (the "Nanyang Asset Lease Agreement") with CSAHC on January 24, 2013 for the leases transaction relating to certain lands and properties at Nanyang Jiangying Airport as originally covered in the existing Asset Lease Agreement for the period from January 1, 2012 to December 31, 2012. The rent payable under the Nanyang Asset Lease Agreement was RMB12,441,000. As the Nanyang Asset Lease Agreement had expired and the lease transaction contemplated under the Nanyang Asset Lease Agreement would continue to be entered into on a recurring basis, the Company further entered into the 2013 Nanyang Asset Lease Agreement (the "2013 Nanyang Asset Lease Agreement") with CSAHC on April 19, 2013, pursuant to which CSAHC agreed to lease to the Company certain lands, properties, facilities and structures at Nanyang Jiangying Airport for a term of two years, commencing from January 1, 2013 to December 31, 2014.
As the lease transactions contemplated under the New Asset Lease Agreement and the 2013 Nanyang Asset Lease Agreement would continue to be entered into on a recurring basis, the Company and CSAHC entered into the new Asset Lease Agreement (the "Asset Lease Agreement") on December 29, 2014 for a term of three years from January 1, 2015 to December 31, 2017 to renew lease transactions originally covered under the New Asset Lease Agreement and the 2013 Nanyang Asset Lease Agreement. The annual rents payable to CSAHC under the Asset Lease Agreement is RMB86,268,700 for the three years ending December 31, 2017.
For the year ended December 31, 2015, the rent incurred by the Group amounted to RMB86 million pursuant to the Asset Lease Agreement.
(2) | We and |
(3) | On |
For the year ended December 31, 2015,2018, the rents for property lease and land lease incurred by the Group amounted to RMB40RMB32 million and RMB64RMB66 million, respectively pursuant to the Lease Agreementproperty and land lease framework Agreements.
Share Issuance
On June 26, 2017, our board proposed to put forward to the extraordinary general meeting and the Land Lease Agreement.
SAIETC, a wholly-owned subsidiaryclass meetings to approve and authorize our board (i) to issue not more than 1,800,000,000 new A Shares to not more than 10 specific investors including CSAH, and as part of CSAHC
On January 28, 2011, the Company renewed the Import and Export Agency Framework Agreement with SAIETC. The scope of cooperation under the agreement covers import and export services, custom clearing services, customs declaration and inspection services, and tendering and agency services etc. The agreement is effective for a period from January 1, 2011such A Share issuance, to December 31, 2013, with the annual cap for the commission not exceeding RMB97,200,000.
On April 19, 2013, the Company enteredenter into the Supplemental AgreementA Share subscription agreement with CSAH, pursuant to which CSAH will subscribe for no less than 31% of such new A Shares, the consideration of which was composed of cash and 50% equity interest of Zhuhai MTU shares; and (ii) to issue no more than 590,000,000 new H Shares to Nan Lung at the subscription price of HK$6.27 per H Share (subject to adjustments) and to enter into the H Share subscription agreement with Nan Lung. The total funds to be raised from the aforesaid A Share issuance and the H Share issuance will be not more than RMB12,737.00 million, which will be utilised in the procurement of aircraft, the project for selection and installation of lightweight seats for A320 series aircraft and the supplemental to the Importgeneral working capital. The aforesaid A Share issuance and Export Agency Framework Agreement dated January 28, 2011 with SAIETC to revise the maximum annual service fee payable byH Share issuance are inter-conditional upon each other. On September 19, 2017, our board considered and approved that (i) the Company to SAIETC forenter into the period from January 1, 2013supplemental agreement I to December 31, 2013 from RMB97.2 million to RMB160 million.
On January 9, 2014, the Company and SAIETC have entered into a new import and export agency frameworkA Share subscription agreement (the "New Import and Export Agency Framework Agreement") to renew the continuing connected transactions contemplated therein for a fixed term of three years commencing from January 1, 2014 to December 31, 2016. During the period of the New Import and Export Agency Framework Agreement, the annual cap shall remain at RMB160 million per annum.
For the year ended December 31, 2015, the agency fee incurred by the Group in respect of the above import and export services was RMB114 million.
On February 2, 2016, the Company and CSAHC have entered into an agreement,with CSAH, pursuant to which 50% of the Company agreedZhuhai MTU shares as partial consideration payable by CSAH for its subscription of new A Shares under the A Share subscription agreement has been adjusted to acquireRMB1,741.08 million according to the CSAHC agreedfinal assessment results as filed and approved by the SASAC; and (ii) the subscription price and the number of H Shares to sell 100% equity interestbe issued pursuant to the H Share subscription agreement shall be adjusted to HK$6.156 and not more than 600,925,925 new H Shares, respectively due to the implementation of our 2016 dividend distribution plan. On November 8, 2017, the aforesaid A Share issuance and the H Share issuance were approved in SAIETCthe extraordinary general meeting and the respective class meetings of shareholders of A and H shares on November 8, 2017. We received the approval from CSRC for the considerationaforesaid H Share issuance in March 2018, and the aforesaid A Share issuance in May 2018. On August 30, 2018, as our 2017 profit distribution plan has been completed, the issue price of RMB400,570,400 ( the "Acquisition"). The Company believes thatH Shares Issuance was adjusted to HK$6.034 per H Share. H Shares to be issued after the Acquisition can assist the Group to strengthen procurement management of aircraft, flight equipment and other airline-related facilities, lower management risk; assist the Company to streamline its relationship with trading companies so as to reduce connected transactions. With SAIETC's experience in tendering and agency services, SAIETCadjustment will be developed into a centralised platform for procurement activitiesno more than 613,075,903 H Shares (including 613,075,903 H Shares) based on the adjusted issue price of HK$6.034 per H Share. On September 11, 2018, we issued 600,925,925 H Shares in total to Nan Lung at the Group, that enhances concentrationissue price of HK$6.034. On September 27, 2018, we issued 1,578,073,089 A Shares in total at the issue price of HK$6.02. per A Share, raising gross proceeds and efficiencynet proceeds of procurement activities. The Directors (including the independent non-executive Directors) consider that the agreement was entered into after an arm's length negotiation between the CompanyRMB9,499,999,995.78 and CSAHC and the terms therein (including the consideration) are fair and reasonable, the Acquisition is on normal commercial terms and in the ordinary and usual course of business of the Group; and the Acquisition is beneficial to the operation and long-term development of the Group and in the interests of the Company and its shareholders as a whole.RMB9,488,178,222.86, respectively.
Southern Airlines Culture and Media Co., Ltd. ("SACM"(“SACM”), which is 40% owned by the Companyus and 60% owned by CSAHCCSAH
On May 11, 2010, the Company renewed the Media Services Framework Agreement with SACM, for a term of three years commencing from January 1, 2010. Pursuant to the agreement, the Company has appointed SACM to provide advertising agency services, production of in-flight TV and movie program agency services, public relations services relating to recruitments of airhostess, and services relating to the distribution of newspapers and magazines. The parties have determined the various rates for providing advertising services after negotiations on an arm’s length basis, and SACM has promised that the advertising fees for which they charged the Company were all based on the prevailing market prices for similar businesses which were accepted by the Company. The annual cap under the agreement for each year is RMB40,000,000, RMB48,000,000 and RMB58,000,000, respectively.
On April 19, 2013, the CompanyDecember 27, 2018, we entered into a new Media Services Framework Agreement with SACMmedia services framework agreement to renew the annual cap, expand themedia services scopetransaction and extend the term for an additional term of three years, commencing from January 1, 20132019 to December 31, 2015.2021. Pursuant to thethis agreement, the Company has appointed SACM agreed to continue to provide exclusive advertising agency services, plotting, purchase and production ofin-flight TV and movie program agency services, channel publicity and production services, public relations services relating to recruitments of airhostess, and services relating to the distribution of newspapers and magazines.magazines and printing, production and procurement services in relation to media. The annual cap undercaps for the media services framework agreement for each year is RMB98will be RMB150 million, RMB105RMB170 million and RMB113RMB190 million for each of the financial years ended 31 December 2019, 2020 and 2021, respectively.
For the years ended December 31, 2013, 2014 and 2015, respectively.
Due to the increase in demand for the advertising services provided by XAMC, the original annual cap will no longer be sufficient to cover the transaction amount to be incurred by the Group during the remaining term of the Media Services Framework Agreement. Accordingly, the Company and SACM entered into a supplemental agreement to the Media Services Framework Agreement (the "Supplemental Agreement to the Media Services Framework Agreement") on 29 December 2014 to revise, among others, the annual cap. Pursuant to the Supplemental Agreement to the Media Services Framework Agreement, the Company and SACM have agreed to revise the annual cap for services provided by the SACM Group for the period from January 1, 2015 to December 31, 2015 from RMB113 million to RMB118.5 million.
For the year ended December 31, 2015,2018, the media fees incurred by the Group for the media services amounted to RMB67RMB105 million.
On December 30, 2015, the Company entered into a new Media Services Framework Agreement with SACM to renew the media services transaction and extend for an additional term of three years, commencing from January 1, 2016 to December 31, 2018. The annual cap under the new agreement will remain unchanged at RMB118.5 million.
Southern Airlines Group Finance Company Limited ("(“SA Finance"Finance”), which is 66%66.02% owned by CSAHC, 21%CSAH, 33.98% owned by the Company and 13% owned in aggregate by four subsidiaries of the CompanyGroup
(1) On November 8, 2010, the Company renewed the Financial Services Framework AgreementAugust 29, 2016, we entered into a financial services framework agreement with SA Finance for ato renew and extend the term of three years starting from January 1, 2011 to December 31, 2013.
Under such agreement, SA Finance agrees to provide to the Company deposit and loan services. SA Finance shall pay interests to the Company regularly at a rate not lower than the current deposit rates set by the People’s Bank of China. The Group’s deposits placed with SA Finance were re-deposited in a number of banks. SA Finance has agreed that the loans provided to CSAHC and its subsidiaries other than the Group should not exceed the sum of SA Finance’s shareholders’ equity, capital reserves and total deposits received from other companies (excluding the Group). The rates should be determined on an arm’s length basis and based on fair market rate, and should not be higher than those available from independent third parties. The parties agreed that the balance of the Group’s deposits placed with SA Finance (including accrued interests) should not at any time exceed RMB4,000,000,000, nor should the balance of loans borrowed from SA Finance at any time exceed the above-mentioned level. The annual cap of fees payable to SA Finance for the other financial services should not exceed RMB5,000,000.
On March 16, 2012, the Company entered into a supplemental agreement to the Financial Services Framework Agreement with SA Finance, for a term effective from May 31, 2012, the date of passing of the resolution at the General Meeting, to December 31, 2013. In line with the Company’s business requirement, the parties agreed that deposit balance placed with SA Finance (including interest payable accrued thereon) in any day may not exceed RMB6,000,000,000, and the balance for provision of loan service to the Company by SA Finance (including total interests paid) in any day may not exceed the above level.
On November 8, 2013, the Company and SA Finance entered into the new Financial Services Framework Agreement for a term of three years starting from January 1, 2014 to December 31, 2016 to renew the provision of the financial services, contemplated underand to include the Financial Services Framework Agreement.
Undertransactions in relation to the new Financial Services Framework Agreement,insurance business platform services which is originally covered by the insurance business platform cooperation framework agreement dated November 19, 2015. The term of the financial services framework agreement is 3 years, commencing from January 1, 2017 to December 31, 2019. Pursuant to the financial services framework agreement, SA Finance agrees to provide to the Company deposit services, loan services and other financial services. SA Finance shallwill (i) accept deposit of money from the Group at interest rates not lower than those set by the People’s Bank of China, or PBOC for the same term of deposit. SA Finance will in turn deposit the whole of such sums of money with certain stated-owned commercial banks and listed commercial banks to control the risk. SA Finance shallus, (ii) make loans or provide credit line services to the Group and the entering into of separate loan agreements, which will set out the terms and conditions of the loans, upon application by the Company during the term of the new Financial Services Framework Agreement. SA Finance shall not charge interest rates higher than those set by the PBOC for similar loans. The total amount of outstanding loans extended by SA Finance to CSAHC (excluding the Group) must not exceed the sum of SA Finance's shareholders' equity, capital reserves and money deposit received from other parties (except the Group). The interest rate for loans provided to the Group by SA Finance shall not be higher than the basis rate allowed by the PBOC for the same type of loan and, subject to the above, the interest rate charged on the loans to the Group shall be equal to or lower than the rate charged by normal commercial banks in the PRC for comparable loans (whichever is lower). Upon request by the Company, SA Finance shall alsous, (iii) provide other financial services to the Group, including financial and financing consultation, credit certification and other relevant advice and agency services, insurance agency services, and other businesses which SA Finance are approved by China Banking Regulatory Commission, or CBRC to operate by entering into of separate agreements, which will set out the terms and conditions of such services. The parties agreed that the balance of the Company’s deposits placed with SA Finance (including accrued interests) should not at any time exceed RMB6,000,000,000, nor should the balance of loans borrowed from SA Finance at any time exceed the above-mentioned level. The annual cap of fees payable to SA Finance for the other financial services should not exceed RMB5,000,000. The Company and SA Finance entered into a supplemental agreement to the new Financial Services Framework Agreement on 4 May 2015. Pursuant to the supplemental agreement, the Company and SA Finance agreed to revise each of the cap inus. In relation to the provision of depositinsurance business platform services and the provision of the loan services for the period from the effective date of the supplemental agreement to December 31, 2016 from RMB6 billion to RMB8 billion. Save as the said revision, all other terms of the new Financial Services Framework Agreement shall remain unchanged.
As of December 31, 2015, the Group’s deposits placed with SA Finance amounted to RMB2,934 million, the outstanding loans provided by SA Finance is nil.
(2) On November 21, 2014, Guangdong CSA E-commerce Co., Ltd. (the "E-commerce Company") entered into four electronic aviation passenger comprehensive insurance four-parties cooperation agreements (the "Cooperation Agreements") with SA Finance, Air Union Insurance Brokers (Beijing) Co., Ltd. (the "Air Union") and Ping An Property & Casualty Insurance Company of China, Ltd. Guangdong Branch, Sunshine Property and Casualty Insurance Company Limited, Taiping Pension Co., Ltd. and PICC Property and Casualty Company Limited Guangzhou Branch the Insurance Companies, respectively (the "Insurance Companies"), for a term of three years commencing from June 12, 2014 to May 31, 2017. Pursuant to the Cooperation Agreements, the E-commerce Company agreed to authorize other parties to use the B2C website, the mobile terminal air tickets sale platform and VOS sale system of the Company for sales of online insurances in consideration for a fixed service fees for each policy sold through its electronic platform. SA Finance (the only entity within the CSAHC Group holding the comprehensive insurance agent qualification which was approved by both China Banking Regulatory Commission and CIRC) shall be responsible for the general coordination and support, financial settlement and assisting the settlement for insurance claims in relation to the sales of online insurance procured by Air Union through the electronic platforms of the Company. Air Union shall act as the agent of the Insurance Companies to sell the electronic aviation passenger comprehensive insurance through the electronic platforms of the Company and the Insurance Companies shall provide the standard insurance products and corresponding consulting services, and will be responsible for the insured risksarrangements under the electronic aviation passenger comprehensive insurance. The Group will charge a fixed service fee of RMB5 for each insurance policy sold through its electronic platforms. For the year ended December 31, 2014, the service fee charged by the Group amounted to RMB20.87 million.
On November 19, 2015, the Company and SA Finance entered into the Insurance Business Platform Cooperation Framework Agreement for a term of two years starting from January 1, 2015 to December 31, 2016. Pursuant to the Insurance Business Platform Cooperation Framework Agreement, the Company as the platform service provider,financial services framework agreement, we agreed to cooperate with SA Finance, and authorizeauthorized SA Finance to use theour various platforms of the Group including online channels and ground service counter channels as the sales platforms for sale of various insurances relating to aviation transportation including baggage insurance and aviation passenger accident insurance. The scope of the Insurance Business Platform Cooperation Framework Agreement shall also cover the electronic platform as contemplated under the four electronic aviation passenger comprehensive insurance four-parties cooperation agreementstransportation.
On April 27, 2018, we entered into between the E-commerce Company, inter alia,a supplemental agreement with SA Finance on November 21, 2014 as disclosed above. For the sale of insurance policies through the Group's ground service counter channels and its electronic platforms, the Group is currently charging a fixed ratioto revise each of the insurance premiumannual caps in relation to the provision of deposit and the insurance policies. Forprovision of loan for the year endedperiod from the effective date of such supplemental agreement to December 31, 2015,2019 from RMB8 billion to RMB10 billion.
As of December 31, 2018, our Group’s deposits placed with SA Finance amounted to RMB5,583 million, the service fee charged by the Group amounted to RMB16us were RMB20 million.
China Southern Air Holding Ground Services Company Limited ("GSC"(“GSC”), a wholly-owned subsidiary of CSAHCCSAH
The Company and GSCOn December 16, 2016, we entered into a Sales Agency Services Framework Agreement dated January 28, 2011, which is valid from January 1, 2011passenger and cargo sales and ground services framework agreement with GSC to December 31, 2013. The Companyrenew the passenger and GSC entered into a new Passenger and Cargo Sales Agency Services Framework Agreementcargo sales agency services framework agreement dated November 8, 2013 which is validfor a term of three years commencing from January 1, 20142017 to December 31, 20162019. Under the passenger and cargo sales and ground services framework agreement, GSC agreed to renew the continued cooperation with GSC. Pursuantprovide certain services to the new PassengerGroup charging the agency fee and Cargo Sales Agency Services Framework Agreement,service, and we agreed to lease certain assets such as vehicles and equipment together with working space to GSC charging the cooperative scope of both parties thereto mainly comprises extended businesses including air ticket sales agency services, airfreight forwarding sales agency services, chartered flight and pallets sales agency services, internal operation serviceslease fee. The annual caps for the inside storage area, and delivery services for the outside storage area. GSC charges commission with referenceprovided to the prevailing market rate. Besides, the Company has other air ticket sales agents in China who also charge commission at the same rates. GSC also acts as the ticket sales agents of other airline companies in China, and charge commission at the same rates offered to the Group. The annual transaction capGroup by GCS for each of the sales value shall not exceed RMB250,000,000.
three years ending December 31, 2019 will be RMB270 million, RMB330 million and RMB400 million, respectively.
For the year ended December 31, 2015,2018, the commission expense, transportation expense and goods handling fee paid to GSC were RMB98RMB135 million, and RMB109 million respectively, and the income relating to other serviceslease fee charged by us was RMB20RMB3 million.
Guangzhou China Southern Airlines Group Property Management Company Limited (the "GCSAPMC"“CSAGPMC”), a wholly-owned subsidiary of CSAHCCSAH
The Company and GCSAPMC renewed the Framework Agreement for the Engagement of Property Management (the "existing Property Management Framework Agreement") onOn December 29, 2008 for a term of three years.
The Company has19, 2017, we entered into a New Framework Agreement for Engagement of Property Management (the "New Property Management Framework Agreement") on December 28, 2012 to renew the property management transactions for a term of three years from January 1, 2012 to December 31, 2014. Pursuant to the New Property Management Framework Agreement, the Company has renewed the appointment of GCSAPMC for provision of property management and maintenance services for the Company’s leased properties in the airport terminal, the base and the 110KV transformer substation at the new Baiyun International Airport (other than certain properties in the Company’s headquarter located in the old Baiyun Airport which were covered in the existing Property Management Framework Agreement) to ensure the ideal working conditions of the Company’s production and office facilities and physical environment, and the normal operation of equipment.
The Company has further entered into the airport property management framework agreement (the "Airport Property Management Framework Agreement") on January 11, 2013with CSAGPMC to renew the property management at the old Baiyun Airport for a term of three years from January 1, 2012 to December 31, 2014. Pursuant to the Airport Property Management Framework Agreement, the Company has renewed the appointment of GCSAPMCCSAGPMC for the provision of property management and maintenance services for the Company’s properties at the old Baiyun Airport and the new Baiyun International Airport and surrounding in Guangzhou.
The fee charging schedule (or charge standard) under the New Property Management Framework Agreement and the Airport Property Management Framework Agreement shall be determined on an arm’s length basis between both parties, and shall not be higher than the one charged by any independent third parties in the similar industry. The annual cap for the New Property Management Framework Agreement and the Airport Property Management Framework Agreement are set at RMB32,750,000 and RMB22,250,000, respectively.
On December 31, 2013, the Company further entered into an agreement supplemental to the New Property Management Framework Agreement (the "New Property Management Supplemental Agreement") and an agreement supplemental to the Airport Property Management Framework Agreement (the "Airport Property Management Supplemental Agreement"). Pursuant to the New Property Management Supplemental Agreement, the parties have agreed to revise the services fee in relation to the provision of property management and maintenance services by GCSAPMC forGuangzhou, the Company’s leased properties atin the airport terminal at new Baiyun International Airport, the base and the 110KV transformer substation at the new Baiyun International Airport, from RMB32,750,000 per annum to RMB42,700,000 per annumand for the year ended December 31, 2014. Pursuant to the Airport Property Management Supplemental Agreement, the parties have agreed to revise the services fee in relation to provision of the property management and maintenance services by GCSAPMC for the Company’s several propertiespower transformation and distribution equipment at the old Baiyun AirportGuangzhou cargo terminal, and surrounding in Guangzhou from RMB22,250,000 per annum to RMB27,300,000 per annum for the year ended December 31, 2014.
As the transactions contemplated under the New Property Management Framework Agreement and the Airport Property Management Framework Agreement will continue to be entered into on a recurring basis, the Company entered into the new Property Management Framework Agreement (the "Property Management Framework Agreement") with ise the services fee in relation to the provision of property management and maintenancethe electricity charge agency services by GCSAPMC on December 29, 2014 to renew the property management transactions originally covered under the New Property Management Framework Agreement and the Airport Property Management Framework Agreement for a term of three years commencing from January 1, 20152018 to December 31, 2017.2020. The annual capcaps for the Property Management Framework Agreement isproperty management framework agreement are set at RMB90 million, RMB92 million and RMB96155 million for the three years ending December 31, 2015, 2016 and 2017,2020, respectively.
For the year ended December 31, 2015,2018, the property management and maintenance fee incurred by the Group amounted to RMB73RMB106 million pursuant to the New Property Management Framework Agreement,property management framework agreement.
Guangzhou Nansha CSA Tianru Leasing Co., Ltd. (the “CSA Leasing Company”), which is wholly owned by CSA International Finance Leasing Co., Ltd. (the “CSA International”), which is wholly owned by CSAH
We entered into A321 finance lease agreement and A330 finance lease agreement with CSA Leasing Company on April 27, 2017, pursuant to which CSA Leasing Company agreed to provide finance leasing to us in relation to one Airbus A321 aircraft and one AirbusA330-300 aircraft.
For the Airport Property Management Frameworkyear ended December 31, 2018, the transaction fees paid by the Company to CSA Leasing Company under the A321 Finance Lease Agreement and A330 Finance Lease Agreement was RMB1,166 million in total (include the Property Management Framework Agreement.principal, interest payable and handling fee).
CSA International, which is wholly owned by CSAH
We entered into a 2018-2019 finance and lease service framework agreement with CSA International on October 17, 2017 (“2018-2019 Finance and Lease Service Framework Agreement”), pursuant to which CSA International agreed to provide finance leasing service to the Company in relation to the leased Aircraft, leased aircraft related assets and leased aviation related equipment, as well as the operating lease service to the Company in relation to certain aircraft and engines.
For the year ended December 31, 2018, fees paid by the Company to CSA International for finance leasing service and operating leasing service were RMB8,221 million and RMB91 million, respectively.
Shenzhen Air Catering Co., Ltd. (the "SACC"“SACC”), which is 50.1% owned by CSAHCCSAH
The CompanyWe entered into a Catering Services Framework Agreementcatering services framework agreement with Shenzhen Air Catering Co., Ltd., a non-wholly-owned subsidiary of CSAHCSACC on April 19, 2013December 27, 2018 to renew the catering services framework agreement dated December 30, 2015 for a term of three years commencing from January 1, 20132019 to December 31, 2015, pursuant2021. Pursuant to whichthe agreement dated December 27, 2018, SACC agreesagreed to provide thein-flight lunch box, meal boxes, and order, supply, allot, recycle, store and install thein-flight supply with their respective services for the arrival and departure flights designated by the Group at the airport where SACC is located at. The maximum annual aggregate amount ofcaps for the catering services fee payable by the Company to SACC shall not exceed RMB100framework agreement are RMB231 million, RMB115RMB266 million and RMB132.5RMB306 million for each of the three financial years ended 31 December 31, 2013, 20142019, 2020 and 2015,2021, respectively.
For the year ended December 31, 2015,2018, the services fee incurred by theour Group for the catering services amounted to RMB100RMB135 million.
The Company entered into a new Catering Services Framework Agreement with SACC on December 30, 2015 for an additional term of three years, commencing from January 1, 2016 to December 31, 2018. The annual cap under the new agreement is set at RMB152 million, RMB175 million and RMB201 million for each of the years ending December 31, 2016, 2017 and 2018, respectively.
Zhuhai MTU, which iswas 50% owned by CSAHCus
The CompanyWe entered into an agreement relating to continuing connected transactions with CSAHC,CSAH, MTU Aero Engines GmbH ("MTU GmbH") and Zhuhai MTU on September 28, 2009, by which Zhuhai MTU shall continue to provide the Companyus with engine repair and maintenance services subject to the international competitiveness and at the net most favorable terms, while the Companywe shall make relevant payment to Zhuhai MTU according to related charging standard. The agreement is effective from its date to April 5, 2031. The maximum aggregate annual consideration for the continuing connected transactions under the above agreement were disclosed in the announcement of the Company dated September 28, 2009 and such maximum aggregate annual consideration for the year ended December 31, 2012 is RMB1.2 billion.
For the year ended December 31, 2015, the2018, our Group’s engine repair and maintenance service fees incurred under the agreement amounted to RMB1,324RMB1,184 million.
In 2017, we entered into a share subscription agreement with CSAH pursuant to which CSAH will subscribe for certain newly issued A Shares, the consideration of which was composed of cash and 50% equity interest of Zhuhai MTU shares. As of August 28, 2018, CSAH has completed the registration for the transfer of its 50% equity interest in Zhuhai MTU to us.
Nan Lung, which is wholly owned by CSAH
We entered into a share subscription agreement with Nan Lung on June 26, 2017, pursuant to which, Nan Lung will, at the subscription price of HK$6.27 per H Share, subscribe in cash for no more than 590,000,000 new H Shares , raising gross proceeds of no more than HK$3,699.30 million. The subscription price and the number of the new H Shares will be adjusted in case ofex-right orex-dividend events including distribution of dividend according to the H Share Subscription Agreement. On September 19, 2017, our board considered and approved that the subscription price and the number of H Shares to be issued pursuant to this subscription agreement shall be adjusted to HK$6.156 and not more than 600,925,925 new H Shares, respectively due to the implementation of our 2016 dividend distribution plan. On September 11, 2018, we completed the issuance of 600,925,925 H shares to Nan Lung Holding Limited according to the subscription agreement, at the issue price of HKD6.034 per share.
Guangzhou Southern Airlines Construction Company Limited (the “GSAC”), which is wholly owned by CSAH
We entered into the CSA Building Asset Lease Agreement with GSAC on January 19, 2018, pursuant to which GSAC agreed to lease to (i) certain offices at floors1-10, 12 and17-36 in CSA Building located at West Side of Yuncheng East Road, Baiyun Xincheng, Baiyun District, Guangzhou with an aggregate gross floor area of not exceeding 88,396 square meters at an annual rental of not exceeding RMB159,112,800; and (ii) 550 parking lots in CSA Building at an annual rental of not exceeding RMB5,520,000 for a term of three years commencing from January 19, 2018 to January 18, 2021. For the year ended December 31, 2018, rental paid to GSAC by the Company was RMB106 million.
Guangzhou Nansha CSA Tianshui Leasing Co., Ltd(“Guangzhou Tianshui”), which is indirect wholly-owned by CSAH
We entered into the an aircraft sale and leaseback agreement with Guangzhou Tianshui on March 16, 2018, pursuant to which we agreed to sell 14 A320 aircraft to Guangzhou Tianshui. The consideration for such aircraft was RMB371 million. Such aircraft will be leased by Guangzhou Tianshui to the Company with rental fee payable as RMB687,000 per aircraft per month for various terms ranging from 8 to 22 months, which constitute part of the operating lease under the 2018-2019 Finance and Lease Service Framework Agreement.
SaleGuangzhou Yunde Aircraft Leasing Co., Ltd.(“Guangzhou Yunde”), an indirect wholly-owned subsidiary of Aircraft to Hebei Airlines Company Limited ("Hebei Airlines") by Xiamen AirlinesCSAH
On September 26, 2012, the Board announced that Xiamen Airlines and HebeiChongqing Airlines entered into the Aircraft Sale Agreement,an aircraft sale and leaseback agreement with Guangzhou Yunde on November 23, 2018, pursuant to which XiamenChongqing Airlines agreed to sell 4 A320 aircraft to Guangzhou Yunde. The consideration for such aircraft was RMB121.31 million. Such aircraft will be leased by Guangzhou Yunde to Chongqing Airlines with rental fee payable as RMB687,000 per aircraft per month for a term of 3 months, which constitutes part of the operating lease under the 2018-2019 Finance and Hebei Airlines agreed to purchase one B737-800 aircraft at the consideration of approximately RMB257 million.Lease Service Framework Agreement.
