Increases in insurance costs or reductions in insurance coverage may have adverse impact our results of operations and financial condition.
We could be exposed to significant liability or loss if our property or operations were to be affected by a natural catastrophe or other event, including aircraft accidents. We maintain insurance policies but we are not fully insured against all potential hazards and risks incident to our business. If we are unable to obtain sufficient insurance with acceptable terms or if the coverage obtained is insufficient relative to actual liability or losses that we experience, whether due to insurance market conditions, policy limitations and exclusions or otherwise, our results of operations and financial condition could be adversely affected.
We may experience difficulty integrating our acquisitions, which could result in a material adverse effect on our operations and financial condition.
We may from time to time expand our business through acquisition of airlines or airline-related businesses. We are devotingmay devote significant resources to the integration of our operations in order to achieve the anticipated synergies and benefits of the absorption and acquisitions mentioned above. See “Item 4. Information on the Company” for details. However, such acquisitions involve uncertainties and a number of risks, including:
difficulty with integrating the assets, operations and technologies of the acquired airlines or airline-related businesses, including their employees, corporate cultures, managerial systems, processes, procedures and management information systems and services;
complying with the laws, regulations and policies that are applicable to the acquired businesses;
failure to achieve the anticipated synergies, cost savings or revenue-enhancing opportunities resulting from the acquisition of such airlines or airline-related businesses;
managing relationships with employees, customers and business partners during the course of integration of new businesses;
accessing our debt, equity or other capital resources to fund acquisitions, which may divert financial resources otherwise available for other purposes;
diverting significant management attention and resources from our other businesses;
strengthening our operational, financial and management controls, particularly those of our newly acquired assets and subsidiaries, to maintain the reliability of our reporting processes;
difficulty with exercising control and supervision over the newly acquired operations, including failure to implement and communicate our safety management procedures resulting in additional safety hazards and risks;
increased financial pressure resulting from the assumption of recorded and unrecorded liabilities of the acquired airlines or airline-related businesses; and
the risk that any such acquisitions may not close due to failure to obtain the required government approvals.
We cannot assure you that we will not have difficulties in assimilating the operations, technologies, services and products of newly acquired companies or businesses. Moreover, the continued integration of our acquired companies into our Company depends significantly on integrating the employees of our acquired companies with our employees and on maintaining productive employee relations. In the event that we are unable to efficiently and effectively integrate newly acquired companies or airline-related businesses into our Company, we may be unable to achieve the objectives or anticipated synergies of such acquisitions and such acquisitions may adversely impact the operations and financial results of our existing businesses.
We may be unable to retain key management personnel or pilots.
We are dependent on the experience and industry knowledge of our key management personnel and pilots, and there can be no assurance that we will be able to retain them. Any inability to retain our key management employees or pilots, or attract and retain additional qualified management employees or pilots, could have a negative impact on our operations and profitability.
Our controlling shareholder, CEA Holding, holds a majority interest in our Company, and its interests may not be aligned with other shareholders.
Most of the major airlines in China are currently majority-owned by either the central government or provincial or municipal governments in China. As of December 31, 2017,2020, CEA Holding holds directly or indirectly 56.38%49.79% of our Company’s equity stake on behalf of the PRC government. As a result, CEA Holding could potentially elect the majority of the board of directors of the Company (“Board of Directors” or the “Board”) and otherwise be able to control us. CEA Holding also has sufficient voting control to effect transactions without the concurrence of our minority shareholders. The interests of the PRC government as the ultimate controlling shareholder of our Company and most of the other major PRC airlines could conflict with the interests of our minority shareholders. Although the CAAC currently has a policy of equal treatment of all PRC airlines, we cannot assure you that the CAAC will not favor other PRC airlines over our Company.us.
As our controlling shareholder, CEA Holding has the ability to exercise controlling influence over our business and affairs, including, but not limited to, decisions with respect to:
mergers or other business combinations;
acquisition or disposition of assets;
the timing and amount of dividend payments; and
the management of our Company.
We engage in related party transactions, which may result in conflict of interests.
We have engaged in, from time to time, and may continue to engage in, in the future, a variety of transactions with CEA Holding and its various members, from whom we receive a number of important services, including support forin-flight catering and assistance with importation of aircraft, flight equipment and spare parts. Because we are controlled by CEA Holding and CEA Holding may have interests that conflict with our interests, we cannot assure you that CEA Holding will not take actions that will serve its interests over the Company’sour interests.
We may not be able to accurately report our financial results or prevent fraud if we fail to maintain effective internal controls over financial reporting, resulting in adverse investor perception, which in turn could have a material adverse effect on our reputation and the performance of our shares and ADSs.American Depositary Shares (the “ADSs”).
We are required under relevant United States securities laws and regulations to disclose in the reports that we file or submit under the Exchange Act to the SEC, including our annual report on Form20-F, a management report assessing the effectiveness of our internal controls over financial reporting at the end of the fiscal year. Our registered public accounting firm is also required to provide an attestation report on the effectiveness of our internal controls over financial reporting. Our management concluded that our internal controls over financial reporting were effective as of December 31, 2017.2020. However, we may discover other deficiencies or material weaknesses in the course of our future evaluation of our internal controls over financial reporting and we may be unable to address and rectify such deficiencies in a timely manner. Any failure to maintain effective internal controls over financial reporting could lead to diminished investor confidence in the reliability of our consolidated financial statements, thereby adversely affecting our business, operations, and reputation, including negatively affecting our performance in the securities markets and decreasing potential opportunities to obtain financing in the capital markets.
As part of our business strategy, we have adopted various measures to develop the international side of our business and to enhance our competitiveness in the international long-distance flight routes. Due to the differences in certain legal and market environments, we have encountered certain challenges during the course of developing our overseas business. We have already adopted and will continue to implement measures in order to enhance the internal controls of our overseas offices and to continue the development of our overseas business.
Any failure or disruption of our computer, communications, flight equipment or other technology systems could have an adverse impact on our business operations, profitability, reputation and customer services.
We rely heavily on computer, communications, flight equipment and other technology systems to operate our business and enhance customer service. Substantially all of our tickets are issued to passengers as electronic tickets, and we depend on our computerized reservation system to be able to issue, track and accept these electronic tickets. In addition, we rely on other automated systems for crew scheduling, flight dispatch and other operational needs. These systems could be disrupted due to various events, including natural disasters, power failures, terrorist attacks, equipment failures, software failures, computer viruses, cyber attacks and other events beyond our control. We cannot assure you that the measures we have taken to reduce the risk of some of these potential disruptions are adequate to prevent disruptions to or failures of these systems. Any substantial or repeated failure of or disruption to these systems could result in the loss of important data and/or flight delays, and could have an adverse impact on our business operations, profitability, reputation and customer services, including being liable for paying compensation to our customers.
We are subject to cyber security risks and may incur increasing costs in an effort to minimize those risks.
The nature of our business involves the receipt and storage of personal information about our customers. We have a program in place to detect and respond to data security incidents. To date, all incidents we have encountered have been insignificant.If we commit a significant data security breach or fail to detect and appropriately respond to a significant data security breach, we could be exposed to government enforcement actions and private litigation. In addition, our customers could lose confidence in our ability to protect their personal information, which could cause them to stop using our services. The loss of consumer confidence from a significant data security breach could hurt our reputation and adversely affect our business, result of operations and financial condition.
Actual or anticipated attacks may cause us to incur increasing costs, including costs to deploy additional personnel and protection technologies, train employees and engage third-party experts and consultants, costs incurred in connection with the notifications to employees, suppliers or the general public as part of our notification obligations to the various government authorities that govern our business, or costs to dedicate significant resources to system repairs or other increase cyber security protection. We may also be required to pay fines in connection with stolen customer, employee or other confidential information, or incur significant litigation or other costs. In October 2020, the Standing Committee of the National People’s Congress officially released the draft of the Personal Information Protection Law, or the Draft Personal Information Protection Law. The Draft Personal Information Protection Law provides the basic regime for personal information protection, including without limitation, stipulating an expanded definition of personal information, providing a long-arm jurisdiction in cross-border scenarios, emphasizing individual rights, and prohibiting rampant infringement of personal information, such as stealing, selling, or secretly collecting personal information. If the Draft Personal Information Protection Law is promulgated as an effective regulation in the future, we cannot assure you that our business operations will comply with such regulation in all respects and we may be ordered to terminate certain of our business operations that are deemed illegal by the regulatory authorities and become subject to fines and/or other sanctions.
Interruptions or disruptions of service at one or more airports in our primary market could have an adverse impact on us.
Our business is heavily dependent on our operations at our core hub airports in Shanghai, namely, Hongqiao International Airport and Pudong International Airport and our core hub airport in Beijing, namely, Beijing Daxing International Airport as well as our regional hub airports in Xi’an and Kunming. Each of these operations includes flights that connect our primary market to other major cities. Any significant interruptions or disruptions of service at one or more of our primary market airports could adversely impact our operations.
Any adverse public health developments, including SARS, Ebola, avian flu, or influenza A (H1N1), or the occurrence of natural disasters may, among other things, lead to travel restrictions and reduced levels of economic activity in the affected areas, which may in turn significantly reduce demand for our services and have a material adverse effect on our financial condition and results of operations.
Adverse public health epidemics or pandemics could disrupt businesses and the national economy of China and other countries where we do business. The outbreak of Severe Acute Respiratory Syndrome, or SARS, in early 2003 led to a significant decline in travel volumes and business activities and substantially affected businesses in Asia. Moreover, some Asian countries, including China, have encountered incidents of the H5N1 strain of avian flu, many of which have resulted in fatalities. In addition, outbreaks of, and sporadic human infection with, influenza A (H1N1) in 2009, a highly contagious acute respiratory disease, were reported in Mexico and an increasing number of countries around the world, some cases resulting in fatalities. In addition, in April 2013, there has been an ongoing outbreak of the H7N9 strain of avian flu, which has largely been centered in eastern China, and has resulted in fatalities in that region, including Shanghai. Furthermore, in 2014, an outbreak of Ebola virus, a highly contagious hemorrhagic fever with a relatively high fatality rate, in certain African countries resulted in confirmed cases in the United States and Europe. We are unable to predict the potential impact, if any, that the outbreak of influenza A (H1N1) or any other serious contagious disease or the effects of another outbreak of SARS, any strain of avian flu or Ebola may have on our business.
Natural disasters, such as earthquakes, snowstorms, floods or volcanic eruptions such as that of Eyjafjallajökull in Iceland in April and May of 2010 and the natural disasters in Japan in early 2011 may disrupt or seriously affect air travel activity. Any period of sustained disruption to the airline industry may have a material adverse effect on our business, financial condition and results of operations.
Terrorist attacks or the fear of such attacks, even if not made directly on the airline industry, could negatively affect the Companyus and the airline industry as a whole. 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 on September 11, 2001 in the United States. The CAAC has also implemented increased security measures in relation to the potential threat of terrorist attacks. Terrorist attacks, even if not made directly towards us or on the airline industry, or the fear of or the precautions taken in anticipation of such attacks (including elevated threat warnings or selective cancellationcancelation or redirection of flights) could materially and adversely affect us and the entire airline industry. In addition, potential or actual terrorist attacks may result in substantial flight disruption costs caused by grounding of fleet, significant increase of security costs and associated passenger inconvenience, increased insurance costs, substantially higher ticket refunds and significantly decreased traffic and RPK. International terrorist attacks targeting aircraft and airport not only directly threatens our flight safety, aviation security, operational safety and the safety of overseas institutions and employees, but also brings abouton-going adverse impact on the outbound tourism demand for places where terrorist attacks have taken place.
We could be classified as a passive foreign investment company by the United States Internal Revenue Service and may therefore be subject to adverse tax impact.
Depending upon the relative values of our passive assets and income as compared to our total assets and income each taxable year, we could be classified as a passive foreign investment company, or PFIC, by the United States Internal Revenue Service, or IRS, for U.S. federal income tax purposes. We believe that we were not a PFIC for the taxable year 2020. However, there can be no assurance that we will not be a PFIC for the taxable year 2021 and/or later taxable years, as PFIC status is re-tested each year and depends on the facts in such year.
We will be classified as a PFIC in any taxable year if either: (1) the average value during the taxable year of our assets that produce passive income, or are held for the production of passive income, is at least 50% of the average value of our total assets for such taxable year (the “Asset Test”) or (2) 75% or more of our gross income for the taxable year is passive income (such as certain dividends, interest or royalties) (the “Income Test”). For purposes of the Asset Test: (1) any cash, cash equivalents, and cash invested in short-term, interest bearing, debt instruments, or bank deposits that is readily convertible into cash, will generally count as producing passive income or as being held for the production of passive income and (2) the average values of our passive and total assets is calculated based on our market capitalization.
If we were a PFIC, we would generally be subject to additional taxes and interest charges on certain “excess distributions” our Company makes regardless of whether we continue to be a PFIC in the year in which you receive an “excess distribution”. An “excess distribution” would be either (1) the excess amount of a distribution with respect to ADSs during a taxable year in which distributions to you exceed 125% of the average annual distributions to you over the preceding three taxable years or, if shorter, your holding period for the ADSs, or (2) 100% of the gain from the disposition of ADSs.
Risks Relating to the Aviation Industry
Our business is subject to extensive government regulation.
The Chinese civil aviation industry is subject to a high degree of regulation by the CAAC. Regulatory policies issued or implemented by the CAAC encompass virtually every aspect of airline operations, including, among other things:
| (a) | route allocation; |
| (b) | pricing of domestic airfares; |
| (c) | administration of air traffic control systems and certain airports; |
| (d) | jet fuel pricing; |
| (e) | air carrier certifications and air operator certification; |
| (f) | aircraft registration and aircraft airworthiness certification; and |
| (g) | airport expense policy. |
Our ability to provide services on international routes is subject to a variety of bilateral civil air transport agreements between China and other countries, international aviation conventions and local aviation laws. As a result of government regulations, we may face significant constraints on our flexibility and ability to expand our business operations or to maximize our profitability. In addition, as we operate internationally and corporate with various counterparties domestically and overseas, we may be exposed to the risks associated with foreign laws, regulations or other challenges arising from the regulatory aspect.
The downward trend in domestic and global economy could affect air travel.
The airline industry is highly cyclical, and the level of demand for air travel is correlated to the strength of domestic and global economies. Robust demand for our air transportation services depends largely on favorable general economic conditions, including the strength of global and local economies, low unemployment, strong consumer confidence and availability of consumer and business credit. In 2017,The COVID-19 pandemic had a severe and negative impact on the Chinese and the global economy hadin 2020. Whether this will lead to a steady recovery. Simultaneous economic growth were shownprolonged downturn in developed economies, major emerging economies and developing countries. China’sthe economy had a steady to good growth which was better than expected. The economic structures continued to optimize andis still unknown. Even before the contributionsoutbreak of the service industry continued to increase. Benefited fromCOVID-19 pandemic, the favorable continual recoveryglobal macroeconomic environment was facing numerous challenges. There is considerable uncertainty over the long-term effects of the global economy,expansionary monetary and fiscal policies which had been adopted by the global aviation industry had a continuous rise incentral banks and financial authorities of some of the demand of travelers. The China’s civil aviation maintained its relatively fast growth rate. However, we cannot assure you that such recoveryworld’s leading economies, including the United States and growth will continue inChina, even before 2020. In particular, there is significant uncertainty about the future. The global economy is facing uncertainties, such asfuture relationship between the rise ofUnited States and China with respect to trade protectionismpolicies, treaties, government regulations, and the occasional occurrence of geopolitical risks. If the macroeconomic climate worsenstariffs. Any economic downturn or trading disputeslowdown and/or negative business sentiment could potentially have an adverse indirect impact on almost all industries, and conflicts are created, our business operations and financial condition may consequently be adversely affected.
We operate in a highly competitive industry.
We face intense competition in each of the domestic, regional and international markets that we serve. In our domestic market, we compete against all airlines that have the same routes, including smaller domestic airlines that have lower operating costs. In the regional and international markets, we compete against international airlines that have significantly longer operating history, better brand recognition, or more resources, such as large sales networks or sophisticated reservation systems. See the section headed “Item 4. Information on the Company — Business Overview — Competition” for more details. The public’s perception of safety of Chinese airlines could also materially and adversely affect our ability to compete against our international competitors. To stay competitive, we have, from time to time in the past, lowered airfares for certain of our routes, and we may continue to do so in the future. Increased competition and pricing pressures may have a material adverse effect on our financial condition and results of operations.
We depend on a limited number of suppliers for aircraft, aircraft engines and parts.
The aviation transportation industry features advanced technology and high operation costs. As a result, the available suppliers for key operating resources including aircraft, engines, flight spare parts, jet fuel and information technology services are limited. We depend on a limited number of suppliers for aircraft, aircraft engines and related parts and components. Due to the limited number of these suppliers, we are vulnerable to any problems associated with the performance of their obligation to supply key aircraft, parts and engines, including design defects, mechanical problems, contractual performance by suppliers, adverse perception by the public that would result in customers’ avoidance of any of our aircraft or any action by the regulatory authorities.
We expect to face substantial competition from the rapid development of the Chinese rail network.
The PRC government is aggressively implementing the expansion of its high-speed rail network, which has provided train services at a speed of up to 350 kilometers per hour connecting major cities such as Beijing, Shanghai, Guangzhou and Hong Kong. The expansion of rail network, improvements in railway service quality, increased passenger capacity and urban center accessibility could enhance the competitiveness of the railway service and negatively affect our market share on some of our key routes, in particular our short-haul routes. For example, Yinchuan-Xi’an and Yancheng-Nantong routes were largely affected by the opening of between 500 km to 800 km. The high-speed railway routes between Shanghai and Kunming, Baoji and Lanzhou and Xi’an and Chengdu commenced operations in 2017, and has affected our Xi’an and Chengdu route, Guiyang and Kunming route, Xi’an and Xining route and Xi’an and Lanzhou route.2020. The load factors of two routes demonstrated a trend to decrease significantly after the high-speed railway routes put into operation. Increased competition and pricing pressures from the railway service may have ana material adverse effect on our business, financial condition and results of operations.
Limitations on foreign ownership of PRC airlines may affect our access to funding in the international equity capital markets or pursuing business opportunities.
The current CAAC policies limit foreign ownership of PRC airlines. Under these rules,non-PRC, Hong Kong, Macau or Taiwan residents cannot hold a majority equity interest in a PRC airline. As of December 31, 2017,2020, approximately 32.20%31.6% of our total outstanding shares were held bynon-PRC, Hong Kong, Macau or Taiwan residents or legal entities (excluding the qualified foreign institutional investors that are approved to invest in the A Share market of the PRC). As a result, our access to funding in the international equity capital markets may be limited. This restriction may also limit the opportunities available to us to obtain funding or other benefits through the creation of equity-based strategic alliances with foreign carriers. We cannot assure you that the CAAC will not increase these limits on foreign ownership of PRC airlines in the future.
Any jet fuel shortages or any increase in jet fuel prices may materially and adversely affect our financial condition and results of operations.
The availability and prices of jet fuel have a significant impact on our financial condition and results of operations. In the past, jet fuel shortages have occurred in China and, on limited occasions, required us to delay or cancel flights. Although jet fuel shortages have not occurred since the end of 1993, we cannot assure you that jet fuel shortages will not occur in the future. Fuel prices continue to be susceptible to, among other factors, political unrest in various parts of the world, OPEC policies, the rapid growth of the economies of certain countries, including China and India, the inventory levels carried by industries, the amount of reserves built by governments, disruptions to production and refining facilities and weather conditions. Fuel efficiency of our aircraft decreases as they advance in age which results in an overall increase in our aviation fuel costs. The foregoing and other factors that impact the global supply and demand for jet fuel may affect our financial performance due to its sensitivity to fuel prices.
In 2017,Aircraft fuel prices recovered fromhave been subject to high volatility, fluctuating substantially over the previous decline as the OPEC and other oil suppliers efficiently squeezed excess supply of oil in the market and the political upheaval in the Middle East increased the uncertainty of oil production.past several years. Setting aside the adjustment in factors such as fuel surcharge, if the average price of jet fuel had increased or decreased by 5%, based on the actual fuel consumption of flights in 2020, our jet fuel costs would have increased or decreased by approximately RMB1,257RMB692 million, in 2017.our net profit will decrease or increase by approximately RMB519 million and our other comprehensive income will increase or decrease by approximately RMB62 million. In addition, the NDRC adjusts gasoline and diesel prices in China from time to time, taking into account the changes in international oil prices, thereby affecting aviation fuel prices. In 2017, we have not conducted aviation fuel hedging activities. As such, we cannot assure you that jet fuel prices will not fluctuate further in the future. Due to the highly competitive nature of the airline industry, we may be unable to fully or effectively pass on to our customers any future increase in jet fuel costs.
The airline industry is subject to increasing environmental regulations, which would increase costs and affect profitability.
In recent years, regulatory authorities in China and other countries have issued a number of directives and other regulations to address, among other things, aircraft noise and engine emissions, the use and handling of hazardous materials, aircraft age and environmental contamination remedialclean-up measures. These requirements impose high fees, taxes and substantial ongoing compliance costs on airlines, particularly as new aircraft brought into service will have to meet the environmental requirements during their entire service life.
We have significant expenditures in respect of environmental compliance, which may affect our operations and financial condition. For example, allwe focused on pollution prevention and control by facilitating the application of our B737NGnew technologies for energy conservation and someemission reduction, speeding up the “diesel-to-electric” (replacement of our A320 series aircraft newly introduced are equipped with a winglet or sharklet, an additional lifting surface to reduce fuel consumptiondiesel vehicle by electric vehicle) project in airports, and noises.promoting the replacement of Auxiliary Power Unit (APU) on aircraft. We also took measures to reduce the impact of our operations on the environment by optimizing our route network and flight schedules as well as installing energy-saving environmentally friendly engines. In addition, we continue to improve the energy efficiency of our fleet by introducing aircraft with energy-saving technologies, such as A320neo, B737-8B787-9 Maxand A350-900 and by retiring old aircraft. However, these measures have resulted in significant costs and expenditures. We expect to continue to incur significant costs and expenditures on an ongoing basis to comply with environmental regulations, which could restrict our ability to modify or expand facilities or continue operations.
Our results of operations tend to be volatile and fluctuate due to seasonality.
The aviation industry is characterized by annual high and low travel seasons. Our operating revenue is substantially dependent on the passenger and cargo traffic volume carried, which is subject to seasonal and other changes in traffic patterns, the availability of appropriate time slots for our flights and alternative routes, the degree of competition from other airlines and alternate means of transportation, as well as other factors that may influence passenger travel demand and cargo and mail volume. As a result, our results tend to be volatile and subject to rapid and unexpected change.
Risks Relating to the PRC
Our ADSs may be delisted under the Holding Foreign Companies Accountable Act if the PCAOB is unable to inspect our auditor who is located in China. The delisting of our ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment. Additionally, the inability of the PCAOB to conduct inspections deprives our investors with the benefits of such inspections.
The Holding Foreign Companies Accountable Act, or the HFCAA, was enacted on December 18, 2020. The HFCAA states if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the PCAOB for three consecutive years beginning in 2021, the SEC shall prohibit our shares or ADSs from being traded on a national securities exchange or in the over the counter trading market in the U.S.
Our auditor, the independent registered public accounting firm that issues the audit report included in this annual report, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. Without a mutual and practical cooperation mechanism between securities regulatory authorities, it remains uncertain whether and when PCAOB could implement cross-border inspection in the PRC.
There could be additional regulatory or legislative requirements or guidance that could impact us if our auditor is not subject to PCAOB inspection. The implication of possible regulations in addition to the requirements of the HFCAA are uncertain. Such uncertainty could cause the market price of our ADSs to be materially and adversely affected, and our securities could be prohibited from being traded or even delisted.
It is unable for the PCAOB to fully evaluate the audits and quality control procedures of registered public accounting firms in the PRC due to the PCAOB’s inability to conduct inspections in the PRC. As a result, we and our investors are deprived of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in PRC makes it more difficult to evaluate the effectiveness of our independent registered public accounting firm’s audit procedures or quality control procedures as compared to auditors outside of PRC that are subject to the PCAOB inspections, which could cause investors and potential investors in our stock to lose confidence in our audit procedures and reported financial information and the quality of our financial statements.
Proceedings instituted by the SEC against certain PRC-based accounting firms, including our independent registered public accounting firm, could result in financial statements being determined not to comply with the requirements of the Exchange Act.
In December 2012, the SEC brought administrative proceedings against five accounting firms in China, including our then independent registered public accounting firm, alleging that they had refused to produce audit work papers and other documents related to certain other China-based companies under investigation by the SEC. On January 22, 2014, an initial administrative law decision was issued, censuring these accounting firms and suspending four of these firms from practicing before the SEC for a period of six months. The decision is neither final nor legally effective unless and until reviewed and approved by the SEC. On February 12, 2014, four of these PRC-based accounting firms appealed to the SEC against this decision. In February 2015, each of the four PRC-based accounting firms agreed to pay a fine to the SEC to settle the dispute and avoid suspension of their ability to practice before the SEC. The settlement requires the firms to follow detailed procedures to provide the SEC with access to the Chinese firms’ audit documents via the China Securities Regulatory Commission (the “CSRC”). If the firms do not follow these procedures, the SEC could impose sanctions such as suspensions, or it could restart the administrative proceedings. Our audit committee is aware of the policy restriction and regularly communicated with our independent auditor to ensure compliance.
In the event that the SEC restarts the administrative proceedings, depending upon the final outcome, listed companies in the United States with major PRC operations may find it difficult or impossible to retain auditors in respect of their operations in the PRC, which could result in financial statements being determined not to be in compliance with the requirements of the Exchange Act, and possibly delisting of the securities. Moreover, any negative news about the proceedings against these audit firms may cause investor uncertainty regarding China-based U.S.-listed companies and the market price of our ADSs may be adversely affected.
If our independent registered public accounting firm was denied, even temporarily, the ability to practice before the SEC and we were unable to find another registered public accounting firm in a timely manner to audit and issue an opinion on our financial statements, our financial statements could be determined not to be in compliance with the requirements of the Exchange Act. Such determination could ultimately lead to our delisting from the New York Stock Exchange (“NYSE”) or deregistration from the SEC, or both, which would substantially reduce or effectively terminate the trading of our ADSs in the United States.
It may be difficult for overseas regulators to conduct investigation or collect evidence within China.
Shareholder claims or regulatory investigation that are common in the United States generally are difficult to pursue as a matter of law or practicality in China. For example, in China, there are significant legal and other obstacles to providing information needed for regulatory investigations or litigations initiated outside China. Although the authorities in China may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-border supervision and administration, such cooperation with the securities regulatory authorities in the Unities States may not be efficient in the absence of mutual and practical cooperation mechanism. Furthermore, according to Article 177 of the PRC Securities Law, which became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigation or evidence collection activities within the PRC territory. While detailed interpretation or implementation of rules under this Article 177 have yet to be promulgated, the inability for an overseas securities regulator to directly conduct investigation or evidence collection activities within China may further increase the difficulties you face in protecting your interests.
Changes in the economic policies of the PRC government may materially affect our business, financial condition and results of operations.
Since the late 1970s, the PRC government has been reforming the Chinese economic system. These reforms have resulted in significant economic growth and social progress. These policies and measures may be modified or revised from time to time. Adverse changes in economic and social conditions in China, in the policies of the PRC government or in the laws and regulations of China, if any, may have a material adverse effect on the overall economic growth of China and investments in and profitability of the domestic airline industry. These developments, in turn, may have a material adverse effect on our business, financial condition and results of operations.
Changes in the foreign exchange regulations in the PRC may result in fluctuations of the Renminbi and adversely affect our ability to pay dividends or to satisfy our foreign currency liabilities.
A significant portion of our revenue and operating expenses are denominated in Renminbi, while a portion of our revenue, capital expenditures and debts are denominated in U.S. dollars and other foreign currencies. The Renminbi is currently freely convertible in the current account, which includes payment of dividends, trade and service-related foreign currency transactions, but not in the capital account, which includes foreign direct investment, unless approval from or registration or filing with the relevant authorities, is obtained. As a foreign invested enterprise approved by the PRC Ministry of Commerce (the “MOFCOM”), we can purchase foreign currencies without the approval of State Administration of Foreign Exchange (the “SAFE”) for settlement of current account transactions, including for the purpose of dividend payment, by providing commercial documents evidencing these transactions. We can also retain foreign currencies in our current accounts, subject to a maximum amount approved by SAFE, to satisfy foreign currency liabilities or pay dividends. The relevant PRC government authorities may limit or eliminate our ability to purchase and retain foreign currencies in the future. Foreign currency transactions in the capital account are still subject to limitations and require approvals from SAFE. This may affect our ability to raise foreign capital through debt or equity financing, including through loans or capital contributions. We cannot assure you that we will be able to obtain sufficient foreign currencies to pay dividends, if any, or satisfy our foreign currency liabilities.
Furthermore, the value of the Renminbi against the U.S. dollar and other currencies may fluctuate significantly and is affected by, among other things, the PRC government policies, domestic and international economic and political conditions and changes in the supply and demand of the currency. On July 21, 2005, the PRC government changed its policy of pegging the value of the Renminbi to the U.S. dollar. Under the new policy, the Renminbi is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. This change in policy resulted in appreciation of the Renminbi against the U.S. dollar by approximately 7.0% in 2008. While there was no material appreciation of Renminbi against the U.S. dollar in 2009, the Renminbi appreciated by approximately 3.0% against the U.S. dollar in 2010 and by approximately 5.1% in 2011. In April 2012, the PBOC widened the daily trading band of the Renminbi against the U.S. dollar, and the Renminbi was allowed to appreciate or depreciate by 1.0% from the PBOC central parity rate, effective April 16, 2012. In March 2014, the PBOC further widened the daily trading band of the Renminbi against the U.S. dollar, and the Renminbi was allowed to appreciate or depreciate by 2% against the U.S. dollar from the daily central parity rate, effective March 17, 2014. On August 11, 2015, the PBOC executed a 2% devaluation in the Renminbi. Within the following two days, the Renminbi depreciated 3.5% against the U.S. dollar. The Renminbi depreciated 6.7% against the U.S. dollar from January 4, 2016 to December 30, 2016. The Renminbi appreciated 6.3%2.0% against the U.S. dollar for the year ended December 31, 2017.2018. The Renminbi depreciated 4.1% against the U.S. dollar for the year ended December 31, 2019. The Renminbi appreciated by appoximately 6.5% against the U.S. dollar for the year ended December 31, 2020. However, it remains unclear what further fluctuations may occur or what impact this will have on the value of the Renminbi. It is possible that the PRC government could adopt a more flexible foreign exchange policy, which could result in further and more significant revaluations of the Renminbi against the U.S. dollar or any other foreign currency. Any resulting fluctuations in exchange rates as a result of such policy changes may have an adverse effect on our financial condition and results of operations.
Our operations may be adversely affected by rising inflation rates in the PRC.
Increase in inflation is due to many factors beyond our control, such as rising production and labor costs, high debts, changes in the PRC and foreign governmental policy and regulations, and movements in exchange rates and interest rates. The national consumer price index, which is an indicator of the inflation, was 1.4%2.1%, 2.0%2.9% and 1.6%2.5% in 2015, 20162018, 2019 and 2017,2020, respectively. The national consumer price index was 1.5%-0.3%, 2.9%-0.2% and 2.1%0.4% in January, February and March 2018,2021, respectively. We cannot assure you that inflation rates will not increase in the future. If inflation rates rise beyond our expectations, the costs of our business operations may become significantly higher than anticipated, and we may be unable to pass on such higher costs to consumers in amounts that are sufficient to cover those increasing operating costs. As a result, further inflationary pressures in the PRC may have a material adverse effect on our business, financial condition and results of operations, as well as our liquidity and profitability.
Any withdrawal of, or changes to, tax incentives in the PRC may adversely affect our results of operations and financial condition.
Prior to January 1, 2008, except for a number of preferential tax treatment schemes available to various enterprises, industries and locations, business enterprises in China were subject to an enterprise income tax rate of 33% under the relevant PRC Enterprise Income Tax Law. On March 16, 2007, China passed a new enterprise income tax law, or the EIT Law, which took effect on January 1, 2008 and amended on February 24, 2017.2017 and December 29, 2018. The EIT Law imposes a uniform income tax rate of 25% for domestic enterprises and foreign invested enterprises. Business enterprises enjoying preferential tax treatment that was extended for a fixed term prior to January 1, 2008 will still be entitled to such treatment until such fixed term expires. Certain of our subsidiaries are entitled to preferential tax treatment, allowing us to enjoy a lower effective tax rate that would not otherwise be available to us. To the extent that there are any increases in the applicable effective tax rate, withdrawals of, or changes in, our preferential tax treatment or tax exemptions, our tax liability may increase correspondingly.
We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to domestic public companies in the United States.
Because we are a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers, including: (i) the rules under the Exchange Act requiring the filing of quarterly reports on Form 10-Q or current reports on Form 8-K with the SEC; (ii) the sections of the Exchange Act regulating the solicitation of proxies in respect of a security registered under the Exchange Act; (iii) the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and “short swing” liability for insiders who profit from certain trades; and (iv) the selective disclosure rules by issuers of material nonpublic information under Regulation FD.
We are required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we publish our results on a quarterly basis through press releases. Press releases relating to financial results and material events are furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC will be less extensive and may be less timely compared with that required to be filed with the SEC by U.S. domestic issuers. As a result, holders of ADSs may not be afforded the same protections or information, which would be made available to them, were they investing in a U.S. domestic issuer.
We are subject to the corporate governance requirements of the NYSE. However, the NYSE rules permit a foreign private issuer like us to follow the corporate governance practices of our home country in lieu of certain NYSE rules. Certain corporate governance practices in the PRC, which is our home country, may differ significantly from the NYSE corporate governance requirements. To the extent we choose to follow home country practice, our shareholders may be afforded less protection than they would otherwise enjoy under the NYSE corporate governance listing standards applicable to U.S. domestic issuers.
Uncertainties embodied in the PRC legal system may limit certain legal protection available to investors.
The PRC legal system is a civil law system based on written statutes. Unlike common law systems, decided legal cases have little precedential value. In 1979, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general. Legislation over the past 20 years has significantly enhanced the protection afforded to foreign investors in China. However, the interpretation and enforcement of some of these laws and regulations involve uncertainties that may limit the legal protection available to investors. SuchAs a result, it may be difficult or impossible for our investors to bring an action against us or our directors and officers in the United States in the event that such investors believe that their rights have been infringed under the U.S. federal securities laws or otherwise. Even if such investors are successful in bringing an action of this kind, the PRC laws may render them unable to enforce a judgment against our assets or the assets of our directors and officers.Such uncertainties pervade as the legal system in the PRC continues to evolve. Even where adequate laws exist in the PRC, the enforcement of the existing laws or contracts may be uncertain and sporadic, and it may be difficult to obtain swift and equitable enforcement, including enforcing a foreign judgment. In addition, the PRC legal system is based on written statutes and their interpretation; prior court decisions may be cited as reference but have limited authority as precedents. As such, any litigation in the PRC may be protracted and result in substantial costs and diversion of our resources and management attention. We have full or majority board control over the management and operation of all of our subsidiaries established in the PRC. The control over these PRC entities and the exercise of shareholder rights are subject to their respective articles of association and PRC laws applicable to foreign-invested enterprises in the PRC, which may be different from the laws of other developed jurisdictions.
The PRC has not developed a fully integrated legal system and certain recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in the PRC. The relative lack of experience of the PRC’s judiciary in many cases also createsPRC and this may create additional uncertaintyuncertainties as to the outcome of any litigation. In addition, interpretation of statutes and regulations may be subject to government policies reflecting domestic political changes. Furthermore, in case of new laws and regulations, the interpretation, implementation and enforcement of these laws and regulations would involve uncertainties due to the lack of established practice or published court decisions available for reference. We cannot predict the future legal development in the PRC, including promulgation of new laws, changes to existing laws or interpretation or enforcement thereof, or inconsistencies between the local rules and regulations and the national law. In addition, the PRC legal system is based in part on government policies and internal rules (some of which are not published in a timely manner or at all) that may have a retroactive effect. As a result, we may not be aware of any violations until sometime after the violation has occurred. This may also limit the remedies available to investors and to us in the event of any claims or disputes with third parties.
The auditors’ reports included in this annual report are prepared by relying on audit work which is not inspected by the Public Company Accounting Oversight Board and, as such, investors may be deprived of the benefits of such inspection.
Auditors of companies that are registered with the 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 (United States), or the PCAOB, and are required by the laws of the United States to undergo regular inspections by the PCAOB to assess their compliance with the laws of the United States and professional standards. Because we have substantial operations within China, our auditor relied on its China affiliate to perform audits on our consolidated financial statements, and the PCAOB is currently unable to conduct inspections of the work done by our auditor as it relates to our operations without the approval of the Chinese authorities, our auditor’s work related to our operations in China is not currently inspected by the PCAOB. This lack of PCAOB inspection of audit work performed in China prevents the PCAOB from regularly evaluating the audit work performed by any auditor in China including our auditor. As a result, investors may be deprived of the full benefits of PCAOB inspections.
The inability of the PCAOB to conduct inspections of audit work performed in China makes it more difficult to evaluate the effectiveness of our auditor’s audit procedures as compared to auditors in other jurisdictions that are subject to PCAOB inspections for all their work. Investors may lose confidence in our reported financial information and procedures and the quality of our consolidated financial statements.
Proceedings instituted by the SEC against certainPRC-based accounting firms, including the China affiliate of our independent registered public accounting firm, could result in financial statements being determined not to comply with the requirements of the Exchange Act.
In December 2012, the SEC brought administrative proceedings against five accounting firms in China, including the Chinese affiliate of our then independent registered public accounting firm, alleging that they had refused to produce audit work papers and other documents related to certain other China-based companies under investigation by the SEC. On January 22, 2014, an initial administrative law decision was issued, censuring these accounting firms and suspending four of these firms from practicing before the SEC for a period of six months. The decision is neither final nor legally effective unless and until reviewed and approved by the SEC. On February 12, 2014, four of thesePRC-based accounting firms appealed to the SEC against this decision. In February 2015, each of the fourPRC-based accounting firms agreed to pay a fine to the SEC to settle the dispute and avoid suspension of their ability to practice before the SEC. The settlement requires the firms to follow detailed procedures to provide the SEC with access to the Chinese firms’ audit documents via the China Securities Regulatory Commission ( the “CSRC” ). If the firms do not follow these procedures, the SEC could impose sanctions such as suspensions, or it could restart the administrative proceedings.
In the event that the SEC restarts the administrative proceedings, depending upon the final outcome, listed companies in the United States with major PRC operations may find it difficult or impossible to retain auditors in respect of their operations in the PRC, which could result in financial statements being determined not to be in compliance with the requirements of the Exchange Act, and possibly delisting of the securities. Moreover, any negative news about the proceedings against these audit firms may cause investor uncertainty regarding China-based U.S.-listed companies and the market price of our ADSs may be adversely affected.
If the Chinese affiliate of our independent registered public accounting firm was denied, even temporarily, the ability to practice before the SEC and we were unable to find another registered public accounting firm in a timely manner to audit and issue an opinion on our financial statements, our financial statements could be determined not to be in compliance with the requirements of the Exchange Act. Such determination could ultimately lead to our delisting from the NYSE or deregistration from the SEC, or both, which would substantially reduce or effectively terminate the trading of our ADSs in the United States.
Item 4. Information on the Company
A. History and Development of the Company
Our registered office is located at 66 Airport Street, Pudong International Airport, Shanghai, China, 201202. Our principal executive office and mailing address is Kong Gang San5/F, Block A2, Northern District, CEA Building, 36 Hongxiang 3rd Road, Number 92,Minhang District, Shanghai, 200335, China. The telephone number of our principal executive office is(86-21) 6268-6268 and the fax number for the Board Secretariat’s office is(86-21) 6268-6116. We currently do not have an agent for service of process in the United States.
Our Company, China Eastern Airlines Corporation Limited was established on April 14, 1995 under the laws of China as a company limited by shares in connection with the restructuring of our predecessor and our initial public offering. We are commercially known in the industry as China Eastern Airlines. Our predecessor was one of the six original airlines established in 1988 as part of the decentralization of the airline industry in China undertaken in connection with China’s overall economic reform efforts. Prior to 1988, the CAAC was responsible for all aspects of civil aviation in China, including the regulation and operation of China’s airlines and airports. In connection with our initial public offering, our predecessor was restructured into two separate legal entities, our Company and EA Group. According to the restructuring arrangement, by operation of law, our Company succeeded to substantially all of the assets and liabilities relating to the airline business of our predecessor. EA Group succeeded to our predecessor’s assets and liabilities that do not directly relate to the airline operations and do not compete with our businesses. Assets transferred to EA Group included our predecessor’s equity interests in companies engaged in import and export, real estate, advertising,in-flight catering, tourism and certain other businesses. In connection with the restructuring, we entered into various agreements with EA Group and its subsidiaries for the provision of certain services to our Company. CEA Holding assumed the rights and liabilities of EA Group under these agreements after it was formed by merging EA Group, Yunnan Airlines Company and China Northwest Airlines Company in October 2002. See “Item 7. Major Shareholders and Related Party Transactions” for more details.
The following chart sets forth the organizational structure of our Company and our significant subsidiaries as of December 31, 2017:
In February 1997,2020, we completedtook the initiative to confront the COVID-19 pandemic and made every effort to stabilize our initial public offeringoperations, striving to reduce the adverse impact of 1,566,950,000 ordinary H Shares, par value RMB1.00 per share,the COVID-19 pandemic. We have closely followed the situation of the COVID-19 pandemic and listedmarket changes to dynamically adjust the deployment of transportation capacity, laid a solid foundation in servicing the coordinated development of Beijing-Tianjin-Hebei and the construction of Xiong’an New District and steadily promoted the construction of the core hub of Beijing, and moved our ordinary H Shares on The Stock Exchangebase to Beijing Daxing International Airport as the main base airline as planned. During the outbreak of Hong Kong Limited, or the Stock ExchangeCOVID-19 pandemic, we launched “Wild Your Dreams”, a series of Hong Kong Limited (the “Hong Kong Stock Exchange”), and American Depositary Shares, or ADSs, representing our H Shares, oninnovative products, to stimulate passengers’ travel demand, restore market confidence, promote the New York Stock Exchange. In October 1997, we completed a public offeringrecovery of 300,000,000 new ordinary domestic shares in the formaviation market, effectively serve the internal circulation of A Shares to public shareholders in China and listed such new shares on the Shanghai Stock Exchange. H Shares are our ordinary shares listed on the Hong Kong Stock Exchange,achieve good economic, social and A Shares are our ordinary shares listed on the Shanghai Stock Exchange. Our H Shares and A Shares are identical in respect of all rights and preferences, except that the listed A Shares may only be held by Chinese domestic investors and certain qualified foreign institutional investors. For information regarding our share capital structure, see “Item 10.B Memorandum and Articles of Association – Description of the Shares.” In addition, dividends on the A Shares are payable in Renminbi.
Since our initial public offering, we have expanded our operations through acquisitions and joint ventures.
On June 12, 2012, the Board of Directors resolved and approved to issue corporate bonds in the aggregate principal amount of not more than RMB8.8 billion and for a term of not more than ten years for a single or multiple issuances.brand benefits. We received the CSRC approval for this issuance on December 12, 2012. On March 20, 2013, we issued the first tranche of the corporate bonds in the amount of RMB4.8 billion at 5.05% due 2023. The use of proceeds from this issuance was to repay bank loans, improve our financing structure and replenish our short-term working capital.
On September 11, 2012, the Board of Directors resolved and approved the “Proposal for thenon-public issuance of A Shares to specific placees by China Eastern Airlines Corporation Limited” and the “Proposal for thenon-public issuance of H Shares to specific placees by China Eastern Airlines Corporation Limited,” according to which, (i) CEA Holdings and CES Finance would subscribe in cash for 241,547,927 and 457,317,073 new A Shares, respectively, at the subscription price of RMB3.28 per share; and (ii) CES Global Holdings (Hong Kong) Limited, an overseas wholly-owned subsidiary of CEA Holding, (“CES Global”) would subscribe in cash for 698,865,000 new H Shares (nominal value of RMB1.00 each) at the subscription price of HK$2.32 per share. On January 31, 2013, the CSRC approved our proposed issue of no more than 698,865,000 new H Shares with a nominal value of RMB1.00 each. The Public Offering Review Committee of the CSRC reviewed and conditionally approved our application relating to thenon-public issue of new A Shares of the Company on February 25, 2012.
On December 27, 2012, our wholly-owned subsidiary, Shanghai Airlines Tours entered into an agreement with Eastern Tourism and Shanghai Dongmei to acquire 45% and 55% of the issued share capital of Xi’an Dongmei Aviation Travel Co. Ltd, held by them respectively for a consideration of approximately RMB3.3 million comprising approximately RMB1.5 million payable to Eastern Tourism and approximately RMB1.8 million payable to Shanghai Dongmei.
On December 27, 2012, our wholly-owned subsidiary, Shanghai Airlines Tours also entered into another agreement with Eastern Tourism and Shanghai Dongmei to acquire 45% and 55% of the issued share capital of Kunming Dongmei, held by them respectively for a consideration of approximately RMB10.6 million comprising RMB4.7 million payable to Eastern Tourism and approximately RMB5.8 million payable to Shanghai Dongmei.
On January 10, 2013, our wholly-owned subsidiary, Shanghai Airlines Tours entered into an agreement with Eastern Tourism to acquire the entire issued share capital of Eastern Travel held by Eastern Tourism Investment Group Co., Ltd for consideration of approximately RMB11.9 million.
On April 9, 2013, the Company obtained an approval from the CSRC, pursuant to which the CSRC approved thenon-public issue by the Company for no more than 698,865,000 new A Shares. On April 16, 2013, the procedure for registration oflaunched the new A Shares with“Eastern Miles” membership system and introduced the Shanghai Branch“Eastern Airlines Wallet” enabling “points + cash” payment, so as to increase the ways of China Securities Depository & Clearing Co. Ltd. was completed. The 698,865,000 new A Shares, at an issue price of RMB3.28 per share, under this issue are subject to a lock-up period of 36 months from the completion date of the issueusing member points. In 2020, we actively expanded financing channels and are expected to be listed on April 17, 2016.
On June 21, 2013, we completed the issuance of new H Shares. A total of 698,865,000 new H Shares were issued at the price of HK$2.32 per share, to CES Global.
On October 29, 2013, the Board of Directors resolved and approved that the Company inject RMB36 million into CES Media.
On July 17, 2014, Eastern Air Overseas (Hong Kong) Corporation Limited (“EAO”) our wholly-owned subsidiary, and Jetstar Hong Kong Airways Limited (“Jetstar Hong Kong”), an associated company of the Company, entered into a loan agreement, pursuant to which EAO will provide a loan of US$60 million to Jetstar Hong Kong at fair market interest rates. The principal of the loan was repaid on April 30, 2015.
On August 15, 2014, Shanghai Airlines Tours, our wholly-owned subsidiary, entered into an equity transfer agreement with Eastern Tourism, pursuant to which, Shanghai Airlines Tours acquired 72.84% equity interest in Shanghai Dongmei from Eastern Tourism with consideration of RMB32,147,700. This acquisition has been completed and Shanghai Dongmei has become our indirect holding company.
On December 22, 2014, our Company, CEA Holding and CES Finance (as shareholders of Eastern Air Finance agreed to inject a total of RMB1,500 million into Eastern Air Finance in proportion accordingRMB77.2 billion of super short-term debentures and RMB2 billion of corporate bonds to their respective shareholding in Eastern Air Finance. In February 2015, we contributed apro-rata amount of RMB375 million in cash.
On March 29, 2015, China United Airlines, our wholly-owned subsidiary, fully adopted thelow-cost carrier service model.
On May 30, 2015, we received approval from the Ministry of Industry and Information Technology to offerin-flightWi-Fi services usingKU-band satellite onboard 21 aircraft.
On July 9, 2015 we entered into the B737 Aircraft Purchase Agreement with Boeing Company in Shanghai to purchase fifty B737 series aircraft from Boeing Company.
On July 27, 2015, we entered into a conditional subscription agreement (“Subscription Agreement”) with Delta Air Lines, Inc. (“Delta Air Lines”), pursuant to which Delta Air Lines agreed to subscribe for 465,910,000 shares of the newly issued ordinary H shares of the Company in an amount of HK$3,488,895,000, representing approximately 3.5% of the total share capital of the Company. On September 9, 2015, we completed the issue of 465,910,000 ordinary H shares to Delta Airlines, with a par value of RMB1.00 each at an issue price of HK$7.49 per share.
On August 14, 2015, the Board of Directors approved the “Resolution on the Termination of the Proposed Establishment of Jetstar Hong Kong and its Winding Up”. The Board of Directors considersensure that the termination of the proposed establishment of Jetstar Hong Kong will have no material adverse impact on the financial conditions and production andcash flow can meet our operation of the Company.
On August 28, 2015, we formally established the foreign airlines service center.
On September 1, 2015, Delta Air Lines and we entered into a marketing agreement and a letter of confirmation on the Subscription Agreement. Pursuant to the marketing agreement, both parties will have greater cooperation in terms of code-share, revenue management, schedule coordination, sales cooperation, airport facilities sharing, frequent-flyer program, lounge and system investment as well as staff exchange. Pursuant to the letter of confirmation on the Subscription Agreement, as of September 1, 2015, all conditions precedent to the Subscription Agreement had been fulfilled except for those conditions that will be fulfilled on the completion date of share subscription. On September 9, 2015, we completed the issue of 465,910,000 ordinary H shares with a par value of RMB1.00 each at an issue price of HK$7.49 per share.
On November 6, 2015, the Civil Aviation Administration of China officially announced and granted the “Safe Flight Diamond Award”, the highest award for flight safety in the PRC civil aviation industry, to the Company.
In January 2016, we received the “Approval for theNon-Public Issuance of A Shares by China Eastern Airlines Corporation Limited” (Zheng Jian Xu Ke [2016] No. 8) issued by the CSRC, approving us to issue not more than 2,329,192,546 A Shares by way ofnon-public issuance.
On February 8, 2017, we completed the transfer of 100% equity interest in Eastern Logistics to Eastern Airlines Industry Investment and the nine freighters operated by China Cargo Airlines ceased to be included in our fleet.
On November 16, 2017, EAO issued corporateSGD-denominated guaranteed bonds in an amount of SGD500,000,000 at 2.8% due 2020, which was listed on the Hong Kong Stock Exchange on November 17, 2017. The Company guaranteed the bond issue. See Note 34 to the consolidated financial statements for more information.
On March 1, 2018, we entered into contractual operation agreement and operation cost agreement with China Cargo Airlines, pursuant to which, China Cargo Airlines (as contractor) will operate the bellyhold space business and reimburse the contractual fee to us, and we will reimburse the operation cost of the bellyhold space business to China Cargo Airlines.
On March 9, 2018, the Company issuedJPY-denominated credit enhanced bonds (Series 1 JPY10,000,000,000 0.33% Bonds due 2021, Series 2 JPY20,000,000,000 0.64% Bonds due 2021 and Series 3 JPY20,000,000,000 0.64% Bonds due 2021), which was listed on the professional oriented TOKYOPRO-BOND Market of the Tokyo Stock Exchange on March 19, 2018. See Note 49 to the consolidated financial statements for the issuance of JPY bonds.needs.
The material development of our indebtedness is set out in Note 34 and Note 4936 to the consolidated financial statements. The capital expenditure is set out in Item 5 in this Annual Report.
The SEC also maintains a website at http://www.sec.gov that contains reports, proxy statements and other information regarding issuers that file electronically with the SEC. We maintain our own website at http://www.ceair.com.
B. Business Overview
We were one of the three largest air carriers in China in terms of several indicators including number of passengers carried, ATK and ASK in 20172020 and is an important domestic airline based in and serving Shanghai, which is considered to be the international financial and shipping center of China. The primary focus of our business is the operation of civil aviation, including the provision of passenger, cargo, mail delivery, tour operations and other extended transportation services.
We operate most of our flights through our three hubs located in eastern, northwestern and southwestern China, namely Shanghai, Xi’an and Kunming, respectively. With Shanghai as our core hub and Xi’an and Kunming as our regional hubs, we believe that we will benefit from the level of development and growth opportunities in eastern, northern and western China as a whole by providing direct services between various cities in those regions and between those regions and other major cities in China. We have steadily fostered the construction of a flight system for these core hubs by introducing new flight destinations and increasing the frequency of certain flights, thereby enhancing our transfer and connection capability in these hub markets. With the commencement of operation of Beijing Daxing International Airport in 2019, Beijing Daxing International Airport also becomes one of our core hubs. With dual core hubs in both Shanghai and Beijing, we believe that we are better positioned to further strengthen our hub network and accommodate market demands.
Our domestic routes contributed approximately 65.7%82.0% of our total passenger revenues in 2017.2020. Our most heavily traveled domestic routes generally link Shanghai to the large commercial and business centers of China, such as Beijing, Guangzhou and Shenzhen. We have set up subsidiaries in 15 provinces and cities including Shanghai, Beijing, Yunnan, Shaanxi, Jiangsu, Zhejiang, Anhui, Jiangxi, Shandong, Hubei, Shanxi, Gansu, Sichuan, Hebei and Guangdong by the end of 2017. Our flight routes include all provincial capital cities in China and specifically designated cities. In 2017, we opened new routes including routes to Cebu, Jakarta from Shanghai Pudong and to Prague from Xi’an, and cancelled routes to Bangkok from Zhengzhou and Jeju from Beijing. As of December 31, 2017,2020, we served a route network that covers 1,0741,036 domestic and foreign destinations in 177170 countries through SkyTeam, an international airlines alliance.
Our passenger traffic volume (as measured in revenue passenger-kilometers, or RPKs) increaseddecreased by 9.3%51.6% from approximately 167,529221,779 million in 20162019 to approximately 183,182107,273 million in 2017. As we transferred 100% equity interest in Eastern Logistics to Eastern Airlines Industry Investment in February 2017, our2020. Our cargo and mail traffic volume (as measured in revenue freight tonne-kilometers, or RFTKs) decreased by 45.4%26.0% from approximately 4,8752,971 million in 20162019 to approximately 2,6632,200 million in 2017 under the basis that our operating data in 2016 include our whole cargo freight data during the period from February to December 2016 (“undernon-comparable basis”). Our cargo and mail traffic volume (as measured in revenue freight tonne-kilometers, or RFTK) increased by 6.7% from approximately 2,495 million in 2016 to approximately 2,663 million in 2017 under the basis that our operating data in 2016 did not include our whole cargo freight data during the period from February to December 2016 (“under comparable basis”).2020. As a result, our traffic volume (as measured in RTKs) decreased by 4.3%48.0% from approximately 19,71322,518 million in 20162019 to approximately 18,85611,700 million in 2017 under thenon-comparable basis and increased by 8.8% from approximately 17,333 million in 2016 to approximately 18,856 million in 2017 under the comparable basis.2020.
Awards
We have received many awards, recognitions and accolades through the years. Fortune Magazine recognized us as one of
In 2020, we withstood the “Most Innovative PRC Companies” in 2011, and our “China Eastern Airlines” brand was awarded “China’s Famous Trademark”challenges brought by the State Administration for IndustryCOVID-19 pandemic and Commerce in 2011. In addition, in 2012 we received various recognitions and awards, including “Golden Tripod Prize”, which was the highest award awarded at the 8th Annual Meeting of China’s Securities Market, “Golden Bauhinia” Award for “The Listed Company with Best Brand Value 2012” by China Securities, “2012 BestMid-Cap Company and Best Managed Company in China” by Asiamoney Magazine, “Top 50 Most Valuable Chinese Brands” by WPP, a global brand communication and public relations firm, “2012 TOP 25 CSR (Corporate Social Responsibility) Ranking” by Fortune China Magazine, “2012 China State-owned Listed Enterprise Social Responsibility Rankings Top 20” by Southern Weekly, “The Best Board of Directors of State-owned Listed Holding Companies of China Top 20” by various major financial media, including Moneyweek, “Healthy China – Best Employee Health & Benefit Unit” by Health Times, a major newspaper in China focusing on health and lifestyle, and Tsinghua University, “Internal Audit Leading Enterprises in terms of Risk Management and Internal Audit” by China Institute of Internal Audit, “Best 100 Employers” by zhaopin.com, a major online recruiting website in China, and “The World’s Most Improved Airline” by SKYTRAX, a United Kingdom-based aviation research organization. In 2013, we receivedachieved constructive results. At the National 1 May Award CertificateCommendation Conference for Fighting the COVID-19 Pandemic in 2020, we were awarded honorary titles including “National Advanced Group in Fighting the COVID-19 Pandemic”, “National Advanced Individual in Fighting the COVID-19 Pandemic” and were honored as one of the “2013 Top Ten Companies with the Best Corporate Social Responsibility” by Fortune China Magazine, “BestMid-cap Company” by Hong Kong Asiamoney Magazine for the second consecutive year, “Top 50 Most Valuable Chinese Brands in 2013” by WPP, a global brand communication“National Advanced Primary Party Organisation”, and public relations firm, the “Golden Bauhinia Award” of the “Best Listed Company” and “Listed Company with the Best Investor’s Relations Management” by Ta Kung Pao and one of the “Best 100 Employers” by zhaopin.com. In 2014, our charity campaign “Love at China Eastern Airlines” was awarded the Gold Award atmost number of national-level advanced commendations for the First Chinese Young Volunteers Services Contest. The “Love at China Eastern Airlines” campaign has organized activities such as visiting welfare and nursing homes, subsidizing Hope Schools and schools for urban and rural migrant workers’ children and teaching school children with hearing and speaking impairment, running blood donation programs, and other activities for environmental protection. The campaign launched 5,179 projects with 274,979 staff and members taking participation, serving a total of 233,353 peopleCOVID-19 pandemic prevention among entities in need. Through interaction with the community, we have established a charity brand image of “delivering love and serving the community”.civil aviation system in China. In 2015, “Love at China Eastern Airlines” launched 530 projects all year round, with 26,119 staff participating, serving a total of 40,166 people.
In 2014,2020, we were recognized as “Top 50 Most Valuable Chinese Brands” by WPP, a global brand communication firm, as well as being awarded the “China Securities Golden Bauhinia Award” and ranked firstselected as the “Best Listed Company Award” by Ta Kung Pao“2020 Golden Bee Corporate Social Responsibility • China List” for our outstanding performance in Hong Kong for three consecutive years; and ranked among top 10 in terms of “Most Competitive Asia Airline 2014” and “Most Popular Asia Airline 2014” in the 5th World Airline Competitiveness Rankings.
In 2015, we were bestowed a number of awards, such as “Best China Airline” at the 8th TTG (Asia Media) China Travel Awards, “China Securities Golden Bauhinia Award – Listed Company with the Most Valuable Brand” for four consecutive years and “Best Innovative Listed Company” granted by Hong Kong Ta Kung Pao, as well as “2014-2015 Most Respectable Chinese Enterprise” and “2015 Chinese Best Business Model Innovation Award” by the Economic Observer and 21st Century Business Herald, respectively.
In 2016, we successively won the 9th TTG China Tourism Awards “Best China Airlines”, and were awarded “2016 Asian Tourism Red Coral Award – Most Popular Airline Brand”, “Asia Pacific 2016 Excellence Aviation Award” and “International Carbon Gold Award – Social Citizenship Award” by the 2016 Asian Tourism Industry Annual Conference, the CAPA Communication Center and the World Environmental Protection (Economy and Environment) Conference respectively.
In 2017, we were awarded the “International Carbon-Value Award – Social Citizen Award” by the World Economic and Environmental Conferencesocial responsibility and were rated as a “Targeted Poverty Alleviation Demonstration“Golden Bee Enterprise” by the World Charity Forum. We were granted “China Securities Golden Bauhinia Award” for six consecutive years, recognized as one; MSCI assigned us an ESG rating of the “Top 30 Most Valuable Chinese Brand” by Wire & Plastic Products Group (WPP), the world’s largest brand communication group. We were also awarded as one of the “World’s 500 Most Valuable Brands” by the famous brand appraisal organization Brand Finance, “Gold Ranking” accredited by IATA, and awards such as “Feike Travel Awards”, “Best Employer Award in Aviation Industry”, “The Most Admired Company in China”, “Top 10 Influencing Airlines”, “Top 50 Chinese Brand with Overseas Social Influence” and “The Best Performing Airline” by various authoritative institutions.A.
Our Operations by Activity
The following table sets forth our traffic revenues by activity for each of the years ended December 31, 2015, 20162018, 2019 and 2017:2020:
| Year Ended December 31, | ||||||||||||
| 2015 | 2016 | 2017 | ||||||||||
| (RMB million) | (RMB million) | (RMB million) | ||||||||||
Traffic revenues | ||||||||||||
Passenger | 78,585 | 83,577 | 91,564 | |||||||||
Cargo and mail | 6,491 | 5,977 | 3,623 | |||||||||
Total traffic revenues | 85,076 | 89,554 | 95,187 | |||||||||
Traffic revenues Passenger Cargo and mail Total traffic revenues Year Ended December 31, 2018 2019 2020 (in RMB millions) 104,309 110,416 49,215 3,627 3,826 4,895 107,936 114,242 54,110
Passenger Operations
The following table sets forth our certain passenger operating statistics by route for each of the years ended December 31, 2015, 20162018, 2019 and 2017:2020:
| Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||||||
| 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | |||||||||||||||||||
Passenger Traffic (in RPKs) (millions) | 146,341 | 167,529 | 183,182 | 201,486 | 221,779 | 107,273 | ||||||||||||||||||
Domestic | 98,304 | 106,361 | 117,033 | 128,906 | 142,921 | 96,206 | ||||||||||||||||||
Regional (Hong Kong, Macau and Taiwan) | 4,189 | 4,347 | 4,758 | 5,289 | 5,046 | 458.0 | ||||||||||||||||||
International | 43,848 | 56,821 | 61,391 | 67,290 | 73,812 | 10,609 | ||||||||||||||||||
Passenger Capacity (in ASKs) (millions) | 181,792 | 206,249 | 225,996 | 244,841 | 270,254 | 152,066 | ||||||||||||||||||
Domestic | 121,019 | 129,460 | 141,067 | 154,059 | 171,684 | 134,702 | ||||||||||||||||||
Regional (Hong Kong, Macau and Taiwan) | 5,509 | 5,612 | 5,948 | 6,374 | 6,408 | 902 | ||||||||||||||||||
International | 55,264 | 71,177 | 78,981 | 84,408 | 92,162 | 16,463 | ||||||||||||||||||
Passenger Yield (RMB) | 0.56 | 0.52 | 0.52 | 0.54 | 0.52 | 0.49 | ||||||||||||||||||
Domestic | 0.55 | 0.53 | 0.54 | 0.56 | 0.54 | 0.46 | ||||||||||||||||||
Regional (Hong Kong, Macau and Taiwan) | 0.75 | 0.71 | 0.72 | 0.73 | 0.74 | 0.90 | ||||||||||||||||||
International | 0.56 | 0.47 | 0.47 | 0.49 | 0.47 | 0.82 | ||||||||||||||||||
Passenger Load Factor (%) | 80.50 | 81.23 | 81.06 | 82.29 | 82.06 | 70.54 | ||||||||||||||||||
Domestic | 81.23 | 82.16 | 82.96 | 83.67 | 83.25 | 71.42 | ||||||||||||||||||
Regional (Hong Kong, Macau and Taiwan) | 76.04 | 77.45 | 79.99 | 82.99 | 78.75 | 50.79 | ||||||||||||||||||
International | 79.34 | 79.83 | 77.73 | 79.72 | 80.09 | 64.44 | ||||||||||||||||||
In 2015, we conducted significant optimization of2018, our fleet structure,size, number of flights and increasednumber of users with “in-flight internet connection” ranked the first in China. We actively sought to establish an in-flight internet joint venture with telecom operators to reinforce and enhance our first-mover advantage in the inflight internet connection business. We continuously optimized the customers’ experience on our official website and mobile application, added and optimized important functions such as pre-flight ordering of in-flight meals and publication of information regarding unusual flights. We have vigorously promoted the establishment of overseas e-commerce platform, launched 14 new overseas websites and introduced value-added products such as oversized baggage check-in, VIP lounges and online seat selection. We strengthened the operation of points mall, enriched point redemption products, and optimized the points payment function.