Acquisition of 95.4% Equity Interests in Hebei Airlines by Xiamen Airlines
On October 13, 2014, the Board announced that Xiamen Airlines and Hebei Airlines Investment Group Company Limited (the "Hebei Airlines Investment") entered into an agreement, pursuant to which Hebei Airlines Investment agreed to sell and Xiamen Airlines agreed to purchase 95.4%% equity interests (the "Targeted Equity Interests") in Hebei Airlines at the consideration of RMB680 million (the "Acquisition"). Hebei Airlines is a company incorporated in the PRC and its principal business activity is that of operation of international and domestic air routes, and cargo, mail and luggage transportation business; agency business between airlines; service business related to air transportation; provision of general aviation services; aircraft management business; aircraft maintenance; agency business between airlines, and ground service and air express (except mails and items with mail nature) related to the principal business; in-flight duty free goods; aircraft leasing and sales agent for aviation accident insurance; aviation food producing and sale, insurance industry and agency services; other aviation business and related business, including advertising for such businesses; logistics, trading and storage.
The audited and unaudited net asset value of Hebei Airlines as of December 31, 2013 and August 31, 2014 was approximately RMB 1,305.84 million and RMB 1,181.36 million, respectively. According to the valuation report dated June 30, 2014 prepared by Beijing Zhong Qi Hua Assets Valuation Co., Ltd. (an independent qualified valuer in the PRC), the appraisal value of the total equity interests of Hebei Airlines amounted to RMB831,293,200 as of April 30, 2014. As such, the appraisal value of the Targeted Equity Interests amounted to RMB793,053,700 as of April 30, 2014. The consideration of RMB 680 million is determined after an arm’s length negotiation between the parties in accordance with prevailing market conditions and after taking into account, inter alia, the net asset value of Hebei Airlines and the abovementioned appraisal value of the Targeted Equity Interests as of April 30, 2014.
The Company believes that the Acquisition can help the Group to further develop the aviation market in Hebei, facilitate the integration of the North China market by Xiamen Airlines and improve its domestic route network; the Acquisition will also achieve the synergies of Xiamen Airlines and Hebei Airlines to strengthen their market positions, so as to further enhance the competitiveness of the Company, Xiamen Airlines and Hebei Airlines as a whole.
Acquisition of 4% Equity Interests in Xiamen Airlines from Xiamen Jianfa
On July 14, 2015, the Board announced that the Company and Xiamen Jianfa entered into an agreement (the “Share Transfer Agreement”), pursuant to which Xiamen Jianfa agreed to sell and the Company agreed to purchase 4% equity interests (the "Targeted Equity Interests") in Xiamen Airlines at the consideration of RMB586,666,670 (the "Acquisition"). The Company believes that the increase of 4% equity interests in Xiamen Airlines held by the Company can help the Group to further enhance its control over the Xiamen Airlines, help the Xiamen Airlines to maintain a stable shareholding structure, further improve the strategic synergy effect of the Company and Xiamen Airlines and improve the overall operating results of the Company.
Capital Increase Agreement
On December 8, 2015, the Company and Xiamen JianfaMarch 1, 2019, we entered into a supplementalcapital increase agreement to the Share Transfer Agreement,with CSAH, Xiamen Airlines, Shantou Airlines, Zhuhai Airlines and Guangzhou Nanland, pursuant to which the parties agreed we make a capital contribution in the sum of RMB500 million by way of cash to adjustSA Finance. Upon such capital contribution, the considerationequity interest directly held by us in SA Finance would increase from RMB586,666,66725.277% to RMB626,666,667 so as to reflect the profit attribution arrangement.41.808%.
SaleAcquisition of 51% Equity InterestsProperty in XAMCthe PRC
On June 29, 2012, the Board announced that Xiamen Airlines and SACMDecember 24, 2018, we entered into ana sale and purchase agreement with Zhuhai China Southern Air Real Property Development Co., Ltd., pursuant to which Xiamen Airlines agreed to sell and SACMwe agreed to purchase 51% equity interests in XAMC atfrom Zhuhai China Southern Air Real Property Development Co., Ltd. the consideration of RMB43.12 million. The Company believes thatwhole 1st to 42nd floor and the disposalbasement of the 51% equity interests in XAMC can promotehotel building A1 under the integration of media resources owned by SACMZhuhai International Civil Aviation Standard Service Development and XAMC, and they can achieve a better development by mutual useTraining Centre Project to be constructed on the western side of the platforms and resourcesnorthern part of Lot No. 36 of Zhuhai Free Trade Zone, Zhuhai City, the PRC with a planned floor area of approximately 60,927.8 square meters. The consideration will not exceed RMB798.56 million. CSAH indirectly owned 49% equity interest of Zhuhai China Southern Air Real Property Development Co., Ltd..
Provision of Guarantees to SPV established by each other. us
As XAMC shall be owned as to 49% by Xiamen Airlines, Xiamen Airlines shall continue to benefit from long-term development of XAMC.
Subscription of New A Shares by CSAHC
On June 11, 2012, the Board approved the proposed issuance of not more than 487,804,878 new A Shares (after the adjustment with reference to the profit distribution proposal for 2011) to CSAHC at the subscription price of RMB4.10 (after the adjustment with reference to the profit distribution proposal for 2011) per A Share (the "Non-public A Share Issue"). The proceeds to be raised from the proposed Non-public A Share Issue will be not more than RMB2 billion. CSAHC entered into the Subscription Agreement withDecember 21, 2018, the Company pursuant to which CSAHC has conditionally agreed to subscribe for andprovided the Company has conditionally agreed to allot and issue not more than 487,804,878 new A Shares for an aggregate considerationSPVs with total guarantee of not more than RMB2 billion, equivalent to the subscription price of RMB4.10 per new A Share (the "Subscription"). As of August 9, 2013, the relevant work regarding the 2012 Non-public A Share Issue of the Company has not been completed. The proposal for the 2012 Non-public A Share Issue of the Company and A Shares subscription agreement therefore were lapsed automatically due to the expiration of the resolution passed at the general meeting.
All related party transactions have been approved by Independent Non-executive Directors.US2.424 billion.
C. | INTERESTS OF EXPERTS AND COUNSEL |
Not applicable.
FINANCIAL INFORMATION |
Not applicable.
A. | CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION |
Our audited consolidated financial statements are set forth beginning on pageF-1, which can be found after Item 19.
Legal Proceedings
The Company received a claim on July 11, 2011 from an overseas entity (the “claimant”) against the Company for the alleged breach of certain terms and conditions of an aircraft sale agreement for aircraft sold by the Company to the claimant. The claimant claimed against the Company for damages in the sum of approximately USD46 million or for the refund of its down payments of approximately USD12 million paid to the Company, and also interest thereon which is to be calculated in accordance with Section 35A, Supreme Court Act 1981 of the United Kingdom. In 2012, the claimant subsequently changed its claim for the refund of the down payment to approximately USD14 million. On July 25, 2013, the High Court of England and Wales dismissed the claimant’s claim in its entirety but awarded damages in the sum of approximately USD28 million, interest thereon and also legal costs to the Company in respect of its counterclaim made against the claimant. The claimant appealed to the Court of Appeal and on December 17, 2014, the Court of Appeal dismissed the claimant’s appeal but varied the award of damages to the Company from USD28 million to USD18 million. The Court of Appeal also ordered the claimant to pay the Company’s costs of the appeal. The claimant has applied for permission to further appeal the case to the Supreme Court but the application has been rejected by both the Court of Appeal and the Supreme Court. Based on existing information available, the Directors are of the opinion that an outflow of resource embodying economic benefits is not probable to occur.
On May 31, 2014, the Company received a notice from the International Court of Arbitration of International Chamber of Commerce (“ICC”). The notice states that SASOF TR-81 AVIATION IRELAND LIMITED (the “lessor”) has applied for arbitration for the alleged breach of certain terms and conditions of an aircraft leasing agreement. The lessor has made a claim against the Company for an indemnity of approximately USD13 million, including the compensation for engine thrust upgrade damages, life components of engine, reserves of engines, cost of termination of the lease, external legal counsel’s remuneration and the interest thereon. On July 31, 2014, the Company has established a team to handle this arbitration and applied to ICC for a counter claim to request the lessor to compensate the Company for insurance fees amounting to USD9.8 million, deposits, default penalty, extra technical support fees and legal expenses and the interest thereon. The hearing in the ICC arbitration proceedings commenced in London on March 7, 2016, and will conclude on April 19, 2016, and the award of the Arbitral Tribunal is awaited. As of the date of this report, the Company cannot reasonably predict the result and potential financial impact of this pending arbitration, if any. Therefore, no additional provision has been made against this pending arbitration.
Not applicable.
Dividend Information
A dividend in respect of the year ended December 31, 20152018 of RMB0.4RMB0.05 (inclusive of applicable tax) per ten shares,share, amounting to a total dividend of RMB785RMB613 million was proposed by the Directorsdirectors on March 30, 2016.29, 2019. The final dividend proposed after the end of the financial year has not been recognized as a liability at the end of the financial year.
Our Board declares dividends, if any, in Renminbi with respect to H Shares on a per share basis and pays such dividends in Hong Kong dollars. Any final dividend for a fiscal year is subject to shareholders’ approval. Bank of New York Mellon, as depositary, converts the HK dollar dividend payments and distributes them to holders of ADSs in U.S. dollars, less expenses of conversion. Under the Company Law of the PRC and our Articles of Association, all of our shareholders have equal rights to dividends and distributions. The holders of the H Shares share proportionately on a per share basis in all dividends and other distributions declared by our Board, if any, based on the foreign exchange conversion rate published by the People’s Bank of China, or PBOC, on the date of the distribution of the cash dividend.
We believe that our dividend policy strikes a balance between two important goals providing our shareholders with a competitive return on investment and assuring sufficient reinvestment of profits to enable us to achieve our strategic objectives. The declaration of dividends is subject to the discretion of our Board, which takes into account the following factors:
our financial results;
capital requirements;
contractual restrictions on the payment of dividends by us to our shareholders or by our subsidiaries to us;
our shareholders’ interests;
the effect on our creditworthiness;
general business and economic conditions; and
other factors our Board may deem relevant.
Pursuant to PRC laws and regulations and theour Articles of Association, of the Company, dividends may only be distributed after allowance has been made for: (i) recovery of losses, if any, and (ii) allocations to the statutory surplus reserve. The allocation to the statutory surplus reserve is 10% of our net profit determined in accordance with PRC GAAP. Our distributable profits for the current fiscal year will be equal to our net profits determined in accordance with IFRSs, less allocations to the statutory surplus reserve.
B. | SIGNIFICANT CHANGES |
No significant changes have occurred since the date of the consolidated financial statements.
ITEM 9. | THE OFFER AND LISTING |
A. | OFFER AND LISTING DETAILS |
The principal trading market for theour Company’s H Shares is the Hong Kong Stock Exchange, and theour Company’s trading code is "1055"“1055”. TheOur Company completed itsour initial public offering of H Shares on July 30, 1997. The ADRs,ADS, each representing 50 H Shares, have been listed for trading on the New York Stock Exchange since July 31, 1997, under the symbol "ZNH"“ZNH”.
The principal trading market for theour Company’s A Shares is the Shanghai Stock Exchange with trading code of "600029"“600029”. On July 25, 2003, theour Company completed itsour initial public offering of A Shares.
Set forth below forNo significant trading suspension occurred in the periods indicated are the high and low sales prices of H Shares on the Hong Kong Stock Exchange, ADRs on the New York Stock Exchange and A Shares on the Shanghai Stock Exchange.prior three years.
The Hong Kong Stock | The Shanghai Stock | |||||||||||||||||||||||
Exchange Price per H | The New York Stock | Exchange Price per A | ||||||||||||||||||||||
Share | Exchange Price per ADR | Share | ||||||||||||||||||||||
(HK$) | (US$) | (RMB) | ||||||||||||||||||||||
High | Low | High | Low | High | Low | |||||||||||||||||||
Annual Market Prices | ||||||||||||||||||||||||
Fiscal Year ended December 31, 2011 | 5.37 | 3.08 | 35.40 | 20.02 | 10.13 | 4.57 | ||||||||||||||||||
Fiscal Year ended December 31, 2012 | 4.54 | 3.22 | 29.72 | 20.20 | 5.48 | 3.28 | ||||||||||||||||||
Fiscal Year ended December 31, 2013 | 4.43 | 2.61 | 30.04 | 17.09 | 4.3 | 2.54 | ||||||||||||||||||
Fiscal Year ended December 31, 2014 | 3.90 | 2.23 | 25.17 | 14.53 | 5.93 | 2.26 | ||||||||||||||||||
Fiscal Year ended December 31, 2015 | 9.84 | 3.53 | 63.29 | 22.52 | 15.98 | 4.48 | ||||||||||||||||||
Quarterly Market Prices | ||||||||||||||||||||||||
Fiscal Year ended December 31, 2014 | ||||||||||||||||||||||||
First Quarter | 3.08 | 2.47 | 19.58 | 15.91 | 2.72 | 2.48 | ||||||||||||||||||
Second Quarter | 2.64 | 2.23 | 16.68 | 14.53 | 2.60 | 2.26 | ||||||||||||||||||
Third Quarter | 2.88 | 2.39 | 18.29 | 15.00 | 2.99 | 2.31 | ||||||||||||||||||
Fourth Quarter | 3.90 | 2.49 | 25.17 | 15.97 | 5.93 | 2.81 | ||||||||||||||||||
Fiscal Year ended December 31, 2015 | ||||||||||||||||||||||||
First Quarter | 5.45 | 3.53 | 36.04 | 22.52 | 8.51 | 4.48 | ||||||||||||||||||
Second Quarter | 9.84 | 5.99 | 63.29 | 38.37 | 15.98 | 8.13 | ||||||||||||||||||
Third Quarter | 9.00 | 4.32 | 57.50 | 27.46 | 14.27 | 7.12 | ||||||||||||||||||
Fourth Quarter | 6.73 | 5.17 | 42.40 | 32.62 | 9.35 | 7.68 | ||||||||||||||||||
Monthly Market Prices | ||||||||||||||||||||||||
October 2015 | 6.73 | 5.50 | 42.40 | 35.86 | 8.97 | 7.68 | ||||||||||||||||||
November 2015 | 6.44 | 5.64 | 41.51 | 36.49 | 9.35 | 7.74 | ||||||||||||||||||
December 2015 | 6.21 | 5.17 | 39.62 | 32.62 | 9.15 | 7.72 | ||||||||||||||||||
January 2016 | 5.48 | 4.50 | 35.23 | 28.93 | 8.57 | 6.14 | ||||||||||||||||||
February 2016 | 4.84 | 4.13 | 31.10 | 25.44 | 6.98 | 5.86 | ||||||||||||||||||
March 2016 | 4.95 | 4.41 | 32.17 | 29.07 | 6.59 | 5.91 | ||||||||||||||||||
April 2016 (up to April 18, 2016) | 5.30 | 4.90 | 34.18 | 31.44 | 6.54 | 6.25 |
B. | Plan of Distribution |
Not applicable.
C. | Markets |
See “Offer and Listing Details” above.
D. | Selling Shareholders |
Not applicable.
E. | Dilution |
NOT applicable.
F. | Expenses of the Issue |
Not applicable.
ITEM 10. | ADDITIONAL INFORMATION |
See "Offer and Listing Details" above.
Share Capital |
Not applicable.
Not applicable.
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
Not applicable.
Memorandum and Articles of Association |
The following is a summary of certain provisions of our Articles of Association. As this is a summary, it does not contain all the information that may be important to you. You and your advisors should read the text of our most updated Articles of Association for further information, which is filed as an exhibit to this Annual Report.
General
TheOur Company is registered with and has obtained a business license from the State Administration Bureau of Industry and Commerce of the People’s Republic of China on March 25, 1995. On March 13, 2003, theour Company obtained an approval certificate from the Ministry of Commerce to change to a permanent limited company with foreign investments.
Other Senior Administrative Officers
Pursuant to the Article 1617 of the Articles of Association, other senior administrative officers of theour Company refer to executive vice president, chief financial officer, the board secretary, chief economist, chief engineer, chief pilot,Executive Vice President, Chief Financial Officer, Chief Pilot, COO Flight Safety, Chief Information Officer, Chief Economist, Chief Legal Adviser, Chief Engineer, COO Flight Operations, Company Secretary and chief legal adviser and chief information officer.
other senior management appointed by the Board of Directors.
Objects and Purposes
Pursuant to the Article 1819 of the Articles of Association, the scope of business of theour Company includes: (I)(1) provision of scheduled andnon-scheduled domestic, regional and international air transportation services for passengers, cargo, mail and luggage; (II)(2) undertaking general aviation services; (III)(3) provision of aircraft repair and maintenance services; (IV)(4) acting as agent for other domestic and international airlines; (V) (5)provision of air catering services; (VI) provision of hotel business; (VII) acting as sale agent for aircraft leasing and aviation accident insurance; (VIII)(6) engaging in other airline or airline-relatedairline related business, including advertising for such services; and (IX)(limited to insurance agency business. (subjectbusiness personal accident insurance); (7) provision of airline ground services; (8) aviation training; (9) asset leasing services; (10) project management and technical consultancy services; (11) sales of aviation equipment; (12) travel agency business; (13) merchandise retail and wholesale; all subject to approved of State Administration of Industry and Commerce).
85
approval by company registration authorities.
Directors
Pursuant to Article 243175 of the Articles of Association, where a Director of the Company is in any way, directly or indirectly, materially interested in a contract, transaction or arrangement or proposed contract, transaction or arrangement with the Company, other than his contract of service with the Company, he shall declare the nature and extent of his interests to the Board of Directors at the earliest opportunity, whether or not the contract, transaction or arrangement or proposal is otherwise subject to the approval of the Board of Directors. For the purposes of this Article, a director is deemed to be interested in a contract, transaction or agreement in which an associate of him is interested.
Pursuant to Article 173 of the Articles of Association, where a Director is interested in any resolution proposed at a board meeting, such Directordirector shall not be presentabstain from voting and shall not have a right to vote. Such Directordirector shall not be counted in the quorum of the relevant meeting. Such directors also shall not vote on behalf of other directors. Board meetings may be convened by more than half of the directors who are not interested in the proposal. Resolutions of board meetings shall be passed by more than half of directors who are not interested in the proposal.
Pursuant to Article 251245 of the Articles of Association, where a director of our Company is in any way, directly or indirectly, materially interested in a contract, transaction or arrangement or proposed contract, transaction or arrangement with the Company, (other than his contract of service with the Company), he shall declare the nature and extent of his interests to the Board of Directors at the earliest opportunity, whether or not the contract, transaction or arrangement or proposal therefor is otherwise subject to the approval of the Board of Directors. For the purposes of this Article, a director is deemed to be interested in a contract, transaction or agreement in which an associate of him is interested.
Pursuant to Article 253 of the Articles of Association, our Company shall, with the prior approval of shareholders in shareholders’ general meeting, enter into a contract in writing with a Directordirector wherein his emoluments are stipulated. The aforesaid emoluments include, emoluments in respect of his service as Director,director, Supervisor or senior administrative officer of theour Company or any subsidiary of theour Company, emoluments in respect of the provision of other services in connection with the management of the affairs of theour Company and any of its subsidiaries, and payment by way of compensation for loss of office, or as consideration for or in connection with his retirement from office.
Pursuant to Article 248 of the Articles of Association, our Company shall not directly or indirectly make a loan to or provide any guarantee in connect with the making of a loan to a director of the Company. However, the following transactions are not subject to such prohibition: (1) The provision by the Company of a loan or a guarantee in connection with the making of a loan or any other funds to any of its directors to meet expenditure incurred or to be incurred by him for the purposes of the Company or for the purpose of enabling him to perform his duties properly, in accordance with the terms of a service contract approved by the shareholders in shareholders’ general meeting; (3) The Company may make a loan to or provide a guarantee in connection with the making of a loan to any of the relevant directors or their respective associates in the ordinary course of its business on normal commercial terms, provided that the ordinary course of business of the Company includes the lending of money or the giving of guarantees.
There is no specific provisions concerning a director’s power, in the absence of an independent quorum, to vote compensation to themselves or any members of their body, other than the above Article 173175 with respect to a director’s voting power in matters he is materially interested.
Directors are not required to hold shares of our Company. Our Articles do not contain any share requirements for the directors to retire by a specified age.
Ordinary Shares
Pursuant to Article 2627 of the Articles of Association, subject to the approval of the securities authority of the State Council, theour Company may issue and offer shares to domestic investors or foreign investors for subscription. Foreign investors are those investors of foreign countries and regions of Hong Kong, Macau and Taiwan who subscribe for shares issued by theour Company. Domestic investors are those investors within the territory of the PRC (excluding investors of the regions referred to in the preceding sentence) who subscribe for shares issued by theour Company.
Pursuant to Article 2728 of the Articles of Association, shares issued by theour Company to domestic investors for subscription in RenminbiRMB shall be referred to as "Domestic-Invested Shares"“Domestic Shares”. Shares issued by theour Company to foreign investors for subscription in foreign currencies shall be referred to as "Foreign-Invested Shares"“Foreign Shares”. Foreign-InvestedForeign Shares which are listed overseas are called "Overseas-Listed Foreign-Invested Shares"“Overseas Listed Foreign Shares”. The foreign currencies mean the legal currencies (apart from Renminbi)RMB) of other countries or districtsregions which are recognisedrecognized by the foreign exchange control authority of the state and can be used to pay theour Company for the share price.
Pursuant to Article 2829 of the Articles of Association, Domestic-InvestedDomestic Shares issued by theour Company areshall be called "A Shares"“A Shares”. Overseas-Listed Foreign-InvestedOverseas Listed Foreign Shares issued by theour Company and listed in Hong Kong areshall be called "H Shares"“H Shares”. H Shares are shares which have been admitted for listing on the Stock Exchange of Hong Kong Limited, the par value of which is denominated in RenminbiRMB and which are subscribed for and traded in Hong Kong dollars. H Shares can also be listed on a stock exchange in the United States of America in the form of ADR.ADS. Shares issued by theour Company, including ADomestic Shares and HForeign Shares, are all ordinary shares.
Pursuant to Article 6263 of the Articles of Association, the ordinary shareholders of theour Company shall enjoy the following rights:
(1) the right to attend or appoint a proxy to attend shareholders’ general meetings and to vote thereat; |
(2) the right to dividends and other distributions in proportion to the number of shares held;
(3) the right of supervisory management over the Company’s business operations, and the right to present proposals or enquiries;
(4) the right to transfer, donate or pledge his shares in accordance with laws, administrative regulations and provisions of these Articles of Association;
(5) the right of knowledge and decision making power with respect to important matters of the Company in accordance with laws, administrative regulations and these Articles of Association;
(6) the right to obtain relevant information in accordance with the provisions of these Articles of Association, including:
(i) the right to obtain a copy of these Articles of Association, subject to payment of the cost of such copy;
(ii) the right to inspect and copy, subject to payment of a reasonable charge;
(iii) all parts of the register of shareholders;
(a) personal particulars of each of the Company’s directors, supervisors, president and other senior administrative officers, including:
(aa) present name and alias and any former name or alias;
(bb) principal address (residence);
(cc) nationality;
(dd) primary and all other part-time occupations and duties;
(ee) identification documents and their relevant numbers;
(b) state of the Company’s share capital;
(c) reports showing the aggregate par value, quantity, highest and lowest price paid in respect of each class of shares repurchased by the Company since the end of last accounting year and the aggregate amount paid by the Company for this purpose;
(d) minutes of shareholders’ general meetings and accountants’ report; and
(e) interim and annual reports of the Company.
(7) in the event of the termination or liquidation of the Company, to participate in the distribution of surplus assets of the Company in accordance with the number of shares held; and
(8) the right to request the company to repurchase their shares as a result of disagreement on the resolutions passed by the shareholders’ general meeting on the merger or division of the Company; and
(9) other rights conferred by laws, administrative regulations and these Articles of Association. According to Article 266,270, dividends shall be distributed in accordance with the proportion of shares held by shareholders.
According to Article 6738 of the Articles of Association, shareholders of the company have the obligation not to withdraw their shares unless required by laws and regulations.
According to Article 37 of the Articles of Association, theour Company may repurchase its issued shares under the following circumstances: (1) cancellation of shares for the reduction of its capital; (2) merging with another company that holds shares in theour Company; (3) awarding its employees with shares; (4) at the request of the dissenting shareholders; and (5) other circumstances permitted by laws and administrative regulations.
According to Article 4142 of the Articles of Association, unless theour Company is in the course of liquidation, it must comply with the following provisions in relation to repurchase of its issued shares: (1) where theour Company repurchases shares of theour Company at par value, payment shall be made out of book surplus distributable profits of theour Company or out of proceeds of a fresh issue of shares made for that purpose; (2) where theour Company repurchases shares of theour Company at a premium to its par value, payment up to the par value may be made out of the book surplus distributable profits of our Company or out of the proceeds of a fresh issue of shares made for that purpose: (i) If the shares being repurchased were issued at par value, payment shall be made out of the book surplus distributable profits of the Company; (ii) If the shares being repurchased were issued at a premium to its par value, payment shall be made out of the book surplus distributable profits of the Company or out of the proceeds of a fresh issue of shares made for that purpose; andpurpose, provided that the amount paid out of the proceeds of the fresh issue shall not exceed the aggregate of premiums received by the Company on the issue of the shares repurchased or the current amount (including the premiums on the fresh issue) of the Company’s premium account (or capital common reserve fund account) at the time of the repurchase; (3) payment by theour Company in consideration of the following shall be made out of theour Company’s distributable profits: (i) acquisition of rights to repurchase shares of theour Company; (ii) Variationvariation of any contract to repurchase shares of theour Company; and (iii) release of any of theour Company’s obligation under any contract to repurchase shares of our Company; and (4) After our Company’s registered capital has been reduced by the Company.total par value of the cancelled shares in accordance with the relevant provisions, the amount deducted from the distributable profits of our Company for paying up thepar-value portion of the shares repurchased shall be transferred to our Company’s premium account (or capital common reserve fund account).
According to Article 26368 of the Articles of Association, when distributing each year’s after-tax profits,shareholders of our company have the Company shall set aside 10% of such profits for the Company’s statutory common reserve fund, except where the accumulated balance of the said fund has reached 50% of the Company’s registered capital. After the Company has allocated its after-tax profitsobligation not to the statutory common reserve fund, it may, with the approval of the shareholderswithdraw their shares unless required by way of resolution in a shareholders’ general meeting, further allocate its after-tax profits to the discretionary common reserve fund.
According to Article 67 of the Articles of Association,laws and regulations; shareholders are not liable to make any further contribution to the share capital other than as agreed by the subscriber of the relevant shares on subscription.
According to Article 267 of the Articles of Association, when distributing each year’safter-tax profits, our Company shall set aside 10% of such profits for our Company’s statutory common reserve fund, except where the accumulated balance of the said fund has reached 50% of our Company’s registered capital. After our Company has allocated itsafter-tax profits to the statutory common reserve fund, we may, with the approval of the shareholders by way of resolution in a shareholders’ general meeting, further allocate itsafter-tax profits to the discretionary common reserve fund.
The Articles of Association does not have specific provisions discriminating against any existing or prospective holder of such securities as a result of other shareholders owning a substantial number of shares.
Action Necessary to Change Rights of Shareholders
Pursuant to Article 151152 of the Articles of Association, shareholders who hold different classes of shares are shareholders of different classes. The holders of the Domestic Shares and holders of Overseas Listed Foreign Shares are deemed to be shareholders of different classes.
Pursuant to Article 152153 of the Articles of Association, rights conferred on any class of shareholders in the capacity of shareholders ("(“class rights"rights”) may not be varied or abrogated unless approved by a special resolution of shareholders in general meeting and by holders of shares of that class at a separate meeting.
Pursuant to Article 154155 of the Articles of Association, shareholders of the affected class, whether or not otherwise having the right to vote at shareholders’ general meetings, shall nevertheless have the right to vote at class meetings in respect of the following matters: (i) to effect an exchange of all or part of the shares of such class into shares of another class or to effect an exchange or create a right of exchange of all or part of the shares of another class into the shares of such class; (ii) to restrict the transfer or ownership of the shares of such class or add to such restriction; (iii) to restructure theour Company where the proposed restructuring will result in different classes of shareholders bearing a disproportionate burden of such proposed restructuring; and (iv) to vary or abrogate the provisions of these Articles of Association. However, interested shareholder(s) shall not be entitled to vote at class meetings.
Pursuant to Article 155156 of the Articles of Association, resolutions of a class of shareholders shall be passed by votes representing more thantwo-thirds of the voting rights of shareholders of that class represented at the relevant meeting who are entitled to vote at class meetings.
Pursuant to Article 156157 of the Articles of Association, written notice of a class meeting shall be given forty-five days before the date of the class meeting to notify all of the shareholders in the share register of the class of the matters to be considered, the date and the place of the class meeting. A shareholder who intends to attend the class meeting shall deliver his written reply concerning attendance at the class meeting to theour Company twenty days before the date of the class meeting. If the number of shares carrying voting rights at the meeting represented by the shareholders who intend to attend the class meeting reaches more than one half of the voting shares at the class meeting, theour Company may hold the class meeting; if not, theour Company shall within five (5) days notify the shareholders again by public notice of the matters to be considered, the date and the place for the class meeting. TheOur Company may then hold the class meeting after such publication of notice.
Pursuant to Article 157158 of the Articles of Association, notice of class meetings need only be served on shareholders entitled to vote thereat. Meeting of any class of shareholders shall be conducted in a manner as similar as possible to that of general meetings of shareholders. The provisions of these Articles of Association relating to the manner to conduct any shareholders’ general meeting shall apply to any meeting of a class of shareholders.