In 2018, we introduced a total of 67 aircraft of major models and a total of 14 aircraft retired. With the introduction of new aircraft, such as A350-900, B787-9 and A320NEO, and the retirement of B767 aircraft, our fleet to 551 aircrafts as of the end of 2015, and the variety of our aircraft models was streamlined to 13 models by the end of 2015. In respect of passenger transportation, we actively seized the opportunities brought about by international low oil prices and robust demand for outbound tourism, and achieved impressive growth in passenger transportation by responding proactively to adverse factors such as geopolitical instability around the globe, terrorist attacks outside China, MERS cases in South Korea and impact on short-haul routes due to formation of a high-speed railway network in 2015. Efforts haveage has been made to foster the constructionyounger. As of hubsDecember 31, 2018, we operated a fleet of 692 aircraft, which included 680 passenger aircraft and negotiate time slots in hub and core markets in order to promote superb connectivity. In respect of freight transportation and logistics, we tightened our cost control, optimized production structure, broadened marketing channels and strived to stabilize transportation prices in 2015. In 2015, we further strengthened12 business aircraft held under trust. We continuously intensified our cooperation with both member andnon-member airlines of SkyTeam Alliancestrategic partners to widenenrich the scope ofcontents for cooperation and improveenhance the quality of cooperation. In September 2015,Delta Air Lines and we continued to intensify bilateral cooperation in four aspects, namely, revenue from cooperation (including mutual sales revenue and revenue from SPA (special allocation agreements)), experience of travelers, communication between personnel and cooperation for expansion and development. We entered into a strategic partnershipnew cooperation agreement with Delta Air LinesFrance-KLM, pursuant to deepen our cooperation in terms of code-share, cabin sharing and joint sales. By forming an industry-leading route network, both parties implemented codeshare on 123 routes, including 9 international major routes and 114 domestic routes in the PRC and the USA. Through offering joint sales to corporate customers, the influential power of the North American corporate customers was increased. As for the European market, we and Air France have realized interline transit services for flights departing and arriving at Shanghai, Dalian, Paris and Nice. In the Australian market, the joint operation with Qantas was officially commenced to launch codeshare on majorwhich, additional routes such as Shanghai-SydneyKunming-Paris and Shanghai-Melbourne routes, in order to launchin-depth cooperative projects including customer base sharing.
In 2015, we put in available seat – kilometers (ASK) of approximately 181,792.90 million passenger-kilometers, representing an increase of approximately 13.2%Wuhan-Paris were operated jointly commencing from 2014. Number of passengers carried in 2015 was approximately 93.8 million, representing an increase of approximately 11.9% from 2014. Passenger load factor in 2015 was approximately 80.5%, representing an increase of approximately 1.2% from 2014. Passenger revenue in 2015 amounted to approximately RMB78,585 million, representing an increase of approximately 4.4% from 2014.
In 2015, we enhanced Shanghai core hub and Xi’an and Kunming regional hubs, and established and extended our aviation transportation network in major markets with high market influence such as Beijing, Nanjing and Qingdao to cover 1,057 destinations in 179 countries.January 1, 2019. We strove for additions of air traffic rights and time slot resources in hub markets and core markets, steadily improved the aircraft utilization rate and consolidated and expanded market share in the three largest hubs and core markets. Based on the SkyTeam Alliance platform, we enhanced our strategic cooperationworked with Delta Air Lines and cooperatedAir France-KLM to carry out the plan for network optimization connection, as well as ground service and procedure standards for Beijing Daxing International Airport. By entering into a comprehensive and upgraded business agreement with Air France and Qantas to develop a highly efficient and convenient flight network which coveredAirways Limited, we intensified the whole country and connected to the whole wide world.
In 2016, we continued to update and optimize our fleet structure, introducing new aircrafts continually and retiring outdated model aircrafts. Asbusiness partnership of the end of 2016, our average flight age was 5.4 years. We mainly introduce long – haul B777 series aircrafts in trans-Pacific routes;mid-to-long-haul A330 series aircrafts in China-Europe routes, China-Australia and domestic business routes; A320 series and B737 series aircrafts in domestic and surrounding countries and regions routes, which we believe enhances the matching level between fleet models and routes, transportation capacities and relevant markets. In 2016, we continued to deepen and expand our cooperation with external partners. Relyingboth parties based on the SkyTeam Alliance platform, we continued to enhance ouroriginal joint partnership. We has signed a joint cooperation agreement with member airlines inJapan Airlines Co., Ltd. (“Japan Airlines”), and both parties are performing the SkyTeam Alliance. In collaboration with Delta Air Lines, based onpre-existing trans-Pacific routesrelevant anti-monopoly legal procedures of China and destinations in the PRC and the USA, we further extended our network of cooperative routes to Canada, Mexico, Southeast Asian and South American regions, achieving a total of 252 codeshare routes. In collaboration with AirFrance-KLM Group (“AirFrance-KLM”), based on our jointly operated routes and code-share coverage, we increased our joint marketing efforts to corporate customers in the French market.Japan.
In 2016, we proactively promoted2018, our market share (in terms of passenger throughput) in hubs such as Shanghai, Beijing and Kunming increased by 0.6, 0.4 and 0.8 percentage point, respectively, while our market share in Xi’an remained the establishmentsame year-on-year. Through the optimization of transportation hubs with the opening of various international routes for long-haul flights and an enhanced coverage of our transportation network. With Shanghai as the core hub, we added six international routes for long-haul flights to our network, connecting Shanghai and Prague, Amsterdam, Madrid, St. Petersburg, Chicago and Brisbane, respectively. We provided more frequent flight services on routes connecting Shanghai and New York City, Los Angeles, Sydney and Melbourne. We added routes connecting Kunming and Sydney, Qingdao and San Francisco, Nanjing and Vancouver and Hangzhou and Sydney. Last, we stabilized the allocation of our flight capacities for Japan, Korea and Southeast Asia markets. As a result of these enhanced transit connection, and expanded transit routes structures, in 2016, we experienced approximately 26.8%, 63.8% and 43.1%year-on-year growth in passenger flight capacity for Europe, North America and Australia markets, respectively; and our inter-airline transit volume and revenue grew by 24.2% and 21.4%, respectively. Asthe effect of the end of 2016, by connecting to the route networks of other SkyTeam member airlines, our flights had access to 1,062 destinations in 177 countries.
In 2016, we put in available seat – kilometers (ASK) of approximately 206,249.27 million passenger-kilometers, representing an increase of approximately 13.5% from 2015. Number of passengers carried in 2016 was approximately 101.74 million, representing an increase of approximately 8.5% from 2015. Passenger load factor in 2016 was approximately 81.2%, representing an increase of approximately 0.7% from 2015. Passenger revenue in 2016 amounted to approximately RMB83,577 million, representing an increase of approximately 6.4% from 2015.
In 2016, we further strengthened our Shanghai core hub and Xi’an and Kunming regional hubs. The aggregated number of transits connecting “origin to destination” of the three hubs reached 6,075, an increase of 13.8% as compared to 2015.network has gradually appeared. In respect of the number of transits connecting “origin to destination”, Pudong reached 4,083,4,614, representing an increase of 17.9%9.2% as compared to 2015,2017; Kunming reached 1,384,1,793, representing an increase of 9.1%11.5% as compared to 2015, and2017; Xi’an reached 608, which was similar to 2015. The three hubs transported approximately 4.51 million passengers,739, representing an increase of 27.0%12.7% as compared to 2015. Among them, our Shanghai hub transported approximately 2.99 million passengers,2017; and Beijing reached 751, representing an increase of 27.2%1.0% as compared to 2015, comprising 25.6% of transit flights; our Kunming hub transported approximately 1.18 million passengers, an increase of 18.7% as compared with 2015, comprising 16.1% of transit flights; and Xi’an hub transported approximately 340,000 passengers, an increase of 64.7% as compared to 2015, comprising of 6.9% transit flights.2017.
In 2017, in view of a relatively complicated external environment and intensifying competition, we embrace challenges by seizing new development opportunities such as the “One Belt One Road” initiative, free trade port in Shanghai, the construction of the new airport in Beijing and the full access to electronic devices on aircraft.
According to the “Approval of the feasibility study report of the construction of new airport in Beijing” by the NDRC and the “Notice regarding the matters of the construction of airline base project at the new airport in Beijing” by CAAC, the new airport in Beijing is located along the north bank of Yongding River, and between Yu Fa Town and Li Xian Town, Daxing District, Beijing and Guangyang District, Lang Fang, Hebei. Being the major base airline of the new airport in Beijing, we will undertake base construction according to the target of bearing 40% of the traffic flow of the new airport in Beijing. In February 2017, we have gained the approval from the NDRC in regards of the base project at the new airport in Beijing. After the commencement of operation of the new airport in Beijing in 2019, we will grasp the developmental opportunities derived from the coordinated development of Beijing, Tianjin and Hebei, especially the construction of Xiong’an New District by the State, to actively strive for routes and time slot resources. Leveraging on the SkyTeam Airline Alliance platform, we will construct international coverage of our route networks to provide convenient, highly efficient and quality outbound travelling services for travelers.
In 2017, we focused on the operation and development of the passenger transportation business. We continued to optimizee-commerce platform functions. Fore-commerce, we expedited the construction of ourin-flight internet connection platform. The scale of the aircraft fleet withWi-Fi installed ranked at the top nationwide and we took the lead in allowing the use of portable electronic devices on flight in the PRC. As at the end of 2017, internet access has become available in all our 74 wide-body aircraft with the coverage of major business routes in Europe, the U.S., Australia and China. “Internet Access In the Air” enhanced customers’in-flight experience. We also upgraded and improved our 11 overseas websites, and a total of 12 updates were made to our mobile application. Furthermore, we introduced new service products such aspre-flight ordering ofin-flight meals via mobile application, with an aim to optimize service experiences of customers. We strengthened the shopping mall points operations by introducing diversified point redemption products such as oversized baggage redemption and continued to increase the revenue from the sales ofnon-aviation points, where the revenue from the sales of nonaviation points increased by 149% compared to last year.
In 2017, we continued to optimized our fleet structure. We introduced a total of 73 aircraft of major models and a total of 18 aircraft retired. With the introduction of B737-8MAX series aircraft and the gradual retirement of B767 series aircraft, our fleet structure has been made younger. In 2017, we continued to deepen and expand our cooperation with external partners. We deepened the comprehensive partnership with Delta by further expanding the code-share coverage and jointly deepened marketing cooperation by expanding channels and markets. We also strengthened our business partnership with AFK by further expanding our code-share coverage with it. Capitalized on the cooperation platform of SkyTeam Airline Alliance, we have newly launched code-share cooperation with Air Europa Líneas Aéreas, S.A.U. (IATA code: UX) from Spain and Czech Airlines j.s.c. (IATA code: OK). In addition, we attached importance to and continued to strengthen the cooperation with airlines which are not members of SkyTeam Airline Alliance. In collaborating with Qantas Airways Limited (IATA code: QF), we launched enhanced cooperation in joint operation and sales, and points earning and redeeming of frequent flyer program. We commenced to launch code-sharing cooperation with Jet Airways (India) Ltd. (IATA code: 9W) and Air Mauritius Limited (IATA code: MK), and discussion on bilateral cooperation of frequent flyers with WestJet Airlines Ltd. (IATA code: WS).
In 2017, we strengthened the research on the route network planning of Beijing’s new hub, and actively promoted the construction project of our base in the new airport in Beijing. We conducted seasonal improvements and adjustments on transportation capacity, and introducedBeijing-Hangzhou-Sydney, Kunming-Sydney and Wuhan-Sydney routes in accordance with the characteristics of European, American and Australian markets in recent years. In view of the changing demand for the Korean market, we reduced transportation capacity and changed to use smaller aircraft. We also introduced routes such as Shanghai-Jakarta, Shanghai-Cebu,Xi’an-Prague andShenzhen-Krabi so as to be in line with the State’s “One Belt One Road” initiative. As at the end of 2017, with the matching route networks with the SkyTeam Airline Alliance members, our route networks reached 177 countries and 1,074 destinations.
In 2017,2018, we put in available seat – kilometers (ASK) of approximately 225,996244,841 million passenger-kilometers, representing an increase of approximately 9.6%8.3% from 2016.2017. Number of passengers carried in 20172018 was approximately 111121 million, representing an increase of approximately 8.9%9.4% from 2016.2017. Passenger load factor in 20172018 was approximately 81.1%82.3%, representing a decreasean increase of approximately 0.171.2 percentage pointpoints from 2016.2017. Passenger revenue in 20172018 amounted to approximately RMB91,564RMB104,309 million, representing an increase of approximately 9.6%13.9% from 2016.2017.
In 2017,2019, we further strengthenedintroduced a total of 44 aircraft of major models and one aircraft retired. With the introduction of new aircraft, such as A350-900, B787-9 and A320NEO, our fleet age structure has remained young. As of December 31, 2019, we operated a fleet of 734 aircraft, which included 723 passenger aircraft and 11 business aircraft held under trust. We have intensified our comprehensive cooperation with strategic partners and core partners to improve the capacity of international routes and enhance the quality of cooperation. For the core markets of Shanghai and Beijing, leveraging on the operation of the satellite terminal S1 of Shanghai Pudong International Airport (the “Satellite Terminal S1 of Pudong”) and Beijing Daxing International Airport, we worked with SkyTeam Airline Alliance members and other important partners to carry out the plan for route network optimization connection, as well as the development of ground service procedure and standards, explore ground operating cooperation opportunities, design passenger travel plan portfolio products and continue to expand the scope of code-sharing. As of the end of 2019, our codesharing covered 347 flight route destinations, 1,007 routes and 4,617 flights. For the North American market, we and Delta Air Lines started to operate in the same terminal in Satellite Terminal S1 of Pudong and recorded increase in revenue from cooperation. For the European market, we have expanded joint operation routes with Air France-KLM by adding new routes from Kunming and Wuhan to Paris, and intensified the cooperation in the aspects such as transfer mode of connected flights, corporate clients and joint sales. For the Australian market, our in-depth cooperation with Qantas Airways Limited in the areas of code-sharing, allocation of flight capacity, joint marketing, resources sharing and personnel exchange has driven the growth in mutual sales revenue from cooperation. For the Asia Pacific market, we continued to facilitate the anti-monopoly approval procedures for the joint cooperation with Japan Airlines and deepened the cooperation in the areas of route network and flight capacity sharing with Japan Airlines to strengthen our market position in Japan routes.
In 2019, we have focused on the core hubhubs of Beijing and Shanghai, and the regional hubs such as Xi’an and Kunming regional hubs.to continuously optimize our route network layout and flight capacity allocation so as to strengthen the our market share and influence. In 2019, our market shares in hubs such as Shanghai, Beijing, Kunming and Xi’an were 40.6%, 18.3%, 37.2% and 29.4%, respectively. Through the scientific matching of routes and flight capacity and the optimization of transit connection procedures, the effect of hub network has gradually appeared. The aggregated number of transits connecting “origin to destination” of the three hubs, reached 6,489, annamely Shanghai Pudong, Xi’an and Kunming, significantly increased by 11.6%, 34.4% and 9.9%, respectively. The transit passengers of the three hubs, namely Shanghai Pudong, Kunming, and Xi’an amounted to 3,488,000 passengers, 1,658,000 passengers and 580,000 passengers, respectively, representing a year-on-year increase of 6.8% as compared to last year. 11.1%, 3.0% and 7.8%, respectively.
In respect2019, we put in available seat – kilometers (ASK) of the number of transits connecting “origin to destination”, Pudong reached 4,225, an increase of 3.5% as compared to last year, Kunming reached 1,608, an increase of 16.2% as compared to last year, and Xi’an reached 656, an increase of 7.9% as compared to last year. The three hubs transported approximately 4.98270,254 million passengers,passenger-kilometers, representing an increase of approximately 10.5% as compared to last year. Among them, our Shanghai hub transported10.4% from 2018. Number of passengers carried in 2019 was approximately 3.02130 million, passengers,representing an increase of approximately 1.2%7.5% from 2018. Passenger load factor in 2019 was approximately 82.06%, remaining relatively stable as compared to last year, comprising 24.3% of transit flights; our Kunming hub transported2018. Passenger revenue in 2019 amounted to approximately 1.45RMB110,416 million, passengers,representing an increase of approximately 22.7%5.9% from 2018.
In 2020, we introduced a total of 13 aircraft of major models and a total of 11 aircraft retired. With the introduction of new aircraft, such as comparedA350-900, B787-9 and A320NEO, our fleet age structure still continues to remain young. As of December 31, 2020, we operated a fleet of 734 aircraft, which included 725 passenger aircraft and nine business aircraft held under trust.
In 2020, we have closely followed the situation of the COVID-19 pandemic and market changes to dynamically adjust the deployment of transportation capacity. To improve our route network and the establishment of our core hubs, we paid special attention to adjusting our capacity; we paired core hubs and important business cities with more wide-body aircraft; we optimized our route network layout and focused on the construction of express and quasi express routes in key markets; we continued to faciliate the construction of the core hub of Beijing and moved our base to Beijing Daxing International Airport; we steadily promoted construction of hubs in important business markets such as Chengdu, Qingdao and Wuhan.
Due to the adverse impact of the COVID-19 pandemic, our production volume, revenue, profit and other indicators all dropped significantly. In 2020, our passenger revenue amounted to RMB49,215 million, representing a decrease of 55.4% from last year, comprising 17.7%and accounted for 91.0% of transit flights; and Xi’an hub transported approximately 0.51our traffic revenue. The passenger traffic volume was 107,273 million passengers,passenger-kilometres, representing a decrease of 51.6% from last year. Meanwhile, our cargo traffic revenues amounted to RMB4,895 million, representing an increase of approximately 50.3% as compared to27.9% from last year, comprisingand accounted for 9.0% of 8.6% transit flights.our traffic revenue. The cargo and mail traffic volume was 2,200 million tonne-kilometres, representing a decrease of 26.0% from last year. Our other revenue amounted to RMB4,617 million, representing a decrease of 31.5% from last year.
Cargo and Mail Operations
We also provide air cargo and mail services. The following table sets forth certain of our cargo and mail operations statistics by route for each of the years ended December 31, 2015, 20162018, 2019 and 2017:2020:
| Year Ended December 31, | ||||||||||||||||||||||||||||
| 2015 | 2016 | 2016 | 2017 | Year Ended December 31, | ||||||||||||||||||||||||
| (Non-comparable basis)(1) | (Comparable basis) (2) | 2018 | 2019 | 2020 | ||||||||||||||||||||||||
Cargo and Mail Traffic (in RFTKs) | 4,865 | 4,875 | 2,495 | 2,663 | 2,588 | 2,971 | 2,200 | |||||||||||||||||||||
(millions) | ||||||||||||||||||||||||||||
Domestic | 948 | 964 | 927 | 896 | 886 | 951 | 774 | |||||||||||||||||||||
Regional (Hong Kong, Macau and Taiwan) | 126 | 126 | 38 | 45 | 35 | 29 | 9 | |||||||||||||||||||||
International | 3,791 | 3,786 | 1,530 | 1723 | 1,667 | 1,991 | 1,416 | |||||||||||||||||||||
Cargo and Mail Capacity (in AFTKs) | 8,842 | 9,440 | 6,535 | 7,057 | 7,901 | 9,133 | 6,946 | |||||||||||||||||||||
(millions) | ||||||||||||||||||||||||||||
Domestic | 2,337 | 2,221 | 2,163 | 2,278 | 2,741 | 3,216 | 2,755 | |||||||||||||||||||||
Regional (Hong Kong, Macau and Taiwan) | 281 | 270 | 148 | 188 | 191 | 189 | 42 | |||||||||||||||||||||
International | 6,224 | 6,949 | 4,224 | 4,592 | 4,969 | 5,728 | 4,150 | |||||||||||||||||||||
Cargo and Mail Yield (RMB) | 1.33 | 1.25 | 1.25 | 1.36 | 1.40 | 1.29 | 2.23 | |||||||||||||||||||||
Domestic | 1.09 | 1.07 | 1.10 | 1.10 | 1.12 | 1.05 | 0.97 | |||||||||||||||||||||
Regional (Hong Kong, Macau and Taiwan) | 3.01 | 2.98 | 3.04 | 3.56 | 5.57 | 5.56 | 8.91 | |||||||||||||||||||||
International | 1.34 | 1.24 | 1.30 | 1.44 | 1.47 | 1.34 | 2.87 | |||||||||||||||||||||
Cargo and Mail Load Factor (%) | 55.02 | 51.64 | 38.20 | 37.70 | 32.76 | 32.54 | 31.67 | |||||||||||||||||||||
Domestic | 40.57 | 43.39 | 42.90 | 39.30 | 32.33 | 29.58 | 28.11 | |||||||||||||||||||||
Regional (Hong Kong, Macau and Taiwan) | 44.82 | 46.51 | 25.70 | 23.90 | 18.39 | 15.21 | 22.45 | |||||||||||||||||||||
International | 60.91 | 54.48 | 36.20 | 37.50 | 33.55 | 34.77 | 34.13 | |||||||||||||||||||||
Notes:
On November 29, 2016, we entered into an equity transfer agreement with Eastern Airlines Industry Investment, in relation to the transfer of 100% equity interests in Eastern Logistics held by us to Eastern Airlines Industry Investment. China Cargo Airlines a non-wholly subsidiary of Eastern Logistics, operated a total of nine freighters then. On February 8, 2017, we completed the transfer of 100% equity interest in Eastern Logisticshas exclusive operation to Eastern Airlines Industry Investmentindependently operate and the nine freighters operated by China Cargo Airlines ceased to be included inmanage our fleet. After completion of the disposal, we will focus on air passenger transportation business and continue to improve our operating and management ability. Also, on November 29, 2016, we and Eastern Logistics entered into the freight logistics daily connected transactions framework agreement. See “ Item 7. Major Shareholders and Related Party Transactions - Related Party Transactions - Related Business Transactions - Eastern Logistics, an indirectly owned subsidiary of CEA Holding - Freight Logistics Daily Connected Transactions Framework Agreement with Eastern Logistics”.
On January 1, 2017, to avoid the competition between the bellyhold space business operated by us and the all-cargo aircraft freight business operated by China Cargo Airlines, we entered into the bellyhold space management agreement with China Cargo Airlines (“Bellyhold Space Management Agreement”) to entrust China Cargo Airlines for the operation of the bellyhold space business for a term of three years, which commenced on January 1, 2017. On March 1, 2018, we entered into contractual operation agreement and operation cost agreement with China Cargo Airlines, pursuant to which, China Cargo Airlines (as contractor) will operate the bellyhold space business and reimburse the contractual fee to us, and we will reimburse the operation cost of the bellyhold space business to China Cargo Airlines. The Bellyhold Space Management Agreement has been superseded by the contractual operation agreement dated March 1, 2018 entered into between the Company and China Cargo Airlines since March 31, 2018.cargo business.
Our Operations by Geographical Area
Our revenues (net of business tax) by geographical area are analyzed based on the following criteria:
| (1) | Traffic revenue from services within the PRC (excluding Hong Kong Special Administrative Region (“Hong Kong”), Macau Special Administrative Region (“Macau”) and Taiwan, (collectively known as “Regional”)) is classified as domestic operations. Traffic revenue from inbound and outbound services between overseas markets excluding Regional is classified as international operations. |
| (2) | Revenue from ticket handling services, ground services, cargo handling service and other miscellaneous services is classified based on where the services are performed. |
The following table sets forth our revenues by geographical area for each of the three years ended December 31, 2017:2020:
| 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | |||||||||||||||||||
| (RMB million) | (RMB million) | (RMB million) | (in RMB millions) | |||||||||||||||||||||
Domestic | 61,222 | 63,730 | 67,923 | 76,517 | 80,058 | 45,479 | ||||||||||||||||||
Regional (Hong Kong, Macau and Taiwan) | 3,569 | 3,516 | 3,624 | 4,017 | 3,846 | 489 | ||||||||||||||||||
International | 29,178 | 31,658 | 30,928 | 34,744 | 37,082 | 12,759 | ||||||||||||||||||
Total | 93,969 | 98,904 | 102,475 | 115,278 | 120,986 | 58,727 | ||||||||||||||||||
Regulation
The PRC Civil Aviation Law provides the framework for regulation of many important aspects of civil aviation activities in China, including:
| (1) | the administration of airports and air traffic control systems; |
| (2) | aircraft registration and aircraft airworthiness certification; |
| (3) | operational safety standards; and |
| (4) | the liabilities of carriers. |
The Chinese airline industry is also subject to a high degree of regulation by the CAAC. Regulations issued or implemented by the CAAC encompass virtually every aspect of airline operations, including route allocation, domestic airfare, licensing of pilots, operational safety standards, aircraft acquisition, aircraft airworthiness certification, fuel prices, standards for aircraft maintenance and air traffic control and standards for airport operations. Although the PRC airlines operate under the supervision and regulation of the CAAC, they are accorded a significant degree of operational autonomy. These areas of operational autonomy include:
the allocation of aircraft among routes;
the airfare pricing for the international and regional passenger routes;
the airfare pricing within the limit provided by the CAAC for the domestic passenger routes;
the acquisition of aircraft and spare parts;
the training and supervision of personnel; and
many other areas ofday-to-day operations.
Although we have generally been allocated adequate routes in the past to accommodate our expansion plans and other changes in our operations, those routes are subject to allocation andre-allocation in response to changes in governmental policies or otherwise at the discretion of the CAAC. Consequently, we cannot assure you that our route structure will be adequate to satisfy our expansion plans.
The CAAC has established regulatory policies intended to promote controlled growth of the Chinese airline industry. We believe those policies will be beneficial to the development of and prospects for the Chinese airline industry as a whole. Nevertheless, those regulatory policies could limit our flexibility to respond to changes in market conditions, competition or our cost structure. Moreover, while we generally benefitsbenefit from regulatory policies that are beneficial to the airline industry in China as a whole, the implementation of specific regulatory policies may from time to time materially and adversely affect our business operations.
Because we provide services on international routes, we are also subject to a variety of bilateral civil air transport agreements between China and other countries. In addition, China is a contracting state as well as a permanent member of the International Civil Aviation Organization, an agency of the United Nations established in 1947 to assist in the planning and development of the international air transportation. The International Civil Aviation Organization establishes technical standards for the international airline industry. China is also a party to a number of other international aviation conventions. Our business operations are also subject to these international aviation conventions, as well as certain foreign country aviation regulations and local aviation laws with respect to route allocation, landing rights and related flight operation regulation.
Domestic Route Rights
Chinese airlines must obtain from the CAAC the right to carry passengers or cargo on any domestic route. The CAAC’s policy on domestic route rights is to assign routes to the airline or airlines suitable for a particular route. The CAAC will take into account whether an applicant for a route is based at the point of origin or termination of a particular route. This policy benefits airlines, such as us, that have a hub located at each of the active air traffic centers in China. The CAAC also considers other factors that will make a particular airline suitable for an additional route, including the applicant’s safety record, previouson-time performance and level of service and availability of aircraft and pilots. The CAAC will consider the market conditions applicable to any given route before such route is allocated to one or more airlines. Generally, the CAAC will permit additional airlines to service a route that is already being serviced only when there is strong demand for a particular route relative to the available supply. The CAAC’s current general policy is to require the passenger load factor of one or two airlines on a particular route to reach a certain level before another carrier is permitted to commence operations on such route.
Regional Route Rights
Hong Kong routes and the corresponding landing rights were formerly derived from the Sino-British air services agreement. In February 2000, the PRC government, acting through the CAAC, and Hong Kong signed the Air Transportation Arrangement between mainland China and Hong Kong. The Air Transportation Arrangement provides for equal opportunity for airlines based in Hong Kong and mainland China. Competition from airlines based in Hong Kong increased after the execution of the Air Transportation Arrangement. The CAAC normally will not allocate an international route or a Hong Kong route to more than one domestic airline unless certain criteria, including minimum load factors on existing flights, are met. There is more than one Chinese airline company on certain of our Hong Kong routes.
The CAAC and the Economic Development and Labor Bureau of Hong Kong entered into an agreement in 2007 to further expand the Air Transportation Arrangement. This agreement increases the routes between Hong Kong and mainland China to expand coverage to most major cities in mainland China. The capacity limits for passenger and/or cargo services on most routes will also be gradually lifted. Beginning in 2007, each side designated three airline companies to operate passenger and/or cargo flights and another airline company to operateall-cargo flights on the majority of the routes between Hong Kong and mainland China. Since then, the two sides signed memorandums to further expand the Air Transportation Arrangement several times.
On December 15, 2008, mainland China and Taiwan commenced direct air and sea transport and postal services, ending a nearlysix-decade ban on regular links between the two sides since 1949. Under a historic agreement signed by the governments of mainland China and Taiwan in early November 2008, the new air links expanded from weekend charters to a daily service, withservice. According to the two sides operating a totalflight plan of 108 flights per week in 20082019-2020 winter and approximately 270 and 370 regular direct flights per week in 2009 and 2010, respectively. Mainland China and Taiwan agreed to increase flight destinations for air links between the two sides in mainland China to 33 airports in various PRC cities in 2010, while flight destinations in Taiwan continue to include eight airports in various cities in Taiwan. At the endspring season of 2012, the two sides agreed to increaseCAAC, the total number of flights to 616 per week and to increase the total number of destination airports inbetween mainland China and Taiwan to 64. The two sides also previously agreed to launch chartered cargo flights between two terminals in mainland China, namely, Shanghai Pudong and Guangzhou airports, and two terminals in Taiwan, namely, Taoyuan and Kaohsiung airports. On August 12, 2013, the two sides agreed to increase the total number of flights to 670reached 1,320 per week and add three terminals of chartered cargo flights in mainland China, namely, Tianjin, Zhengzhou and Ningbo airports. At the end of 2014, mainland China and Taiwan agreed to increase the total number of flights to 924 per week and to increase the total number of destination airports in mainland China to 65. In April 2015, the fifth batch of Mainland pilot cities was opened for individual tour to Taiwan, including Haikou, Hohhot, Lanzhou, Yinchuan, Changzhou, Zhoushan, Huizhou, Weihai, Longyan, Guilin and Xuzhou, and the number of Mainland cities with free line tour to Taiwan has reached 47.week.
International Route Rights
International route rights, along with the corresponding landing rights, are derived from air services agreements negotiated between the PRC government, acting through the CAAC, and the government of the relevant foreign country. Each government grants to the other the right to designate one or more domestic airlines to operate scheduled services between certain points within each country. The CAAC awards the relevant route to an airline based on various criteria, including:
| (1) | availability of appropriate aircraft and flight personnel; |
| (2) | safety record; |
| (3) | on-time performance; and |
| (4) | hub location. |
Although hub location is an important criterion, an airline may be awarded a route that does not originate from an airport where it has a hub.
The route rights awarded do not have a fixed expiry date and can be terminated at the discretion of the CAAC.
Airfare Pricing Policy
The PRC Civil Aviation Law provides that airfares for domestic routes are determined jointly by the CAAC and the agency of the State Council responsible for price control, primarily based upon average airline operating costs and market conditions.
The CAAC and the NDRC jointly publish pricing guidelines from time to time, which set forth the basic airfare levels and permitted ranges. Pursuant to the current pricing guidelines, the basic airfares for most domestic routes are the published airfares implemented by Chinese airlines immediately prior to the approval of the Pricing Reform Plan. Except for certain domestic routes, the actual airfare set by each Chinese airline for its domestic routes cannot be 25% than the basic airfare. Domestic routes that are not subject to the deviation range restrictions include short-haul routes between cities in the same province or autonomous region, or between a municipality and adjacent provinces, autonomous regions or another municipality. Certain tourist routes and routes served by only one Chinese airline are not subject to the bottom range restriction. The CAAC and the NDRC will announce the routes that are not subject to the deviation range restrictions through the airfare information system known as Airtis.net. Chinese airlines may apply to the CAAC and the NDRC for exemption from the bottom range restriction for a particular route. Chinese airlines are also required to file the actual airfare they set for their domestic routes within the ranges through Airtis.net 30 days prior to its implementation.
The CAAC and the NDRC will regularly review the average operating costs of Chinese airlines, and may adjust the basic airfares for particular domestic routes that, in their view, are not at a reasonable level.
The CAAC and NDRC jointly issued a notice on April 13, 2010, effective on June 1, 2010, pursuant to which airlines may set first-class and business-class airfares in accordance with market prices, subject to relevant PRC laws. Such pricing must be filed 30 days before effectiveness with the CAAC and NDRC. Efforts by the Chinese regulators to promote a sale market with fair competition will also help provide a favorable environment for our business growth.
At the end of 2014, the CAAC and the NDRC jointly promulgated The Notice on Further Improving the Problems About Civil Aviation Domestic Air Transport Price Policy, which lifted the control over the civil domestic airlines cargo freight rate and changed the prices of specific airlines from government-oriented pricing to market-oriented pricing.
At the end of 2015, the CAAC announced theImplementation Opinion on the Reform of Mechanism of Prices and Service Fee in CivilAviation Transport, which sets the goal to generally lift the control over the prices and service fee in competitive part of civil aviation transport by 2017,and to generally set up a basically optimized, scientific, standardized, transparent and market-oriented pricing regulatory system by 2020.
In October 2016, the CAAC and the NDRC jointly promulgated theCircular on the Further Reform of Passenger Transport Price Policyin Civil Aviation Domestic Air Transport, which loosened the control over the civil domestic airlines passenger transportation and changed the pricesfrom government-oriented pricing to market-oriented pricing. According to the circular, the price of routes under 800km or routes above 800km that are in competition with high-speed rails for passenger transportation can be determined independently.
At the end of 2017, the CAAC and the NDRC jointly promulgated theNotice on Further Improving the Problems about PassengerTransport Price Policy in Civil Aviation Domestic Air Transport, given greater freedom to set fares on more domestic routes.
On April 13, 2018, the CAAC issued the Notice on the Issuance of Domestic Route Directory with Market-adjusted Prices showing a total of 1,030 domestic routes implementing market adjusted ticket prices.
On November 23, 2020, the Civil Aviation Authority and the National Development and Reform Commission, jointly issued a Notice on Issues Related to Further Deepening the Reform of Transport Prices on Domestic Routes of Civil Aviation, which may greatly increase the volume of market-adjusted domestic routes, and the market price-determining mechanism may be further strengthened.
Under the PRC Civil Aviation Law, maximum airfares on regional and international routes are set in accordance with the terms of the air services agreements pursuant to which these routes are operated. In the absence of an air services agreement, airfares are set by the airlines themselves or by the CAAC with reference to comparable market prices, taking into account the international airfare standards established through the coordination of the International Air Transport Association, which organizes periodic air traffic conferences for coordinating international airfares. Discounts are permitted on regional and international routes. For the airline industry in China as a whole, the airfare per kilometer is substantially higher for regional and international routes than that for domestic routes.
Acquisition of Aircraft and Spare Parts
We are permitted to import aircraft, aircraft spare parts and other equipment for our own use from manufacturers through Eastern Aviation Import and Export Co., Ltd., or EAIEC, which is 55% owned by CEA Holding and 45% owned by our Company. This gives us a sale market with fair competition flexibility with our inventory management by allowing us to maintain a relatively lower overall inventory level of aircraft parts and equipment than we otherwise would have to maintain. We are still required to obtain approval from the NDRC and may be subject to appraisal of the relevant competent authorities for any import of aircraft. We generally pay a commission to EAIEC in connection with these imports.
Domestic Fuel Supply and Pricing
The Civil Aviation Oil Supply Company, or the CAOSC, which is supervised by the State-owned Assets Supervision and Administration Commission of the State Council, or the SASAC, is currently the dominant civil aviation fuel supply company in China. We currently purchase a significant portion of our domestic fuel supply from CAOSC. The PRC government determines the fuel price at which the CAOSC acquires fuel from domestic suppliers and the CAAC issues a guidance price. The retail price at which the CAOSC resells fuel to airline customers is set within a specified range based on this guidance price.
In 2005, the NDRC, the CAAC and the China Air Transport Association jointly launched the linkage mechanism for aviation fuel prices and transportation prices by airline companies. The fuel surcharge standards for domestic passenger routes were adjusted according to a series of notices regarding the adjustments of passenger fuel surcharges on domestic routes issued by the NDRC and the CAAC from 2006 to 2008. In the second half of 2008, international crude oil prices decreased significantly, leading the NDRC and the CAAC to release an announcement on January 14, 2009 to suspend fuel surcharges for domestic passenger routes with effect from January 15, 2009. A Notice Concerning the Relevant Issues on Establishment Linkage Mechanism for Passenger Fuel Surcharges on Domestic Routes and the Price of Domestic Aviation Coal Oil Fuel by NDRC and CAAC, with effect from November 14, 2009, provided that fuel surcharges shall be charged by the airlines, at the airline’s discretion, but within certain limits as set forth in the notice. On March 31, 2010, the NDRC and CAAC issued the Notice Regarding the Publication of Passenger Fuel Surcharges Rate on Domestic Routes, which reduced the standard fuel surcharge by 3.1% for domestic routes. In addition, on March 31, 2011, the NDRC and CAAC issued another similar notice, which further adjusted the standard fuel surcharge downwards. From August 1, 2011, according to theAnnouncement on theLinking Mechanism for Fuel Surcharges and Aviation Coal Oil Fuel,issued by the NDRC and CAAC, the rate of domestic route fuel surcharges will beadjusted each month if the difference in consolidated purchase costs for domestic aviation coal oil fuel exceeds RMB250 per ton.
On March 24, 2015, the CAAC and the NDRC jointly promulgated theNotice on Adjustment of the Linking Mechanism for FuelSurcharges and Aviation Coal Oil Fuel in Passenger Transport of Domestic Airlines, in which they decided to increase the base price of aviation coaloil fuel formfrom RMB4,140 per ton to RMB5,000 per ton.
Safety
The CAAC has made the continuedcontinuance of improvement of air traffic safety in China a high priority. The CAAC is responsible for the establishment of operational safety, maintenance and training standards for all Chinese airlines, which have been formulated based on international standards. Each Chinese airline is required to provide flight safety reports to the CAAC, including reports of flight incidents or accidents involving its aircraft, which occurred during the relevant reporting period and other safety related problems. The CAAC conducts safety inspections on each airline periodically.
The CAAC oversees the training of most Chinese airline pilots through its operation of the pilot training college. The CAAC implements a unified pilot certification process applicable to all Chinese airline pilots and is responsible for the issuance, renewal, suspension and cancellationcancelation of pilot licenses. Each pilot is required to pass the CAAC-administered examinations before obtaining a pilot license and is subject to an annual examination in order to have such certification renewed.
All aircraft operated by Chinese airlines, other than a limited number of leased aircraft registered in foreign countries, are required to be registered with the CAAC. All of our aircraft are registered with the CAAC. All aircraft operated by Chinese airlines must have a valid certificate of airworthiness issued and annually renewed by the CAAC. In addition, maintenance permits are issued to a Chinese airline only after the maintenance capabilities of that Chinese airline have been examined and assessed by the CAAC. These maintenance permits are renewed annually. All aircraft operated by Chinese airlines may be maintained and repaired only by CAAC certified maintenance facilities, whether located within or outside China. Aircraft maintenance personnel must be certified by the CAAC before assuming aircraft maintenance posts.
In early 2013, the CAAC amended the original Civil Aviation Incidents Standards and published the new Civil Aviation Incidents Standards which became effective as of March 1, 2013. The CAAC amended theManagement Rules on Safety Information of Civil Aviation which became effective on April 4, 2016 and required that related Chinese airlines should arrange a certain number of specialists that satisfied with special requirements to take charge of the management of safety information. The CAAC promulgated the newAdministrative Provisions on Emergencies ofChina’s Civil Aviationwhich became effective from April 17, 2016 and formulated the duties and responsibilities of Chinese airlines on the preventionand emergency preparedness, prediction and early warning, emergency disposal, handling and other emergency work of civil aviation. We will ensure our relevant employees implement the new standards, which will enable us to enhance our daily operations. For more information on the safety standards and measures implemented by us, see “– Maintenance and Safety – Safety.” In 2016, the CAAC promulgated the newAdministrativeProvisions on Civil Aviation Safety Information.As a result, we formulated new internal regulations on aviation safety information to strengthen thesafety of our information system.
Security
The CAAC establishes and oversees the implementation of security standards and regulations based on the PRC laws and standards established by international civil aviation organizations. Each airline is required to submit to the CAAC an aviation security handbook describing specific security procedures established by the airline for theday-to-day operations and security training for staff. Such security procedures must be formulated based on the relevant CAAC regulations. Chinese airlines that operate international routes must also adopt security measures in accordance with the requirements of the relevant international agreements and applicable local laws. We believe that we comply with all applicable security regulations.
Environmental Regulation
We are subject to a number of environmental laws and regulations issued by regulatory authorities in China including the Environment Protection Law of the PRC, the Prevention and Control of Noise Pollution Law of the PRC, the Environmental Protection Tax Law of the PRC, Implementing Regulations of Environmental Protection Tax Law of the PRC Noticeand Implementation Opinions on Developing Carbon Reporting and Verification and Emissions Monitoring PlanFurther Promoting the Green Development of 2016 and 2017, the Notice on Printing and Distributing the List of Quota Management Units of Shanghai Carbon Emission Trading (2017 Edition).Civil Aviation. We believe that we comply with all applicable noise and environmental regulations in material aspects.
Chinese Airport Policy
Prior to September 2003, all civilian airports in China were operated directly by the CAAC or by provincial or municipal governments. In September 2003, as part of the restructuring of the aviation industry in China, the CAAC transferred 93 civilian airports to provincial or municipal governments. The CAAC retained the authority to determine thetake-off and landing charges, as well as charges on airlines for the use of airports and airport services. Prior to 2004, Chinese airlines were generally required to collect from their passengers on behalf of the CAAC a levy for contribution to the civil aviation infrastructure fund, which was used for improving China’s civilian airport facilities. Our revenue for the previous years is shown net of this levy. In 2003, the levy was 5% of domestic airfares and 2% of international airfares. The levy was waived by the CAAC from May 1, 2003 to December 31, 2003. With effect from September 2004, the civil aviation infrastructure levies, now paid to the Ministry of Finance of the PRC (“MOF”), have been reflected in airfares of Chinese airlines rather than collected as a separate levy.
On December 28, 2007, the CAAC and the NDRC released the Implementing Scheme for the Civil Aviation Airport Charges Reform Implementation Plan, which was implemented on March 1, 2008. This new plan divides airport charges into three parts: charges related to airline businesses; charges related to importantnon-airline items; and othernon-airline charges. The charges related to airline businesses and importantnon-airline items must follow the national guided prices, in which the standard prices are rarely increased, while reduced rates can be negotiated between the airport or the service provider and the users. The plan grants us the right to negotiate with airports on the airport charges.
The civil On January 23, 2017, CAAC promulgated the Notice of Distributing the Adjustment Plan for Charging Standards for Civil Airport, adjusting the general aviation infrastructure levy was paidfee policy and the preferential policy for passenger service fees, including but not limited to the MOFcategories, meanings, management methods, benchmark prices and refunded again from July 1, 2008 to June 30, 2009, according to onefloating ranges of the ten measures announced byseveral airport charges and take-off and landing fees. On May 28, 2019, the CAAC in December 2008 in responseissued Notice on Issues Related to Civil Airport Charging, which lowered the global economic downturn. The refunded levycharging standards for China’s aviation industry amounted to approximately RMB4,000 million in total. The ten measures also include measures to enhance safety, reduce taxes, invest in infrastructure and optimize the airspace and air routes.some airport charging items.
Limitation on Foreign Ownership
The CAAC’s present policies limit foreign ownership in Chinese airlines. Under these limits,non-Chinese residents and Hong Kong, Macau or Taiwan residents cannot hold a majority of our total outstanding shares individually or together. For PRC air transportation companies, pursuant to the new Catalog of IndustriesSpecial Administrative Measures for Guiding Foreign Investment jointly promulgated by the NDRC and MOC on July 28, 2017,Access (Negative List) (2020 Edition), Chinese investors should be the controlling shareholders of a PRC public air transportation company and the total shares held by foreign investment enterprises and its associated enterprises are not permitted to exceed 25% of the total shares of a Chinese airline.PRC public air transportation company.
Domestic Investment
According to the Regulations on Domestic Investment in Civil Aviation Industry issued by the Ministry of Transport of PRC and effected on January 19, 2018, public air transport companies that require special management for domestic investment can keep a relative state-owned holding in its equity structure. The state-owned shares ratio requirement of major civil transport airports is loosened. Moreover, investment restrictions among various entities in the civil aviation industry are further liberalized.
Competition
Domestic
We compete against our domestic competitors primarily based on safety, quality of service and frequency of scheduled flights. With the combination of our dominant position in Shanghai, our route network and our continued commitment to safety and service quality, we believe that we are well-positioned to compete against our domestic competitors in the growing airline industry in China. However, domestic competition from other Chinese airlines has been increasing recently as our competitors have increased capacity and expanded operations by adding new routes or additional flights to existing routes and acquiring other airlines. In addition, we have faced intense competition from entrants to our domestic markets as new investments into China’s civil aviation industry have been made following the CAAC’s relaxation of certain private-sector investment rules in July 2005. In December 2008, the CAAC announced ten measures to protect and encourage the domestic aviation industry, one of which provides that no new Chinese airlines will be licensed to incorporate and operate aviation businesses before 2010. In October 2010, the CAAC announced that the suspension of approvals for new Chinese airlines companies would continue for an indefinite period. However, if the restriction is lifted in the future, we expect that competition from other Chinese airlines on our routes will further intensify.
There are currently more thanapproximately 50 Chinese airlines in mainland China, and we compete with many of them on various domestic routes. All of these airlines operate under the regulatory supervision of the CAAC. Our Company, Air China Limited, or Air China, which is based in Beijing and listed on the Hong Kong Stock Exchange (“HKEX”) and the London Stock Exchange, and China Southern Airlines Company Limited, or China Southern, which is based in Guangzhou and listed on the Hong Kong Stock ExchangeHKEX and the New York Stock Exchange,NYSE, are the three leading air carriers in China.
Each of the domestic airlines competes against other airlines operating the same routes or flying indirect routes to the same destinations. Our principal competitors in the domestic market are China Southern and Air China, which also provide transportation services on some of our routes, principally routes originating from the major air transportation hubs in China, such as Shanghai, Guangzhou and Beijing. Some of these routes are among our most heavily traveled routes. Since most of the major domestic airlines operate routes from their respective hubs to Shanghai, we also compete against virtually all of the major domestic airlines on these routes. In addition, we are facing increasing competition from certainlow-cost carriers, such as Spring Airlines, in the domestic market. Spring Airlines competes with us, as it operates daily domestic routes to certain destinations such as Harbin, Shenyang, Guangzhou, Xiamen, Sanya, Kunming and Chongqing, which are covered in our domestic routes. The “Twelfth Five-Year Plan” for civil aviation industry in China encourageslow-cost airlines to enter into major logistics market gradually. In February 2014, CAAC issued Guidance on FacilitatingLow-cost Aviation Development which aims at supporting the development of domesticlow-cost airlines. This will further intensify the competition in domestic aviation market. However, we believe we are well-positioned to compete against domesticlow-cost carriers due to our expansive route network, competitive pricing, greater availability of flight services to these destinations and strong brand name.
Domestic Rail
The PRC government is aggressively implementing the expansion of its domestic high-speed rail network, which has provided train services at speeds of up to 350 km per hour connecting major cities such as Beijing, Shanghai, Guangzhou and Hong Kong. The expansion of the coverage of thisrail network, and improvements in railway service quality, increased passenger capacity and stations located closer to urban centers than competing airportscenter accessibility could enhance the relative competitiveness of the railway service and negatively affect our market share on some of our key routes, in particular our short-haul routes. For example, in 2020, Yinchuan-Xi’an and Yancheng-Nantong routes between 500 km to 800 km.were largely affected by the opening of high-speed railway routes. The load factors of two routes demonstrated a trend of significant decrease after the high-speed railway routes between Shanghai and Kunming, Baoji and Lanzhou and Xi’an and Chengdu commenced operations in 2017, and has affected our Xi’an and Chengdu route, Guiyang and Kunming route, Xi’an and Xining route and Xi’an and Lanzhou route.put into operation.
With the establishment of a PRC national high-speed railway network, we will inevitably face increasing competition and pricing pressures from this railway service. Therefore, weWe have been taking active measures in decreasing the number of short-haul routes that overlap with such high-speed train routes, as well as adjusting certain airfare prices on affected routes, facilitating“air-to-railway” transfers, adjusting the flight structure, and allocating flight resources to alternative routes ormedium-to-long-haul routes that have higher profitability, higher demand and lessened competition. In addition, in 2013, we developed ground connection services such asAir-Rail Service andAir-Bus Service and cooperated with Disney, brand hotel groups, and renowned international travel enterprises to develop travel products. In 2017, ourOur Air-Rail Service andAir-Bus Service developedhave been developing steadily with increased routes in Yangtze River Delta, Xi’an, Lanzhou and other cities and regions. We expect to continue exploring cooperation opportunities with domestic railway authorities, while maintaining and strengthening our other competitive advantages, which include providing high quality services, increasing ourpre-sale product promotions and developing our transfer services. In 2020, we cooperated with China National Railway Group Co., Ltd. to open a new era of “air-rail combined transportation” by linking the system of the CEA APP and Railway 12306 APP and providing one-stop joint booking of “aircraft + high-speed rail”, thereby offering passengers with more convenient one-stop services.
Regional
Our Hong Kong routes arewere highly competitive.competitive before the outbreak of the COVID-19 pandemic. We currently operateoperated approximately 20 flight routes between various cities in mainland China and Hong Kong.Kong in 2019. The primary competitors on our Hong Kong routes arewere Cathay Pacific Airways (“Cathay”), Hong Kong Dragon Airlines Limited (“Dragonair”) and HongKong Airlines. Cathay Dragonair and HongKong Airlines compete with us on several of these routes, particularly the Shanghai-Hong Kong route. We alsoIn addition, we continue to face competition from Spring Airlinesother low-cost airlines on our Shanghai-Hongoverlapping routes connecting Hong Kong and Shanghai-Macau routes. In addition, we face competition from HK Express on our Kunming-Hong Kong route.mainland cities. The Air Transportation Arrangement signed between the PRC government and the administrative government of Hong Kong in February, 2000 provides for equal opportunity for airlines based in Hong Kong and mainland China. As a result, Dragonair has increased the frequency of its flights on several of ourWe currently operate one flight route between mainland China and Hong Kong routes, resulting in intensified competition.Kong.
The policy restraint on direct flights between Taiwan and mainland China has been further loosened in the past few years but there has been no further negotiation on the expansion of such arrangement between Taiwan and mainland China sincemid-2016. We currently operate flights to Taipei from Shanghai, Xi’an, Kunming, Changzhou, Hefei, Huai’an, Yinchuan, Nanchang, Lanzhou, Lijiang, Ningbo, Nanjing, Qingdao, Huangshan, Taiyuan, Wuhuan, Wuxi. We currently compete with China Airlines and EVA Air on our Shanghai-Taipei, Nanjing-Taipei, Wuhan-Taipei,Xi’an-Taipei and Qingdao-Taipei routes. However, given the arrangement is subject to the political relationship between Taiwan and mainland China, any deterioration in such political relationship may cause the discontinuity or disruption in the flight arrangement. As one of the several airlines offering Taiwan-mainland China direct flight services, we cannot assure you that we will maintain or will continue to be allocated sufficient Taiwan-mainland China routes, or our results will not be averselyadversely impacted. We compete with China Airlines, China Southern and Eva Air on our route connecting mainland cities and Taiwan. We currently operate one flight to Taipei from mainland China.
We compete with Air Macau on the Shanghai Pudong-Macau route. Air Macau’s routes also provide an alternative to our Hong Kong routes for passengers travellingtraveling between Taiwan and mainland China. As of December 31, 2020, we operated five flight routes from mainland China to Macau.
International
We compete with Air China, China Southern and many other well-established foreign carriers on our international routes. Most of our international competitors are very well-known international carriers and are substantially larger than we are and have substantially greater financial resources than we do. Many of our international competitors also have significantly longer operating histories and greater name recognition than we do. Some international passengers, who may perceive these airlines to be safer and provide better service than Chinese airlines in general, may prefer to travel on these airlines. In addition, many of our international competitors have more extensive sales networks and utilize more developed reservation systems than ours, or engage in promotional activities, such as frequent flyer programs, that may be more popular than ours and effectively enhance their ability to attract international passengers.
To improve our competitive position in international markets, we have established additional dedicated overseas sales offices, launched our own frequent flyer program, participated in “Asia Miles”, a popular frequent flyer program in Asia, and entered into code-sharing arrangements with a number of foreign airlines. We have also improved our online reservation and payment system. In addition, in June 2011, we joined SkyTeam, an international airlines alliance and frequent flyer mileage program that includes, among others, international carriers such as Delta Air Lines, China Southern, Alitalia, Air France and KLM. As a member of SkyTeam alliance, our Elite members can enjoy approximately 516790 VIP lounges worldwide. InSince 2013, we implementedhave been implementing code-sharing programs covering 242 routes with 11 SkyTeam member airlines. See “ – Marketingto extend our international route and Sales – SkyTeam Alliance.”improve our competitiveness and reputation in the international market. In the meantime,2020, we also started code-sharing cooperation with sevennon-SkyTeam member airlines, covering more than 150 routes, including Japan Airlines Corporation and Qantas Airways Limited. In 2014, we proactively promoted international cooperation among members andnon-members airlines of SkyTeam Alliance at various levels and expanded its route network to increase its brand recognition. We implemented transit service cooperation with China Airlines, Delta Airlines and Air France between different terminals at Shanghai Pudong International Airport. We facilitate joint sales by optimizing transit connection with Delta Airlines and enhancedco-operations with Air France by increasing the number of code-share flights. We also comprehensively improved cooperation on the China-Australia route by establishing joint operation with Qantas.
In 2015, wehave actively responded to the industry competition, stroveproactively strived for additions of air traffic rights and time slot resources in hub markets and core markets, steadily improved theutilization of aircraft utilization rateand penetration in core markets, and consolidated and expanded our market share in the three largestfour major hubs and core markets. BasedLeveraging on the SkyTeam Airline Alliance platform, we enhanced our strategic cooperation with Delta Air Lines, Inc. and cooperated with Air France KLM, and strengthened our cooperation with non-member airlines of the SkyTeam Airline Alliance such as Qantas Airways Ltd and Japan Airlines Co., Ltd, so as to develop a highlyan efficient and convenient flight network which covered the whole countrycovering all parts of China and connected to the whole world.
In 2016, we proactively promoted the establishment of transportation hubs with the opening of various international routes for long-haul flights and an enhanced coverage of our transportation network. With Shanghai as the core hub, we added six international routes for long-haul flights to our network, connecting Shanghai and Prague, Amsterdam, Madrid, St. Petersburg, Chicago and Brisbane, respectively. We provided more frequent flight services on routes connecting Shanghai and New York City, Los Angeles, Sydney and Melbourne. We added routes connecting Kunming and Sydney, Qingdao and San Francisco, Nanjing and Vancouver and Hangzhou and Sydney. Last, we stabilized the allocation of our flight capacities for Japan, Korea and Southeast Asia markets. As a result of these enhanced transit connection and expanded transit routes structures. Meanwhile, we also continued to strengthen our cooperation with airlines which are not membersall parts of the SkyTeam Alliance. We and Qantas Airways opened up our respective VIP lounges in the PRC and Australia to each other. Through cooperatingworld. As of December 31, 2020, we cooperated with British Airways, Royal Brunei Airlines and China Express Airlines in code sharing, we optimized our transit connection at London Heathrow Airport and enhanced the level of coverage of our route network in Southeast Asia.
In 2017, we actively responded to the competition in international market. We have strengthened our cooperation withAir-France KLM and Delta to further extend our international route and improve our competitiveness and reputation in the international market. Relying on the cooperation platform of SkyTeam Airline Alliance, we have newly launched code-share cooperation with Air Europa Líneas Aéreas, S.A.U. (IATA code: UX) from Spain and Czech Airlines j.s.c. (IATA code: OK). In addition, the agreement of “Fully Opening of the Aviation Market” between China and Australia has intensified the competition in the Australian market, yet, it has caused us to strengthen our cooperation within10 airline companies outside the SkyTeam Airline Alliance especially joining hands with Qantas Airlines, a cooperative partner, to expand the route network and share the infrastructure and resources of the main bases of both parties. We deepened our cooperation with Qantas Airlines in terms ofon code sharing, joint operation and sales. We commenced to launch code-sharing cooperation with Jet Airways (India) Ltd. (IATA code: 9W) and Air Mauritius Limited (IATA code: MK). In 2017, we also proactively adjust our capacities in international routes according to the market situation.sharing.
Maintenance and Safety
The rapid increase in air traffic volume in China in recent years has put pressure on many components of China’s airline industry, including air traffic control systems, the availability of qualified flight personnel and airport facilities. In recent years, the CAAC has placed increasing emphasis on the safety of airline operations in China and has implemented a number of measures aimed at improving the safety record of the airlines. Our ability to provide safe air transportation in the future depends on the availability of qualified and experienced pilots in China and the improvement of maintenance services, national air traffic control and navigational systems and ground control operations at Chinese airports. We have a good safety record and regard the safety of our flights as the most important component of our operations.
Maintenance Capability
Through our cooperation with service providers and ventures with other companies, we currently perform regular repair and maintenance checks on all of our aircraft, which include D1 checks, C checks and other maintenance services for certain aircraft and other flight equipment. We also perform certain maintenance services for other Chinese and international airlines. We have four main maintenance bases in Shanghai, Kunming and Xi’an and several maintenance bases in our provincial hubs including Taiyuan, Qingdao, and etc. We also constructed a new maintenance base in Beijing Daxing International Airport in 2019. Our primary aircraft maintenance base is at Pudong International Airport. We employed approximately 11,99313,258 workers as maintenance and engineering personnel as of December 31, 2017.2020. We prepared our own training plan for our employees to meet the requirements of certain regulations and the needs for future development. In order to enhance our maintenance capabilities and to reduce our maintenance costs, we have acquired additional maintenance equipment, tools and fixtures and other assets over the past few years, such as airborne testing and aircraft data recovery and analysis equipment. OurIn 2019, we increased our capacities in our maintenance bases in Kunming and Xi’an by installing one additional production line for the maintenance of narrow-body aircraft in each of the two bases.Our avionics equipment is primarily maintained and repaired at our electronic maintenance equipment center located in Shanghai. In 2020, our maintenance bases continued to guarantee the maintenance and support work required for the daily operation of our large fleet.
We entered into a joint venture with Honeywell International Inc. (“Honeywell”), formerly Allied Signal Inc., in Shanghai for performing maintenance and repairs on aircraft wheel assemblies and brakes. Since October 1997, we have operated a maintenance hangar at Hongqiao International Airport, which has the capacity to house two wide-body aircraft. We and Rockwell Collins International Inc. of the United States have alsoco-established Collins Aviation Maintenance Service Shanghai Limited, which is primarily engaged in the provision of repair and maintenance services for avionics and aircraftin-flight entertainment facilities in China. We and Rockwell Collins International Inc. hold 35% and 65%, respectively, of the equity interests in the joint venture. Moreover, in November 2002, we, jointly with Aircraft Engineering Investment Limited, established Shanghai Eastern Aircraft Maintenance Limited, in which we hold 60% of the equity interests, to provide supplemental avionics and other maintenance services to us. STA, which was established in 2004 by us and Singapore Technologies Aerospace Ltd. under a joint venture agreement dated March 10, 2003, also provides us with aircraft maintenance, repair and overhaul services. In 2017,2019, we entered into two agreementsone agreement with Honeywell, andpursuant to which we expect toexpected we will save US$0.8 million ofcertain repairing costs.
On November 6,In 2007, we entered into a joint venture with United Technologies Corp., or UTC, to establish Shanghai Pratt & Whitney Aircraft Engine Maintenance Co., Ltd., or Pratt & Whitney, for performing maintenance and repairs on aircraft engines. We and UTC contributed US$20,145,000 and US$19,355,000, respectively, to the registered capital and hold 51% and 49%, respectively, of thetook over equity interests in the joint venture. Moreover, after our absorption of Shanghai Airlines, we took over its 15% equity interest inmaintenance companies such as Boeing Shanghai Aviation Services Co., Ltd. (“Boeing Shanghai”). As of December 31, 2013, Boeing (China) Investment Co., Ltd., Shanghai Airport (Group) Co., Ltd. and Boeing (Asia) Services Investment Limited hold 35.3%, 25.0% and 24.7%, respectively, of the remaining equity interest. Boeing Shanghai was founded in 2006 with a registered capital of US$85,000,000, and operates a maintenance hangar with the capacity to provide aircraft modification and maintenance services for two wide-body aircraft and one narrow-body aircraft and provides aircraft modification and maintenance services. In addition, we also hold 50% of Shanghai Airlines’ previous equity interest in Shanghai Hute Aviation Technology Co., Ltd. (“and Shanghai Hute”). The remaining equity interest is held by Sichuan Haite High-Tech Co., Ltd. Shanghai Hute was founded in 2003 with a registered capital of RMB30,000,000, and provides maintenance services for aviation equipment. The enhancement of our maintenance capabilities allows us to perform various maintenance operationsin-house and continue to maintain lower spare parts inventory levels.