Meetings of Shareholders
According to Article 78,79, shareholders’ general meetings are divided into annual general meetings and extraordinary general meetings. Shareholders’ general meetings shall be convened by the Boardour board of Directors.directors. Annual general meetings are held once every year and within six months from the end of the preceding financial year.
According to Article 79,80, under any of the following circumstances, the Boardour board of Directorsdirectors shall convene an extraordinary general meeting within two months: (1) the number of directors is less than that is required by the Company Law or two thirds of the number of directors specified in these Articles of Association; (2) the accrued losses of theour Company amount to one third of the total amount of its share capital; (3) shareholder(s) individually or jointly holding 10% or more of theour Company’s issued and outstanding shares carrying voting rights request(s) in writing the convening of an extraordinary general meeting; (4) it is deemed necessary by the Boardboard of Directorsdirectors or requested by the supervisory committee to convene an extraordinary general meeting; (5) more than one half of the independent directors propose to convene the meeting.
According to Article 9192 of the Articles of Association, notice of a shareholders’ general meeting shall be given by way of announcement or by any other manner as provided in these Articles of Association (if necessary), not less than forty-five days (including forty-five days) before the date of the meeting to notify all of the shareholders in the share register of the matters to be considered, the date and the place of the meeting.
According to Article 9293 of the Articles of Association, theour Company shall, based on the written replies received twenty days before the date of the shareholders’ general meeting from the shareholders, calculate the number of voting shares represented by the shareholders who intend to attend the meeting. If the number of voting shares represented by the shareholders who intend to attend the meeting reaches one half or more of theour Company’s total voting shares, theour Company may hold the meeting; if not, then theour Company shall within five days notify the shareholders again by public notice of the matters to be considered, the place and date for, the meeting. TheOur Company may then hold the meeting after such publication of notice.
Limitation on Right to Own Securities
The Articles of Association does not specifically provide for the limitations on the rights to own securities by certain shareholders, however, the PRC Special Regulations on Overseas Offering and the Listing of Shares by Companies Limited by Share (the "Special Regulations"“Special Regulations”) and the Mandatory Provisions for Articles of Association of Companies to be Listed Overseas (the "Mandatory Provisions"“Mandatory Provisions”) provide for different classes of shares to be subscribed for and traded by local and overseas investors respectively. Shares which can be traded by overseas investors must be in registered form and while denominated in Renminbi, they are traded in foreign currency with dividends payable in foreign currency. Local investors are prohibited from dealing in such shares.
Merger, Acquisition or Corporate Restructuring
Pursuant to Article 291295 of the Articles of Association, in the event of the merger or division of theour Company, a plan shall be presented by theour Company’s Boardboard of Directorsdirectors and shall be approved in shareholders’ general meeting and the relevant examining and approving formalities shall be processed as required by law. A shareholder who objects to the plan of merger or division shall have the right to demand theour Company or the shareholders who consent to the plan of merger or division to acquire that dissenting shareholder’s shareholding at a fair price. The contents of the resolution of merger or division of theour Company shall be made into special documents for shareholders’ inspection. Such special documents shall be sent by mail to holders of Overseas-Listed Foreign-InvestedForeign Shares.
Ownership to Be Disclosed
The Articles of Association do not contain any provisions governing the ownership threshold above which shareholder ownership must be disclosed.
C. | MATERIAL CONTRACTS |
Other than such contracts asthat are described in our disclosure inunder Item 4 "Information“Information on the Company"Company” and Item 7 "Major“Major Shareholders and Related Party Transactions"Transactions”, we have not entered into any material contracts outside the ordinary course of our business within the two years preceding the date of this annual report.
D. | EXCHANGE CONTROLS |
Under current Chinese foreign exchange regulations, Renminbi is fully convertible for current account transactions, but is not freely convertible for capital account transactions. Current account foreign currency transactions can be undertaken without prior approval from the relevant Chinese government agencies by producing commercial documents evidencing such transactions, provided that they are processed through Chinese banks licensed to engage in foreign currency transactions. Conversion from Renminbi into a foreign currency or vice versa for purposes of capital account transactions requires prior approvals of relevant Chinese government agencies. This restriction on capital account transactions could affect the ability of theour Company to acquire foreign currency for capital expenditures.
TheOur Company is generally required by law to sell all its foreign currency revenuesrevenue to Chinese banks. TheOur Company may purchase foreign currency directly from Chinese banks for any current account transactions, such as trade transactions in itsour usual and normal course of business, including acquisition of aircraft, jet fuel and flight equipment (such acquisition requires approvals from the relevant Chinese government agencies). Payment of dividends by theour Company to holders of theour Company’s H Shares and ADRsADSs is also considered a current account transaction under Chinese law. Therefore, there is no legal restriction on the conversion of Renminbi into foreign currency for the purpose of paying dividends to such holders of H Shares and ADRs.ADSs. In addition, theour Company’s Articles of Association require theour Company to pay dividends to holders of theour Company’s H Shares and ADRsADSs in foreign currency.
On July 21, 2005, the PRC government changed its policy of pegging the value of the Renminbi to the U.S. dollar so that the Renminbi is now permitted to fluctuate within a band against a basket of certain foreign currencies. On May 18, 2007, theThe People’s Bank of China announcedhas decided to improve quotation of the central parity of RMB against US dollar. Effective from August 11, 2015, the quotes of central parity that market makers report to the floating bandChina Foreign Exchange Trade System daily before market opens should refer to the closing rate of Renminbi trading prices against U.S. dollar in the inter-bank spot foreign exchange market would be permitted to rise or fall by as much as 0.5%. The floating band was subsequently expanded to 1% byon the People’s Bankprevious day, in conjunction with demand and supply condition in the foreign exchange market and exchange rate movement of China, effective from April 16, 2012, and further expanded to 2% by the People’s Bank of China, effective from March 15, 2014.
major currencies. As a result, the RMB central parity entered a more market-oriented stage.
The PRC government has stated publicly that it intends to further liberalize its currency policy, which could result in a further and more significant change in the value of the Renminbi against the U.S. dollar. Any significant revaluation of the Renminbi may have a material adverse effect on theour Company’s financial performance, and the value of, and any dividends payable on, theour Company’s H Shares and ADRsADSs in foreign currency terms.
Other Limitations
There are no limitations on the right ofnon-resident or foreign owners to hold or vote H Shares or ADRsADSs imposed by Chinese law or by the Articles of Association or other constituent documents of theour Company. However, under current Chinese law, foreign ownership of theour Company may not exceed 49%.
E. | TAXATION |
Chinese |
|
The following is a general summary of certain Chinese tax consequences of the acquisition, ownership and disposition of A Shares, H Shares and ADRs.ADSs. This summary is based upon tax laws of China as in effect on the date of this Annual Report, including the income tax treaty between the United States and China (the "U.S.-PRC“U.S.-PRC Tax Treaty"Treaty”), all of which are subject to change or different interpretation.
In general, for Chinese tax purposes, holders of ADRsADSs will be treated as the owners of the H Shares represented by those ADRs,ADSs, and exchanges of H Shares for ADRs,ADSs, and ADRsADSs for H Shares, will not be subject to taxation under the laws of China.
This summary does not purport to address all material tax consequences for holders or prospective purchasers of A Shares, H Shares or ADRs,ADSs, and does not take into account the specific circumstances of such investors. Investors should consult their own tax advisors as to Chinese or other tax consequences of the acquisition, ownership and disposition of A shares, H Shares or ADRs.ADSs.
As a result of the new corporate income tax law, the statutory corporate income tax rate adopted by the Company and its subsidiaries has been changed from 33% to 25% with effect from January 1, 2008. Pursuant to new corporate income tax law, the corporate income tax rates of entities that previously enjoyed preferential tax rates of 15% have been revised to 18%, 20%, 22%, 24% and 25% for 2008, 2009, 2010, 2011 and 2012 onwards, respectively.
Dividends
The new corporate income tax law and its relevant regulations generally provide for the imposition of a withholding tax on dividends paid by a Chinese company to anon-resident enterprise at a rate of 10%.
China currently has double-taxation treaties with a number of countries, such as Australia, Canada, France, Germany, Japan, Malaysia, the Netherlands, Singapore, the United Kingdom and the United States. Under theU.S.-PRC Tax Treaty, China may tax a dividend paid by theour Company to a U.S. holder up to a maximum of 10% of the gross amount of such dividend.
For individuals, Chinese tax law generally provides that an individual who receives dividends from Chinese companies is subject to a 20% individual income tax. A 50% reduction of taxable income is granted by Chinese tax law for an individual receiving dividends from a listed company on Shanghai Stock Exchange or Shenzhen Stock Exchange. As a result, the effective tax rate for dividends received by A share individual holder is 10% in 2012.2019. Dividend income received by any foreign individual that holds overseas shares in Chinese enterprise is generally subject to individual income tax at a flat rate of 20%, subject to exemption or reduction by an applicable double-taxation treaty.
Where an individual acquires the stocks of a listed company from public offering of the company or from the stock market, if the stock holding period is one month or less, the incomes from dividends and bonuses shall be included into the taxable incomes in full amount and be taxed at a rate of 20%; if the stock holding period is more than one month up to one year, the incomes from dividends and bonuses shall be included into the taxable incomes at the reduced rate of 50% for the time being, namely, individual income tax shall be calculated at the tax rate of 20% ; and if the stock holding period is more than one year, the incomes from dividends and bonuses shall be temporarily exempted from individual income tax.
Capital Gains from Transfer or Disposition of Shares
The new corporate income tax law and its relevant regulations generally provides that anon-resident enterprise is subject to a 10% capital gains tax for the transfer or disposition of shares of a Chinese company.
For individual shareholders, Chinese tax law generally provide that an individual who transfers or otherwise disposes of a company’s shares of capital stock is subject to a 20% individual income tax on the capital gain, if any. Currently, all individuals are temporarily exempt from individual income tax on transfers of shares of joint stock companies listed on Shanghai Stock Exchange or Shenzhen Stock Exchange, such as theour Company. Should such temporary exemption be discontinued, such holders may be subject to a 20% individual income tax on the capital gain, if any, unless reduced by an applicable double-taxation treaty.
91
United States Federal Income Taxation
This discussion describes general U.S. federal income tax consequences of the purchase, ownership and disposition of theour Company’s ADRs.ADSs. This discussion does not address any aspect of U.S. federal gift or estate tax, or the state, local or foreign tax consequences of an investment in theour Company’s ADRs.ADSs. This discussion applies to you only if you hold and beneficially own theour Company’s ADRsADSs as capital assets for tax purposes. This discussion does not apply to you if you are a member of a class of holders subject to special rules, such as:
dealers in securities or currencies;
traders in securities that elect to use amark-to-market method of accounting for securities holdings;
banks or other financial institutions;
insurance companies;
tax-exempt organizations, retirement plans, individual retirement accounts or tax deferred accounts;
partnerships or other pass-through entities (including entities treated as partnerships for U.S. federal income tax purposes) or persons holding ADSs through any such entities;
persons that hold ADSs as part of a hedge, straddle, constructive sale, conversion transaction or other integrated investment;
persons whose functional currency for tax purposes is not the U.S. dollar;
persons who are U.S. expatriates;
persons liable for alternative minimum tax; or
persons who directly, indirectly or constructively own 10% or more of the total combined voting power of all classes of our Company’s shares (including ADSs) entitled to vote.
This discussion is based on the U.S. Internal Revenue Code of 1986, as amended, which is referred to in this discussion as the Code, its legislative history, existing and proposed regulations promulgated thereunder, published rulings and court decisions, all as currently in effect. These laws are subject to change, possibly on a retroactive basis. In addition, this discussion relies on the assumptions regarding the value of theour Company’s shares and the nature of itsour business over time. Finally, this discussion is based in part upon the representations of the depositary and the assumption that each obligation in the deposit agreement and any related agreement will be performed in accordance with its terms. For U.S. federal income tax purposes, as a holder of ADRs,ADSs, you are treated as the owner of the underlying ordinary shares represented by such ADRs.
ADSs.
The discussions and comments included herein are only a general description of the tax aspects and they do not constitute a tax advice or opinion. Therefore, you should consult your own tax advisor concerning the particular U.S. federal income tax consequences to you of the purchase, ownership and disposition of theour Company’s ADRs,ADSs, as well as the consequences to you arising under the laws of any other taxing jurisdiction.
For purposes of the U.S. federal income tax discussion below, you are a "U.S. Holder"“U.S. Holder” if you beneficially own ADRsADSs and are:
a citizen or resident of the United States for U.S. federal income tax purposes;
a corporation, or other entity taxable as a corporation, that was created or organized in or under the laws of the United States or any political subdivision thereof;
an estate the income of which is subject to U.S. federal income tax regardless of its source; or
a trust if (a) a court within the United States is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (b) the trust has a valid election in effect to be treated as a U.S. person.
If you are not a U.S. person, please refer to the discussion below under "Non-U.S.“Non-U.S. Holders."
”
U.S. Holders
Dividends on ADRsADSs
Subject to the Passive Foreign Investment Company ("PFIC"(“PFIC”) discussion below, if theour Company makes distributions and you are a U.S. Holder, the gross amount of any distributions you receive on your ADRsADSs will generally be treated as dividend income if the distributions are made from theour Company’s current or accumulated earnings and profits, calculated according to U.S. federal income tax principles. Dividends will generally be subject to U.S. federal income tax as ordinary income on the day you actually or constructively receive such income. However, if you are an individual and have held your ADRsADSs for a sufficient period of time, dividend distributions on theour Company’s ADRsADSs will generally constitute qualified dividend income taxed at a preferential rate as long as theour Company is not treated as a PFIC, theour Company’s ADRsADSs continue to be readily tradable on the New York Stock Exchange and certain other conditions apply. You should consult your own tax adviser as to the rate of tax that will apply to you with respect to dividend distributions, if any, you receive from us.
Distributions in excess of current and accumulated earnings and profits, as determined for U.S. federal income tax purposes, will be treated as anon-taxable return of capital to the extent of your adjusted tax basis in the ADRsADSs and thereafter as capital gain. However, theour Company does not intend to maintain calculations of itsour earnings and profits in accordance with U.S. federal income tax principles, so each U.S. Holder should therefore assume that any distribution by theour Company with respect to the ADRsADSs will constitute ordinary dividend income. Even if you are a corporation, you will not be entitled to claim a dividends-received deduction with respect to distributions you receive from theour Company. Dividends generally will constitute foreign source passive income for U.S. foreign tax credit limitation purposes. You should consult your own tax advisor to determine the foreign tax credit implications of owning ADRs.ADSs.
Sales and other dispositions of ADRsofADSs
Subject to the PFIC discussion below, when you sell or otherwise dispose of theour Company’s ADRs,ADSs, you will generally recogniserecognize capital gain or loss in an amount equal to the difference between the amount realized on the sale or other disposition and your adjusted tax basis in the ADRs,ADSs, both as determined in U.S. dollars. Your adjusted tax basis will generally equal the amount you paid for the ADRs.ADSs. Any gain or loss you recogniserecognize is long-term capital gain or loss if your holding period in theour Company’s ADRsADSs is more than one year at the time of disposition. If you are an individual, any such long-term capital gain is eligible for preferential rates. Your ability to deduct capital losses is subject to various limitations.
Passive Foreign Investment Company
If theour Company is currently or were to become a PFIC, as a U.S. Holder, you would generally be subject to adverse U.S. tax consequences, in the form of increased tax liabilities and special U.S. tax reporting requirements.
TheOur Company will be classified as a PFIC in any taxable year if either: (1) the average value during the taxable year of itsour assets that produce passive income, or are held for the production of passive income, is at least 50% of the average value of itsour total assets for such taxable year (the "Asset Test"“Asset Test”); or (2) 75% or more of itsour gross income for the taxable year is passive income (such as certain dividends, interest or royalties)(the "Income Test"“Income Test”). For purposes of the Asset Test: (1) any cash, cash equivalents, and cash invested in short-term, interest bearing, debt instruments, or bank deposits that is readily convertible into cash, will generally count as producing passive income or as being held for the production of passive income; and (2) the average values of theour Company’s passive and total assets is calculated based on itsour market capitalization. In the case of publicly traded corporations, fair market value must be used for purposes of applying the Asset Test. In addition, regarding the above two tests, there are complex look-through rules to consider with respect to the assets and activities of related corporations from which theour Company either receives income or in which it holds an interest. More specifically, certain adjustments are made to exclude certain income received from a related party or to include income earned and assets held by a 25% or more owned subsidiary in determining whether theour Company qualifies as a PFIC under the two tests. In particular: 1) passive income received from a related party is excluded if it is properly allocable to thenon-passive income of the related party, and 2) if theour Company owns directly or indirectly 25% or more of the stock of another corporation, theour Company is treated as if itwe owned directly a proportionate share of that corporation’s assets and income.
TheOur Company believes that it waswe were not a PFIC for the taxable year 2015.2018. However, there can be no assurance that theour Company will not be a PFIC for the taxable year 20162019 and/or later taxable years, as PFIC status isre-tested each year and depends on the facts in such year. For example, theour Company would be a PFIC for the taxable year 20152018 if the sum of itsour average market capitalization, which is itsour share price multiplied by the total amount of itsour outstanding shares, and itsour liabilities over that taxable year is not more than twice the value of itsour cash, cash equivalents, and other assets that are readily converted into cash.
If theour Company were a PFIC, you would generally be subject to additional taxes and interest charges on certain "excess distributions" the“excess distributions” our Company makes regardless of whether theour Company continues to be a PFIC in the year in which you receive an "excess distribution"“excess distribution”. An "excess distribution"“excess distribution” would be either (1) the excess amount of a distribution with respect to ADRsADSs during a taxable year in which distributions to you exceed 125% of the average annual distributions to you over the preceding three taxable years or, if shorter, your holding period for the ADRs,ADSs, or (2) 100% of the gain from the disposition of ADRs.
ADSs.
To compute the tax on "excess"“excess” distributions or any gain, (1) the "excess distribution"“excess distribution” would be allocated ratably to each day in your holding period, (2) the amounts allocated to the current year and to any tax year before the first day on which theour Company became a PFIC would be taxed as ordinary income in the current year, (3) the amount allocated to other taxable years would be taxable at the highest applicable marginal rate in effect for that year, and (4) an interest charge at the rate for underpayment of U.S. federal income tax for any period described under (3) above would be imposed with respect to any portion of the "excess"“excess” distribution that is allocated to such period. In addition, if theour Company were a PFIC, no distribution that you receive from theour Company would qualify for taxation at the preferential rate discussed in the "Dividends“Dividends on ADRs"ADSs” section above.
If theour Company were a PFIC in any year, as a U.S. Holder, you would be required to make an annual return on IRS Form 8621 "Information“Information Return by a Shareholder of a Passive Foreign Investment Company or a Qualified Electing Fund."” However, theour Company does not intend to generate, or share with you, information that you might need to properly complete IRS Form 8621. You should consult with your own tax adviser regarding reporting requirements with regard to your ADRs.ADSs.
If theour Company were a PFIC in any year, you would generally be able to avoid the "excess"“excess” distribution rules described above by making a timelyso-called "mark-to-market"“mark-to-market” election with respect to your ADRsADSs provided theour Company’s ADRsADSs are "marketable"“marketable”. TheOur Company’s ADRsADSs will be "marketable"“marketable” as long as they remain regularly traded on a national securities exchange, such as the New York Stock Exchange. If you made this election in a timely fashion, you would generally recognise as ordinary income or ordinary loss the difference between the fair market value of your ADRsADSs on the first day of any taxable year and their value on the last day of that taxable year. Any ordinary income resulting from this election would generally be taxed at ordinary income rates and would not be eligible for the reduced rate of tax applicable to qualified dividend income. Any ordinary losses would be limited to the extent of the net amount of previously included income as a result of themark-to-market election, if any. Your basis in the ADRsADSs would be adjusted to reflect any such income or loss. Any gains recognised on the sale or other disposition of the ADRsADSs would be treated as ordinary income and any losses would be treated as ordinary losses (but only to the extent of the net amount of previously included income as a result of themark-to-market election, if any). You should consult with your own tax adviser regarding potential advantages and disadvantages to you of making a "mark-to-market"“mark-to-market” election with respect to your ADRs.ADSs.
Separately, if theour Company were a PFIC in any year, you would be able to avoid the "excess"“excess” distribution rules by making a timely election to treat us as aso-called "Qualified “Qualified Electing Fund"Fund” or "QEF"“QEF”. You would then generally be required to include in gross income for any taxable year (1) as ordinary income, your pro rata share of theour Company’s ordinary earnings for the taxable year, and (2) as long-term capital gain, your pro rata share of theour Company’s net capital gain for the taxable year. However, theour Company does not intend to provide you with the information you would need to make or maintain a "QEF"“QEF” election and you will, therefore, not be able to make or maintain such an election with respect to your ADRs.
ADSs.
Medicare Tax
Recently enacted legislation requires certain U.S. Holders who are individuals, estates or trusts to pay up to an additional 3.8% tax on, among other things, dividends and capital gains for tax years beginning after December 12, 2012.
Non-U.S. Holders
If you beneficially own ADRsADSs and are not a U.S. Holder for U.S. federal income tax purposes (a "Non-U.S. Holder"“Non-U.S. Holder”), you generally will not be subject to U.S. federal income tax or U.S. withholding tax on dividends received from theour Company with respect to ADRsADSs unless that income is considered effectively connected with your conduct of a U.S. trade or business and, if an applicable income tax treaty so requires as a condition for you to be subject to U.S. federal income tax with respect to income from your ADRs,ADSs, such dividends are attributable to a permanent establishment that you maintain in the United States.
You generally will not be subject to U.S. federal income tax, including withholding tax, on any gain realized upon the sale or exchange of ADRs,ADSs, unless:
that gain is effectively connected with the conduct of a U.S. trade or business and, if an applicable income tax treaty so requires as a condition for you to be subject to U.S. federal income tax with respect to income from your ADSs, such gain is attributable to a permanent establishment that you maintain in the United States; or
you are anon-resident alien individual and are present in the United States for at least 183 days in the taxable year of the sale or other disposition and certain other conditions are met.
If you are engaged in a U.S. trade or business, unless an applicable tax treaty provides otherwise, the income from your ADRs,ADSs, including dividends and the gain from the disposition of theour Company’s ADRs,ADSs, that is effectively connected with the conduct of that trade or business will generally be subject to the rules applicable to U.S. Holders discussed above. In addition, if you are a corporation, you may be subject to an additional branch profits tax at a rate of 30% or any lower rate under an applicable tax treaty.
U.S. information reporting and backup withholding rules
In general, dividend payments with respect to the ADRsADSs and the proceeds received on the sale or other disposition of those ADRsADSs may be subject to information reporting to the IRS and to backup withholding (currently imposed at a rate of 28%). Backup withholding will not apply, however, if you (1) are a corporation or come within certain other exempt categories and, when required, can demonstrate that fact or (2) provide a taxpayer identification number, certify as to no loss of exemption from backup withholding and otherwise comply with the applicable backup withholding rules. To establish your status as an exempt person, you will generally be required to provide certification on IRS FormW-9,W-8BEN orW-8ECI, or an appropriate substitute, as applicable. Any amounts withheld from payments to you under the backup withholding rules will be allowed as a refund or a credit against your U.S. federal income tax liability, provided that you furnish the required information to the IRS.
HOLDERS OF THEOUR COMPANY’S ADRSADSS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES RESULTING FROM PURCHASING, HOLDING OR DISPOSING OF THE ADRS,ADSS, INCLUDING THE APPLICABILITY AND EFFECT OF THE TAX LAWS OF ANY STATE, LOCAL OR FOREIGN JURISDICTION AND INCLUDING ESTATE, GIFT, AND INHERITANCE LAWS.
F. | Dividends and Paying Agents |
Not applicable.
Not applicable.
G. | Statement By Experts |
Not applicable.
H. | Documents on Display |
TheOur Company has filed this Annual Report on Form20-F with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. Statements made in this Annual Report as to the contents of any document referred to are not necessarily complete. With respect to each such document filed as an exhibit to this Annual Report, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference.
TheOur Company is subject to the informational requirements of the Exchange Act and file reports and other information with the Securities and Exchange Commission. Reports and other information which theour Company filed with the Securities and Exchange Commission, including this Annual Report on Form20-F, may be inspected and copied at the public reference room of the Securities and Exchange Commission at 450 Fifth Street N.W. Washington D.C. 20549.
You can also obtain copies of this Annual Report on Form20-F by mail from the Public Reference Section of the Securities and Exchange Commission, 450 Fifth Street, N.W., Washington D.C. 20549, at prescribed rates. Additionally, copies of this material may be obtained from the Securities and Exchange Commission’s Internet site athttp://www.sec.gov.www.sec.gov. The Commission’s telephone number is 1-800-SEC-0330.1-800-SEC-0330 . Copies of this material may also be obtained for theour Company’s website athttp:// www.csair.com.www.csair.com.
I. | Subsidiary Information |
Not applicable.
ITEM 11. |
|
Fuel Price Fluctuation Risk
The Group’sOur earnings are affected by changes in the price and availability of jet fuel. There are currently no effective means available to manage the Group’sour exposure to the fluctuations in jet fuel prices. The Group’sOur results of operations may be significantly affected by fluctuations in fuel prices which is a significant expense for theour Group. A reasonable possible increase or decrease of 10% in jet fuel price, with volume of fuel consumed and all other variables held constant, would have increased/increased or decreased the fuel costs by approximately RMB2,627RMB4,292 million. The sensitivity analysis of jet fuel price risk is disclosed in Note 4(e) to the consolidated Financial Statements.financial statements.
Interest Rate Risk
The Group isWe are subject to market risks due to fluctuations in interest rates. The majority of the Group’s borrowing isour borrowings and obligations under capital leases are in the form of long-term fixed-rate and variable-rate debts with original maturities ranging from three to twelve years .variable-rate. Fluctuations in interest rates can lead to significant fluctuations in the fair value of such debt instruments. From time
Interest rate swaps, denominated in United States Dollars (“USD”), have been entered into to time, the Group may enter intomitigate our cash flow interest rate risk. The interest rate swaps designedallow our Company to mitigate exposure relatingpay at fixed rate from 1.64% to 1.72% to receive LIBOR. The notional principal of the outstanding interest rate risks. swap contracts as at December 31, 2018 amounted to USD393 million.
Cross currency swaps have been entered into mitigate interest rate risk and foreign currency risk. The cross currency swaps allow our Company to exchange the floating interest rate and principal payments in USD for fixed interest rate from 3.20% to 3.91% and principal payments in Renminbi. The notional principal of the outstanding cross currency swaps as at December 31, 2018 amounted to USD979 million.
The sensitivity analysis of interest rate risk is disclosed in Note 4(b) to the consolidated Financial Statements.financial statements.
The following table provides information regarding the Group’sour financial instruments that are sensitive to changes in interest rate as of December 31, 20152018 and 2014:2017:
As of December 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Expected Maturity Date | As of December 31, 2014 | As of December 31, 2018 Expected Maturity Date | As of December 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2016 | 2017 | 2018 | 2019 | 2020 | Thereafter | Total Recorded Amount | Fair | Total Recorded Amount | Fair | 2019 | 2020 | 2021 | 2022 | 2023 | Thereafter | Total recorded amount | Fair Vlaue(2) | Total Recorded amount | Fair Vlaue(2) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fixed-rate bank and other loans in US$ | - | - | - | - | - | - | - | - | 935 | 1,009 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Variable rate bank and other loans in US$ Average interest rate | 6,718 | 92 | — | — | — | — | 6,810 | 6,810 | 8,201 | 8,201 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average intereset rate | 3.76 | % | 3.32 | % | N/A | N/A | N/A | N/A | 3.75 | % | 2.40 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Variable rate bank and other loands in Euro | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | - | - | - | - | - | - | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Variable-rate bank and other loans in US$ | 2,781 | 6,607 | 2,221 | 1,670 | 1,123 | 708 | 15,110 | 15,110 | 57,666 | 57,666 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fixed rate bank and other loans in RMB | 17,600 | 2,656 | 3,600 | 1 | — | 17 | 23,874 | 23,874 | 18,149 | 18,149 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | 2.03 | % | 2.92 | % | 2.08 | % | 2.05 | % | 2.33 | % | 2.24 | % | 3.11 | % | 4.15 | % | 3.56 | % | 1.20 | % | N/A | 1.20 | % | 3.29 | % | 3.20 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Variable-rate bank and other loans in Euro | 631 | - | - | - | - | - | 631 | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | 1.64 | % | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fixed-rate bank and other loans in RMB | 9,220 | - | 3,001 | - | 1 | 18 | 12,240 | - | 476 | 461 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | 3.27 | % | - | 3.63 | % | - | 1.20 | % | 1.20 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Variable-rate bank and other loans in RMB | 17,370 | 167 | 96 | 52 | 217 | 3 | 17,905 | 17,905 | 968 | 968 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | 4.00 | % | 4.23 | % | 4.71 | % | 4.88 | % | 4.90 | % | 4.35 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Variable rate bank and other loans in RMB | 14,423 | 5,009 | 2,059 | 196 | 148 | 1,898 | 23,733 | 23,733 | 21,941 | 21,941 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average interst rate | 4.15 | % | 4.38 | % | 4.73 | % | 4.33 | % | 4.34 | % | 4.37 | % | 4.27 | % | 4.14 | % |
(1) | These interest rates are calculated based on the year end indices. |
(2) | Fair value of debt instruments was estimated based on the interest rates applicable to similar debt instruments |
Foreign Currency Exchange Risk
The Group isWe are also exposed to foreign currency risk as a result of itsour aircraft and flight equipment being sourced from overseas suppliers. Specifically, the Group’sour foreign currency exposure relates primarily to itsour foreign currency long-term bank and other loans used to finance such capital expenditures and itsour capital commitments. Subject to certain restrictive conditions imposed by the SAFE, the Groupwe may, from time to time, enter into foreign exchange forward option contracts to mitigate itsour foreign currency exposures. The sensitivity analysis of foreign currency risk is disclosed in Note 4(c) to the consolidated Financial Statements.