Since DecemberAirlines. In 2014, we have adopted an innovative asset management model and established Eastern Airlines Technology Co. Ltd. (“Eastern Technology”), a wholly-owned subsidiary specializing in aircraft maintenance,maintenance. Since 2016, our customer base continued to explore the transformation of supporting assets to operational assets. In 2015, Eastern Technology engaged in aircraft maintenance, raised its standards for aircraft maintenance and construction management to facilitate our centralized control over aircraft maintenance, and focused onhigh-end premium operations, such as providing maintenance services for aircraft for Chinese routes operated by international airlines and sharing of aviation equipment. In 2016,expand, other airlines such as Singapore Airlines, AirAsia, and Royal Brunei Airlines, became customers of Eastern Technology, whose area of operation expanded to locations including Xi’an, Jinan, Wuhan and Wuxi. In 2017, other airlines such as Macau Airlines, Delta Air Lines, Asiana Airlines, Hong Kong Airlines, and Malaysia Airlines, Air Busan, British Airways and Egypt Air became customers of Eastern Technology. In 2020, we did not enter into any joint venture or cooperation agreement.
Safety
The provision of safe and reliable air services for all of our customers is one of our primary operational objectives. We implement uniform safety standards and safety-related training programs in all operations. Our flight safety management division monitors and supervises our flight safety. We have had a flight safety committee since the commencement of our business, comprised of members of our senior management, to formulate policies and implement routine safety checks at our Shanghai headquarters and all provincial hubs. The flight safety committee meets monthly to review our overall operation safety record during the most recent quarter and to adopt measures to improve flight safety based upon these reviews. We have also implemented an employee incentive program, using a system of monetary rewards and discipline, to encourage compliance with the CAAC safety standards and our safety procedures. We periodically evaluate the skills, experience and safety records of our pilots in order to maintain strict control over the quality of our pilot crews. In 2011, we were awarded the “Flight Safety Five-star Award” by CAAC for our commitment to aviation and operations safety.
InSince 2013, we continued to strengthenhave been strengthening our Safety Management System (“SMS”). We issued work implementation plans that provided specific measures to address risks such as lighting strikes, hard aircraft landings and communication systems failures. In addition, we established the Nantong Airport training base to provide additional training programs for our flight crews. Furthermore, we formulated the “Assessment and Remuneration Packages of Star-rating flight Crew Members”, which commenced star-rating assessment of all flight crew members in terms of flight safety, flight quality, discipline and provision of services. The management of each of our provincial hub operations is responsible for the flight safety operations at the respective hub under the supervision of our flight safety management division. We prepare monthly safety bulletins detailing recent developments in safety practices and procedures and distribute them to each of our flight crew, the maintenance department and the flight safety management department. The CAAC also requires us to prepare and submit semi-annual and annual flight safety reports.
Regarding the strengthening of the SMS, we have (i) organized training for the administrators of safety management of all operating units, deepened the understanding for the construction of SMS, laying the groundwork for SMS; (ii) followed our plans and orderly commenced the construction of the analytical network. We had a number of cooperation meetings, discussing the master framework, which carries the system. We also introduced the concept of safety indicators for operational progress, rendering safety management more comprehensible; and (iii) continuously improved the risks database of the relevant routes and airports, strengthening the application of the different databases on the actual process of operation.
In 2014, we continued to facilitate the construction and application of the SMS and strictly implementing risk management. We also put greater efforts in safety inspection and supervision as well as fulfillment of responsibilities in relation to safety enhancement. We enhanced its flight training management and commenced specialized training covering pilots management and transition to B777-300ER aircraft to reinforce the foundations of flight safety. Emphasizing technology applications, we established a research institute of flight safety technology application to provide intellectual support to our ongoing safe operations.
All of our jet passenger aircraft pilots participated in the manufacturer training and support programs sponsored by Airbus and Boeing and are required to undergo recurrent flight simulator training and to participate in a flight theory course periodically. We use flight simulators for A320, A330, A340, B737NG,B737-300, B777 aircraft at our own training facility, the training facility located in the CAAC training center or overseas training facilities.
We placed great emphasis on ensuring safe operation and will continue to do so. In 2015, we established an integrated management and control model incorporating regional management, safety audit and safety supervision to further improve our safety management and control system, and pushed ahead the establishment of the Management of Risk Control System (MORCS) to enhance safety risk prevention on an ongoing basis. We have also promoted phase 2 of the Electronic Flight Bag, focusing on technical difficulties such as operation of above plateau airports, and has been enhancing our research capability in flying technology, providing psychological support to our pilots and improving emergency drills to implementin-flight safety requirements strictly.
In 2016, we further enhanced our safety management system by strengthening the enforcement of safety responsibilities, strengthening our safety supervision and inspection, strengthening our risk control over special routes and international routes for long-haul flights, enhancing our operational risk alert abilities, boosting the quality of training for our pilots, improving our system for developing talents with core skills, enhancing our ability in handling security-related contingencies, and strictly implementing safety requirements for our flights.
In 2017, through2019, we adhered to the formulation ofcivil aviation safety management responsibility list, we strengthened procedure managementwith zero tolerance for safety hazards, and enforced safety management responsibilities. We also carried out safety management system effectiveness evaluation to enhance our abilities in identifying and managing material operational risks.has maintained safe operation throughout the year. In addition, we have studied the risks of new aircraft and new routes in advance to continuously strengthen the foundation for safe development. In terms of mechanism establishment, we have improved our emergency handbooksthe relevant rules and emergency flows to enhance its ability in handling contingencies,regulations as well as conductedimplementation rules of our safe production responsibility system to further enhance safety requirements.
In 2020, we continued to place great emphasis on ensuring safe operation and have ensured that all employees signed the safety responsibility agreement on “maintaining the original aspiration, assuming the mission, fulfilling commitments and making contributions” to further strengthen the implementation of safety responsibilities. In respect of strengthening risk supervision, we carried out in-depth safety rectification and special inspections of safety work, inspected and supervised key units and key tasks, carried out comprehensive investigation of hidden dangers, and improved safety inspectionsmanagement capabilities. In respect of the promotion of practice construction, based on the theme of the “three reverences”, we strengthened safety publicity and adopted specific prevention measures targeting material risk-prone areas to strengthen risk management. We made use of information technology to disseminate safety informationeducation, carried out practice and risk alerts quicklydiscipline rectification, and strengthened the application of technology inlaid a solid foundation for safety management. We developed air defense information system to promote the integration of air security and ensured the safety of air defense. In 2017, we2020, our fleet had 2,073,0001,547,600 safe flying hours and 879,700672,200 take-off and landing flights in total, which is an increase of 8.0%have respectively decreased by 35.4% and 7.0%, respectively, over32.0% compared to the same period of year 2016.in 2019 due to the decrease in travel demand resulting from the COVID-19 pandemic.
Cyber-security
With respect to our internal policies on cyber-security and internet safety, we have established an information safety management system and issued internal regulations on cyber-security, internal hardware and data safety systems to prevent loss of information due to cyber-security incidents, network outages or hardware incidents. We also plan to implement measures relating to the office environment information safety management and information system emergency management, information system access control, protection from any malicious software, management of information exchange tools and internal review and audit of information safety risks. Furthermore, we have entered into a strategic cooperation plan with the China Information Technology Security Evaluation Center by which their trained engineers evaluate our internal data security policies and cyber-security measures. InSince 2012, we established and announced twofour internal regulations relating to cyber-security, namely, China Eastern Airlines Information Security Management Regulation, and China Eastern Airlines Information System Application and Development Safety Regulation, and in 2013, we established and announced another two internal regulations relating to cyber-security, namely, China Eastern Airlines Information Security Incident Management Regulation, and China Eastern Airlines Information System Classification Measures, China Eastern Airlines Accounts Management Regulation and China Eastern Airlines Information System and Personal Data Protection Management Requirements, which we believe will strengthen our information safety management systems and overall cyber-security defenses. DuringIn addition, in strict compliance with the year ended December 31, 2014, we did not experience any material cyber-security incidents or related losses.
In 2014, regarding the risks in relation to internet securityrelevant provisions of the aviation section,“General Data Protection Regulation” (“GDPR”) by the European Union, we tookhave appointed a “data protection officer” to enhance the following preventive measures: (i) putting in place a monitoring system; (ii) clarifying the responsibilities relating to internet, mainframe computer, operationprotection of customer information and maintenance, product development and management; (iii) having internetprevent network security equipment; (iv) having manual inspection and(v) preparing for emergency response.risks.
In June 2014,2020, we promulgated documents Class I to V for CEA Information Security Management System, including directions, management requirements, operation manual and recorded output documents at security level, and passedcontinuously promoted the ISO27001 (internationalconstruction of information security standard) certificate qualification in November 2014. Our internet security policy was synchronized with the ISO27001.
In 2015, weprojects, and established a routine inspection systemsound information security-related technical protection and a contingency mechanism for its reporting website for external security breach. The data loss prevention (DLP) project was implemented and ourmanagement platform. We strengthened information security management system passedby deepening the ISO27000 certification.strategic cooperation with external security agencies. In response to the future,implementation of the GDPR released by the European Union, we will further improve our security code reviewappointed a “data protection officer”. We strengthened customer privacy terms of online channels, assessed risks of third-party platforms and management system; promotereinforced the construction of IPS at the internet portal and thepassenger information technology disaster backup center to elevate the overall protection level on our information system security.
In 2016, we conducted information system emergency response training and commissioned the construction of our Xi’an disaster backup facility.firewall. In addition, we implemented security code review andinitiated a special task for network protection to improve its network security protection around the boundaries of our internet and data center, optimized the multi-dimensional security protection system and elevated the overall security protection level on our information system.
In 2017, we based on the “Three Centers in Two Places” plan to promote our work on the construction of the Xi’an data and disaster backup facility and the construction of a globalized basic assurance and service system. We optimized the multi-dimensional security protection system on the internet and the data center to prevent the attack of the “WANNACRY” ransomware effectively. We conducted information system emergency response training and relied on security code quality analysis to implement security code review and security protection. We also commenced security review for information system and enhanced emergency response of internet security, optimized the multi-dimensional security protection system on the internet and the data center and safeguarded the security of key information infrastructure, elevating the overall security protection standard on our information system. In 2017, our information security management system passed the ISO27001 review for certification renewal and the ISO20000 review.capabilities.
We did not purchase any insurance for internet security.
Fuel Supplies
Jet fuel is one of the major expenses of airlines. Fuel costs represented approximately 25.0%17.7% of our total operating expenses in 2017. Our aviation fuel expenditure in 2017 was RMB25,131 million, representing an increase of 28.1% from RMB19,626 million in 2016.2020. We currently purchase a significant portion of the aviation fuel for our domestic routes from regional branches of the CAOSC. CAOSC. Fuel costs in China are affected by costs at domestic refineries and limitations in the transportation infrastructure, as well as by insufficient storage facilities for aviation fuel in certain regions of China. Fuel prices at six designated major airports in China, namely, the airports in Shanghai Pudong, Shanghai Hongqiao, Beijing, Guangzhou, Shenzhen and Tianjin, are set and adjusted once a month by the CAAC in accordance with prevailing fuel prices on the international market. For our international routes, we purchase a portion of our aviation fuel from foreign fuel suppliers located at the destinations of these routes, generally at international market prices. Significant fluctuations of international oil prices will significantly impact jet fuel prices and our revenue from fuel surcharge and accordingly our results of operations.
In 2017,2020, our total aircraft fuel cost was approximately RMB25,131RMB13,840 million, representing an increasea decrease of 28.1%59.5% from RMB19,626RMB34,191 million in 2016, which2019. The decrease was mainly due to an increasea decline in our fuel consumption by 38.5% and a drop in the average price of fuel asby 34.2% from last year, both of which are attributable to the OPEC and other oil suppliers efficiently squeezed excess supplyimpact of oil in the market and the political upheaval in the Middle East increased the uncertainty of oil production, and to a lesser extent, an increase in the volume of refueling from 2016 to 2017.COVID-19 pandemeic. We cannot assure you that fuel prices will not fluctuate in the future. Further, due to the highly competitive nature of the airline industry and government regulation on airfare pricing, we may be unable to fully or effectively pass on to our customers any increased fuel costs we may encounter in the future. However, we intend to continue focusing on enhancing our jet fuel procurement policies and developing additional internal cost-control measures, which include streamlining the number of aircraft models in our fleet and optimizing route structures, which we believe will enable us to control our fuel costs.
Ground Facilities and Services
The center of our operations is Shanghai, one of China’s principal air transportation hubs. Our Shanghai operations are based at Hongqiao International Airport and Pudong International Airport. In addition, we also started our operation in Beijing Daxing International Airport following its commencement of operation in September 2019. We currently also operate from various other domestic airports. We have hangars, aircraft parking and other airport service facilities at these airports, and provide ground services in these locations.
We have our own ground services and other operational services, such as aircraft cleaning and refueling and the handling of passengers and cargo for our operations at Hongqiao International Airport and Pudong International Airport. We also provide ground services for many other airlines that operate to and from Hongqiao International Airport and Pudong International Airport.
In-flight meals and other catering services for our Shanghai-originated flights are provided primarily by Shanghai Eastern Air Catering Limited Liability Company, a joint venture company affiliated with CEA Holding. We generally contract with local catering companies for flights originating from other airports.
In 2017,2020, we enhanced the flight management to reduce the delay in takeoff. We also improvedstrengthened our service in selfmanagement, further improved service efficiency and service experience such as check-in, management by optimizing our internal management process. In addition, we deepened our cooperation withAir-France KLM, Delta and other members of the SkyTeam to provide throughbaggage check-in, services in various domestic airportspriority boarding and international airports.VIP lounge.
Marketing and Sales
Passenger Operations
Our marketing strategy with respect to passenger operations is primarily aimed at increasing our market share for all categories of air travelers. With respect to our Hong Kong and international routes, we are permitted to market our services based on price. We have limited flexibility in setting our airfares for domestic routes and adjust our domestic airfares in response to market demand. As part of our overall marketing strategy, we emphasize our commitment to safety and service quality. We believe that emphasis on safety is a critical component of our ability to compete successfully.
We have also adopted customized strategies to market our services to particular travelers. We seek to establish long-term customer relationships with business entities that have significant air travel requirements. In order to attract and retain business travelers, we focus on the frequency of flights between major business centers, convenient transit services and an extensive sales network. We launched our initial frequent flyer program in 1998 and joined the “Asia Miles” frequent flyer program in April 2001 to attract and retain travelers. In August 2003, we upgraded and rebranded our frequent flyer program to “Eastern Miles” and introduced a series of new services, including, among others, instant registration of membership and mileage, online registration of mileage, and accumulation of mileage on expenses at certain hotels, restaurants and other service providers that are our strategic partners. As a result of our continual efforts to develop the “Eastern Miles” program, the number of members of the frequent flyer program reached over 22.8 million in 2014. The special services hotline “95530” call center was established and came into operation in 2004. In light of the expansion of national high-speed railway network, we have cooperated with the Shanghai Railway Bureau to launch“Air-Rail Pass Transportation” products. Our domestic and international flights together with the high-speed railway products at Shanghai Hongqiao International Airport and Shanghai Pudong International Airport, have formed anair-railtwo-wayair-rail two-way transportation product, which has helped us broaden our customer resources.
In terms of our customer resources, we have actively explored and expanded our customer base ofhigh-end business travelers to accelerate the development of group clients. In addition, we have fully promoted the expansion of Eastern Miles membership. In order to attract more members and to provide members with better experience in terms of diversity, comprehensiveness and flexibility, we have strengthened our cooperation with retail stores by increasing the number ofco-operative stores, covering various industries such as financial services, hotel, car rental and health services. AsWe also strengthened the operation of points mall, enriched point redemption products, and optimized the points payment function. During the outbreak of the COVID-19 pandemic, we first launched “Wild Your Dreams”, a series of innovative products, to stimulate passengers’ travel demand, restore market confidence, promote the recovery of the aviation market, effectively serve the internal circulation of China and achieve good economic, social and brand benefits. We actively expanded the sales channels of auxiliary products such as VIP lounges and realized the voucher sales of products such as class upgrades, so as to increase auxiliary revenue; and launched the new “Eastern Miles” membership system and introduced the “Eastern Airlines Wallet” enabling “points + cash” payment, so as to increase the ways of using member points. Our members can use CEA points for purchasing products from us and other suppliers. The consumption scenarios and value for CEA points were increased. We also strictly implemented on-board protection measures, optimized on-board service procedures and meal services, and improved passenger satisfaction. Taking into account the significant reduction in air travel of members during the outbreak of the COVID-19 pandemic, we proactively issued a protection policy for automatic extension of membership level to enhance member loyalty and satisfaction.As of the end of 2017,2020, frequent flyer members of “Eastern Miles” reached 33.445.22 million, increased by 14.3%5.95% as compared to 2016. We actively launched marketing campaigns such as “Members’ Day” and “818 Big Sale”, as well as increased the diversity ofnon-aviation point redemption channels and products, boosted the loyalty of our customers such that the ratio of frequent flyer members repeating their flights raised to 31.71%, representing an increase of 1.37 percentage points. Meanwhile, we placed emphasis on and strengthened the cooperation with travel management companies (“TMC”), online travel agency’s (OTA) agents and major customers. Sales revenue from TMC increased by 38.92% compared to last year. Revenue from direct corporate customers increased by 25.07% compared to last year, the number of direct corporate customers increased to 4,027, increased by 27.1% compared to 20162019.
Our advertising, marketing and other promotional activities include the use of social media, online platforms, radio, television and print advertisements. We continue to diversify our advertising and promotional channels. We plan to continue to use advertising and promotional campaigns to increase sales on new routes and competitive routes.
In 2016, China Eastern Airlines E-Commerce Co., Ltd. (“Eastern E-Commerce”)established ane-commerce platform by integrating our online and offline platforms. Ticket returns, rebooking and upgrades via multiple channels, such as our official website, mobile application and member website were launched with success. In 2017, 12 major updates were2020, we continued to optimize the e-commerce platform to ensure user experience. At the same time, we upgraded the CEA APP and official website, supporting new functions such as “Wild Your Dreams” ticket packages, seat selection, multiple login methods, unified display of orders, site-wide search and epidemic prevention functions. We made efforts to our mobile application.provide passengers with more product choices while ensuring the efficiency of the system.
Ticket Booking Systems
In 2002 and again in 2012, we upgraded our online ticket booking and payment system to facilitate customer purchases of tickets via the Internet. In 2012, we also expedited the construction of nine overseas websites in a variety of languages. Currently, our global website covers North America, Australia, Europe and Asia Pacific. We continue to encourage our customers to book and purchase tickets via the Internet by initiating various promotional campaigns, upgrading and expanding the services offered by our online sales system. In 2012, we introduced “China Eastern Mobile E”, a smartphone application that provides mobile flight booking, flight status and online checking services, which we believe will provide our customers with additional convenient, value-added services. We have been continuing to update our mobile phone application and our official website to enhance our direct sales efforts as well as vigorously promoting the establishment of overseas e-commerce platform.
In 2013,2019, we introducedestablished a new versionjoint team comprising of Chinaour client department, IT department and Eastern Mobile E and increased the applicationE-Commerce to upgrade our overall capabilities of “China Eastern Mobile E” to 14 airports. In 2016, we introduced the English version of “China Eastern Mobile E” to our customers. In addition, we introduced “M Website”, a website portal that provides mobile flight booking, flight status and online checking services and applied several third-party payment platforms to our ticket booking system.e-commerce operation. We also increased the success ratelaunched a series of website payment. In addition, we updated the ability for sale activities and self-service.
In 2017,updates to expand direct sales channels effectively, we launched “Air Tickets Market” offline while strengthened online sales channels on our official website and mobile user terminals, continued to enhancephone application in 2019. In 2020, our ability in direct sales. Ourglobal websites have used global acceleration services. The access speed and the system availability have been imporoved significantly. In 2020, revenue from our direct sales increased significantly by 34.3% as compared to 2016 representing 51.2% of revenue, which increased 11 percentage points as compared to 2016 while agency fee expenses reduced continuously. In 2017, the amount of tickets purchased fromchannels (including our official website and mobile application reached approximately 10.5 million and ledphone application) amounted to the revenueRMB93.8 billion, representing a decrease of approximately RMB10.2 billion, representing approximately 16%29.5% as compared to 2019, primarily due to government restrictions on and decreased willingness to travel resulting from the outbreak of the total revenueCOVID-19 pandemic. It is estimated that a new version of ticket sales.our official website and mobile phone application with multiple languages and currencies incorporated will be launched in 2020, where global travelers can purchase tickets and other products through one website and one mobile phone application.
We also maintain an extensive domestic network of sales agents and representatives in order to promotein-person ticket sales and to assist customers. Direct sales are also promoted through the availability of our telephone reservation and confirmation services. In addition to our domestic sales agents located in various cities in mainland China, Hong Kong, Macau and Taiwan, we maintain overseas sales or representative offices worldwide, including: (i) North American locations such as Honolulu, Los Angeles, New York, San Francisco and Vancouver; (ii) European and Middle Eastern locations such as Frankfurt, Hamburg, London, Moscow, Paris, Rome, Madrid, Brussels and Munich; (iii) Asia-Pacific locations such as Seoul, Tokyo, Osaka, Nagoya, Fukuoka, Hiroshima, Sapporo, Niigata, Fukushima, Okinawa, Shizuoka, Kanazawa, Toyama, Nagasaki, Kagoshima, Okayama, Matsuyama, Singapore, Bangkok, Phuket, New Delhi, Kolkata, Kuala Lumpur, Ho Chi Minh, Bali, Dubai, Dhaka, Phnom Penh, Siem Reap, Vientiane, Yangon, Mandalay, Kathmandu and Maldives; and (iv) Australian locations such as Melbourne and Sydney.
As of June 1, 2008, we stopped issuing paper tickets for air travel in accordance with a mandate from the International Air Transport Association (“IATA”). The IATA currently represents approximately 240290 airlines and comprises approximately 84%82% of scheduled internationalthe world’s air traffic. As a result of the mandate, we now issue electronic itineraries and receipts as well as electronic tickets to our passengers. We believe the transition to 100% electronic ticketing will decrease administrative costs, increase flexibility and travel options for passengers, in addition to benefiting the environment through the reduced need for paper. All of our direct passenger ticket sales are recorded on our computer systems. Most Chinese airlines, including us, are required to use the passenger reservation service system provided by the CAAC’s computer information management center, which is linked with the computer systems of major Chinese commercial airlines. We have also entered into membership agreementsIn 2020, we continued to use the TravelSky Passenger Service System (PSS), cooperated with several international reservation systems with which we have carried out relevant business cooperation for many years, including ABACUS,Amadeus, Sabre, Travelport, Infini and Axess. Among them, Axess is scheduled to terminate its operations with us on June 30, 2021 due to its sole reason and our cooperation with other companies developed normally. In 2020, we cooperated with China National Railway Group Co., Ltd. to open a new era of “air-rail combined transportation” by linking the largest computer reservation system in southeast Asia, TOPAS of Korea, SABRE, GALILEO and WORLDSPAN of the United States, AMADEUSCEA APP and Railway 12306 APP and providing one-stop joint booking of Europe, INFINI and AXESS of Japan and Sirena-Travel of Russia, which have made it easier for customers and sales agents to make reservations and purchase tickets for our international flights. In addition, we have entered into distribution agreements“aircraft + high-speed rail”, thereby offering passengers with ABACUS, TOPAS, SABRE, GALILEO and AMADEUS.more convenient one-stop services.
SkyTeam Alliance
We officially joined SkyTeam, an international airlines alliance and frequent flyer mileage program that includes international carriers such as, among others, Delta China Southern,Air Lines, Alitalia, Air France and KLM, on June 21, 2011.
By the end of 2015, we2011 and have entered into frequent flyer and airport lounges agreements with 20 SkyTeam member airlines and implemented code-sharing programs covering 670 routes, as well as 336 routes withnon-SkyTeam member airlines, which has further broadened the coverage ofcontinued expand our route network. By the end of 2016, we implemented code-sharing programs with 12 SkyTeam member airlinesmembers on more routes. In 2019, we further deepened and the number of code sharing routesexpanded our cooperation withnon-SkyTeam member airlines increased by 52% as compared to 2015. We also cooperated with nine SkyTeam member airlines including Delta, Air France and KLM, China, Alitalia, Garuda Indonesia and Iberia in jointcheck-ins for 21 transit points. By the end of 2017, we implemented code-sharing programs with 14 SkyTeam member airlines. The two newly cooperatedIn 2020, leveraging on the SkyTeam members areAirline Alliance platform, we enhanced our strategic cooperation with Delta Air Europa Líneas Aéreas, S.A.U. (IATA code: UX) from SpainLines, Inc. and Czech Airlines j.s.c. (IATA code: OK).Air France KLM to develop an efficient and convenient flight network covering all parts of China and connecting all parts of the world.
By connecting to the route networks of other SkyTeam member airlines, we arewere able to offer our passengers seamless transit to 2544 destinations in 15 countries under a single plane ticket with direct luggage services as of December 31, 2017.2020. Passengers may also enjoy the comfort of more than 600750 VIP airport lounges of SkyTeam around the world. 1,036 domestic and foreign destinations in 170 countries were covered through extensive global cooperation of 19 member airlines. We believe this will be another benefit for our passengers, as they will be afforded additional flight options and frequent flyer mileage benefits through our SkyTeam alliance partners. In addition, we will benefit from possible codeshare and cooperative flight options, reduced costs and increased alliance-related marketing and promotion overseas.
Tourism and Travel Services
In addition to our airline operations, we also generate commission revenues from tickets sold on behalf of other airlines. With our subsidiary, Shanghai Airlines, we derive revenue from tourism and travel services through Shanghai Airlines Tours. Shanghai Airlines Tours provides various business and leisure travel services, including inbound, outbound and domestic travel, conference and exhibition planning, flight chartering and plane ticket reservation, tour bus and hotel reservation and other related services. Shanghai Airlines Tours is a member of the China Association of Travel Services and Shanghai Association of Tourism (International and Domestic Travel Services divisions), as well as a member of Shanghai Association of Quality, and has been admitted into many international travel organizations including the IATA. Shanghai Airlines Tours has won several awards as a travel services provider, as well as awards and honors for its professional staff and vacation package offerings.
In 2017, Shanghai Airlines Tours continued to optimized its business and leisure travel services under two brands, namely, “Shanghai Airlines Travel” and “Shanghai Airlines Holiday”, by developing new tourism products and models. Shanghai Airlines Tours launched its online official store to expand its direct sale channels and consolidated its online and offline channels to make full use of its resources. It also successfully became the supplier of several government departments. In addition, Shanghai Airlines Tours strengthened the cooperation with our other subsidiaries to connect its business to ours to improve the overall service quality and performance.
Patents and Trademarks
We own or have obtained licenses to use various domestic and foreign patents, patent applications and trademarks related to our business. While patents, patent applications and trademarks are important to our competitive position, no single one is material to us as a whole. In addition, we own various trademarks related to our business. The most important trademark is the service trademark of China Eastern Airlines Corporation Limited. All of our trademarks are registered in China.
Insurance
The CAAC purchases fleet insurance from PICC Property and Casualty Company Limited (“PICC”), and China Pacific Property Insurance Company Ltd., on behalf of all Chinese airlines. PICC has reinsured a substantial portion of its aircraft insurance business through Lloyd’s of London. The fleet insurance is subject to certain deductibles. The premium payable in connection with the insurance is allocated among all Chinese airlines based on the aircraft owned or leased by these airlines. Under the relevant PRC laws, the maximum civil liability of Chinese airlines for injuries to passengers traveling on domestic flights has been increased to RMB400,000 per passenger in March 2006, for which we also purchase insurance. As of July 31, 2006, theConvention 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 100,000128,821 Special Drawing Rights and beyond that, carriers are only able to exclude liability if they can prove that the damage was not due to negligence or other wrongful act of the carrier (and its agents) or if the damage solely arose from the negligence or other wrongful act of a third party. We believe that we maintain adequate insurance coverage for the civil liability that can be imposed due to injuries to passengers under Chinese law, the Montreal Convention and any other agreement we are subject to. We also maintain hull all risk, hull war risk and aircraft legal liability insurance, including third party liability insurance, of the types and in amounts customary for Chinese airlines.
C. Organizational Structure
See the section headed “Item 4. Information on the Company —- History and Development of the Company”.
D. Property, Plant Andand Equipment
Fleet
As of December 31, 2017,2020, we operated a fleet of 637734 aircraft, including 627725 passenger aircraft, most with a seating capacity of over 100 seats and 109 business aircraft held under trust. In 2017,2020, we introduced 7313 aircraft of major models. With the introduction of B737-8MAX seriesnew aircraft, such as A350-900, B787-9and the gradual retirement of B767 series aircraft,A320NEO, our fleet age structure has been made younger. As we completed the transfer of 100% equity interest in Eastern Logistics to Eastern Investment on February 8, 2017, the fleet ceased to include the nine freighters operated by China Cargo Airlines.remained young.
We plan to continue to expand our scale in the future and to adjust and optimize our route network, thereby increasing our competitiveness and ability to create more attractive products and services to meet the needs of the market.
Existing Fleet
The following table sets forth the details of our fleet as of December 31, 2017:2020:
| Units | Units | |||||||||||||||||||||||||||||||||||||||||||
| No. | Model | Self- owned | Under finance lease | Under operating lease | Sub- total | Average fleet age (Years) | ||||||||||||||||||||||||||||||||||||||
No. Model | Self- owned | Under finance lease | Under operating lease | Sub- total | Average fleet age (Years) | |||||||||||||||||||||||||||||||||||||||
| 1 | B777-300ER | 9 | 11 | — | 20 | 1.9 | B777-300ER | 10 | 10 | 0 | 20 | 4.9 | ||||||||||||||||||||||||||||||||
| 2 | A330-300 | 1 | 17 | 7 | 25 | 6.9 | B787-9 | 3 | 7 | 0 | 10 | 1.9 | ||||||||||||||||||||||||||||||||
| 3 | A330-200 | 15 | 15 | 3 | 33 | 5.3 | A350-900 | 1 | 7 | 0 | 8 | 1.5 | ||||||||||||||||||||||||||||||||
| 4 | B767 | 4 | — | — | 4 | 19.5 | A330 series | 30 | 21 | 5 | 56 | 7.1 | ||||||||||||||||||||||||||||||||
Total number of wide-body aircraft | Total number of wide-body aircraft | 29 | 43 | 10 | 82 | 5.6 | Total number of wide-body aircraft | 44 | 45 | 5 | 94 | 5.6 | ||||||||||||||||||||||||||||||||
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| 5 | A321 | 38 | 39 | — | 77 | 4.4 | A320 series | 137 | 127 | 72 | 336 | 8.0 | ||||||||||||||||||||||||||||||||
| 6 | A320 | 79 | 52 | 48 | 179 | 7.1 | B737 series | 102 | 73 | 117 | 292 | 6.6 | ||||||||||||||||||||||||||||||||
Total number of narrow-body aircraft | Total number of narrow-body aircraft | 239 | 200 | 189 | 628 | 7.4 | ||||||||||||||||||||||||||||||||||||||
| 7 | A319 | 13 | 20 | 2 | 35 | 4.7 | ARJ21 | 2 | 1 | 0 | 3 | 0.2 | ||||||||||||||||||||||||||||||||
| 8 | B737-800 | 46 | 62 | 84 | 192 | 3.9 | ||||||||||||||||||||||||||||||||||||||
| 9 | B737-700 | 42 | 13 | 1 | 56 | 8.6 | ||||||||||||||||||||||||||||||||||||||
| 10 | B737-8MAX | — | 6 | — | 6 | 0.1 | ||||||||||||||||||||||||||||||||||||||
Total number of narrow-body aircraft | 218 | 192 | 135 | 545 | 5.5 | |||||||||||||||||||||||||||||||||||||||
Total number of regional aircraft | Total number of regional aircraft | 2 | 1 | 0 | 3 | 0.2 | ||||||||||||||||||||||||||||||||||||||
Total number of passenger aircraft | Total number of passenger aircraft | 285 | 246 | 194 | 725 | 7.1 | ||||||||||||||||||||||||||||||||||||||
Total number of business aircraft held under trust | Total number of business aircraft held under trust | 9 | ||||||||||||||||||||||||||||||||||||||||||
Total number of aircraft | Total number of aircraft | 247 | 235 | 145 | 627 | 5.5 | Total number of aircraft | 734 | ||||||||||||||||||||||||||||||||||||
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Total number of aircraft held under trust | 10 | |||||||||||||||||||||||||||||||||||||||||||
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Total number of aircraft | 637 | |||||||||||||||||||||||||||||||||||||||||||
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The table below sets forth the daily average utilization rates of our jet passenger aircraft for each of the year ended December 31, 2017:2020:
| (in hours) | ||||
B777-300ER | ||||
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A350-900 | 6.51 | |||
A330 Series | ||||
A320 Series | ||||
B737 Series | ||||
ARJ21 | 2.72 | |||
Most of our jet passenger aircraft were manufactured by either Airbus or Boeing.Boeing Company. On July 9, 2015, we entered into a purchase agreement with Boeing Company to purchase fifty new Boeing B737 series aircraft which are expected to be delivered to us in stages from 2017 to 2019. On August 14, 2015, we also entered into a purchase agreement with Airbus SAS to purchase fifteen new Airbus A330 series aircraft, which are expected to be delivered to us in stages from 2017 to 2018. On April 28, 2016, we entered into a purchase agreement with Boeing Company to purchase 15B787-9 aircraft, which are expected to be delivered to us in stages from 2018 to 2021. On the same day, we also entered into a purchase agreement with Airbus SAS to purchase 20 AirbusA350-900 series aircraft, which are expected to be delivered to us in stages from 2018 to 2022. On August 30, 2019, we entered into an aircraft purchase agreement with Commercial Aircraft Corporation of China Limited to purchase 35 ARJ21-700 aircraft, which are single-aisle regional aircraft with medium and short range and are expected to be delivered to us in stages from 2020 to 2024.
Future Fleet Development
Our aircraft acquisition program focuses on aircraft that will modernize and rationalize our fleet to better meet the anticipated requirements of our route structure, taking into account aircraft size and fuel efficiency. Our aircraft acquisition program, however, is subject to the approval of the CAAC and the NDRC. Older aircraft models of high energy-consumption will be surrendered as appropriate. Details of the expected fleet plan from 20182021 to 20192023 are as follows:
| 2018E | 2019E | 2021E | 2022E | 2023E | ||||||||||||||||||||||||||||||||||||
| Introduction | Retirement | Introduction | Retirement | Introduction | Retirement | Introduction | Retirement | Introduction | Retirement | |||||||||||||||||||||||||||||||
Model | ||||||||||||||||||||||||||||||||||||||||
Passenger aircraft | ||||||||||||||||||||||||||||||||||||||||
A319 Series | — | — | — | — | ||||||||||||||||||||||||||||||||||||
A320 Series | 16 | — | 25 | — | 27 | 6 | 34 | 5 | — | 4 | ||||||||||||||||||||||||||||||
A321 Series | — | — | — | — | ||||||||||||||||||||||||||||||||||||
A330 Series | 8 | 10 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
A350 Series | 2 | — | 5 | — | 4 | — | 8 | — | — | — | ||||||||||||||||||||||||||||||
B737 Series | — | 3 | — | 4 | 46 | 12 | ||||||||||||||||||||||||||||||||||
B787 Series | 4 | — | 6 | — | 5 | — | — | — | — | — | ||||||||||||||||||||||||||||||
B777 Series | — | — | — | — | ||||||||||||||||||||||||||||||||||||
B767 Series | — | 4 | — | — | ||||||||||||||||||||||||||||||||||||
B737 Series | 37 | 1 | 26 | — | ||||||||||||||||||||||||||||||||||||
Total number of passenger aircraft | 67 | 15 | 62 | — | ||||||||||||||||||||||||||||||||||||
ARJ Series | 6 | — | 8 | — | 9 | — | ||||||||||||||||||||||||||||||||||
Total | 43 | 9 | 52 | 9 | 57 | 16 | ||||||||||||||||||||||||||||||||||
Notes:
| (1) | We and our suppliers have engaged in proactive negotiation and adjusted the progress for the introduction of aircraft under the influence of the COVID-19 pandemic. The planning for the introduction and retirement of aircraft will be subject to timely adjustment based on the changes in external environment, market conditions and our flight capacity allocation. The timing for resumption of operation of B737 MAX 8 and future deliveries remains uncertain. |
As of December 31, 2020, according to confirmed orders, we planned to introduce nine aircraft and retire 21 aircraft in 2024.
The actual quantity and time of the introduction and retirement of any of these aircraft or any additional aircraft may depend on such factors as general economic conditions, the levels of prevailing interest rates, foreign exchange rates, the level of inflation, credit conditions in the domestic and international markets, conditions in the global aviation industry, in China and globally, our financial condition and results of operations, our financing requirements, and the terms of any financing arrangements, such as finance leases, and other capital requirements. We believe that our aircraft acquisition plan will help us accomplish our expansion plans while maintaining an efficient fleet and ensuring alternative sources of supply.
Fleet Financing Arrangements
We generally acquire aircraft through internal funds, long-term capital leases or operating leases. Under the terms of most capital leases, we generally are obligated to make lease payments that finance most of the purchase price of the aircraft over the lease term. Upon the expiration of the lease term, we must either purchase the aircraft at a specified price or pay any amount by which such price exceeds the proceeds from the disposition of the aircraft to third parties. Alternatively, some capital leases provide for ownership of the aircraft to pass to us upon satisfaction of the final lease payment. Under capital leases, aircraft are generally leased for approximately the whole of their estimated working life, and the leases are eithernon-cancelable or cancelable only on a payment of a major penalty by the lessee. As a result, we bear substantially all of the economic risks and rewards of ownership of the aircraft held under capital leases. Operating leases, however, are customarily cancelable by the lessee on short notice and without major penalty. Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Due to the adoption of IFRS 16 Leases, long-term capital lease and operating leases are both classified as leases in our financial statements. For details of the impact of IFRS 16 Leases on us, please refer to the section headed “Critical Accounting Policies” under Item 5.
Operating Facilities
As of December 31, 2017,2020, we (including subsidiaries and branches) had operations on 660 parcels of land, occupying a total area of approximately 3.64.1 million square meters. In addition, as of December 31, 2017,2020, we (including subsidiaries and branches) owned approximately 2,2042,161 buildings. We and our major subsidiaries have obtained the land use rights certificates and building ownership certificates for certainmost parcels of land and buildings, and are currently in the process of applying for the certificates with respect to the five remaining parcels.16 parcels of land and 167 buildings. We did not have any environmental issues that may have a material impact on our utilization of the assets in 2017.2020.
Item 4A. Unresolved Staff Comments
None.
Item 5. Operating and Financial Review and Prospects
You should read the following discussion in conjunction with our audited consolidated financial statements, together with the related notes, included elsewhere in this Annual Report. Our consolidated financial statements have been prepared in accordance with IFRSs. This discussion may include forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Item 3. Key information —- D. Risk Factors” or in other parts of this Annual Report.
Overview
Our primary business is the provision of domestic, regional (which includes Hong Kong, Macau and Taiwan) and international passenger services.
Our overall capacity on an available tonne kilometer, or ATK, basis increaseddecreased by approximately 9.2%38.3% from approximately 25,09833,456 million in 20162019 to approximately 27,39720,632 million in 2017 under comparable basis and decreased by 2.2% from approximately 28,002 million in 2016 to approximately 27,397 million in 2017 undernon-comparable basis,2020, and our passenger capacity on an available seat kilometer, or ASK, basis increaseddecreased by 9.6%43.7% from approximately 206,249270,254 million in 20162019 to approximately 225,996152,066 million in 2017.2020. Total traffic on a revenue tonne kilometer, or RTK, basis increaseddecreased by 8.8%48.0%, from approximately 17,33322,518 million in 20162019 to approximately 18,85611,700 million in 2017 under comparable basis and decreased by 4.3% from approximately 19,713 million in 2016 to approximately 18,856 million in 2017 undernon-comparable basis.2020.
The historical results of operations discussed in this Annual Report may not be indicative of our future operating performance. Like those of other airlines, our operations depend substantially on overall passenger and cargo traffic volumes and are subject to seasonal and other variations that may influence passenger travel demand and cargo volume and may not be under our control, including unusual political events, changes in the domestic and global economies and other unforeseen events. Our operations will be affected by, among other things, fluctuations in aviation fuel prices, aircraft acquisition and leasing costs, maintenance expenses,take-off and landing charges, wages, salaries and benefits, other operating expenses, and the rates of income taxes paid.paid and public health events such as the COVID-19 pandemic.
Our financial performance is also significantly affected by factors associated with operating in a highly regulated industry, as well as a number of other external variables, including political and economic conditions in China, competition, foreign exchange fluctuations and public perceptions of the safety of air travel with Chinese airlines. Because nearly every aspect of our airline operations is subject to the regulation of the CAAC, our operating revenues and expenses are directly affected by the CAAC regulations with respect to, among other things, domestic airfares, level of commissions paid to sales agents, the aviation fuel price,take-off and landing charges and route allocations. The nature and extent of airline competition and the ability of Chinese airlines to expand are also significantly affected by various CAAC regulations and policies. Changes in the CAAC’s regulatory policies, or in the implementation of such policies, are therefore likely to have a significant impact on our future operations.
Critical Accounting Policies
We prepare our consolidated financial statements in accordance with IFRSs which requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the accounting policies. We have established procedures and processes to facilitate the making of such judgments in the preparation of our consolidated financial statements. Management has used the best information available but actual performance may differ from our management’s estimates and future changes in key variables could change future reported amounts in our consolidated financial statements.
Revenue recognition and sales in advance of carriage
Revenue comprisesfrom contracts with customers
Revenue from contracts with customers is recognized when control of goods or services is transferred to the faircustomers at an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services.
When the consideration in a contract includes a variable amount, the amount of consideration is estimated to which we will be entitled in exchange for transferring the goods or services to the customer. The variable consideration is estimated at contract inception and constrained until it is highly probable that a significant revenue reversal in the amount of cumulative revenue recognized will not occur when the associated uncertainty with the variable consideration is subsequently resolved.
When the contract contains a financing component which provides the customer with a significant benefit of financing the transfer of goods or services to the customer for more than one year, revenue is measured at the present value of the consideration receivedamount receivable, discounted using the discount rate that would be reflected in a separate financing transaction between the customer and us at contract inception. When the contract contains a financing component which provides us with a significant financial benefit for more than one year, revenue recognized under the contract includes the interest expense accreted on the contract liability under the effective interest method. For a contract where the period between the payment by the customer and the transfer of the promised goods or receivableservices is one year or less, the transaction price is not adjusted for the provisioneffects of a significant financing component, using the practical expedient in IFRS 15.
| (i) | Passenger, cargo and mail revenues are recognized as traffic revenue when the transportation is provided or when ticket breakage occurs. The value of sold but unused tickets is included in contract liabilities as sales in advance of carriage (“SIAC”). We estimate the value of passenger ticket breakage based on historical trends and experience and recognizes revenue at the scheduled flight date. |
| (ii) | Revenues from the provision of ground services, tour services, ticket cancelation services and other travel related services are recognized when the services are rendered. |
| (iii) | Commission income represents amounts earned from other carriers in respect of sales made by us on their behalf, and is recognized upon ticket sales. |
| (iv) | We operate a frequent flyer program called “Eastern Miles” that issues mileage points to program members based on accumulated mileage. We defer a portion of passenger revenue attributable to the mileage points issued based on the relative stand-alone selling price approach and recognizes revenue when the mileage points are redeemed and performance obligations are fulfilled or the mileage points expire unused. The stand-alone selling price of the mileage points was estimated based on the historical prices of equivalent flights and goods provided for mileage points redeemed and was adjusted for mileage points that are not expected to be redeemed (“Breakage”). |
| (v) | Revenue from the sale of goods is recognized at the point in time when control of the asset is transferred to the customer. |
Revenue from other sources
Rental income is recognized on a time proportion basis over the lease terms. Variable lease payments that do not depend on an index or a rate are recognized as income in the ordinary courseaccounting period in which they are incurred.
Other income
Interest income is recognized on an accrual basis using the effective interest method by applying the rate that exactly discounts the estimated future cash receipts over the expected life of the Group’s activities. Revenue is statedfinancial instrument or a shorter period, when appropriate, to the net carrying amount of business taxes or value-added taxes, returns, rebates and discounts and after eliminating sales within the Group.financial asset.
RevenueDividend income is recognized when the shareholders’ right to receive payment has been established, it is probable that the economic benefits associated with the dividend will flow to us and the Group and whenamount of the revenuedividend can be measured reliably, onreliably.
Contract liabilities
A contract liability is recognized when a payment is received or a payment is due (whichever is earlier) from a customer before we transfer the following basis:
Passenger, cargo and mail revenuesrelated goods or services. Contract liabilities are recognized as traffic revenuesrevenue when we perform under the transportationcontract (i.e., transfers control of the related goods or services are provided. The value of sold but unused tickets is recognized as sales in advance of carriage (“SIAC”)to the customer).
Maintenance and overhaul costs
RevenuesOverhaul costs that meet specific recognition criteria are capitalized as a component of property, plant and equipment or right-of-use assets and are depreciated over the appropriate maintenance cycles.
Certain lease arrangements contain provisions that we are obligated to fulfill certain return conditions at the end of lease term. We estimate lease return costs for aircraft and engines and recognized such costs as part of the right-of-use asset and are depreciated during the lease term. (applicable from January 1, 2019)
Provision for the provision of ground services, tour, travel servicesestimated lease return costs for aircraft and engines is made on a straight-line basis over the lease term. (applicable before January 1, 2019)
All other travel related servicesrepairs and maintenance costs are recognized when the services are rendered.
Revenues from the provision of cargo handling services are recognized when the services are rendered.
Commission income represents amounts earned from other carriers in respect of sales made by the Group on their behalf, and is recognized incharged to profit or loss upon ticket sales.
Revenues from other operating businesses, including income derived from the provision of freight forwarding, are recognizedas and when the services are rendered.
The Group operates frequent flyer programs that provide travel awards to program members based on accumulated miles. A portion of passengers revenue attributable to the award of frequent flyer benefits is deferred and recognized when the miles have been redeemed or have expired.
Interest income is recognized on a time-proportion basis using the effective interest rate method.
The amount of revenue is not considered to be reliably measurable until all contingencies relating to the sale have been resolved. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.incurred.
Intangible assetsGoodwill
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred, the amount recognized fornon-controlling interests and any fair value of the Group’sour previously held equity interests in the acquiree over the identifiable net assets acquired and liabilities assumed. If the sum of this consideration and other items is lower than the fair value of the net assets acquired, the difference is, after reassessment, recognized in profit or loss as a gain on bargain purchase.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. The Group performs itsWeperform our annual impairment test of goodwill as atof December 31. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’sour cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Groupours are assigned to those units or groups of units.
Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash-generating units) to which the goodwill relates. Where the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the carrying amount, an impairment loss is recognized. An impairment loss recognized for goodwill is not reversed in a subsequent period.
Acquired computer software licenses are capitalizedWhere goodwill has been allocated to a cash-generating unit (or group of cash-generating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on the basisdisposal. Goodwill disposed of in these circumstances is measured based on the relative value of the costs incurred to acquireoperation disposed of and bring to use the specific software. These costs are amortized usingportion of the straight-line method over their estimated useful lives of 5 years. Costs associated with developing or maintaining computer software programs are recognized as expenses when incurred.
Others relate to the capitalized costs incurred to acquire the use right of certain flight schedules (i.e. timeslots for flights’ taking off/landing) in Guangzhou Baiyun International Airport Co., Ltd. and Shanghai Pudong International Airport, respectively. These costs are amortized using the straight-line method over their useful lives of 3 years.cash-generating unit retained.
Property, plant and equipment
Property, plant and equipment, other than construction in progress, are stated at cost less accumulated depreciation and any impairment losses. When an item of property, plant and equipment is classified as held for sale or when it is part of a disposal group classified as held for sale, it is not depreciated and is accounted for in accordance with IFRS 5, as further explained in the accounting policy for“Non-current assets and disposal groups held for sale”. The cost of an item of property, plant and equipment comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use.
When each major aircraft overhaul is performed, its cost is recognized in the carrying amount of the item of property, plant and equipment and is depreciated over the appropriate maintenance cycles. Components related to airframe overhaul cost, are depreciated on a straight-line basis over 5 to 7.5 years. Components related to engine overhaul costs, are depreciated between each overhaul period using the ratio of actual flying hours and estimated flying hours between overhauls. Upon completion of an overhaul, any remaining carrying amount of the cost of the previous overhaul is derecognized and charged to profit or loss.
Except for components related to overhaul costs, the depreciation method of which has been described in the preceding paragraph, other depreciation of property, plant and equipment is calculated using the straight-line method to write off their costs to their residual values over their estimated useful lives, as follows:
Owned | ||
Other flight equipment, including rotables | 10 years | |
Buildings | 8 to | |
Other property, plant and equipment | 3 to 20 years |
Where parts of an item of property, plant and equipment have different useful lives, the cost of that item is allocated on a reasonable basis among the parts and each part is depreciated separately. Residual values, useful lives and the depreciation method are reviewed, and adjusted if appropriate, at least at each financial year end.
An item of property, plant and equipment including any significant part initially recognized is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on disposal or retirement recognized in the statement of profit or loss in the year the asset is derecognized is the difference between the net sales proceeds and the carrying amount of the relevant asset.
Construction in progress represents a building under construction, which is stated at cost less any impairment losses, and is not depreciated. Cost comprises the direct costs of construction and capitalized borrowing costs on related borrowed funds during the period of construction. Construction in progress is reclassified to the appropriate category of property, plant and equipment when completed and ready for use.
Impairment of non-financial assets (other than goodwill)
Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than inventories, deferred tax assets, financial assets, and non-current assets/a disposal group classified as held for sale), the asset’s recoverable amount is estimated. An asset’s recoverable amount is the higher of the asset’s or cash-generating unit’s value in use and its fair value less costs of disposal, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is determined for the cash-generating unit to which the asset belongs. We owned and leased aircraft and engines are included in the airline transportation operations cash-generating unit. Management uses the value in use of the cash-generating unit of airline transportation operations to determine the recoverable amount.
An impairment loss is recognized only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is charged to profit or loss in the period in which it arises in those expense categories consistent with the function of the impaired asset.
An assessment is made at the end of each reporting period as to whether there is an indication that previously recognized impairment losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognized impairment loss of an asset other than goodwill is reversed only if there has been a change in the estimates used to determine the recoverable amount of that asset, but not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortization) had no impairment loss been recognized for the asset in prior years. A reversal of such an impairment loss is credited to profit or loss in the period in which it arises, unless the asset is carried at a revalued amount, in which case the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.
Investments and other financial assets
Initial recognition and measurement
Financial assets are classified, at initial recognition, as subsequently measured at amortized cost, fair value through other comprehensive income, and fair value through profit or loss.
The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and our business model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which we have applied the practical expedient of not adjusting the effect of a significant financing component, initially we measure a financial asset at its fair value, plus in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or for which we have applied the practical expedient are measured at the transaction price determined under IFRS 15 in accordance with the policies set out for “Revenue recognition”.
In order for a financial asset to be classified and measured at amortized cost or fair value through other comprehensive income, it needs to give rise to cash flows that are solely payments of principal and interest (“SPPI”) on the principal amount outstanding. Financial assets with cash flows that are not SPPI are classified and measured at fair value through profit or loss, irrespective of the business model.
Our business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both. Financial assets classified and measured at amortized cost are held within a business model with the objective to hold financial assets in order to collect contractual cash flows, while financial assets classified and measured at fair value through other comprehensive income are held within a business model with the objective of both holding to collect contractual cash flows and selling. Financial assets which are not held within the aforementioned business models are classified and measured at fair value through profit or loss.
All regular way purchases and sales of financial assets are recognized on the trade date, that is, the date that we commit to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace.
Subsequent measurement
The subsequent measurement of financial assets depends on their classification as follows:
Financial assets at amortized cost (debt instruments)
Financial assets at amortized cost are subsequently measured using the effective interest method and are subject to impairment. Gains and losses are recognized in the statement of profit or loss when the asset is derecognized, modified or impaired.
Financial assets at fair value through other comprehensive income (debt instruments)
For debt investments at fair value through other comprehensive income, interest income, foreign exchange revaluation and impairment losses or reversals are recognized in the statement of profit or loss and computed in the same manner as for financial assets measured at amortized cost. The remaining fair value changes are recognized in other comprehensive income. Upon derecognition, the cumulative fair value change recognized in other comprehensive income is recycled to the statement of profit or loss.
Financial assets designated at fair value through other comprehensive income (equity investments)
Upon initial recognition, we can elect to classify irrevocably its equity investments as equity investments designated at fair value through other comprehensive income when they meet the definition of equity under IAS 32 Financial Instruments: Presentation and are not held for trading. The classification is determined on an instrument-by-instrument basis.
Gains and losses on these financial assets are never recycled to the statement of profit or loss. Dividends are recognized as other income in the statement of profit or loss when the right of payment has been established, it is probable that the economic benefits associated with the dividend will flow to us and the amount of the dividend can be measured reliably, except when we benefit from such proceeds as a recovery of part of the cost of the financial asset, in which case such gains are recorded in other comprehensive income. Equity investments designated at fair value through other comprehensive income are not subject to impairment assessment.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value recognized in the statement of profit or loss.
This category includes derivative instruments and equity investments which we had not irrevocably elected to classify at fair value through other comprehensive income. Dividends on equity investments classified as financial assets at fair value through profit or loss are also recognized as other income in the statement of profit or loss when the right of payment has been established, it is probable that the economic benefits associated with the dividend will flow to us and the amount of the dividend can be measured reliably.
A derivative embedded in a hybrid contract, with a financial liability or non-financial host, is separated from the host and accounted for as a separate derivative if the economic characteristics and risks are not closely related to the host; a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and the hybrid contract is not measured at fair value through profit or loss. Embedded derivatives are measured at fair value with changes in fair value recognized in the statement of profit or loss. Reassessment only occurs if there is either a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required or a reclassification of a financial asset out of the fair value through profit or loss category.
A derivative embedded within a hybrid contract containing a financial asset host is not accounted for separately. The financial asset host together with the embedded derivative is required to be classified in its entirety as a financial asset at fair value through profit or loss.
Impairment of financial assets
We recognize an allowance for expected credit losses (“ECLs”) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that we expect to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.
General approach
ECLs are recognized in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12 months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).
At each reporting date, we assess whether the credit risk on a financial instrument has increased significantly since initial recognition. When making the assessment, we compare the risk of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument as at the date of initial recognition and considers reasonable and supportable information that is available without undue cost or effort, including historical and forward-looking information.
We consider a financial asset in default when contractual payments are past due. However, in certain cases, we may also consider a financial asset to be in default when internal or external information indicates that we are unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by us. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.
Debt investments at fair value through other comprehensive income and financial assets at amortized cost are subject to impairment under the general approach and they are classified within the following stages for measurement of ECLs except for trade receivables and contract assets which apply the simplified approach as detailed below.
| Stage 1 – | Financial instruments for which credit risk has not increased significantly since initial recognition and for which the loss allowance is measured at an amount equal to 12-month ECLs | |
| Stage 2 – | Financial instruments for which credit risk has increased significantly since initial recognition but that are not credit-impaired financial assets and for which the loss allowance is measured at an amount equal to lifetime ECLs | |
| Stage 3 – | Financial assets that are credit-impaired at the reporting date (but that are not purchased or originated credit-impaired) and for which the loss allowance is measured at an amount equal to lifetime ECLs | |
Simplified approach
For trade receivables and contract assets that do not contain a significant financing component or when we apply the practical expedient of not adjusting the effect of a significant financing component, we apply the simplified approach in calculating ECLs. Under the simplified approach, we do not track changes in credit risk, but instead recognizes a loss allowance based on lifetime ECLs at each reporting date. We have established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.
Derivative financial instruments and hedge accounting
Initial recognition and subsequent measurement
We use derivative financial instruments, such as forward currency contracts, interest rate swaps and fuel forward contracts, to hedge its foreign currency risk, interest rate risk and fuel price risk, respectively. Such derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.
The fair value of commodity purchase contracts that meet the definition of a derivative as defined by IFRS 9 is recognized in the statement of profit or loss as cost of sales. Commodity contracts that are entered into and continue to be held for the purpose of the receipt or delivery of a non-financial item in accordance with our expected purchase, sale or usage requirements are held at cost.
Any gains or losses arising from changes in fair value of derivatives are taken directly to the statement of profit or loss, except for the effective portion of cash flow hedges, which is recognized in other comprehensive income and later reclassified to profit or loss when the hedged item affects profit or loss.
For the purpose of hedge accounting, hedges are classified as:
fair value hedges when hedging the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment; or
cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction, or a foreign currency risk in an unrecognized firm commitment; or
hedges of a net investment in a foreign operation.
At the inception of a hedge relationship, we formally designate and documents the hedge relationship to which we wish to apply hedge accounting, the risk management objective and its strategy for undertaking the hedge.
The documentation includes identification of the hedging instrument, the hedged item, the nature of the risk being hedged and how we will assess whether the hedging relationship meets the hedge effectiveness requirements (including the analysis of sources of hedge ineffectiveness and how the hedge ratio is determined). A hedging relationship qualifies for hedge accounting if it meets all of the following effectiveness requirements:
There is “an economic relationship” between the hedged item and the hedging instrument.
The effect of credit risk does not “dominate the value changes” that result from that economic relationship.
The hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that we actually hedge and the quantity of the hedging instrument that we actually use to hedge that quantity of hedged item.
Hedges which meet all the qualifying criteria for hedge accounting are accounted for as follows:
Cash flow hedges
The effective portion of the gain or loss on the hedging instrument is recognized directly in other comprehensive income in the cash flow hedge reserve, while any ineffective portion is recognized immediately in the statement of profit or loss. The cash flow hedge reserve is adjusted to the lower of the cumulative gain or loss on the hedging instrument and the cumulative change in fair value of the hedged item.
The amounts accumulated in other comprehensive income are accounted for, depending on the nature of the underlying hedged transaction. If the hedged transaction subsequently results in the recognition of a non-financial item, the amount accumulated in equity is removed from the separate component of equity and included in the initial cost or other carrying amount of the hedged asset or liability. This is not a reclassification adjustment and will not be recognized in other comprehensive income for the period. This also applies where the hedged forecast transaction of a non-financial asset or non-financial liability subsequently becomes a firm commitment to which fair value hedge accounting is applied.
For any other cash flow hedges, the amount accumulated in other comprehensive income is reclassified to the statement of profit or loss as a reclassification adjustment in the same period or periods during which the hedged cash flows affect the statement of profit or loss.
If cash flow hedge accounting is discontinued, the amount that has been accumulated in other comprehensive income must remain in accumulated other comprehensive income if the hedged future cash flows are still expected to occur. Otherwise, the amount will be immediately reclassified to the statement of profit or loss as a reclassification adjustment. After the discontinuation, once the hedged cash flow occurs, any amount remaining in accumulated other comprehensive income is accounted for depending on the nature of the underlying transaction as described above.
Fair value hedges
The change in the fair value of a hedging instrument is recognized in the statement of profit or loss as other expenses. The change in the fair value of the hedged item attributable to the risk hedged is recorded as a part of the carrying amount of the hedged item and is also recognized in the statement of profit or loss as other expenses.
For fair value hedges relating to items carried at amortized cost, the adjustment to carrying value is amortized through the statement of profit or loss over the remaining term of the hedge using the effective interest rate method. Effective interest rate amortization may begin as soon as an adjustment exists and shall begin no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged. If the hedged item is derecognized, the unamortized fair value is recognized immediately in the statement of profit or loss.
When an unrecognized firm commitment is designated as a hedged item, the subsequent cumulative change in the fair value of the firm commitment attributable to the hedged risk is recognized as an asset or liability with a corresponding gain or loss recognized in the statement of profit or loss. The changes in the fair value of the hedging instrument are also recognized in the statement of profit or loss.
Current versus non-current classification
Derivative instruments that are not designated as effective hedging instruments are classified as current or non-current or separated into current and non-current portions based on an assessment of the facts and circumstances (i.e., the underlying contracted cash flows).
Where we expect to hold a derivative as an economic hedge (and does not apply hedge accounting) for a period beyond 12 months after the end of the reporting period, the derivative is classified as non-current (or separated into current and non-current portions) consistently with the classification of the underlying item.
Embedded derivatives that are not closely related to the host contract are classified consistently with the cash flows of the host contract.
Derivative instruments that are designated as, and are effective hedging instruments, are classified consistently with the classification of the underlying hedged item. The derivative instruments are separated into current portions and non-current portions only if a reliable allocation can be made.
Leases (policies under IFRS 16 applicable from January 1, 2019)
We assess at contract inception whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
| (i) | As lessee |
We apply a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. We recognize lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.
| (a) | Right-of-use assets |
Right-of-use assets are recognized at the commencement date of the lease (that is the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and any impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. The cost of a right-of-use asset also includes an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease terms and the estimated useful lives of the assets as follows:
| Aircraft and engines under leases | 5 to 20 years | |
| Buildings | 2 to 10 years | |
| Prepayments for land use rights | 40 to 50 years | |
| Others | 2 to 5 years |
If ownership of the leased asset transfers to us by the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset.
| (i) | Lease liabilities |
Lease liabilities are recognized at the commencement date of the lease at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by us and payments of penalties for termination of a lease, if the lease term reflects us exercising the option to terminate the lease. The variable lease payments that do not depend on an index or a rate are recognized as an expense in the period in which the event or condition that triggers the payment occurs.
In calculating the present value of lease payments, we use its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in lease payments (e.g., a change to future lease payments resulting from a change in an index or rate) or a change in assessment of an option to purchase the underlying asset.
| (ii) | Short-term leases and leases of low-value assets |
We apply the short-term lease recognition exemption to its short-term leases (that is those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). We also apply the recognition exemption for leases of low-value assets to leases of assets that are considered to be of low value. Lease payments on short-term leases and leases of low-value assets are recognized as an expense on a straight-line basis over the lease term.
| (ii) | As lessor |
When we act as a lessor, it classifies at lease inception (or when there is a lease modification) each of its leases as either an operating lease or a finance lease.