As of December 31, 2015, the Group2018, we operated a total of 424558 aircraft under operating leases and capital leases. Certain of the leases are at rates that are substantially fixed. Such leases expose the Groupus to market risks. However, in accordance with Item 305 of RegulationS-K, such leases have been excluded from the following market risk tables. Commitments under capital leases and operating leases are disclosed in Note 47(a)37 and Note 47(b)50(b) to the consolidated Financial Statements,financial statements, respectively.
The following table provides information regarding the Group’sour material foreign currency sensitive financial instruments and capital commitments as of December 31, 20152018 and 2014: 2017:
As of December 31, 2015 | ||||||||||||||||||||||||||||||||||||||||
Expected Maturity Date | As of December 31, 2014 | |||||||||||||||||||||||||||||||||||||||
2016 | 2017 | 2018 | 2019 | 2020 | Thereafter | Total Recorded Amount | Fair Value(1) | Total Recorded Amount | Fair Value(1) | |||||||||||||||||||||||||||||||
Fixed-rate bank and other loans in US$ | - | - | - | - | - | - | - | - | 935 | 1,009 | ||||||||||||||||||||||||||||||
Variable-rate bank and other loans in US$ | 2,781 | 6,607 | 2,221 | 1,670 | 1,123 | 708 | 15,110 | 15,110 | 57,666 | 57,666 | ||||||||||||||||||||||||||||||
Capital commitment in US$ | 19,074 | 22,359 | 18,898 | 14,309 | 8,587 | 200 | 83,427 | 83,427 | 59,467 | 59,467 |
As of December 31, 2018 Expected Maturity Date | As of December 31, 2017 | |||||||||||||||||||||||||||||||||||||||
2019 | 2020 | 2021 | 2022 | 2023 | Thereafter | Total Recorded Amount | Fair Value(1) | Total Recorded Amount | Fair Value(1) | |||||||||||||||||||||||||||||||
Variable rate bank and other loans in US$ | 6,718 | 92 | — | — | — | — | 6,810 | 6,810 | 8,201 | 8,201 | ||||||||||||||||||||||||||||||
Capital commitment in US$ | 38,141 | 32,395 | 8,628 | 3,035 | — | — | 82,199 | 82,199 | 86,834 | 86,834 |
Note: (1)Fair value of debt instruments was estimated based on the floating interest rates applicable to similar debt instruments as of December 31, 2018 and 2017.
ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
A. | Debt Securities |
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
B. | Warrants and Rights |
Not applicable.
C. | Other Securities |
Not applicable.
D. | American Depositary Shares |
The Bank of New York Mellon collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The Bank of New York Mellon collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The Bank of New York Mellon may collect its annual fee for depositary services by deductions from cash distributions, or by directly billing investors, or by charging the book-entry system accounts of participants acting for them. The Bank of New York Mellon may generally refuse to providefee-attracting services until its fees for those services are paid.
Persons depositing or withdrawing shares must pay: | For: | |||
$5.00 (or less) per 100 ADSs (or portion of 100 ADSs) | • | Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property | ||
• | Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates | |||
$.02 (or less) per ADS | • | Any cash distribution to ADS registered holders | ||
A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited for issuance of ADSs | • | Distribution of securities | ||
$.02 (or less) per ADSs per calendar year | • | Depositary services | ||
Registration or transfer fees | • | Transfer and registration of shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw shares | ||
Expenses of the depositary | • | Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement) | ||
• | Converting foreign currency to U.S. dollars | |||
Taxes and other governmental charges the depositary or the custodian have to pay on any ADS or share underlying an ADS, for example, stock transfer taxes, stamp duty or withholding taxes | • | As necessary | ||
Any charges incurred by the depositary or its agents for servicing the deposited securities | • | As necessary |
98
Fees and Payments from the Depositary to Us
In 2015, the Company2018, we received from the depositary a reimbursement of US$46,176.11,41,552.18 net of withholding tax, for continuing annual stock exchange listing fees and expenses incurred by theour Company in connection with the administration and maintenance of the depositary receipt facility.
Indirect payments
As part of itsthe service to theour Company, the Bank of New York Mellon waived a total amount of US$130,347.75118,350.90 for the standard costs associated with the administration of the ADS program in 2015.2018.
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
None.
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |
A. | Material Modifications to the Instruments Defining the Rights of Security Holders |
None.
B. | Material Modifications to the Rights of Registered Securities by Issuing or Modifying any other Class of Securities |
None.
C. | Withdrawal or Substitution of a Material Amount of the Assets Securing any Registered Securities |
Not applicable.
D. | Change of Trustees or Paying Agents for any Registered Securities |
Not applicable.
E. | Use of Proceeds |
Not applicable.
ITEM 15. |
Disclosure controls and procedures
Our President and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as defined in the Exchange Act Rules13a-15(e) or15d-15(e)), and concluded that, based on their evaluation, our disclosure controls and procedures arewere effective as of the end of the period covered by this Annual Report to ensure that information required to be disclosed by the Companyus in the reports that it fileswe file or submitssubmit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and were also effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our President and Chief Financial Officer, to allow timely decisions regarding required disclosure.
99
Management’s annual report on internal control over financial reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules13a-15(f) and15d-15(f) under the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of a company’s assets, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that a company’s receipts and expenditures are being made only in accordance with authorizations of a company’s management and directors, and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of a company’s assets that could have a material effect on the consolidated financial statements. Our management has assessed the effectiveness of internal control over financial reporting based on the Internal Control - Integrated Framework (1992)(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Our management has concluded that our internal control over financial reporting was effective as of December 31, 2015.2018.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.
PricewaterhouseCoopers Zhong TianKPMG Huazhen LLP, an independent registered public accounting firm, has audited the consolidated financial statements included in this Annual Report, and, as part of the audit, has issued a report, included herein, on the effectiveness of our internal control over financial reporting.
Attestation Report of theIndependent Registered Public Accounting Firm
To the Shareholders and Board of Directors
PricewaterhouseCoopers Zhong Tian LLP, our independent registered public accounting firm,China Southern Airlines Company Limited:
Opinion on Internal Control Over Financial Reporting
We have audited the effectiveness of our company'sChina Southern Airlines Company Limited and subsidiaries’ (the “Company”) internal control over financial reporting as of December 31, 2015,2018, based on criteria established inInternal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established inInternal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial position of the Company as of December 31, 2018 and 2017, the related consolidated income statements, consolidated statements of comprehensive income, consolidated statements of changes in equity, and consolidated cash flow statements for each of the years in the three-year period ended December 31, 2018, and the related notes (collectively, the consolidated financial statements), and our report dated April 26, 2019 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit reportto obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of which appearsinternal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on page F-1the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of this Form 20-F.Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG Huazhen LLP
Beijing, China
April 26, 2019
Changes in internal control over financial reporting
During the year ended December 31, 2015,2018, there havehas been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 16A. | AUDIT AND RISK MANAGEMENT COMMITTEE FINANCIAL EXPERT |
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
The BoardOur board of Directorsdirectors has determined that Mr. Tan Jing SongJinsong qualifies as an audit and risk management committee financial expert in accordance with the terms of Item 16A of Form20-F. Mr. Tan Jing SongJinsong satisfies as an "independent director"“independent director” within the meaning of NYSE Manual Section 303A and meets the criteria for independence set forth in Section 10A(m)(3) of the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act, and Rule10A-3 under the Exchange Act. See "Item“Item 6 Directors, Senior Management and Employees — Directors and Senior Management"Employees”.
ITEM 16B. |
We have adopted a code of ethics that applies to our principal executive officer, principal financial officer and principal accounting officer. Such code is included in the director service agreements,senior management services agreement, a form of which is incorporated by reference infiled as Exhibit 4.35 to this Annual Report in Exhibit 4.1. Each of the aforementioned senior corporate officers currently serves as a Director and allReport.
A copy of our Directors are subjectcode of ethics will be provided to any person free of charge upon written request to Xie Bing, Company Secretary, China Southern Airlines Company Limited at 68 Qi xin Road, Guangzhou 510403, the director service contracts with the Company. Pursuant to the director service agreements, among other things, Directors (i) owe fiduciary duties to the Company and shall perform their duties in compliance with applicable governmental laws, rules and regulations; (ii) shall not engage in any activities in competition with the Company’s business or carry out any activities detrimental to the interestsPeople’s Republic of the Company; and (iii) shall be held liable for any loss or injury incurred to the Company as a result of such Director’s violation of applicable laws and regulations.China.
ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
ITEM 16C. PRINCIPAL ACCOUNTING FEES AND SERVICES
KPMG Huazhen LLP, an independent registered public accounting firm, served as our principal accountant for the fiscal year ended December 31, 2017 and 2018. The following table sets forth the aggregate audit fees, audit-related fees, tax fees and taxother fees of our principal accountants for each of the fiscal years of 2017 and all other2018:
Audit Fees | Audit-Related Fees | Tax Fees | Other Fees | |||||||||||||
RMB (in million) | ||||||||||||||||
2017 | 13.8 | — | 0.1 | — | ||||||||||||
2018 | 15.8 | 0.3 | 2.7 | — |
Audit fees billedinclude the aggregate fees in each of the fiscal years listed for products andprofessional services providedrendered by our independent registered public accounting firm other thanfor the audit fees, audit-related fees and tax fees for each of the fiscal years 2014 and 2015:
Audit Fees | Audit-Related Fees | Tax Fees | Other Fees | ||||||||||||||
RMB (in million) | |||||||||||||||||
2014 | 17.7 | - | - | - | |||||||||||||
2015 | 14.9 | - | - | - |
Before our independent registered public accounting firm were engaged by the Company or our subsidiaries to render the audit or non-audit services, the engagements were approved by our Audit Committee.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEE
Not applicable.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
None.
ITEM 16F. CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT
On March 30, 2016, the board of the directors of the Company resolved, as recommended by our audit committee, to propose to dismiss our independent registered public accounting firm, PricewaterhouseCoopers Zhong Tian LLP, or PwC, effective upon the completion of their audit of our consolidatedannual financial statements as of and for the year ended December 31, 2015 and the effectiveness of internal control over financial reporting as of December 31, 2015 and to appoint KPMG as our new independent registered public accounting firm effective upon the approvalor services that are normally provided by the shareholdersauditors in connection with and regulatory filing or engagements.
Audit-related fees represent the fees relating to capital verification services.
Tax fees consisted of the Company at the forthcoming annual general meeting. In this connection, the Company, a listed company controlledfees for tax consultation and tax compliance services.
Our audit and risk management committeepre-approved all audit andnon-audit services performed by a stated-owned enterprise, did not reappoint PwC as our independent registered public accounting firm at the forthcoming annual general meeting.
The audit reports of PwC on our consolidated financial statements as of andprincipal accountant for the fiscal years ended December 31, 20142017 and 2015 contain no adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope, or accounting principles.2018.
ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT AND RISK MANAGEMENT COMMITTEE |
During the two fiscal years ended December 31, 2014 and 2015 and through April 28, 2016, there were no disagreements with PwC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to the satisfaction of PwC, would have caused them to make reference to the subject matter of the disagreements in connection with their report, nor were there any reportable events (as defined in Item 16F(a)(1)(v) of Form 20-F). We have provided a copy of the foregoing disclosure to PwC and requested that PwC furnish a letter addressed to the SEC stating whether or not PwC agrees with such disclosure. A copy of the letter from PwC addressed to SEC, dated April 28, 2016, is filed as Exhibit 15.1 to this Form 20-F.Not applicable.
ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS |
During the two most recent fiscal years and through April 28, 2016, neither we nor any person on our behalf consulted KPMG regarding either (i) the application of accounting principles to a specific transaction, either completed or proposed; or the type of audit opinion that might be rendered on our financial statements, or (ii) any matter that was either the subject of a “disagreement” (as defined in Item 16F(a)(1)(iv) of Form 20-F and related instructions to Item 16-F of Form 20-F) with KPMG or a “reportable event” (as defined in Item 16F(a)(1)(v) of Form 20-F). Also, during the two most recent fiscal years and through April 28, 2016, we did not obtain any written report or oral advice that KPMG concluded was an important factor considered by us in reaching a decision as to the accounting, auditing or financial reporting issue.None.
ITEM 16F. | CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT |
ITEM 16G. CORPORATE GOVERNANCENot applicable.
ITEM 16G. | CORPORATE GOVERNANCE |
Set out below is a summary of any significant ways in which the Company’sour corporate governance practices differ from those followed by domestic companies under the listing standards of the New York Stock Exchange ("NYSE"(“NYSE”):
NYSEcorporate governancerules | Our Company’s governance practices | ||
Director Independence | |||
A listed company must have a majority of independent directors on its board of directors. No director qualifies as | It is required in China that any listed company must establish an independent director system and set forth specific requirements for the qualification of independent directors. For example, an independent director shall not hold any other position in the listed company other than being a director and shall not be influenced by the main shareholders or the controlling persons of the listed company, or by any other entities or persons with whom the listed company has a significant relationship. Our Company has complied with the relevant Chinese corporate governance rules and has implemented internal rules governing the independence and responsibilities of independent directors. | ||
Executive Sessions Thenon-management | |||
No similar requirements. |
Nominating/Corporate Governance Committee | |||
Listed companies must have a nominating/corporate governance committee composed entirely of independent directors. | Our Company has established a nominating committee. As | ||
NYSE corporate governance rules | Our Company’s governance practices | ||
The nominating/corporate governance committee must have a written charter that addresses the committee’s purposes and responsibilities which, at minimum, must be to: identify individuals qualified to become board members, consistent with criteria approved by the board, and to select, or to recommend that the board select, the director nominees for the next annual meeting of shareholders; develop and recommend to the board a set of corporate governance guidelines applicable to the corporation; and oversee the evaluation of the board and management, and evaluate the performance of the committee every year. |
Compensation Committee | |||
Listed companies must have a compensation committee composed entirely of independent directors. | Our Company has established a remuneration and assessment committee consisting of three members. As of December 31, | ||
The written charter of the compensation committee must state, at least, the following purposes and responsibilities: | |||
(1) review and approve the corporate goals associated with CEO’s compensation, evaluate the performance of the CEO in fulfilling these goals, and based on such evaluation determine and approve the CEO’s compensation level; (2) make recommendations to the board with respect tonon-CEO executive officer compensation, and incentive-compensation and equity-based plans that are subject to board approval; (3) produce a committee report on executive compensation as required by the SEC to be included in the annual proxy statement or annual report filed with the SEC. The charter must also include the requirement for an annual performance evaluation of the compensation committee. | The responsibilities are similar to those stipulated by the NYSE rules, but the committee is not required to produce a report on the executive compensation or make an annual performance evaluation of the committee. The responsibilities of the remuneration and assessment committee are to approve the remuneration packages of |
The written charter of the audit committee must specify that the purpose of the audit committee is to assist the board oversight of the integrity of financial statements, the company’s compliance with legal and regulatory requirements, qualifications and independence of independent auditors and the performance of the listed company’s internal audit function and independent auditors. | The responsibilities of the audit committee are similar to those stipulated by the NYSE rules, but according to the domestic practices, | ||
The written charter must also require the audit committee to prepare an audit committee report as required by the SEC to be included in the listed company’s annual proxy statement as well as an annual performance evaluation of the audit committee. | |||
Shareholder Approval of Equity Compensation Plans | |||
Shareholders must be given the opportunity to vote on equity-compensation plans and material revisions thereto, except for employment incentive plans, certain awards and plans in the context of mergers and acquisitions. | The relevant regulations of China require | ||
Corporate Governance Guidelines | |||
Listed companies must adopt and disclose corporate governance guidelines, involving director qualification standards, director responsibilities, director access to management and , as necessary and appropriate, independent advisors, director compensation, director orientation continuing education, management succession and annual performance evaluation of the board of directors, etc. | CSRC has issued the Corporate Governance Rules, with which | ||
Certification Requirements | |||
Each listed company CEO must certify to the NYSE each year that he or she is not aware of any violation by the company of NYSE corporate governance listing standards and he or she must promptly notify the NYSE in writing of any materialnon-compliance with any applicable provisions of Section 303A. | There are no similar requirements under the domestic corporate governance rules in China. | ||
Each listed company must submit an executed Written Affirmation annually to the NYSE. In addition, each listed company must submit an interim Written Affirmation as and when required by the interim Written Affirmation form specified by the NYSE. |
ITEM 16H. |
Not applicable.
ITEM 17. |
We have elected to provide the financial statements and related information specified in Item 18 in lieu of Item 17.
ITEM 18. | FINANCIAL STATEMENTS |
SeeF-pages following Item 19.
ITEM 19. |
English translation of Property Management Framework Agreement entered into by and between | |||
4.28 | |||
| |||
4.29 | English translation of CSA Building Asset Lease Agreement entered into by and between our Company and GSAC on January 19, 2018 | ||
4.30 | English translation of Asset Lease Framework Agreement entered into by and between our Company and CSAH on January 26, 2018 | ||
4.31 | English translation of Supplemental Agreement to the | ||
| |||
| |||
4.32 | 24, 2018 | ||
| |||
4.33 |
| ||
English translation of Media Services Framework Agreement entered into by and between | |||
4.34 | English translation of Catering Services Framework Agreement entered into by and between our Company and SACC on December 27, 2018 | ||
4.35 | Form of Senior Management Services Agreement | ||
8.1 | Subsidiaries of China Southern Airlines Company Limited | ||
11.1 | Code of Ethics (included in Exhibit | ||
12.1 | Section 302 Certification of President | ||
12.2 | Section 302 Certification of Chief Financial Officer | ||
13.1 | Section 906 Certification of President | ||
13.2 | Section 906 Certification of Chief Financial Officer | ||
101.INS | XBRL Instance Document | ||
101.SCH |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Labels Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
* | Portions of this document have been omitted pursuant to a confidential treatment request, and the full, unredacted document has been separately submitted to the Securities and Exchange Commission with a confidential treatment request. |
(1) | Incorporated by reference to the Exhibit |
(2) | Incorporated by reference to the Exhibit 2.1 to our Form20-F (FileNo. 001-14660) for the year ended December 31, 2012 filed with the Securities and Exchange Commission on April 26, 2013. |
(3) | Incorporated by reference to our Registration Statement on FormF-6 (FileNo. 333-07116), filed with the Securities and Exchange Commission on August 7, 2012. |
(4) | Incorporated by reference to the Exhibit 4.1 to our Form20-F (FileNo. 001-14660) for the year ended December 31, 2005 filed with the Securities and Exchange Commission on June 30, 2006. |
(5) | Incorporated by reference to the Exhibit 4.2 to our Form20-F (FileNo. 001-14660) for the year ended December 31, 2005 filed with the Securities and Exchange Commission on June 30, 2006. |
(6) | Incorporated by reference to the Exhibit 4.5 to our Form20-F (FileNo. 001-14660) for the year ended December 31, 2011 filed with the Securities and Exchange Commission on April 27, 2012. |
(7) | Incorporated by reference to the Exhibit 4.4 to our Form20-F (FileNo. 001-14660) for the year ended December 31, 2012 filed with the Securities and Exchange Commission on April 26, 2013. |
(8) | Incorporated by reference to the Exhibit 4.5 to our Form20-F (FileNo. 001-14660) for the year ended December 31, 2012 filed with the Securities and Exchange Commission on April 26, 2013. |
(9) | Incorporated by reference to the Exhibit 4.6 to our Form20-F (FileNo. 001-14660) for the year ended December 31, 2015 filed with the Securities and Exchange Commission on April 28, 2016. |
(10) | Incorporated by reference to the Exhibit 4.7 to our Form20-F (FileNo. 001-14660) for the year ended December 31, 2015 filed with the Securities and Exchange Commission on April 28, 2016. |
(11) | Incorporated by reference to the Exhibit 4.8 to our Form20-F (FileNo. 001-14660) for the year ended December 31, 2015 filed with the Securities and Exchange Commission on April 28, 2016. |
(12) | Incorporated by reference to the Exhibit 4.9 to our Form20-F (FileNo. 001-14660) for the year ended December 31, 2015 filed with the Securities and Exchange Commission on April 28, 2016. |
(13) | Incorporated by reference to the Exhibit 4.11 to our Form20-F (FileNo. 001-14660) for the year ended December 31, 2013 filed with the Securities and Exchange Commission on April 25, 2014. |
(14) |
Incorporated by reference to the Exhibit 4.10 to our Form20-F (FileNo. 001-14660) for the year ended December 31, 2008 filed with the Securities and Exchange Commission on June 25, 2009. |
(15) | Incorporated by reference to the Exhibit 4.11 to our Form20-F (FileNo. 001-14660) for the year ended December 31, 2012 filed with the Securities and Exchange Commission on April 26, 2013. |
Incorporated by reference to the Exhibit 4.23 to our Form20-F (FileNo. 001-14660) for the year ended December 31, 2014 filed with the Securities and Exchange Commission on April 30, 2015. |
Incorporated by reference to the Exhibit |
Incorporated by reference to the Exhibit |
Incorporated by reference to the Exhibit |
Incorporated by reference to the Exhibit |
Incorporated by reference to the Exhibit 27, 2017. |
(22) | Incorporated by reference to the Exhibit |
(23) | Incorporated by reference to the Exhibit |
(24) | Incorporated by reference to the Exhibit |
(25) | Incorporated by reference to the Exhibit 4.43 to our Form20-F (FileNo. 001-14660) for the year ended December 31, 2017 filed with the Securities and Exchange Commission on April 26, 2018. |
(26) | Incorporated by reference to the Exhibit 4.44 to our Form20-F (FileNo. 001-14660) for the year ended December 31, 2017 filed with the Securities and Exchange Commission on April 26, 2018. |
(27) | Incorporated by reference to the Exhibit 4.45 to our Form20-F (FileNo. 001-14660) for the year ended December 31, 2017 filed with the Securities and Exchange Commission on April 26, 2018. |
(28) | Incorporated by reference to the Exhibit 4.46 to our Form20-F (FileNo. 001-14660) for the year ended December 31, 2017 filed with the Securities and Exchange Commission on April 26, 2018. |
(29) | Incorporated by reference to the Exhibit 4.47 to our Form20-F (FileNo. 001-14660) for the year ended December 31, 2017 filed with the Securities and Exchange Commission on April 26, 2018. |
(30) | Incorporated by reference to the Exhibit 4.48 to our Form20-F (FileNo. 001-14660) for the year ended December 31, 2017 filed with the Securities and Exchange Commission on April 26, 2018. |
(31) | Incorporated by reference to the Exhibit 4.49 to our Form20-F (FileNo. 001-14660) for the year ended December 31, 2017 filed with the Securities and Exchange Commission on April 26, 2018. |
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
CHINA SOUTHERN AIRLINES COMPANY LIMITED |
/s/ Wang Changshun | ||||
Name: | ||||
Title: | Chairman of the Board |
Date: April 28, 201626, 2019
CHINA SOUTHERN AIRLINES COMPANY LIMITED
AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors and Shareholders
China Southern Airlines Company Limited:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial position of China Southern Airlines Company Limited
In our opinion, the accompanying consolidated balance sheets and subsidiaries (the “Company”) as of December 31, 2018 and 2017, the related consolidated income statement, thestatements, consolidated statementstatements of comprehensive income, the consolidated statementstatements of changes in equity, and consolidated cash flow statements for each of the years in the three-year period ended December 31, 2018, and the related notes (collectively, the consolidated cash flows statementfinancial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of China Southern Airlinesthe Company Limited and its subsidiaries atas of December 31, 20152018 and December 31, 2014,2017, and the results of theirits operations and theirits cash flows for each of the three years in the three-year period ended December 31, 20152018, in conformity with International Financial Reporting Standards as issued by the International Accounting StandardsStandard Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on criteria established inInternal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audits.
We conducted our auditsalso have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States). (PCAOB), the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established inInternal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated April 26, 2019 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the auditsaudit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, and whether effective internal control over financial reporting was maintained in all material respects.due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, andas well as evaluating the overall presentation of the consolidated financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances.statements. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
opinion.
/s/ PricewaterhouseCoopers Zhong TianKPMG Huazhen LLP
We have served as the Company’s auditor since 2016.
Shanghai,Beijing, China
April 26, 2019
April 28, 2016
CONSOLIDATED INCOME STATEMENTS
Consolidated income statements forFor the years ended December 31, 2015, 20142018, 2017 and 2013
(Prepared in accordance with International Financial Reporting Standards)
(Expressed in Renminbi)2016
2015 | 2014 | 2013 | ||||||||||||||||||||||||||
Note | RMB million | RMB million | RMB million | Note | 2018 RMB million | 2017 RMB million (Note) | 2016 RMB million (Note) | |||||||||||||||||||||
Operating revenue | 5 | |||||||||||||||||||||||||||
Traffic revenue | 5 | 107,099 | 104,328 | 94,684 | 138,064 | 121,873 | 109,693 | |||||||||||||||||||||
Other operating revenue | 7 | 4,553 | 4,256 | 3,863 | 5,559 | 5,933 | 5,288 | |||||||||||||||||||||
|
|
| ||||||||||||||||||||||||||
Total operating revenue | 111,652 | 108,584 | 98,547 | 143,623 | 127,806 | 114,981 | ||||||||||||||||||||||
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|
| ||||||||||||||||||||||||||
Operating expenses | ||||||||||||||||||||||||||||
Flight operation expenses | 8 | 50,412 | 58,901 | 54,010 | 7 | 76,216 | 62,978 | 51,461 | ||||||||||||||||||||
Maintenance expenses | 9 | 10,407 | 8,304 | 7,805 | 8 | 12,704 | 11,877 | 11,318 | ||||||||||||||||||||
Aircraft and transportation service expenses | 10 | 17,908 | 16,402 | 15,091 | 9 | 24,379 | 22,935 | 20,215 | ||||||||||||||||||||
Promotion and selling expenses | 11 | 6,976 | 7,841 | 7,754 | 10 | 7,036 | 6,881 | 6,304 | ||||||||||||||||||||
General and administrative expenses | 12 | 2,464 | 2,337 | 2,470 | 11 | 3,770 | 3,391 | 2,815 | ||||||||||||||||||||
Depreciation and amortisation | 13 | 11,845 | 10,828 | 9,347 | ||||||||||||||||||||||||
Depreciation and amortization | 12 | 14,308 | 13,162 | 12,619 | ||||||||||||||||||||||||
Impairment on property, plant and equipment | 20 | 90 | 215 | 536 | 19 | — | 324 | 71 | ||||||||||||||||||||
Others | 1,390 | 1,198 | 1,267 | 1,829 | 1,550 | 1,401 | ||||||||||||||||||||||
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|
| ||||||||||||||||||||||||||
Total operating expenses | 101,492 | 106,026 | 98,280 | 140,242 | 123,098 | 106,204 | ||||||||||||||||||||||
|
|
| ||||||||||||||||||||||||||
Other net income | 15 | 3,278 | 2,190 | 1,243 | 14 | 5,438 | 4,448 | 3,835 | ||||||||||||||||||||
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|
| ||||||||||||||||||||||||||
Operating profit | 13,438 | 4,748 | 1,510 | 8,819 | 9,156 | 12,612 | ||||||||||||||||||||||
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| ||||||||||||||||||||||||||
Interest income | 253 | 376 | 307 | 125 | 89 | 89 | ||||||||||||||||||||||
Interest expense | 16 | (2,188 | ) | (2,193 | ) | (1,651 | ) | 15 | (3,202 | ) | (2,747 | ) | (2,465 | ) | ||||||||||||||
Share of associates’ results | 24 | 460 | 261 | 294 | 24 | 263 | 431 | 509 | ||||||||||||||||||||
Share of joint ventures’ results | 25 | 108 | 140 | 96 | 25 | 200 | 99 | 102 | ||||||||||||||||||||
Exchange (loss)/gain, net | 35(e) | (5,953 | ) | (292 | ) | 2,903 | 36(d) | (1,853 | ) | 1,801 | (3,276 | ) | ||||||||||||||||
Other non-operating income | 17 | - | 26 | 25 | ||||||||||||||||||||||||
Changes in fair value of financial instruments | 28 | 12 | (64 | ) | — | |||||||||||||||||||||||
Gain on deemed disposal of a subsidiary | — | — | 90 | |||||||||||||||||||||||||
Remeasurement of the originally held equity interests in a joint venture | — | 109 | — | |||||||||||||||||||||||||
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| ||||||||||||||||||||||||||
Profit before income tax | 6,118 | 3,066 | 3,484 | 4,364 | 8,874 | 7,661 | ||||||||||||||||||||||
Income tax | 18 | (1,300 | ) | (668 | ) | (734 | ) | 16 | (1,000 | ) | (1,976 | ) | (1,763 | ) | ||||||||||||||
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| ||||||||||||||||||||||||||
Profit for the year | 4,818 | 2,398 | 2,750 | 3,364 | 6,898 | 5,898 | ||||||||||||||||||||||
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Profit attributable to: | ||||||||||||||||||||||||||||
Equity shareholders of the Company | 19 | 3,736 | 1,777 | 1,986 | 18 | 2,895 | 5,961 | 5,044 | ||||||||||||||||||||
Non-controlling interests | 1,082 | 621 | 764 | 469 | 937 | 854 | ||||||||||||||||||||||
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| ||||||||||||||||||||||||||
Profit for the year | 4,818 | 2,398 | 2,750 | 3,364 | 6,898 | 5,898 | ||||||||||||||||||||||
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Earnings per share attributable to equity shareholders of the Company | ||||||||||||||||||||||||||||
Earnings per share | ||||||||||||||||||||||||||||
Basic and diluted | 19 | RMB | 0.38 | RMB | 0.18 | RMB | 0.20 | 18 | RMB0.27 | RMB0.60 | RMB0.51 | |||||||||||||||||
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Note: The Group has initially applied IFRS 15 and IFRS 9 at January 1, 2018. Under the transition methods chosen, comparative information is not restated. See Note 2(b).
The accompanying notes form part of these financial statements.
Consolidated statements of comprehensive income forCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended December 31, 2015, 20142018, 2017 and 2013
(Prepared in accordance with International Financial Reporting Standards)
(Expressed in Renminbi)2016
2015 | 2014 | 2013 | ||||||||||||||||||||||||||||
Note | RMB million | RMB million | RMB million | Note | 2018 RMB million | 2017 RMB million (Note) | 2016 RMB million (Note) | |||||||||||||||||||||||
Profit for the year | 4,818 | 2,398 | 2,750 | 3,364 | 6,898 | 5,898 | ||||||||||||||||||||||||
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Other comprehensive income for the year: | ||||||||||||||||||||||||||||||
Other comprehensive income: | 17 | |||||||||||||||||||||||||||||
Items that will not be reclassified to profit or loss | ||||||||||||||||||||||||||||||
- Equity investments at fair value through other comprehensive | 319 | — | — | |||||||||||||||||||||||||||
- Share of other comprehensive income of associates | (4 | ) | — | — | ||||||||||||||||||||||||||
- Deferred tax relating to above items | (80 | ) | — | — | ||||||||||||||||||||||||||
Items that may be reclassified subsequently to profit or loss | ||||||||||||||||||||||||||||||
- Fair value movement of available-for-sale financial assets | 27 | - | 43 | (8) | ||||||||||||||||||||||||||
- Fair value movement of derivative financials instrument | 28 | 13 | - | - | ||||||||||||||||||||||||||
- Share of other comprehensive income/(loss) of an associate | (7) | 21 | (3) | |||||||||||||||||||||||||||
- Cash flow hedge: fair value movement of derivative financial instruments | 29 | 25 | 8 | |||||||||||||||||||||||||||
- Fair value movement ofavailable-for-sale financial assets (recycling) | — | 123 | 362 | |||||||||||||||||||||||||||
- Share of other comprehensive income (loss) of associates | — | 2 | (2 | ) | ||||||||||||||||||||||||||
- Differences resulting from the translation of foreign currency financial statements | (2 | ) | — | — | ||||||||||||||||||||||||||
- Deferred tax relating to above items | 29 | (3) | (11) | 2 | (7 | ) | (37 | ) | (92 | ) | ||||||||||||||||||||
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Other comprehensive income for the year | 255 | 113 | 276 | |||||||||||||||||||||||||||
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Total comprehensive income for the year | 4,821 | 2,451 | 2,741 | 3,619 | 7,011 | 6,174 | ||||||||||||||||||||||||
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Total comprehensive income attributable to: | ||||||||||||||||||||||||||||||
Equity shareholders of the Company | 3,742 | 1,813 | 1,981 | 3,048 | 6,028 | 5,196 | ||||||||||||||||||||||||
Non-controlling interests | 1,079 | 638 | 760 | 571 | 983 | 978 | ||||||||||||||||||||||||
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| ||||||||||||||||||||||||||||
Total comprehensive income for the year | 4,821 | 2,451 | 2,741 | 3,619 | 7,011 | 6,174 | ||||||||||||||||||||||||
|
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|
Note: The Group has initially applied IFRS 15 and IFRS 9 at January 1, 2018. Under the transition methods chosen, comparative information is not restated. See Note 2(b).
The accompanying notes form part of these financial statements.
Consolidated balance sheet atCONSOLIDATED STATEMENTS OF FINANCIAL POSITION
At December 31, 20152018 and 20142017
Note | December 31 2018 RMB million | December 31 2017 RMB million (Note) | ||||||||||
Non-current assets | ||||||||||||
Property, plant and equipment, net | 19 | 170,692 | 158,926 | |||||||||
Construction in progress | 20 | 37,791 | 30,233 | |||||||||
Lease prepayments | 21 | 2,970 | 2,923 | |||||||||
Goodwill | 22 | 237 | 237 | |||||||||
Interest in associates | 24 | 3,181 | 3,031 | |||||||||
Interest in joint ventures | 25 | 2,812 | 1,015 | |||||||||
Other investments in equity securities | 26 | — | 103 | |||||||||
Aircraft lease deposits | 594 | 642 | ||||||||||
Available-for-sale financial assets | 26 | — | 622 | |||||||||
Other equity instrument investments | 26 | 1,080 | — | |||||||||
Othernon-current financial assets | 26 | 103 | — | |||||||||
Derivative financial instruments | 27 | 75 | 46 | |||||||||
Deferred tax assets | 29 (b) | 1,566 | 1,662 | |||||||||
Other assets | 30 | 1,776 | 1,394 | |||||||||
|
|
|
| |||||||||
222,877 | 200,834 | |||||||||||
|
|
|
| |||||||||
Current assets | ||||||||||||
Inventories | 31 | 1,699 | 1,622 | |||||||||
Trade receivables | 32 | 2,901 | 2,675 | |||||||||
Other receivables | 33 | 8,015 | 5,232 | |||||||||
Cash and cash equivalents | 34 | 6,928 | 6,826 | |||||||||
Restricted bank deposits | 116 | 111 | ||||||||||
Prepaid expenses and other current assets | 3,659 | 1,334 | ||||||||||
Other financial assets | 26 | 440 | — | |||||||||
Assets held for sale | 35 | 224 | 8 | |||||||||
Amounts due from related companies | 42 | 90 | 76 | |||||||||
|
|
|
| |||||||||
24,072 | 17,884 | |||||||||||
|
|
|
| |||||||||
Current liabilities | ||||||||||||
Derivative financial liabilities | 27 | 44 | 64 | |||||||||
Borrowings | 36 | 38,741 | 27,568 | |||||||||
Current portion of obligations under finance leases | 37 | 9,555 | 8,341 | |||||||||
Trade payables | 38 | 2,309 | 2,125 | |||||||||
Contract liabilities | 39 | 1,693 | — | |||||||||
Sales in advance of carriage | 40 | 8,594 | 7,853 | |||||||||
Deferred revenue | 39 | — | 1,502 | |||||||||
Current income tax | 369 | 919 | ||||||||||
Amounts due to related companies | 42 | 127 | 101 | |||||||||
Accrued expenses | 43 | 15,682 | 15,370 | |||||||||
Other liabilities | 44 | 6,573 | 5,734 | |||||||||
|
|
|
| |||||||||
83,687 | 69,577 | |||||||||||
|
|
|
|
The accompanying notes form part of these financial statements.
(Prepared in accordance with International Financial Reporting Standards)
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (CONTINUED)
(Expressed in Renminbi)At December 31, 2018 and 2017
2015 | 2014 | |||||||||
Note | RMB million | RMB million | ||||||||
Non-current assets | ||||||||||
Property, plant and equipment, net | 20 | 142,870 | 134,453 | |||||||
Construction in progress | 21 | 19,433 | 19,347 | |||||||
Lease prepayments | 22 | 2,637 | 2,349 | |||||||
Interest in associates | 24 | 1,995 | 1,583 | |||||||
Interest in joint ventures | 25 | 1,440 | 1,338 | |||||||
Other investments in equity securities | 26 | 136 | 136 | |||||||
Aircraft operating lease deposits | 669 | 651 | ||||||||
Available-for-sale financial assets | 27 | 104 | 104 | |||||||
Derivative financial instruments | 28 | 13 | - | |||||||
Deferred tax assets | 29 | 1,387 | 966 | |||||||
Other receivables | 33 | 304 | 300 | |||||||
Other assets | 30 | 888 | 920 | |||||||
171,876 | 162,147 | |||||||||
Current assets | ||||||||||
Inventories | 31 | 1,606 | 1,661 | |||||||
Trade receivables | 32 | 2,580 | 2,683 | |||||||
Other receivables | 33 | 3,720 | 5,864 | |||||||
Cash and cash equivalents | 34 | 4,560 | 15,414 | |||||||
Restricted bank deposits | 123 | 438 | ||||||||
Prepaid expenses and other current assets | 1,191 | 995 | ||||||||
Amounts due from related companies | 39 | 333 | 486 | |||||||
14,113 | 27,541 | |||||||||
Current liabilities | ||||||||||
Borrowings | 35 | 30,002 | 20,979 | |||||||
Current portion of obligations under finance leases | 36 | 6,416 | 5,992 | |||||||
Trade payables | 37 | 2,500 | 1,657 | |||||||
Sales in advance of carriage | 7,131 | 6,101 | ||||||||
Deferred revenue | 38 | 1,029 | 1,160 | |||||||
Current income tax | 66 | 296 | ||||||||
Amounts due to related companies | 39 | 152 | 458 | |||||||
Accrued expenses | 40 | 13,081 | 12,122 | |||||||
Other liabilities | 41 | 5,158 | 5,321 | |||||||
65,535 | 54,086 |
Note | December 31 2018 RMB million | December 31 2017 RMB million (Note) | ||||||||||
Non-current liabilities | ||||||||||||
Borrowings | 36 | 15,676 | 20,719 | |||||||||
Obligations under finance leases | 37 | 62,666 | 59,583 | |||||||||
Deferred revenue | 39 | — | 1,849 | |||||||||
Othernon-current liabilities | 41 | 2,036 | — | |||||||||
Provision for major overhauls | 45 | 2,831 | 2,808 | |||||||||
Provision for early retirement benefits | 46 | 2 | 3 | |||||||||
Deferred benefits and gains | 47 | 906 | 1,053 | |||||||||
Deferred tax liabilities | 29 (b) | 676 | 583 | |||||||||
|
|
|
| |||||||||
84,793 | 86,598 | |||||||||||
|
|
|
| |||||||||
Net assets | 78,469 | 62,543 | ||||||||||
|
|
|
| |||||||||
Capital and reserves | ||||||||||||
Share capital | 48 | 12,267 | 10,088 | |||||||||
Reserves | 49 | 52,990 | 39,848 | |||||||||
|
|
|
| |||||||||
Total equity attributable to equity shareholders of the Company | 65,257 | 49,936 | ||||||||||
Non-controlling interests | 13,212 | 12,607 | ||||||||||
|
|
|
| |||||||||
Total equity | 78,469 | 62,543 | ||||||||||
|
|
|
|
Consolidated balance sheetNote: The Group has initially applied IFRS 15 and IFRS 9 at December 31, 2015 and 2014 (continued)
(Prepared in accordance with International Financial Reporting Standards)
(Expressed in Renminbi)
2015 | 2014 | |||||||||
Note | RMB million | RMB million | ||||||||
Non-current liabilities | ||||||||||
Borrowings | 35 | 15,884 | 42,066 | |||||||
Obligations under finance leases | 36 | 49,408 | 43,919 | |||||||
Deferred revenue | 38 | 1,806 | 1,750 | |||||||
Provision for major overhauls | 42 | 1,895 | 1,623 | |||||||
Provision for early retirement benefits | 43 | 13 | 25 | |||||||
Deferred benefits and gains | 44 | 886 | 853 | |||||||
Deferred tax liabilities | 29 | 938 | 873 | |||||||
70,830 | 91,109 | |||||||||
Net assets | 49,624 | 44,493 | ||||||||
Capital and reserves | ||||||||||
Share capital | 45 | 9,818 | 9,818 | |||||||
Reserves | 46 | 29,227 | 25,930 | |||||||
Total equity attributable to equity shareholders of the Company | 39,045 | 35,748 | ||||||||
Non-controlling interests | 10,579 | 8,745 | ||||||||
Total equity | 49,624 | 44,493 |
January 1, 2018. Under the transition methods chosen, comparative information is not restated. See Note 2(b).
The accompanying notes form part of these financial statements.
The financial statements were approved by the Board of Directors on 30 March 2016 and were signed on its behalf.
Consolidated statements of changes in equityCONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
forFor the years ended December 31, 2015, 20142018, 2017 and 2013
(Prepared in accordance with International Financial Reporting Standards)
(Expressed in Renminbi)2016
Attributable to equity shareholders of the Company | ||||||||||||||||||||||||||||||||
Share | Share | Fair value | Other | Retained | Non-controlling | Total | ||||||||||||||||||||||||||
capital | premium | reserves | reserves | earnings | Total | interests | equity | |||||||||||||||||||||||||
RMB | RMB | RMB | RMB | RMB | RMB | RMB | RMB | |||||||||||||||||||||||||
million | million | million | million | million | million | million | million | |||||||||||||||||||||||||
Balance at January 1, 2013 | 9,818 | 14,131 | 24 | 1,226 | 7,640 | 32,839 | 6,895 | 39,734 | ||||||||||||||||||||||||
Changes in equity for 2013: | ||||||||||||||||||||||||||||||||
Profit for the year | - | - | - | - | 1,986 | 1,986 | 764 | 2,750 | ||||||||||||||||||||||||
Other comprehensive income | - | - | (2 | ) | (3 | ) | - | (5 | ) | (4 | ) | (9 | ) | |||||||||||||||||||
Total comprehensive income | - | - | (2 | ) | (3 | ) | 1,986 | 1,981 | 760 | 2,741 | ||||||||||||||||||||||
Appropriations to reserves | - | - | - | 113 | (113 | ) | - | - | - | |||||||||||||||||||||||
Dividends relating to 2012 | - | - | - | - | (491 | ) | (491 | ) | - | (491 | ) | |||||||||||||||||||||
Acquisition of non-controlling interests in a subsidiary | - | - | - | - | - | - | (6 | ) | (6 | ) | ||||||||||||||||||||||
Capital injection from the non-controlling shareholder of a Subsidiary | - | - | - | - | - | - | 560 | 560 | ||||||||||||||||||||||||
Distributions to non-controlling interests | - | - | - | - | - | - | (87 | ) | (87 | ) | ||||||||||||||||||||||
Balance at December 31, 2013 | 9,818 | 14,131 | 22 | 1,336 | 9,022 | 34,329 | 8,122 | 42,451 |
Attributable to equity shareholders of the Company | ||||||||||||||||||||||||||||||||||||
Share capital | Share premium | Fair value reserve (recycling) | Fair value Reserve (non-recycling) | Other reserves | Retained earnings | Total | Non-controlling interests | Total equity | ||||||||||||||||||||||||||||
RMB | RMB | RMB | RMB | RMB | RMB | RMB | RMB | RMB | ||||||||||||||||||||||||||||
million | million | million | million | million | million | million | million | million | ||||||||||||||||||||||||||||
Balance at January 1, 2016 | 9,818 | 14,131 | 55 | — | 1,675 | 13,366 | 39,045 | 10,579 | 49,624 | |||||||||||||||||||||||||||
Changes in equity for 2016: | ||||||||||||||||||||||||||||||||||||
Profit for the year | — | — | — | — | — | 5,044 | 5,044 | 854 | 5,898 | |||||||||||||||||||||||||||
Other comprehensive income | — | — | 154 | — | (2 | ) | — | 152 | 124 | 276 | ||||||||||||||||||||||||||
Total comprehensive income | — | — | 154 | — | (2 | ) | 5,044 | 5,196 | 978 | 6,174 | ||||||||||||||||||||||||||
Appropriations to reserves | — | — | — | — | 405 | (405 | ) | — | — | — | ||||||||||||||||||||||||||
Dividends relating to 2015 | — | — | — | — | — | (785 | ) | (785 | ) | — | (785 | ) | ||||||||||||||||||||||||
Capital injection bynon-controlling interests in a subsidiary | — | — | — | — | — | — | — | 260 | 260 | |||||||||||||||||||||||||||
Decrease innon-controlling interests as a result of loss of control of a subsidiary | — | — | — | — | — | — | — | (83 | ) | (83 | ) | |||||||||||||||||||||||||
Distributions tonon-controlling interests | — | — | — | — | — | — | — | (214 | ) | (214 | ) | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Balance at December 31, 2016 and January 1, 2017 (Note) | 9,818 | 14,131 | 209 | — | 2,078 | 17,220 | 43,456 | 11,520 | 54,976 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Changes in equity for 2017: | ||||||||||||||||||||||||||||||||||||
Profit for the year | — | — | — | — | — | 5,961 | 5,961 | 937 | 6,898 | |||||||||||||||||||||||||||
Other comprehensive income | — | — | 66 | — | 1 | — | 67 | 46 | 113 | |||||||||||||||||||||||||||
Total comprehensive income | — | — | 66 | — | 1 | 5,961 | 6,028 | 983 | 7,011 | |||||||||||||||||||||||||||
Appropriations to reserves | — | — | — | — | 492 | (492 | ) | — | — | — | ||||||||||||||||||||||||||
Dividends relating to 2016 | — | — | — | — | — | (982 | ) | (982 | ) | — | (982 | ) | ||||||||||||||||||||||||
Issuance of shares | 270 | 1,051 | — | — | — | — | 1,321 | — | 1,321 | |||||||||||||||||||||||||||
Capital injection bynon-controlling interests in subsidiaries | — | — | — | — | — | — | — | 404 | 404 | |||||||||||||||||||||||||||
Dilution and change innon-controlling interests and other reserves | — | — | — | — | 113 | — | 113 | (39 | ) | 74 | ||||||||||||||||||||||||||
Distributions tonon-controlling interests | — | — | — | — | — | — | — | (261 | ) | (261 | ) | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Balance at December 31, 2017 | 10,088 | 15,182 | 275 | — | 2,684 | 21,707 | 49,936 | 12,607 | 62,543 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Impact on initial application of IFRS 15 (Note 2(b)(ii)) | — | — | — | — | — | 526 | 526 | 53 | 579 | |||||||||||||||||||||||||||
Impact on initial application of IFRS 9 (Note 2(b)(i)) | — | — | (240 | ) | 303 | — | 40 | 103 | 8 | 111 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Adjusted balance at January 1, 2018 (Note) | 10,088 | 15,182 | 35 | 303 | 2,684 | 22,273 | 50,565 | 12,668 | 63,233 | |||||||||||||||||||||||||||
Changes in equity for 2018: | ||||||||||||||||||||||||||||||||||||
Profit for the year | — | — | — | — | — | 2,895 | 2,895 | 469 | 3,364 | |||||||||||||||||||||||||||
Other comprehensive income | — | — | 22 | 133 | (2 | ) | — | 153 | 102 | 255 | ||||||||||||||||||||||||||
Total comprehensive income | — | — | 22 | 133 | (2 | ) | 2,895 | 3,048 | 571 | 3,619 | ||||||||||||||||||||||||||
Appropriations to reserves (Note 49(a)) | — | — | — | — | 221 | (221 | ) | — | — | — | ||||||||||||||||||||||||||
Dividends relating to 2017 (Note 49(b)) | — | — | — | — | — | (1,009 | ) | (1,009 | ) | — | (1,009 | ) | ||||||||||||||||||||||||
Issuance of shares (Note 48(ii)) | 2,179 | 10,470 | — | — | — | — | 12,649 | — | 12,649 | |||||||||||||||||||||||||||
Capital injection bynon-controlling interests in subsidiaries | — | — | — | — | — | — | — | 72 | 72 | |||||||||||||||||||||||||||
Changes in other reserves | — | — | — | — | 4 | — | 4 | — | 4 | |||||||||||||||||||||||||||
Distributions tonon-controlling interests | — | — | — | — | — | — | — | (99 | ) | (99 | ) | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Balance at December 31, 2018 | 12,267 | 25,652 | 57 | 436 | 2,907 | 23,938 | 65,257 | 13,212 | 78,469 | |||||||||||||||||||||||||||
|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
Attributable to equity shareholders of the Company | ||||||||||||||||||||||||||||||||
Share | Share | Fair value | Other | Retained | Non-controlling | Total | ||||||||||||||||||||||||||
capital | premium | reserves | reserves | earnings | Total | interests | equity | |||||||||||||||||||||||||
RMB | RMB | RMB | RMB | RMB | RMB | RMB | RMB | |||||||||||||||||||||||||
million | million | million | million | million | million | million | million | |||||||||||||||||||||||||
Balance at January 1, 2014 | 9,818 | 14,131 | 22 | 1,336 | 9,022 | 34,329 | 8,122 | 42,451 | ||||||||||||||||||||||||
Changes in equity for 2014: | ||||||||||||||||||||||||||||||||
Profit for the year | - | - | - | - | 1,777 | 1,777 | 621 | 2,398 | ||||||||||||||||||||||||
Other comprehensive income | - | - | 22 | 14 | - | 36 | 17 | 53 | ||||||||||||||||||||||||
Total comprehensive income | - | - | 22 | 14 | 1,777 | 1,813 | 638 | 2,451 | ||||||||||||||||||||||||
Appropriations to reserves | - | - | - | 137 | (137 | ) | - | - | - | |||||||||||||||||||||||
Dividends relating to 2013(Note 46) | - | - | - | - | (393 | ) | (393 | ) | - | (393 | ) | |||||||||||||||||||||
Capital injection of non-controlling interests in a subsidiary | - | - | - | - | - | - | 108 | 108 | ||||||||||||||||||||||||
Acquisition of non-controlling interests in a subsidiary | - | - | - | (1 | ) | - | (1 | ) | (1 | ) | (2 | ) | ||||||||||||||||||||
Non-controlling interest arising on business combination | - | - | - | - | - | - | 6 | 6 | ||||||||||||||||||||||||
Distributions to non-controlling interests | - | - | - | - | - | - | (128 | ) | (128 | ) | ||||||||||||||||||||||
Balance at December 31, 2014 | 9,818 | 14,131 | 44 | 1,486 | 10,269 | 35,748 | 8,745 | 44,493 |
Consolidated statements of changes in equity
forNote: The Group has initially applied IFRS 15 and IFRS 9 at January 1, 2018. Under the years ended December 31, 2015, 2014 and 2013 (continued)
(Prepared in accordance with International Financial Reporting Standards)
(Expressed in Renminbi)
Attributable to equity shareholders of the Company | ||||||||||||||||||||||||||||||||
Share | Share | Fair value | Other | Retained | Non-controlling | Total | ||||||||||||||||||||||||||
capital | premium | reserves | reserves | earnings | Total | interests | equity | |||||||||||||||||||||||||
RMB | RMB | RMB | RMB | RMB | RMB | RMB | RMB | |||||||||||||||||||||||||
million | million | million | million | million | million | million | million | |||||||||||||||||||||||||
Balance at January 1, 2015 | 9,818 | 14,131 | 44 | 1,486 | 10,269 | 35,748 | 8,745 | 44,493 | ||||||||||||||||||||||||
Changes in equity for 2015: | ||||||||||||||||||||||||||||||||
Profit for the year | - | - | - | - | 3,736 | 3,736 | 1,082 | 4,818 | ||||||||||||||||||||||||
Other comprehensive income | - | - | 11 | (5 | ) | - | 6 | (3 | ) | 3 | ||||||||||||||||||||||
Total comprehensive income | - | - | 11 | (5 | ) | 3,736 | 3,742 | 1,079 | 4,821 | |||||||||||||||||||||||
Appropriations to reserves | - | - | - | 246 | (246 | ) | - | - | - | |||||||||||||||||||||||
Dividends relating to 2014(note 46) | - | - | - | - | (393 | ) | (393 | ) | - | (393 | ) | |||||||||||||||||||||
Capital injection of non-controlling interests in a subsidiary | - | - | - | - | - | - | 1,360 | 1,360 | ||||||||||||||||||||||||
Acquisition of non-controlling interests in a subsidiary | - | - | - | (52 | ) | - | (52 | ) | (574 | ) | (626 | ) | ||||||||||||||||||||
Distributions to non-controlling interests | - | - | - | - | - | - | (31 | ) | (31 | ) | ||||||||||||||||||||||
Balance at December 31, 2015 | 9,818 | 14,131 | 55 | 1,675 | 13,366 | 39,045 | 10,579 | 49,624 |
transition methods chosen, comparative information is not restated. See Note 2(b).
The accompanying notes form part of these financial statements.
Consolidated cash flow statements forCONSOLIDATED CASH FLOW STATEMENTS
For the years ended December 31, 2015, 20142018, 2017 and 2013
(Prepared in accordance with International Financial Reporting Standards)
(Expressed in Renminbi)2016
2015 | 2014 | 2013 | ||||||||||||
Note | RMB million | RMB million | RMB million | |||||||||||
Operating activities | ||||||||||||||
Cash generated from operating activities | 34(b) | 27,857 | 15,826 | 11,546 | ||||||||||
Interest received | 313 | 360 | 220 | |||||||||||
Interest paid | (2,274 | ) | (1,991 | ) | (1,538 | ) | ||||||||
Income tax paid | (2,162 | ) | (625 | ) | (525 | ) | ||||||||
Net cash generated from operating activities | 23,734 | 13,570 | 9,703 | |||||||||||
Investing activities | ||||||||||||||
Acquisition of subsidiaries, net of cash acquired | (69 | ) | (657 | ) | - | |||||||||
Proceeds from disposal of property, plant and equipment and lease prepayments | 3,196 | 1,611 | 205 | |||||||||||
Dividends received from associates | 67 | 86 | 33 | |||||||||||
Dividends received from a joint venture | 6 | - | 5 | |||||||||||
Dividends received from other investments in equity securities and available-for-sale financial assets | 13 | 13 | 14 | |||||||||||
Acquisition of term deposits and wealth management products | (278 | ) | (3,286 | ) | (8,402 | ) | ||||||||
Proceeds from maturity of term deposits and wealth management products | 1,971 | 1,254 | 8,481 | |||||||||||
Interest received on wealth management products | - | - | 25 | |||||||||||
Additions of property, plant and equipment, lease prepayments and other assets | (12,139 | ) | (8,649 | ) | (12,308 | ) | ||||||||
Capital injection into associates and other investment | (40 | ) | - | (72 | ) | |||||||||
Payment for aircraft lease deposits | (123 | ) | (172 | ) | (51 | ) | ||||||||
Refund of aircraft lease deposits | 141 | 87 | 142 | |||||||||||
Placement of pledged bank deposits | - | (1,656 | ) | (277 | ) | |||||||||
Withdrawal of pledged bank deposits | 324 | 1,609 | - | |||||||||||
Net cash used in investing activities | (6,931 | ) | (9,760 | ) | (12,205 | ) | ||||||||
Financing activities | ||||||||||||||
Dividends paid to equity shareholders of the Company | (393 | ) | (393 | ) | (491 | ) | ||||||||
Proceeds from borrowings | 34,170 | 32,488 | 38,324 | |||||||||||
Proceeds from ultra-short-term financing bills | 8,000 | 6,000 | 500 | |||||||||||
Proceeds from corporate bond | 3,000 | - | - | |||||||||||
Repayment of borrowings | (62,212 | ) | (31,126 | ) | (31,243 | ) | ||||||||
Repayment of principal under finance lease obligations | (8,209 | ) | (4,072 | ) | (2,895 | ) | ||||||||
Repayment of ultra-short-term financing bills | (3,000 | ) | (3,000 | ) | (500 | ) | ||||||||
Capital injection from the non-controlling interests of subsidiaries | 1,360 | 108 | 560 | |||||||||||
Dividends paid to non-controlling interests | (23 | ) | (128 | ) | (87 | ) | ||||||||
Payment for purchase of non-controlling interest | (388 | ) | (8 | ) | - | |||||||||
Net cash (used in)/generated from financing activities | (27,695 | ) | (131 | ) | 4,168 | |||||||||
Net (decrease)/increase in cash and cash equivalents | (10,892 | ) | 3,679 | 1,666 | ||||||||||
Cash and cash equivalents at January 1 | 15,414 | 11,748 | 10,082 | |||||||||||
Exchange gain/(loss) on cash and cash equivalents | 38 | (13 | ) | - | ||||||||||
Cash and cash equivalents at December 31 | 4,560 | 15,414 | 11,748 |
Note | 2018 RMB million | 2017 RMB million | 2016 RMB million | |||||||||||
Operating activities | ||||||||||||||
Cash generated from operating activities | 34(b) | 21,174 | 23,478 | 27,681 | ||||||||||
Interest received | 131 | 119 | 118 | |||||||||||
Interest paid | (4,255 | ) | (3,758 | ) | (2,629 | ) | ||||||||
Income tax paid | (1,662 | ) | (2,107 | ) | (1,406 | ) | ||||||||
|
|
|
|
|
| |||||||||
Net cash generated from operating activities | 15,388 | 17,732 | 23,764 | |||||||||||
|
|
|
|
|
| |||||||||
Investing activities | ||||||||||||||
Acquisition of subsidiaries, net of cash acquired | 23(iv) | 6 | (682 | ) | (189 | ) | ||||||||
Deemed disposal of a subsidiary | — | — | (67 | ) | ||||||||||
Proceeds from disposal of property, plant and equipment and lease prepayments | 3,550 | 5,922 | 3,111 | |||||||||||
Proceeds from sale of a joint venture | — | 7 | 2 | |||||||||||
Acquisition of other financial assets | (440 | ) | — | — | ||||||||||
Dividends received from associates | 114 | 195 | 143 | |||||||||||
Dividends received from joint ventures | 144 | 9 | 18 | |||||||||||
Dividends received from other investments in equity securities andavailable-for-sale financial assets | — | 18 | 14 | |||||||||||
Dividends received from othernon-current financial assets and other equity instrument investments | 20 | — | — | |||||||||||
Acquisition of term deposits | (264 | ) | (313 | ) | (263 | ) | ||||||||
Proceeds from maturity of term deposits | 313 | 568 | 456 | |||||||||||
Additions of property, plant and equipment, lease prepayments and other assets | (24,033 | ) | (13,846 | ) | (18,967 | ) | ||||||||
Capital injection into associates | — | (185 | ) | (34 | ) | |||||||||
Payments for aircraft lease deposits | (53 | ) | (40 | ) | (55 | ) | ||||||||
Refund of aircraft lease deposits | 126 | 111 | 81 | |||||||||||
|
|
|
|
|
| |||||||||
Net cash used in investing activities | (20,517 | ) | (8,236 | ) | (15,750 | ) | ||||||||
|
|
|
|
|
| |||||||||
Financing activities | ||||||||||||||
Dividends paid to equity shareholders of the Company | (1,009 | ) | (982 | ) | (785 | ) | ||||||||
Proceeds from issuance of shares | 10,908 | 1,321 | — | |||||||||||
Proceeds from bank borrowings | 34,385 | 42,854 | 17,539 | |||||||||||
Proceeds from corporate bonds | 2,000 | — | 10,000 | |||||||||||
Proceeds from issuance of ultra-short-term financing bills | 5,500 | 1,000 | 33,886 | |||||||||||
Proceeds from medium-term notes | — | — | 4,689 | |||||||||||
Repayment of bank borrowings | (34,260 | ) | (18,311 | ) | (46,695 | ) | ||||||||
Repayment of principal under finance lease obligations | (10,433 | ) | (9,835 | ) | (6,994 | ) | ||||||||
Repayment of ultra-short-term financing bills | (1,500 | ) | (22,986 | ) | (19,900 | ) | ||||||||
Repayment of corporate bonds | (345 | ) | — | — | ||||||||||
Capital injections bynon-controlling interests in subsidiaries | 72 | 404 | 260 | |||||||||||
Dividends paid tonon-controlling interests | (98 | ) | (261 | ) | (221 | ) | ||||||||
Payment for purchase ofnon-controlling interests | — | — | (238 | ) | ||||||||||
|
|
|
|
|
| |||||||||
Net cash generated from/(used in) financing activities | 5,220 | (6,796 | ) | (8,459 | ) | |||||||||
|
|
|
|
|
| |||||||||
Net increase/(decrease) in cash and cash equivalents | 91 | 2,700 | (445 | ) | ||||||||||
Cash and cash equivalents at January 1 | 6,826 | 4,152 | 4,560 | |||||||||||
Exchange gain/(loss) on cash and cash equivalents | 11 | (26 | ) | 37 | ||||||||||
|
|
|
|
|
| |||||||||
Cash and cash equivalents at December 31 | 34(a) | 6,928 | 6,826 | 4,152 | ||||||||||
|
|
|
|
|
|
The accompanying notes form part of these financial statements.