Leases in which we do not transfer substantially all the risks and rewards incidental to ownership of an asset are classified as operating leases. When a contract contains lease and non-lease components, we allocate the consideration in the contract to each component on a relative stand-alone selling price basis. Rental income is accounted for on a straight-line basis over the lease terms and is included in revenue in the statement of profit or loss due to its operating nature. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income. Contingent rents are recognized as revenue in the period in which they are earned.
Leases that transfer substantially all the risks and rewards incidental to ownership of an underlying asset to the lessee are accounted for as finance leases.
Leases (applicable before January 1, 2019)
| (i) | As lessee |
Finance leases
Leases where the Group haswe have acquired substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalized at the lease’s commencement at the lower of the fair value of the assets and the present value of the minimum lease payments.
Each lease payment is allocated between the liability and finance charges. The corresponding rental obligations, net of finance charges, are included in the current portion of obligationobligations under finance leases and obligations under finance leases, respectively. The interest element of the finance costs is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Leased assets are depreciated using a straight-line basis over their expected useful lives to residual values.
For sale and leaseback transactions resulting in a finance lease, we continue to recognize the sales proceeds are recorded astransferred asset and recognize a borrowing andfinancial liability equal to the relevant assets are continued to be measured at their carry value.transfer proceeds.
Operating leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on a straight-line basis over the period of the lease.
For sale and leaseback transactions resulting in an operating lease, differences between sales proceeds and net book values are recognized immediately in profit or loss, except to the extent that any profit or loss is compensated for by future lease payments at above or below the market value, then the profit or loss is deferred and amortized over the period for which the asset is expected to be used.
| (ii) | As lessor |
Assets leased out under operating leases are included in property, plant and equipment in the statement of financial position. They are depreciated over their expected useful lives on a basis consistent with similar property, plant and equipment. Rental income is recognized on a straight-line basis over the lease term.
Retirement benefits
| (i) | Defined contribution plans |
The Group participatesWe participate in schemes regarding pension and medical benefits for employees organized by the municipal governments of the relevant provinces. Contributions to these schemes are expensed as incurred.
The GroupWe also implementedimplement an additional defined contribution pension benefit scheme (annuity) for voluntary eligible employees. Contributions are made based on a percentage of the employees’ total salaries and are charged to profit or loss as incurred.
| (ii) | Defined benefit plan |
The Group providesWe provide eligible retirees with certain post-retirement benefits including retirement subsidies, transportation allowance as well as other welfare. The defined post-retirement benefits are unfunded. The cost of providing benefits under the post-retirement benefit plan is determined using the projected unit credit actuarial valuation method.
Remeasurements arising from the post-retirement benefit plan, comprising actuarial gains and losses, the effect of the asset ceiling (excluding net interest) and the return on plan assets (excluding net interest), are recognized immediately in the consolidated statement of financial position with a corresponding debit or credit to equity through other comprehensive income in the period in which they occur. Remeasurements are not reclassified to profit or loss in subsequent periods.
Past service costs are recognized in profit or loss at the earlier of:
| (i) | the date of the plan amendment or curtailment; and |
| (ii) | the date that we recognize restructuring-related costs |
Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. The Group recognizesWe recognize the following changes in the net defined benefit obligation under “Wages, salaries and benefits” and “Finance costs” in profit or loss:
| (i) | service costs comprising current service costs, past-service costs, gains and losses on curtailments and non-routine settlements; and |
| (ii) | net interest expense
|
Income tax
Income tax comprises current and deferred tax. Income tax relating to items recognized outside profit or loss is recognized outside profit or loss, either in other comprehensive income or directly in equity.
Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period, taking into consideration interpretations and practices prevailing in the countries in which the Group operates.we operate.
Deferred tax is provided, using the liability method, on all temporary differences at the end of the reporting period between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred tax liabilities are recognized for all taxable temporary differences, except:
when the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
in respect of taxable temporary differences associated with investments in subsidiaries, associates and joint ventures, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred tax assets are recognized for all deductible temporary differences, and the carryforward of unused tax credits and any unused tax losses. Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carryforward of unused tax credits and unused tax losses can be utilized, except:
in respect of deductible temporary differences associated with investments in subsidiaries, associates and joint ventures, deferred tax assets are only recognized to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at the end of each reporting period and are recognized to the extent that it has become probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.
Deferred tax assets and deferred tax liabilities are offset if and only if the Group haswe have a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realize the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.
Critical Accounting Estimates and Judgments
Estimates and judgments used in preparing the financial statements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Group makesWe make estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
Revenue recognitionPassenger ticket breakage
The Group recognizesWe recognize traffic revenues in accordance with the accounting policy stated in note 3Note 2.4 to the consolidated financial statements. Unused tickets arePassenger ticket breakage is recognized in traffic revenues upon legal expiration. Management periodically evaluatesas revenue based on estimates. We estimate the balance invalue of passenger ticket breakage, reduces contract liabilities and recognizes revenue at the SIACscheduled flight date using a portfolio based approach. The breakage rate is estimated and records any adjustments, which can be material, inconstrained by reference to the period the evaluation is completed.
These adjustments result from differences between the estimateshistorical trend of certain revenue transactions and the timing of recognizing revenue for any unused air tickets and the related sales price, and are impacted by various factors, including a complex pricing structure and interline agreements throughout the industry, which affect the timing of revenue recognition.passenger ticket breakage.
FrequentRecognition of contract liabilities for frequent flyer program
The Group operatesPassenger ticket sales earning mileage points under the Company’s frequent flyer programs thatprogram provide travel awards to program members based on accumulated miles.customers with mileage points earned and air transportation. A portion of passengers’passenger revenue attributable to the award credits of frequent flyer benefitsmileage points issued is deferred and recognized when the award credits have been redeemed or have expired. The deferment of revenue is calculated based on the relative stand-alone selling price approach. Significant assumptions are used in determining the estimated fair valuesstand-alone selling price of mileage points, including the unredeemed award creditshistorical prices of equivalent flights and expected redemption rate. The fair values of the unredeemed award credits is estimated based on the yearly average flight ticket prices and the expected redemption rategoods provided, which is estimated by reference to the quantitative value a program member receives by redeeming mileage points for flights and goods, and the estimated Breakage. The Breakage is estimated considering historical redemption pattern, current industry and economic trends and other relevant factors. Changes in the significant assumptions could have a significant effect on the balance of redemptions.contract liabilities for frequent flyer program and the results of operations.
Provision for lease return costs for aircraft and engines
Provision for lease return costs for aircraft and engines is recognized as part of the right-of-use assets and are depreciated during the lease term. The estimation of the provision is made taking into account anticipated aircraft and engines’ utilization patterns and the anticipated return costs derived from historical experience of actual return costs incurred. Different judgments or estimates could significantly affect the estimated provision for frequent flyer programs and the results of operations.
Provision forlease return costs of return condition checks for aircraft under operating leases
Provision for the estimated costs of return condition checks for aircraft and engines under operating leases is made based on the estimated costs for such return condition checks and taking into account anticipated flying hours, flying cycle and time frame between each overhaul. These judgments or estimates are based on historical experience on returning similar airframe models, actual costs incurred and aircraft status. Different judgments or estimates could significantly affect the estimated provision for costs of return condition checks.engines.
Retirement benefits
The Group operatesWe operate and maintainsmaintain a defined retirement benefit plan which provides eligible retirees with benefits including retirement subsidies, traveltransportation allowance as well as other welfare. The cost of providing the aforementioned benefits in the defined retirement benefit plan is actuarially determined and recognized over the employee’s service period by utilizing various actuarial assumptions and using the projected unit credit method in accordance with the accounting policy stated in note 3Note 2.4 to the consolidated financial statements. These assumptions include, without limitation, the selection of discount rate and annual rate of increase of per capita benefit payment and etc..payment. The discount rate is based on management’s review of government bonds. The annual rate of increase of benefit payments is based on the general local economic conditions.
Additional information regarding the retirement benefit plan is disclosed in note 37Note 38 to the consolidated financial statements.
Deferred income tax
In assessingDeferred tax assets are recognized for unused tax losses and deductible temporary difference to the extent that it is probable that taxable profit will be available against which the losses and deductible temporary difference can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that need tocan be recognized, in accordance withbased upon the accounting policy stated in note 3 to the financial statements, the Group considerslikely timing and level of future taxable income and ongoing prudent and feasibleprofits together with future tax planning strategies. In the event that the Group’s estimates of projected future taxable income and benefits from available tax strategies are changed, or changes in current tax regulations are enacted that would impact the timing or extent of the Group’s ability to utilize the tax benefits of deductible tax losses carried forward in the future, adjustments to the recorded amount of net deferred tax assets and taxation expense would be made.
Provision for flight equipment spare parts
Provision for flight equipment spare parts is made based on the difference between the carrying amount and the net realizable value. The net realizable value is estimated based on current market condition, historical experience and the Company’s future operation plan for the aircraft and related spare parts. The net realizable value may be adjusted significantly due to the change of market condition and the future plan for the aircraft and related spare parts.
Depreciation of property, plant and equipment
Depreciation of components related to airframe and engine overhaul costs is based on the Group’s historical experience with similar airframe and engine models and taking into account anticipated overhaul costs, timeframe between each overhaul, ratio of actual flying hours and estimated flying hours between overhauls. Different judgments or estimates could significantly affect the estimated depreciation charge and the results of operations.
Except for components related to engine overhaul costs, other 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 useful lives are based on the Group’s historical experience with similar assets and taking into account anticipated technological changes. The Group reviews the estimated useful lives of assets regularly in order to determine the amount of depreciation expense to be recorded during any reporting period. The depreciation expense for future periods is adjusted if there are significant changes from previous estimates.
Estimated impairment of property, plant and equipment and intangiblelong-term assets (other than goodwill)
The Group testsWe test whether property, plant and equipment, right-of-use assets, intangible assets (other than goodwill), advanced payments on acquisition of aircraft and intangibleother non-current assets have been impaired in accordance with the accounting policy stated in note 3Note 2.4 to the consolidated financial statements. The recoverable amount of the cash-generating unit has been determined based on the higher of its value in use and its fair value less cost to sell andvalue-in-use calculations.Value-in-use calculations usecosts of disposal. The cash flow projections used to determine the value in use of a cash-generating unit, including the airline transportation operations cash-generating unit, is based on financial budgets approved by management and certain keysignificant assumptions, such as passenger-kilometers yield level, load factor, aircraft utilizationrevenue growth rates and the discount rate and discount rates.applied to the projected cash flows. These assumptions may be affected by unexpected changes in future market or economic conditions.
Impairment of goodwill
The Group determinesWe determine whether goodwill is impaired at least on an annual basis. This requires an estimation of the recoverable amount which is the higher of its value in use and its fair value less costs of disposal. We use the value in use of the cash-generating unit to which the goodwill is allocated. Estimatingallocated to determine the recoverable amount. The cash flow projections used to determine the value in use of a cash-generating unit, including the airline transportation operations cash-generating unit, is based on significant assumptions, such as revenue growth rate, terminal growth rate and the discount rate applied to the projected cash flows. These assumptions may be affected by unexpected changes in future market or economic conditions.
Fair value of unlisted equity investments
The unlisted equity investments have been valued based on a market-based valuation technique as detailed in Note 47 to the consolidated financial statements. The valuation requires us to determine the Groupcomparable companies (peers) and select the price multiple. In addition, we make estimates about the discount for illiquidity and size differences. We classify the fair value hierarchy of these investments as Level 3.
Leases – Estimating the incremental borrowing rate (applicable from January 1, 2019)
We cannot readily determine the interest rate implicit in a lease, and therefore, it uses an incremental borrowing rate (“IBR”) to measure lease liabilities. The IBR is the rate of interest that we would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The IBR therefore reflects what we “would have to pay”, which requires estimation when no observable rates are available (such as for subsidiaries that do not enter into financing transactions) or when it needs to be adjusted to reflect the terms and conditions of the lease (for example, when leases are not in the subsidiary’s functional currency). We estimate the IBR using observable inputs (such as market interest rates) when available and is required to make an estimate ofcertain entity-specific estimates (such as the expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows.
Operating Segments
In accordance with IFRS 8, segment disclosure has been presented in a manner that is consistent with the information used by the our chief operating decision-maker (“CODM”). Our CODM monitors the results, assets and liabilities attributable to each reportable segment based on financial results prepared under the PRC Accounting Standards for Business Enterprises (the “PRC Accounting Standards”), which differ from IFRSs in certain aspects. The amount of each material reconciling items from the Group’s reportable segment revenue and profit before income tax, arising from different accounting policies are set out in note 7(c) below.subsidiary’s stand-alone credit rating) when necessary.
A. Operating Result
The following tables set forth our summary consolidated statements of profit or loss and other comprehensive income and financial position data as of and for the years indicated:
| Year Ended December 31, | ||||||||||||||||||||
| 2016 | 2017 | 2018 | 2019 | 2020 | ||||||||||||||||
| RMB | RMB | RMB | RMB | RMB | ||||||||||||||||
| (in millions, except per share or per ADS data) | ||||||||||||||||||||
Consolidated Statements of Profit or Loss and Other Comprehensive Income Data: | ||||||||||||||||||||
Revenues | 98,904 | 102,475 | 115,278 | 120,986 | 58,727 | |||||||||||||||
Other operating income and gains | 5,469 | 7,481 | 6,592 | 7,202 | 5,698 | |||||||||||||||
Operating expenses (1) | (91,887 | ) | (100,525 | ) | (112,561 | ) | (118,107 | ) | (78,265 | ) | ||||||||||
Operating profit /(loss) | 12,486 | 9,431 | 9,309 | 10,081 | (13,840 | ) | ||||||||||||||
Finance costs, net | (6,176 | ) | (1,072 | ) | (5,657 | ) | (6,064 | ) | (2,553 | ) | ||||||||||
Profit /(loss) before income tax | 6,497 | 8,610 | 3,856 | 4,299 | (16,488 | ) | ||||||||||||||
Profit /(loss) for the year attributable to the equity holders of the Company | 4,498 | 6,342 | 2,698 | 3,192 | (11,836 | ) | ||||||||||||||
Basic and fully diluted earnings /(loss) per share (2) | 0.33 | 0.44 | 0.19 | 0.21 | (0.72 | ) | ||||||||||||||
| Year Ended December 31, | ||||||||||||||||||||
2013 RMB | 2014 RMB | 2015 RMB | 2016 RMB | 2017 RMB | ||||||||||||||||
| (in millions, except per share or per ADS data) | ||||||||||||||||||||
Consolidated Statements of Profit or Loss and Other |
| |||||||||||||||||||
Revenues | 88,245 | 90,185 | 93,969 | 98,904 | 102,475 | |||||||||||||||
(Loss)/gain on fair value changes of derivative financial instruments | 18 | 11 | 6 | 2 | (311 | ) | ||||||||||||||
Other operating income and gains | 2,725 | 3,685 | 5,269 | 5,469 | 7,481 | |||||||||||||||
Operating expenses | (89,412 | ) | (87,823 | ) | (86,619 | ) | (91,889 | ) | (100,525 | ) | ||||||||||
Operating profit | 1,576 | 6,058 | 12,625 | 12,486 | 9,431 | |||||||||||||||
Finance income / (costs), net | 576 | (2,072 | ) | (7,110 | ) | (6,176 | ) | (1,072 | ) | |||||||||||
Profit before income tax | 2,217 | 4,113 | 5,667 | 6,497 | 8,610 | |||||||||||||||
Profit for the year attributable to the equity holders of the Company | 2,373 | 3,410 | 4,537 | 4,498 | 6,342 | |||||||||||||||
Basic and fully diluted earnings per share(1) | 0.20 | 0.27 | 0.35 | 0.33 | 0.44 | |||||||||||||||
| As of December 31, | ||||||||||||||||||||
| 2016 | 2017 | 2018 | 2019 | 2020 | ||||||||||||||||
| RMB | RMB | RMB | RMB | RMB | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
Consolidated Statements of Financial Position Data: | ||||||||||||||||||||
Cash and cash equivalents | 1,695 | 4,605 | 646 | 1,350 | 7,651 | |||||||||||||||
Net current liabilities | (52,194 | ) | (62,035 | ) | (57,132 | ) | (58,620 | ) | (77,310 | ) | ||||||||||
Non-current assets | 196,436 | 211,434 | 223,085 | 265,442 | 262,152 | |||||||||||||||
Long term borrowings, including current portion | (29,749 | ) | (28,842 | ) | (32,506 | ) | (31,137 | ) | (39,429 | ) | ||||||||||
Lease liabilities, including current portion | — | — | — | (110,275 | ) | 96,251 | ||||||||||||||
Obligations under finance leases, including current portion | (61,041 | ) | (66,868 | ) | (77,427 | ) | — | — | ||||||||||||
Total share capital and reserves attributable to the equity holders of the Company | 49,450 | 55,360 | 58,008 | 69,008 | 56,249 | |||||||||||||||
Non-current liabilities | (91,876 | ) | (90,621 | ) | (104,352 | ) | (134,176 | ) | (125,688 | ) | ||||||||||
Total assets less current liabilities | 144,242 | 149,399 | 165,953 | 206,822 | 184,842 | |||||||||||||||
Notes:
| As of December 31, | ||||||||||||||||||||
2013 RMB | 2014 RMB | 2015 RMB | 2016 RMB | 2017 RMB | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
Consolidated Statements of Financial Position Data: |
| |||||||||||||||||||
Cash and cash equivalents | 1,995 | 1,355 | 9,080 | 1,695 | 4,605 | |||||||||||||||
Net current liabilities | (40,472 | ) | (42,887 | ) | (51,309 | ) | (52,194 | ) | (62,035 | ) | ||||||||||
Non-current assets | 127,458 | 147,586 | 174,914 | 196,436 | 211,434 | |||||||||||||||
Long term borrowings, including current portion | (36,175 | ) | (41,210 | ) | (43,675 | ) | (29,749 | ) | (28,842 | ) | ||||||||||
Obligations under finance leases, including current portion | (23,135 | ) | (38,695 | ) | (52,399 | ) | (61,041 | ) | (66,868 | ) | ||||||||||
Total share capital and reserves attributable to the equity holders of the Company | 26,902 | 29,974 | 37,411 | 49,450 | 55,360 | |||||||||||||||
Non-current liabilities | (58,404 | ) | (72,928 | ) | (83,674 | ) | (91,876 | ) | (90,621 | ) | ||||||||||
Total assets less current liabilities | 86,986 | 104,699 | 123,605 | 144,242 | 149,399 | |||||||||||||||
| (1) | Including gain on fair value changes of |
| (2) | The calculation of earnings per share for 2016 is based on the net profit attributable to the equity holders of the Company divided by the weighted average number of 13,811,136,000 ordinary shares in issue. The calculation of earnings per share for 2017 is based on the net profit attributable to the equity holders of the Company divided by the weighted average number of 14,467,585,682 ordinary shares in issue. The calculation of earnings per share for 2018 is based on the net profit attributable to the equity holders of the Company divided by the weighted average number of 14,467,585,682 ordinary shares in issue. The calculation of earnings per share for 2019 is based on the net profit attributable to the equity holders of the Company divided by the weighted average number of 15,104,893,522 ordinary shares in issue. The calculation of loss per share for 2020 is based on the net loss attributable to the equity holders of the Company divided by the weighted average number of 16,379,509,203 ordinary shares in issue. |
20172020 Compared to 2016
Revenues2019
Our revenues increaseddecreased by approximately 3.6%51.5% from approximately RMB120,986 million in 2019 to approximately RMB58,727 million in 2020.
In 2020, we transported approximately 75 million passengers, representing a decrease of approximately 42.7%, from approximately RMB98,904 million in 2016 to approximately RMB102,475 million in 2017. Revenues increased in our passenger business operations, primarily due to increased passenger demand and increase in scheduled flights, which was partially offset by decreased revenue in our cargo and mail business operations, primarily due to disposal of Eastern Logistics in 2017.
In 2017, we transported approximately 111 million passengers, representing an increase of approximately 8.9%, from approximately 102130 million passengers in 2016.2019. Our total passenger traffic (as measured in RPKs) increaseddecreased by approximately 9.3%51.6%, from approximately 167,529221,779 million in 20162019 to approximately 183,182107,273 million in 2017.2020.
Our total cargo and mail traffic (as measured in RFTKs) increased by approximately 6.7%, from approximately 2,495 million in 2016 to approximately 2,663 million in 2017 under comparable basis and decreased by approximately 45.4%26.0% from approximately 4,8752,971 million in 20162019 to approximately 2,6632,200 million in 2017 undernon-comparable basis.2020.
Our average yield for our passenger operations remained relatively stable at RMB0.517decreased by approximately 5.6% from approximately RMB0.52 per passenger-kilometers in 2016 and RMB0.5212019 to approximately RMB0.49 per passenger-kilometers in 2017.2020.
Our average yield for our cargo and mail operations increased by approximately 8.8%72.8% from approximately RMB1.25RMB1.29 per freight tonne-kilometers in 20162019 to approximately RMB1.36RMB2.23 per freight tonne-kilometers in 2017.2020.
The following chart sets forth our revenue breakdown for 20162019 and 2017:2020:
Year Ended December 31 | 2017 vs. 2016 | Year Ended December 31 | 2020 vs. 2019 | |||||||||||||||||||||||||||||
| 2016 | 2017 | Increase (Decrease) | % Increase (Decrease) | 2019 | 2020 | Increase (Decrease) | % Increase (Decrease) | |||||||||||||||||||||||||
| (in millions of RMB) | (in RMB millions) | |||||||||||||||||||||||||||||||
Traffic revenues | 89,554 | 95,187 | 5,633 | 6.3 | 114,242 | 54,110 | (60,132 | ) | (52.6 | ) | ||||||||||||||||||||||
Passenger revenue | 83,577 | 91,564 | 7,987 | 9.6 | 110,416 | 49,215 | (61,201 | ) | (55.4 | ) | ||||||||||||||||||||||
Cargo and mail revenue | 5,977 | 3,623 | (2,354 | ) | (39.4 | ) | 3,826 | 4,895 | 1,069 | 27.9 | ||||||||||||||||||||||
Others(1) | 9,350 | 7,288 | (2,062 | ) | (22.1 | ) | 6,744 | 4,617 | (2,127 | ) | (31.5 | ) | ||||||||||||||||||||
Total Operating Revenue | 98,904 | 102,475 | 3,571 | 3.6 | 120,986 | 58,727 | (62,259 | ) | (51.5 | ) | ||||||||||||||||||||||
Notes:
| (1) | Including tour operations income, ground service income, |
Passenger revenues
Our passenger traffic revenues increaseddecreased by approximately RMB7,987RMB61,201 million, or approximately 9.6%55.4%, from approximately RMB83,577RMB110,416 million in 20162019 to approximately RMB91,564RMB49,215 million in 2017.2020. This increasedecrease was primarily due to increaseddecreased passenger demand and increasedecrease in scheduled flights as well as robust demand for outbound tourism.resulting from the COVID-19 pandemic.
Our domestic passenger traffic revenues (excluding Hong Kong, Macau and Taiwan passenger revenues), amounted to approximately RMB40,343 million in 2020, which accounted for approximately 65.7%82.0% of our total passenger traffic revenues in 2017, increased2020, decreased by approximately 11.2%44.6% from approximately RMB54,137RMB72,764 million in 2016 to approximately RMB60,180 million in 2017,2019, primarily due to increaseddecreased passenger demand. Compared to 2017, ourdemand resulting from the COVID-19 pandemic. Our domestic passenger traffic (as measured in RPKs) increaseddecreased by approximately 10.0%32.7% from approximately 106,361142,921 million in 20162019 to approximately 117,03396,206 million in 2017.2020. The number of passengers carried on domestic routes increaseddecreased by approximately 10.0%33.9% from approximately 84109 million in 20162019 to approximately 9372 million in 2017.2020. Our passenger-kilometers yield for domestic routes remained relatively stable at RMB0.53decreased from approximately RMB0.54 per passenger-kilometer in 2016 and RMB0.542019 to approximately RMB0.46 per passenger-kilometer in 2017.2020.
Our regional passenger traffic revenues (representing Hong Kong, Macau and Taiwan passenger revenues) amounted to approximately RMB405 million in 2020, which accounted for approximately 3.7%0.8% of our total passenger traffic revenues in 2017, increased2020, decreased by approximately 11.1%89.0% from approximately RMB3,078RMB3,686 million in 2016 to approximately RMB3,420 million in 2017,2019, primarily due to the increasedecrease of passenger volume.volume resulting from the COVID-19 pandemic. Our regional passenger traffic (as measured in RPKs) increaseddecreased by approximately 9.5% in 201790.9% from approximately 4,347RMB5,046 million in 20162019 to approximately 4,758RMB458 million in 2017.2020. The number of passengers carried on Hong Kong, Macau and Taiwan routes increaseddecreased by approximately 9.3%90.6% from approximately 3.23.7 million in 20162019 to approximately 3.50.3 million in 2017.2020. Our passenger-kilometers yield for regional routes remained relatively stable at RMB0.71increased from approximately RMB0.74 per passenger-kilometer in 2016 and RMB0.722019 to approximately RMB0.90 per passenger-kilometer in 2017.2020.
InternationalOur international passenger traffic revenues amounted to approximately RMB8,467 million in 2020, which accounted for approximately 30.6%17.2% of our total passenger traffic revenues in 2017, increased2020, decreased by approximately 6.1%75.1% from approximately RMB26,362RMB33,966 million in 2016 to approximately RMB27,964 million in 2017. The increase was2019, primarily due to increaseddecreased international passenger demand and increasedecrease in our scheduled flights on international routes.routes resulting from the COVID-19 pandemic. Our international passenger traffic (as measured in RPKs) increaseddecreased by approximately 8.0% in 201785.6% from approximately 56,821RMB73,812 million in 20162019 to approximately 61,391RMB10,609 million in 2017.2020. The number of passengers carried on international routes increaseddecreased by approximately 2.5%87.3% from approximately 14.317.6 million in 20162019 to approximately 14.72.2 million in 2017.2020. Our passenger-kilometers yield for international routes remained relatively stable at RMB0.471increased from approximately RMB0.47 per passenger-kilometer in 2016 and RMB0.4702019 to approximately RMB0.82 per passenger-kilometer in 2017.2020.
Cargo and mail revenues
Our cargo and mail traffic revenues decreased by approximately 39.4%, from approximately RMB5,977 million in 2016 to approximately RMB3,623 million in 2017, which accounted for approximately 3.8%9.0% of our total traffic revenues in 2017.2020 and increased by approximately 27.9% from RMB3,826 million in 2019 to RMB4,895 million in 2020, primarily due to the passenger flights to transport pandemic prevention supplies. Cargo and mail yield increased by approximately 8.8% from approximately RMB1.25RMB1.29 per freight tonne-kilometers in 20162019 to approximately RMB1.36RMB2.23 per freight tonne-kilometers in 2017.2020.
Our domestic cargo and mail traffic revenues (excluding Hong Kong, Taiwan and Macau cargo and mail revenues), which accounted for approximately 27.2%15.4% of our total cargo and mail traffic revenues in 2017,2020 and decreased by approximately 24.7% from approximately RMB1,026RMB998 million in 20162019 to approximately RMB985RMB751 million in 2017. This decrease was2020, primarily due to the disposal of our interest in Eastern Logistics.above-mentioned reason. Our freight tonne-kilometers yield for domestic routes remained relatively stable at RMB1.07 in 2016 and RMB1.10 in 2017 under non-comparable basis. Ourwas approximately RMB1.05 per freight tonne-kilometers yield for domestic routes remained stable at RMB1.10 in 20162019 and RMB1.10approximately RMB0.97 per freight tonne-kilometers in 2017 under comparable basis.2020.
Our regional cargo and mail traffic revenues (representing Hong Kong, Macau and Taiwan cargo and mail traffic revenues), amounted to approximately RMB84 million in 2020, which accounted for approximately 4.4%1.7% of our total cargo and mail traffic revenues in 2017,2020, decreased by approximately 57.5%,47.2% from approximately RMB374 million in 2016 to approximately RMB159 million in 2017, mainly due to the disposal of our interest in Eastern Logistics.2019. Our freight tonne-kilometers yield for regional routes increased from RMB2.98 in 2016 to RMB3.56 in 2017 under non-comparable basis. Ourwas approximately RMB5.56 per freight tonne-kilometers yield for regional routes increased from RMB3.04 in 2016 to RMB3.562019 and approximately RMB8.91 per freight tonne-kilometers in 2017 under comparable basis.2020.
International cargo and mail traffic revenues which accounted for approximately 68.4%82.9% of our total cargo and mail traffic revenues in 2017, decreased2020 and increased by approximately 45.8%,52.1% from approximately RMB4,576RMB2,669 million in 20162019 to approximately RMB2,478RMB4,060 million in 2017, mainly2020, primarily due to the disposal of our interest in Eastern Logistics.above-mentioned reason. Our freight tonne-kilometers yield for international routes increased from RMB1.24 in 2016 to RMB1.44 in 2017 under non-comparable basis. Ourwas approximately RMB1.34 per freight tonne-kilometers yield for international routes increased from RMB1.30 in 2016 to RMB1.442019 and approximately RMB2.87 per freight tonne-kilometers in 2017 under comparable basis.2020.
Other revenues
We also generated revenues from other services, including tour operations, airport ground services cargo handling and processing services and ticket handling services. These services include loading and unloading of cargo, aircraft cleaning and ground transportation of cargo and passenger luggage for aircraft arriving at or departing from Hongqiao International Airport and Pudong International Airport of Shanghai. We are currently the principal provider of airport ground services at both Hongqiao International Airport and Pudong International Airport. Our total other revenues decreased by approximately 22.1%31.5% from approximately RMB9,350RMB6,744 million in 20162019 to approximately RMB7,288RMB4,617 million in 2017,2020, primarily due to disposalthe impact of Eastern Logistics, which also handles certain airport ground services, cargo handling and processing services.the COVID-19 pandemic.
Operating Expenses
The following chart sets forth a breakdown of our operating expenses for the years ended December 31, 20162019 and 2017:2020:
| 2017 vs. 2016 | 2019 vs. 2020 | |||||||||||||||||||||||||||||||
| Year Ended December 31 | (Increase) Decrease | % Increase (Decrease) | Year Ended December 31 | (Increase) | % Increase | |||||||||||||||||||||||||||
| 2016 | 2017 | 2019 | 2020 | Decrease | (Decrease) | |||||||||||||||||||||||||||
| (in millions of RMB) | (in RMB millions) | |||||||||||||||||||||||||||||||
Operating Expenses: | ||||||||||||||||||||||||||||||||
Aircraft fuel expenses | (19,626 | ) | (25,131 | ) | (5,505 | ) | 28.0 | |||||||||||||||||||||||||
Aircraft fuel | (34,191 | ) | (13,840 | ) | 20,351 | (59.5 | ) | |||||||||||||||||||||||||
Take-off and landing charges | (12,279 | ) | (13,254 | ) | (975 | ) | 7.9 | (16,457 | ) | (9,331 | ) | 7,126 | (43.3 | ) | ||||||||||||||||||
Depreciation and amortization | (12,154 | ) | (13,969 | ) | (1,815 | ) | 14.9 | (22,080 | ) | (22,255 | ) | (175 | ) | 0.8 | ||||||||||||||||||
Wages, salaries and benefits | (18,145 | ) | (20,320 | ) | (2,175 | ) | 12.0 | (24,152 | ) | (20,827 | ) | 3,325 | (13.8 | ) | ||||||||||||||||||
Aircraft maintenance | (4,960 | ) | (5,346 | ) | (386 | ) | 7.8 | (3,380 | ) | (3,451 | ) | (71 | ) | 2.1 | ||||||||||||||||||
Impairment charges | (29 | ) | (491 | ) | (462 | ) | 1,593.1 | (4 | ) | (184 | ) | (180 | ) | 4,500.0 | ||||||||||||||||||
Impairment losses on financial assets, net | (16 | ) | (32 | ) | (16 | ) | 100.0 | |||||||||||||||||||||||||
Food and beverages | (2,862 | ) | (3,090 | ) | (228 | ) | 8.0 | (3,667 | ) | (1,589 | ) | 2,078 | (56.7 | ) | ||||||||||||||||||
Aircraft operating lease rentals | (4,779 | ) | (4,318 | ) | 461 | (9.6 | ) | |||||||||||||||||||||||||
Other operating lease rentals | (868 | ) | (836 | ) | 32 | (3.7 | ) | |||||||||||||||||||||||||
Low value and short-term lease rentals | (631 | ) | (358 | ) | 273 | (43.3 | ) | |||||||||||||||||||||||||
Selling and marketing expenses | (3,133 | ) | (3,294 | ) | (161 | ) | 5.1 | (4,134 | ) | (1,570 | ) | 2,564 | (62.0 | ) | ||||||||||||||||||
Civil aviation development fund | (1,945 | ) | (2,080 | ) | (135 | ) | 6.9 | (1,831 | ) | — | 1,831 | (100.0 | ) | |||||||||||||||||||
Ground services and other expenses | (5,058 | ) | (3,248 | ) | 1,810 | (35.8 | ) | (2,476 | ) | (872 | ) | 1,604 | (64.8 | ) | ||||||||||||||||||
(Loss)/gain on fair value changes of derivative financial instruments | 2 | (311 | ) | (313 | ) | (15,650.0 | ) | |||||||||||||||||||||||||
Fair value changes of financial asset at fair value through profit or loss | 25 | (26 | ) | (51 | ) | (204.0 | ) | |||||||||||||||||||||||||
Indirect operating expenses | (6,051 | ) | (4,837 | ) | 1,214 | (20.0 | ) | (5,113 | ) | (3,930 | ) | 1,183 | (23.1 | ) | ||||||||||||||||||
Total Operating Expense | (91,887 | ) | (100,525 | ) | (8,638 | ) | 9.4 | |||||||||||||||||||||||||
Total Operating Expenses | (118,107 | ) | (78,265 | ) | 39,842 | (33.7 | ) | |||||||||||||||||||||||||
Our total operating expenses increaseddecreased by approximately 9.4%33.7% from approximately RMB91,887RMB118,107 million in 20162019 to approximately RMB100,525RMB78,265 million in 2017 primarily due to2020. As affected by the influence of further expansion of our operational scale and the rapid growth inCOVID-19 pandemic, the passenger traffic volume and the number of passengers carried. Ourcarried significantly reduced, and our various costs such as aircraft fuel, aircraft take-off and landing costs food and beverages, and depreciation and amortization increasedcatering also decreased from the previouslast year. Our total operating expenses accounted for
Aircraft fuel costs decreased by approximately 98.1% of our operating revenue in 2017, representing an increase59.5% from approximately 92.9% in 2016.
Aircraft fuel expenses increased by approximately 28.0% from approximately RMB19,626RMB34,191 million in 20162019 to approximately RMB25,131RMB13,840 million in 2017.2020. The increasedecrease was primarily due to the increasea decline in our fuel consumption by 38.5% and a drop in the volumeaverage price of refuelingfuel by 4.5% and average fuel price by 22.5%.34.2% from last year, both of which are attributable to the impact of the COVID-19 pandemic.
Take-off and landing charges which accounted for 13.2% of our total operating expenses in 2017, increaseddecreased by 7.9%43.3% from approximately RMB12,279RMB16,457 million in 20162019 to approximately RMB13,254RMB9,331 million in 2017,2020, primarily due to the increasesignificant decrease in traffic volume as we significantly adjusted our numberflight capacity as a result of flights and the increasesignificant decrease in our number of take-offs and landings. Meanwhile,passenger travel demand as affected by the domestictake-offCOVID-19 and landing charges increased due to the adjustment of pricing standards of China’s airports (CAAC 2017 Notice No. 18).pandemic.
Depreciation and amortization increased byremaining relatively stable at approximately 14.9% from approximately RMB12,154RMB22,080 million in 2016 to2019 and approximately RMB13,969RMB22,255 million in 2017, primarily due to the net addition of aircraft self owned and under finance leases to our fleet in 2017. The increase in the number of aircraft and engines led to an increase in the original value of fixed assets and a corresponding increase in depreciation.2020.
Wages, salaries and benefits, which accounted for approximately 20.2%26.6% of our total operating expenses in 2017, increased2020, decreased by approximately 12.0%13.8% from approximately RMB18,145RMB24,152 million in 20162019 to approximately RMB20,320RMB20,827 million in 2017,2020, primarily due to the combined effect of the increasedecrease in the number of flight-crew and maintenance personnel, the increase in flight hours and the rise in the standard flight hour fees. Additional information regarding the changes in our retirement benefits is disclosed in Note 37flights, leading to the consolidated financial statements.decrease in remuneration of aircrew and ground crew.
Aircraft maintenance expenses was approximately RMB3,451 million in 2020, which accounted for approximately 5.3%4.4% of our total operating expenses in 2017, increased2020, remaining relatively stable as last year.
Food and beverages expenses decreased by approximately 7.8%56.7% from approximately RMB4,960RMB3,667 million in 20162019 to approximately RMB5,346RMB1,589 million in 2017,2020, primarily due to the net addition of nine wide-body aircraft and 46 narrow-body aircraft, which led to an increasesignificant decrease in maintenance fees for aircraft and engines.
Food and beverage expenses increased by approximately 8.0% from approximately RMB2,862 million in 2016 to approximately RMB3,090 million in 2017, primarily due to the increase in the number of passengers carried and the rise in standards required for the provision of catering.
Aircraft operating lease rentals decreased by approximately 9.6% from approximately RMB4,779 million in 2016 to approximately RMB4,318 million in 2017, primarily due to the decrease of seven cargo aircraft under operating leases upon the disposaltraffic volume as we adjusted our flight capacity as a result of the equity interestsignificant decrease in Eastern Logistics.
Other operating lease rentals decreasedpassenger travel demand as affected by approximately 3.7% from approximately RMB868 million in 2016 to approximately RMB836 million in 2017, primarily due to the decrease of fees for ground assets under lease.COVID-19 pandemic.
Selling and marketing expenses increaseddecreased by approximately 5.1%62.0% from approximately RMB3,133RMB4,134 million in 20162019 to approximately RMB3,294RMB1,570 million in 2017,2020, primarily due to the increasesignificant decrease in a variety of our businesses in line with the proportiondeceased relevant opearting cost as a result of direct sales for the year.significant decrease in passenger travel demand as affected by the COVID-19 pandemic.
The amount ofWe recorded no civil aviation development fund to the CAAC increased by approximately 6.9% from approximately RMB1,945in 2020 while our civil aviation development fund to the CAAC was RMB1,831 million in 2016 to approximately RMB2,080 million in 2017, primarily2019, due to CAAC’s exemption of contribution to the increase incivil aviation development fund as a result of the lengthimpanct of miles flown in 2017.the COVID-19 pandemic.
Ground services and other expenses decreased by approximately 35.8%64.8% from approximately RMB5,058RMB2,476 million in 20162019 to approximately RMB3,248RMB872 million in 2017,2020, primarily due to the disposalsignificant decrease in a variety of interestour businesses in Eastern Logisticsline with the deceased relevant opearting cost as a result of the significant decrease in 2017.passenger travel demand as affected by the COVID-19 pandemic.
Indirect operating expenses decreased by approximately 20.0%23.1% from approximately RMB6,051RMB5,113 million in 20162019 to approximately RMB4,837RMB3,930 million in 2017,2020, primarily due to the disposalsignificant decrease in a variety of interestour businesses in Eastern Logisticsline with the deceased relevant opearting cost as a result of the significant decrease in 2017.
Fair Value Changes of Derivative Financial Instruments
Changes in fair value of derivative financial instruments was recorded a loss of approximately RMB311 million in 2017,passenger travel demand as compared to a gain of approximately RMB2 million in 2016. The difference was mainly due toaffected by the fair value movement of forward foreign exchange contracts in 2017.COVID-19 pandemic.
Other Operating Income and Gains
Our other operating income and gains mainly consistsconsist of subsidyco-operation routes income, from cooperative routes, the rest being income from disposal of a subsidiaryproperty, plant and income from government grants.equipment and subsidy income. The total amount of our other operating income and gains increaseddecreased by approximately 36.8%20.9% from approximately RMB5,469RMB7,202 million in 20162019 to approximately RMB7,481RMB5,698 million in 2017,2020, primarily due to the disposalsignificant reduction in our income from joint routes as a result of interest in Eastern Logistics.the impact of the COVID-19 pandemic.
Net Finance Income/Costs
In 2017,2020, our finance income wasamounted to approximately RMB2,112RMB2,660 million, representing an increase of approximately RMB2,016 millionincreased significantly from approximately RMB96 million in 2016. Finance2019; our finance costs amounted to approximately RMB3,184RMB5,213 million, in 2017, representing a decrease of 15.4% from approximately RMB3,088RMB6,160 million in 2016,2019, which were primarily due to netour exchange gains arising fromof RMB2,494 million in 2020, as compared to the appreciationexchange losses of RMB of approximately RMB2,001RMB990 million during the year.in 2019.
Loss/Profit Attributable to the Equity Holders of the Company
As a result of the foregoing, we recorded a net loss attributable to the equity holders at approximately RMB11,836 million in 2020 while the net profit attributable to the equity holders of the Company increased byamounted to approximately 41.0% from approximately RMB4,498RMB3,192 million in 2016 to approximately RMB6,342 million in 2017. The increase is mainly2019, primarily due to the increasesignificant reduction in our revenue and other operating income and gains.as a result of the impact of the COVID-19 pandemic.
Property, Plant and Equipment
We had approximately RMB166,856RMB101,043 million of property, plant and equipment as of December 31, 2017,2020, including, among other assets, aircraft, engines and flight equipment, representing a 8.9% increase fromremaining relatively stable as compared to approximately RMB153,180RMB99,437 million in 2016. The increase is mainly due to an increase in the numberas of aircraft.December 31, 2019.
20162019 Compared to 2015
Revenues2018
Our revenues increased by 5.3%,approximately 5.0% from RMB93,969approximately RMB115,278 million in 20152018 to RMB98,904approximately RMB120,986 million in 2016. Revenues increased in our passenger business operations, primarily due to increased passenger demand, aircraft utilization rates and increase in scheduled flights, which was partially offset by decreased revenue in our cargo and mail business operations, primarily due to a general slowdown of the global economy that affected cargo demand and, consequently, our cargo volumes.2019.
In 2016,2019, we transported 101.74approximately 130 million passengers, representing an increase of 8.5%approximately 7.5%, from 93.8approximately 121 million passengers in 2015.2018. Our total passenger traffic (as measured in RPKs) increased by 14.5%approximately 10.1%, from 146,342approximately 201,486 million passenger-kilometers in 20152018 to 167,529approximately 221,779 million passenger-kilometers in 2016 and our2019.
Our total cargo and mail traffic (as measured in RFTKs) increased by 0.2%,approximately 14.8% from 4,865approximately 2,588 million freight tonne-kilometers in 20152018 to 4,875approximately 2,971 million freight tonne- kilometers in 2016. 2019.
Our average yield for our passenger operations decreased by 7.2% from RMB0.56remained relatively stable at RMB0.54 per passenger-kilometerpassenger-kilometers in 2015 to2018 and RMB0.52 per passenger-kilometers in 2016.2019.
Our average yield for our cargo and mail operations decreased by 6.3%,approximately 8.1% from RMB1.33approximately RMB1.40 per tonne-kilometerfreight tonne-kilometers in 20152018 to RMB1.25RMB1.29 per tonne-kilometerfreight tonne-kilometers in 2016, primarily due to slumping cargo market and increasing competition from logistic companies that affected cargo demand and shipping fees.2019.
The following chart sets forth our revenue breakdown for 20152018 and 2016:2019:
| Year Ended December 31 | 2019 vs. 2018 | |||||||||||||||||||||||||||||||
| Year Ended December 31 | 2016 vs. 2015 | 2018 | 2019 | Increase | % Increase | |||||||||||||||||||||||||||
| 2015 | 2016 | Increase (Decrease) | % Increase (Decrease) | (Decrease) | (Decrease) | |||||||||||||||||||||||||||
| (in millions of RMB) | (in RMB millions) | |||||||||||||||||||||||||||||||
Traffic revenues | 85,076 | 89,554 | 4,478 | 5.3 | 107,936 | 114,242 | 6,306 | 5.8 | ||||||||||||||||||||||||
Passenger revenue | 78,585 | 83,577 | 4,992 | 6.4 | 104,309 | 110,416 | 6,107 | 5.9 | ||||||||||||||||||||||||
Cargo and mail revenue | 6,491 | 5,977 | (514 | ) | (7.9 | ) | 3,627 | 3,826 | 199 | 5.5 | ||||||||||||||||||||||
Others(1) | 8,893 | 9,350 | 457 | 5.1 | 7,342 | 6,744 | (598 | ) | (8.1 | ) | ||||||||||||||||||||||
Total Operating Revenue | 93,969 | 98,904 | 4,935 | 5.3 | 115,278 | 120,986 | 5,708 | 5.0 | ||||||||||||||||||||||||
Notes:
Including tour operations income, ground service income, |
Passenger revenues
Our passenger traffic revenues increased by RMB4,992approximately RMB6,107 million, or 6.4%approximately 5.9%, from RMB78,585approximately RMB104,309 million in 20152018 to RMB83,577approximately RMB110,416 million in 2016.2019. This increase was primarily due to increased passenger demand aircraft utilization rates and increase in scheduled flights, as well as actively seizing the opportunities brought by the international low oil prices and robust demand for outbound tourism.flights.
Our domestic passenger traffic revenues (excluding Hong Kong, Macau and Taiwan passenger revenues), amounted to approximately RMB72,764 million in 2019, which accounted for 64.8%approximately 65.9% of our total passenger traffic revenues in 2016,2019, increased by 5.1%,approximately 6.0% from RMB51,523approximately RMB68,619 million in 2015 to 54,137 million in 2016,2018, primarily due to increased passenger demand. Compared to 2015, ourOur domestic passenger traffic (as measured in RPKs) increased by 8.2%,approximately 10.9% from 98,304approximately 128,906 million in 20152018 to 106,361approximately 142,921 million in 2016.2019. The number of passengers carried on domestic routes increased by 7.4%,approximately 7.7% from 78.4approximately 101 million in 20152018 to 84.2approximately 109 million in 2016.2019. Our passenger-kilometers yield for domestic routes decreased by 2.6% from RMB0.55remained relatively stable at approximately RMB0.56 per passenger-kilometer in 2015 to 0.532018 and approximately RMB0.54 per passenger-kilometer in 2016.2019.
Our regional passenger traffic revenues (representing Hong Kong, Macau and Taiwan passenger revenues) amounted to approximately RMB3,686 million in 2019, which accounted for 3.7%approximately 3.3% of our total passenger traffic revenues in 2016,2019, decreased by 1.6%,approximately 3.5% from RMB3,129approximately RMB3,821 million in 2015 to RMB3,078 million in 2016,2018, primarily due to the decrease of passenger volume. Our regional passenger traffic (as measured in our passenger-kilometers yield for regional routes.RPKs) decreased by approximately 4.6% from approximately 5,289 million in 2018 to approximately 5,046 million in 2019. The number of passengers carried on Hong Kong, Macau and Taiwan routes increaseddecreased by 4.0%,approximately 4.1% from 3.1approximately 3.9 million in 20152018 to 3.22approximately 3.7 million in 2016.2019. Our passenger-kilometers yield for regional routes decreased fromremained relatively stable at approximately RMB0.73 per passenger-kilometer in 2015 to 0.712018 and approximately RMB0.74 per passenger-kilometer in 2016.2019.
InternationalOur international passenger traffic revenues amounted to approximately RMB33,966 million in 2019, which accounted for 31.5%approximately 30.8% of our total passenger traffic revenues in 2016,2019, increased by 10.2%,approximately 6.6% from RMB23,933approximately RMB31,869 million in 2015 to RMB26,362 million in 2016. The increase was2018, primarily due to increased international passenger demand increased aircraft utilization rates and increase in our scheduled flights on international routes. Our international passenger traffic (as measured in RPKs) increased by 29.6% in 2016,approximately 9.7% from RMB43,848approximately 67,290 million in 20152018 to RMB56,821approximately 73,812 million in 2016.2019. The number of passengers carried on international routes increased by 16.8%,approximately 9.2% from 12.3approximately 16.1 million in 20152018 to 14.3approximately 17.6 million in 2016.2019. Our passenger-kilometers yield for international routes decreased from RMB0.56remained relatively stable at approximately RMB0.49 per passenger-kilometer in 2015 to2018 and approximately RMB0.47 per passenger-kilometer in 2016.2019.
Cargo and mail revenues
Our cargo and mail traffic revenues decreased by 7.9%, from RMB6,491 million in 2015 to RMB5,977 million in 2016, which accounted for 6.7%approximately 3.4% of our total traffic revenues in 2016.2019 and increased by approximately 5.5% from RMB3,627 million in 2018 and approximately RMB3,826 million in 2019. Cargo and mail yield decreased by 6.3% from RMB1.33remained relatively stable at approximately RMB1.4 per freight tonne-kilometers in 2015 to RMB1.252018 and approximately RMB1.3 per freight tonne-kilometers in 2016 per cargo tonne-kilometer, primarily due to the increased competition from other cargo carriers, which resulted in decreased shipping fees.2019.
Our domestic cargo and mail traffic revenues (excluding Hong Kong, Taiwan and Macau cargo and mail revenues), which accounted for 17.2%approximately 26.1% of our total cargo and mail traffic revenues in 2016, decreased from RMB1,0362019 and remained relatively stable at approximately RMB989 million in 2015 to RMB1,0262018 and approximately RMB998 million in 2016. This decrease was primarily due to the increased competition from private owned logistic companies, which resulted in decreased shipping fees and cargo.2019. Our freight tonne-kilometers yield for domestic routes decreased from RMB1.09was approximately RMB1.12 per tonne-kilometerfreight tonne-kilometers in 2015 to RMB1.072018 and approximately RMB1.05 per tonne-kilometerfreight tonne-kilometers in 2016.2019.
Our regional cargo and mail traffic revenues (representing Hong Kong, Macau and Taiwan cargo and mail traffic revenues), amounted to approximately RMB159 million in 2019, which accounted for 6.3%approximately 4.2% of our total cargo and mail traffic revenues in 2016, slightly2019, decreased by 1.6%,approximately 18.9% from RMB380approximately RMB196 million in 20152018, mainly due to RMB374 million in 2016.the decreased cargo transportation demand. Our freight tonne-kilometers yield for regional routes decreased from RMB3.01remained relatively stable at approximately RMB5.57 per tonne-kilometerfreight tonne-kilometers in 2015 to RMB2.982018 and approximately RMB5.56 per tonne-kilometerfreight tonne-kilometers in 2016.2019.
International cargo and mail traffic revenues which accounted for 76.5%approximately 69.7% of our total cargo and mail traffic revenues in 2016, decreased2019 and increased by 9.8%,approximately 9.3% from RMB5,075approximately RMB2,442 million in 20152018 to RMB4,576approximately RMB2,669 million in 2016, due to increased competition from foreign cargo carriers which resulted in decreased shipping fees.2019. Our prices for cargo and mail transportation on international routes also decreased as our freight tonne-kilometers yield for international routes decreased fromwas approximately RMB1.47 per freight tonne-kilometers in 2018 and approximately RMB1.34 per tonne-kilometerfreight tonne-kilometers in 2015 to RMB1.24 per tonne-kilometer in 2016.2019.
Other revenues
We also generated revenues from other services, including tour operations, airport ground services cargo handling services and ticket handling services. These services include loading and unloading of cargo, aircraft cleaning and ground transportation of cargo and passenger luggage for aircraft arriving at or departing from Hongqiao International Airport and Pudong International Airport of Shanghai. We are currently the principal provider of airport ground services at both Hongqiao International Airport and Pudong International Airport. Our total other revenues increaseddecreased by 5.1%,approximately 8.1% from RMB8,893approximately RMB7,342 million in 20152018 to 9,350approximately RMB6,744 million in 2016.2019, primarily due to the decrease in the revenue generating from tourism services as a result of the disposal of Shanghai Airlines Tour in 2019.
Operating Expenses
The following chart sets forth a breakdown of our operating expenses for the years ended December 31, 20152018 and 2016:2019:
| 2016 vs. 2015 | 2018 vs. 2019 | |||||||||||||||||||||||||||||||
Year Ended December 31 | Increase (Decrease) | % Increase (Decrease) | Year Ended December 31 | (Increase) | % Increase | |||||||||||||||||||||||||||
| 2015 | 2016 | 2018 | 2019 | Decrease | (Decrease) | |||||||||||||||||||||||||||
| (in millions of RMB) | (in RMB millions) | |||||||||||||||||||||||||||||||
Operating Expenses: | ||||||||||||||||||||||||||||||||
Aircraft fuel expenses | (20,312 | ) | (19,626 | ) | (686 | ) | (3.4 | ) | (33,680 | ) | (34,191 | ) | (511 | ) | 1.5 | |||||||||||||||||
Takeoff and landing charges | (10,851 | ) | (12,279 | ) | 1,428 | 13.2 | ||||||||||||||||||||||||||
Take-off and landing charges | (14,914 | ) | (16,457 | ) | (1,543 | ) | 10.3 | |||||||||||||||||||||||||
Depreciation and amortization | (10,471 | ) | (12,154 | ) | 1,683 | 16.1 | (15,313 | ) | (22,080 | ) | (6,767 | ) | 44.2 | |||||||||||||||||||
Wages, salaries and benefits | (16,459 | ) | (18,145 | ) | 1,686 | 10.2 | (22,134 | ) | (24,152 | ) | (2,018 | ) | 9.1 | |||||||||||||||||||
Aircraft maintenance | (4,304 | ) | (4,960 | ) | 656 | 15.2 | (3,738 | ) | (3,380 | ) | 358 | (9.6 | ) | |||||||||||||||||||
Impairment charges | (228 | ) | (29 | ) | (199 | ) | (87.3 | ) | (318 | ) | (4 | ) | 314 | (98.7 | ) | |||||||||||||||||
Impairment losses on financial assets, net | (27 | ) | (16 | ) | 11 | (40.7 | ) | |||||||||||||||||||||||||
Food and beverages | (2,469 | ) | (2,862 | ) | 393 | 15.9 | (3,383 | ) | (3,667 | ) | (284 | ) | 8.4 | |||||||||||||||||||
Low value and short-term lease rentals | — | (631 | ) | (631 | ) | 100.0 | ||||||||||||||||||||||||||
Aircraft operating lease rentals | (4,254 | ) | (4,779 | ) | 525 | 12.3 | (4,306 | ) | — | 4,306 | (100.0 | ) | ||||||||||||||||||||
Other operating lease rentals | (812 | ) | (868 | ) | 56 | 6.9 | (928 | ) | — | 928 | (100.0 | ) | ||||||||||||||||||||
Selling and marketing expenses | (3,651 | ) | (3,133 | ) | (518 | ) | (14.2 | ) | (3,807 | ) | (4,134 | ) | (327 | ) | 8.6 | |||||||||||||||||
Civil aviation development fund | (1,826 | ) | (1,945 | ) | 119 | 6.5 | (2,235 | ) | (1,831 | ) | 404 | (18.1 | ) | |||||||||||||||||||
Ground services and other expenses | (5,479 | ) | (5,058 | ) | (421 | ) | 7.7 | (2,845 | ) | (2,476 | ) | 369 | (13.0 | ) | ||||||||||||||||||
Fair value changes of financial asset at fair value through profit or loss | (27 | ) | 25 | 52 | (192.6 | ) | ||||||||||||||||||||||||||
Fair value changes of derivative financial instruments | 311 | — | (311 | ) | (100.0 | ) | ||||||||||||||||||||||||||
Indirect operating expenses | (5,503 | ) | (6,051 | ) | 548 | 10.0 | (5,217 | ) | (5,113 | ) | 104 | (2.0 | ) | |||||||||||||||||||
Total Operating Expense | (86,619 | ) | (91,889 | ) | 5,270 | 6.1 | (112,561 | ) | (118,107 | ) | (5,546 | ) | 4.9 | |||||||||||||||||||
Our total operating expenses increased by 6.1%,approximately 4.9% from RMB86,619approximately RMB112,561 million in 20152018 to RMB91,889approximately RMB118,107 million in 2016 primarily due to2019. Under the influence of further expansion of our operational scale andas well as the rapid growth in the passenger traffic volume and the number of passengers carried, our various costs such as aircraft fuel expenses, aircraft take-off and landing costs, food and beverages, andcatering, depreciation and amortization increased from the previous year.2018. Our total operating expenses as a percentageaccounted for approximately 97.6% of our operating revenues increased from 92.2%revenue in 2015 to 92.9% in 2016.2019, remaining the same as 2018.
Aircraft fuel expenses decreasedincreased by 3.4%,approximately 1.5% from RMB20,312approximately RMB33,680 million in 20152018 to RMB19,626approximately RMB34,191 million in 2016.2019. The decreaseincrease was primarily due to an increase in our volume of refueling of 6.8% as compared to 2018, leading to an increase in aircraft fuel costs of RMB2,289 million, partially offset by the decrease in our average price of fuel by 13.62%, partially offset by an increaseof 4.9% as compared to 2018, leading to a decrease in ourvolumeaircraft fuel costs of refueling by 11.9%.RMB1,778 million.
Take-off and landing charges which accounted for 13.4% of our total operating expenses in 2016, increased by 13.2%,10.3% from RMB10,851approximately RMB14,914 million in 20152018 to RMB12,279approximately RMB16,457 million in 2016,2019, primarily due to the increaseexpansion of our operational scale and the growth in ourthe number of flightstake-off and the increase in our number of take-offslanding flight and landings. In particular, the numerous international routes newly launched by us and the increase in our number of flights for the North American routes led to more frequent international takeoffs and landings of wide-body aircrafts.passenger transportation volume.
Depreciation and amortization increased by 16.1%,approximately 44.2% from RMB10,471approximately RMB15,313 million in 20152018 to RMB12,154approximately RMB22,080 million in 2016,2019, primarily due to the additioneffect of 54 aircraft (self owned andthe initial adoption of IFRS 16 Leases. For details of the impact of IFRS 16 Leases on us, please refer to the section headed “Critical Accounting Policies” under finance leases) to our fleet in 2016. The increase in the number of aircraft and engines led to an increase in the original value of fixed assets and a corresponding increase in depreciation.Item 5.
Wages, salaries and benefits, which accounted for 19.7%approximately 20.4% of our total operating expenses in 2015,2019, increased by 10.2%,approximately 9.1% from RMB16,459approximately RMB22,134 million in 20152018 to RMB 18,145approximately RMB24,152 million in 2019, primarily due to the combined effectincrease in the remuneration as a result of the increase in the number of flight-crew and maintenance personnel,operation support staff in line with the increasegrowth in the flight hours and the rise in the standard flight hour fees. Additional information regarding the changes inexpansion of our retirement benefits is disclosed in Note 37 to the consolidated financial statements.operational scale.
Aircraft maintenance expenses, which accounted for 5.4%approximately 2.9% of our total operating expenses in 2016, increased2019, decreased by 15.2%,approximately 9.6% from RMB4,304approximately RMB3,738 million in 20152018 to RMB4,960approximately RMB3,380 million in 2016,2019, primarily due to the net additioncapitalization of 7 wide-body aircraft and 39 narrow-body aircraft, which led to an increasepart of our maintenance expenses in maintenance fees for aircraft and engines. Meanwhile, we fitted our A330 aircraftaccordance within-flightWi-Fi and retrofitted equipment such as required navigation performance (RNP) systems in 2016, resulting in an increase in maintenance fees. IFRS 16 Leases.
Food and beverage expenses increased by 15.9%approximately 8.4% from RMB2,469approximately RMB3,383 million in 20152018 to RMB2,862approximately RMB3,667 million in 2016,2019, primarily due to the increase in the number of passengers in carriage, especially the combined effect of the increase in the number of travelers on international long-haul flights and the higher standards required for the provision of international catering.
Aircraft operating lease rentals increased by 12.3%, from RMB4,254 million in 2015 to RMB4,779 million in 2016, primarily due to the introduction of 18 new aircraft under operating leases by us and the retirement of 15 aircraft under operating leases in 2016. Owing to factors such as the market environment and the commodity price level, the introduction of the new aircraft resulted in a significant increase in rentals compared to the retired aircraft.carried.
Other operating lease rentals increaseddecreased by 6.9%,approximately 100.0% from RMB812approximately RMB928 million in 2015 to RMB868 million in 2016,2018, primarily due to the increase in leasehold properties (including properties such as counters and VIP lounges)effect of the initial adoption of IFRS 16 Leases.
Selling and marketing expenses which accounted for 3.4% of our total operating expenses in 2015, decreasedincreased by 14.2%,approximately 8.6% from RMB3,651approximately RMB3,807 million in 20152018 to RMB3,133approximately RMB4,134 million in 2016, primarily due to the increase2019, in the proportion of direct sales for the year and changes in the policy on agency causing a decrease in the handling fees of the agency businesses.line with our increased sales.
The amount of civil aviation infrastructure levies payabledevelopment fund to the CAAC increaseddecreased by 6.5%,approximately 18.1% from RMB1,826approximately RMB2,235 million in 20152018 to RMB1,945approximately RMB1,831 million in 2016,2019, primarily due to the increasedecrease in the lengthcharging standard of miles flowncivil aviation development fund in 2015.2019.
Ground services and other expenses decreased by 7.7%,approximately 13.0% from RMB5,479approximately RMB2,845 million in 20152018 to RMB5,058approximately RMB2,476 million in 2016,2019, primarily due to the decrease in expenses resulting from the costsdisposal of subsidiaries.65% of equity interests of Shanghai Airlines Tours.
Indirect operating expenses increased by 10.0%, from RMB5,503amounted to approximately RMB5,113 million in 20152019, remaining relatively stable as compared to RMB6,051approximately RMB5,217 million in 2016, primarily attributable to the significant increase in the costs associated with the expansion in the size of our fleet.2018.
Fair Value Changes of Derivative Financial Instruments
ChangesWe did not record changes in fair value of derivative financial instruments decreased from a gain of RMB6 million in 2015 to a gain of RMB2 million in 2016. The difference was mainly2019, primarily due to the decrease in gains arising fromno fair value movementhedging in 2019. A gain on fair value changes of interest rate swaps contracts.derivative financial instruments of approximately RMB311 million was recorded in 2018.
Other Operating Income and Gains
Our other operating income and gains mainly consists of income from cooperativeco-operation routes the rest beingincome, income from disposal of fixed assetsproperty, plant and income from government grants.equipment and subsidy income. The total amount of our other operating income and gains increased by 3.8%approximately 9.3% from RMB5,269approximately RMB6,592 million in 20152018 to RMB5,469approximately RMB7,202 million in 2016,2019, primarily due to anthe increase in income fromof co-operation routes income from government grants and gains from disposal of fixed assets. Otherco-operation income represented income fromco-operation routes granted to us by the PRC government and local governments as well as other subsidies granted by various local municipalities and other parties to encourage us to operate certain routes to cities where these municipalities are located.approximately RMB900 million.
Net Finance Costs
In 2016,2019, our finance income was RMB96costs amounted to approximately RMB6,160 million in 2019, representing an increase of approximately RMB393 million from RMB66approximately RMB5,767 million in 2015, primarily due to an increase in the interest rates for our deposits which increased our interest income. Finance costs amounted to RMB6,272 million, representing a decrease of 12.6%,2018, primarily due to the decrease in net exchange losses recognized duringeffect of the year. In 2016, our exchange losses amounted to RMB3,543 million, representing a decreaseinitial adoption of 29.0%IFRS 16 Leases.
Profit Attributable to the Equity Holders of the Company
As a result of the foregoing, the net profit attributable to the equity holders of the Company slightly decreased to RMB4,498increased by approximately 18.3% from approximately RMB2,698 million in 2016, or 0.9%, as compared2018 to a net profit of RMB4,537approximately RMB3,192 million in 2015. The decrease is mainly2019, primarily due to the increase in income tax expense.traffic revenues in 2019.
Property, Plant and Equipment
We had approximately RMB153,180RMB99,437 million of property, plant and equipment as of December 31, 2016,2019, including, among other assets, aircraft, engines and flight equipment, representing a 15.0% increasedecrease of 44.8% from RMB133,242approximately RMB180,104 million in 2015.as of December 31, 2018. The increase isdecrease was mainly due to an increase in the numbereffect of aircrafts.the initial adoption of IFRS 16 Leases.
Inflation
According to the National Bureau of Statistics of China, China’s overall national inflation rate, as represented by the general consumer price index, was approximately 2.6% in 2013, 2.1% in 2014, 1.4% in 2015, 2.0% in 2016, and 1.6% in 2017.2017, 2.1% in 2018, 2.9% in 2019 and 2.5% in 2020. Although neither inflation nor deflation in the past had any material adverse impact on our results of operations, we cannot assure you that the deflation or inflation of the Chinese economy in the future would not materially and adversely affect our financial condition and results of operations.
B. Liquidity and Capital Resources
We typically finance our working capital requirements through various financing channels, including a combination of funds generated from operations, bank loans, and the issuance of corporate bonds.bonds and super short-term debentures. As a result, our liquidity could be materially and adversely affected if there is any deterioration in debt and equity capital markets, any delay in obtaining bank loans or a significant decrease in demand for our services.
As of December 31, 2015, 20162018, 2019 and 2017,2020, we had RMB9,080RMB646 million, RMB1,350 million and RMB1,695 million and RMB4,605RMB7,651 million, respectively, in cash and cash equivalents; RMB66,712RMB55,152 million, RMB56,732RMB51,872 million and RMB63,801RMB87,917 million, respectively, in outstanding borrowings; and RMB35RMB16 million, RMB43RMB6 million and RMB51RMB12 million, respectively, in restricted bank deposits and short-term bank deposits. Our cash and cash equivalents primarily consistsconsist of cash on hand and deposits that are placed with banks and other financial institutions. We plan to use the remaining available cash for other capital expenditures, including expenditures for aircraft, engines and related equipment, as well as for working capital and otherday-to-day operating purposes.
In addition, our current liabilities exceeded our current assets by approximately RMB62,035RMB77,310 million as of December 31, 2017.2020. Therefore, theour directors of the Company (“Directors”) have taken active steps to seek additional sources of financing to improve our liquidity position. As of December 31, 2017,2020, we had total unutilized credit facilities of RMB59.47RMB33.67 billion from various banks. See the discussion below under “– Working Capital and Liabilities”.
We believe that our current cash, cash equivalents, anticipated cash flow from operations, and the ability to obtain sufficient financing will enable us to operate, as well as to meet our anticipated cash needs for working capital and capital expenditure requirements for at least the next 12 months. However, additional cash may be required due to changing business conditions or other future developments, including any investments or acquisitions that we may decide to pursue.
Cash Flows from Operating Activities
In 2017,2020, we generated a net cash inflow from operating activities of RMB19,572RMB1,211 million as a result of cash generated from operations of RMB21,108RMB1,480 million less income tax we paid in 2017.2020. Our cash generated from operations was mainly due to operating profit before working capital changes of RMB22,004RMB8,534 million and positivenegative changes in working capital of RMB896RMB7,054 million. The operating profit before working capital changes of RMB22,004RMB8,534 million was a result of the profitloss before income tax of RMB8,610RMB16,488 million, mainly adjusted for: (i) depreciation of property, plant and equipment, depreciation of right-of-use assets and amortization of othernon-current assets of RMB13,769RMB22,004 million, (ii) interest expenses of RMB5,214 million and (iii) net foreign exchange gaingains of RMB2,378 and (iii) interest expenses of RMB3,184RMB2,746 million. PositiveNegative changes in working capital mainly consisted of (i) sales in advancecontract liabilities of carriageRMB6,686 million, (ii) other long-term liabilities of RMB569RMB2,174 million and (ii)(iii) other payables and accruals of RMB340RMB983 million, partly offset by (i) other long-term liabilities of RMB728 million and (ii) prepayments and other receivables of RMB753RMB2,893 million and (ii) trade receivables of RMB593 million.
In 2016,2019, we generated a net cash inflow from operating activities of RMB24,893RMB28,972 million as a result of cash generated from operations of RMB26,154RMB30,137 million less income tax we paid in 2016.2019. Our cash generated from operations was mainly due to operating profit before working capital changes of RMB24,464RMB32,043 million and positivenegative changes in working capital of RMB1,690RMB1,906 million. The operating profit before working capital changes of RMB24,464RMB32,043 million was a result of the profit before income tax of RMB6,497RMB4,299 million, mainly adjusted for: (i) depreciation of property, plant and equipment, depreciation of right-of-use assets and amortization of othernon-non-current current assets of RMB12,345RMB21,912 million, (ii) interest expenses of RMB5,169 million and (iii) net foreign exchange losses of RMB3,246 and (iii) interest expenses of RMB2,641RMB890 million. PositiveNegative changes in working capital mainly consisted of (i) sales in advanceprepayments and other receivables of carriage of RMB1,836RMB2,336 million and (ii) other payables and accrualslong-term liabilities of RMB1,424RMB1,916 million, partly offset by (i) other long-term liabilitiespayables and accruals of RMB883RMB1,459 million and (ii) prepayments and other receivablescontract liabilities of RMB839RMB1,281 million.
In 2015,2018, we generated a net cash inflow from operating activities of RMB24,325RMB22,338 million as a result of cash generated from operations of RMB25,535RMB24,047 million less income tax we paid in 2015.2018. Our cash generated from operations was mainly due to operating profit before working capital changes of RMB23,620RMB24,115 million and positivenegative changes in working capital of RMB1,915RMB68 million. The operating profit before working capital changes of RMB23,620RMB24,115 million was a result of the profit before income tax of RMB5,667RMB3,856 million, mainly adjusted for: (i) depreciation of property, plant and equipment and amortization of othernon-non-current current assets of RMB10,710RMB15,084 million, (ii) interest expenses of RMB3,727 million and (iii) net foreign exchange losses of RMB5,480, and (iii) interest expenses of RMB2,075RMB1,983 million. PositiveNegative changes in working capital mainly consisted of (i) tradeprepayments and bills payableother receivables of RMB1,629RMB2,056 million and (ii) other long-term liabilities of RMB1,164RMB525 million, partly offset by prepayments(i) contract liabilities of RMB1,051 million and other receivables(ii) trade and
bills payables of RMB2,011RMB856 million.
Cash Flows from Investing Activities
In 2017,2020, our net cash outflow from investing activities was RMB21,312RMB6,283 million. Our net cash outflow for investing activities mainly consisted of additions to property, plant and equipment and other non-current assets of RMB7,247 million. These cash outflows were partly offset by proceeds from disposal of property, plant and equipment of RMB894 million.
In 2019, our net cash outflow from investing activities was RMB4,899 million. Our net cash outflow for investing activities mainly consisted of additions to property, plant and equipment and other non-current assets of RMB7,589 million. These cash outflows were partly offset by proceeds from novation of purchase rights of RMB2,366 million.
In 2018, our net cash outflow from investing activities was RMB12,780 million. Our net cash outflow for investing activities mainly consisted of (i) advanced payments on acquisition of aircraft of RMB16,759RMB15,342 million and (ii) additions of property, plant and equipment of RMB7,796 million. These cash outflows were partly offset by proceeds from disposal of property, plant and equipment of RMB1,043 million and proceeds from disposal of interest in a subsidiary of RMB1,897 million.
In 2016, our net cash outflow from investing activities was RMB37,180 million. Our net cash outflow for investing activities mainly consisted of (i) advanced payments on acquisition of new aircraft of RMB16,864 million and (ii) additions of property, plant and equipment of RMB21,533RMB10,653 million. These cash outflows were partly offset by (i) proceeds from disposalnovation of assets classified as held for salepurchase rights of RMB518RMB7,483 million and (ii) proceeds from disposal of property, plant and equipment of RMB690 million.
In 2015, our net cash outflow from investing activities was RMB27,800 million. Our net cash outflow for investing activities mainly consisted of (i) advanced payments on acquisition of new aircraft of RMB24,772 million and (ii) additions of property, plant and equipment of RMB8,609 million. These cash outflows were partly offset by (i) proceeds from disposal of assets classified as held for sale of RMB4,227 million and (ii) proceeds from disposal of property, plant and equipment of RMB1,294RMB5,493 million.
Cash Flows from Financing Activities
In 2017,2020, our net cash inflow from financing activities was RMB4,708RMB11,426 million. Our net cash inflow for financing activities mainly consisted of (i) proceeds from issuance of short-term debentures of RMB77,200 million, (ii) proceeds from draw-down of short-term bank loans of RMB28,883 million, (iii) proceeds from draw-down of long-term bank loans of RMB10,823 million and (iv) proceeds from issuance of long-term debentures and bonds of RMB1,998 million. These cash outflows were partly offset by (i) repayments of short-term debentures of RMB69,200 million, (ii) repayments of principal of lease liabilities of RMB18,439 million, (iii) repayments of short-term bank loans of RMB9,130 million, (iv) repayments of long-term debentures and bonds of RMB2,453 million and (v) repayments of long-term bank loans of RMB1,948 million.
In 2019, our net cash outflow from financing activities was RMB23,375 million. Our net cash outflow for financing activities mainly consisted of (i) repayments of short-term debentures of RMB35,000 million, (ii) repayments of principal of lease liabilities of RMB23,895 million, (iii) repayments of short-term bank loans of RMB12,868 million, (iv) repayments of long-term debentures and bonds of RMB5,567 million and (v) repayments of long-term bank loans of RMB4,033 million. These cash outflows were partly offset by (i) proceeds from issuance of short-term debentures of RMB39,000 million, (ii) proceeds from issue of shares of RMB9,442 million, (iii) proceeds from issuance of long-term debentures and bonds of RMB7,755 million and (iv) proceeds from draw down of short-term bank loans of RMB33,629RMB6,986 million.
In 2018, our net cash outflow from financing activities was RMB13,558 million. Our net cash outflow for financing activities mainly consisted of (i) repayments of short-term bank loans of RMB36,066 million, (ii) repayments of short-term debentures of RMB26,500 million, (iii) repayments of principal of finance lease obligations of RMB9,629 million and (iv) repayments of long-term bank loans of RMB7,592 million. These cash outflows were partly offset by (i) proceeds from issuance of short-term debentures of RMB31,000 million, (ii) proceeds from draw down of short-term bank loans of RMB19,144 million, (iii) proceeds from draw down of long-term bank loans and other financing activities of RMB12,320 million, (iii) proceeds from issuance of short-term debentures of RMB29,000RMB18,693 million and (iv) proceeds from issuance of long-term debentures and bonds of RMB2,451 million. These cash inflows were partly offset by (i) repayments of short-term bank loans of RMB18,383 million, (ii) repayments of long-term bank loans of RMB3,247 million, and (iii) repayments of short-term debentures of RMB36,000 million.
In 2016, our net cash inflow from financing activities was RMB4,634 million. Our net cash inflow for financing activities mainly consisted of (i) proceeds from draw down of short-term bank loans of RMB39,159 million, (ii) proceeds from draw down of long-term bank loans and other financing activities of RMB26,545 million, (iii) proceeds from issuance of short-term debentures of RMB47,500 million and (iv) proceeds from issuance of long-term bonds of RMB12,526 million. These cash inflows were partly offset by (i) repayments of short-term bank loans of RMB36,728 million, (ii) repayments of long-term bank loans of RMB28,803 million, and (iii) repayments of short-term debentures of RMB46,000 million.
In 2015, our net cash inflow from financing activities was RMB11,083 million. Our net cash inflow for financing activities mainly consisted of (i) proceeds from draw down of short-term bank loans of RMB26,916 million, (ii) proceeds from draw down of long-term bank loans and other financing activities of RMB24,572 million, and (iii) proceeds from issuance of short-term debentures of RMB21,500 million. These cash inflows were partly offset by (i) repayments of short-term bank loans of RMB34,767 million, (ii) repayments of long-term bank loans of RMB10,540 million, and (iii) repayments of short-term debentures of RMB10,000RMB2,938 million.
Working Capital and Liabilities
We have, and in the future may continue to have, substantial debts. In addition, we generally operate with a working capital deficit. As of December 31, 2017,2020, our current liabilities exceeded our current assets by RMB62,035RMB77,310 million. In comparison, our current liabilities exceeded our current assets by RMB52,194RMB58,620 million as of December 31, 2016.2019. Our current liabilities increased by 18.0%27.4% from RMB78,363 million as of December 31, 2019 to RMB99,808 million as of December 31, 2020, primarily due to the increase in the current portion of borrowings.lease liabilities. Our current assets increased by 15.1% in 201714.0% from RMB19,743 million as of December 31, 2019 to RMB22,498 million as of December 31, 2020, primarily due to the increase in cash and cash equivalents. Short-term loans outstanding totaled RMB28,842RMB25,233 million and RMB39,090RMB57,150 million as of December 31, 20162019 and 2017,2020, respectively. Long-term outstanding bank loans totaled RMB27,890RMB26,604 million and RMB24,711RMB30,745 million as of December 31, 20162019 and 2017,2020, respectively.
As of December 31, 2017,2020, our debt ratio, representing total liabilities divided by total assets, was 0.74.79.2%. The interest expenses associated with these debts may impair our future profitability. We expect that cash from operations and bank borrowings will be sufficient to meet our operating cash flow requirements, although events that materially and adversely affect our operating results can also have a negative impact on liquidity.
Our consolidated interest-bearing borrowings as of December 31, 20162019 and 20172020 for the purpose of calculating the indebtedness were as
follows:
| As of December 31, | As of December 31, | |||||||||||||||
| 2016 | 2017 | 2019 | 2020 | |||||||||||||
| (RMB in millions) | (in RMB millions) | |||||||||||||||
Secured | 17,369 | 19,908 | 19,335 | 22,897 | ||||||||||||
Unsecured | 39,363 | 43,893 | 32,537 | 65,020 | ||||||||||||
Total | 56,732 | 63,801 | 51,872 | 87,917 | ||||||||||||
Our maturity profile of interest-bearing borrowings as of December 31, 20162019 and 20172020 was as follows:
| As of December 31, | As of December 31, | |||||||||||||||
| 2016 | 2017 | 2019 | 2020 | |||||||||||||
| (RMB in millions) | (in RMB millions) | |||||||||||||||
Within one year | 28,842 | 39,090 | 25,235 | 57,153 | ||||||||||||
In the second year | 4,833 | 6,527 | 8,111 | 5,948 | ||||||||||||
In the third to fifth year inclusive | 13,281 | 8,797 | 14,845 | 17,685 | ||||||||||||
After the fifth year | 9,776 | 9,387 | 3,681 | 7,131 | ||||||||||||
Total | 56,732 | 63,801 | 51,872 | 87,917 | ||||||||||||
As of December 31, 2017,2020, our interest rates relating to short-term borrowings ranged from 0.70%1.21% to 4.35%3.30%, while our fixed interest rates on our interest-bearing borrowings for long-term bank loans ranged from 3.10%2.40% to 3.48%3.92%. Our bank loans are denominated in Renminbi, U.S. dollars , Singapore dollars and Euros. As of December 31, 2017,2020, our total bank loans denominated in Renminbi amounted to RMB83,880RMB31,151 million, our total bank loans denominated in U.S. dollars amounted to US$1,15757 million and our total bank loans denominated in EUR amounted to EUR631EUR332 million.
On NovemberMarch 16, 2017, EAO2018, we issued corporateSGD-denominated bonds in an amount of SGD500,000,000 at 2.8% due 2020, which was listed on the Hong Kong Stock Exchange on November 17, 2017. The Company guaranteed the bond issue. See Note 34 to the consolidated financial statements for more information.
On March 9, 2018, the Company issuedJPY-denominated credit enhanced bonds (Series 1 JPY10,000,000,000 0.33% Bonds due 2021, Series 2 JPY20,000,000,000 0.64% Bonds due 2021 and Series 3 JPY20,000,000,000 0.64% Bonds due 2021), which was listed on the professional oriented TOKYOPRO-BOND Market of the Tokyo Stock Exchange on March 19, 2018.
On March 5, 2019, we issued three-year medium-term bonds with a principal amount of RMB3 billion, at an issue price equal to the face value of the bonds. The bonds bear interest at the rate of 3.70% per annum, which is payable annually. The principal of the bonds will mature and become repayable on March 7, 2022.
On August 19, 2019, we issued five-year corporate bonds with a total principal amount of RMB3 billion. The bonds bear interest at the rate of 3.60% per annum, which is payable annually. The principal of the bonds will mature and become repayable on August 20, 2024.
On December 6, 2019, Eastern Air Overseas (Hong Kong) Co., Ltd. issued three-year corporate bonds with a principal amount of KRW300 billion, at an issue price equal to the face value of the bonds. The bonds bear interest at the rate of 2.40% per annum, which is payable annually. The principal of the bonds will mature and become repayable on December 6, 2022. We have unconditionally and irrevocably guaranteed the due payment and performance of the above bonds.
On April 24, 2020, we issued three-year corporate bonds with a total principal amount of RMB2 billion. The bonds bear interest at the rate of 2.39% per annum, which is payable annually. The principal of the bonds will mature and become repayable on April 28, 2023. See Note 4936 to the consolidated financial statements for the issuance of JPY bonds.
We have entered into credit facility agreements to meet our future working capital needs. However, our ability to obtain financing may be affected by: (i) our results of operations, financial condition, cash flows and credit ratings; (ii) costs of financing in line with prevailing economic conditions and the status of the global financial markets; and (iii) our ability to obtain PRC government approvals required to access domestic or international financing or to undertake any project involving significant capital investment, which may include one or more approvals from the NDRC, SAFE, MOFCOM and/or the CSRC depending on the circumstances. If we are unable to obtain financing, for whatever reason, for a significant portion of our capital requirements, our ability to acquire new aircraft and to expand our operations may be materially and adversely affected.
Capital Expenditures
As of December 31, 2017,2020, according to the relevant agreements, we expect our capital expenditures for aircraft, engines and related equipment to be in aggregate approximately RMB87,030RMB37,277 million, including approximately RMB28,322RMB13,542 million in 20182021 and approximately RMB27,516RMB13,692 million in 2019,2022, in each case subject to contractually stipulated increases or any increase relating to inflation.
We plan to finance our other capital commitments through a combination of funds generated from operations, existing credit facilities, bank loans, leasing arrangements and other external financing arrangements.
C. Research and Development, Patents and Licenses, etc.
None.
D. Trend Information
Other than as disclosed elsewhere in this Annual Report, we are not aware of any trends, uncertainties, demands, commitments or events for the period from January 1, 20172020 to December 31, 20172020 that are reasonably likely to have a material effect on our net revenues, income, profitability, liquidity or capital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.
E.Off-balance Sheet Arrangements
We have not entered into anyoff-balance sheet arrangements other than our operating lease arrangements:capital commitments:
| (1) | We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any unconsolidated entity; |
| (2) | We have not entered into any obligations under any derivative contracts that are indexed to our own shares and classified as shareholder’s equity, or that are not reflected in our consolidated financial statements; and |
| (3) | We do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. |
F. Tabular Disclosure of Contractual Obligations
Contractual Obligations and Commercial Commitments
The following tables set forth selected information regarding our outstanding contractual and commercial commitments as of December 31, 2017:2020:
| Total | Less Than 1 Year | 1-2 Years | 2-4 Years | More Than 4 Years | ||||||||||||||||
Long-Term Debt(1) | 9,055 | 4,131 | 1,020 | 2,317 | 1,587 | |||||||||||||||
Capital Leases(2) | 66,868 | 9,241 | 8,162 | 22,847 | 26,618 | |||||||||||||||
Operating Leases(3) | 20,936 | 3,380 | 2,723 | 7,268 | 7,565 | |||||||||||||||
Unconditional Purchase Obligations(4) | 87,030 | 28,322 | 27,516 | 27,102 | 4,090 | |||||||||||||||
Other Long-term Obligations(5)(6) | 3,724 | — | — | — | — | |||||||||||||||
Post-retirement Benefit Obligations(5) | 2,670 | — | — | — | — | |||||||||||||||
Deferred Tax Liabilities(5) | 18 | — | — | — | — | |||||||||||||||
Short-term Bank Loans(7) | 24,959 | 24,959 | — | — | — | |||||||||||||||
Interest Obligations | ||||||||||||||||||||
Under Finance Leases | 13,282 | 2,410 | 2,246 | 5,048 | 3,578 | |||||||||||||||
Under Bank Loans | 2,106 | 1,038 | 1,020 | 42 | 6 | |||||||||||||||
Fixed Rate | 860 | 859 | — | 1 | — | |||||||||||||||
Variable Rate(8) | 1,246 | 179 | 1,020 | 41 | 6 | |||||||||||||||
| Total | Less Than 1 Year | 1-2 Years | 2-4 Years | More Than 4 Years | ||||||||||||||||
Long-Term Debt (1) | 14,690 | 1,526 | 1,149 | 6,748 | 5,267 | |||||||||||||||
Lease Liabilities (2) | 96,251 | 14,073 | 13,141 | 23,664 | 45,373 | |||||||||||||||
Unconditional Purchase Obligations (3) | 37,277 | 13,542 | 13,692 | 10,043 | — | |||||||||||||||
Other Long-term Obligations (4)(5) | 1,955 | — | — | — | — | |||||||||||||||
Post-retirement Benefit Obligations (4) | 2,538 | — | — | — | — | |||||||||||||||
Short-term Bank Loans (6) | 21,966 | 21,966 | — | — | — | |||||||||||||||
Interest Obligations | ||||||||||||||||||||
Under Lease Liabilities | 14,761 | 3,370 | 2,868 | 4,350 | 4,173 | |||||||||||||||
Under Bank Loans | 2,408 | 854 | 350 | 491 | 713 | |||||||||||||||
Fixed Rate | 737 | 551 | 103 | 83 | — | |||||||||||||||
Variable Rate (7) | 1,671 | 303 | 247 | 408 | 713 | |||||||||||||||
NoteNotes:
| (1) | Excludes interest. |
| (2) | Primarily comprise amounts |
| (3) | Primarily comprise |
| (4) |
Figures of payments due by period are not available. |
Other long-term obligations mainly include long-term duties and levies payable, and |
Short-term bank loans are generally repayable within one year. As of December 31, |
For our variable rate loans, interest rates range from |
| Total | Amount of Commitment Expiration Per Period | |||||||||||||||||||
| Other Commercial | Amounts | Less Than | After | |||||||||||||||||
| Commitments/Credit Facilities | Committed | 1 Year | 1-3 Years | 4-5 Years | 5 Years | |||||||||||||||
| (RMB in millions) | ||||||||||||||||||||
Lines of Credit | 33,667 | 5,700 | 2,103 | 5,500 | 20,364 | |||||||||||||||
Standby Letters of Credit | — | — | — | — | — | |||||||||||||||
Guarantees | — | — | — | — | — | |||||||||||||||
Total | 33,667 | 5,700 | 2,103 | 5,500 | 20,364 | |||||||||||||||
Lines of Credit Standby Letters of Credit Guarantees Total Total Amount of Commitment Expiration Per Period Other Commercial Amounts Less Than After Commitments/Credit Facilities Committed 1 Year 1-3 Years 4-5 Years 5 Years (RMB in millions) 59,465 52,626 6,800 — 39 — — — — — — — — — — 59,465 52,626 6,800 — 39
Taxation
We had carried forward tax losses of approximately RMB167RMB15,310 million as of December 31, 2017,2020, which can be mainly used to set off against future taxable income between 20182021 and 2022.2028.
PriorPursuant to 2008, the Company“Notice on the continuation of the Income Tax Policies for Enhancing the Implementation of Western Region Development Strategy.” (Ministry of Finance Announcement [2020] No.23), and certainother series of its subsidiariestax regulations, enterprises located in Pudong District, Shanghai, werethe western regions and engaged in the industrial activities as listed in the “Catalogue of Encouraged Industries in Western Regions”, will be entitled to a reduced rate of 15% pursuant to the preferential tax policy in Pudong District, Shanghai. Under China’s EIT Law, which was approved by the National People’s Congress on March 16, 2007 and became effective from January 1, 2008, the Company and its Pudong subsidiaries are entitled to a transitional arrangement to increase the applicable corporate income tax rate graduallyof 15% from 2021 to 25% over2030 upon approval from the next five years from 2008.tax authorities. China Eastern Airlines Yunnan Airlines Co., Ltd. (“CEA Yunnan”), a subsidiary of the Group,Company, obtained approval from the tax authorities and has been entitled to a reduced corporate income tax rate of 15% from January 1, 2011. The Company’s Sichuan branch, Gansu branch and Xibei branch also obtained approvals from the respective tax authorities and are entitled to a reduced corporate income tax rate of 15%. The subsidiaries incorporated in Hong Kong are subject to Hong Kong profits tax rate of 16.5% (2016:(2019: 16.5%). Eastern E-Commerce, a subsidiary of the Company, qualified for High and New Technology Enterprise (HNTE) status with HNTE certificate No.GR201831003647 issued by the relative authorities, has been entitled to a reduced corporate income tax rate of 15% from January 1, 2018 as approved by the tax authorities.
The Company and its subsidiaries, except for CEA Yunnan, Eastern E-Commerce,Sichuan branch, Gansu branch, and Xibei branch and those incorporated in Hong Kong, are generally subject to income tax at the PRC standard corporate income tax rate of 25% (2016:16.5%(2019: 25%).
New Pronouncements
For a detailed discussion of new accounting pronouncements, please see Note 22.3 to the consolidated financial statements.
G. Safe Harbor
See the section headed “Cautionary Statement With Respect To Forward-Looking Statements”.
Item 6.Directors,6. Directors, Senior Management and Employees
A. Directors and Senior Management
The following table sets forth certain information concerning our current Directors,directors, supervisors and senior management members. Except as disclosed below, none of our Directors,directors, supervisors or members of our senior management was selected or chosen as a result of any arrangement or understanding with any major shareholders, customers, suppliers or others. There is no family relationship between any Director,director, supervisor or senior management member and any other Director,director, supervisor or senior management member of our Company.
Name | Age | Shares Owned | Position | |||
| Liu Shaoyong | — | Chairman of the Board of Directors | ||||
| Li Yangmin | 3,960 A Shares(1) | |||||
| — | Director | |||||
| Shao Ruiqing | ||||||
| 63 | — | IndependentNon-executive Director | ||||
| — | Independent Non-executive Director | |||||
| Dong Xuebo | 67 | — | Independent Non-executive Director | |||
| Jiang Jiang | 56 | — | Employee Representative Director | |||
| Guo Lijun | 49 | — | Chairman of the Supervisory Committee | |||
| — | Supervisor | |||||
| 50 | — | Employee Representative Supervisor | ||||
| Vice President | ||||||
| Zhou Qimin | 53 | — | Vice President and Chief Financial Officer | |||
| Feng | — | Vice President | ||||
| — | Vice President | |||||
| — | Vice President | |||||
| Wang Jian | — | Board Secretary and Company Secretary |
Notes:
| (1) | Mr. Li Yangmin directly held 3,960 A Shares in the capacity of beneficial owner. |
Directors
Mr. Liu Shaoyong,, is currently the Chairmanchairman and party secretary of the Company and Chairmanchairman and party secretary of CEA Holding. Born in November 1958, Mr. Liu joined the civil aviation industry in 1978 and was appointed as vice president of China General Aviation Corporation, deputy director of Shanxi Provincial Civil Aviation Administration of the PRC, general manager of the Shanxi Branch of the Company, and director general of Flight Standard Departmentflight standard department of CAAC. Mr. Liu served as Presidentpresident of the Company from December 2000 to October 2002, vice minister of the CAAC from October 2002 to August 2004, president of China Southern Air Holding Company from August 2004 to December 2008, and chairman of China Southern Airlines Co., Limited.Limited from November 2004 to December 2008. Mr. Liu served as president and vice party secretary of CEA Holding from December 2008 to December 2016, and became the Chairmanchairman of the Company since February 2009. He has served as the Chairmanchairman and party secretary of CEA Holding since December 2016 and the party secretary of the Company since December 2017. Mr. Liu is also currently thea member of the 13th National Committee of the Chinese People’s Political Consultative Conference, thea council member of the International Air Transport Association, and the council member of Association for Relations Across the Taiwan Straits, and the vice chairman of the International Advisory Board of School of Management, Fudan University. Mr. Liu graduated from the China Civil Aviation Flight College and obtained a Master of Business Administration degree from Tsinghua University. Mr. LiuHe holds the title of commanding (senior) pilot.
Mr. Ma XulunLi Yangmin, is currently the vice chairman, president and vice party committee secretary of the Company, vice chairman,and a director, the president and viceparty secretary of CEA Holding. Mr. Ma was previously vice president of China Commodities Storing and Transportation Corporation, deputy director general of the Finance Department of the CAAC and vice president of Air China Corporation Limited. In 2002, after the restructuring of civil aviation industry he was appointed as vice president of general affairs of Air China Corporation Limited. Mr. Ma served as president and deputy party secretary of Air China Corporation Limited from September 2004 to January 2007. Mr. Ma became a party member of China National Aviation Holding Company from December 2004 to December 2008, and deputy general manager of China National Aviation Holding Company from January 2007 to December 2008. In December 2008, Mr. Ma was appointed as president and deputy party secretary of the Company and deputy party secretary of CEA Holding. Since February 2009, Mr. Ma has become a Director of the Company. Mr. Ma served as vice president of the Company with effect from November 2011. He served as party secretary of CEA Holding from November 2011 to December 2016. He served as vice chairman, president and vice party secretary of CEA Holding with effect from December 2016. Mr. Ma is also currently the deputy president of China Association for public companies, the vice president of Association of Shanghai Listed Companies and the director of Shanghai Chinese Overseas Friendship Association. Mr. Ma graduated from Shanxi University of Finance and Economics and Huazhong University of Science and Technology. Mr. Ma holds a master’s degree and is a PRC Certified Public Accountant (CPA).
Mr. Li Yangmin, is currently a Director, vice party secretary and vice president of the Company, and vice party secretary and vice president of CEA Holding.Born in August 1963, Mr. Li joined the civil aviation industry in 1985. He was previously the deputy general manager of the aircraft maintenance base and the manager of air route department of China Northwest Company,Airlines, general manager of the aircraft maintenance base of China Eastern Air Northwest Branch Company and vice president of China Eastern Air Northwest Branch Company. SinceFrom October 2005 to March 2019, he has also been a vice president of the Company. He served as Safety Directora safety director of the Company from July 2010 to DecemberNovember 2012. He has becomebecame a party member of CEA Holding sincein May 2011. He was appointed thea Director of the Company with effect from June 2011 to August 2018 and served as thea party secretary of the Company from June 2011 to December 2017. He served as the chairman of China Cargo Airlines Co., Limited. from February 2012 to January 2013. He served as the executive director of Eastern Logistics from December 2012 to June 2016. Since November 2014, he served as the Chairman of Eastern Air Yunnan. Since August 2016, he served asa vice party secretary of CEA Holding since August 2016 and the vice president of CEA Holding.Holding from August 2016 to February 2019. Since December 2017, he served as the vice party secretary of the Company. He has served as a director and the president of CEA Holding since February 2019 and the president of the Company since March 2019. He has served as the vice chairman of the Company since May 2019 and vice president of China Association for Public Companies since August 2019. Since November 2019, he has served as a director of Juneyao Airlines. Mr. Li graduated from the Civil Aviation University of China and Northwestern Polytechnical University with master’s degrees and obtained an Executive Master of Business Administration degree from Fudan University. He is also a qualified professor-level senior engineer.
Mr. Gu Jiadan, is currently a Director. Mr. Gu was the assistant to president, and the general manager of the commerce department and the party secretary of Shanghai Airlines Co., Limited From May 2005 to August 2009, he was the vice president and a party member of Shanghai Airlines. From August 2009 to January 2010, he was the acting president of Shanghai Airlines. From January 2010 to December 2016, he was a party member and vice president of CEA Holding. From January 2010 to July 2011, he served as the party secretary of Shanghai Airlines. He was appointed as a Director of the Company with effect from June 2012. Mr. Gu Jiadan holds a master’s degree and is a senior economist.
Mr.Tang Bing, is currently a Director and vice presidentparty secretary of the Company, and a director and vice president and party membersecretary of CEA Holding.Born in February 1967, Mr. Tang joined the civil aviation industry in 1993. He served as vice executive president (general manager representing Chinese shareholder) of MTU Maintenance Zhuhai Co., Limited.,Limited, office director of China Southern Airlines Holding Company and president of Chongqing Airlines Company Limited. From December 2007 to May 2009, he served as chief engineer and general manager of the Aircraft Engineering Departmentaircraft engineering department of China Southern Airlines Company Limited. From May 2009 to December 2009,February 2010, he was appointed as the president of the Beijing Branch of the Company and was the president of Shanghai Airlines Co., Ltd. from JanuaryFebruary 2010 to December 2011. He served as the chairman and an executive director of Shanghai Airlines Co., Ltd. from January 2012 to January 2018 and a vice president of the Company from February 2010 to March 2019. He was appointed as a party member of CEA Holding in May 2011 and2011. He served as a Director of the Company infrom June 2012. Since December 2016, he served as the2012 to August 2018, and a vice president of CEA Holding.Holding from December 2016 to February 2019. Since February 2019, he served as a director and vice party secretary of CEA Holding, and has served as a vice party secretary of the Company since March 2019, and as a Director of the Company since May 2019. Mr. Tang graduated from Nanjing University of Aeronautics and Astronautics majoring in electrical technology. He obtained a Master of Business Administration degree from the Administration Institute of SunYat-sen University, an Executive Master of Business Administration degree from the School of Economics and Management of Tsinghua University and a doctoral degree in national economics from the Graduate School of Chinese Academy of Social Sciences. He is also a qualified senior engineer.
Mr. Tian Liuwen, is currently a Director, vice president of the Company and vice president and a party member of CEA Holding. Mr. Tian joined the civil aviation industry in 1985. Mr. Tian served as manager of the Beijing Sales Department under the Marketing and Sales Division of China General Aviation Corporation. He was also the head of the general manager office and chairman of the labor union and deputy general manager of the Shanxi Branch of the Company. From June 2002 to January 2008, he was the vice president and subsequently president of the Hebei Branch of the Company. From April 2005 to May 2007, he was the president of the Beijing Base of the Company. He served as general manager of Eastern Air Jiangsu, from January 2008 to December 2011. Since December 2011, he has been the vice president of the Company. From December 2011 to June 2013, he was the president of Shanghai Airlines. Since June 2014, he has been a party member of CEA Holding. Since June 2015, he has been a Director of the Company. Since December 2016, he served as the vice president of CEA Holding. Since January 2018, he served as the chairman of Eastern Air Jiangsu. Mr. Tian obtained an Executive Master of Business Administration degree from Nanjing University and is qualified as senior economist.
Mr. Yuan Jun, is currently an employee representative Director and chief human resources officer of the Company, employee representative director and head of Human Resources Department of CEA Holding and director of Eastern Airlines Industry Investment. Mr. Yuan entered civil aviation industry in 1997. From May 2007 to October 2011, Mr. Yuan was the deputy head and head of Work Department of Party Committee of the Company. From October 2011 to May 2016, he was the general manager of Human Resources Department of the Company. From July 2014, he served as the chief human resources officer of the Company. From June 2015 to September 2016, he concurrently served as the general manager of Ground Services Department and the deputy secretary of Party Committee of the Company. From September 2016, he served as the head of Human Resources Department of CEA Holding. Mr. Yuan holds an executive master’s degree in business administration from Fudan University and a senior political work specialist qualification.
Mr. Li Ruoshan, is currently an independentnon-executive Director. Mr. Li is currently a professor and PhD supervisor of the Accounting Department of the School of Management of Fudan University. He is also the vice president of the Shanghai Accounting Society and Shanghai Auditing Society. In 2001, Mr. Li was awarded the “The Best 10 Independent Directors in China” by the Shanghai Stock Exchange. Mr. Li graduated from Xiamen University, majoring in accounting and obtained the first doctoral degree in auditing in the PRC. He further studied abroad in the Katholieke Universiteit Leuven in Belgium and the Massachusetts Institute of Technology in the United States. Mr. Li was a deputy dean of the School of Economics and a deputy director of the Accounting Department of the School of Economics of Xiamen University; and a deputy dean of the School of Management, director of the Accounting Department, director of the Financial department of Fudan University, a member of the Consultant Professional Committee for Listed Companies of the Shanghai Stock Exchange and a consultant professional of the Committee for Accounting Standards of the Ministry of Finance. Mr. Li has been an independentnon-executive Director of the Company since June 2013. He is also the independent director of companies such as SAIC Motor Corporation Limited, Shanghai ZhangjiangHi-tech Park Development Co., Ltd. and Xi’an Shaangu Power Co., Ltd, external supervisor of Industrial Bank Co., Ltd. and a director of Jiangsu Zhongnan Construction Group Co., Ltd.
Mr. Ma Weihua, is currently an independentnon-executive Director. Mr. Ma is currently the director-general of Council of National Fund for Technology Transfer and Commercialization, a member of the Standing Council of China Society for Finance and Banking. Mr. Ma served as an executive director, president and chief executive officer of China Merchants Bank Co., Limited, the chairman of Wing Lung Bank Limited in Hong Kong, the chairman of CIGNA & CMC Life Insurance Company Limited and the chairman of China Merchants Fund Management Co., Limited. Mr. Ma obtained a doctorate degree in economics and is an adjunct professor at several higher educational institutions including Peking University and Tsinghua University. Mr. Ma has been the independentnon-executive Director since October 2013 to present. Mr. Ma is currently an independent director of China World Trade Center Co., Limited, Postal Savings Bank of China Co., Limited and Legend Holdings Corporation at the same time and the Chairman of the board of supervisors of Taikang Life Insurance Co., Limited and anon-executive director of Roadshow Holdings Limited.
Mr. Shao Ruiqing, is currently an independentnon-executive Director. Born in September 1957, Mr. Shao currently serves as a professorin accounting and a mentor to doctoral studentsPhD supervisor at the Shanghai Lixin University of Commerce. Mr. Shao served as the deputy dean and dean of the School of Economics and Management of Shanghai Maritime University, and the deputy dean of Shanghai Lixin University of Commerce and the independent director of China Shipping Haisheng Co., Limited., and SAIC Motor Corp Limited. Mr. Shao served as an independentnon-executive Director of the Company from June 2010 to April 2014.Commerce. Mr. Shao was awarded the special allowance by the State Council of the PRC in 1995. He is currently a consultant professional of the Committee for Accounting Standards of the Ministry of Finance, the deputy head of the Accounting Society of China, a consultative committee member of the Ministry of Transport as an expert in finance and accounting, and the deputy head of China Association of Communications Accountancy. Mr. Shao successively graduated from Shanghai Maritime University, Shanghai University of Finance and Economics and Tongji University with a bachelor’s degree in economics, and master’s and doctoral degrees in management. Mr. Shao has spent two and a half years studying and being a senior visiting scholar in the U.K. and Australia. Mr. Shao has served as an independent non-executive Director since June 2015. Mr. Shao is also an independent non-executivedirector of Tibet Urban Development And InvestmentChina Everbright Bank Co., Ltd, Shenzhen Guangju EnergyLtd. and Shanghai International Port (Group) Co., Ltd., Huayu Automotive Systems Company Limited and Shanghai CarthaneTibet Urban Development and Investment Co., Ltd.
Mr. CaiHongping, is currently an independentnon-executive Director. Born in December 1954, Mr. Cai currently serves as the chairmanof AGIC Capital. He is a resident of Hong Kong. He worked for the Industrial and Transportation Management Committee of the Shanghai Government and Sinopec Shanghai Petrochemical Company Limited (“Sinopec Shanghai”) from 1987 to 1991.1993. He participated in the entire listing process of Sinopec Shanghai in Hong Kong and the United States (the first company of the PRC to be listed in the stock exchanges of Hong Kong and the United States) and is one of the founders of H shares in the PRC. From 1992 to 1996, he acted as a member of the Overseas Listing Team for Chinese Enterprises under the Restructuring Committee of the State Council and the chairman of the Joint Committee of Board Secretaries for H Share Companies in the PRC. He served as a joint director of the investment banking division of Peregrine Investments Holdings Limited in Asia from 19971996 to 2006, chairman of the investment banking division of UBS AG in Asia from 2006 to 2010, chairman of Deutsche Bank in the Asia Pacific region from 2010 to 2015 independentnon-executive director of China Oceanwide Holdings Limited since November 2014 and independent director and chairman of the audit committee of Minmetals Development Co., Limited from April 2015 to DecemberAGIC Capital since February 2015. He becameSince June 2016, Mr. Cai has served as an external director of China Minmetals Corporation with effect from December 2015. He has been an independentnon-executive Director of the Company since June 2016,Director. Mr. Cai is also an independentnon-executive director of COSCO SHIPPING Development Co., Ltd. since July 2016, and, an independent director of Shanghai Pudong Development Bank of Communications Co., Ltd since June 2017.and BYD Company Limited and an external director of China National Machinery Industry Corporation. Mr. Cai graduated from Shanghai Fudan University, majoring in mass communications.
Mr. Dong Xuebo, is currently an independent non-executive Director. Born in February 1954, Mr. Dong served as the deputy mayor ofLuoyang City, Henan Province, deputy director of the comprehensive planning department and director of the comprehensive programming department of the Ministry of Transport, assistant to the president of China Merchants Group, general manager of Huajian Transportation Economic Development Center, assistant to the president of China Merchants Group, executive vice chairman, director, CEO and party secretary of China Merchants Highway, and general counsel of China Merchants Group. Since December 2019, he has served as an independent non-executive Director. Currently, Mr. Dong is also an external director of China National Machinery Industry Corporation. Mr. Dong obtained a postgraduate degree.
Mr. Jiang Jiang, is currently an employee representative Director, safety director, chairman of the labor union of the Company, and an employee representative director and chairman of the labor union of CEA Holding. Mr. Jiang joined the civil aviation industry in 1986, and has successivelyworked in the Civil Aviation Industry Airline Corporation and China General Aviation Corporation. From June 1999 to April 2005, he served as the deputy manager and manager of the flight division of the Shanxi Branch of the Company. From April 2005 to July 2010, he was the deputy general manager of the Shanxi Branch. From July 2010 to June 2014, he served as the general manager and the deputy secretary of the party committee of the Shanxi Branch. From June 2014 to December 2016, he served as the general manager and deputy secretary of the party committee of China Eastern Airlines Wuhan Limited. From December 2016 to February 2017, he has served as the person-in-charge of the safety operation management of the Company. From February 2017 to January 2021, he has served as a vice president and standing member of party committee of the Company. Since July 2020, he has served as the safety director of the Company. Since November 2020, he has served as the chairman of the labor unior of the Company and CEA Holding. Since December 2020, he served as an employee representative director of the Company and CEA Holding. Mr. Jiang graduated from the Flight College of Civil Aviation Flight University of China, majoring in aviation transportation and obtained an Executive Master of Business Administration degree from Fudan University. He has the professional title of senior pilot.
Supervisory Committee
As required by the PRC Company Law and our Articles of Association, our Company has a supervisory committee (the “Supervisory Committee”), whose primary duty is the supervision of our senior management, including our Board of Directors, managers and senior officers. Supervisory Committee consists of fivethree supervisors.
Mr. Guo Lijun, is currently the chairman of the supervisory committee and chief economist of the Company. Mr. Guo joined the civil aviation industry in 1994. Mr. Guo had taken up the position as the officer of the secretariat of the Board. He served as the general manager of the legal department of the Company and the deputy director of the legal department of CEA Holding from April 2009 to August 2014; he served as the general counsel legal adviser of the Company from December 2011 to December 2017; he served as the service director of the Company from July 2013 to June 2014; served as the general manager of the planning and development department of the Company from June 2014 to September 2016; and served as the general manager of the Beijing Branch of the Company from September 2016 to April 2018. Mr. Guo has served as the chief economist of the Company since December 2017. From April 2018 to April 2020, he temporarily served as a member of the Standing Committee of the Wuhu Municipal Committee and Deputy Mayor of Wuhu Municipal Government, Anhui Province. He has served as the chairman of the supervisory committee of the Company since March 2021. Mr. Guo graduated from the Zhongnan University of Economics and Law, majoring in law. He obtained a master’s degree in law from the University of Washington in the United States, a master’s degree in law from Fudan University and an Executive Master of Business Administration degree from Fudan University. Mr. Guo has the title of corporate legal adviser.
Mr. Fang Zhaoya, is currently a supervisor of the Company and the head of the strategic development department of CEA Holding. Mr. Fang joined the civil aviation industry in July 1989. He served as the director of the time control office of the production planning department and the director of the A310/300 workshop of the route department of the maintenance base of China Northwest Airlines Co., Ltd., and the deputy director of the technical maintenance control center (TMCC) for production of the route department and the deputy head of the quality control department of the maintenance base of the Northwest Branch of the Company. He served as the manager of the production planning center of the maintenance management department of China Eastern Air Engineering & Technique Co., Ltd. from September 2006 to August 2009, the manager of the business development department of China Eastern Air Engineering & Technique Co., Ltd. from August 2009 to July 2010, the manager of the aircraft selection and lease and sales management department of China Eastern Air Engineering & Technique Co., Ltd. from August 2010 to May 2015, the deputy general manager of China Eastern Air Engineering & Technique Co., Ltd. from May 2015 to June 2017, and the general manager of the planning department of the Company from June 2017 to April 2019. He has been the head of the strategic development department of CEA Holding since April 2019 and a supervisor of the Company since December 2019. Mr. Fang graduated from the Department of Aviation Machinery of China Civil Aviation Institute majored in thermal power machinery and equipment. He obtained a master’s degree from the Northwestern Polytechnical University majored in aviation engineering, and holds the title of senior engineer.
Mr. Zhou Huaxin, is currently the employee representative supervisor of the Company and the head of group work department of the Company and CEA Holding. Mr. Zhou joined the civil aviation industry in 1993 and served as the deputy director of general office and director of research office of CEA Holding and office director of the Company. He served as the director of general office and director of foreign affairs office (Hong Kong, Macao and Taiwan affairs office) of CEA Holding from June 2014 to August 2017; the party secretary and vice president of the Anhui Branch of the Company from August 2017 to April 2018; and the executive vice president and party member of the Beijing Branch of the Company from April 2018 to September 2020. He has served as the head of group work department of the Company and CEA Holding since September 2020, and the employee representative supervisor of the Company since December 2020. Mr. Zhou graduated from Lanzhou University majoring in Marxism, and obtained a master’s degree in economics from the Renmin University of China majoring in national economic planning and management and an Executive Master of Business Administration degree from the School of Management of Fudan University. He holds a political work specialist title.
Senior Management
Mr. Xi Sheng,, is currently the chairman of Supervisory Committeea vice president and party member of the Company and a vice president, party member vice president and the chief auditor of CEA Holding. Mr. Xi served as the deputy head of the foreign affairs department II of the foreign funds utilization and application audit department and the head of the liaison and reception office of the foreign affairs department of the National Audit Office of the PRC and the deputy head of the PRC Audit Institute. He was also the deputy head and head of the fixed assets investment audit department of the National Audit Office of the PRC, and the party secretary and a special commissioner of the Harbin office of the National Audit Office of the PRC. He served as the head of the personnel and education department of the National Audit Office of the PRC from January 2007 to September 2009.PRC. He was the head of the audit department of CEA Holding from September 2009 to November 2012. Mr. Xi has served as the chief auditor of CEA Holding since September 2009. SinceFrom June 2012 to January 2021, he has beenwas a supervisorSupervisor of the Company. SinceFrom June 2016 to January 2021, he has beenwas the chairman of the Supervisory Committee of the Company. Since December 2017, heHe served as the head of the audit department of CEA Holding. Since JanuaryHolding from December 2017 to November 2018, heand has served as thea vice president and party member of CEA Holding since January 2018. From November 2018 to May 2020, he served as the director of audit department of the Company and CEA Holding. Since January 2021, he has served as a vice president and party member of the Company. Mr. Xi is also the council membervice chairman of China Institute of Internal Audit, vice chairman of the 2nd session of supervisory committee of China Association for Public Companies and chairman of executive committee of Association of Certified International Investment Analysts.Audit. Mr. Xi graduated from Jiangxi University of Finance and Economics with undergraduate education background. He is a senior auditor, a Chinese Certified Public Accountant (CPA) and an International Certified Internal Auditor (CIA).
Mr. Ba ShengjiZhou Qimin,, is currently a supervisorvice president, the chief financial officer and a party member of the Company and the chairman of the labor unionchief accountant and a party member of CEA Holding. Mr. Ba joinedZhou served as deputy head of the civil aviation industry in 1978.Finance Department of the eighth research institute of Shanghai Aerospace Bureau of China Aerospace Corporation, and head of the Finance Department, chief accountant and a member of party committee of the eighth research institute of China Aerospace Science and Technology Corporation. He served as the section manager and deputy head of financial department of Commercial Aircraft Corporation of China, Ltd. from April 2008 to October 2016, the finance department. He wasdeputy chief accountant of Commercial Aircraft Corporation of China, Ltd. from August 2014 to January 2018, the chief officeraccountant of the auditing officeCommercial Aircraft Corporation of the CompanyChina, Ltd. from March 1997 to October 1997, chief officer of the auditing office of CEA Holding from October 1997January 2018 to July 2000, head2020, a member of the audit departmentparty committee of CEA HoldingCommercial Aircraft Corporation of China, Ltd. from January 2018 to July 2018 and standing member of party committee of Commercial Aircraft Corporation of China, Ltd. from July 20002018 to January 2003, chief officer of disciplinary committee office, head of supervision department and head of audit department of CEA Holding from January 2003 to May 2003. He served as the deputy head of party disciplinary inspection group, chief officer of disciplinary committee office, head of supervision department and head of the audit department of CEA Holding from May 2003 to November 2006. He was the secretary of the disciplinary committee of the Company from November 2006 to November 2009 and the secretary of the disciplinary committee and chairman of the labor union of the Company from November 2009 to November 2011. He served as the deputy secretary of the party committee and secretary of the disciplinary committee of the Company from November 2011 to August 2013. Since June 2013, he has been a supervisor of the Company.July 2020. He has served as the chairman of the labor unionchief accountant and a party member of CEA Holding since July 2020, the chief financial officer of the Company since August 2013.2020, and a vice president and party member of the Company since January 2021. Mr. BaZhou graduated from Shanghai Television University.the Faculty of Mathematics of Gannan Normal University, majoring in mathematics. He also graduated from the Faculty of Management Engineering of University of Electronic Science and Technology of China, majoring in industrial management engineering, holds an undergraduate degree and is a researcher-level senior accountant.
Mr. Hu JidongFeng Dehua, , is currently a supervisorvice president and chairman of the labor unionparty member of the Company and chief financial officera vice president and vice chairman of the labor union of CEA Holding. Mr. Hu joined the civil aviation industry in 1977. He has been the deputy head of the party promotion department of the Company, deputy head and head of the party publicity department of CEA Holding, and head of the party publicity department of CEA Holding. He was the chairman of the labor union of the Company since December 2011, deputy party secretary of the Company from August 2013 to December 2017, secretary of the disciplinary committee of the Company from August 2013 to August 2014, and supervisor of the Company since June 2016. Since November 2017, he served as the chief financial officer and vice chairman of the labor union of CEA Holding. Mr. Hu Jidong graduated from Shanghai University with a major in cultural management and Fudan University with a major in administrative management.
Mr. Feng Jinxiong, is currently a supervisor of the Company and consultant of the audit departmentmember of CEA Holding. Mr. Feng joined the civil aviation industry in 1982,1989 and served as deputy head and head ofsuccessively worked in China General Aviation Corporation, the Planning DepartmentShanxi Branch of the Company headand the sales and marketing system of the Finance DepartmentCompany. From May 2009 to August 2009, Mr. Feng was the executive vice president for sales and deputy chief accountantmarketing of CEA Holding, managerpassenger transportation department of the Human Resources Department ofCompany. From August 2009 to November 2011, he was the Company, party secretary and vice president for sales and marketing of CES Finance, and deputy general managerpassenger transportation department of the Shanghai Security DepartmentCompany. From November 2011 to August 2014, he was the president and vice party secretary of the Beijing Branch of the Company. From August 2014 to December 2017, he was the secretary of the disciplinary committee of the Company. He alsohas served as president of Eastern Air Wuhan from January 2007 to February 2009. He served as general manager of the Audit Department of the Company from February 2009 to December 2017. He has been a supervisorparty member of the Company since March 2009. HeAugust 2014. From September 2014 to February 2019, he has been the deputy head of the audit departmentparty disciplinary inspection group of CEA Holding from May 2014 to December 2017.Holding. Since December 2017, he served as consultanthas been a vice president of the audit departmentCompany. Since December 2019, he has been a party member and vice president of CEA Holding. Mr. Feng graduated from the Civil Aviation UniversityShanxi Finance and Economics Institute majoring in commercial business management, and obtained an Executive Master of China and the Graduate School of the Chinese Academy of Social Sciences, holding a master’s degree.
Mr. Jia Shaojun, is currently a supervisor of the Company. Mr. Jia was general manager of the financial department and secretary of party general branch of the financial department of the Company. He served as general manager of the finance and accounting department of the CompanyBusiness Administration degree from December 2011 to November 2012 and head of the audit department of CEA Holding from November 2012 to May 2014. He has acted as head of the financial department of CEA Holding from May 2014 to December 2017. He has acted as supervisor of the Company since June 2016. Mr. Jia graduated from Civil Aviation College of China and Fudan University School of Management, holding an executive MBA degree.University. He is qualified as a professor-level senior accountant.
Senior Managementeconomist.
Mr. Wu YongliangCheng Guowei, is currently a vice president and party member of the Company and a vice president, party member and the safety director of CEA Holding. Mr. Cheng joined the civil aviation industry in 1994 and served as the deputy chief engineer, chief engineer, director of flight maintenance and general manager of the flight maintenance engineering department of Shanghai Airlines Co., Limited from April 2005 to March 2010, the vice president of Shanghai Airlines Co., Limited from March 2010 to November 2010, the vice president and safety director of Shanghai Airlines Co., Limited from November 2010 to August 2011, the vice president, safety director and secretary of the disciplinary committee of Shanghai Airlines Co., Limited from August 2011 to July 2013, and the party secretary and vice president of Shanghai Airlines Co., Limited from July 2013 to September 2016. He served as the party secretary and vice president of the Northwest Branch of the Company from September 2016 to August 2017, and the president and vice party secretary of the Northwest Branch of the Company from August 2017 to November 2018. He served as the general manager and vice party secretary of China Eastern Airlines Technology Co., Ltd. from November 2018 to December 2019. He has served as a vice president and party member of CEA Holding since December 2019. He has served as a vice president and party member of the Company since January 2020. He served as the Safety Director of the Company from February 2020 to July 2020, and has served as the safety director of CEA Holding since February 2020. Mr. Cheng graduated from Nanjing University of Aeronautics and Astronautics majoring in aerodynamics and obtained a Master of Business Administration degree jointly offered by Beijing University of Technology and American City University. He holds the title of senior engineer.
Mr. Liu Tiexiang, is currently a vice president and chief financial officerparty member of the Company and a vice president and party member of CEA Holding. Mr. Liu joined the civil aviation industry in 1983, and served as the manager of the flight training center of training department, the deputy general manager of the aviation safety technology department and the deputy general manager of the flight technology management department of Air China, and the general manager of the flight technology management department, deputy chief and party member of the general fleet and chief and vice party secretary of the general fleet of Air China. From April 2011 to August 2014, he served as the chief pilot of Air China. From March 2012 to January 2013, he also served as the general manager, party member and deputy secretary of the operation control center of Air China, and the deputy chief operating officer of Air China. From January 2013 to August 2014, he also served as the general manager and vice party secretary of the Southwest Branch of Air China. From August 2014 to March 2020, he served as the vice president and party member of Air China. From April 2015 to March 2020, he also served as the chief operating officer of Air China. From May 2016 to March 2020, he also served as the chairman of Beijing Airlines Co., Ltd. Since March 2020, he has served as a vice president and party member of CEA Holding. Since April 2020, he has served as a vice president and party member of the Company. Mr. Liu graduated from the Correspondence Institute of the Party School of the CPC Central Committee majoring in economics and management, and holds the title of commanding senior pilot.
Mr. Wang Jian, is currently the Board secretary of the Company. Mr. Wang joined the civil aviation industry in 1995 and served as deputy head of the Company’s office, the deputy general manager of the Shanghai Business Office of the Company, and the deputy general manager of the Shanghai Business Office of China Southern Airlines Company Limited. He served as the head of the Board office of the Company and a representative of the Company’s securities affairs from May 2009 to April 2012. He has served as the Board secretary of the Company since April 2012. He also served as the head of the Board office of the Company from April 2014 to May 2016. He served as a director and the general manager of Eastern Airlines Industry Investment from November 2016 to February 2019. He has also served as the head of the Board office of the Company since May 2018. He has served as the chairman of Eastern Airlines Industry Investment since February 2019, and also served as a director of AFK since July 2019. During his term as secretary to the Board and his relevant work, he designed and promoted to implement several capital and strategic projects of CEA. Mr. Wang graduated from Shanghai Jiao Tong University and has a Master of Business Administration postgraduate degree from East China University of Science and Technology and an Executive Master of Business Administration degree from Tsinghua University.
Retired Director, Supervisor and Senior Management during the Reporting Period
Mr. Wang Junjin, served as a Director of the Company during the Reporting Period. He is currently the chairman of Shanghai Juneyao (Group) Co., Ltd., the chairman of Juneyao Airlines Co., Ltd., the chairman of Shanghai Aijian Group Co., Ltd., the chairman of Jiangsu Wuxi Commercial Building Group Co., Ltd., the chairman of Shanghai World Foreign Language Primary and Middle Schools, a vice president of China Glory Society, a vice chairman (vice president) of Shanghai Federation of Industry and Commerce (General Chamber of Commerce), and the president of Shanghai Zhejiang Chamber of Commerce. Mr. Wang served as a manager, deputy general manager and general manager of Wenzhou Tianlong Chartered Aircraft Industry Co., Ltd., the general manager of Juneyao Group Aviation Services Co., Ltd., a vice president, vice chairman and president of Shanghai Juneyao (Group) Co., Ltd., a member of the 11th and 13th National Committee of the CPPCC and a representative of the 12th National People’s Congress. In October 2018, Mr. Wang was selected into the List of 100 Outstanding Private Entrepreneurs in the 40 Years of Reform and Opening Up by the United Front Work Department of the Central Government and the All-China Federation of Industry and Commerce. From December 2019 to December 2020, he served as Director of the Company. Mr. Wang has a postgraduate degree and obtained a Master of Business Administration degree.
Mr. Lin Wanli, served as an independent Director of the Company during the Reporting Period. Mr. Lin is currently an external director of Central Enterprise. Mr. Lin served as a vice party secretary and secretary of the disciplinary committee of the Tunnel Bureau of Ministry of Railways from December 1995 to March 2001, the vice chairman and party secretary of China Railway Tunnel Group Co., Ltd. from April 2001 to December 2006, and a vice party secretary, secretary of the disciplinary committee and chairman of the labour union of China Northern Locomotive and Rolling Stock Industry (Group) Corporation from January 2007 to August 2013. He served as the president and party secretary of China Railway Materials Commercial Corporation and the chairman and party secretary of China Railway Materials Co., Ltd. from August 2013 to June 2015, a director and party secretary of China National Aviation Fuel Group Corporation from July 2015 to November 2016, and the chairman of China Aviation Oil (Singapore) Corporation Ltd. from August 2015 to February 2017. Since November 2016, he has served as an external director of Central Enterprise. Since February 2017, he has served as an external director of China National Agricultural Development Group Co., Ltd. Since January 2018, he has served as a non-executive director of China Construction Science & Technology Group Co., Ltd. From August 2018 to December 2020, he served as an independent Director of the Company. Mr. Lin graduated from the Economics Faculty of Shandong University and obtained an Executive Master of Business Administration degree from Tsinghua University. He is a researcher-level senior political work specialist and senior economist.
Mr. Yuan Jun, served as an employee representative Director and chairman of the labour union of the Company and an employee representative director and chairman of the labour union of CEA Holding during the Reporting Period. Mr. Yuan joined the civil aviation industry in 1997. From May 2007 to October 2011, Mr. Yuan was the deputy head and head of Work Department of Party Committee of the Company. From October 2011 to May 2016, he was the general manager of Human Resources Department of the Company. From July 2014 to March 2018, he served as the chief human resources officer of the Company. From June 2015 to September 2016, he concurrently served as the general manager of Ground Services Department and the vice party secretary of the Company. From September 2016 to October 2018, he served as the head of Human Resources Department of CEA Holding. He served as an employee representative director of CEA Holding from December 2017 to December 2020, an employee representative Director of the Company from February 2018 to December 2020, the chairman of the labour union of the Company from April 2018 to May 2020 and the chairman of the labour union of CEA Holding from May 2018 to May 2020. Mr. Yuan holds an Executive Master of Business Administration degree from Fudan University and a senior political work specialist title.