F-8
Notes to the consolidated financial statementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
(Expressed in Renminbi unless otherwise indicated)
1 | Corporate information |
China Southern Airlines Company Limited (the “Company”), a joint stock company limited by shares,company, was incorporated in the People’s Republic of China (the “PRC”) on March 25, 1995. The address of the Company’s registered office is House 203, No. 233 Kaifa Avenue, Guangzhou Economic & Technology Development Zone, LuogangUnit 301, 3/F, Office Tower, Guanhao Science Park Phase I, 12 Yuyan Street, Huangpu District, Guangzhou, Guangdong Province, the PRC. The Company and its subsidiaries (the “Group”) are principally engaged in the operation of civil aviation, including the provision of passenger, cargo, mail delivery and other extended transportation services.
The Company’s majority interest is owned by China Southern Air Holding Limited Company (“CSAHC”CSAH”), a state-owned enterprise incorporated in the PRC.
The Company’s shares are traded on the Shanghai Stock Exchange, theThe Stock Exchange of Hong Kong Limited and the New York Stock Exchange.
These financial statements are presented in RMB, unless otherwise stated.
These consolidated financial statements were approved for issue by the Company’s Board on March 30, 2016.
2 | Significant accounting policies |
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.
The consolidated financial statements have been prepared in accordance with all applicable International Financial Reporting Standards (“IFRSs”), which collective term includes all applicable individual IFRSs, International Accounting Standards (“IASs”) and Interpretations issued by the International Accounting Standards Board (the “IASB”). Significant accounting policies adopted by the Group are disclosed below.
The IASB has issued certain new and revised IFRSs that are first effective for the current accounting period of the Group. Note 2(b) provides information on any changes in accounting policies resulting from initial application of these developments to the extent that they are relevant to the Group for the current accounting period reflected in these financial statements.
(a) | Basis of preparation |
The consolidated financial statements comprise the Group and the Group’s interest in associates and joint ventures.
The measurement basis used in the preparation of the financial statements is the historical cost basis except that available-for-sale equity securitiesthe following assets and liabilities are stated at their fair value as explained in the accounting policies set out in Note 2(e) andbelow:
other equity instrument investments (see Note 2(f));
othernon-current financial assets (see Note 2(f));
other financial assets (see Note 2(f)); and
derivative financial instruments (see Note 2(g)).
Non-current assets and disposal groups held for sale are stated at the lower of carrying amount and fair value less costs to sell (see Note 2(r)).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Renminbi unless otherwise indicated)
2 | Significant accounting policies (continued) |
(a) | Basis of preparation (continued) |
The preparation of financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and relevantassociated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and relevantunderlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognizedrecognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
Judgements made by management in the application of IFRSs that have significant effect on the financial statements and major sources of estimation uncertainty are discussed in Note 3.
The consolidated financial statements comprise the Company and its subsidiaries and the Group’s interest in associates and joint ventures.
F-9
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Notes to the consolidated financial statements
(Prepared in accordance with International Financial Reporting Standards)
(Expressed in Renminbi unless otherwise indicated)
2 | Significant accounting policies (continued) |
(b) | Changes in accounting policies |
As at December 31, 2015,The IASB has issued a number of new IFRSs and amendments to IFRSs that are first effective for the current accounting period of the Group. Of these, the following developments are relevant to the Group’s current liabilities exceeded its current assets by RMB51,422 million. In preparing the consolidated financial statements, the Board has given careful consideration to the going concern status of the Group in the context of the Group’s current working capital deficit and believe that adequate funding is available to fulfil the Group’s short-term obligations and capital expenditure requirements.
As at December 31, 2015, he Group had banking facilities with several PRC banks and financial institutions for providing bank financing up to approximately RMB173.7 billion (2014: RMB187.1 billion), of which approximately RMB131.0 billion (2014: RMB126.7 billion) was unutilised. The Board believes that, based on experience to date, it is likely that these facilities will be rolled over in future years if required. Accordingly, the Board believes that it is appropriate to prepare the consolidated 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.statements:
IFRS 9,Financial instruments |
• | IFRS 15,Revenue from contracts with customers |
• | IFRIC 22,Foreign currency transactions and advance consideration |
The following standards have been adopted by the Group has not applied any new standard or interpretation that is not yet effective for the first timecurrent accounting year.
(i) | IFRS 9,Financial instruments |
IFRS 9 replaces IAS 39,Financial instruments: recognition and measurement. It sets out the requirements for therecognising and measuring financial year beginning onassets, financial liabilities and some contracts to buy or aftersellnon-financial items.
The Group has applied IFRS 9 retrospectively to items that existed at January 1, 2015:
The adoption of the improvements made in the 2010-2012 Cycle has required additional disclosures in the segment note. Other than that, the remaining amendments are not material to the Group.
Notes to the consolidated financial statements
(Prepared2018 in accordance with International Financial Reporting Standards)the transition requirements. The Group has recognised the cumulative effect of initial application as an adjustment to the opening equity at January 1, 2018. Therefore, comparative information continues to be reported under IAS 39.
The following table summarises the impact of transition to IFRS 9 on retained earnings and reserves and the related tax impact at January 1, 2018.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Renminbi unless otherwise indicated)
2 | Significant accounting policies (continued) |
(b) | Changes in accounting policies (continued) |
(i) | IFRS 9,Financial instruments(continued) |
Retained earnings | RMB million | |||
Transferred from fair value reserve (recycling) relating to financial assets now measured at fair value through profit or loss (FVPL) | 30 | |||
Remeasurement of | 23 | |||
Related tax | (5 | ) | ||
Effect of the above changes onnon-controlling interests | (8 | ) | ||
Net increase in retained earnings at January 1, 2018 | 40 | |||
Fair value reserve (recycling) | ||||
Transferred to retained earnings relating to financial assets now measured at FVPL | (30 | ) | ||
Transferred to fair value reserve(non-recycling) relating to equity securities now measured at fair value through other comprehensive income (FVOCI) | (210 | ) | ||
Net decrease in fair value reserve (recycling) at January 1, 2018 | (240 | ) | ||
Fair value reserve(non-recycling) | ||||
Transfer and remeasurement effect of other investments in equity securities now measured at FVOCI at January 1, 2018 | 334 | |||
Related tax | (31 | ) | ||
Net increase in fair value reserve(non-recycling) at January 1, 2018 | 303 | |||
Non-controlling interests | ||||
Remeasurement of other investments in equity securities now measured at FVPL innon-controlling interests at January 1, 2018 | 8 | |||
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Renminbi unless otherwise indicated)
2 | Significant accounting policies (continued) |
(b) | Changes in accounting policies (continued) |
(i) | IFRS 9,Financial instruments (continued) |
Further details of the nature and effect of the changes to previous accounting policies and the transition approach are set out below:
(a) | Classification of financial assets and financial liabilities |
IFRS 9 categories financial assets into three principal classification categories: measured at amortised cost, at FVOCI and at FVPL. These supersede IAS 39’s categories ofheld-to-maturity investments, loans and receivables,available-for-sale financial assets and financial assets measured at FVPL. The classification of financial assets under IFRS 9 is based on the business model under which the financial asset is managed and its contractual cash flow characteristics. Under IFRS 9, derivatives embedded in contracts where the host is a financial asset in the scope of the standard are not separated from the host. Instead, the hybrid instrument as a whole is assessed for classification.
The following table shows the original measurement categories for each class of the Group’s financial assets under IAS 39 and reconciles the carrying amounts of those financial assets determined in accordance with IAS 39 to those determined in accordance with IFRS 9.
IAS 39 carrying amount | Reclassification | Remeasurement | IFRS 9 carrying amount | |||||||||||||
RMB million | RMB million | RMB million | RMB million | |||||||||||||
Financial assets measured at FVOCI(non-recyclable) | ||||||||||||||||
Other equity instrument investments | — | 637 | 124 | 761 | ||||||||||||
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Financial assets carried at FVPL | ||||||||||||||||
Other non–current financial assets | — | 88 | 23 | 111 | ||||||||||||
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Financial assets classified asavailable-for-sale under IAS 39 | ||||||||||||||||
Available-for-sale financial assets | 622 | (622 | ) | — | — | |||||||||||
Other investments in equity securities | 103 | (103 | ) | — | — | |||||||||||
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Note:
(i) For an explanation of how the Group classifies and measures financial assets and recognises related gains and losses under IFRS 9, see respective accounting policy notes in Notes 2(f), (g), (l)(i), (o) and (s).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Renminbi unless otherwise indicated)
2 | Significant accounting policies (continued) |
(b) | Changes in accounting policies (continued) |
(i) | IFRS 9,Financial instruments (continued) |
Classification of financial assets and |
A number of new standards and amendments to standards and interpretations are effectiveThe measurement categories for annual periods beginning afterall financial liabilities remain the same, except for financial guarantee contracts (see Note 2(l)(ii)). The carrying amounts for all financial liabilities (including financial guarantee contracts) at January 1, 2015, and2018 have not been impacted by the initial application of IFRS 9.
The Group had not designated orde-designated any financial asset or financial liability at FVPL at January 1, 2018.
(b) | Credit losses |
IFRS 9 replaces the “incurred loss” model in IAS 39 with the “expected credit losses” (“ECL”) model. The ECL model requires an ongoing measurement of credit risk associated with a financial asset and therefore recognises ECLs earlier than under the “incurred loss” accounting model in IAS 39.
The Group applies the new ECL model to the following items:
financial assets measured at amortised cost (including cash and cash equivalents and trade and other receivables);
lease receivables; and
financial guarantee contracts issued (see Note 2(l)(ii)).
For further details on the Group’s accounting policy for accounting for credit losses, see Notes 2(l)(i) and (ii).
The adoption of ECL model under IFRS 9 has no material impact on the Group.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Renminbi unless otherwise indicated)
2 | Significant accounting policies (continued) |
(b) | Changes in accounting policies (continued) |
(i) | IFRS 9,Financial instruments (continued) |
(c) | Hedge accounting |
The Group has elected to adopt the new general hedge accounting model in IFRS 9. Depending on the complexity of the hedge, this new accounting model allows a more qualitative approach to assessing hedge effectiveness compared to IAS 39 to be applied, in preparing these consolidated financial statements. Noneand the assessment is always forward-looking. The adoption of these is expected to haveIFRS 9 has not had a significant effectimpact on the consolidatedGroup’s financial statements in this regard.
(d) | Transition |
Changes in accounting policies resulting from the adoption of the Group,IFRS 9 have been applied retrospectively, except the following set outas described below:
Information relating to comparative periods has not been restated. Differences in the classification, measurement and recognitioncarrying amounts of financial assets and financial liabilities. The complete versionresulting from the adoption of IFRS 9 was issuedare recognised in July 2014. It replacesretained earnings and reserves as at January 1, 2018. Accordingly, the guidance ininformation presented for 2017 and 2016 continues to be reported under IAS 39 and thus may not be comparable with the current period.
The following assessments have been made on the basis of the facts and circumstances that relates to the classification and measurementexisted at January 1, 2018 (the date of financial instruments.initial application of IFRS 9 retains but simplifiesby the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through OCI and fair value through P&L. The basisGroup):
the determination of classification depends on the entity's business model within which a financial asset is held; and
the designation of certain investments in equity instruments not held for trading to be classified as at FVOCI(non-recycling).
If, at the date of initial application, the assessment of whether there has been a significant increase in credit risk since initial recognition would have involved undue cost or effort, a lifetime ECL has been recognised for that financial instrument.
All hedging relationships designated under IAS 39 at December 31, 2017 met the criteria for hedge accounting under IFRS 9 at January 1, 2018 and are therefore regarded as continuing hedging relationships. Changes to hedge accounting policies have been applied prospectively.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Renminbi unless otherwise indicated)
2 | Significant accounting policies (continued) |
(b) | Changes in accounting policies (continued) |
(ii) | IFRS 15,Revenue from contracts with customers |
IFRS 15 establishes a comprehensive framework for recognising revenue and some costs from contracts with customers. IFRS 15 replaces IAS 18,Revenue, which covered revenue arising from sale of goods and rendering of services, and IAS 11,Construction contracts, which specified the contractual cash flow characteristicsaccounting for construction contracts.
IFRS 15 also introduces additional qualitative and quantitative disclosure requirements which aim to enable users of the financial asset. Investments in equity instruments are requiredstatements to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in OCI not recycling. There is now a new expected credit losses model that replaces the incurred loss impairment model used in IAS 39. For financial liabilities there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value through profit or loss. IFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic relationship between the hedged item and hedging instrument and for the ‘hedged ratio’ to be the same as the one management actually use for risk management purposes.
The Group has elected to use the cumulative effect transition method and has recognised the cumulative effect of initial application as an adjustment to the opening balance of equity at January 1, 2018. Therefore, comparative information has not been restated and continues to be reported under IAS 11 and IAS 18. As allowed by IFRS 15, the Group has applied the new requirements only to contracts that were not completed before January 1, 2018.
The following table summarises the impact of transition to IFRS 15 on total equity at January 1, 2018:
RMB million | ||||
Total equity | ||||
Earlier recognition of ticket breakage revenue | 682 | |||
Change in measurement of revenue under frequent flyer award programmes | 89 | |||
Related income tax | (192 | ) | ||
Total equity | 579 | |||
Representing: | ||||
Attributable to equity shareholders of the Company | 526 | |||
Non-controlling interests | 53 | |||
Further details of the nature and effect of the changes on previous accounting policies are set out below:
(a) | Timing of revenue recognition |
Previously, revenue arising from construction contracts and provision of services was recognised over time, whereas revenue from sale of goods was generally recognised at a point in time when the risks and rewards of ownership of the goods had passed to the customers.
Under IFRS 15, revenue is recognizedrecognised when athe customer obtains control of athe promised good or service and thus hasin the ability to directcontract. This may be at a single point in time or over time. IFRS 15 identifies the use and obtainfollowing three situations in which control of the benefits from thepromised good or service. The standard replaces IAS 18 'Revenue' and IAS 11 'Construction contracts' and related interpretations. The standardservice is effective for annual periods beginning on or after January 1, 2017 and earlier application is permitted. The Group is assessing the impact of IFRS 15.regarded as being transferred over time:
There are no other IFRSs or IFRIC/HK interpretations that are not yet effective that would be expected to have a material impact on the Group.
Notes to the consolidated financial statementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
(Expressed in Renminbi unless otherwise indicated)
2 | Significant accounting policies (continued) |
(b) | Changes in accounting policies (continued) |
(ii) | IFRS 15,Revenue from contracts with customers (continued) |
(a) | Timing of revenue recognition (continued) |
A. | When the customer simultaneously receives and consumes the benefits provided by the entity’s performance, as the entity performs; |
B. | When the entity’s performance creates or enhances an asset (for example work in progress) that the customer controls as the asset is created or enhanced; |
C. | When the entity’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date. |
If the contract terms and the entity’s activities do not fall into any of these 3 situations, then under IFRS 15 the entity recognises revenue for the sale of that good or service at a single point in time, being when control has passed. Transfer of risks and rewards of ownership is only one of the indicators that is considered in determining when the transfer of control occurs.
The adoption of IFRS 15 does not have a significant impact on when the Group recognises revenue, except for revenue arising from ticket breakage.
Ticket breakage relates to a portion of contractual rights that the Group does not expect to be exercised. Previously, revenue arising from ticket breakage was recognised when the tickets expired. Whereas under IFRS 15, the Group recognises, in proportion to the pattern of rights exercised by the customer, the breakage amount to which the Group expects to be entitled as revenue. If the Group does not expect to be entitled to a breakage amount, the Group recognises the expected breakage amount as revenue when the likelihood of the customer exercising its remaining rights becomes remote.
As a result of this change in accounting policy, the Group has made adjustments to opening balances as at January 1, 2018 which increased retained earnings andnon-controlling interests by RMB460 million and RMB52 million respectively, after an offsetting tax impact of RMB170 million. In addition, the positive impact on the Group’s revenue for the current year was RMB57 million.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Renminbi unless otherwise indicated)
2 | Significant accounting policies (continued) |
(b) | Changes in accounting policies (continued) |
(ii) | IFRS 15,Revenue from contracts with customers (continued) |
(b) | Measurement of revenue under frequent flyer award programmes |
Previously, the amount received in relation to mileage earning flights is allocated, based on fair value, between the flight and mileage awarded under the Group’s frequent flyer award programmes. The value attributed to the awarded mileage is deferred as a liability, and the remainder value is recognised as revenue in current period. Under IFRS 15, the Group allocates the transaction price to flight and mileage awarded on a relative stand-alone selling price basis. Therefore, the amount allocated to mileage awarded changed as compared to the fair value of mileage awarded measured under IAS18, and in the meantime affecting the amount recognised as current period revenue and contract liabilities.
As a result of this change in accounting policy, the Group has made adjustments to opening balances as at January 1, 2018 which increased retained earnings andnon-controlling interests by RMB66 million and RMB1 million respectively, after an offsetting tax impact of RMB22 million. In addition, the positive impact on the Group’s revenue for the current year was RMB70 million.
(c) | Presentation |
(1) | Ticket Breakage Revenue |
Previously, revenue arising from ticket breakage was presented separately as “Expired sales in advance of carriage” in “Other operating revenue”. As a result of the adoption of IFRS15, ticket breakage revenue of RMB698 million for the current year is included in the line item “Traffic revenue”.
(2) | Change Fees |
Previously, change fees was included in “Other operating revenue”. As a result of the adoption of IFRS15, change fees of RMB655 million for the current year which is not considered distinct from the transportation component is classified as “Traffic revenue”.
(3) | Contract Liabilities |
Previously, the amount received in relation to mileage awarded is deferred as a liability, within “Deferred revenue”. Under IFRS 15, a contract liability is recognised when a customer pays consideration, or is contractually required to pay consideration and the amount is already due, before the Group recognises the related revenue.
As a result of the adoption of IFRS15, the amount allocated to mileage awarded under the Group’s frequent flyer award programmes is presented as “Contract liabilities” as at December 31, 2018 and thenon-current portion is recorded in “Othernon-current liabilities”.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Renminbi unless otherwise indicated)
2 | Significant accounting policies (continued) |
(b) | Changes in accounting policies (continued) |
(ii) | IFRS 15,Revenue from contracts with customers (continued) |
(d) | Disclosure of the estimated impact on the amounts reported in respect of the year ended December 31, 2018 as a result of the adoption of IFRS 15 on January 1, 2018 |
The following tables summarise the estimated impact of adoption of IFRS 15 on the Group’s consolidated financial statements for the year ended December 31, 2018, by comparing the amounts reported under IFRS 15 in these consolidated financial statements with estimates of the hypothetical amounts that would have been recognised under IAS 18 and IAS 11 if those superseded standards had continued to apply to 2018 instead of IFRS 15. These tables show only those line items impacted by the adoption of IFRS 15:
Amounts (A) RMB million | Hypothetical 18 and 11 (B) RMB million | Difference: Estimated on 2018 (A)-(B) RMB million | ||||||||||
Line items in the consolidated income statement for year ended December 31, 2018 impacted by the adoption of IFRS 15: | ||||||||||||
Traffic revenue | 138,064 | 136,641 | 1,423 | |||||||||
Other operating revenue | 5,559 | 6,855 | (1,296 | ) | ||||||||
Total operating revenue | 143,623 | 143,496 | 127 | |||||||||
Profit before income tax | 4,364 | 4,237 | 127 | |||||||||
Income tax | (1,000 | ) | (968 | ) | (32 | ) | ||||||
Profit for the year | 3,364 | 3,269 | 95 | |||||||||
Profit attributable to: | ||||||||||||
Equity shareholders of the Company | 2,895 | 2,805 | 90 | |||||||||
Non-controlling interests | 469 | 464 | 5 | |||||||||
Earnings per share | ||||||||||||
Basic and diluted | RMB0.27 | RMB0.26 | RMB0.01 | |||||||||
Line items in the consolidated statement of comprehensive income for year ended December 31, 2018 impacted by the adoption of IFRS 15: | ||||||||||||
Total comprehensive income for the year | 3,619 | 3,524 | 95 | |||||||||
Total comprehensive income attributable to: | ||||||||||||
Equity shareholders of the Company | 3,048 | 2,958 | 90 | |||||||||
Non-controlling interests | 571 | 566 | 5 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Renminbi unless otherwise indicated)
2 | Significant accounting policies (continued) |
(b) | Changes in accounting policies (continued) |
(ii) | IFRS 15,Revenue from contracts with customers (continued) |
(d) | Disclosure of the estimated impact on the amounts reported in respect of the year ended December 31, 2018 as a result of the adoption of IFRS 15 on January 1, 2018 (continued) |
Amounts (A) RMB million | Hypothetical 18 and 11 (B) RMB million | Difference: Estimated on 2018 (A)-(B) RMB million | ||||||||||
Line items in the consolidated statement of financial position as at December 31, 2018 impacted by the adoption of IFRS 15: | ||||||||||||
Deferred tax assets | 1,566 | 1,570 | (4 | ) | ||||||||
Non-current assets | 222,877 | 222,881 | (4 | ) | ||||||||
Contract liabilities | (1,693 | ) | — | (1,693 | ) | |||||||
Sales in advance of carriage | (8,594 | ) | (9,357 | ) | 763 | |||||||
Deferred revenue | — | (1,808 | ) | 1,808 | ||||||||
Current income tax | (369 | ) | (130 | ) | (239 | ) | ||||||
Total current liabilities | (83,687 | ) | (84,326 | ) | 639 | |||||||
Total assets less current liabilities | 163,262 | 162,627 | 635 | |||||||||
Deferred revenue | — | (2,057 | ) | 2,057 | ||||||||
Othernon-current liabilities | (2,036 | ) | (18 | ) | (2,018 | ) | ||||||
Totalnon-current liabilities | (84,793 | ) | (84,832 | ) | 39 | |||||||
Reserves | (52,990 | ) | (52,374 | ) | (616 | ) | ||||||
Total equity attributable to equity shareholders of the Company | (65,257 | ) | (64,641 | ) | (616 | ) | ||||||
Non-controlling interests | (13,212 | ) | (13,154 | ) | (58 | ) | ||||||
Total equity | (78,469 | ) | (77,795 | ) | (674 | ) |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Renminbi unless otherwise indicated)
2 | Significant accounting policies (continued) |
(b) | Changes in accounting policies (continued) |
(ii) | IFRS 15,Revenue from contracts with customers (continued) |
(d) | Disclosure of the estimated impact on the amounts reported in respect of the year ended December 31, 2018 as a result of the adoption of IFRS 15 on January 1, 2018 (continued) |
Amounts (A) RMB million | Hypothetical 18 and 11 (B) RMB million | Difference: Estimated on 2018 (A)-(B) RMB million | ||||||||||
Line items in the reconciliation of profit before income tax to cash generated from operating activities for year ended December 31, 2018 (Note 34(b)) impacted by the adoption of IFRS 15: | ||||||||||||
Profit before income tax | 4,364 | 4,237 | 127 | |||||||||
Increase in contract liabilities | 232 | — | 232 | |||||||||
Increase in sales in advance of carriage | 1,441 | 1,504 | (63 | ) | ||||||||
Increase in deferred revenue | — | 514 | (514 | ) | ||||||||
Increase in othernon-current liabilities | 218 | — | 218 |
The significant differences arise as a result of the changes in accounting policies described above.
(iii) | IFRIC 22,Foreign currency transactions and advance consideration |
This interpretation provides guidance on determining “the date of the transaction” for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income (or part of it) arising from a transaction in which an entity receives or pays advance consideration in a foreign currency.
The Interpretation clarifies that “the date of the transaction” is the date on initial recognition of thenon-monetary asset or liability arising from the payment or receipt of advance consideration. If there are multiple payments or receipts in advance of recognising the related item, the date of the transaction for each payment or receipt should be determined in this way. The adoption of IFRIC 22 does not have any material impact on the financial position and the financial result of the Group.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Renminbi unless otherwise indicated)
2 | Significant accounting policies (continued) |
(c) | Subsidiaries andnon-controlling interests |
Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. SubsidiariesWhen assessing whether the Group has power, only substantive rights (held by the Group and other parties) are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.
considered.
An investment in a subsidiary is consolidated into the consolidated financial statements from the date that control commences until the date that control ceases. Intra-group transactions, balances and cash flows and any unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. When necessary, amounts reported by subsidiaries have been adjusted to conform with the Group’s accounting policies.
Non-controlling interests represent the equity in a subsidiary not attributable directly or indirectly to the Company, and in respect of which the Group has not agreed any additional terms with the holders of those interests which would result in the Group as a whole having a contractual obligation in respect of those interests that meets the definition of a financial liability. With regards to each business combination, the Group recognized recognisednon-controlling interests based on the proportion of the net identifiable assets of the subsidiary owned by thenon-controlling interests.
Non-controlling interests are presented in the consolidated balance sheetstatement of financial position within equity, separately from equity attributable to the equity shareholders of the Company.Non-controlling interests in the results of the Group are presented on the face of the consolidated income statement and the consolidated statement of comprehensive income as an allocation of the total profit or loss and total comprehensive income for the year betweennon-controlling interests and the equity shareholders of the Company. Loans from holders ofnon-controlling interests and other contractual obligations towards these holders are presented as financial liabilities in the consolidated statement of financial position in accordance with Notes 2(n)Note 2(p) or Note 2(o)2(q) depending on the nature of the liability.
Changes in the Group’s interests in a subsidiary that do not result in a loss of control are accounted for as equity transactions, whereby adjustments are made to the amounts of controlling andnon-controlling interests within consolidated equity to reflect the change in relative interests, but no adjustments are made to goodwill and no gain or loss is recognized.
recognised.
When the Group loses control of a subsidiary, it is accounted for as a disposal of the entire interest in that subsidiary, with a resulting gain or loss being recognizedrecognised in consolidated income statement. Any interest retained in that former subsidiary at the date when control is lost is recognizedrecognised at fair value and this amount is regarded as the fair value on initial recognition of a financial asset (Note 2(e)2(f)) or, when appropriate, the cost on initial recognition of an investment in an associate or joint venture (Note 2(c)2(d)).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Renminbi unless otherwise indicated)
2 | Significant accounting policies (continued) |
(c) | Subsidiaries andnon-controlling interests (continued) |
In the Company’s statement of financial position, an investment in a subsidiary is stated at cost less impairment losses (Note 2(l)(iii)).
The Group applies the acquisition method to account for business combinations. The consideration transferred forin the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination aregenerally measured initially at their fair values at the acquisition date. The Group recognizes any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value, or atas are the non-controlling interest’s proportionate share of the recognized amounts of acquiree’s identifiable net assets.
Acquisition-relatedassets acquired. Transaction costs are expensed as incurred.