Mr. Gao Feng, served as an employee representative Supervisor of the Company during the Reporting Period. Mr. Gao joined the civil aviation industry in 1984 and worked in China General Aviation Corporation. He served as a vice party secretary, secretary of the disciplinary committee and chairman of the labour union of the Shanxi Branch of the Company. He served as the party secretary of the Shanxi Branch of the Company from July 2009 to January 2014 and the party secretary, vice president and executive vice president of China United Airlines Co., Ltd. from January 2014 to October 2015. He served as the executive vice chairman of the labour union of the Company from October 2015 to November 2019, the director of the labour union office of the Company from June 2016 to November 2018, an employee representative Supervisor of the Company from August 2018 to December 2020 and the vice chairman of the labor union of CEA Holding from November 2018 to November 2019. He has been a member of party committee and deputy chief commander of the construction and operation command department of CEA Holding (CEA Corporation) in Beijing Daxing International Airport since November 2019. Mr. Gao graduated from the Central Party School of the Communist Party of China majoring in economic management, and obtained an Executive Master of Business Administration degree from Fudan University. He obtained a senior political work specialist title.
Mr. Wu Yongliang, served as a vice president, the chief financial officer and a party member of the Company and a vice president, the chief accountant and a party member of CEA Holding during the Reporting Period. Mr. Wu joined the civil aviation industry in 1984 and served as deputy head and subsequently head of the Finance Department of the Company, head of Planning and Finance Department of the Company and head of the Finance Department of CEA Holding. From April 2001 to March 2009, he served as deputy chief accountant and head of the Finance Department of CEA Holding. From AprilMarch 2009 onwards,to August 2020, he has served as the chief financial officer of the Company. He has beenserved as a vice president and party member of the Company sincefrom December 2011. He has been2011 to August 2020, a vice president and party member of CEA Holding sincefrom November 2017.2017 to July 2020, and the chief accountant of CEA Holding from June 2018 to July 2020. Mr. Wu graduated from the Faculty of Economic Management of Civil Aviation University of China, majoring in planning and finance. He also graduated from Fudan University, majoring in business administration. Mr. Wu holds aan MBA degree and is a certified accountant.
Mr. Feng Liang, is currently a vice president and the chief engineer of the Company. Mr. Feng joined the civil aviation industry in 1986 and worked in the aircraft maintenance base routes department of the Company. From 1999 to 2006, he used to serve as the head of the aircraft maintenance base engineering technology department, chief engineer of the base and general manager of the base. He also served as the general manager of China Eastern Air Engineering & Technique after it was established in September 2006. He has served as the chief engineer of the Company since August 2010, the chief security officer of the Company from December 2012 to December 2014 and the vice president of the Company since August 2013. He has been an executive director of Eastern Technology since December 2014. Mr. Feng graduated from Civil Aviation University of China, majored in aircraft electrical equipment maintenance and obtained an MBA degree from Shanghai Jiao Tong University.
Mr. Feng Dehua, is currently a vice president of the Company and the deputy head of party disciplinary inspection group of CEA Holding. Mr. Feng joined the civil aviation industry in 1989, and has worked in China General Aviation Corporation, the Shanxi branch of the Company and the sales and marketing system department of the Company. From May 2009 to July 2009, Mr. Feng was the executive vice president for sales and marketing of passenger transportation department of the Company. From July 2009 to November 2011, he was the party secretary and vice president for sales and marketing of passenger transportation department of the Company. From November 2011 to August 2014, he was the president and deputy party secretary of the Beijing branch of the Company. From August 2014 to December 2017, he was the secretary of the Disciplinary Committee of the Company. Since September 2014, he has been a member of the Party Standing Committee of the Company. Since September 2014, he has been the deputy head of party disciplinary inspection group of CEA Holding. Since December 2017, he has been a vice president of the Company. Mr. Feng graduated from Shanxi Finance and Economics Institute majored in commercial business management and obtained an executive master’s degree in business administration from Fudan University. He is qualified as a senior economist.
Mr. Jiang Jiang, is currently a vice president of the Company. Mr. Jiang joined the civil aviation industry in 1986, and has worked in the Civil Aviation Industry Airline Corporation and China General Aviation Corporation. From June 1999 to April 2005, he served as the deputy manager and manager of the flight division of the Shanxi Branch of the Company. From April 2005 to July 2010, he was the deputy general manager of the Shanxi Branch. From July 2010 to June 2014, he served as the general manager and the deputy secretary of the party committee of the Shanxi Branch. From June 2014 to December 2016, he served as the deputy secretary of the party committee of Eastern Air Wuhan. He served as director and general manager of Eastern Air Wuhan from June 2014 to April 2017. From December 2016 to February 2017, he has served as theperson-in-charge of the safety operation management of the Company. Since February 2017, he has served as the vice president of the Company. Mr. Jiang graduated from the Flight College of Civil Aviation Flight University of China, majored in aviation transportation and obtained an Executive Master of Business Administration degree from Fudan University. He has the professional title of Level 1 pilot.
Mr. Wang Jian, is currently the Company’s Board secretary and company secretary. Mr. Wang joined the Company in 1995 and served as deputy head of the Company’s office and deputy general manager of the Shanghai Business Office of the Company. From September 2006 to May 2009, he was the deputy general manager in the Shanghai Base of China Southern Airlines Company Limited. He served as the head of the Board secretariat of the Company and a representative of the Company’s Securities affairs from May 2009 to April 2012. He served as the Board secretary and the head of the Board secretariat of the Company from April 2012 to May 2016. He ceased to serve as the head of the Board secretariat in May 2016. During his term as secretary to the Board and his relevant work, he designed and promoted to implement several capital and strategic projects of the Company. Mr. Wang graduated from Shanghai Jiao Tong University and has an Master of Business Administration postgraduate degree from East China University of Science and Technology and an Executive Master of Business Administration degree from Tsinghua University as well as a qualification certificate for board secretaries of listed companies issued by the Shanghai Stock Exchange.
Retired Director, Supervisor and Senior Management During the Reporting Period
Mr. Xu Zhao, was a Director of the Company, and the chief accountant of CEA Holding during the reporting period. Mr. Xu served as engineer and accountant of Dongfeng Motor Group Company Limited, manager of the finance department of Shanghai Yanhua High Technology Limited Company, and chief financial officer of Shaanxi Heavy Duty Automobile Co., Limited. Mr. Xu has served as the chief accountant of CEA Holding from November 2006 to January 2018. He was a supervisor of the Company from June 2007 to November 2011. He has served as a Director of the Company from June 2012 to February 2018. Mr. Xu graduated from Chongqing University, majoring in moulding, and The Chinese University of Hong Kong, majoring in accounting, and holds a master’s degree. Mr. Xu is qualified as an engineer and an accountant, and is a certified public accountant in the PRC.
Mr. Sun Youwen, was a vice president of the Company during the reporting period. Mr. Sun joined the civil aviation industry in 1980, and served as a squadron leader and the leader of the Shanghai flight division. He served as the vice president of Eastern Air Jiangsu from April 2007 to November 2009 and the general manager of the Shanghai flight division of the Company from December 2009 to April 2012. He was appointed as the chief pilot of the Company and the general manager of the Shanghai flight division of the Company from April 2012 to March 2014 and has served as the vice president and chief pilot of the Company from March 2014 to July 2014. He has been a vice president of the Company from July 2014 to February 2017. Mr. Sun graduated from the Flight College of Civil Aviation Flight University of China, majored in aircraft driving and obtained an Executive Master of Business Administration degree from the Institute of Management of Fudan University.
B. Compensation
The aggregate amount of cash compensation paid by us to our Directors,directors, supervisors and the senior management during 20172020 for services performed as Directors,directors, supervisors and officers or employees of our Company was approximately RMB8.7RMB4.9 million. In addition, Directorsdirectors and supervisors who are also officers or employees of our Company receive certain otherin-kind benefits which are provided to all of our employees.
Details of the emoluments paid to our Directors,directors, supervisors and senior management for the year 20172020 are as follows:
| Total | ||||
| Name and Principal Position | RMB’000 | |||
Directors | ||||
Liu Shaoyong* | — | |||
| ||||
| ||||
| ||||
Li Yangmin* | — | |||
Tang Bing* | — | |||
| ||||
Independent | ||||
| ||||
Shao Ruiqing | ||||
| 200 | |||
Cai Hongping | 200 | |||
Dong Xuebo | 60 | |||
Employee Representative Director | ||||
Jiang Jiang | 2,361.1 | |||
Supervisors | ||||
Guo Lijun | — | |||
Fang Zhaoya* | — | |||
Zhou Huaxin | 46.6 | |||
Senior Management | ||||
Xi Sheng* | — | |||
| ||||
| — | |||
| ||||
| — | |||
| ||||
| ||||
| ||||
| — | |||
| ||||
Wang Jian | ||||
| ||||
Wang Junjin* | ||||
Lin Wanli | — | |||
Yuan Jun* | — | |||
Gao Feng | 559.5 | |||
Wu Yongliang* | — | |||
Total | ||||
| * | These |
During the year ended December 31, 2017,2020, no Directorsdirectors or supervisors of the Company waived their compensation.
C. Board Practices
All of our Directorsdirectors and supervisors serve a term of three years or until such later date as their successors are elected or appointed. Directors and supervisors may serve consecutive terms. TwoOne of the supervisors areis employee representativesrepresentative supervisor appointed by our employees, and the rest are appointed by the shareholders. The following table sets forth the numberterms and the expiration of years our current Directors,the terms of the directors, executive officers and supervisors of the Company who have held their positions during their current term and the expiration of their current term.period from January 1, 2020 to April 28, 2021.
Name | Position | Held Position Since | Expiration of Term | |||
| Liu Shaoyong | Chairman of the Board of Directors | December 31, 2019 | ||||
| Li Yangmin | Vice Chairman President | December 31, 2019 December 31, 2019 | ||||
December 31, 2022 December 31, 2022 | ||||||
| Tang Bing | Director | December 31, 2019 | ||||
| Shao Ruiqing | IndependentNon-executive Director | December 31, 2019 | ||||
| Cai Hongping | IndependentNon-executive Director | December 31, 2019 | ||||
| Dong Xuebo | Independent Non-executive Director | December 31, 2019 | December 31, 2022 | |||
| Jiang Jiang | Employee Representative Director | December 28, 2020 | December 31, 2022 | |||
Vice President | December 31, 2019 | January 18, 2021 | ||||
| Guo Lijun | Chairman of the Supervisory Committee | March 29, 2021 | December 31, 2022 | |||
| Fang Zhaoya | Supervisor | December 31, 2019 | December 31, 2022 | |||
| Zhou Huaxin | Employee Representative Supervisor | December 10, 2020 | December 31, 2022 | |||
| Xi Sheng | Chairman of the Supervisory Committee | December 31, 2019 | ||||
Vice President | January 18, 2021 | December 31, 2022 | ||||
| Zhou Qimin | Chief Financial Officer | August 28, 2020 | ||||
Vice President | January 18, 2021 | |||||
| Feng Dehua | Vice President | December 31, 2019 | December | |||
| Cheng Guowei | ||||||
Vice President | January 15, 2020 | |||||
| Liu Tiexiang | ||||||
Vice President | April 29, 2020 | |||||
| Wang Jian | Board Secretary | December 31, 2019 |
Note:
None of our Directors,directors, supervisors or members of our senior management has entered into any agreement or reached any understanding with us requiring our Company to pay any benefits as a result of termination of their services.
Audit and Risk Management Committee
Our Board of Directors established the audit committee in August 2000 in accordance with the listing rules of the Hong Kong Stock Exchange. OurHKEX. Currently, the Audit and Risk Management Committee comprised Mr. Li Ruoshan,three members, namely Mr. Shao Ruiqing, and Mr. Xu Zhao as the members of the Audit and Risk Management Committee and Mr. Li Ruoshan was appointed as the chairman of the Audit and Risk Management Committee in 2017. Due to Mr. Xu Zhao’s resignation, on March 29, 2018,committee, Mr. Cai Hongping was appointed as the memberand Mr. Dong Xuebo, all of the Audit and Risk Management Committee. Our Audit and Risk Management Committee comprises three members, which are all independent non-executive directors, and satisfiessatisfy the requirements of Rule10A-3 of the Exchange Act and NYSE Rule 303A.06 relating to audit committees, including the requirements relating to independence of the audit committee members.
The Audit and Risk Management Committee is authorized to, among other things, examine our internal control, internal audit and risk management systems, review auditing procedures and financial reports with our auditors, evaluate the overall risk management and corporate governance of our Company and prepare relevant recommendations to our Board of Directors. Subject to the approval of the shareholders’ meeting, the Audit and Risk Management Committee of our Company is also directly responsible for the appointment, compensation, retention and oversight of our external auditors, including resolving disagreements between management and the auditor regarding financial reporting. The external auditors report directly to the Audit and Risk Management Committee. The Audit and Risk Management Committee holds at least three meetings each year. The Audit and Risk Management Committee has established procedures for the receipt, retention and treatment of complaints received by our Company regarding accounting, internal controls or auditing matters, and procedures for the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters. The Audit and Risk Management Committee has the authority to engage independent counsel and other advisors, as it determines necessary, to carry out its duties. Our Company provides appropriate funding, as determined by the Audit and Risk Management Committee, for payment of compensation to the external auditors, advisors employed by the audit committee, if any, and ordinary administrative expenses of the audit committee that are necessary or appropriate in carrying out its duties. The Audit and Risk Management Committee held eight10 meetings in 2017.2020.
Nominations and Remuneration Committee
OurCurrently, the Nominations and Remuneration Committee comprisescomprised three members:members, namely Mr. Liu Shaoyong, the Chairman, Mr. Ma WeihuaCai Hongping and Mr. Dong Xuebo. Mr. Cai Hongping both of whomand Mr. Dong Xuebo are independentnon-executive directors. Since June 15, 2016, whendirector. When considering and approving nomination related matters, the Nominations and Remuneration Committee will be chaired by Mr. Liu Shaoyong; when considering and approving remuneration related matters, the Nominations and Remuneration Committee will be chaired by Mr. Ma Weihua.Cai Hongping.
The Nominations and Remuneration Committee is authorized to make recommendations to our Board of Directors regarding its size and composition based on the relevant provisions of the PRC Company Law and in the light of specific circumstances such as the characteristics of the Company’s equity structure, determine standards and procedures for the nomination of Directorsdirectors and senior management of the Company, examine the remuneration policies of Directorsdirectors and senior management of the Company, review the performance of our Directorsdirectors and senior management as well as determine their annual compensation level. The Nominations and Remuneration Committee submits to our Board of Directors or shareholders’ meeting for approval compensation plans and oversee the implementation of approved compensation plans. The Nominations and Remuneration Committee may consult financial, legal or other outside professional firms in carrying out its duties. The Nominations and Remuneration Committee held four4 meetings in 2017.2020.
We follow our home country practice in relation to the composition of our Nominations and Remuneration Committee in reliance on the exemption provided under NYSE Corporate Governance Rule 303A.00 available to foreign private issuers. Our home country practice does not require us to establish a remuneration committee composed entirely of independent directors.
Planning and Development Committee
TheCurrently, the Planning and Development Committee comprisescomprised three members: Mr. Li Yangmin andmembers, namely Mr. Tang Bing, a director, Mr. Dong Xuebo and Mr. Cai Hongping, both of whomthem are Directors, and Mr. Shao Ruiqin, an independentnon-executive director. Mr. Li Yangmin isTang Bing was appointed as the chairman of the committee.Planning and Development Committee.
The Planning and Development Committee, a specialized committee under our Board of Directors, is responsible for studying, considering, and developing plans and making recommendations with regard to the long-term development plans and material investment decisions of the Company. The members of the committee also oversee the implementation of such plans. The Planning and Development Committee held eight6 meetings in 2017.2020.
Aviation Safety and Environment Committee
TheCurrently, the Aviation Safety and Environment Committee comprises Mr. Ma Xulun andcomprised three members, namely Mr. Li Yangmin, both of whom are Directors,a director, Mr. Shao Ruiqing, an independent non-executive director and Mr. Li Ruoshan,Jiang Jiang, an independentnon-executiveemployee representative director. Mr. Ma Xulun servesLi Yangmin was appointed as the chairman of the committee.
The Aviation Safety and Environment Committee, a specialized committee under the Board of Directors, is responsible for consistent implementation of relevant laws or regulations regarding national aviation safety and environmental protection, examining and overseeing the aviation safety management of the Company, studying, considering and making recommendations with regard to aviation safety duty plans and significant issues resulting from related safety duties as well as implementing such safety duty plans. In addition, the Aviation Safety and Environment Committee performs studies, and makes recommendations on significant environmental protection issues, including carbon emissions on our domestic and international aviation routes and carbon emission programs, and overseeing their implementation. The Aviation Safety and Environment Committee held two2 meetings in 2017.2020.
D. Employees
Our employees are members of a labor association, which represents employees with respect to labor disputes and certain other employee matters. We believe that we maintain good relations with our employees and with their labor association.
The table below sets forth the number of our employees as of December 31, 2015, 20162018, 2019 and 2017,2020, respectively:
| As of December 31, | As of December 31, | |||||||||||||||||||||||
| 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | |||||||||||||||||||
Pilots | 6,386 | 6,759 | 7,332 | 7,634 | 8,284 | 8,837 | ||||||||||||||||||
Flight attendants and other aircrew staff | 13,225 | 15,494 | 18,916 | 19,909 | 21,673 | 21,149 | ||||||||||||||||||
Maintenance personnel | 10,890 | 11,621 | 11,847 | 12,262 | 12,960 | 13,258 | ||||||||||||||||||
Sales and marketing | 3,980 | 4,739 | 4,378 | 3,978 | 4,009 | 4,040 | ||||||||||||||||||
Operation control | 1,983 | 2,180 | 2,057 | 1,780 | 1,877 | 1,893 | ||||||||||||||||||
Information technology | 707 | 860 | 920 | 1,025 | 1,116 | 1,168 | ||||||||||||||||||
Management | 4,125 | 4,001 | 3,923 | 3,605 | 3,650 | 3,677 | ||||||||||||||||||
Ground Services and others | 29,737 | 29,679 | 25,904 | 26,812 | 27,567 | 27,135 | ||||||||||||||||||
Total | 71,033 | 75,333 | 75,277 | 77,005 | 81,136 | 81,157 | ||||||||||||||||||
In 2017,2020, we ensured positive results from thecontinued to provide large-scale trainings through organizingtraining with different emphasis on different personnel and coordinating resources, reasonablyconstruct our online study platform to integrate online and offline training resources. By setting up coursesour online study platform, we integrated the online and optimizingoffline training cycles.resources and enhanced the effects of training and studying. We focused on different professional trainings, concentrated on the development of talent for the key positions and set up clear development and training plans for the targeted personnel. Altogether 49,663 people have completed trainings, 980 people dispatched; 205 tranches or 3,620 people have completedFor example, in 2020, we launched training programs for cabin crew, ground services personnel and maintenance personnel in relation to the five required trainingsnew model of aircraft we introduced. We also prepared specific training plan for backup talents to enhance our talent reserve. Due to the impact of the COVID-19 pandemic, we adjusted our training program in the transportation industry, which are dispatch, information, flight operations,on-the-spot affairsa timely manner, added online training methods, and capabilities; 3,134 flight attendant trainees have completed 107provided various types of training tasks from the beginner class for the new flight attendants. We have also optimized the “Sail Plan for Talents Development”, a training program for newmiddle and high level management trainees incorporating closed-door training with seminars, experiential and inspiring teaching. In addition, we promoted overseas study project, such as Rolls-Royce management improvement study project and Six Sigma Black Belt project.personnel.
See Note 378 to the consolidated financial statements for changes in our retirement benefits.
E. Share Ownership
See Item 6.A and Item 6.B above.
In 2012, we implemented an H shares appreciation rights scheme, under which H shares appreciation rights were granted to the Directorsdirectors and senior management on November 30, 2012 at an exercise price of HK$2.67. The H share appreciation rights granted under this scheme are valid for a period of five years from the date of grant. Thelock-up period of the share appreciation rights shall be the 24 months from the date of grant, during which no share appreciation right shall be exercised. Subject to the satisfaction of performance appraisal indicators, incentive recipients may exercise their share appreciation rights in equal instalmentsinstallments within three years after the expiration of thelock-up period.
There was no granting or exercise of rights under the H shares appreciation rights of our Company during 2013. The first tranche of H shares appreciation rights, amounting to one third of the total H shares appreciation rights of our Company, was originally planned to be exercised on December 1, 2014. However, as our Company did not satisfy the exercising conditions in 2013, such tranche expired automatically.
Item 7.Major7. Major Shareholders and Related Party Transactions
A. Major Shareholders
The following table sets forth certain information regarding ownership of our capital stock as of December 31, 20172020 by all persons who were known to us to be the beneficial owners of 5% or more of any class of our issued share capital:
| Title of Class | Identity of Person or Group | Amount Owned (%) | Percent of Class | Percent of Total Shares (%) | ||||||||||
Domestic A Shares | CEA Holding(1) | 5,530,240,000 | 56.38 | 38.23 | ||||||||||
H Shares | CES Global (2) | 2,626,240,000 | 56.37 | 18.15 | ||||||||||
H Shares | HKSCC Nominees Limited(3) | 4,182,503,289 | 89.77 | 28.91 | ||||||||||
H Shares | Delta Air Lines(4) | 465,910,000 | 10.00 | 3.22 | ||||||||||
Name of shareholder | Class of shares | Number of shares held | Percentage in the relevant class of Shares (%) | Percentage in total issued shares (%) | ||||||||||||
CEA Holding | A Shares | 5,072,922,927 | (2) | 45.28 | 30.97 | |||||||||||
| 457,317,073 | (2) | 4.08 | 2.79 | |||||||||||||
| H Shares | 2,626,240,000 | (3) | 50.73 | 16.03 | ||||||||||||
CES Global | H Shares | 2,626,240,000 | (3) | 50.73 | 16.03 | |||||||||||
HKSCC Nominees Limited | H Shares | 4,701,626,955 | 90.82 | 28.70 | ||||||||||||
Juneyao Group | A Shares | 311,831,909 | (4) | 2.78 | 1.90 | |||||||||||
| 808,441,233 | (4) | 7.22 | 4.94 | |||||||||||||
| H Shares | 529,677,777 | (5) | 10.23 | 3.23 | ||||||||||||
Juneyao Airlines | A Shares | 219,400,137 | (4) | 1.96 | 1.34 | |||||||||||
| 589,041,096 | (4) | 5.26 | 3.60 | |||||||||||||
| 311,831,909 | (4) | 2.78 | 1.90 | |||||||||||||
| H Shares | 12,000,000 | (5) | 0.23 | 0.07 | ||||||||||||
| 517,677,777 | (5) | 10.00 | 3.16 | |||||||||||||
Juneyao Hong Kong | H Shares | 517,677,777 | (5) | 10.00 | 3.16 | |||||||||||
Shanghai Jidaohang | A Shares | 589,041,096 | (4) | 5.26 | 3.60 | |||||||||||
Wang Junjin | A Shares | 1,120,273,142 | (4) | 10.00 | 6.84 | |||||||||||
| H Shares | 529,677,777 | (5) | 10.23 | 3.23 | ||||||||||||
Wang Han | A Shares | 1,120,273,142 | (4) | 10.00 | 6.84 | |||||||||||
| H Shares | 558,769,777 | (5) | 10.79 | 3.41 | ||||||||||||
Ye Jinqi | A Shares | 1,120,273,142 | (4) | 10.00 | 6.84 | |||||||||||
| H Shares | 529,677,777 | (5) | 10.23 | 3.23 | ||||||||||||
Notes:
Based on the information available to the Directors (including such information as was available on the website of the Hong Kong Stock Exchange) and so far as they are aware, as of December 31, 2017:
| (1) | Based on the information available to the directors (including such |
| (2) | 5,072,922,927 A |
| (3) | CES Global directly held 2,626,240,000 H |
| (4) | 311,831,909 A Shares were held directly by |
On October 29, 2019, Juneyao Group and Juneyao Airlines signed a voting rights proxy agreement to delegate the voting rights of 311,831,909 A Shares held directly by Juneyao Group to Juneyao Airlines. Therefore, Juneyao Airlines is also deemed to be interested in the 311,831,909 A Shares held directly by Juneyao Group.
| (5) | Juneyao Airlines directly held 12,000,000 H Shares and Juneyao Hong Kong directly held 517,677,777 H Shares through HKSCC Nominees Limited. Mr. Wang Han and Mr. Wang Junjin were interested in 71.77% of shares of Juneyao Group. Juneyao Group is the |
As of December 31, 2017,2020, CEA Holding directly or indirectly held 56.38%49.79% of our issued and outstanding capital stock,stock. Due to the completion of non-public issuance of H Shares and neither itA Shares by us to Juneyao Airlines and Juneyao Group in 2019, the shareholding of Juneyao Airlines, Juneyao Group, Mr. Wang Junjin, Mr. Wang Han and Ms. Ye Jinqi in us increased in 2019, resulting in the dilution of the shareholding of CEA Holding in us. See “Item 4. Information on the Company – History and Development of the Company” for details of the non-public issuance of H Shares and A Shares. Neither CEA Holding nor HKSCC Nominees Limited has any voting rights different from those of other shareholders. We are not aware of any arrangement which may at a subsequent date result in a change of control of our Company.
As of December 31, 2017,2020, there were 4,659,100,0005,176,777,777 H Shares issued and outstanding. As of December 29, 2017 (December 30 and December 31, 2017 being a Saturday and a Sunday)2020 and April 16, 2018,15, 2021, there were 4358 and 4256 registered holders, respectively, of American depositary receiptsDepositary Receipts evidencing 1,974,9351,323,052 and 1,925,4271,338,412 ADSs, respectively. Since certain of the ADSs are held by nominees, the above number may not be representative of the actual number of U.S. beneficial holders of ADSs or the number of ADSs beneficially held by U.S. persons.
Our Company is currently a majority-owned subsidiary of CEA Holding.Holding who holds 49.79% of our issued and outstanding capital stock. CEA Holding itself is a wholly state-owned enterprise under the administrative control of the SASAC. CEA Holding’s shareholding in our Company is in the form of ordinary domestic shares, through which it, under the supervision of the SASAC, enjoys shareholders’ rights and benefits on behalf of the PRC government.
B. Related Party Transactions
Relationship with CEA Holding and Associated Companies
We enter into transactions from time to time with CEA Holding and its subsidiaries. For a description of such transactions, see Note 4748 to the consolidated financial statements.
Related Business Transactions
As our Company and EA Group and its subsidiaries were a single group prior to the restructuring in 2002, certain arrangements among us have continued after the restructuring and the establishment of CEA Holding. Although we do not currently intend to enter into any equivalent contracts with third parties, each of these arrangements isnon-exclusive.
Eastern Aviation Import and Export CorporationCo., Ltd. (“EAIEC”), a 55% owned subsidiary of CEA Holding
Import and Export Services (previously known as Import and Export Agency Services)
On August 30, 2013,2016, we entered into an agreement relating to the renewal of the existing import and export agency agreement with EAIEC, on substantially the same terms, pursuant to which EAIEC and its subsidiaries will from time to time as its agent provide the Group with agency services for the import and export of goods, including aircraft and related raw materials, accessories, machinery and equipment, together with related insurance and financial services, required in the daily airlines operations and civil aviation business of the Group. The Import and Export Agency Renewal Agreement was effective for a term of three years from January 1, 2014 to December 31, 2016.
On August 30, 2016, we entered into an agreement relating to the renewal of the existing Import and Export Agency Agreement with EAIEC, pursuant to which EAIEC and its subsidiaries will from time to time provide our Groupus with a range of import and export services including: (i) agency services for the import and export of goods, including aircraft and related raw materials, accessories, machinery and equipment, together with related insurance and financial services, required in the daily airlines operations and civil aviation business of the Group;us; (ii) the provision of transportation services as required by our Groupus in the conduct of foreign trade; and (iii) provision of aircrafton-board supplies. The Importimport and Export Services Renewal Agreementexport services renewal agreement (previously known as Importimport and Export Agency Renewal Agreement)export agency renewal agreement) is effective for a term of three years, from January 1, 2017 to December 31, 2019.
On August 30, 2019, we entered into an agreement relating to the renewal of the existing import and export services renewal agreement with EAIEC (the “Import and Export Services Agreement”), pursuant to which EAIEC and its subsidiaries will from time to time provide us with a range of import and export services in the conduct of foreign trade including: (i) provision of agency services for the import and export of goods in the conduct of foreign trade; (ii) provision of transportation management services in the conduct of foreign trade; and (iii) provision of aircraft on-board supplies procurement and other services. The Import and Export Services Agreement is effective for a term of three years, from January 1, 2020 and December 31, 2022.
For the year ended December 31, 2017,2020, we paid handling charges of approximately RMB145RMB132 million to EAIEC. We currently have certain balances with EAIEC, which are trade in nature, interest-free and payable within normal credit terms. See Note 47(c)45(c) to the consolidated financial statements for more details.
China Eastern Airlines Media Co. Ltd. (“CEA Media”) (previously known as Eastern Aviation Advertising Service Co., Ltd. (“Eastern Aviation Advertising”)), a 55% owned subsidiary of CEA Holding
Advertising Service Agreement
On August 30, 2013,2016, we entered into an agreement relating to the renewal of the existing advertising services agreement with Eastern Aviation Advertising on substantially the same terms, pursuant to which Eastern Aviation Advertising and its subsidiaries will from time to time provide the Group with multi-media advertising services to promote its business and to organize promotional functions and campaigns to enhance its reputation in the civil aviation industry. The Advertising Services Renewal Agreement was effective for a term of three years, from January 1, 2014 to December 31, 2016.
On August 30, 2016, we entered into an agreement relating to the renewal of the Existing Advertising Services Agreement with CEA Media on substantially the same terms, pursuant to which CEA Media and its subsidiaries will from time to time provide our Groupus with multi-media advertising services to promote our Group’s business and to organize promotional functions and campaigns to enhance our Group’sreputation in the civil aviation industry. The advertising services renewal agreement is effective for a term of three years, from January 1, 2017 to December 31, 2019.
On August 30, 2019, we entered into an agreement relating to the renewal of the existing advertising services agreement with CEA Media (the “Advertising Services Renewal Agreement”), pursuant to which CEA Media and its subsidiaries will from time to time provide us with multi-media advertising services to promote our business and to organize promotional functions and campaigns to enhance our reputation in the civil aviation industry. The Advertising Services Renewal Agreement is effective for a term of three years, from January 1, 2017 to2020 and December 31, 2019.2022.
For the year ended December 31, 2017,2020, we paid to Eastern Aviation Advertising approximately RMB23RMB26 million for advertising services.
Media Resources Agreement
On September 27, 2013, we entered into an agreement with CEACEA Media, pursuant to which we and certain of our subsidiaries agreed to transfer the exclusive rights to use certain media and advertising resources to CEA Media and certain of its subsidiaries for a period of 15 years (from January 1, 2014 to December 31, 2028). CEA Media is a subsidiary of and thus an associate of CEA Holding, which in turn is a controlling shareholder of the Company.
For the year ended December 31, 2017,2020, Eastern Aviation Advertising paid approximately RMB15RMB14 million in media royalty fees.
China Eastern Air Catering Investment Co., Ltd. (“CEA Catering”), a 55% owned subsidiary of CEA Holding with the remaining by our Company
Catering Service Agreements
On August 30, 2013,2016, we entered into an agreement relating to the renewal of the existing catering services agreement with the Eastern Air Catering Company on substantially the same terms, pursuant to which the Eastern Air Catering Company and its subsidiaries would from time to time provide the Group within-flight catering services (including the supply ofin-flight meals and beverages, cutlery and tableware) and related storage and complementary services required in the daily airline operations and civil aviation business of the Group. The Eastern Air Catering Entities provide their services in accordance with the specifications and schedules as from time to time specified by the relevant member(s) of the Group to accommodate its operation needs. The Catering Services Renewal Agreement was approved at the extraordinary general meeting of the Company held on October 29, 2013 and was effective for a term of three years, from January 1, 2014 to December 31, 2016.
On August 30, 2016, we entered into an agreement relating to the renewal of the Existing Catering Services Agreement with CEA Catering, pursuant to which CEA Catering and its subsidiaries (each an “Eastern Air Catering Entity” and collectively the “Eastern Air Catering Entities”) will from time to time provide our Groupus with catering services (including the supply of meals and beverages, cutlery and tableware) and related storage and complementary services required in theday-to-day airline and ground operation of our Group.us. The Eastern Air Catering Entities provide their services in accordance with the specifications and schedules as from time to time specified by the relevant member(s) of our Groupus to accommodate the operational needs of our Group.us.
ForOn August 30, 2019, we entered into an agreement relating to the year endedrenewal of the existing catering services agreement with CEA Catering (the “Catering Services and Related Services Agreement”), pursuant to which CEA Catering and its subsidiaries (each an “Eastern Air Catering Entity” and collectively the “Eastern Air Catering Entities”) will from time to time provide us with food, beverages, related tableware and the storage, recycling and other related services for food and beverages required for air transport and ground services. In addition, the Eastern Air Catering Entities (as the lessee) will lease lands and buildings owned by us (as the lessor) and will construct buildings and structures on lands leased from us, offsetting rent with construction costs. The Catering Services and Related Services Agreement is effective for a term of three years, from January 1, 2020 and December 31, 2017,2022.
On August 28, 2020, we entered into an agreement relating to the daily connected transaction with CEA Catering (the “the Catering and Aircraft On-board Supplies Support Agreement”), pursuant to which we shall engage Eastern Air Catering Entities for the centralized procurement and the support and maintenance of operation of all of the catering, aircraft on-board supplies support and related services. In addition, Eastern Air Catering Entities shall provide property leasing services in the mode of “offsetting rent with construction costs” to us. The Catering and Aircraft On-board Supplies Support Agreement (the renewed catering service and related services agreement) is effective for a term of three years, from January 1, 2021 and December 31, 2023.
In 2020, we paid approximately RMB1,254RMB812 million to the subsidiaries of CEA Catering for its provision of food, beverages, related tableware and the supply ofin-flight mealsstorage, recycling and other services.related services, and received RMB15 million from CEA Catering for our provison of property leasing services to CEA Catering.
Eastern Air Group Finance Co., Ltd., (“Eastern Finance”), a 53.75% owned subsidiary of CEA Holding
On January 16, 2013, the Company entered into a supplemental agreement with Eastern Finance to further regulate the balances of our deposits and loans with Eastern Finance and its subsidiaries on apre-condition that the agreed maximum daily balance of each of the deposits and the loans under the financial services agreement dated October 15, 2010 remained unchanged. On August 30, 2013,2016, we entered into an agreement relating to the renewal of the existing financial services agreement with Eastern Finance and CES Finance, pursuant to which Eastern Finance and its subsidiaries (each an “Eastern Air Finance Entity” and collectively the “Eastern Air Finance Entities”) and CES Finance and its subsidiaries (each a “CES Finance Entity” and collectively the “CES Finance Entities”) will from time to time provide the Group with a range of financial services including: (i) deposit services by Eastern Air Finance Entities; (ii) loan and financing services by Eastern Air Finance Entities; and (iii) other financial services such as: (a) the provision of trust loans, financial guarantees, credit references by Eastern Air Finance Entities; and (b) broker services for future products (e.g. crude oil, foreign exchange and national debt) by CES Finance Entities (the scope of “other financial services” is not limited and different services may be provided to the Group as and when they are needed). The Financial Services Renewal Agreement was approved at the extraordinary general meeting of the Company held on October 29, 2013 and was effective for a term of three years, from January 1, 2014 to December 31, 2016.
On August 30, 2016, we entered into an agreement relating to the renewal of the Existing Financial Services Agreement with Eastern Finance and CES Finance, on substantially the same terms, pursuant to which Eastern Finance and its subsidiaries (each an “Eastern Air Finance Entity” and collectively the “Eastern Air Finance Entities”) and CES Finance and its subsidiaries (each a “CES Finance Entity” and collectively the “CES Finance Entities”) agreed from time to time provide our Groupus with a range of financial services including: (i) deposit services by the Eastern Air Finance Entities; (ii) loan and financing services by the Eastern Air Finance Entities; and (iii) other financial services, such as: (a) the provision of services such as trust loans, financial guarantees and credit references by the Eastern Air Finance Entities; and (b) the provision of services such as broker services for future products (e.g. crude oil, foreign exchange and national debt) by the CES Finance Entities (the scope of “other financial services” is not limited and different services may be provided to the Groupus as and when they are needed). The Financial Services Renewal Agreementfinancial services renewal agreement is effective for a term of three years, from January 1, 2017 to December 31, 2019.
On August 30, 2019, we entered into an agreement relating to the renewal of the existing financial services agreement with Eastern Finance (the “Financial Services Agreement”), pursuant to which Eastern Finance and its subsidiaries agreed from time to time provide us with a range of financial services including: with a range of financial services including: (i) deposit services; (ii) loan services; and (iii) other financial services. The Financial Services Agreement is effective for a term of three years, from January 1, 2020 to December 31, 2022.
As of December 31, 2017,2020, we had deposits amounting to RMB4,053RMB5,474 million placed with Eastern Finance, which paid interest to us at 0.35%per annum.
CEA Development Co. (“CEA Development”), a wholly-owned subsidiary of CEA Holding
On August 30, 2013,2016, we entered into anthe complementary services renewal agreement relating to the renewal of(previously known as the existing maintenance and repair services agreement with CEA Development on substantially the same terms, pursuant to which CEA Development and its subsidiaries (each a “CEA Development Entity” and collectively the “CEA Development Entities”) would from time to time provide certain services, including: (i) maintenance and repair services to our airplanes and automobiles that are used in ground services and daily operations; (ii) comprehensive services in relation to maintenance, repair and overhaul of aircraft, aviation equipment and ancillaries; (iii) various special vehicles and equipment for airline use, such as air stairs, freight cars, luggage trailers, garbage truck, aircraft portable water vehicle, aircraft sewage disposal vehicle, food cars, freight containers, freight board; (iv) aircrafton-board supplies; and (v) warehousing management (the “Maintenance and Repair Services Renewal Agreement”). Maintenance and Repair Services Renewal Agreement was effective for a term of three years, from January 1, 2014 to December 31, 2016.
On August 30, 2016, we entered into the Complementary Services Renewal Agreement (previously known as the Existing Maintenance and Repair Services Agreement)agreement) with CEA Development, pursuant to which CEA Development and its subsidiaries (each a “CEA Development Entity” and collectively the “CEA Development Entities”) will from time to time provide our Groupus with a range of services including: (i) supply of equipment and materials and provision of maintenance and repair services to our automobiles and equipment; (ii) provision of property management services; (iii) provision of hotel accommodation services; and (iv) other complementary aviation services. The Complementary Services Renewal Agreementcomplementary services renewal agreement is effective for a term of three years, from January 1, 2017 to December 31, 2019.
On August 30, 2019, the Company entered into an agreement relating to the renewal of the existing complementary services agreement with CEA Development (the “Complementary Services Agreement”), pursuant to which CEA Development Entities will from time to time provide us with a range of services. According to the Complementary Services Agreement, CEA Development Entities will provide us with special vehicles and equipment leasing, supply and maintenance services, property management services, hotel services, ground transportation services and other aviation supporting services.
For the year ended December 31, 2017,2020, production and maintenance services fees paid to CEA Development Entity amounted to approximately RMB121RMB439 million.
Eastern Logistics, an indirectly owned subsidiary of CEA Holding
Disposal of the entire equity interest in Eastern Air Logistics
On November 29, 2016, we entered into a disposal agreement with Eastern Airlines Industry Investment, pursuant to which, we have conditionally agreed to sell, and Eastern Airlines Industry Investment has conditionally agreed to purchase, our entire equity interest in Eastern Logistics at a consideration of RMB2,432,544,211.50, determined with reference to the relevant valuation report. Upon completion of the disposal on February 8, 2017, Eastern Logistics ceased to be our subsidiary.
Freight Logistics Daily Connected Transactions Framework Agreement with Eastern Logistics
As Eastern Logistics ceased to be our subsidiary, each member of the Eastern Logistics Group became a connected person of us. On November 29, 2016, we entered into the Freight Logistics Daily Connected Transactions Framework Agreement with Eastern Logistics. We will provide the following services to the Eastern Logistics Group, required for the daily operation of its freight logistics business: (i) aircraft maintenance and its ancillary support services; (ii) information technology support services; (iii) cleaning services; (iv) training services; and (v) other daily support services. The Eastern Logistics Group will provide us the following services required for our daily business operation: (i) apron transfer services, cargo terminal operation services and security inspection services; and (ii) other daily support services. The Freight Logistics Daily Connected Transactions Framework Agreement will be effective for a term of three years, commencing from the date on which the entire equity interest in Eastern Logistics was transferred from us to Eastern Airlines Industry Investment pursuant to the disposal agreement, and ending on December 31, 2019.
On August 30, 2019, we entered into an agreement relating to the renewal of the existing freight logistics daily connected transactions framework agreement with Eastern Logistics on substantially the same terms (the “Freight Logistics Daily Connected Transactions Framework Agreement”), pursuant to which we will provide the freight logistics business support services, including (i) aircraft maintenance and its ancillary support services; (ii) cargo transport maintenance and its ancillary support services; (iii) information technology support services; (iv) cleaning services; (v) training services; and (vi) other daily support services, to Eastern Logistics required for the daily operation of its freight logistics business, and the Eastern Logistics will provide the cargo terminal business support services (as defined below), including (i) apron transfer services, cargo terminal operation services and security inspection services; and (ii) other daily support services, to us required for our daily business operation. The Freight Logistics Daily Connected Transactions Framework Agreement is effective for a term of three years, from January 1, 2020 to December 31, 2022.
For the year ended December 31, 2017,2020, the amount payable by Eastern Logistics to us for the freight logistics support services amounted to approximately RMB100RMB185 million and the amount payable by us to Eastern Logistics for the cargo terminal business support services amounted to approximately RMB281RMB286 million.
Bellyhold Space ManagementExclusive Operation Agreement for Passenger Aircraft Cargo Business
On January 1, 2017, to avoid the competition between the bellyhold space business operated by us and theall-cargo aircraft freight business operated by China Cargo Airlines, the subsidiary of Eastern Logistics, after the completion of equity transfer in Eastern Logistics, we entered into the Bellyhold Space Management Agreement with China Cargo Airlines to entrust China Cargo Airlines for the operation of the bellyhold space business for a term of three years, which commenced on January 1, 2017. Pursuant to the Bellyhold Space Management Agreement, in respect of the entrusted management of bellyhold space business, we will pay management fee to China Cargo Airlines according to industry practice, including handling charges for the entrusted management and incentives for achieving specified sales targets.Thetargets. The Bellyhold Space Management Agreement is effective for a term of three years commencing January 1, 2017 until December 31, 2019.
For the year ended December 31, 2017, the actual amount incurred under the Bellyhold Space Management Agreement was approximately RMB117 million.
The Bellyhold Space Management Agreement has been superseded by the contractual operation agreement dated March 1, 2018 entered into between the Company and China Cargo Airlines from March 31, 2018.
Contractual Operation Agreement and Operation Cost Agreement
On March 1, 2018,September 29, 2020, we entered into the adjusted “passenger aircraft bellyhold space contractual operation agreement and operation cost agreementproposal” with China Cargo Airlines, pursuant to which China Cargo Airlines (as contractor) will operatewe clarified the coverage of the transaction, and the pricing method. In addition, the adjustment provided the cap amount of the Exclusive Operation Agreement (the adjusted “passenger aircraft bellyhold space business and reimburse the contractual fee to us, and we will reimburse the operation costproposal”) for each of the bellyhold space business to China Cargo Airlines.three years ending December 31, 2020, 2021 and 2022. The term of the contractual operation agreementExclusive Operation Agreement is effective from AprilJanuary 1, 20182020 to December 31, 2032. The term of
For the operation cost agreement is from the effective date toyear ended December 31, 2032.2020 the actual amount paid by the China Cargo Airlines amounted to RMB4,895 million under the Exclusive Operation Agreement.
Shanghai Eastern Airlines Investment Co., Limited (“Eastern Investment”), a wholly-owned subsidiary of CEA Holding
Land Use Rights Transfer Agreement and the Buildings Compensation Agreement
On September 29, 2017, we entered into the land use rights transfer agreement and the buildings compensation agreement with Eastern Investment in Shanghai. Pursuant to the land use rights transfer agreement and the buildings compensation agreement, (i) we agreed to transfer to Eastern Investment the land use rights in respect of the target land together with the buildings thereon at the eastern district of Terminal One of the Shanghai Hongqiao International Airport; and (ii) Eastern Investment agreed to compensate us for the transfer of the buildings, at total consideration of approximately RMB808 million.
Property Leases
On August 30, 2013, we entered into an agreement relating to the renewal of the existing property leasing agreement with CEA Holding on substantially the same terms. Pursuant to the Property Leasing Renewal Agreement, we leased the following properties from CEA Holding and its subsidiaries, for use in our daily airline and other business operations:
In addition to and on the terms and conditions to be further agreed, we will lease some of the properties legally owned or leased by us to subsidiaries of CEA Holding as needed by the subsidiaries of CEA Holding. The Property Leasing Renewal Agreement was effective for a term of three years, from January 1, 2014 to December 31, 2016.
On August 30, 2016, we entered into an agreement relating to the renewal of the existing property leasing agreement with CEA Holding. Pursuant to the property leasing renewal agreement, we will lease from CEA Holding and its subsidiaries the following properties, for use in our daily airlines and other business operations:
| (a) | altogether 17 land properties owned by CEA Holding in Lanzhou, Gansu, covering an aggregate site area of approximately 234,989 square meters together with a total of 81 building properties, construction, structures and other ancillary facilities occupying an aggregate floor area of approximately 54,290 square meters; |
| (b) | altogether three land properties owned by CEA Holding in Kunming, Yunnan, covering an aggregate site area of 44,835 square meters together with a total of 24 building properties, construction, structures and other ancillary facilities occupying an aggregate floor area of approximately 67,992 square meters; |
| (c) | one building property, construction, structures and other ancillary facilities owned by CEA Holding in Shijiazhuang, occupying an aggregate floor area of approximately 8,853 square meters; |
| (d) | a total of 67 building properties, construction, structures and other ancillary facilities owned by CEA Holding in Taiyuan, occupying an aggregate floor area of approximately 45,068 square meters; |
| (e) | a total of 7 building properties, construction, structures and other ancillary facilities owned by CEA Holding in Shanghai, occupying an aggregate floor area of approximately 13,195 square meters; |
| (f) | altogether 16 land properties owned by China Eastern Air Northwest Company (“CEA |
| (g) | a total of altogether 33 guest rooms in Eastern Hotel owned by CEA Holding, occupying an aggregate floor area of approximately 1,500 square meters located in Shanghai; and |
| (h) | other land and property facilities owned by CEA Holding |
In addition to the above and on terms and conditions to be further agreed, we leased some of the properties legally owned or leased by us to subsidiaries of CEA Holding as needed by the subsidiaries of CEA Holding. The property leasing renewal agreement was effective for a term of three years from January 1, 2017 to December 31, 2019.
On August 30, 2019, we entered into an agreement relating to the renewal of the existing property leasing agreement with CEA Holding and Eastern Investment (the “Property Leasing and Construction and Management Agency Agreement”). Pursuant to the Property Leasing and Construction and Management Agency Agreement, CEA Holding and its subsidiaries (including Eastern Investment) will lease to us relevant properties. In the meantime, Eastern Investment will also provide the construction and management agency services to us in relation to the basic construction projects, organize the implementation of the construction management work and provide the projects that meet various standards to us pursuant to the agreement. The scope of specific construction and management agency services is determined according to the agreement of the specific agreement signed by both parties.
Pursuant to the Property Leasing and Construction and Management Agency Agreement, we will lease from CEA Holding and its subsidiaries (excluding Eastern Investment) the following properties, for use by us in our daily airlines and other business operations:
| (a) | altogether 20 land properties owned by CEA Holding in Lanzhou, Gansu, covering an aggregate site area of approximately 234,989 square meters together with a total of 77 building properties, construction, structures and other ancillary facilities occupying an aggregate floor area of approximately 54,290 square meters; |
| (b) | altogether three land properties owned by CEA Holding in Kunming, Yunnan, covering an aggregate site area of 44,835 square meters together with a total of 24 building properties, construction, structures and other ancillary facilities occupying an aggregate floor area of approximately 67,992 square meters; |
| (c) | one building property, construction, structures and other ancillary facilities owned by CEA Holding in Shijiazhuang, occupying an aggregate floor area of approximately 8,853 square meters; |
| (d) | a total of 77 building properties, construction, structures and other ancillary facilities owned by CEA Holding in Taiyuan, occupying an aggregate floor area of approximately 45,068 square meters; |
| (e) | a total of seven building properties, construction, structures and other ancillary facilities owned by CEA Holding in Shanghai, occupying an aggregate floor area of approximately 13,195 square meters; |
| (f) | altogether 15 land properties owned by CEA Northwest, covering an aggregate site area of approximately 335,741 square meters together with a total of 106 building properties, construction, structures and other ancillary facilities occupying an aggregate floor area of approximately 92,935 square meters; and |
| (g) | other land and property facilities owned by CEA Holding may be leased to us from time to time due to our business and operational needs. |
Pursuant to the Property Leasing and Construction and Management Agency Agreement, we will lease from Eastern Investment the following properties, for use by us in its daily airlines and other business operations:
| (a) | a total of 78 building properties, construction, structures and other ancillary facilities owned by Eastern Investment in Chengdu, occupying an aggregate floor area of approximately 25,992 square meters; |
| (b) | a total of 17 building properties, construction, structures and other ancillary facilities owned by Eastern Investment in Beijing, occupying an aggregate floor area of approximately 35,730 square meters; |
| (c) | a total of 26 building properties, construction, structures and other ancillary facilities owned by Eastern Investment in Lanzhou, occupying an aggregate floor area of approximately 29,274 square meters; |
| (d) | altogether five land properties owned by Eastern Investment in Shanghai Hongqiao East District, covering an aggregate site area of approximately 333,369 square meters together with a total of 60 building properties, construction, structures and other ancillary facilities occupying an aggregate floor area of approximately 120,053 square meters; |
| (e) | one building property, construction, structures and other ancillary facilities owned by Eastern Investment in Hangzhou, occupying an aggregate floor area of approximately 486 square meters; and |
| (f) | other land and property facilities owned by Eastern Investment may be leased to us from time to time due to our business and operational needs. |
The Property Leasing and Construction and Management Agency Agreement is effective for a term of three years commencing from January 1, 2020 to December 31, 2022.
For the year ended December 31, 2017,2020, we paid a rental fee of RMB54RMB134 million under thisthe property leasing renewal agreement.
Amendments to theNon-Competition Undertaking with CEA Holding
On December 22, 2017, we and CEA Holding entered into the supplemental agreement II to the reorganization and division agreement to amend thenon-competition undertaking of CEA Holding as set out in article 3 of the supplemental agreement I to the reorganization and division agreement entered into by both parties in 1996.
Pursuant to article 3 of the supplemental agreement I, CEA Holding has undertaken to us that, so long as the we are listed in the PRC, Hong Kong or New York, if CEA Holding holds more than 35% of the issued shares of us or is deemed to be our controlling shareholder pursuant to the listing rules of relevant stock exchange(s) or relevant laws and regulations, CEA Holding shall not, in any place within or outside the PRC or in any way (including but not limited to carrying on through sole proprietorship, forming partnerships or joint ventures with others and holding shares or interests in other companies or enterprises, except that the shares held by CEA Holdings do not exceed 10% of our shares or enterprise as listed on a stock exchange) conduct any business or activities that is or may be in direct or indirect competition with our business.
Pursuant to the amendments, CEA Holding undertakes to us that so long as we are listed in the PRC, Hong Kong or New York, if CEA Holding holds more than 35% of the issued shares of us or is deemed to be our controlling shareholder pursuant to the listing rules of relevant stock exchange(s) or relevant laws and regulations, CEA Holding shall not, in any place within or outside the PRC or in any way, conduct any business or activities that is or may be in direct or indirect competition with our business, with an exception that CEA Holding will be allowed to conduct equity investment in any companies or enterprises that is or may be in direct or indirect competition with the principal business of the Company (the “Competing Enterprise(s)”), provided that CEA Holding and its controlled subsidiary(ies) (other than us) will not contravene any applicable laws and regulations as well as regulatory rules, control or be deemed to control such Competing Enterprises by the listing rules of relevant stock exchange(s) or relevant laws and regulations after the investment, and subject to certain conditions.
Guarantee by CEA Holding
As of December 31, 2015, bonds issued by us in an aggregate amount of RMB4.8 million guaranteed by CEA Holding. As of December 31, 2016,2018, 2019 and 2020, bonds issued by us in an aggregate amount of RMB7.8 millionbillion were guaranteed by CEA
Holding. As of December 31, 2017, bonds issued by us in an aggregate amount of RMB7.8 million guaranteed by CEA Holding.
See Note 47(d)45(d) to the consolidated financial statements.
Guarantee by the Company
To Certain Subsidiaries
On January 17, 2017, the Board of Directors considered and approved that we shall provide, within the period from the effective date of the Board resolution to December 31, 2017, guarantee in the total amount of up to RMB1,000 million to China United Airlines, Shanghai Eastern Flight Training Co., Limited, Eastern Business Airlines Service Co., Limited, Eastern Technology, and their respective wholly-owned subsidiaries. The period of guarantee shall be the same as the period of subject obligations of the respective guaranteed parties and shall not exceed 10 years.
On December 22, 2017, the Board of Directors considered and approved that we shall provide, within the period from the effective date of the Board resolution to December 31, 2018, guarantee in the total amount of up to RMB1,000 million to China United Airlines, Shanghai Eastern Flight Training Co., Limited, Eastern Business Airlines Service Co., Limited, Eastern Technology, and their respective wholly-owned subsidiaries, and that Shanghai Airlines Tours International (Group) Co., Limited, a wholly-owned subsidiary of us, shall provide guarantee in the total amount of up to RMB10 million to Shanghai Dongmei Air Travel Co., Ltd. The period of guarantee shall be the same as the period of subject obligations of the respective guaranteed parties and shall not exceed 10 years.
To not more than 67 Special Purpose Vehicles
On January 19, 2018, with an aim to carry out the work of changing aircraft leasing from overseas operating lease to domestic operating lease for not more than 67 aircraft, the Board of Directors agreed us to invest and establish not more than 67 special purpose vehiclessubsidiaries in Dongjiang Free Trade Port Zone of Tianjin with the aggregate guarantee amount not exceeding RMB9.8 billion. The term of each guarantee will not exceed 15 years commencing from the actual date when we provide guarantee to each special purpose vehicle.subsidiary. The guarantee was considered and approved at the general meeting of the Company held on February 8, 2018.
On January 18, 2019, the Board of Directors considered and approved that we shall provide, within the period from the effective date of the resolution to December 31, 2019, guarantee in the total amount of up to RMB1 billion to China United Airlines, Shanghai Eastern Flight Training Co., Ltd., Eastern Business Airlines Service Co., Ltd., Eastern Technology, and their respective wholly-owned subsidiaries. Shanghai Airlines Tours (our then wholly-owned subsidiary) shall provide guarantee in the total amount of RMB10 million to Shanghai Dongmei Air Travel Co., Ltd., the period of which shall be the same as the period of the subject obligations of the respective guaranteed parties and shall not exceed 10 years.
On December 31, 2019, the Board of Directors considered and approved that we shall provide, within the period from the effective date of the resolution to December 31, 2020, guarantee in the total amount of up to RMB1 billion to our three wholly-owned subsidiaries, namely China United Airlines, Shanghai Eastern Flight Training Co., Ltd., and Eastern Technology, or their respective wholly-owned subsidiaries. The period of guarantee shall be the same as the period of the subject obligations of the respective guaranteed parties and shall not exceed 10 years.
A further guarantee was considered and approved at the 2021 first regular meeting of the Board of Directors held on January 26, 2021, which passed the resolution to provide guarantees to certain wholly-owned subsidiaries and agreed us to offer three wholly owned subsidiries, namely, Shanghai Eastern Flight Training Co., Ltd., China Eastern Aviation Technology Co., Ltd. and One Two Three Airlines Co., Ltd. or their wholly-owned subsidiaries with the aggregate guarantee amount not exceeding RMB1 billion. The term of the guarantee will not exceed 10 years and shall be consistent with the term of the principal debt of the gurantee.
Agreements in relation to Aircraft Finance Lease and Aircraft Operating Lease with CES Leasing
Master Lease Agreement
On May 5, 2015, we entered into a master lease agreement with CES Leasing, pursuant to which CES Leasing agreed to provide finance leasing to us in relation to 23 aircraft in accordance with the terms and conditions of the master lease agreement and the relevant implementation agreements. CES Leasing is anon-wholly owned subsidiary of CEA Holding, which in turn is the controlling shareholder of the Company.
2016 Aircraft Finance Lease Framework Agreement
On April 28, 2016, we entered into the 2016 Aircraft Finance Lease Framework Agreement with CES Leasing, pursuant to which CES Leasing agreed to provide finance leasing to us in relation to the leased aircraft, as and when we consider desirable, in our interests and the interests of the Shareholdersshareholders as a whole in accordance with the terms and conditions of the 2016 Aircraft Finance Lease Framework Agreement and the relevant implementation agreements contemplated thereunder. The 2016 Aircraft Finance Lease Framework Agreement was effective for a term of one year commencing January 1, 2016.
2017–2019 Aircraft Finance Lease Framework Agreement
On April 28, 2016, we entered into the 2017–2019 Aircraft Finance Lease Framework Agreement with CES Leasing, pursuant to which CES Leasing agreed to provide finance leasing to us in relation to the Leased Aircraft, as and when we consider desirable, in our interests and the interests of the Shareholdersshareholders as a whole in accordance with the terms and conditions of the 2017–2019 Aircraft Finance Lease Framework Agreement and the relevant implementation agreements contemplated thereunder. The 2017–2019 Aircraft Finance Lease Framework Agreement is effective for a term of three years, from January 1, 2017 to December 31, 2019.
Novation Agreement and Aircraft Operating Lease Agreement
On July 9, 2015, we (as the purchaser) entered into the purchase agreement with Boeing Company (as the seller) regarding the acquisition of fifty brand new Boeing B737 series aircraft (the “Purchase Agreement”).
On August 10, 2017, we entered into a novation agreement with CES Leasing, pursuant to which, (i) we agreed to novate, from the date of the novation agreement, our rights (including the purchase right) and obligations in and under the Purchase Agreement in respect of the five Boeing Aircraft, which are expected to be delivered by the Boeing Company to us in 2017 pursuant to the Purchase Agreement (the “Five Boeing Aircraft”) at nil consideration; and (ii) CES Leasing agreed to, from the date of the novation agreement, assume all of the rights (including the purchaser right) and obligations in and under the Purchase Agreement in respect of the Five Boeing Aircraft at nil consideration. The parties entered into the novation agreement at nil consideration.
On August 10, 2017, we entered into the aircraft operating lease agreement with CES Leasing, pursuant to which, CES Leasing agreed to provide operating leasing to us in relation to the Five Boeing Aircraft. The aircraft operating lease agreement is effective for a term of 144 months for each aircraft from the date on which each of the Five Boeing Aircraft is delivered. Delivery date would fall on the period between August 2017 and December 2017.
2018-2019 Aircraft and Engines Operating Lease Framework Agreement
On December 22, 2017, we entered into the 2018-2019 aircraft and engines operating lease framework agreement with CES Leasing, pursuant to which CES Leasing agreed to provide operating leasing to us in relation to the aircraft and aircraft engines. Upon successful bidding of the tender of the aircraft and/or aircraft engines during the period between January 1, 2018 and December 31, 2019 by CES Leasing, the term of each of the lease agreement under the 2018-2019 aircraft and engines operating lease framework agreement shall be not more than 144 months for each leasing of the aircraft and aircraft engines by CES Leasing to us.
2020–2022 Aircraft Finance Lease Framework Agreement
On August 30, 2019, we entered into an agreement relating to the renewal of the 2017–2019 Aircraft Finance Lease Framework Agreement with CES Leasing on substantially the same terms, pursuant to which CES Leasing Group (as lessor(s)) agreed to provide finance lease to us (as lessee(s)) in respect of the aircraft (the “2020–2022 Aircraft Finance Lease Framework Agreement”) with reference to the transaction practices for years between the parties for aircraft finance lease. Pursuant to the 2020–2022 Aircraft Finance Lease Framework Agreement, for certain aircraft which we intend to purchase during the years from 2020 to 2022, if, as evaluated on requests for proposals, the finance plans proposed by CES Leasing are better than the plans proposed by other parties (including, but not limited to the overall financial cost quoted in the finance plans proposed by CES Leasing being more competitive than those under other plans), we agreed to select CES Leasing for relevant transactions.
2020–2022 Aircraft and Aircraft Engines Operating Lease Framework Agreement
On August 30, 2019, we entered into an agreement relating to the renewal of the 2018-2019 Aircraft and Aircraft Engines Operating Lease Framework Agreement with CES Leasing on substantially the same terms, pursuant to which CES Leasing Group (as lessor(s)) agreed to provide operating leasing to us (as lessee(s)) in respect of the aircraft and aircraft engines (the “2020–2022 Aircraft and Aircraft Engines Operating Lease Framework Agreement”) with reference to the transaction practices for years between parties for aircraft and engine operating leasing agreements. According to such agreement, if, as evaluated on requests for proposals, the operating lease plans proposed by CES Leasing are better than other plans, we agreed to select CES Leasing for relevant transactions.
For the year ended December 31, 2017,2020, the actual amount incurredpaid by us for aircraft lease services (including aircraft finance lease services was approximately RMB1,997 million and the actual amount incurred for aircraft operating lease servicesservices) was approximately RMB25RMB6,667 million.
Continuing Connected Transactions with AirFrance-KLM
On July 27, 2017, a wholly-owned subsidiary of CEA Holding and Delta Air Lines entered into a conditional subscription agreement with Air France-KLM, respectively, to acquire 10% newly issued shares in the share capital of Air France-KLM after the completion of issuance of additional shares. We entered into a marketing agreement with Air France-KLM to further strengthen the business partnership on the basis of good business relationship between the two parties.