NotesThe consideration transferred does not include amounts related to the consolidated financial statements
(Prepared in accordance with International Financial Reporting Standards)
(Expressed in Renminbi unless otherwise indicated)
If the business combination is achieved in stages, the acquisition date carrying valuesettlement of the acquirer’s previously held equity interest in the acquiree is re-measured to fair value at the acquisition date; any gains or losses arising from such re-measurementpre-existing relationships. Such amounts are recognizedgenerally recognised in profit or loss.
Any contingent consideration to be transferred by the Group is recognizedmeasured at fair value at the acquisition date. Subsequentdate of acquisition. If an obligation to pay contingent consideration that meets the definition of a financial instrument is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, other contingent consideration is remeasured at fair value at each reporting date and subsequent changes toin the fair value of the contingent consideration that is deemed to be an asset or liability is recognized in accordance with IAS 39 eitherare recognised in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as equity is not remeasured, and its subsequent settlement is accounted for within equity.loss.
(d) | Associates and joint arrangements |
An associate is an entity in which the Group has significant influence, but not control or joint control, over its management, including participation in the financial and operating policy decisions.
The Group has applied IFRS 11,Joint Arrangements (“IFRS 11”) to all joint arrangements. Under IFRS 11, investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations of each investor. The Group has assessed the nature of its joint arrangements and determined them to be joint ventures.
An investment in an associate or a joint venture is accounted for in the consolidated financial statements under the equity method and is initially recorded at cost, adjusted for any excess of the Group’s share of the acquisition-date fair values of the investee’s identifiable net assets over the cost of the investment (if any). Thereafter, the investment is adjusted for the post acquisition change in the Group’s share of the investee’s net assets and any impairment loss relating to the investment (Notes 2(e) and 2(k)2(l)(iii)). The Group’s share of the post-acquisition,post-tax results of the investees, adjusted for any acquisition-date excess over cost and any impairment losses for the year are recognizedrecognised in the consolidated income statement, whereas the Group’s share of the post-acquisitionpost-tax items of the investees’ other comprehensive income is recognizedrecognised in the consolidated statement of comprehensive income.
When the Group’s share of losses exceeds its interest in the associate or the joint venture, the Group’s interest is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the investee. For this purpose, the Group’s interest is the carrying amount of the investment under the equity method together with the Group’s long-term interests that in substance form part of the Group’s net investment in the associate or the joint venture.
UnrealizedUnrealised profits and losses resulting from transactions between the Group and its associates and joint ventures are eliminated to the extent of the Group’s interest in the investee, except where unrealizedunrealised losses provide evidence of an impairment of the asset transferred, in which case they are recognizedrecognised immediately in the consolidated income statement.
Notes to the consolidated financial statements
(Prepared in accordance with International Financial Reporting Standards)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Renminbi unless otherwise indicated)
2 | Significant accounting policies (continued) |
(e) | Goodwill |
Goodwill represents the excess of
(i) | the aggregate of the fair value of the consideration transferred, the amount of anynon-controlling interest in the acquiree and the fair value of the Group’s previously held equity interest in the acquiree; over |
(ii) | the net fair value of the acquiree’s identifiable assets and liabilities measured as at the acquisition date. |
When (ii) is greater than (i), then this excess is recognizedrecognised immediately in the consolidated income statement as a gain on a bargain purchase.
Goodwill is stated at cost less accumulated impairment losses. Goodwill arising on a business combination is allocated to each cash-generating unit, or groups of cash generating units, that is expected to benefit from the synergies of the combination and is tested annually for impairment (Note 2(k)2(l)(iii)).
(f) | Other investments in debt and equity securities |
The Group’s policies for investments in debt and equity securities, other than investments in subsidiaries, associates and joint ventures, are as follows:
set out below.
Investments in debt and equity securities are recognised/derecognised on the date the Group commits to purchase/sell the investment. The investments are initially stated at fair value which is their transaction price unless fair value can be more reliably estimated using valuation techniques whose variables include only data from observable markets. Cost includesplus directly attributable transaction costs, except where indicated otherwise below.for those investments measured at FVPL for which transaction costs are recognised directly in profit or loss. For an explanation of how the Group determines fair value of financial instruments, see Note 4(g)(i). These investments are subsequently accounted for as follows, depending on their classification:classification.
(A) Policy applicable from January 1, 2018
Investments other than equity investments
Non-equity investments held by the Group are classified as FVPL as the investment does not meet the criteria for being measured at amortised cost or FVOCI (recycling). Changes in the fair value of the investment (including interest) are recognised in profit or loss.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Renminbi unless otherwise indicated)
2 | Significant accounting policies (continued) |
Available-for-sale
(f) | Other investments in debt and equity securities (continued) |
Equity investments
An investment in equity securities is classified as FVPL unless the equity investment is not held for trading purposes and on initial recognition of the investment the Group makes an irrevocable election to designate the investment at FVOCI(non-recycling) such that subsequent changes in fair value are recognised in other comprehensive income. Such elections are made on aninstrument-by-instrument basis, but may only be made if the investment meets the definition of equity from the issuer’s perspective. Where such an election is made, the amount accumulated in other comprehensive income remains in the fair value reserve(non-recycling) until the investment is disposed of. At the time of disposal, the amount accumulated in the fair value reserve(non-recycling) is transferred to retained earnings. It is not recycled through profit or loss. Dividends from an investment in equity securities, irrespective of whether classified as at FVPL or FVOCI, are recognised in profit or loss as other income in accordance with the policy set out in Note 2(y)(iv).
(B) Policy applicable prior to January 1, 2018
Equity investments
Available-for-sale equity securities were thosenon-derivative financial assets that arewere designated as available for sale.sale or that were not classified as loans and receivable,held-to-maturity investments, or financial assets at fair value through profit or loss. At the end of each financial yearreporting period the fair value iswas remeasured, with any resultant gain or loss being recognizedrecognised in other comprehensive income and accumulated separately in equity in the fair value reserve.reserve (recycling). Dividend income from these investments is recognizedwas recognised in the consolidated income statement in accordance with the policy set out in Note (2(w)2(y)(iv)). When these investments are derecognizedwere derecognised or impaired (Note 2(k)2(l)(i)(B)), the cumulative gain or loss iswas reclassified from equity to profit or loss.
The Group’s other investments in equity securities represent unlistedinvestments in equity securities of companies established in the PRC. These securitiesthat do not have a quoted market price in an active market for an identical instrument and theirwhose fair valuesvalue cannot otherwise be reliably measured. Accordingly, they are recognizedrecognised in the consolidated balance sheetstatement of financial position at cost less impairment losses (Note 2(k)2(l)(i)(B)).
Investments are recognized/derecognized on the date the Group commits to purchase/sell the investments Dividend income from equity securities is recognised in profit or they expire.
Notes to the consolidated financial statements
(Preparedloss in accordance with International Financial Reporting Standards)the policy set out in Note 2(y)(iv).
The Group did not have other investments other than equity investments.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Renminbi unless otherwise indicated)
2 | Significant accounting policies (continued) |
(g) | Derivative financial instruments |
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measuredremeasured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged.
The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.
Derivative financial instruments that do not qualify for hedge accounting are accounted for as trading instruments and any unrealised gains or losses, being changes in fair value of the derivatives, are recognised in the profit or loss immediately.
Changes in the fair value of derivatives that are designated and qualify as fair value hedges and that are highly effective, are recorded in the profit or loss, along with any changes in the fair value of the hedged assets or liabilities that are attributable to the hedged risk.
Derivative financial instruments that qualify for hedge accounting and which are designated as a specific hedge of the variability in cash flows of a highly probable forecast transaction, are accounted for as follows:
(i) |
|
(ii) The ineffective portion of any change in
(ii) | The ineffective portion of any gains or losses on remeasurement of the derivative financial instrument to fair value is recognised in the profit or loss immediately. |
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gaingains or losslosses existing in equity at that time remains in equity and is recognised in the profit or loss when the committed or forecast transaction ultimately occurs. When a committed or forecast transaction is no longer expected to occur, the cumulative gaingains or losslosses that was recorded in equity is immediately transferred to the profit or loss.
(h) | Investment properties |
Investment properties are land and/or buildings which are owned to earn rental income and/or for capital appreciation.
Investment properties are stated at cost, less accumulated depreciation and impairment losses (Note 2(k)2(l)(iii)). Depreciation is calculated to write off the cost of items of investment properties, less their estimated residual value, if any, using the straight linestraight-line method over their estimated useful lives. Rental income from investment properties is accounted for as described in Note 2(w)2(y)(iii).
Notes to the consolidated financial statements
(Prepared in accordance with International Financial Reporting Standards)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Renminbi unless otherwise indicated)
2 | Significant accounting policies (continued) |
(i) | Property, plant and equipment |
Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses (Note 2(k)2(l)(iii)).
The cost of self-constructed items of property, plant and equipment includes the cost of materials, direct labor,labour, the initial estimate, where relevant, of the costs of dismantling and removing the items and restoring the site on which they are located, and an appropriate proportion of production overheads and borrowing costs (Note 2(z)2(ab)).
Subsequent costs are included in the asset’s carrying amount or recognizedrecognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized.derecognised. All other repairs and maintenance are charged to the consolidated income statement during the financial period in which they are incurred.
Gains or losses arising from the retirement or disposal of an item of property, plant and equipment are determined as the difference between the net disposal proceeds and the carrying amount of the item and are recognized in income statement on the date of retirement or disposal.
When each major aircraft overhaul is performed, its cost is recognizedrecognised in the carrying amount of the component of aircraft and is depreciated over the appropriate maintenance cycles. Components related to overhaul cost, are depreciated on a straight-line basis over 3 to 12 years. Upon completion of an overhaul, any remaining carrying amount of the cost of the previous overhaul is derecognizedderecognised and charged to the consolidated income statement.
Gains or losses arising from the retirement or disposal of an item of property, plant and equipment are determined as the difference between the net disposal proceeds and the carrying amount of the item and are recognised in consolidated income statement on the date of retirement or disposal.
Except for components related to overhaul costs, the depreciation method of which has been described in the preceding paragraph, depreciation of other property, plant and equipment is calculated to write off the cost of items, less their estimated residual value, if any, using the straight line method over their estimated useful lives as follows:
Buildings | 5 to 35 years | |||
Owned and finance leased aircraft | 15 to 20 years | |||
Other flight equipment | ||||
–Jet engines | 15 to 20 years | |||
–Others, including | 3 to 15 years | |||
Machinery and equipment | 4 to 10 years | |||
Vehicles | 6 to 8 years |
Where parts of an item of property, plant and equipment have different useful lives, the cost of the item is allocated on a reasonable basis between the parts and each part is depreciated separately. Both the useful life of an asset and its residual value, if any, are reviewed annually.
(j) | Construction in progress |
Construction in progress represents advance payments for the acquisition of aircraft prepayment,and flight equipment, office buildings, various infrastructure projects under construction and equipment pending for installation, and is stated at cost less impairment losses(Note 2(k)losses (Note 2(l)(iii)). CapitalizationCapitalisation of these costs ceases and the construction in progress is transferred to property, plant and equipment when the asset is substantially ready for its intended use, notwithstanding any delay in the issue of the relevant commissioning certificates by the relevant PRC authorities.
No depreciation is provided in respect of construction in progress.
Notes to the consolidated financial statements
(Prepared in accordance with International Financial Reporting Standards)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Renminbi unless otherwise indicated)
2 | Significant accounting policies (continued) |
(k) | Leased assets |
An arrangement, comprising a transaction or a series of transactions, is or contains a lease if the Group determines that the arrangement conveys a right to use a specific asset or assets for an agreed period of time in return for a payment or a series of payments. Such a determination is made based on an evaluation of the substance of the arrangement and is regardless of whether the arrangement takes the legal form of a lease.
(i) | Classification of assets leased to the Group |
Assets that are held by the Group under leases which transfer to the Group substantially all the risks and rewards of ownership are classified as being held under finance leases. Leases which do not transfer substantially all the risks and rewards of ownership to the Group are classified as operating leases, except for land held for own use under an operating lease, the fair value of which cannot be measured separately from the fair value of a building situated thereon at the inception of the lease, is accounted for as being held under a finance lease, unless the building is also clearly held under an operating lease. For these purposes, the inception of the lease is the time that the lease was first entered into by the Group, or taken over from the previous lessee.
(ii) | Assets acquired under finance leases |
Where the Group acquires the use of assets under finance leases, the amounts representing the fair value of the leased asset, or, if lower, the present value of the minimum lease payments, of such assets are included in property, plant and equipment and the corresponding liabilities, net of finance charges, are recorded as obligations under finance leases. Depreciation is provided at rates which write off the cost or valuation of the assets over the term of the relevant lease or, where it is likely the Group will obtain ownership of the asset, the life of the asset, as set out in Note 2(h)2(i). Impairment losses are accounted for in accordance with the accounting policy as set out in (Note 2(k))Note 2(1)(iii). Finance charges implicit in the lease payments are charged to consolidated income statement over the period of the leases so as to produce an approximately constant periodic rate of charge on the remaining balance of the obligations for each accounting period. Contingent rentals are charged to consolidated income statement in the accounting period in which they are incurred.
(iii) | Operating lease charges |
Where the Group has the use of assets held under operating leases, payments made under the leases are charged to consolidated income statement in equal instalments over the accounting periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased asset. Lease incentives received are recognizedrecognised in consolidated income statement as an integral part of the aggregate net lease payments made. Contingent rentals are charged to consolidated income statement in the accounting period in which they are incurred.
The cost of acquiring land held under an operating lease is amortised on a straight-line basis over the respective periods of lease terms which range from 30 to 70 years.
Notes to the consolidated financial statements
(Prepared in accordance with International Financial Reporting Standards)
(Expressed in Renminbi unless otherwise indicated)
Sale and leaseback transactions |
Gains or losses on aircraft sale and leaseback transactions which result in finance leases are deferred and amortised over the terms of the related leases.
Gains or losses on aircraft sale and leaseback transactions which result in operating leases are recognizedrecognised immediately if the transactions are established at fair value. If the sale price is below fair value then the gain or loss is recognizedrecognised immediately. However, if a loss is compensated for by future rentals at a below-market price, then the loss is deferred and amortised over the period that the aircraft is expected to be used. If the sale price is above fair value, then any gain is deferred and amortised over the useful life of the assets.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Renminbi unless otherwise indicated)
2 | Significant accounting policies (continued) |
(l) | Credit losses and impairment of assets |
(i) | Credit losses from financial instruments and lease receivables |
(A) | Policy applicable from January 1, 2018 |
The Group recognises a loss allowance for ECLs on the following items:
financial assets measured at amortised cost (including cash and cash equivalents and trade and other receivables); and
lease receivables.
Financial assets measured at fair value, including equity securities measured at FVPL, equity securities designated at FVOCI(non-recycling) and derivative financial assets, are not subject to the ECL assessment.
Measurement of ECLs
ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all expected cash shortfalls (i.e. the difference between the cash flows due to the Group in accordance with the contract and the cash flows that the Group expects to receive).
The expected cash shortfalls are discounted using the following discount rates where the effect of discounting is material:
fixed-rate financial assets, and trade and other receivables: effective interest rate determined at initial recognition or an approximation thereof;
variable-rate financial assets: current effective interest rate;
lease receivables: discount rate used in the measurement of the lease receivable.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Renminbi unless otherwise indicated)
2 | Significant accounting policies (continued) |
(l) | Credit losses and impairment of |
(i) | Credit losses from financial instruments and lease receivables (continued) |
(A) | Policy applicable from January 1, 2018 (continued) |
Investments in equity securitiesThe maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk.
In measuring ECLs, the Group takes into account reasonable and supportable information that is available without undue cost or effort. This includes information about past events, current conditions and forecasts of future economic conditions.
ECLs are measured on either of the following bases:
12-month ECLs: these are losses that are expected to result from possible default events within the 12 months after the reporting date; and
lifetime ECLs: these are losses that are expected to result from all possible default events over the expected lives of the items to which the ECL model applies.
Loss allowances for trade receivables and lease receivables are always measured at an amount equal to lifetime ECLs. ECLs on these financial assets are estimated using a provision matrix based on the Group’s historical credit loss experience, adjusted for factors that are specific to the debtors and an assessment of both the current and non-current receivablesforecast general economic conditions at the reporting date.
For all other financial instruments, the Group recognises a loss allowance equal to12-month ECLs unless there has been a significant increase in credit risk of the financial instrument since initial recognition, in which case the loss allowance is measured at an amount equal to lifetime ECLs.
Significant increases in credit risk
In assessing whether the credit risk of a financial instrument (including a loan commitment) has increased significantly since initial recognition, the Group compares the risk of default occurring on the financial instrument assessed at the reporting date with that are statedassessed at the date of initial recognition. In making this reassessment, the Group considers that a default event occurs when the borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to actions such as realising security (if any is held). The Group considers both quantitative and qualitative information that is reasonable and supportable, including historical experience and forward-looking information that is available without undue cost or effort.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Renminbi unless otherwise indicated)
2 | Significant accounting policies (continued) |
(l) | Credit losses and impairment of assets (continued) |
(i) | Credit losses from financial instruments and lease receivables (continued) |
(A) | Policy applicable from January 1, 2018 (continued) |
In particular, the following information is taken into account when assessing whether credit risk has increased significantly since initial recognition:
failure to make payments of principal or interest on their contractually due dates ;
an actual or expected significant deterioration in a financial instrument’s external or internal credit rating (if available);
an actual or expected significant deterioration in the operating results of the debtor; and
existing or forecast changes in the technological, market, economic or legal environment that have a significant adverse effect on the debtor’s ability to meet its obligation to the Group.
Depending on the nature of the financial instruments, the assessment of a significant increase in credit risk is performed on either an individual basis or a collective basis. When the assessment is performed on a collective basis, the financial instruments are grouped based on shared credit risk characteristics, such as past due status and credit risk ratings.
The Group assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due, unless the Group has reasonable and supportable information that is available without undue cost or effort, that demonstrates that the credit risk has not increased significantly since initial recognition even though the contractual payments are more than 30 days past due.
ECLs are remeasured at each reporting date to reflect changes in the financial instrument’s credit risk since initial recognition. Any change in the ECL amount is recognised as an impairment gain or loss in consolidated income statement. The Group recognises an impairment gain or loss for all financial instruments with a corresponding adjustment to their carrying amount through a loss allowance account.
Basis of calculation of interest income
Interest income recognised in accordance with Note 2(y)(v) is calculated based on the gross carrying amount of the financial asset unless the financial asset is credit-impaired, in which case interest income is calculated based on the amortised cost (i.e. the gross carrying amount less loss allowance) of the financial asset.
At each reporting date, the Group assesses whether a financial asset is credit-impaired. A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Renminbi unless otherwise indicated)
2 | Significant accounting policies (continued) |
(l) | Credit losses and impairment of assets (continued) |
(i) | Credit losses from financial instruments and lease receivables (continued) |
(A) | Policy applicable from January 1, 2018 (continued) |
Evidence that a financial asset is credit-impaired includes the following observable events:
significant financial difficulties of the debtor;
a breach of contract, such as a default or delinquency in interest or principal payments;
it becoming probable that the borrower will enter into bankruptcy or other financial reorganisation;
significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor; or
the disappearance of an active market for a security because of financial difficulties of the issuer.
Write-off policy
The gross carrying amount of a financial asset and lease receivable is written off (either partially or in full) to the extent that there is no realistic prospect of recovery. This is generally the case when the Group determines that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to thewrite-off.
Subsequent recoveries of an asset that was previously written off are recognised as a reversal of impairment in consolidated income statement in the period in which the recovery occurs.
(B) | Policy applicable prior to January 1, 2018 |
Prior to January 1, 2018, an “incurred loss” model was used to measure impairment losses on financial assets not classified as available-for-sale equity securities are reviewed at FVPL (e.g. trade and other receivables, andavailable-for-sale investments). Under the end of each financial year to determine whether“incurred loss” model, an impairment loss was recognised only when there iswas objective evidence of impairment. Objective evidence of impairment includes observable data that comes to the attentionincluded:
significant financial difficulty of the Group about onedebtor;
a breach of contract, such as a default or more ofdelinquency in interest or principal payments;
it becoming probable that the following loss events:debtor would enter bankruptcy or other financial reorganisation;
significant changes in the technological, market, economic or legal environment that had an adverse effect on the debtor; and
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in Renminbi unless otherwise indicated)
If any such evidence
For unquoted equity securities carried at cost, the impairment loss is measured as the difference between the carrying amount of the financial asset and the estimated future cash flows, discounted at the current market rate of return for a similar financial asset where the effect of discounting was material. Impairment losses for equity securities carried at cost were not reversed.
For trade and other current receivables and other financial assets carried at amortised cost, the impairment loss was measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition of these assets), where the effect of discounting was material. This assessment was made collectively where these financial assets shared similar risk characteristics, such as similar past due status, and had not been individually assessed as impaired. Future cash flows for financial assets which were assessed for impairment collectively were based on historical loss experience for assets with credit risk characteristics similar to the
If in a subsequent period the amount of an impairment loss
Foravailable-for-sale equity securities, the cumulative loss that had been recognised in the fair value reserve (recycling) was reclassified to profit or loss. The amount of the cumulative loss that was recognised in consolidated income statement was the difference between the acquisition cost and current fair value, less any impairment loss on that asset previously recognised in profit or loss. Impairment losses Impairment losses
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Renminbi unless otherwise indicated)
Financial guarantees are contracts that require the issuer (i.e. the guarantor) to make specified payments to reimburse the beneficiary of the guarantee (the “holder”) for a loss the holder incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument. After initial recognition at fair value, the Group, as an issuer of such a contract, subsequently measure it at the higher of: (i) the amount of the loss allowance and (ii) the amount initially recognised less, when appropriate, the cumulative amount of income recognised. (A) Policy applicable from January 1, 2018 The Group monitors the risk that the specified debtor will default on the contract and recognises a provision when ECLs on the financial guarantees are determined to be higher than the amount carried in “trade and other payables” in respect of the guarantees (i.e. the amount initially recognised, less accumulated amortisation). To determine ECLs, the Group considers changes in the risk of default of the specified debtor since the issuance of the guarantee. A12-month ECL is measured unless the risk that the specified debtor will default has increased significantly since the guarantee is issued, in which case a lifetime ECL is measured. The same definition of default and the same assessment of significant increase in credit risk as described in Note 2(l)(i) apply. As the Group is required to make payments only in the event of a default by the specified debtor in accordance with the terms of the instrument that is guaranteed, an ECL is estimated based on the expected payments to reimburse the holder for a credit loss that it incurs less any amount that the Group expects to receive from the holder of the guarantee, the specified debtor or any other party. The amount is then discounted using the current risk-free rate adjusted for risks specific to the cash flows. (B) Policy applicable prior to January 1, 2018 Prior to January 1, 2018, a provision would be recognised if and when it became probable that (i) the holder of the guarantee would call upon the Group under the guarantee and (ii) the amount of the claim on the Group was expected to exceed the amount carried in “trade and other payables” in respect of the guarantee, i.e. the amount initially recognised, less accumulated amortisation.
(A) Impairment of other assets Internal and external sources of information are reviewed at the end of each
In addition, the Group leased certain flight training facilities and buildings to Zhuhai Xiang Yi. |
In July 2017, Zhuhai Xiang Yi under operating lease agreements.
F-77
Notesbecame a wholly-owned subsidiary of the Company. The amount represents the transactions in 2017 which incurred prior to the consolidated financial statementsacquisition.
(Prepared in accordance with International Financial Reporting Standards)
(Expressed in Renminbi unless otherwise indicated)
Flying College, |
Flying College became a subsidiary of the Group on November 20, 2018 (Note 23(iv)).
Beijing Aviation Ground Services Co.,Ltd. |
Group.
(xiii) | Beijing Airport Inflight Kitchen Co.,Ltd., is an associate of the Group and provides air catering related services to the Group. |
(xiv) | SACM, an associate of the Group, provides advertising services to the Group. The Group provides certain media resources to SACM. |
XACM, a former associate of Xiamen Airlines, provided advertising service to Xiamen Airlines. In addition,October 2017, XACM became a wholly-owned subsidiary of Xiamen Airlines. Xiamen Airlines provides certain media resources to Xiamen Airlines Culture and Media Co., Ltd., a subsidiary of SACM.XACM before the acquisition.
Xinjiang Civil Aviation Property Management Ltd., an associate of the Group, provides |
In addition, The Company provides aircraft maintenance services to Sichuan Airlines. The Group provides air catering services and repairing services to Sichuan Airlines.
The Group imports and sells maintenance materials to GAMECO and earns maintenance material sales and handling income. |
(xvii) | The Group provides repairing service and air catering supplies service to Sichuan Airlines. |
(xviii) | The Group provides certain website resources to SA Finance for the sales of air |
In addition, the Group sells tickets to SA Finance as a gift to passengers for the sales of insurance.
The Group provides ground services to Shenyang Konggang Logistic Co.,Ltd., and Sichuan |
The Group |
Phoenix Satellite Television Holdings |
In addition, the Group Sellssells tickets to the Phoenix Group on market price.
The chairman of Guangdong Southern Airline Pearl Aviation Services Company Limited (“Pearl Aviation Services”) is the key management personnel of the Company. The Group purchases aviation supplies and canteen services from Pearl Aviation Services. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Renminbi unless otherwise indicated)
51 | Material related party transactions (continued) |
(b) | Transactions with CSAH and its affiliates, associates, joint ventures and other related companies of the Group (continued) |
(xxiii) | China Travel Sky Holding Company is a related party of the Group as a |
China Southern Airlines International Finance Leasing Co., Ltd., | ||
F-78
Notes to the consolidated financial statements
(Prepared in accordance with International Financial Reporting Standards)
(Expressed in Renminbi unless otherwise indicated)
The Group acquires aircraft, flight equipment and other airline-related facilities through SAIETC and pays handling charges to SAIETC, which used to be a wholly-owned subsidiary of CSAH. In August 2016, the Company acquired 100% equity interests in SAIETC from CSAH at a consideration of approximately RMB400 million. SAIETC became a wholly-owned subsidiary of the Company since then. |
(xxvi) | The Group acquires properties from Citic Southern Airlines Construction and Development Company Limited, which is an associate of CSAH. |
(c) | Balances with |
Details of amounts due from/to the CSAHC Group,CSAH and its affiliates, associates, joint ventures and other related company of the Group:
2015 | 2014 | |||||||||||||||||||||
Note | RMB million | RMB million | 2018 | 2017 | ||||||||||||||||||
Note | RMB million | RMB million | ||||||||||||||||||||
Receivables: | ||||||||||||||||||||||
The CSAHC Group | 21 | 78 | ||||||||||||||||||||
CSAH and its affiliates | 51 | 9 | ||||||||||||||||||||
Associates | 226 | 284 | 22 | 18 | ||||||||||||||||||
Joint ventures | 86 | 124 | 17 | 49 | ||||||||||||||||||
39(a) | 333 | 486 |
|
| ||||||||||||||||||
42(a) | 90 | 76 | ||||||||||||||||||||
|
| |||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||
Note | RMB million | RMB million | ||||||||||||||||||||
Prepayments of acquisition of long-term assets: | ||||||||||||||||||||||
CSAH and its affiliates | 80 | 160 | ||||||||||||||||||||
An associate | 147 | — | ||||||||||||||||||||
|
| |||||||||||||||||||||
30&42(b) | 227 | 160 | ||||||||||||||||||||
|
| |||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||
Note | RMB million | RMB million | ||||||||||||||||||||
Payables: | ||||||||||||||||||||||
CSAH and its affiliates | 49 | 50 | ||||||||||||||||||||
Associates | 12 | 1 | ||||||||||||||||||||
Joint ventures | 63 | 48 | ||||||||||||||||||||
Other related companies | 3 | 2 | ||||||||||||||||||||
|
| |||||||||||||||||||||
42(c) | 127 | 101 | ||||||||||||||||||||
|
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Renminbi unless otherwise indicated)
2015 | 2014 | |||||||||
Note | RMB million | RMB million | ||||||||
Payables: | ||||||||||
The CSAHC Group | 77 | 256 | ||||||||
Associates | 13 | 13 | ||||||||
Joint ventures | 60 | 119 | ||||||||
Other related company | 2 | 70 | ||||||||
39(b) | 152 | 458 |
51 | Material related party transactions (continued) |
2015 | 2014 | |||||||
RMB million | RMB million | |||||||
Accrued expenses: | ||||||||
The CSAHC Group | 571 | 451 | ||||||
Associates | 97 | 92 | ||||||
Joint ventures | 931 | 836 | ||||||
Other related company | 282 | 269 | ||||||
1,881 | 1,648 |
(c) | Balances with CSAH and its affiliates, associates, joint ventures and other related companies of the Group (continued) |
2018 | 2017 | |||||||
RMB million | RMB million | |||||||
Accrued expenses: | ||||||||
CSAH and its affiliates | 62 | 1,023 | ||||||
Associates | 139 | 95 | ||||||
Joint ventures | 2,320 | 1,086 | ||||||
Other related companies | 633 | 571 | ||||||
|
|
|
| |||||
3,154 | 2,775 | |||||||
|
|
|
| |||||
2018 | 2017 | |||||||
RMB million | RMB million | |||||||
Obligations under finance leases: | ||||||||
CSAH and its affiliates | 13,360 | 6,656 | ||||||
|
|
|
| |||||
13,360 | 6,656 | |||||||
|
|
|
|
TheExcept the obligations under finance leases, the amounts due from/to the CSAHC Group,CSAH and its affiliates, associates, joint ventures and other related companycompanies of the Group are unsecured, interest freeinterest-free and have no fixed terms of repayment.