On October 3, 2017, the trading of the fixed issuance of additional 10% shares to CEA Holding by Air France-KLM was completed in the Euronext. CEA Holding appointed Tang Bing, our Directordirector and then vice president as the director of Air France-KLM. According to the relevant requirements of the Shanghai Stock Exchange, the daily businesses such as joint operation and service security between us and Air France-KLM and its controlled subsidiaries constituted a continuing connectedrelated party transaction of the Company under the Rules Governing the Listing of Stocks on the Shanghai Stock Exchange.
On December 22, 2017, the Board of Directors considered and approved the relevant resolution regarding the 2017-2019 continuing connecteddaily related party transactions between Air France-KLM and us, pursuant to which, we will provide aircraft aviation transportation cooperation and support services to Air France-KLM and Air France-KLM will provide aircraft aviation transportation cooperation and support services to us. The Board of Directors also approved the 2017-2019 annual caps for the Air France-KLM aircraft aviation transportation cooperation and support services.
On August 10, 2018, a wholly-owned subsidiary of us entered into the aeronautical materials and components maintenance and spare parts supply service agreement and components lease service agreement with the wholly-owned subsidiary of Air France-KLM, KLM Royal Dutch Airlines, pursuant to which, KLM Royal Dutch Airlines will lease and maintain aeronautical material and spare parts for our 15 B787 airplanes to us for 15 years. The Board of Directors considered and approved the relevant transactions.
On October 30, 2018, a wholly-owned subsidiary of us entered into the aeronautical materials and components maintenance and spare parts supply service agreement and components lease service agreement with the wholly-owned subsidiary of Air France-KLM, Societe Air France, pursuant to which, Societe Air France will lease and maintain aeronautical material and spare parts for our 20 A350 airplanes to us for 15 years. The Board of Directors considered and approved the relevant transactions.
On August 30, 2019, the Board of Directors considered and approved the relevant resolution regarding the 2020-2022 daily related party transactions between Air France-KLM and us. The Board of Directors also approved the 2020-2022 annual caps for the Air France-KLM aircraft aviation transportation cooperation and support services.
For the year ended December 31, 2017,2020, the actual amount of the Air France-KLM aircraft aviation transportation cooperation and support services received by us was approximately RMB622RMB105 million and the actual amount of the Air France-KLM aircraft aviation transportation cooperation and support services paid by us was approximately RMB399RMB221 million. The actual amount for the aeronautical materials, components and spare parts supply, leasing and maintenance services paid by us to Air France-KLM was approximately RMB10 million.
C. Interests of Experts and Counsel
Not applicable.
A. Consolidated Statements and Other Financial Information
Financial Statements
Please read “Item 18. Financial Statements” for information regarding our audited consolidated financial statements and other financial information.
Legal Proceedings
We are involved in routine litigation and other proceedings in the ordinary course of our business. We do not believe that any of these proceedings are likely to be material to our business operations, financial condition or results of operations.
Dividends and Dividend Policy
For the years ended December 31, 2010, 2011, 2012 and 2013, our Board of Directors did not recommend any dividend payouts due to our total accumulated losses of RMB12,855 million, RMB8,039 million, RMB4,967 million and RMB2,595 million, respectively. Under PRC law, we cannot convert funds from common reserves to increase our share capital during this period. Based on the audited financial statements of the Company under thePRC Accounting Standards for Business Enterprises as of and for the year 2014, the retained earnings of the parent company were RMB21 million as of December 31, 2014. Based on the audited financial statements of the Company under IFRSs as of and for the year 2014, the accumulated loss of the parent company was RMB385 million. Pursuant to the PRC Company Law and its Articles of Association, the Company must recover losses incurred in previous years with its profit for the year before any dividend distributions are made to its shareholders. The basis of dividend distribution of the Company is the distributable profit of the parent company, which is subject to the principle of adopting the lesser of the profit after tax under the PRC accounting standards and IFRSs. As of December 31, 2014, the Company has been recording accumulated losses under IFRSs. The Board of Directors recommended that no dividend be distributed for the year 2014 and share capital of the Company not be increased through capitalization of its capital reserve. Based on the audited financial statements of the Company under thePRC Accounting Standards for Business Enterprises as of and for the year 2015, the retained profits of the parent company were RMB1,680 million as of December 31, 2015. Based on the audited financial statements of the Company under IFRSs as of and for the year 2015, the retained profits of the parent company were RMB1,164 million.
In accordance with Rule 17 of Measures on the Administration of Securities Issuance and Underwriting by the CSRC, if listed companies with a plan for issuance of securities have any profit distribution proposal or proposal for capital increase with capital surplus, that has not yet been submitted to general meeting for voting or has been approved by shareholders’ general meeting but not yet implemented, the issuance of securities may only proceed after such proposals have been implemented. Given that the Company’s application fornon- public issuance of A shares was approved by the CSRC in January 2016 and will expire on July 5, 2016, if the Company had implemented profit distribution in 2015, approval for the profit distribution proposal would have been needed at the 2015 general meeting and thenon-public issuance of A shares could only be implemented after the implementation of the profit distribution proposal. This would have narrowed the time frame for thenon-public issuance of A shares or would even have made it impossible to implement, in which case the implementation of the Company’snon-public issuance project and long-term development would have been severely hampered.
In consideration of factors such as shareholders’ interests and the Company’s development, the profit distribution proposal recommended by the Board of Directors for the year 2015 is as follows: No profit shall be distributed for the year 2015 and no share capital of the Company shall be increased with its capital reserve. The Group profit distribution proposal for the year 2015 will be submitted to the 2015 annual general meeting for consideration. The Board of Directors also intends for, a cash dividend distribution in the interim period for the year 2016 of not less than 40% of the net profit of the Company of the year 2015 under the PRC Accounting Standards.
On October 27, 2016, the interim profit distribution plan was approved at the extraordinary general meeting of the Company. The 2016 interim distribution was approximately RMB737.8 million in cash. Based on our total share capital of 14,467,585,682 shares, the cash distribution per share was RMB0.051 (before tax) in cash.
On March 30, 2017, the Board of Directors considered and approved the 2016 annual profit distribution proposal. It was recommended by the Board of Directors that the 2016 annual distribution be approximately RMB708.9 million in cash. Based on the total share capital of 14,467,585,682 shares of the Company, the cash distribution per share was RMB0.049 (before tax) in cash.
On September 25, 2017, the Board of Directors has not recommended any dividend for the six months ended June 30 2017.
On March 29, 2018, the Board of Directors considered and approved the 2017 annual profit distribution proposal. It was recommended by the Board of Directors that the 2017 annual distribution be approximately RMB740.3 million in cash. Based on the total share capital of 14,467,585,682 shares of the Company, the cash distribution per share would be RMB0.051 (before tax) in cash which will be distributed to holders of A shares of the Company in RMB and to holders of H shares of the Company in HKD.
On March 29, 2019, the Board of Directors considered and approved the 2018 annual profit distribution proposal. According to the relevant requirements of the “Measures for the Administration of Securities Issuance and Underwriting” of the CSRC, “for issue securities by a listed company, in the event that any profit distribution proposal or proposal of conversion of the reserve into the share capital has not been submitted to its general meeting for voting or has been approved by the general meeting but has not yet been implemented, the issuance of securities shall proceed after such proposal has been implemented.” As the proposed non-public issuance of our A shares was under review by the CSRC and the project was strategically important to us, in order to guarantee the smooth progress of the proposed nonpublic issuance project, we intended not to proceed with cash dividend distribution or conversion of capital reserve into share capital for the year 2018, after comprehensively taking into account of our long-term development and the interests of all of our shareholders. The retained profits would be used to supplement our daily working capital, to fulfill our main business development needs.
We have, for the years ended December 31, 2016 and 2017, consecutively implemented profit distribution proposals to return to our investors. The accumulated profit distribution for the years ended December 31, 2016, 2017 and 2018 amounted to RMB1,446.8 million, which has exceeded the requirement provided in our Articles of Association that “the accumulated profit distribution made in cash by the Company in the latest three years shall not be less than 30% of the average annual distributable profit attributable to the owners of the parent company in the consolidated statements in the latest three years”.
The independentnon-executive directors were of the view that the aforesaid 2018 annual profit distribution proposal of the Board of Directors had comprehensively considered the significance of our proposed non-public offering of shares, taking into account of our long-term development and the interests of all of our shareholders. The Board of Directors had performed the voting procedures for the matter in accordance with the requirements of relevant laws and regulations and considered that there is no circumstance detrimental to the interests of our shareholders, especially to our minority shareholders. Meanwhile, it would help us to ensure smooth implementation of our major capital projects, facilitate our healthy and sustainable development.
On March 31, 2020, the Board of Directors considered and approved the 2019 annual profit distribution proposal. It was recommended by the Board of Directors that the 2019 annual distribution be approximately RMB819 million in cash. Based on the total share capital of 16,379,509,203 shares of the Company, the cash distribution per share would be RMB0.050 (before tax) in cash which will be distributed to holders of A shares of the Company in RMB and to holders of H shares of the Company in HKD.
On March 30, 2021, the Board of Directors considered and approved the 2020 profit distribution proposal in the second regular meeting in 2021, and recommended the Company not to distribute profit for 2020.
The independent non-executive directors of the Company are of the viewconsider that the aforesaid annualCompany’s 2020 profit distribution proposal is in line with the objective situation of the Company, that the consideration procedures are legal and valid, and that the proposal is in line with the long-term interestsPRC Company Law, the PRC Securities Law, relevant laws and regulations of the CompanyCSRC and its shareholders, in compliance withthe Shanghai Stock Exchange and the relevant laws, regulations andprovisions of the articles of association of the Company, andCompany. The proposal does not detrimental todamage the interests of investors, (especially minority shareholders)especially the interests of small and medium shareholders. The independent non-executive directors of the Company.Company agreed to submit the 2020 profit distribution proposal to the 2020 annual general meeting of the Company for consideration.
The aforesaid profit distribution proposal of the Group is subject to consideration and approval by the shareholders at the 20172020 general meeting of theour Company. If the 2017 annual profit distribution proposal is approved at the general meeting, the Company expects that the cash distribution will be paid around August 1, 2018.
Our Board of Directors declares dividends, if any, in Renminbi, with respect to H Shares on a per share basis and pays such dividends in HK dollars. Any final dividend for a fiscal year is subject to shareholders’ approval. The Bank of New York Mellon (the “BNYM”), as depositary, converts the HK dollar dividend payments and distributes them to holders of ADSs in U.S. dollars, less conversion expenses. Under PRC Company Law and our Articles of Association, all of our shareholders have equal rights to dividends and distributions. The holders of the H Shares share proportionately on a per share basis in all dividends and other distributions declared by our Board of Directors, if any, based on the foreign exchange conversion rate published by PBOC, on the date of the distribution of the cash dividend.
We believe that our dividend policy strikes a balance between two important goals providing our shareholders with a competitive return on investment and assuring sufficient reinvestment of profits to enable us to achieve our strategic objectives. The declaration of dividends is subject to the discretion of our Board of Directors, which takes into account the following factors:
our financial results;
capital requirements;
contractual restrictions on the payment of dividends by us to our shareholders or by our subsidiaries to us;
our shareholders interests;
the effect on our creditworthiness;
general business and economic conditions; and
other factors our Board of Directors may deem relevant.
Pursuant to PRC laws and regulations, dividends may only be distributed after allowance has been made for: (i) recovery of losses, if any and (ii) allocations to the statutory surplus reserve. The allocation to the statutory surplus reserve is 10% of our net profit determined in accordance with PRC Generally Accepted Accounting Principles. Our distributable profits for the current fiscal year will be equal to our net profits determined in accordance with IFRSs, less allocations to the statutory surplus reserve.
B. Significant Changes
Significant Post Financial Statements Events
Not applicable.On March 12, 2021, the Company issued two series of corporate bonds with a total principal of RMB9 billion on the Shanghai Stock Exchange. The first series of corporate bonds with a total principal amount of RMB3 billion bears interest at the rate of 3.95% per annum and the principal of the bonds will mature and become repayable on March 12, 2031. Another series of corporate bonds with a total principal amount of RMB6 billion bears interest at the rate of 3.68% per annum and the principal of the bonds will mature and become repayable on March 12, 2027.
On March 29, 2021, the Company’s extraordinary general meeting approved the Proposal for the Non-public Issuance of A shares by China Eastern Airlines Corporation Limited, pursuant to which the Company will issue 2,494,930,875 A Shares to CEA Holding. It is expected that the proceeds to be raised will be not more than RMB10,828 million.
A. Offer and Listing Details
The principal trading market for our H Shares is the Hong Kong Stock Exchange.HKEX (Code: 00670). The ADSs, each representing 50 H Shares, have been issued by BNYM as Depositary and are listed for trading on the New York Stock Exchange.NYSE under the symbol “CEA”. Prior to our initial public offering and subsequent listings on the New York Stock ExchangeNYSE and the Hong Kong Stock ExchangeHKEX on February 4 and 5, 1997, respectively, there was no market for our H Shares or ADSs. Our publicly traded domestic shares, or A shares, have been listed on the Shanghai Stock Exchange (Code: 600115) since November 5, 1997.
As of December 31, 2017,2020, there were 4,659,100,0005,176,777,777 H Shares issued and outstanding. As of December 29, 2017 (December 30 and December 31, 2017 being a Saturday and a Sunday)2020 and April 16, 2018,15, 2021, there were 4358 and 4256 registered holders, respectively, of American depositary receiptsDepositary Receipts evidencing 1,974,9351,323,052 and 1,925,4271,338,412 ADSs, respectively. Since nominees hold certain of the ADSs, the above number may not be representative of the actual number of U.S. beneficial holders of ADSs or the number of ADSs beneficially held by U.S. persons. A total of 9,808,485,68211,202,731,426 domestic ordinary shares were also outstanding as of December 31, 2017.2020.
The table below sets forth certain market information relating to the trading prices of our H Shares and ADSs in respect of the period from 2013 to April 16, 2018.
| Hong Kong Stock Exchange Price Per H Share (HK$) | New York Stock Exchange Price Per ADS (US$) | |||||||||||||||
| High | Low | High | Low | |||||||||||||
Yearly | ||||||||||||||||
2013 | 3.72 | 2.24 | 23.67 | 14.76 | ||||||||||||
2014 | 4.05 | 2.30 | 26.57 | 14.85 | ||||||||||||
2015 | 7.56 | 2.33 | 49.50 | 22.13 | ||||||||||||
2016 | 4.87 | 3.26 | 30.72 | 21.20 | ||||||||||||
2017 | 5.67 | 3.57 | 36.14 | 23.11 | ||||||||||||
Quarterly | ||||||||||||||||
2016 | ||||||||||||||||
First Quarter 2016 | 4.35 | 3.32 | 27.34 | 21.20 | ||||||||||||
Second Quarter 2016 | 4.64 | 3.86 | 30.72 | 25.31 | ||||||||||||
Third Quarter 2016 | 4.58 | 3.57 | 29.72 | 22.98 | ||||||||||||
Fourth Quarter 2016 | 3.77 | 3.32 | 24.32 | 21.43 | ||||||||||||
2017 | ||||||||||||||||
First Quarter 2017 | 4.80 | 3.57 | 30.86 | 23.11 | ||||||||||||
Second Quarter 2017 | 4.82 | 4.08 | 30.60 | 26.15 | ||||||||||||
Third Quarter 2017 | 4.80 | 3.83 | 30.74 | 24.44 | ||||||||||||
Fourth Quarter 2017 | 5.67 | 3.86 | 36.14 | 24.72 | ||||||||||||
Monthly | ||||||||||||||||
October 2017 | 4.07 | 3.87 | 25.97 | 24.72 | ||||||||||||
November 2017 | 4.94 | 3.86 | 31.55 | 24.73 | ||||||||||||
December 2017 | 5.67 | 4.45 | 36.14 | 28.55 | ||||||||||||
First Quarter 2018 | ||||||||||||||||
January 2018 | 7.09 | 5.64 | 44.92 | 36.22 | ||||||||||||
February 2018 | 7.14 | 5.81 | 45.06 | 37.50 | ||||||||||||
March 2018 | 6.66 | 5.53 | 42.49 | 35.33 | ||||||||||||
April 2018 (up to April 16, 2018) | 6.11 | 5.61 | 38.52 | 35.72 | ||||||||||||
B. Plan of Distribution
Not applicable.
C. Markets
Our H sharesShares are listed for trading on the Hong Kong Stock ExchangeHKEX (Code: 00670), our ADSs are listed for trading on the New York Stock ExchangeNYSE under the symbol “CEA” and our A sharesShares are listed for trading on the Shanghai Stock Exchange (Code: 600115).
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
Item 10. Additional Information
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
The following is a brief summary of certain provisions of our Articles of Association, as amended. Such summary does not purport to be complete. For further information, you and your advisors should refer to the text of our Articles of Association, as amended, and to the texts of applicable laws and regulations. A copy of the English translation of our Articles of Association, as amended on February 8, 2018,December 31, 2019, is attached as an exhibit to this Annual Report on Form20-F (which is incorporated by reference).
Selected Summary of the Articles of Association
We are a joint stock limited company established in accordance with theCompany Law of the People’s Republic of China (the “Company Law”), the “State Council’s Special Regulations Regarding the Issue of Shares Overseas and the Listing of Shares Overseas by Companies Limited by Share” (the “Special Regulations”) and other relevant laws and regulations of the State. We are established by way of promotion with the approval under the document “Ti Gai Sheng” 1994 No. 140 of the PRC State Commission for Restructuring the Economic System. We are registered with and obtained a business license from China’s State Administration Bureau of Industry and Commerce on April 14, 1995. OurOn February 8, 2017, we completed the “Combination of Three Licenses into One” procedures for our business license, number is10001767-8. We changed ourorganization code certificate and tax registration to Shanghai Administration for Industry and Commerce on October 18, 2002.certificate. The numberunified social credit code of our Company’s business license is: Qi Gu Hu Zong Zi No. 032138.after the integration is 913100007416029816.
We were incorporated in the PRC for the purpose of providing the public with safe, punctual, comfortable, fast and convenient air transport services and other ancillary services, to enhance the cost-effectiveness of these services and to protect the lawful rights and interests of shareholders.
Board of Directors
The Board of Directors shall consist of eleven (11)seven (7) to thirteen (13) directors, who are to be elected at the shareholders’ general meeting (excluding employee representative directors, who shall be elected or removed by employee representative assembly) and will hold a term of office for three (3) years. At leastone-third of the members of the Board of Directors shall be independent directors. The Directorsdirectors are not required to hold shares of our Company.
Directors who are either directly or indirectly materially interested in a contract, transaction or arrangement or proposed contract, transaction or arrangement with our Company (other than his contract of service with our Company) shall declare the nature and extent of his interests to the Board of Directors at the earliest opportunity, whether or not the contract, transaction or arrangement or proposal is otherwise subject to the approval of the Board of Directors.
In accordance with our Articles, a director shall abstain from voting at a board meeting, the purpose of which is to approve contracts, transactions or arrangements that such director or any of his or her associates (as defined in the relevant rules governing the listing of securities) has a material interest in. Such director shall not be counted in the quorum for the relevant board meeting.
Unless the interested director discloses his interests in accordance with our Articles of Association and the contract, transaction or arrangement is approved by the Board of Directors at a meeting in which the interested director is not counted in the quorum and refrains from voting, a contract, transaction or arrangement in which that director is materially interested is voidable at the instance of our Company except as against a bona fide party thereto acting without notice of the breach of duty by the interested director. A director is also deemed to be interested in a contract, transaction or arrangement in which an associate of the director is interested.
Our Articles provide that our Company shall not in any manner pay taxes for or on behalf of a director or make directly or indirectly a loan to or provide any guarantee in connection with the making of a loan to a director of our Company or of our Company’s holding company or any of their respective associates. However, the following transactions are not subject to such prohibition: (i) the provision by our Company of a loan or a guarantee of a loan to a company which is a subsidiary of our Company; (ii) the provision by our Company of a loan or a guarantee in connection with the making of a loan or any other funds to any of its directors, administrative officers to meet expenditure incurred or to be incurred by him for the purposes of our Company or for the purpose of enabling him to perform his duties properly, in accordance with the terms of a service contract approved by the shareholders in general meeting; (iii) our Company may make a loan to or provide a guarantee in connection with the making of a loan to any of the relevant directors or their respective associates in the ordinary course of its business on normal commercial terms, provided that the ordinary course of business of our Company includes the lending of money or the giving of guarantees.
Our Articles do not contain any requirements for (i) the directors’ power to vote compensation to themselves or any members of their body, in the absence of an independent quorum or (ii) the directors to retire by a specified age.
Description of the Shares
As of December 31, 2016,2020, our share capital structure was as follows: 14,467,585,68216,379,509,203 ordinary shares, comprising a total of which (a) 1,327,406,82211,202,731,426 A shares subject to trading moratorium, which represented 9.18%Shares, representing 68.39% of our total share capital, were held by Shanghai Licheng Information Technology Consulting Co., Limited, China National Aviation Fuel Holding Company, China COSCO Shipping Corporation Limited and Caitong Fund Management Co., Limited, respectively; (b) 8,481,078,860 A shares without trading moratorium, which represented 58.62%a total of 5,176,777,777 H Shares, representing 31.61% of our share capital, were issued to investors in China; and (c) 4,659,100,000 H shares without trading moratorium, which represented 32.20% of ourtotal share capital.
Our ordinary shareholders shall enjoy the following rights:
| (i) | the right to dividends and other distributions in proportion to the number of shares held; |
| (ii) | the right to attend or appoint a proxy to attend Shareholders’ general meetings and to vote thereat; |
| (iii) | the right of supervisory management over the Company’s business operations, and the right to present proposals or enquiries; |
| (iv) | the right to transfer shares in accordance with laws, administrative regulations and provisions of these Articles of Association; |
| (v) | the right to obtain relevant information in accordance with the provisions of these Articles of Association, including: |
| (1) | the right to obtain a copy of these Articles of Association, subject to payment of the cost of such copy; |
| (2) | the right to inspect and copy, subject to payment of a reasonable charge; |
all parts of the register of shareholders; |
personal particulars of each of the Company’s directors, supervisors, general manager, deputy general managers and other senior administrative officers, including: |
present name and alias and any former name or alias; |
principal address (residence); |
nationality; |
primary and all other part-time occupations and duties; |
identification documents and their relevant numbers; |
state of the Company’s share capital; |
reports showing the aggregate par value, quantity, highest and lowest price paid in respect of each class of shares repurchased by the Company since the end of the last accounting year and the aggregate amount paid by the Company for this purpose; |
minutes of Shareholders’ general meetings and the accountant’s |
in the event of the termination or liquidation of the Company, to participate in the distribution of surplus assets of the Company in accordance with the number of shares held; or |
other rights conferred by laws, administrative regulations and these Articles of Association. |
A shareholder (including a proxy), when voting at a Shareholders’ general meeting, may exercise such voting rights in accordance with the number of shares carrying the right to vote and each share shall have one vote. Resolutions of shareholders’ general meetings shall be divided into ordinary resolutions and special resolutions. To adopt an ordinary resolution, votes representing more than one half of the voting rights represented by the shareholders (including proxies) present at the meeting must be exercised in favor of the resolution in order for it to be passed. To adopt a special resolution, votes representing more thantwo-thirds of the voting rights represented by the shareholders (including proxies) present at the meeting must be exercised in favor of the resolution in order for it to be passed. Our ordinary shareholders are entitled to the right to dividends and other distributions in proportion to the number of shares held, and they are not liable for making any further contribution to the share capital other than as agreed by the subscriber of the relevant shares on subscription. Our Articles of Association provide that a controlling shareholder (as defined in the Articles)Articles of Association) shall not approve certain matters which will be prejudicial to the interests of all or some of other shareholders by exercising his/her voting rights.
The Listing Agreement between us and the Hong Kong Stock ExchangeHKEX further provides that we may not permit amendments to certain sections of the Articles of Association subject to the Mandatory Provisions for the Articles of Association of Companies Listed Overseas promulgated by the State Council Securities Commission and the State Restructuring Commission on August 27, 1994 (the “Mandatory Provisions”). These sections include provisions relating to (i) varying the rights of existing classes of shares; (ii) voting rights; (iii) our power to purchase our own shares; (iv) rights of minority shareholders; and (v) procedures upon liquidation. In addition, certain amendments to the Articles of Association require the approval and assent of relevant PRC authorities.
Shareholders’ Meetings
Shareholders’ general meetings are divided into annual general meetings and extraordinary general meetings. Shareholders’ general meetings shall be convened by the Board of Directors. Annual general meetings are held once every year and within six (6) months from the end of the preceding financial year. The Board of Directors shall convene an extraordinary general meeting within two (2) months of the occurrence of any one of the following events:
| (i) | where the number of |
| (ii) | where the unrecovered losses of the Company amount toone-third of the total amount of its share capital; |
| (iii) | where shareholder(s) holding 10 per cent or more of the Company’s issued and outstanding shares carrying voting rights request(s) in writing the convening of an extraordinary general meeting; or |
| (iv) | when deemed necessary by the Board of Directors or as requested by the supervisory committee. |
When we convene a shareholders’ general meeting, written notice of the meeting shall be given forty five (45) days before the date of the meeting to notify all of the shareholders in the share register of the matters to be considered and the date and place of the meeting. A shareholder who intends to attend the meeting shall deliver his written reply concerning the attendance of the meeting to us twenty (20) days before the date of the meeting. When we convene a shareholders’ annual general meeting, shareholders holding three per cent or more of the total voting shares of the Company shall have the right to propose new motions in writing, and we shall place those matters in the proposed motions within the scope of functions and powers of the Shareholders’ general meeting on the agenda.
Shareholders’ Rights
Set forth below is certain information relating to the H Shares, including a brief summary of certain provisions of the Articles, and selected laws and regulations applicable to us.
Sources of Shareholders’ Rights
The rights and obligations of holders of H Shares and other provisions relating to shareholder protection are principally provided in the Articles of Association and Company Law. The Articles of Association incorporate mandatory provisions in accordance with Mandatory Provisions. We are further subject to management ordinances applicable to the listed companies in Hong Kong SAR and the United States, as our H Shares are listed on the Hong Kong Stock ExchangeHKEX and the New York Stock ExchangeNYSE (in the form of ADSs).
In addition, for so long as the H Shares are listed on the Hong Kong Stock Exchange,HKEX, we are subject to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “HKSE Rules”), theSecurities and Futures Ordinance of Hong Kong (the “SFO”) and the Hong Kong Code on Takeovers and Mergers and Share Repurchases.
Unless otherwise specified, all rights, obligations and protections discussed below are derived from the Articles of Association, Company Law and abovementioned laws and regulations.
Significant Differences in the H Shares and A Shares
Holders of H Shares and A Shares, with minor exceptions, are entitled to the same economic and voting rights. The Articles of Association provide that dividends or other payments payable to HA Share holders shall be declared and calculated in Renminbi and paid in Renminbi, while those to AH Share holders shall be declared and calculated in Renminbi and paid in the local currency at the place where such AH Shares are listed (if there is more than one place of listing, then the principal place of listing as determined by the Board of Directors). In addition, the H Shares can only be traded by investors of Taiwan, Hong Kong, Macau and any country other than the PRC, while A Shares may be traded only by investors within the territory of the PRC.
Restrictions on Transferability and the Share Register
All fully paid up H Shares maywill be traded only among investors who are not PRC persons, and may not be sold to PRC investors.freely transferable in accordance with the Articles of Association unless otherwise prescribed by laws and/or administrative regulations. There are no restrictions on the ability of investors who are not PRC residents to hold H Shares.
Pursuant to the Articles of Association, we may refuse to register a transfer of H Shares unless:
| (1) | a fee (for each instrument of transfer) of HK$2.50 or any higher fee as agreed by the Stock Exchange has been paid to us for registration of any transfer or any other document which is related to or will affect ownership of or change of ownership of the shares; |
| (2) | the instrument of transfer only involves H Shares; |
| (3) | the stamp duty chargeable on the instrument of transfer has been paid; |
| (4) | the relevant share certificate and upon the reasonable request of the Board of Directors any evidence in relation to the right of the transferor to transfer the shares have been submitted; |
| (5) | if it is intended to transfer the shares to joint owners, then the maximum number of joint owners shall not exceed four (4); or |
| (6) | we do not have any lien on the relevant shares. |
If we refuse to register any transfer of shares, we shall within two months of the formal application for the transfer provide the transferor and the transferee with a notice of refusal to register such transfer. No changes in the shareholders’ register due to the transfer of shares may be made within thirty (30) days before the date of a Shareholders’ general meeting or within five (5) days before the record date established for the purpose of distributing a dividend.
Merger and Acquisitions
In the event of the merger or division of our Company, a plan shall be presented by our Board of Directors and shall be approved in accordance with the procedures stipulated in our Articles of Association and then the relevant examining and approving formalities shall be processed as required by law. A shareholder who objects to the plan of merger or division shall have the right to demand that we or the shareholders who consent to the plan of merger or division acquire such dissenting shareholders’ shareholding at a fair price. The contents of the resolution of merger or division of our Company shall be made into special documents for shareholders’ inspection.
Repurchase of Shares
We may, with approval according to the procedures provided in these Articles of Association and subject to the approval of the relevant governing authority of the State, repurchase our issued shares under the following circumstances:
| (i) | cancelation of shares for the reduction of capital; |
| (ii) | merging with another company that holds shares in our Company; |
| (iii) | issue of shares in connection with staff shareholding plans or share incentives; |
| (iv) | requesting our Company to purchase its own shares where shareholders object to the merger or demerger resolution of a general meeting; |
| (v) | issue of shares in connection with convertible bonds issued by the Company; |
| (vi) | deemed necessary by the Company for protecting the Company’s value and shareholders’ interests; or |
| (vii) | other circumstances permitted by relevant laws and administrative regulations. |
We shall not repurchase our issued shares except under the circumstances stated above.
We may, with the approval of the relevant State governing authority for repurchasing shares, conduct the repurchase in one of the following ways:
| (i) | making a pro rata general offer of repurchase to all our shareholders; |
| (ii) | repurchasing shares through public dealing on a stock exchange; |
| (iii) | repurchasing shares by an off-market agreement outside a stock exchange; or |
by |
Interested Shareholders
Articles 8889 and 8990 of our Articles of Association provide the following:
Article 88:89: the following circumstances shall be deemed to be a variation or abrogation of the class rights of a class:
| (i) | to increase or decrease the number of shares of such class, or increase or decrease the number of shares of a class having voting or equity rights or privileges equal or superior to those of the shares of that class; |
| (ii) | to effect an exchange of all or part of the shares of such class into shares of another class or to effect an exchange or create a right of exchange of all or part of the shares of another class into the shares of such class; |
| (iii) | to remove or reduce rights to accrued dividends or rights to cumulative dividends attached to shares of such class; |
| (iv) | to reduce or remove a dividend preference or a liquidation preference attached to shares of such class; |
| (v) | to add, remove or reduce conversion privileges, options, voting rights, transfer orpre-emptive rights, or rights to acquire securities of the Company attached to shares of such class; |
| (vi) | to remove or reduce rights to receive payment payable by the Company in particular currencies attached to shares of such class; |
| (vii) | to create a new class of shares having voting or equity rights or privileges equal or superior to those of the shares of such class; |
| (viii) | to restrict the transfer or ownership of the shares of such class or add to such restrictions; |
| (ix) | to allot and issue rights to subscribe for, or convert into, shares in the Company of such class or another class; |
| (x) | to increase the rights or privileges of shares of another class; |
| (xi) | to restructure the Company where the proposed restructuring will result in different classes of shareholders bearing a disproportionate burden of such proposed restructuring; or |
| (xii) | to vary or abrogate the provisions of this Chapter. |
Article 89.90. Shareholders of the affected class, whether or not otherwise having the right to vote at Shareholders’ general meetings, shall nevertheless have the right to vote at class meetings in respect of matters concerningsub-paragraphs (2) to (8), (11) and (12) of Article 88,89, but interested shareholder(s) shall not be entitled to vote at class meetings.
The meaning of “interested shareholder(s)” as mentioned in the preceding paragraph is:
in the case of a repurchase of shares by offers to all shareholders or public dealing on a stock exchange under Article |
in the case of a repurchase of shares by anoff-market contract under Article |
in the case of a restructuring of the Company, a shareholder within a class who bears less than a proportionate obligation imposed on that class under the proposed restructuring or who has an interest in the proposed restructuring different from the interest of shareholders of that class. |
Ownership Threshold
There are no ownership thresholds above which shareholder ownership is required to be disclosed.
Changes in Capital
Article 78(1)79(1) provides that any increase or reduction in share capital shall be resolved by a special resolution at a shareholders’ general
meeting.
Changes in Registered Capital
The Company may reduce its registered share capital. It shall do so in accordance with Company Law, any other relevant regulatory provisions and the Articles of Association.
Recent Amendments to the Articles of Association
On February 2, 2010, our shareholders approved amendments to the Articles of Association, which was amended, respectively, as follows:
Article 20: “As approved by the China Securities Regulatory Commission, the total amount of shares of the Company is 11,276,538,860 shares.”
Article 21: “The Company has issued a total of 11,276,538,860 ordinary shares, comprising a total of 7,782,213,860 A shares, representing 69.01% of the total share capital of the Company, a total of 3,494,325,000 H shares, representing 30.99% of the total share capital of the Company.”
Article 24: “The Company’s registered capital is Renminbi 11,276,538,860.”
The CSRC has enacted regulations in recent years that affect the corporate governance of PRC listed companies and Company Law has also been amended in various areas. As such, the Board of Directors proposed to amend certain provisions in our Articles of Association in accordance with the rules and regulations applicable to our Company. Such amendments relate to the general provisions of the Articles of Association, reduction of capital and repurchase of shares, shareholders and register of shareholders, shareholders’ general meeting, board of directors, supervisory committee, financial and accounting systems and profit distribution, merger and division and dissolution and liquidation of our Company. All such amendments were approved at our Annual General Meeting that took place on June 13, 2010.
On November 9, 2012, our shareholders approved further amendments to the Articles of Association, which was amended, respectively, as follows:
Article 146: “The financial statements of the Company shall, in addition to being prepared in accordance with PRC accounting standards and regulations, be prepared in accordance with either international accounting standards, or that of the place outside the PRC where the Company’s shares are listed. If there is any material difference between the financial statements prepared respectively in accordance with the two accounting standards, such difference shall be stated in the financial statements. When the Company is to distribute itsafter-tax profits, the lower of theafter-tax profits as shown in the two financial statements shall be adopted. According to the relevant laws and regulations, profit distribution by the Company shall be based on the distributable profit of the Company(non-consolidated statements). “
Article 157: “The Company’s profit distribution policy should pay close attention to ensuring a reasonable return of investment to investors, and such profit distribution policy should maintain continuity and stability. The Company shall reasonably distribute cash dividends according to laws and regulations and requirements of securities regulatory authorities, as well as the Company’s own operating performance and financial condition. “
Article 157 (A): “Profit distribution manner: The Company may distribute dividends by way of cash, shares, a combination of cash and shares or in other reasonable manner in compliance with laws and regulations. “
Article 157 (B): “Procedures for decision-making on profit distribution by the Company: After the end of each accounting year, the board of directors shall carefully study and examine the profit distribution plan and listen fully to the views of independent directors. The independent directors shall fulfill their responsibilities and play their roles to give specific views. After consideration and approval by the board of directors, the profit distribution plan shall be proposed to the general meeting for voting. Implementation of the profit distribution plan shall be subject to consideration and approval at the general meeting. The board of directors of the Company shall finish distributing the profit within two months after the general meeting is held.
When considering the profit distribution plan at the general meeting of the Company, the board of directors shall communicate and exchange opinions with shareholders, especially minority shareholders, in a proactive manner, fully consider the opinions and requests from minority shareholders and respond to the issues which are of concern to them on a timely basis.”
Article 157 (C): “Amendments to profit distribution policy of the Company: The board of directors of the Company shall carefully study and examine and strictly follow the decision-making procedures in the event that the profit distribution policy needs to be adjusted by reason of any changes in PRC laws and regulations and regulatory policies, or significant changes of external operating environment or operating condition of the Company. In the event of amendments to the profit distribution policy of the Company, the board of directors shall consider the revised plan and the independent directors shall express their independent opinions thereon. Such amendments shall be disclosed to the public upon consideration and approval at the general meeting. “
Article 157 (D): “Conditions and proportion of distribution of cash dividends by the Company:
Proposal and implementation of cash dividends distribution by the Company shall be subject to the following conditions:
Provided that the Company is in good operating condition and has sufficient cash flow to meet the needs for its normal operation and sustainable development, the Company will proactively distribute cash dividends in return to its shareholders, and the accumulated profit distribution made in cash by the Company in the latest three years shall not be less than 30% of the average annual distributable profit in the latest three years. In the event that the said payout ratio of cash dividends cannot be met due to special reasons, the board of directors may adjust the payout ratio of dividends according to actual circumstances and state the reasons therefor. “
Provided that a reasonable scale of share capital and shareholding structure of the Company are ensured, the Company may consider distributing profits by way of share dividends according to its profitability, cash flow position and business growth for the year. “
Article 157 (F): “Intervals for profit distribution by the Company: Provided that the conditions of profit distribution are met and the Company’s normal operation and sustainable development are ensured, the Company shall generally distribute profit on an annual basis. The board of directors of the Company may also propose interim profit distribution based on the profitability and capital position of the Company. “
Article 157 (G): “Information disclosure if the Company fails to distribute cash dividends: In the event that the board of directors of the Company does not propose any profit distribution plan, the board of directors of the Company shall disclose the reasons therefor and the use of such retained funds that would have been otherwise available for distribution in its periodic report. “
On June 26, 2013, our shareholders approved further amendments to the Articles of Association to reflect the expansion of our business scope and the completion of the issue of new shares, as follows:
Article 13: “The scope of business of the Company shall comply with those items approved by the companies registration authority.
The scope of business of the Company includes: domestic and approved international and regional business for air transportation of passengers, cargo, mail, luggage and extended services; general aviation business; maintenance of aviation equipment and machinery; manufacture and maintenance of aviation equipment; agency business for domestic and overseas airlines and other business related to air transportation; insuranceby-business agency services;e-commerce;in-flight supermarket; wholesale and retail of goods; and other lawful businesses that can be carried on by a joint stock limited company formed under Company Law.”
Article 20: “As approved by the China Securities Regulatory Commission, the total amount of shares of the Company is 12,674,268,860 shares.”
Article 21:” The Company has issued a total of 12,674,268,860 ordinary shares, comprising a total of 8,481,078,860 A shares, representing 66.92% of the total share capital of the Company, a total of 4,193,190,000 H shares, representing 33.08% of the total share capital of the Company.”
Article 24: “The registered capital of the Company is RMB12,674,268,860.”
According to the relevant requirements of CSRC and the Shanghai Stock Exchange, our Board of Directors approved at the 2014 second regular meeting that amendments be made to corresponding terms in the articles of association of our Company in connection with the priority of cash dividends to share dividends in profit distributions and intervals for cash dividend distributions. Such amendments will be submitted to the 2013 annual general meeting of our Company for approval.
The amendments to the Articles of Association are as follows:
Article 157: “The Company’s profit distribution should pay close attention to ensuring a reasonable return of investment to investors, and such profit distribution policy should maintain continuity and stability. The Company shall reasonably distribute cash dividends according to laws and regulations and requirements of securities regulatory authorities, as well as the Company’s own operating performance and financial condition.”
Article 157: “The Company’s profit distribution should pay close attention to ensuring a reasonable return of investment to investors, and such profit distribution policy should maintain continuity and stability. The Company shall reasonably distribute dividends according to laws and regulations and requirements of securities regulatory authorities, as well as the Company’s own operating performance and financial condition, and shall adopt cash distribution as the prioritized means of distribution to distribute profit.”
Article 157(F): “Intervals for profit distribution by the Company: Provided that the conditions of profit distribution are met and the Company’s normal operation and sustainable development are ensured, the Company shall generally distribute profit on an annual basis. The board of directors of the Company may also propose interim profit distribution based on the profitability and capital position of the Company.”
Article 157(F): “Intervals for profit distribution by the Company: Provided that the conditions of profit distribution are met and the Company’s normal operation and sustainable development are ensured, the Company shall generally distribute profit on an annual basis. The board of directors of the Company may also propose interim profit distribution based on the profitability and capital position of the Company. Subject to fulfillment of the cash distribution conditions under the articles of association of the Company, the Company shall implement annual cash distribution once a year in principle.”
On June 26, 2014, our shareholders approved the above mentioned amendments.
On August 28, 2015, the Resolution on Amendments to Parts of the Terms of the Articles of Association was considered and approved at the seventeenth ordinary meeting of the seventh session of the Board of the Company. As authorized by the general meeting of the Company, the Board agreed to make amendments to corresponding terms in the Articles of Association in connection with the changes made to the share capital of the Company following the completion of the issue of H Shares of the Company to Delta Air Lines.
Article 20: “As approved by the China Securities Regulatory Commission, the total amount of shares of the Company is 13,140,178,860 shares.”
Article 21: “The Company has issued a total of 13,140,178,860 ordinary shares, comprising a total of 8,481,078,860 A shares, representing 64.54% of the total share capital of the Company, a total of 4,659,100,000 H shares, representing 35.46% of the total share capital of the Company.”
Article 24: “The registered capital of the Company is RMB13,140,178,860.”
On June 16, 2016, our shareholders approved the amendments to the Articles of Association in relation to profit distribution.
The amendments to the Articles of Association are as follows:
Article 157(D): “Conditions and proportion of distribution of cash dividends by the Company:
Proposal and implementation of cash dividends distribution by the Company shall be subject to the following conditions:
Provided that the Company is in good operating condition and has sufficient cash flow to meet the needs for its normal operation and sustainable development, the Company will proactively distribute cash dividends in return to its shareholders, and the accumulated profit distribution made in cash by the Company in the latest three years shall not be less than 30% of the average annual distributable profit attributable to the owners of the parent company in the consolidated statements in the latest three years. In the event that the said payout ratio of cash dividends cannot be met due to special reasons, the board of directors may adjust the payout ratio of dividends according to actual circumstances and state the reasons therefor.”
On July 4, 2016, the Resolution on Amendments to the Articles of Association was considered and approved at the second ordinary meeting of the eighth session of the Board of Directors, to in order to reflect the changes to the registered capital of the Company following the closing of the Share Issue.
The amendments to the Articles of Association are as follows:
Article 20: “As approved by the China Securities Regulatory Commission, the total amount of shares of the Company is 14,467,585,682 shares.”
Article 21: “The Company has issued a total of 14,467,585,682 ordinary shares, comprising a total of 9,808,485,682 A shares, representing 67.80% of the total share capital of the Company, a total of 4,659,100,000 H shares, representing 32.20% of the total share capital of the Company.”
Article 24: “The registered capital of the Company is RMB14,467,585,682.”
On June 28, 2017, our shareholders approved further amendments to the Articles of Association to reflect the change of business license and voting on shareholders’ general meeting:
Article 1: “The Company is a joint stock limited company established in accordance with the “Company Law of the People’s Republic of China” (the “Company Law”), “State Council’s Special Regulations Regarding the Issue of Shares Overseas and the Listing of Shares Overseas by Companies Limited by Share” (the “Special Regulations”) and other relevant laws and regulations of the State.
The Company was established by way of promotion with the approval under the document “Ti Gai Sheng” [1994] No.140 of the People’s Republic of China’s State Commission for Restructuring the Economic System. It is registered with and has obtained a business license from China’s State Administration for Industry and Commerce on April 14, 1995. On February 8, 2017, the Company completed the “Combination of Three Licenses into One” procedures for its business license, organization code certificate and tax registration certificate. The unified social credit code of the business license of the Company after the integration is 913100007416029816.
The promotr of the Company is: China Eastern Air Holding Company.”
Article 72: “Each matter up for consideration at a Shareholders’ general meeting shall be voted upon at such Shareholders’ general meeting. A shareholder (including proxy), when voting at a Shareholders’ general meeting, may exercise voting rights in accordance with the number of shares carrying the right to vote and each share shall have one vote.
For material issues to be decided in general meetings of the Company that would affect the interests of its small and medium sized investors, the votes by the small and medium sized investors shall be counted separately. The result of such separate vote counting shall be disclosed publicly in a timely manner.
The Board of the Company, Independent Directors and those Shareholders who have met the relevant requirements may openly may openly collect voting rights from the Company’s shareholders. While collecting votes of the Shareholders, sufficient disclosure of information such as the specific voting preference shall be made to the Shareholders from whom voting rights are being collected. No consideration or other form of de facto consideration shall be involved in the collection of voting rights from the Shareholders. The Company shall not impose any limitation related to minimum shareholdings on the collection of voting rights.”
On December 22, 2017, our shareholders approved further amendments to the Articles of Association to reflect the Party organization of the Company:
Article 12: “In accordance with the Constitution of the Party, the Company shall establish Party organizations. The Party Committee at different levels of the Company shall perform functions in accordance with provisions of the Constitution of the Party. The Company shall set up the working organs of the Party, and maintain an adequate level of staffing to handle Party affairs as well as sufficient funding necessary for the activities of the Party organizations.”
Article 97: “The board of directors is responsible to the Shareholders’ general meeting and exercises the following powers:
Except the board of directors’ resolutions in respect of the matters specified insub-paragraphs (6), (7) and (11) of this Article which shall be passed by more thantwo-thirds of all the directors, the board of directors’ resolutions in respect of all other matters may be passed by more than one half of all the directors.
Prior to making decisions on material issues of the Company, the board of directors shall first seek advice from the Party Committee of the Company in advance.”
Article 143: “The Company shall establish the Party Committee. The Party Committee shall be comprised of one secretary and several other members. A deputy secretary of the Party Committee shall be appointed to take charge of the Party building work. Eligible members of the Party Committee are entitled to be admitted to the board of directors of the Company, the supervisory committee, and the management through legal procedures, and eligible Party members from the board of directors, the supervisory committee, and the management are entitled to be admitted to the Party Committee in accordance with relevant rules and procedures. Meanwhile, a discipline inspection committee shall be established in accordance with relevant regulations.”
Article 144: “The Party Committee of the Company shall perform its duties as required by the internal laws and regulations of the Party such as the Constitution of the Party:
On February 8, 2018, our shareholders approved further amendments to the Articles of Association:
Article 57: “The Shareholders’ general meeting shall have the following functions and powers:
Article 71 (A): “Directors (excluding employee representative directors) will be elected at Shareholders’ general meetings through cumulative voting. When directors are elected through cumulative voting at Shareholders’ general meetings, the number of total votes that a shareholder can exercise is the product of (i) the number of shares held by such shareholder, and (ii) the number of directors to be elected. A shareholder can give all his or her votes to one director candidate or divide his or her votes among several director candidates. Directors are elected at the Shareholders’ general meetings based on the number of votes the director candidates receive.”
Article 95: “The Company shall have a board of directors. The board of directors shall consist of seven (7) to thirteen (13) directors. External directors (refer to directors who do not hold any office within the Company) shall represent more thanone-half of the board of directors including independent directors (refer to directors who are independent of the Shareholders and do not hold any office within the Company) not less than one third of the total number of directors and at least one of them shall be an accounting professional; the board of directors shall have one employee representative director.
The board of directors shall have one Chairman and one Vice-chairman.”
Article 96: “Directors (excluding employee representative directors) shall be elected at the Shareholders’ general meeting. while employee representative directors shall be elected or removed by employee representative assembly. The term of office of the directors is three (3) years. At the expiry of a director’s term, the term is renewable upon reelection.
The director (excluding employee representative director) candidates shall be nominated by the board of directors or shareholders. The notice of nomination of directors and the notice by a director candidate of his or her willingness to be elected shall be given to and lodged with the Company on, at the earliest, the day after the dispatch of the relevant notice of Shareholders’ general meeting appointed for the election and seven days before the date of the Shareholders’ general meeting.
The Chairman and the Vice-chairman shall be elected and removed by more than one half of all the members of the board of directors. The term of office of each of the chairman and the Vice-chairman is three (3) years, renewable uponre-election.
The Shareholders’ general meeting may by ordinary resolution remove any director (excluding employee representative director) before the expiration of his term of office (but without prejudice to such director’s right to claim damages based on any contract) on the condition that all the relevant laws and administrative regulations are fully complied with. The Directors shall not be required to hold shares of the Company.”
Article 107 (A): “Independent directors shall carry out duties faithfully, safeguard the interests of the Company and pay close attention to the protection of the legal rights and interests of the public shareholders from detriment.
Independent directors shall carry out duties independently and shall not be influenced by:
Article 107 (H): “Matters requiring the involvement of employee representative directors can generally be divided into two categories: matters requiring board resolutions; and matters requiring reporting to the board.
Article 132: “Subject to Article 53, a director (excluding employee representative director), supervisor, general manager, deputy general manager or other senior administrative officer of the Company may be relieved of liability for specific breaches of his duty by the informed consent of shareholders given at a general meeting.”
C. Material Contracts
For a summary of any material contracts entered into by our Company or any of our consolidated subsidiaries outside of the ordinary course of business during the last two years, see “Item 4. Information on the Company”, “Item 5. Operating and Financial Review and Prospects” and “Item 7. Major Shareholders and Related Party Transactions”.
D. Exchange Controls
The Renminbi is not currently a freely convertible currency. SAFE, under the authority of PBOC, controls the conversion of Renminbi into foreign currency. Prior to January 1, 1994, Renminbi could be converted to foreign currency through the Bank of China or other authorized institutions at official rates fixed daily by SAFE. Renminbi could also be converted at swap centers open to Chinese enterprises and foreign invested enterprises subject to SAFE approval of each foreign currency trade, at exchange rates negotiated by the parties for each transaction. Effective January 1, 1994, a unitary exchange rate system was introduced in China, replacing the dual-rate system previously in effect. In connection with the creation of a unitary exchange rate, the PRC government announced the establishment of an inter-bank foreign exchange market, the China Foreign Exchange Trading System, or CFETS, and the phasing out of the swap centers. Effective December 1, 1998, the swap centers were abolished by the PRC government.
On July 21, 2005, the PRC government changed itsdecade-old policy of pegging the value of the Renminbi to the U.S. dollar. Under the new policy, the Renminbi is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. This changeThe PRC government further reformed the Renminbi exchange rate regime in policy has resulted2012 and 2014. On August 11, 2015, the PBOC announced an adjustment to the mechanism of determining the midpoint price of Renminbi to the U.S. dollar to make the exchange rate of Renminbi more market-based. The modified mechanism allows traders to consider the closing exchange rate in a significant appreciation of the previous trading day when they quote the mid-point price for Renminbi against the U.S. dollar. While the international reaction to Renminbi revaluation has generally been positive, there remains significant international pressure on theThe PRC government may make further adjustments to adopt an even more flexible currency policy, which could resultthe exchange rate system in a further and more significant appreciation of Renminbi against the U.S. dollar.future.
In general, under existing foreign exchange regulations, domestic enterprises operating in China must price and sell their goods and services in China in Renminbi. Any foreign exchange received by such enterprises must be sold to authorized foreign exchange banks in China. A significant portion of our revenue and operating expenses are denominated in Renminbi, while a portion of our revenue, capital expenditures and debts are denominated in U.S. dollars and other foreign currencies. Renminbi is currently freely convertible under the current account, which includes dividends, trade and service-related foreign currency transactions, but not under the capital account, which includes foreign direct investment, unless the prior approval of the SAFE, is obtained. As a foreign investment enterprise approved by the MOC, we can purchase foreign currency without the approval of SAFE for settlement of current account transactions, including payment of dividends, by providing commercial documents evidencing these transactions. We can also retain foreign exchange in our current accounts, subject to a maximum amount approved by SAFE, to satisfy foreign currency liabilities or to pay dividends. However, the relevant PRC government authorities may limit or eliminate our ability to purchase and retain foreign currencies in the future. Foreign currency transactions under the capital account are still subject to limitations and require approvals from SAFE. This may affect our ability to obtain foreign exchange through debt or equity financing, including by means of loans or capital contributions. We cannot assure you that we will be able to obtain sufficient foreign exchange to pay dividends or satisfy our foreign exchange liabilities.
E. Taxation
The taxation of income and capital gains of holders of H Shares or ADSs is subject to the laws and practices of China and of jurisdictions in which holders of H Shares or ADSs are resident or otherwise subject to tax. The following summary of certain relevant taxation provisions is based on current law and practice, is subject to change and does not constitute legal or tax advice. The discussion does not deal with all possible tax consequences relating to an investment in the H Shares or ADSs. In particular, the discussion does not address the tax consequences under state, local and other laws, such asnon-U.S. federal laws. Accordingly, you should consult your own tax adviser regarding the tax consequences of an investment in the H Shares and ADSs. The discussion is based upon laws and relevant interpretations in effect as of the date of this Annual Report, all of which are subject to change.
Hong Kong Taxation
The following discussion summarizes the relevant Hong Kong tax rules relating to the ownership of H shares or ADSs purchased in connection with the global offering and held by you.
Dividends
Under current Hong Kong Inland Revenue Department practice, no profits tax is payable by the recipient in respect of dividends paid by us.we paid.
Taxation of Capital Gains
Gains derived from the sale of capital assets are specifically exempt from profits tax. Thus, no profits tax is imposed on capital gains arising from the sale of property (such as H shares) acquired and held as a capital asset. However, whether or not there has been a sale of a capital asset depends upon the particular circumstances of a case. If a person carries on a business in Hong Kong of trading and dealing in securities and derives trading gains from that business in Hong Kong, that person could be subject to profits tax on any assessable gains. Assessable gains include gains derived from the sales of H shares effected on the Hong Kong Stock ExchangeHKEX as these gains are considered to be trading gains derived from Hong Kong. Profits tax is currently charged at the rate of 16.5% for corporations and at the rate of 15% for unincorporated businesses (i.e. individuals). From the year of assessment 2018/19, a concessionary tax rate (i.e. half of the current tax rate) can apply to corporations or unincorporated businesses for the first HK$2 million of assessable profits subject to applicable conditions.
No profits tax liability will arise on trading gains arising from the sale of ADSs where the purchase and sale is effected outside Hong Kong (e.g. on the NYSE).
Hong Kong Stamp Duty
Stamp duty is payable by each of the seller and the purchaser for every sold note and every bought note created for every sale and purchase of the H shares. Stamp duty is levied at the total rate of 0.2% (0.1% for each of sold note and bought note) of the value of the H shares transferred (the buyer and seller each paying half of such stamp duty). The rate will increase to the total rate of 0.26% (0.13% for each of sold note and bought note) for every sale and purchase of H Shares occurring on or after August 1, 2021. In addition, a fixed duty of HK$5 is currently payable on an instrument of transfer of H shares. If one of the parties to a sale is anon-resident of Hong Kong and does not pay the required stamp duty, the amount of unpaid stamp duty will be assessed on the instrument of transfer (if any), and the transferee will be liable for payment of such unpaid amount.
If the withdrawal of H shares when ADSs are surrendered or the issuance of ADSs when H shares are deposited results in a change of beneficial ownership in the H shares under Hong Kong law, stamp duty at the rate cited above for a sale and purchase transaction will apply. The issuance of ADSs for deposited H shares issued directly to the depositary, or for the account of the depositary, should not result in any stamp duty liability. Holders of the ADSs are not liable for the stamp duty on transfers of ADSs outside of Hong Kong so long as the transfers do not result in a change of beneficial interest in the H shares under Hong Kong law.
Hong Kong Estate Duty
Hong Kong estate duty was abolished with respect to persons passing away on or after February 11, 2006.
China Taxation
The following is a general summary of certain Chinese tax consequences of the acquisition, ownership and disposition of the H Shares and ADSs. This summary does not purport to address all material tax consequences of the ownership of Shares or ADSs, and does not take into account the specific circumstances of any particular investors. This summary is based on the tax laws of China as in effect on the date of this Annual Report, as well as on the U.S.- China Treaty, all of which are subject to change (or changes in interpretation), possibly with retroactive effect.
In general, and taking into account the earlier assumptions, for Chinese tax purposes, holders of ADRs evidencing ADSs will be treated as the owners of the H Shares represented by those ADSs, and exchanges of H Shares for ADSs, and ADSs for H Shares, will not be subject to Chinese tax.
Taxation of Dividends by China
Individual investors
The Provisional Regulations of China Concerning Questions of Taxation on Enterprises Experimenting with the Share System,or theProvisional Regulations, provide that dividends from Chinese companies are ordinarily subject to a Chinese withholding tax levied at a flat rate of 20%. However, on July 21, 1993, the Chinese State Tax Bureau issued a Notice Concerning the Taxation of Gains on Transfer and Dividends from Shares (Equities) Received by Foreign Investment Enterprises, Foreign Enterprises and Foreign Individuals Numbered Guo Shui Fa [1993] No. 045, or No. 45 Document which provides that dividends from a Chinese company on shares listed on an overseas stock exchange, or Overseas Shares, such as H Shares (including H Shares represented by ADSs), would not be subject to Chinese withholding tax. The relevant tax authority has not collected withholding tax on dividend payments on Overseas Shares.
Nevertheless, No.45 Document was abolished on January 4, 2011 and the Chinese State Tax Bureau issued, on June 28, 2011, a Notice on Issues Concerning the Levy of Individual Income Tax following the Abolishment of the Document Numbered Guo Shui Fa [1993] No. 045, according to which dividends from a Chinese company are ordinarily subject to a Chinese withholding tax levied at a flat rate of 20% unless otherwise provided in applicable tax treaties between the PRC and the jurisdiction in which the relevantnon-resident shareholder resides. The tax rate of dividends income tax applicable to Hong Kong residents and U.S. residents is 10% of the gross amount of interest.
On October 31, 2014, CSRC, MOF and STA together promulgatedThe Notice of the Relevant Tax Policy of the Pilot Program for theShanghai-Hong Kong Stock Connect (Hereinafter(Hereinafter refer to as Notice 81) which has been effective from November 17, 2014. Pursuant to Notice 81, fordividends acquired by mainland individual investors through investment inH-shares listed on the Hong Kong Stock ExchangeHKEX via Hong Kong-Shanghai Stock Connect, theH-share company shall apply to China Securities Depository and Clearing Corporation Limited (Hereinafter refer to as Chinese Clearing). Chinese Clearing shall provide theH-share company with the mainland individual’s investor rosters. TheH-share company withholds the individual income tax at the tax rate of 20%. For dividends acquired by mainland securities investment funds through investment in shares listed on the Hong Kong Stock ExchangeHKEX via Hong Kong- Shanghai Stock Connect, the individual income tax shall be collected according to the regulations hereinbefore.
For dividends acquired by Hong Kong investors’ (including enterprises and individuals) through investment inA-shares listed on the Shanghai Stock Exchange, before Hong Kong Securities Clearing Limited (Hereinafter refer to as Hong Kong Clearing) meet the conditions to provide Chinese Clearing with detailed data of investors’ identity certification and time of shareholding, the different tax policy according to time of shareholding will temporarily not to be implemented. The listed company shall withhold the income tax at the tax rate of 10%, declare, and pay to the tax authorities.
Enterprises
Under the EIT Law amended in 20172018 and the implementation regulations to the EIT Law effective from January 1, 2008,amended on April 23, 2019, PRC income tax at the rate of 10% is applicable to dividends payable to investors that are“non-resident enterprises”, which do not have an establishment or place of business in the PRC, or which have such establishment or place of business but the relevant income is not effectively connected with the establishment or place of business. The rate could be reduced or eliminated pursuant to an applicable double taxation treaty.
In accordance with the Notice 81, (a) dividends acquired by mainland enterprise investors through investment in shares listed on the Hong Kong Stock ExchangeHKEX via Hong Kong-Shanghai Stock Connect will be accounted into their total income and subject to enterprise income tax according to the laws. Among those, for the dividends acquired by mainland enterprise investors through continuing holding H shares for 12 months, the enterprise income tax shall be exempted according to the laws; (b) theH-share company listed on the Hong Kong Stock ExchangeHKEX shall apply to the Chinese Clearing to offer them the mainland enterprise investor rosters. TheH-share company does not withhold income tax from dividends for mainland enterprise investors. The enterprises shall declare and pay by themselves; and (c) the mainland enterprise investors may apply for tax credits for dividends already withheld bynon-H-share listed companies on the Hong Kong Stock ExchangeHKEX when declaring and paying the enterprise tax income.
Tax Treaties
Non-Chinese investors resident in countries, which have entered into double-taxation treaties with China, may be entitled to a reduction of the withholding tax imposed on the payment of dividends tonon-Chinese investors of our Company. China currently has double-taxation treaties with a number of other countries, including Australia, Canada, France, Germany, Japan, Malaysia, the Netherlands, Singapore, the United Kingdom and the United States.
Notice 81 explicitly stipulated that for Hong Kong investors who are tax residents of other countries that have signed the tax agreement with China to regulate the tax rate for dividends, that income tax to be less than 10%, the enterprise or individual may, by themselves or withholding agents, apply for the treatment of the tax agreement to the tax authorities of listed companies. After examination and verification, the tax authorities shall reimburse the difference between the levied tax and the payable tax according to the tax agreement.
Under the U.S.-China Treaty, China may tax a dividend paid by our Company to a U.S. holder of H Shares or ADSs only up to a maximum of 10% of the gross amount of such dividend.
Taxation of Capital Gains by China
Individual Investors
According to the Law of Individual Income Tax and its implementation regulations, holders of H Shares or ADSs who have no domiciles and do not reside in China or who have no domiciles but have resided in China for less than one year shall be subject to individual income tax on their income gained within China, unless otherwise reduced or eliminated pursuant to an applicable double taxation treaty.
Notice 81 requires, (a) from November 17, 2014 to November 16, 2017, the income tax from transfer price difference will be temporarily exempted for mainland individual investors’ investment in shares listed on the Hong Kong Stock ExchangeHKEX through Hong Kong-Shanghai Stock Connect; (b) for mainland individual investors, the business tax from transfer price difference in the trading of shares listed on the Hong Kong Stock ExchangeHKEX through Hong Kong- Shanghai Stock Connect will be temporarily exempted according to current policy; and (c) the income tax and the business tax from transfer price difference will be temporarily exempted for Hong Kong individual investors’ investment inA-shares listed on the Shanghai Stock Exchange.
Under the U.S.-China Treaty, China may only tax gains from the sale or disposition by a U.S. holder of H Shares or ADSs representing an interest in the company of 25% or more.
Enterprises
Under the EIT Law and the implementation regulations to the EIT Law, gains realized upon the sale of Overseas Shares by“non-resident enterprises” may be subject to PRC taxation at the rate of 10% (or lower treaty rate).