F-79
Notes to the consolidated financial statements
(Prepared in accordance with International Financial Reporting Standards)
(Expressed in Renminbi unless otherwise indicated)
(d) |
Loans from and deposits placed with related parties |
(i) | Loans from related parties |
At December 31, 2015,2018, loans from SA Finance to the Group amounted to RMB105RMB758 million (2014: RMB105(December 31, 2017: RMB431 million).
The unsecured loans are repayable as follows:
2018 | 2017 | |||||||
RMB million | RMB million | |||||||
Within 1 year | 630 | 273 | ||||||
After 1 year but within 2 years | 10 | 58 | ||||||
After 2 years but within 5 years | 118 | 100 | ||||||
|
|
|
| |||||
758 | 431 | |||||||
|
|
|
|
Interest expense paid on such loans amounted to RMB18 million (2017: RMB14 million) and the interest rates range from 3.92% to 4.51% per annum during the year ended December 31, 2018 (2017: 3.92% to 4.51%).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Renminbi unless otherwise indicated)
51 | Material related party transactions (continued) |
(d) | Loans from and deposits placed with related parties (continued) |
(ii) | Entrusted loans from CSAH |
In 2015, CSAHC,2018, CSAH, SA Finance and the Group entered into an entrusted loan agreement, pursuant to which, CSAHC,CSAH, as the lender, entrusted SA Finance to lend RMB105RMB500 million to the Group from April 27, 2015July 28, 2018 to April 27, 2016.July 28, 2019. The interest rate is 90% of benchmark interest rate stipulated by PBOC per annum.
The unsecured entrusted loans are repayable as follows:
2015 | 2014 | |||||||||
Note | RMB million | RMB million | ||||||||
Within 1 year | 105 | 105 | ||||||||
35(f) | 105 | 105 |
2018 | 2017 | |||||||||
Note | RMB million | RMB million | ||||||||
Within 1 year | 36(e) | 500 | 105 | |||||||
|
|
|
|
Interest expense paid on such loans amounted to RMB10 million (2017: RMB4 million (2014: RMB11 million; 2013: RMB28 million) and theat interest rates ranged from 3.92% to 4.14% per annum during the year ended December 31, 2015(2014: 5.04% to 5.70% per annum; 2013: 5.54% to 5.84%2018 (2017: 3.92% per annum).
Deposits placed with SA Finance |
AtAs at December 31, 20152018, the Group’s deposits with SA Finance are presented in the table below. The applicable interest rates are determined in accordance with the rates published by the PBOC.
2015 | 2014 | |||||||||
Note | RMB million | RMB million | ||||||||
Deposits placed with SA Finance | 34 | 2,934 | 4,264 |
2018 | 2017 | |||||||
RMB million | RMB million | |||||||
Deposits placed with SA Finance | 5,583 | 6,095 | ||||||
|
|
|
|
Interest income received on such deposits amounted to RMB70RMB80 million during the year ended December 31, 2015 (2014: RMB68 million; 2013: RMB662018 (2017: RMB72 million).
(e) | Commitments to |
AtAs at December 31, 2015,2018, the Group had operating lease commitments to CSAHCCSAH in respect of lease payments for land and buildings of RMB320RMB665 million (2014: RMB207(December 31, 2017: RMB334 million) and aircraft of RMB78 million (December 31, 2017: Nil). As at December 31, 2018, the Group had capital commitments to CSAH in respect of capital payments for other flight equipment of RMB291 million (December 31, 2017: Nil).
F-80
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Notes to the consolidated financial statements
(Prepared in accordance with International Financial Reporting Standards)
(Expressed in Renminbi unless otherwise indicated)
52 | Employee benefits plan |
(a) | Retirement benefits |
Employees of the Group participate in several defined contribution retirement schemes organised separately by the PRC municipal and provincial governments in regions where the major operations of the Group are located. The Group is required to contribute to these schemes at rates ranging from 13% to 21% (2014: 11%20% (2017: 13% to 21%20%; 2013: 10%2016: 13% to 22%20%) of salary costs including certain allowances. A member of the retirement schemes is entitled to pension benefits from the Local Labour and Social Security Bureau upon his/her retirement. The retirement benefit obligations of all retired staff of the Group are assumed by these schemes. The Group, asat its sole discretion, had made certain welfare subsidy payments to these retirees.
In 2014, the Company and its major subsidiaries joined a new defined contribution retirement scheme (“Pension Scheme”) that was implemented by CSAHC.CSAH. The annual contribution to the Pension Scheme is based on a fixed specified percentage of prior year’s annual wage. There will be no further obligation beyond the annual contribution according to the Pension Scheme. The total contribution into the Pension Scheme in 20152018 was approximately RMB438,000,000.RMB598 million (2017: RMB546 million; 2016: RMB486 million).
(b) | Housing benefits |
The Group contributes on a monthly basis to housing funds organised by municipal and provincial governments based on certain percentages of the salaries of employees. The Group’s liability in respect of these funds is limited to the contributions payable in each year.
In additionThe Group also pays cash housing subsidies on a monthly basis to theeligible employees. The monthly cash housing funds, certain employees of the Groupsubsidies are eligiblecharged to one of the following housing benefit schemes:income statement.
53 |
F-81
Notes to the consolidated financial statements
(Prepared in accordance with International Financial Reporting Standards)
(Expressed in Renminbi unless otherwise indicated)
On November 30, 2011, the Company’s General Meeting approved the “H Share Appreciation Rights Scheme of China Southern Airlines Company Limited” and “Initial Grant under the H Share Appreciation Rights Scheme of China Southern Airlines Company Limited” (“the Scheme”).
Under the Scheme, 24,660,000 units of SARs were granted to 118 employees of the Group at the exercise price of HKD3.92 per unit in December 2011. No shares will be issued under the Scheme and each SAR is notionally linked to one existing H share of the Company. Upon exercise of the SARs, a recipient will receive an amount of cash equal to the difference between the market share price of the relevant H share and the exercise price.
The SARs will have an exercise period of six years from the date of grant. Upon the satisfaction of certain performance conditions after the second, third and fourth anniversary of the date of grant, each one third of the SARs will become exercisable.
A dividend of RMB0.2 (equivalent to HKD0.25) (inclusive of applicable tax), a dividend of RMB 0.05(equivalent to HKD0.06) (inclusive of applicable tax), a dividend of RMB0.04 (equivalent to HKD0.05) (inclusive of applicable tax) and a dividend of RMB0.04 (equivalent to HKD0.05) (inclusive of applicable tax) per share was approved by the Company’s General Meeting on May 31, 2012, June 18, 2013, June 26, 2014 and 30 June, 2015 respectively (Note 46(b)), therefore, the exercise price for the SARs was adjusted to HKD3.51 per share in accordance with the predetermined formula stipulated in the Scheme.
The fair value of the liability for SARs is measured using the Black-Scholes option pricing model. The risk free rate, expected dividend yield and expected volatility of the share price are used as the inputs into the model. As at 31 December 2015, 24,660,000 units of SARs granted by the Company have all expired and correspondingly, the liability for SARs was RMB0.
Supplementary information to the consolidated cash flow statement |
Non-cash transactions-acquisition of aircraft transactions
(i) | Acquisition of aircraft |
During the year ended December 31, 2015,2018, aircraft acquired under finance leases amounted to RMB11,251RMB13,290 million (2014: RMB19,163(2017: RMB17,283 million; 2013: RMB17,2682016: RMB10,487 million).
(ii) | Acquisition of a joint venture through issuance of new shares |
During the year ended December 31, 2018, CSAH subscribed the new A shares (Note 48) of the Company with a cash consideration and the equity interests held in MTU, representing 50% of the total equity interests of MTU. The relatednon-cash equity transaction of financing activities amounted to RMB1,741 million (2017: nil; 2016: nil).
54 | Contingent liabilities |
(a) | The Group leased certain properties and buildings from |
Pursuant to the indemnification agreement dated May 22, 1997 between the Group and CSAHC, CSAHC has agreed to indemnify the Group against any loss or damage arising from any challenge of the Group’s right to use such properties and buildings.
(b) | The Group entered into certain agreements with CSAH in prior years to acquire certain land use right and buildings from CSAH. The change of business registration of such land use right and buildings are still in progress. On February 7, 2018, CSAH issued a letter of commitment to the Company, committing to indemnify the Group against any claims from third parties to the Group, or any loss or damage in the Group’s operation activities due to lack adequate documentation of the certain properties and buildings, without recourse to the Group. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In addition, as disclosed in notes 21 and 23, the Group is applying title certificates for certain of the Group’s properties and land use rights certificates for certain properties and parcels of land. The Company is of the opinion that the use of and the conduct of operating activities at these properties and these parcels of land are not affected by the fact that the Group has not yet obtained the relevant certificates.
F-82
Notes to the consolidated financial statements
(Prepared in accordance with International Financial Reporting Standards)
(Expressed in Renminbi unless otherwise indicated)
54 | Contingent liabilities (continued) |
(c) | The Company and its subsidiary, Xiamen Airlines, entered into agreements with |
(d) | During the year ended December 31, 2018, the Group was aware that the Group, together with certain third party companies, were claimed as defendants in an alleged dispute over a loan contract between a local commercial bank and a third party company (“the Defendant”). The |
55 | Comparative figures |
The Group has initially applied IFRS 15 and IFRS 9 at January 1, 2018. Under the transition methods chosen, comparative information is not restated. Further details of the changes in accounting policies are disclosed in Note 2(b).
56 | Immediate and ultimate controlling party |
As at December 31, 2015,2018, the Directors of the Company consider the immediate parent and ultimate controlling party of the Group to be CSAHC,CSAH, a state-owned enterprise established in the PRC. CSAHCCSAH does not produce financial statements available for public use.
57 | Approval of financial statements |
The financial statements were approved by the Board of Directors on April 26, 2019.
58 | Non-adjusting events after the |
On March 29, 2019, the Directors of the Company proposed a final dividend in respect of the year ended December 31, 2018. Further details are disclosed in Note 49(b).
Notes to the consolidated financial statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
(Expressed in Renminbi unless otherwise indicated)
59 | Directors’ and supervisors’ emoluments |
The remuneration of every director and supervisor for the year ended December 31, 2018 is set out below:
Emoluments paid or receivable in respect of a person’s services as a director or supervisor, whether of the Company or its subsidiary undertaking:
|
| |||||||||||||||||||||||||||
Name | Directors’ fees | Salaries, wages and welfare | Housing allowance | Employer’s contribution to a retirement benefit scheme | Remunerations paid or receivable in respect of accepting office as director or supervisor | Emoluments paid or or supervisor’s other | Total | |||||||||||||||||||||
RMB ’000 | RMB ’000 | RMB ’000 | RMB ’000 | RMB ’000 | RMB ’000 | RMB ’000 | ||||||||||||||||||||||
Executive directors | ||||||||||||||||||||||||||||
Wang Chang Shun (Note (i)) | — | — | — | — | — | — | — | |||||||||||||||||||||
Tan Wan Geng (Note (i) & (vii)) | — | — | — | — | — | — | — | |||||||||||||||||||||
Zhang Zi Fang (Note (i)) | — | — | — | — | — | — | — | |||||||||||||||||||||
Supervisors | ||||||||||||||||||||||||||||
Pan Fu (Note (i)) | — | — | — | — | — | — | — | |||||||||||||||||||||
Li Jia Shi (Note (ii)) | — | 84 | — | 12 | — | — | 96 | |||||||||||||||||||||
Mao Juan | — | 658 | — | 124 | — | — | 782 | |||||||||||||||||||||
Independentnon-executive directors | ||||||||||||||||||||||||||||
Tan Jin Song | 150 | — | — | — | — | — | 150 | |||||||||||||||||||||
Jiao Shu Ge | 150 | — | — | — | — | — | 150 | |||||||||||||||||||||
Zheng Fan (Note (viii)) | — | — | — | — | — | — | — | |||||||||||||||||||||
Gu Hui Zhong (Note (viii)) | 60 | — | — | — | — | — | 60 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Renminbi unless otherwise indicated)
59 | Directors’ and supervisors’ emoluments (continued) |
The remuneration of every director and supervisor for the year ended December 31, 2017 is set out below:
Emoluments paid or receivable in respect of a person’s services as a director or supervisor, whether of the Company or its subsidiary undertaking:
|
| |||||||||||||||||||||||||||
Name | Directors’ fees | Salaries, wages and welfare | Housing allowance | Employer’s contribution to a retirement benefit scheme | Remunerations paid or receivable in respect of accepting office as director or supervisor | Emoluments paid or or supervisor’s other | Total | |||||||||||||||||||||
RMB ’000 | RMB ’000 | RMB ’000 | RMB ’000 | RMB ’000 | RMB ’000 | RMB ’000 | ||||||||||||||||||||||
Non-executive directors | ||||||||||||||||||||||||||||
Yuan Xin An (Note (i) & (iii)) | — | — | — | — | — | — | — | |||||||||||||||||||||
Yang Li Hua (Note (i) & (iii)) | — | — | — | — | — | — | — | |||||||||||||||||||||
Executive directors | ||||||||||||||||||||||||||||
Wang Chang Shun (Note (i) & (vi)) | — | — | — | — | — | — | — | |||||||||||||||||||||
Tan Wan Geng (Note (i)) | — | — | — | — | — | — | — | |||||||||||||||||||||
Zhang Zi Fang (Note (i)) | — | — | — | — | — | — | — | |||||||||||||||||||||
Li Shao Bin (Note (iii)) | — | 812 | — | 123 | — | — | 935 | |||||||||||||||||||||
Supervisors | ||||||||||||||||||||||||||||
Pan Fu (Note (i)) | — | — | — | — | — | — | — | |||||||||||||||||||||
Li Jia Shi | — | 901 | — | 126 | — | — | 1,027 | |||||||||||||||||||||
Zhang Wei (Note (i) & (iii)) | — | — | — | — | — | — | — | |||||||||||||||||||||
Yang Yi Hua (Note (iii) & (v)) | — | — | — | — | — | — | — | |||||||||||||||||||||
Wu De Ming (Note (iii)) | — | 419 | — | 127 | — | — | 546 | |||||||||||||||||||||
Mao Juan (Note (iv)) | — | 324 | — | 120 | — | — | 444 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Renminbi unless otherwise indicated)
59 | Directors’ and |
The remuneration of every director and supervisor for the year ended December 31, 2017 is set out below (continued):
Emoluments paid or receivable in respect of a person’s services as a director or supervisor, whether of the Company or its subsidiary undertaking (continued):
Name | Directors’ fees | Salaries, wages and welfare | Housing allowance | Employer’s contribution to a retirement benefit scheme | Remunerations paid or receivable in respect of accepting office as director or supervisor | Emoluments paid or or supervisor’s other | Total | |||||||||||||||||||||
RMB ’000 | RMB ’000 | RMB ’000 | RMB ’000 | RMB ’000 | RMB ’000 | RMB ’000 | ||||||||||||||||||||||
Independentnon-executive |
| |||||||||||||||||||||||||||
Ning Xiang Dong (Note (iii)) | 150 | — | — | — | — | — | 150 | |||||||||||||||||||||
Liu Chang Le (Note(iii)) | 150 | — | — | — | — | — | 150 | |||||||||||||||||||||
Tan Jin Song | 150 | — | — | — | — | — | 150 | |||||||||||||||||||||
Guo Wei (Note (iii)) | 150 | — | — | �� | — | — | — | 150 | ||||||||||||||||||||
Jiao Shu Ge | 150 | — | — | — | — | — | 150 | |||||||||||||||||||||
Zheng Fan (Note (iv)) | — | — | — | — | — | — | — | |||||||||||||||||||||
Gu Hui Zhong (Note (iv)) | — | — | — | — | — | — | — |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Renminbi unless otherwise indicated)
59 | Directors’ and supervisors’ emoluments (continued) |
For the year ended December 31, 2016:
Emoluments paid or receivable in respect of a person’s services as a director or supervisor, whether of the Company or its subsidiary undertaking:
Name | Directors’ fees | Salaries, wages and welfare | Housing allowance | Employer’s contribution to a retirement benefit scheme | Remunerations paid or receivable in respect of accepting office as director or supervisor | Emoluments paid or or supervisor’s other | Total | |||||||||||||||||||||
RMB ’000 | RMB ’000 | RMB ’000 | RMB ’000 | RMB ’000 | RMB ’000 | RMB ’000 | ||||||||||||||||||||||
Non-executive directors | ||||||||||||||||||||||||||||
Wang Chang Shun (Note (i)) | — | — | — | — | — | — | — | |||||||||||||||||||||
Yuan Xin An (Note (i)) | — | — | — | — | — | — | — | |||||||||||||||||||||
Yang Li Hua (Note (i)) | — | — | — | — | — | — | — | |||||||||||||||||||||
Executive directors | ||||||||||||||||||||||||||||
Tan Wan Geng (Note (i)) | — | — | — | — | — | — | — | |||||||||||||||||||||
Zhang Zi Fang (Note (i)) | — | — | — | — | — | — | — | |||||||||||||||||||||
Li Shao Bin | — | 639 | — | 130 | — | — | 769 | |||||||||||||||||||||
Supervisors | ||||||||||||||||||||||||||||
Pan Fu (Note (i)) | — | — | — | — | — | — | — | |||||||||||||||||||||
Li Jia Shi | — | 711 | — | 133 | — | — | 844 | |||||||||||||||||||||
Zhang Wei (Note (i)) | — | — | — | — | — | — | — | |||||||||||||||||||||
Yang Yi Hua (Note (v)) | — | — | — | — | — | — | — | |||||||||||||||||||||
Wu De Ming | — | 413 | — | 133 | — | — | 546 | |||||||||||||||||||||
Independentnon-executive directors | ||||||||||||||||||||||||||||
Ning Xiang Dong | 150 | — | — | — | — | — | 150 | |||||||||||||||||||||
Liu Chang Le | 150 | — | — | — | — | — | 150 | |||||||||||||||||||||
Tan Jin Song | 150 | — | — | — | — | — | 150 | |||||||||||||||||||||
Guo Wei | 150 | — | — | — | — | — | 150 | |||||||||||||||||||||
Jiao Shu Ge | 150 | — | — | — | — | — | 150 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Renminbi unless otherwise indicated)
59 | Directors’ and supervisors’ emoluments (continued) |
Notes:
Details of directors’ and supervisors’ remuneration for the year ended December 31, 2015 are set out below:
Name | Directors’ fees | Salaries, wages and welfare | Retirement scheme contributions | Total | ||||||||||||
RMB thousand | RMB thousand | RMB thousand | RMB thousand | |||||||||||||
Non-executive directors | ||||||||||||||||
Wang Quan Hua (Note (i) & (ii)) | - | - | - | - | ||||||||||||
Yuan Xin An (Note (i)) | - | - | - | - | ||||||||||||
Yang Li Hua (Note (i)) | - | - | - | - | ||||||||||||
Executive directors | ||||||||||||||||
Tan Wan Geng (Note (i)) | - | - | - | - | ||||||||||||
Zhang Zi Fang (Note (i)) | - | - | - | - | ||||||||||||
Li Shao Bin | - | 636 | 137 | 773 | ||||||||||||
Supervisors | ||||||||||||||||
Pan Fu (Note (i)) | - | - | - | - | ||||||||||||
Li Jia Shi | - | 636 | 139 | 775 | ||||||||||||
Zhang Wei (Note (i)) | - | - | - | - | ||||||||||||
Yang Yi Hua | - | 240 | 92 | 332 | ||||||||||||
Wu De Ming | - | 451 | 140 | 591 | ||||||||||||
Independent non-executive directors | ||||||||||||||||
Ning Xiang Dong | 150 | - | - | 150 | ||||||||||||
Liu Chang Le | 150 | - | - | 150 | ||||||||||||
Tan Jin Song | 150 | - | - | 150 | ||||||||||||
Wei Jin Cai (Note (iii)) | 75 | - | - | 75 | ||||||||||||
Guo Wei (Note (iv)) | 75 | - | - | 75 | ||||||||||||
Jiao Shu Ge (Note (iv)) | 75 | - | - | 75 | ||||||||||||
675 | 1,963 | 508 | 3,146 |
Notes to the consolidated financial statements
(Prepared in accordance with International Financial Reporting Standards)
(Expressed in Renminbi unless otherwise indicated)
Details of directors’ and supervisors’ remuneration for the year ended December 31, 2014 are set out below:
Name | Directors’ fees | Salaries, wages and welfare | Retirement scheme contributions | Total | ||||||||||||
RMB thousand | RMB thousand | RMB thousand | RMB thousand | |||||||||||||
Non-executive directors | ||||||||||||||||
Wang Quan Hua(Note (i) & (ii)) | - | - | - | - | ||||||||||||
Yuan Xin An (Note (i)) | - | - | - | - | ||||||||||||
Yang Li Hua (Note (i)) | - | - | - | - | ||||||||||||
Executive directors | ||||||||||||||||
Tan Wan Geng (Note (i)) | - | - | - | - | ||||||||||||
Zhang Zi Fang (Note (i)) | - | - | - | - | ||||||||||||
Li Shao Bin | - | 636 | 130 | 766 | ||||||||||||
Supervisors | ||||||||||||||||
Pan Fu (Note (i)) | - | - | - | - | ||||||||||||
Li Jia Shi | - | 636 | 132 | 768 | ||||||||||||
Zhang Wei (Note (i)) | - | - | - | - | ||||||||||||
Yang Yi Hua | - | 294 | 140 | 434 | ||||||||||||
Wu De Ming | - | 367 | 140 | 507 | ||||||||||||
Independent non-executive directors | ||||||||||||||||
Wei Jin Cai (Note (iii)) | 150 | - | - | 150 | ||||||||||||
Ning Xiang Dong | 150 | - | - | 150 | ||||||||||||
Liu Chang Le | 150 | - | - | 150 | ||||||||||||
Tan Jin Song | 150 | - | - | 150 | ||||||||||||
600 | 1,933 | 542 | 3,075 |
Notes to the consolidated financial statements
(Prepared in accordance with International Financial Reporting Standards)
(Expressed in Renminbi unless otherwise indicated)
Details of directors’ and supervisors’ remuneration for the year ended December 31, 2013 are set out below:
Name | Directors’ fees | Salaries, wages and welfare | Retirement scheme contributions | Total | ||||||||||||
RMB thousand | RMB thousand | RMB thousand | RMB thousand | |||||||||||||
Non-executive directors | ||||||||||||||||
Wang Quan Hua (Note (i) & (ii)) | - | - | - | - | ||||||||||||
Yuan Xin An (Note (i)) | - | - | - | - | ||||||||||||
Yang Li Hua (Note (i)) | - | - | - | - | ||||||||||||
Executive directors | ||||||||||||||||
Tan Wan Geng (Note (i)) | - | - | - | - | ||||||||||||
Zhang Zi Fang (Note (i)) | - | - | - | - | ||||||||||||
Li Shao Bin | - | 639 | 120 | 759 | ||||||||||||
Supervisors | ||||||||||||||||
Pan Fu (Note (i)) | - | - | - | - | ||||||||||||
Li Jia Shi | - | 636 | 120 | 756 | ||||||||||||
Zhang Wei (Note (i)) | - | - | - | - | ||||||||||||
Yang Yi Hua | - | 291 | 122 | 413 | ||||||||||||
Liang Zhong Gao | - | 300 | 122 | 422 | ||||||||||||
Wu De Ming | - | - | - | - | ||||||||||||
Independent non-executive directors | ||||||||||||||||
Gong Hua Zhang | 150 | - | - | 150 | ||||||||||||
Wei Jin Cai(Note (iii)) | 150 | - | - | 150 | ||||||||||||
Ning Xiang Dong | 150 | - | - | 150 | ||||||||||||
Liu Chang Le | 150 | - | - | 150 | ||||||||||||
Tan Jin Song | - | - | - | - | ||||||||||||
600 | 1,866 | 484 | 2,950 |
Save as disclosed above, the Company's non-excecutive director, Mr. Si Xian Min resigned on January 15, 2016. For the years ended December 31, 2015, 2014 and 2013, Mr. Si Xian Min did not receive any remuneration for his service in the capacity of the non-excecutive director of the Company. He also held management positions in CSAHC and his salary were borne by CSAHC.
The Company’s executive director, Mr. Xu Jie Bo resigned on January 5, 2015. For the year ended December 31, 2014, Mr. Xu Jie Bo’s total remuneration was RMB766 thousand, including salaries, wages and welfare of RMB636 thousand and retirement scheme of RMB130 thousand. For the year ended December 31, 2013, Mr. Xu Jie Bo’s total remuneration was RMB757 thousand, including salaries, wages and welfare of RMB636 thousand and retirement scheme of RMB121 thousand.
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Notes to the consolidated financial statements
(Prepared in accordance with International Financial Reporting Standards)
(Expressed in Renminbi unless otherwise indicated)
Notes:
(i) | These directors or supervisors did not receive any remuneration for their services in the capacity of the directors or supervisors of the Company. They also held management positions in |
(ii) | Mr Li Jia Shi did not receive any remuneration for his service in the capacity of the supervisor of the Company since February 1, 2018. He also held management position in CSAH and his salary was borne by CSAH. |
(iii) | Resigned on |
(iv) | Appointed on |
(v) | Ms. Yang Yi Hua retired in September 2015, while still served as supervisor before December 20, 2017. Ms. Yang Yi Hua did not receive any remuneration for her service in the capacity of the supervisor of the Company since September 2015. |
(vi) | Mr Wang Chang Shun was anon-executive director of the Company before December 20, 2017 and was appointed to be the executive director since December 20, 2017. |
(vii) | Mr Tan Wan Geng was an executive director of the Company before November 30, 2018, and resigned from the Company on November 30, 2018. |
(viii) | Mr. Zheng Fan and Mr. Gu Hui Zhong receive remuneration in accordance with the relevant provisions of the PRC. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Renminbi unless otherwise indicated)
60 | Possible impact of amendments, new standards and interpretations issued but not yet effective for the year ended December 31, 2018 |
Up to the date of issue of these financial statements, the IASB has issued a number of amendments, new standards and interpretations which are not yet effective for the year ended December 31, 2018 and which have not been adopted in these financial statements. These include the following which may be relevant to the Group.
Effective for accounting periods beginning on or after | ||||
IFRS 16,Leases | January 1, 2019 | |||
IFRIC 23, Uncertainty over income tax treatments | January 1, 2019 | |||
Annual Improvements to IFRSs 2015-2017 Cycle | January 1, 2019 | |||
Amendments to IAS 28, Long-term interest in associates and joint ventures | January 1, 2019 | |||
Amendments to IFRS 9, Prepayment features with negative compensation | January 1, 2019 |
The Group is in the process of making an assessment of what the impact of these amendments, new standards and interpretations is expected to be in the period of initial application. So far the Group has identified some aspects of the IFRS 16 which may have a significant impact on the consolidated financial statements. Further details of the expected impacts are discussed below.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Renminbi unless otherwise indicated)
60 | Possible impact of amendments, new standards and interpretations issued but not yet effective for the year ended December 31, 2018 (continued) |
IFRS 16, Leases
Currently the Group classifies leases into finance leases and operating leases and accounts for the lease arrangements differently, depending on the classification of the lease. The Group enters into some leases as the lessor and others as the lessee.
IFRS 16 is not expected to impact significantly on the way that lessors account for their rights and obligations under a lease. However, once IFRS 16 is adopted, lessees will no longer distinguish between finance leases and operating leases. Instead, subject to practical expedients, lessees will account for all leases in a similar way to current finance lease accounting, i.e. at the commencement date of the lease the lessee will recognise and measure a lease liability at the present value of the minimum future lease payments and will recognise a corresponding“right-of-use” asset. After initial recognition of this asset and liability, the lessee will recognise interest expense accrued on the outstanding balance of the lease liability, and the depreciation of theright-of-use asset, instead of the current policy of recognising rental expenses incurred under operating leases on a systematic basis over the lease term. As a practical expedient, the lessee can elect not to apply this accounting model to short-term leases (i.e. where the lease term is 12 months or less) and to leases oflow-value assets, in which case the rental expenses would continue to be recognised on a systematic basis over the lease term.
IFRS 16 will primarily affect the Group’s accounting as a lessee of leases for properties, plant and equipment which are currently classified as operating leases. The application of the new accounting model is expected to lead to an increase in both assets and liabilities and to impact on the timing of the expense recognition in the consolidated income statement over the period of the lease.
IFRS 16 is effective for annual periods beginning on or after January 1, 2019. As allowed by IFRS 16, the Group decides to use the practical expedient to grandfather the previous assessment of which existing arrangements are, or contain, leases. The Group will therefore apply the new definition of a lease in IFRS 16 only to contracts that are entered into on or after the date of initial application.
The Group decides to elect to use the modified retrospective approach for the adoption of IFRS 16 and will recognise the cumulative effect of initial application as an adjustment to the opening balance of equity at January 1, 2019 and will not restate the comparative information. The Group will also apply IFRS 16’s low-value and short-term exemptions prospectively.
The Group has substantially completed an assessment on the impact of IFRS 16. Based on information currently available, excluding the impact from its associates’ and joint ventures’ initial application of IFRS 16, as well as the overall impact on deferred tax, the Group expects to recognise right-of-use assets and lease liabilities of approximately RMB44,000 million and RMB48,000 million respectively on January 1, 2019. The actual impact upon the initial adoption of this standard, however, may differ as the assessment completed to date is based on the information currently available to the Group, and further impacts may be identified before the standard is initially applied in the Group’s interim financial report for the six months ending June 30, 2019.
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