Pursuant to Notice 81, the income tax from transfer price difference will be accounted into the total income and subject to enterprise income tax according to the laws for mainland enterprise investors’ investment in shares listed on the Hong Kong Stock ExchangeHKEX through Hong Kong-Shanghai Stock Connect. For mainland enterprise investors, the business tax from transfer price difference in the trading of shares listed on the Hong Kong Stock ExchangeHKEX through Hong Kong-Shanghai Stock Connect shall be levied and exempted according to current policy. Income tax and the business tax from transfer price difference will be temporarily exempted for Hong Kong enterprise investors’ investment inA-shares listed on the Shanghai Stock Exchange.
PRC Stamp Tax
Chinese stamp tax imposed on the transfer of shares of Chinese publicly traded companies under the Share System Tax Regulations should not apply to the acquisition or disposition bynon-Chinese investors of H Shares or ADSs outside of China by virtue of the Provisional Regulations of the People’s Republic of China Concerning Stamp Tax, which provides that Chinese stamp tax is imposed only on documents executed or received within China or that should be considered as having been executed or received within China.
According to Notice 81, Hong Kong investors shall pay stamp duty according to mainland current tax policy when trading, inheriting, gifting theA- shares listed on the Shanghai Stock Exchange through Hong Kong-Shanghai Stock Connect.
United States Federal Income Taxation
Each potential investor is strongly urged to consult his, her or herits own tax advisoradviser to determine the particular U.S. federal, state, local, treaty and foreign tax consequences and U.S. reporting and compliance requirement of acquiring, owning or disposing of the H Shares or ADSs.
The following is a general discussion of material U.S. federal income tax consequences of purchasing, owning and disposing of the H Shares or ADSs if you are a U.S. Holder, as defined below, use the U.S. Dollar as your functional currency, and hold the H Shares or ADSs as capital assets within the meaning of Section 1221 of theU.S. Internal Revenue Code of 1986 as amended (the “Code”). This discussion does not address all of the tax consequences relating to the purchase, ownership and disposition of the H Shares or ADSs, and does not take into account U.S. Holders (defined below) who may be subject to special rules including:
tax-exempt entities;
banks, financial institutions, and insurance companies;
real estate investment trusts, regulated investment companies and grantor trusts;
dealers or traders in securities, commodities or currencies;
U.S. Holders that own, actually or constructively, 10% or more of our voting stock;
persons who receive the H Shares or ADSs as compensation for services;
U.S. Holders that hold the H Shares or ADSs as part of a straddle or a hedging or conversion transaction;
persons that generally mark their securities to market for U.S. federal income tax purposes;
U.S. citizens or tax residents who are residents of the PRC;
U.S. citizens or tax residents who are subject to Hong Kong profits tax;
certain U.S. expatriates;
certain accrual method taxpayers subject to special tax accounting rules as a result of their use of financial statements;
a partnership (or other entity or arrangement treated as a partnership for U.S. federal income tax purposes) or pass-through entity (or a partner, member, or owner thereof);
persons who are resident or have a permanent establishment outside of the United States;
dual resident corporations; or
U.S. Holders whose functional currency is not the U.S. dollar.
Moreover, this description does not address U.S. federal estate, gift or alternative minimum taxes, the U.S. federal unearned Medicare contribution tax, or any state or local tax consequences of the acquisition, ownership and disposition of the H Shares or ADSs.
This discussion is based on the Code, its legislative history, final, temporary and proposed U.S. Treasury regulations promulgated thereunder, published rulings and court decisions as in effect on the date hereof, all of which are subject to change, or changes in interpretation, possibly with retroactive effect. In addition, this discussion is based in part upon representations of the depositary and the assumption that each obligation in the deposit agreement and any related agreements will be performed according to its terms.
You are a “U.S. Holder” if you are a beneficial owner of H Shares or ADSs and are:
an individual citizen or resident of the United States for U.S. federal income tax purposes;
an estate the income of which is subject to U.S. federal income tax without regard to its source; or
a trust if (i) a court within the United States is able to exercise primary supervision over it’s administration, and one or more U.S. persons have the authority to control all of the substantial decisions of such trust, or (ii) such trust has a valid election in effect to be treated as a U.S. person for U.S. federal income tax purposes.
If a partnership (including any entity treated as a partnership for U.S. federal tax purposes) is a beneficial owner of the H Shares or ADSs, the treatment of the partner in such partnership will generally depend upon the status of the partner and the activities of the partnership. If an investor is a partner in a partnership that holds H Shares or ADSs, such investor should consult its tax advisor.
In general, if you hold ADRs evidencing ADSs, you will be treated as the owner of the H Shares represented by the ADSs. Exchanges of H shares for ADRs, and ADRs for H shares, generally will not be subject to U.S. federal income tax.
INVESTORS SHOULD CONSULT THEIR TAX ADVISORS AS TO THE PARTICULAR TAX CONSIDERATIONS APPLICABLE TO THEM RELATING TO THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE H SHARES OR ADSs, INCLUDING THE APPLICABILITY OF U.S. FEDERAL, STATE AND LOCAL TAX LAWS ORNON-U.S. TAX LAWS, ANY CHANGES IN APPLICABLE TAX LAWS AND ANY PENDING OR PROPOSED LEGISLATION OR REGULATIONS.
Distributions on the H Shares or ADSs
Subject to the discussion below under “— Passive Foreign Investment Company”, the gross amount of any distribution (without reduction for any withheld PRC tax) we make on the H Shares or ADSs out of our current or accumulated earnings and profits (as determined for U.S. federal income tax purposes) will be includible in your gross income as ordinary dividend income when the distribution is actually or constructively received by you, or by the depositary in the case of ADSs. Distributions that exceed our current and accumulated earnings and profits will be treated as a return of capital to you to the extent of your basis in the H Shares or ADSs and thereafter as capital gain. We, however, may not calculate earnings and profits in accordance with U.S. tax principles. Accordingly, allit is expected that distributions by us to U.S. Holders, if any, will generally be treated as dividends. Any dividend will not be eligible for the dividends-received deduction generally allowed to U.S. corporations in respect of dividends received from U.S. corporations or foreign corporations. The amount of any distribution of property other than cash will be the fair market value of such property on the date of such distribution.
Subject to certain exceptions for short-term and hedged positions, the U.S. dollar amount of dividends received by certainnon-corporate holdersU.S. Holders will be subject to taxation at a maximum rate of 20% if the dividends are “qualified dividends.” Dividends paid on H Shares or ADSs will be treated as qualified dividends if either (i) we are eligible for the benefits of a comprehensive income tax treaty with the United States that the Internal Revenue Service, or IRS, has approved for the purposes of the qualified dividend rules, or (ii) the dividends are, with respect to ADSs, readily tradable on a U.S. securities market, provided that we were not, in each case, in the year prior to the year in which the dividend was paid, and are not, in the year in which the dividend is paid, a passive foreign investment company, or PFIC. The Agreement Between the Government of the United States of America and the Government of the People’s Republic of China for the Avoidance of Double Taxation and the Prevention of Tax Evasion with Respect to Taxes on Income (the “Treaty”) has been approved for the purposes of the qualified dividend rules, and we expect to qualify for benefits under the Treaty. We are considered a qualified foreign corporation with respect to the ADSs because our ADSs are listed on the New York Stock Exchange.NYSE. There can be no assurance that our shares will be considered readily tradable on an established securities market in later years. Finally, based on our audited consolidated financial statements and relevant market data, we believe that we did not satisfy the definition for PFIC status for U.S. federal income tax purposes with respect to our 20162018 taxable year. In addition, based on our audited consolidated financial statements and our current expectations regarding the value and nature of our assets, the sources and nature of our income, and relevant market data, we do not anticipate becoming a PFIC for our 20172019 taxable year or any future year. However, our status in the current year and future years will depend on our income and assets (which for this purpose depends in part on the market value of the H Shares or ADSs) in those years. See the discussion below under “— Passive Foreign Investment Company”. Our U.S. counsel expresses no opinion with respect to our expectations contained in this paragraph.
Holders of H Shares or ADSs should consult their own tax advisors regarding the availability of the reduced dividend tax rate in light of their own particular circumstances.
If we make a distribution paid in HKHong Kong dollars, you will be considered to receive the U.S. dollar value of the distribution determined at the spot HK dollar/U.S. dollar rate on the date such distribution is actually or constructively received by you, regardless of whether you convert the distribution into U.S. dollars. Any gain or loss resulting from currency exchange fluctuations during the period from the date the dividend payment is includible in your income to the date you convert the distribution into U.S. dollars willmay be treated as ordinary income or loss from U.S. sources. If dividends received in HK dollars are converted into U.S. dollars on the day they are received, the U.S. Holder generally will not be required to recognize foreignrecognizing currency gain or loss in respectto the extent the distributions on the H Shares or ADSs are affected by currency gains or losses. U.S. Holders should consult their own tax advisors regarding the calculation of the dividend income.non-U.S. currency gain or loss.
Subject to various limitations, any PRC tax withheld from distributions in accordance with the Treaty willmay be deductible or creditable against your U.S. federal income tax liability depending on the application of the section 904 foreign tax credit limitation provisions. Dividends paid by us generally will constitute income from sources outside the United States, for U.S.however, there can be no assurance that you will be eligible to benefit from a foreign tax credit. The foreign tax credit limitation purposesrules are complex and will be categorized as “passive category income” or, in the case of certain U.S. Holders as “general category income” for U.S. foreignshould consult their own tax credit purposes.advisors regarding the effect of these rules in their particular circumstance.
In the event we are required to withhold PRC income tax on dividends paid to U.S. Holders on the H Shares or ADSs (see discussion under “— China Taxation”), you may be able to claim a reduced 10% rate of PRC withholding tax if you are eligible for benefits under the Treaty. You should consult your own tax advisoradviser about the eligibility for reduction of PRC withholding tax.
You may not be able to claim a foreign tax credit (and instead may claim a deduction) fornon-U.S. taxes imposed on dividends paid on the H Shares or ADSs if you (i) have held the H Shares or ADSs for less than a specified minimum period during which you are not protected from risk of loss with respect to such shares, or (ii) are obligated to make payments related to the dividends (for example, pursuant to a short sale). The rules relating to the U.S. foreign tax credit are complex and U.S. Holders may be subject to various limitations on the amount of foreign tax credits that are available. In addition, if the dividends are taxed as qualified dividend income (as discussed above), the amount of the dividend taken into account for purposes of calculating a U.S. Holder’s foreign tax credit limitation will generally be limited to the gross amount of the taxable dividend, multiplied by the reduced tax rate applicable to qualified dividend income and divided by the highest tax rate normally applicable to dividends. U.S. Holders should consult their own tax advisors regarding the effect of these rules in their particular circumstance.
Sale, Exchange or Other Disposition
Subject to the discussion below under “— Passive Foreign Investment Company”, upon a sale, exchange or other disposition of the H Shares or ADSs, you will generally recognize capital gain or loss for U.S. federal income tax purposes in an amount equal to the difference between the U.S. dollar value of the amount realized and your tax basis, determined in U.S. dollars, in such H Shares or ADSs. Generally, gain or loss recognized upon the sale or other disposition of H Shares or ADSs, will be long-term capital gain or loss if the U.S. Holder’s holding period for such H Shares or ADSs exceeds one year, and generally will be income or loss from sources within the United States for foreign tax credit limitation purposes.States. Fornon-corporate U.S. Holders, the U.S. income tax rate applicable to net long-term capital gain currently will not exceed 20.0%20%. The deductibility of capital losses is subject to significant limitations.
A U.S. Holder that receives foreign currency from a sale or disposition of H Shares or ADSs generally will realize an amount equal to the U.S. dollar value of the foreign currency determined on (i) the date of receipt of payment in the case of a cash basis U.S. Holder and (ii) the date of disposition in the case of an accrual basis U.S. Holder. If Shares are treated as traded on an “established securities market”, a cash basis taxpayer or, if it so elects, an accrual basis taxpayer, will determine the U.S. dollar value of the amount realized by translating the amount received at the spot rate of exchange on the settlement date of the sale. A U.S. Holder will have a tax basis in the foreign currency received equal to the U.S. dollar amount realized. Any currency exchange gain or loss realized on a subsequent conversion of the foreign currency into U.S. dollars for a different amount generally willmay be treated as ordinary income or loss from sources within the United States. However, if such foreignrecognizing currency is converted into U.S. dollars on the date received by the U.S. Holder, a cash basis or electing accrual basis U.S. Holder should not recognize any gain or loss on such conversion.loss. U.S. Holders should consult their own tax advisors regarding the calculation of non-U.S. currency gain or loss.
Any gain or loss will generally be U.S. source gain or loss for foreign tax credit limitation purposes and as a result of the U.S. foreign tax credit limitation, foreign taxes, if any, imposed upon capital gains in respect of H Shares or ADSs may not be currently creditable. Under the Treaty, however, if any PRC tax were to be imposed on any gain from the disposition of H Shares or ADSs, the gain could be treated asPRC-source income. U.S. Holders are urged to consult their tax advisors regarding the interaction of the foreign tax credit and the Treaty “resourcing” rule.
Passive Foreign Investment Company
In general, a foreign corporation is a PFIC for any taxable year in which, after applying relevant look-through rules with respect to the income and assets of subsidiaries:
75% or more of its gross income consists of passive income, such as dividends, interest, rents, royalties, and gains from the sale of assets that give rise to such income; or
50% or more of the average quarterly value of its gross assets consists of assets that produce, or are held for the production of, passive income.
“Passive income” for this purpose includes, for example, dividends, interest, royalties, rents and gains from commodities and securities transactions. Passive income does not include rents and royalties derived from the active conduct of a trade or business. If the stock of anon-U.S. corporation is publicly traded for the taxable year, the asset test is applied using the fair market value of the assets for purposes of measuring such corporation’s assets. If we own, directly or indirectly, at least 25% (by value) of the stock of another corporation, we will be treated, for purposes of the PFIC tests, as owning our proportionate share of the other corporation’s assets and receiving our proportionate share of the other corporation’s income for purposes of the PFIC income and asset tests.
Based on the current and anticipated composition of our assets and income and the current expectations regarding the price of the H Shares and ADSs, we believe that we were not a PFIC for U.S. federal income tax purposes with respect to our 20172019 taxable year and we do not intend to become or anticipate becoming a PFIC for the current or any future taxable year. However, the determination of PFIC status is a factual determination that must be made annually at the close of each taxable year and therefore, there can be no certainty as to our status in this regard until the close of the 20182020 taxable year. Changes in the nature of our income or assets or a decrease in the trading price of the H Shares or ADSs may cause us to be considered a PFIC in the current or any subsequent year. Our U.S. counsel expresses no opinion with respect to our expectations contained in this paragraph.
If we were a PFIC in any taxable year that you held the H Shares or ADSs, youcertain adverse U.S. federal income tax rules would apply. You generally would be subject to special rules with respect to “excess distributions” made by us on the H Shares or ADSs and with respect to gain from your disposition of the H Shares or ADSs. An “excess distribution” generally is defined as the excess of the distributions you receive with respect to the H Shares or ADSs in any taxable year over 125% of the average annual distributions you have received from us during the shorter of the three preceding years, or your holding period for the H Shares or ADSs. Generally, you would be required to allocate any excess distribution or gain from the disposition of the H Shares or ADSs ratably over your holding period for the H Shares or ADSs. The portion of the excess distribution or gain allocated to a prior taxable year, other than a year prior to the first year in which we became a PFIC, would be taxed at the highest U.S. federal income tax rate on ordinary income in effect for such taxable year, and you would be subject to an interest charge on the resulting tax liability, determined as if the tax liability had been due with respect to such particular taxable years. The portion of the excess distribution or gain that is not allocated to prior taxable years, together with the portion allocated to the years prior to the first year in which we became a PFIC, would be included in your gross income for the taxable year of the excess distribution or disposition and taxed as ordinary income. If we were a PFIC in any year during a U.S. Holder’s holding period, we would generally be treated as a PFIC for each subsequent year absent a “purging” election by the U.S. Holder.
Under certain attribution rules, if we are a PFIC, you will be deemed to own your proportionate share (by value) of lower-tier PFICs, and will be subject to U.S. federal income tax on (i) a distribution on the shares of a lower-tier PFIC and (ii) a disposition of shares of a lower-tier PFIC, both as if you directly held the shares of such lower-tier PFIC.
These adverse tax consequences may be avoided if the U.S. Holder is eligible to and does elect to annuallymark-to-market the H Shares or ADSs. If a U.S. Holder makes amark-to-market election, such holder will generally include as ordinary income the excess, if any, of the fair market value of the H Shares or ADSs at the end of each taxable year over their adjusted basis, and will be permitted an ordinary loss in respect of the excess, if any, of the adjusted basis of the H Shares or ADSs over their fair market value at the end of the taxable year (but only to the extent of the net amount of income previously included as a result of themark-to-market election). Any gain recognized on the sale or other disposition of the H Shares or ADSs will be treated as ordinary income. Themark-to-market election is available only for “marketable stock,” which is stock that is traded in other than de minimis quantities on at least 15 days during each calendar quarter on a qualified exchange or other market, as defined in the applicable Treasury regulations. The ADSs should qualify as “marketable stock” because the ADSs are listed on the New York Stock Exchange. However,NYSE. There can be no assurance that our shares will be considered readily tradable on an established securities market in later years. Further, the stock of any of our subsidiaries that were PFICs that is deemed owned pursuant to the attribution rules discussed above would not be eligible for themark-to-market election.
A U.S. Holder’s adjusted tax basis in the H Shares or ADSs will be increased by the amount of any income inclusion and decreased by the amount of any deductions under themark-to-market rules. If a U.S. Holder makes amark-to-market election it will be effective for the taxable year for which the election is made and all subsequent taxable years, unless the H Shares or ADSs are no longer regularly traded on a qualified exchange or the IRS consents to the revocation of the election. U.S. Holders are urged to consult their tax advisors about the availability of themark-to-market election, and whether making the election would be advisable in their particular circumstances.
Alternatively, a timely election to treat us as a qualified electing fund could be made to avoid the foregoing rules with respect to excess distributions and dispositions. You should be aware, however, that if we become a PFIC, we do not intend to satisfy record keeping requirements that would permit you to make a qualified electing fund election.election; you will, therefore, not be able to make or maintain such an election with respect to your H Shares or ADSs.
If we were regarded as a PFIC, a U.S. Holder of H Shares or ADSs generally would be required to file an information return on IRS Form 8621 for any year in which the holder received a direct or indirect distribution with respect to the H Shares or ADSs, recognized gain on a direct or indirect disposition of the H Shares or ADSs, or made an election with respect to the H Shares or ADSs, reporting distributions received and gains realized with respect to the H Shares or ADSs. In addition, if we were regarded as a PFIC, a U.S. Holder would be required to file an annual information return (also on IRS Form 8621) relating to the holder’s ownership of the shares or ADSs. This requirement would be in addition to other reporting requirements applicable to ownership in a PFIC.
We encourage you to consult your own tax advisoradviser concerning the U.S. federal income tax consequences of holding the H Shares or ADSs that would arise if we were considered a PFIC.
Backup Withholding and Information Reporting
In general, information reporting requirements will apply to dividends in respect of the H Shares or ADSs or the proceeds of the sale, exchange, or redemption of the H Shares or ADSs paid within the United States, and in some cases, outside of the United States, other than to various exempt recipients, including corporations. In addition, you may, under some circumstances, be subject to “backup withholding” with respect to dividends paid on the H Shares or ADSs or the proceeds of any sale, exchange or transfer of the H Shares or ADSs, unless you:
| 1. | are a corporation or fall within various other exempt categories, and, when required, demonstrate this fact; or |
| 2. | provide a correct taxpayer identification number on a properly completed IRS Form W-9 or a substitute form, certifying that you are exempt from backup withholding and otherwise comply with applicable requirements of the backup withholding rules. |
Any amount withheld under the backup withholding rules generally will be creditable against your U.S. federal income tax liability or may be refunded to the extent they exceed such liability provided that you furnish the required information to the IRS in a timely manner. If you do not provide a correct taxpayer identification number you may be subject to penalties imposed by the IRS.
Certain U.S. Holders may be required to report information with respect to such holder’s interest in “specified foreign financial assets” (as defined in Section 6038D of the Code), including stock of anon-U.S. corporation that is not held in an account maintained by certain financial institutions, if the aggregate value of all such assets exceeds certain dollar thresholds. Persons who are required to report specified foreign financial assets and fail to do so may be subject to substantial penalties. U.S. Holders are urged to consult their own tax advisors regarding the foreign financial asset reporting obligations and their possible application to the holding of H Shares or ADSs.
Potential FATCA Consequences relating to the H Shares and ADSs
Under sections 1471-1474 of the Code and applicable U.S. Treasury regulations promulgated thereunder (commonly referred to as the Foreign Account Tax Compliance Act (“FATCA”)) as well as certain intergovernmental agreements between the United States and certain other countries together with implementing legislation and regulations, certain holders of the H Shares and ADSs may be required to provide information and tax documentation regarding their identities as well as that of their direct and indirect owners. It is also possible that payments in respect of the H Shares and ADSs may be subject to withholding tax of 30% (“FATCA withholding”) to the extent that such payments are considered to be “foreign passthru payments” to non-U.S. financial institutions (including intermediaries) that have not entered into agreements with the U.S. Treasury pursuant to FATCA or otherwise established an exemption from FATCA, or to other holders that fail to provide sufficient identifying information. Regulations defining “foreign passthru payments” have not yet been adopted or proposed, and the IRS has indicated in proposed Treasury regulations (the preamble to which specifies that taxpayers can rely on them prior to their finalization) that no withholding on foreign passthru payments will be required before the date that is two years after the date of publication of final Treasury regulations defining the term “foreign passthru payments”. Under current guidance it is not clear whether and to what extent payments on the H Shares and ADSs will be considered foreign passthru payments subject to FATCA withholding or the extent to which foreign passthru payment withholding will be required under intergovernmental agreements or implementing legislation or regulations. Holders of H Shares and ADSs should consult their tax advisers as to the potential implications of FATCA on their investment in the H Shares and ADSs.
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
You may read and copy documents referred to in this Annual Report on Form20-F that have been filed with the Securities and Exchange Commission at its public reference room located at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at1-800-SEC-0330 for further information on the public reference rooms and their copy charges. The SEC also maintains a website at http://www.sec.gov that contains reports, proxy statements and other information regarding registrants that file electronically with the SEC.
As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.
The SEC allows us to “incorporate by reference” the information we file with the SEC. This means that we can disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is considered to be part of this Annual Report on Form20-F.
l. Subsidiary Information
For a listing of our significant subsidiaries, see “Item 4. Information on the Company — History and Development of the Company”.
Item 11. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
Our debts include both fixed-rateinterest rate risk primarily arises from borrowings and variable-rate long-term loanslease liabilities. Borrowings issued at variable rates expose us to cash flow interest rate risk. Borrowings and other loans. As a result, we are subjectfinance leases issued at fixed rates expose us to fair value interest rate risk. We determine the proportion of borrowings and finance leases issued at variable rates and fixed rates based on the market risk of fluctuationenvironment.
Our finance department has been monitoring the level of interest rates. The increase in the interest rates will increase the interest costs of borrowings and finance leases issued at variable rates, which may affectwill further impact our performance. To hedge against the estimated fair value of our debt liabilities or resultvariability in lossesthe cash flows arising from a change in cash flow. We usemarket interest rates, we have entered into certain interest rate swaps to reduce risks relatedswap variable rates into fixed rates. The interest rates and terms of repayment of borrowings made to changesus and interest rate swaps are disclosed in marketNotes 36 and 23 to the consolidated financial statements.
The following tables detail the interest rates. As of December 31, 2017, the notional amountrate profiles of our outstandinginterest-bearing financial instruments at the reporting date:
| 2020 | 2019 | |||||||
| RMB million | RMB million | |||||||
Floating rate instruments | ||||||||
Cash and cash equivalents | 7,651 | 1,350 | ||||||
Restricted bank deposits | 12 | 6 | ||||||
Borrowings | (13,328 | ) | (3,943 | ) | ||||
Lease liabilities | (44,541 | ) | (49,851 | ) | ||||
Interest rate swaps at notional amount | 4,504 | 6,194 | ||||||
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Fixed rate instruments | ||||||||
Borrowings | (74,567 | ) | (47,929 | ) | ||||
Lease liabilities | (51,710 | ) | (60,424 | ) | ||||
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The following table indicates the approximate change in our profit or loss and other comprehensive income, taking the interest rate swap agreements was approximately US$1,420 million. The net fair value of the outstanding interest rate swap agreements gave rise to an asset of approximately RMB137 million. These interest rate swap agreements will expire between 2018 and 2025. If theinto consideration, if interest rate had been 25 basis points higher with all other variables held constant, interest expenses on our floating rate instruments would have increased by RMB140 million in 2016 and RMB142 million in 2017.
| 2020 | 2019 | |||||||||||||||
| Effect on profit or loss | Effect on other comprehensive income | Effect on profit or loss | Effect on other comprehensive income | |||||||||||||
| RMB million | RMB million | RMB million | RMB million | |||||||||||||
Floating rate instruments | (94 | ) | 8 | (98 | ) | 12 | ||||||||||
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Foreign Currency Exchange Rate Risk
Although we derive mostWe operate our business in many countries and territories. We generate our revenue in different currencies, and the amount of our income from China in Renminbi, our financial lease obligations as well as certain bank loans are denominated in U.S. dollars and Renminbi. Pursuant to current foreign exchange regulations in China, we may retain our foreign currency earnings generatedliabilities at the end of the period is much higher than that of our foreign currency assets. Our major liability items (mainly resulting from ticket sales madepurchases of aircraft) are mainly priced and settled in our overseas offices subjectforeign currencies, primarily USD. We are exposed to the approval of SAFE. We use forward contracts to reducecurrency risks related to changesfrom fluctuations in various foreign currency exchange rates in respectagainst RMB.
The RMB is not freely convertible into other currencies, however, under Mainland China’s Foreign Exchange Control Regulations and Administration of ticket salesSettlement, Sale and expenses denominatedPayment of Foreign Exchange Regulations, we are permitted to exchange RMB for other currencies through banks authorized to conduct foreign exchange business.
In addition, fluctuations in foreign currencies. Ascurrency exchange rates will affect our future costs for purchases of December 31, 2017, the notional amount of the outstanding currency forward contracts was approximately US$829 million, which will expire in 2018.
Pursuant to IFRSs, our monetary assetsaircraft, flight equipment and liabilities denominatedaviation fuel, and take-off and landing charges in foreign currencies are requiredairports.
The following tables detail our exposure to be translated into Renminbi atyear-end, at exchange rates announced by the PBOC. Transactions in currencies other than the Renminbi during the year are converted into Renminbimajor currency risk at the applicable rates of exchange prevailing atreporting date:
| 2020 | ||||||||||||||||
| USD | EUR | SGD | JPY | |||||||||||||
| RMB million | RMB million | RMB million | RMB million | |||||||||||||
Trade receivables | 10 | 2 | — | 2 | ||||||||||||
Cash and cash equivalents | 968 | 4 | 3 | 3 | ||||||||||||
Other receivables | 115 | 3 | 1 | 12 | ||||||||||||
Other non-current assets | 150 | — | — | — | ||||||||||||
Trade and other payables | (108 | ) | (1 | ) | — | — | ||||||||||
Lease liabilities | (36,267 | ) | (8 | ) | (85 | ) | (142 | ) | ||||||||
Borrowings | (375 | ) | (2,664 | ) | (2,466 | ) | (3,162 | ) | ||||||||
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| USD | EUR | SGD | JPY | |||||||||||||
| RMB million | RMB million | RMB million | RMB million | |||||||||||||
Trade receivables | 28 | 47 | 5 | 59 | ||||||||||||
Cash and cash equivalents | 635 | 63 | 5 | 10 | ||||||||||||
Other receivables | 2,065 | 3 | 1 | 13 | ||||||||||||
Other non-current assets | 180 | — | — | — | ||||||||||||
Trade and other payables | (105 | ) | (3 | ) | — | (6 | ) | |||||||||
Lease liabilities | (45,674 | ) | — | (397 | ) | (183 | ) | |||||||||
Borrowings | (870 | ) | (3,073 | ) | (2,587 | ) | (3,205 | ) | ||||||||
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The following tables indicate the dates of the transaction. Transaction gains and losses are recognizedapproximate change in our consolidated statement of profit or loss account. In 2016 and 2017, we had foreign exchange losses of RMB3,543 million and foreign exchange gains of RMB2,001 million, respectively. Any fluctuationother comprehensive income in response to a 1% appreciation or depreciation of the exchange rates between RenminbiRMB against the following major currencies at the reporting date:
| 2020 | 2019 | |||||||||||||||
| Effect on profit or loss | Effect on other comprehensive income | Effect on profit or loss | Effect on other comprehensive income | |||||||||||||
| RMB million | RMB million | RMB million | RMB million | |||||||||||||
If RMB (weakens)/strengthens against USD | (266)/266 | — | (328)/328 | 41/(41) | ||||||||||||
If RMB (weakens)/strengthens against JPY | (25)/25 | — | (25)/25 | — | ||||||||||||
If RMB (weakens)/strengthens against EUR | (20)/20 | — | (22)/22 | — | ||||||||||||
If RMB (weakens)/strengthens against SGD | (19)/19 | — | (22)/22 | — | ||||||||||||
Fuel Price Fluctuation Risk
Jet fuel is a major component of our operating expenses and foreign currencies may materially and adversely affect our financial condition and results of operations. Following the measures introducedare significantly affected by the PRC governmentvolatility in July 2005the price of jet fuel. For the year ended December 31, 2020, if fuel price had been 5% lower/higher with all other variables held constant, our fuel cost would have been RMB692 million lower/higher (2019: RMB1,710 million lower/higher).
Our policy is to reformreduce fuel price risk by hedging a percentage of its expected fuel consumption. Fuel forward contracts are used to achieve our desired hedging position. An increase of 5 percent in the Renminbi exchange rate regime,jet fuel price at the Renminbi has appreciated significantly against certain foreign currencies, includingreporting date would have resulted in a change in other comprehensive income by the U.S. dollaramounts shown below. It represents the change in fair value of fuel forward contracts at the reporting date.The analysis assumes that all other variables remain constant.
| 2020 | 2019 | |||||||
| Effect on other comprehensive income | Effect on other comprehensive income | |||||||
| RMB million | RMB million | |||||||
Fuel forward contracts | 62 | — | ||||||
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Equity Price Risk
We are exposed to equity price risk arising from individual equity investments included in financial asset at fair value through profit or loss (Note 28) and Japanese yen. The following table shows the effect on our profit and loss account as a result of the impact on ournon-Renminbi denominated monetary assets and liabilitiesequity investments designated at fair value through other comprehensive income (Note 22) as of December 31, 2017 as a consequence of a fluctuation in value2020. Our listed investments are listed on the Hong Kong and Shanghai stock exchanges and are valued at quoted market prices at the end of the reporting period.
The market equity indices for the following major foreign currencies.stock exchanges, at the close of business of the nearest trading day in the year to the end of the reporting period, and their respective highest and lowest points during the year were as follows:
| December 31, 2020 | High/Low 2020 | December 31, 2019 | High/Low 2019 | |||||||||||||
Hong Kong – Hang Seng Index | 27,231 | 29,056/21,696 | 28,190 | 30,157/25,064 | ||||||||||||
Shanghai – A Share Index | 3,640 | 3,640/2,788 | 3,196 | 3,426/2,580 | ||||||||||||
The following table demonstrates the sensitivity to every 10% change in the fair values of the equity investments, with all other variables held constant, based on their carrying amounts at the end of the reporting period. For the purpose of this analysis, for the equity investments at fair value through other comprehensive income, the impact is deemed to be on the fair value reserve as of December 31, 2020.
of equity investment | Increase/(decrease) in profit or loss | Increase/(decrease) in comprehensive income | ||||||||||
| RMB million | RMB million | |||||||||||
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Investments listed in: | ||||||||||||
Hong Kong – Equity investment designated at fair value through other comprehensive income | — | 34/(34) | ||||||||||
| 7/(7) | — | ||||||||||
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– Equity investment designated at fair value through other comprehensive income | — | 40/(40) | ||||||||||
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Investments listed in: | ||||||||||||
Hong Kong – Equity investment designated at fair value through other comprehensive income | — | 37/(37) | ||||||||||
Shanghai – Financial asset at fair value through profit or loss | 121 | 9/(9) | — | |||||||||
Unlisted investments at fair value: | ||||||||||||
– Equity investment designated at fair value through other comprehensive income | 778 | — | 58/(58) | |||||||||
Fuel Price Fluctuation Risk
Our earnings are affected by changes in the price and availability of jet fuel. Our results of operations may be significantly affected by fluctuations in fuel prices which is a significant expense for our Group. If the average price of jet fuel had increased or decreased by 5%, jet fuel costs of our Group would have increased or decreased by approximately RMB1,257 million. The sensitivity analysis of jet fuel price risk is disclosed in Note 40(b) to the consolidated financial statements. In 2016 and 2017, we have not conducted aviation fuel hedging activities.
Item 12. Description of Securities Other than Equity Securities
A. Debt Securities
Not applicable.
B. Warrants and Rights
Not applicable.
C. Other Securities
Not applicable.
D. American Depositary Shares
Our ADSs, each representing 50 H shares, are traded on the New York Stock ExchangeNYSE under the symbol “CEA.”“CEA”. The ADSs are evidenced by American Depositary Receipts, or ADRs, issued by BNYM, as depositary under the Deposit Agreement, dated as of February 5, 1997, among the Company, BNYM and holders and beneficial owners of ADSs. BNYM’s principle executive office is at 1 Wall240 Greenwich Street, Manhattan, New York City, New York, U.S. ADS holders are required to pay the following service fees to BNYM:
Service | Fees (in U.S. dollars) | |
| Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property | US$5.00 (or less) per ADSs (or portion of 100 ADSs) | |
| Any cash distribution to ADS registered holders | N/A | |
| Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADS registered holders | A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited for issuance of ADSs | |
| Depositary services | N/A | |
| Transfer and registration of shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw shares | Registration or transfer fees | |
| Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement) | Expenses of the depositary | |
| Converting foreign currency to U.S. dollars | Foreign exchange fees | |
| As necessary | Taxes and other governmental charges the depositary or the custodian have to pay on any ADS or share underlying an ADS, for example, stock transfer taxes, stamp duty or withholding taxes | |
| As necessary | Any charges incurred by the depositary or its agents for servicing the deposited securities | |
For the past annual period, from January 1, 20172020 to December 31, 2017,2020, the Company received from the depositary an aggregate of US$52,217.16 forno continuing stock exchange annual listing fees and reimbursement fees from the depositary, and the depositary waived standardout-of-pocket maintenance costs for the ADRs (consisting of administrative expenses) of US$131,191.22.115,987.6.
BNYM, as depositary, has agreed to reimburse the Company for expenses incurred in the future in relation to the establishment and maintenance of the ADS program, which include standardout-of-pocket expenses such as postage and envelopes for mailing annual and interim financial reports and all related administrative and documentary expenses. BNYM has agreed to reimburse the Company annually for certain investor relationship programs and promotional activities. There are limits as to the amount of reimbursable expenses and this amount is not necessarily commensurate with the amount of fees BNYM collects from ADS investors. BNYM collects fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal. BNYM collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay fees. BNYM may also collect its annual fee by deducting cash distributions or by directly billing investors, or by charging the book-entry system accounts of participants acting for investors.
Item 13. Defaults, Dividend Arrearages and Delinquencies
None.
Item 14. Material Modifications to the Rights of Security Holders and Use Ofof Proceeds
On August 10, 2010, we effected an ADS split whereby each ADS now represents 50 H shares. There was no change to the rights and preferences of the underlying H shares.
Item 15. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our President and Chief Financial Officer, our management conducted an evaluation of the effectiveness of our Company’s disclosure controls and procedures (as such term is defined in Rules13a-15(e) and15d-15(e) of the Exchange Act, as of the end of the period covered by this Annual Report. Our management, with the participation of President and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures, have concluded that as of the end of the period covered by this Form20-F, our disclosure controls and procedures were effective to ensure that material information required to be disclosed in the reports that we file and furnish under Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and regulations.
Disclosure controls and procedures means controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information required to be disclosed by us in the reports that we file or submit under Exchange Act is accumulated and communicated to our management, including our President and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosures.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rules13a-15(f) and15d-15(f) and has designed internal control procedures over financial reporting or caused internal control procedures over financial reporting to be designed under our supervision in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles, as applicable. Under the supervision and with the participation of our President and our Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 20172020 based upon the criteria in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework)(the COSO criteria). Based on that evaluation, our management has concluded that our internal control over financial reporting was effective as of December 31, 20172020 in providing reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with IFRSs.
Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness of our internal control over financial reporting to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
Attestation Report of the Registered Public Accounting Firm
The effectiveness of our internal control over financial reporting as of December 31, 20172020 has been audited by Ernst & Young Hua Ming LLP, an independent registered public accounting firm in Shanghai, the PRC, as stated in their report which is included herein.
Changes in Internal Control over Financial Reporting
During 2017,2020, there have been no changes in our internal control over financial reporting that occurred during the fiscal year covered by this annual report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 16A. Audit Committee Financial Expert
Our Board of Directors has determined that Mr. Li Ruoshan,Shao Ruiqing, the chairman of our audit committee, is an independent financial expert serving on our audit committee, given his experience in the academic aspects of accounting and notable achievements in accounting education and academic research. Mr. Li RuoshanShao Ruiqing is independent of the Board of Directors, senior management, supervisors or substantial shareholders of our Company.
We have adopted a code of ethics that applies to our Directors,directors, supervisors, President, Chief Financial Officer and other senior managers of our Company. We have filed this code of ethics as Exhibit 11.1 to this annual report (which is incorporated by reference). A copy of our code of ethics will be provided to any person free of charge upon written request to Wang Jian, Secretary Office of the Board of Directors, China Eastern Airlines Corporation Limited at Kong Gang San5/F, Block A2, Northern District, CEA Building, 36 Hongxiang 3rd Road, Number 92,Minhang District, Shanghai, 200335, the People’s Republic of China.
Item 16C. Principal Accountant Fees and Services
The following table sets forth the aggregate audit fees, audit-related fees and tax fees of our principal accountants, Ernst & Young Hua Ming LLP and its affiliates for the year ended December 31, 2016,2019 and Ernst & Young Hua Ming LLP for the year ended December 31, 2017,2020, and all other fees (including value-added taxes) billed for products and services provided by our principal accountants other than the audit fees and audit-related fees and tax fees:
| Audit Fees | Audit-Related Fees | Tax Fees | All Other Fees | |||||||||||||
| (RMB) | (RMB) | (RMB) | (RMB) | |||||||||||||
2016 | 17,790,000 | 460,000 | 101,000 | — | ||||||||||||
2017 | 17,250,000 | 1,380,000 | 121,881 | — | ||||||||||||
Audit Fees | Audit-Related Fees | Tax Fees | All Other Fees | |||||||||||||
| (RMB) | (RMB) | (RMB) | (RMB) | |||||||||||||
2019 | 16,750,000 | 1,250,000 | 227,513 | 658,916 | ||||||||||||
2020 | 15,900,000 | 430,000 | 484,374 | — | ||||||||||||
Before our principal accountants were engaged by our Company or our subsidiaries to render audit ornon-audit services, our audit committee approved the engagements.
Audit Fees
Audit fees primarily consist of fees for the audits of the Company’s financial statements prepared under both of IFRSs &and PRCAccounting Standards for Business Enterprisesas of and for the years ended December 31, 20162019 and 2017.2020.
Audit-Related Fees
Audit-Related fees for the year ended December 31, 20172020 primarily consist of fees for the verification services of revenue regarding the bellyhold space and diagnosis over the IFRS 16.passenger aircraft cargo business.
Audit-Related fees for the year ended December 31, 20162019 primarily consist of fees for the capital verification services, issuing comfort letters in respect of the statement relating to the sufficiency of working capital and the statement of indebtedness, and the verification services of greenhouse gas emissionsrevenue regarding the bellyhold space.
All Other Fees
All other fees for airlinesthe year ended December 31, 2019 primarily consist of fees for the GDPR assessment service.
Audit Committee Pre-approval Policies and Procedures
Our audit committee has adopted procedures which set forth the manner in accordancewhich the committee will review and approve all audit and non-audit services to be provided by our independent registered public accounting firm. The pre-approval procedures are as follows:
Any audit or non-audit service to be provided to us by the independent accountant must be submitted to the audit committee for review and approval, with EU commission regulation 600/2012 ona description of the verification of GHG emissions reportservices to be performed and the accreditationfees to be charged.
The audit committee in its sole discretion then approves or disapproves the proposed services and documents such approval, if given, through written resolutions or in the minutes of verifiers pursuant to Directive 2003/87/EC.meetings, as the case may be.
Item 16D. Exemptions from the Listing Standards for Audit Committees
Not applicable.
Item 16E. Purchase of Equity Securities by the Issuer and Affiliated Purchasers
On November 9, 2012, we held an extraordinary general meeting to approve, among other things, the proposals for thenon-public issuance of A Shares and H Shares to specific placees.
On April 9, 2013, the Company obtained an approval from the CSRC, pursuant to which the CSRC approved thenon-public issue by the Company to CEA Holding and CES Finance of no more than 698,865,000 new A Shares. On April 16, 2013, the procedure for registration of the new A Shares with the Shanghai Branch of China Securities Depository & Clearing Co. Ltd. was completed. The 698,865,000 new A Shares under this issue, at an issue price of RMB3.28 per share, are subject to alock-up period of 36 months from the completion date of the issue and are expected to be listed on April 17, 2016.
The issuance of new H Shares was completed on June 21, 2013. A total of 698,865,000 new H Shares were issued to CES Global at the price of HK$2.32 per share.
Item 16F. Changes in Registrant’s Certifying Accountant
(a) Change of Principal Accountant
On March 30, 2017, the Board of Directors resolved to appoint Ernst & Young Hua Ming LLP as our independent registered public accounting firm, and Ernst & Young was notre-appointed as our independent registered public accounting firm.
The independent audit reports of Ernst & Young on our consolidated financial statements for the two fiscal years ended December 31, 2015 and 2016 did not contain any adverse opinion or a disclaimer of opinion, nor was such report qualified or modified in any way as to any uncertainty, audit scope, or accounting principles.
During the two fiscal years ended December 31, 2015 and 2016 and up to April 27, 2017, there were no disagreements (as that term is used in Item 16F (a)(1)(iv) of Form20-F and the related instructions to Item 16F) with Ernst & Young 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 Ernst & Young, would have caused Ernst & Young to make reference to the subject matter of the disagreements in its reports on the consolidated financial statements during the end of such fiscal years.
During the two fiscal years ended December 31, 2015 and 2016 and up to April 27, 2017, there were no “reportable events” (defined below) requiring disclosure pursuant to Item 16F(a)(1)(v) of Form20-F. As used herein, the term “reportable event” means any of the items listed in paragraphs (a)(1)(v)(A)-(D) of Item 16F of Form20-F.
We have provided Ernst & Young with a copy of the disclosures under Item 16F(a) as included herein and have requested that Ernst & Young furnish us with a letter addressed to the SEC stating whether Ernst & Young agrees with the foregoing statements. A copy of the letter dated April 25, 2018, furnished by Ernst & Young in response to that request was filed as Exhibit 15.1 to this Form20-F.Not Applicable
(b) Engagement of New Principal Accountant
On March 30, 2017, the Board of Directors resolved to appoint Ernst & Young Hua Ming LLP as our independent registered public accounting firm and decided to submit this resolution to the 2016 annual general meeting for consideration and approval. Such resolution was approved by our shareholders at the annual general meeting held on June 28, 2017.Not Applicable
During the fiscal years ended December 31, 2015 and 2016 and up to April 27, 2017, we did not consult, and have not authorized anyone on our behalf to consult Ernst & Young Hua Ming LLP with respect to any matter: (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our consolidated financial statements, and neither a written report nor oral advice was provided to us that Ernst & Young Hua Ming LLP concluded was an important factor considered by us in reaching a decision as to any accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a “disagreement” (as that term is used in Item 16F (a)(1)(iv) of Form20-F and the related instructions to Item 16F) with Ernst & Young or a “reportable event” (as described in Item 16F (a)(1)(v) of Form20-F).
Item 16G. Corporate Governance
The NYSE has imposed a series of corporate governance listing standards for companies listed on the NYSE in Section 303A of its listing rules. However, the NYSE provides that listed companies that are foreign private issuers, subject to certain limitations and conditions, are permitted to follow “home country” practice in lieu of the provisions of Section 303A of the NYSE Listed Company Manual. To qualify for this exemption, a listed foreign private issuer must disclose any significant differences between their corporate governance practices and the requirements of the NYSE corporate governance standards.
As a foreign private issuer, we are subject to more than one set of corporate governance requirements. In the table below, we set out material differences between our corporate governance practices and the NYSE’s corporate governance requirements as set out in Section 303A of the Listed Company Manual:
NYSE Listed Company Manual Requirements on Corporate Governance | Company’s Practices | |||
| Majority independent requirement of the Board of Directors | Section 303A.01 of the Listed Company Manual requires that listed companies must have a majority of independent | There is no identical corporate governance requirement in the PRC. As a company listed in the PRC, the Company is subject to the requirement under the Independent Director Guidance that at leastone-third of the Board of Directors be independent as determined thereunder. The standards for establishing independence set forth under the Independent Director Guidance of the PRC differ, to some extent, from those set forth in theNYSE ListedCompany Manual. We currently have | ||
| Non-management directors must meet at regularly scheduled executive sessions without management participation | Section 303A.03 of the Listed Company Manual requiresnon- management directors of each listed company to meet at regularly scheduled executive sessions without management participation. | There is no identical corporate governance requirement in the PRC. | ||
Audit and Risk Management
| Sections 303A.06 and 303A.07 of theNYSEListed Company Manualprovides that listedcompanies must have an audit committee composed entirely of independent directors. In addition, audit committee members must satisfy the independence requirements set forth in Section 303A.02(a)(ii). The factors to be considered for independence include whether the committee member receives any consulting, advisory or other compensatory fees from the company and whether such director is affiliated with the listed company or its subsidiary. | There is no identical corporate governance requirement in the PRC. Under the PRC laws and the applicable listing rules in the PRC, a majority of the members of the audit committee must be independent directors. The Audit and Risk Management Committee of the Company is composed of three members, all of which are independentnon-executive | ||
| Nominating/Corporate Governance Committee | Section 303A.04 of the Listed Company Manual requires that (i) listed companies must have a nominating/corporate governance committee composed entirely of independent directors and (ii) the nominating/corporate governance committee must have a written charter that addresses the committee’s purposes and responsibilities and an annual performance evaluation of the committee. | The merger of the Nomination Committee and Remuneration and Appraisal Committee into the Nominations and Remuneration Committee was agreed at the ordinary meeting of the Board of Directors held on March 19, 2010. The Nominations and Remuneration Committee currently consists of three members, two of which are independentnon-executive directors. The Nominations and Remuneration Committee is a specialized committee under the Board of Directors. It is responsible for the discussion in regard to nominees, standards and procedures for selecting directors and senior management of the Company and making recommendations; responsible for studying and examining the remuneration policy and solutions of directors and senior management of the Company; responsible for studying the performance appraisal standards for directors and senior management of the Company, conducting appraisals and making recommendation. | ||||
NYSE Listed Company Manual Requirements on Corporate Governance | Company’s Practices | |||
| Compensation Committee | Section 303A.05 of the Listed Company Manual requires that listed companies must (i) have a compensation committee composed entirely of independent directors and (ii) the compensation committee must have a written charter that addresses the committee’s purposes and responsibilities and an annual performance evaluation of the committee. | We have established a Nominations and Remuneration Committee. The merger of the Nomination Committee and Remuneration and Appraisal Committee into the Nominations and Remuneration Committee was agreed at the ordinary meeting of the Board of Directors held on March 19, 2010. The Nominations and Remuneration Committee currently consists of three members, two of which are independent | ||
| Code of Business Conduct and Ethics | Section 303A.10 requires a listed company to adopt and disclose a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers from the code for directors or executive officers. | As required under theSarbanes-Oxley Act of2002, the Company has adopted a code ofethics that is applicable to the Company’s | ||
In addition, we have posted a description of such differences under the section entitled “Report of Directors” of our 20172020 Hong Kong Annual Report, which can be accessed through the following link:
http:https://www.hkexnews.hk/www1.hkexnews.hk/listedco/listconews/SEHK/2018/0423/LTN201804231301.pdfsehk/2021/0427/2021042701934.pdf
Item 16H. Mine Safety Disclosures
Not applicable.
We have elected to provide the financial statements and related information specified in Item 18 in lieu of Item 17.
Reference is made to pagesF-1 toF-86.F-88.
(a) See Item 18 for a list of the financial statements filed as part of this Annual Report.
(b) Exhibits to this Annual Report:
Exhibit Index
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
Note:
| * | Portions of this document have been omitted pursuant to a confidential treatment request, and the full, unredacted document has been separately submitted to the Securities and Exchange Commission with a confidential treatment request. |
| ** | Incorporated by reference. |
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.
CHINA EASTERN AIRLINES CORPORATION LIMITED
| By: | /s/ Liu Shaoyong | |
| Name: Liu Shaoyong | ||
| Title: Chairman of the Board of Directors |
Date: April 25, 201828, 2021
Audited Financial Statements
CHINA EASTERN AIRLINES CORPORATION LIMITED
(Established in the People’s Republic of China with limited liability)
December 31, 2017, 20162020, 2019 and 20152018
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of China Eastern Airlines Corporation Limited
Opinion on the Financial Statements
We have audited the accompanying consolidated statementstatements of financial position of China Eastern Airlines Corporation Limited (the “Company”) as of December 31, 2017,2020 and 2019, the related consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for each of the yearthree years in the period ended December 31, 2017,2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2017,2020 and 2019, and the results of its operations and its cash flows for each of the yearthree years in the period ended December 31, 2017,2020, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017,2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated April 25, 201828, 2021 expressed an unqualified opinion thereon.
Adoption of New Accounting Standard
As discussed in Note 2.4 to the consolidated financial statements, the Company changed its method for accounting for leases using the modified retrospective method in 2019.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
| Recognition of contract liabilities for frequent flyer program |
Description of the Matter | As disclosed in Notes 2.4, 3, 5 and 34 to the consolidated financial statements, the Group operates a frequent flyer program that issues mileage points to program members for future redemption. The Group defers a portion of passenger revenue attributable to the mileage points issued using the relative stand-alone selling price approach and recognizes revenue when the mileage points are redeemed and performance obligations are fulfilled or the mileage points expire unused. The standalone selling price of the mileage points was estimated based on the historical prices of equivalent flights and goods provided for mileage points redeemed, adjusted for mileage points that are not expected to be redeemed (“Breakage”). At December 31, 2020, the Group’s contract liabilities for frequent flyer program amounted to RMB 1,781 million. |
| Auditing the Group’s estimation was complex due to the significant assumptions used in determining the estimated stand-alone selling price of mileage points, which include the testing of historical prices of equivalent flights and goods provided for redemption of mileage points and the estimated Breakage. Changes in the significant assumptions could have a significant effect on the balance of contract liabilities for frequent flyer program and the results of operations. |
How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Group’s accounting for its frequent flyer program, including controls over management’s review of the significant assumptions discussed above and the completeness and accuracy of the underlying data used. |
| Our audit procedures included, among others, evaluating the Group’s methodology for estimating the stand-alone selling price of mileage points including Breakage. We tested the historical prices of equivalent flights and goods provided for redemption of mileage points, including the completeness and accuracy of the underlying data used in the calculation. We also compared the estimated Breakage with the Group’s historical redemption pattern and further considered current industry and economic trends and other relevant factors that might trigger changes to the estimated Breakage. Additionally, we tested the completeness and accuracy of the underlying mileage points data used in the Group’s methodology and performed sensitivity analyses to evaluate the changes to the Group’s contract liabilities that would result from changes in the Breakage. |
| Provision for lease return costs for aircraft and engines |
Description of the Matter | At December 31, 2020, the Group’s provision for lease return costs for aircraft and engines under lease arrangements totaled RMB6,990 million. As described in Notes 2.4, 3 and 37 to the consolidated financial statements, certain lease arrangements contain provisions for the Group’s obligations to fulfill certain return conditions at the end of their respective lease terms. The Group estimates its provision for lease return costs for aircraft and engines by taking into account anticipated aircraft and engines’ utilization patterns and the anticipated return costs derived from historical experience of actual return costs incurred. These costs are recognized as part of the right-of-use assets on the Group’s consolidated statement of financial position and are depreciated over their respective lease terms. |
| Auditing the Group’s provision for lease return costs for aircraft and engines involved complex auditor judgment due to the estimation uncertainty of the anticipated aircraft and engines’ utilization patterns and anticipated return costs used by management to quantify the provision. Different estimates could significantly affect the estimated provision for lease return costs for aircraft and engines. |
How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of the Group’s controls over the measurement of the provision for lease return costs, including testing controls over management’s review of anticipated aircraft and engines’ utilization patterns and anticipated return costs. |
| To test the Group’s lease return provision, our audit procedures included, among others, evaluating the estimation used by the Group to determine the provision based on contractual clauses by testing a sample of lease arrangements with return condition clauses. We compared management’s plans for future utilization of aircraft and engines against the respective historical utilization patterns. Additionally, we evaluated anticipated return costs by comparing management’s prior years’ anticipated return costs estimates with actual return costs incurred by the Group. |
| Impairment testing of aircraft and engines and allocated goodwill |
Description of the Matter | At December 31, 2020, the carrying amount of the Group’s owned and leased aircraft and engines and allocated goodwill included in the cash-generating unit of airline transportation operations was RMB80,959 million, RMB115,678 million and RMB11,270 million, respectively. As disclosed in Notes 2.4, 3, 16 and 19 to the consolidated financial statements, the Group performs an impairment test on aircraft and engines when an indication of impairment exists, and performs a goodwill impairment test annually or more frequently if events or changes in circumstances indicate that the value may be impaired. This requires an estimation of the recoverable amount which is the higher of its value in use and its fair value less costs of disposal. Management uses the value in use of the cash-generating unit of airline transportation operations to determine the recoverable amount. Estimating the value in use requires the Group to estimate the projected future cash flows from the cash-generating unit and to choose a suitable discount rate to calculate the present value of those projected cash flows. |
| Auditing the Group’s impairment test of owned and leased aircraft and engines and allocated goodwill included in the cash generating unit of airline transportation operations was complex due to the significant estimation required in determining the value in use of the cash-generating unit. In particular, the estimated value in use was sensitive to significant assumptions such as revenue growth rate, terminal growth rate and the discount rate applied to the projected cash flows. These assumptions may be affected by unexpected changes in future market or economic conditions. |
How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Group’s impairment testing of owned and leased aircraft and engines and allocated goodwill included in the cash generating unit of airline transportation operations, including controls over management’s review of the significant assumptions described above and the data used in the valuation. |
| To test the value in use estimates of the cash-generating unit of airline transportation operations, our audit procedures included, among others, evaluating the valuation methodology and testing the significant assumptions discussed above and the underlying data used by the Group in its assessment. We involved our valuation specialists to assist in evaluating management’s valuation methodology and assessing the terminal growth rate and discount rate applied. We compared the significant assumptions used by management to current industry and economic trends and other relevant factors and assessed management’s projected cash flows by comparing the Group’s historical estimates to actual results. Additionally, we performed sensitivity analyses to evaluate the changes in the value in use of the cash-generating unit that would result from changes in the significant assumptions. |
/s/ Ernst & Young Hua Ming LLP
We have served as the Company’s auditor since 2013.
Shanghai, the People’s Republic of China
April 25, 201828, 2021
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of China Eastern Airlines Corporation Limited
Opinion on Internal Control overOver Financial Reporting
We have audited China Eastern Airlines Corporation Limited’s internal control over financial reporting as of December 31, 2017,2020, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, China Eastern Airlines Corporation Limited maintained (the “Company”), maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2020, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statementstatements of financial position of the Company as of December 31, 2017,2020 and 2019, the related consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for each of the yearthree years in the period ended December 31, 2017,2020, and the related notes and our report dated April 25, 201828, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying “Management’s Report on Internal Control over Financial Reporting”. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young Hua Ming LLP
Shanghai, the People’s Republic of China
April 25, 201828, 2021
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of China Eastern Airlines Corporation Limited
We have audited the accompanying consolidated statement of financial position of China Eastern Airlines Corporation Limited (the “Company”) as of December 31, 2016, and the related consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for each of the two years in the period ended December 31, 2016. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2016, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2016, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
/s/ Ernst & Young
Hong Kong
April 27, 2017
CONSOLIDATED STATEMENTSTATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
For the years ended December 31, 2017, 20162020, 2019 and 20152018
(Amounts in millions except for per share data)
| 2017 | 2016 | 2015 | 2020 | 2019 | 2018 | |||||||||||||||||||||||||||
| Notes | RMB million | RMB million | RMB million | Notes | RMB million | RMB million | RMB million | |||||||||||||||||||||||||
Revenues | 5 | 102,475 | 98,904 | 93,969 | ||||||||||||||||||||||||||||
Revenue | 5 | 58,727 | 120,986 | 115,278 | ||||||||||||||||||||||||||||
Other operating income and gains | 6 | 7,481 | 5,469 | 5,269 | 6 | 5,698 | 7,202 | 6,592 | ||||||||||||||||||||||||
|
|
| ||||||||||||||||||||||||||||||
| 109,956 | 104,373 | 99,238 | ||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
Operating expenses | ||||||||||||||||||||||||||||||||
Aircraft fuel | (25,131 | ) | (19,626 | ) | (20,312 | ) | (13,840 | ) | (34,191 | ) | (33,680 | ) | ||||||||||||||||||||
Take-off and landing charges | (13,254 | ) | (12,279 | ) | (10,851 | ) | (9,331 | ) | (16,457 | ) | (14,914 | ) | ||||||||||||||||||||
Depreciation and amortization | (13,969 | ) | (12,154 | ) | (10,471 | ) | (22,255 | ) | (22,080 | ) | (15,313 | ) | ||||||||||||||||||||
Wages, salaries and benefits | 9 | (20,320 | ) | (18,145 | ) | (16,459 | ) | 8 | (20,827 | ) | (24,152 | ) | (22,134 | ) | ||||||||||||||||||
Aircraft maintenance | (5,346 | ) | (4,960 | ) | (4,304 | ) | (3,451 | ) | (3,380 | ) | (3,738 | ) | ||||||||||||||||||||
Impairment charges | 10 | (491 | ) | (29 | ) | (228 | ) | |||||||||||||||||||||||||
Food and beverages | (3,090 | ) | (2,862 | ) | (2,469 | ) | (1,589 | ) | (3,667 | ) | (3,383 | ) | ||||||||||||||||||||
Low value and short-term lease rentals | (358 | ) | (631 | ) | — | |||||||||||||||||||||||||||
Aircraft operating lease rentals | (4,318 | ) | (4,779 | ) | (4,254 | ) | — | — | (4,306 | ) | ||||||||||||||||||||||
Other operating lease rentals | (836 | ) | (868 | ) | (812 | ) | — | — | (928 | ) | ||||||||||||||||||||||
Selling and marketing expenses | (3,294 | ) | (3,133 | ) | (3,651 | ) | (1,570 | ) | (4,134 | ) | (3,807 | ) | ||||||||||||||||||||
Civil aviation development fund | (2,080 | ) | (1,945 | ) | (1,826 | ) | — | (1,831 | ) | (2,235 | ) | |||||||||||||||||||||
Ground services and other expenses | (3,248 | ) | (5,058 | ) | (5,479 | ) | (872 | ) | (2,476 | ) | (2,845 | ) | ||||||||||||||||||||
(Loss)/gain on fair value changes of derivative financial instruments | 8 | (311 | ) | 2 | 6 | |||||||||||||||||||||||||||
Impairment charges | 9 | (184 | ) | (4 | ) | (318 | ) | |||||||||||||||||||||||||
Impairment losses on financial assets, net | 10 | (32 | ) | (16 | ) | (27 | ) | |||||||||||||||||||||||||
Fair value changes of financial asset at fair value through profit or loss | (26 | ) | 25 | (27 | ) | |||||||||||||||||||||||||||
Gain on fair value changes of derivative financial instruments | — | — | 311 | |||||||||||||||||||||||||||||
Indirect operating expenses | (4,837 | ) | (6,051 | ) | (5,503 | ) | (3,930 | ) | (5,113 | ) | (5,217 | ) | ||||||||||||||||||||
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|
|
|
|
| |||||||||||||||||||||||||||
Total operating expenses | (100,525 | ) | (91,887 | ) | (86,613 | ) | (78,265 | ) | (118,107 | ) | (112,561 | ) | ||||||||||||||||||||
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| |||||||||||||||||||||||||||
Operating profit | 11 | 9,431 | 12,486 | 12,625 | ||||||||||||||||||||||||||||
Operating (loss)/profit | 7 | (13,840 | ) | 10,081 | 9,309 | |||||||||||||||||||||||||||
Share of results of associates | 22 | 202 | 148 | 126 | 20 | (82 | ) | 265 | 170 | |||||||||||||||||||||||
Share of results of joint ventures | 23 | 49 | 39 | 26 | 21 | (13 | ) | 17 | 34 | |||||||||||||||||||||||
Finance income | 12 | 2,112 | 96 | 66 | 11 | 2,660 | 96 | 110 | ||||||||||||||||||||||||
Finance costs | 13 | (3,184 | ) | (6,272 | ) | (7,176 | ) | 12 | (5,213 | ) | (6,160 | ) | (5,767 | ) | ||||||||||||||||||
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|
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| |||||||||||||||||||||||||||
Profit before income tax | 8,610 | 6,497 | 5,667 | |||||||||||||||||||||||||||||
Income tax expense | 14 | (1,800 | ) | (1,542 | ) | (624 | ) | |||||||||||||||||||||||||
(Loss)/profit before income tax | (16,488 | ) | 4,299 | 3,856 | ||||||||||||||||||||||||||||
Income tax credit/(expense) | 13 | 3,927 | (819 | ) | (926 | ) | ||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||
Profit for the year | 6,810 | 4,955 | 5,043 | |||||||||||||||||||||||||||||
(Loss)/profit for the year | (12,561 | ) | 3,480 | 2,930 | ||||||||||||||||||||||||||||
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Other comprehensive income for the year | ||||||||||||||||||||||||||||||||
Other comprehensive income to be reclassified to profit or loss in subsequent periods | ||||||||||||||||||||||||||||||||
Cash flow hedges, net of tax | 39 | 35 | 107 | 10 | ||||||||||||||||||||||||||||
Fair value changes ofavailable-for-sale investments, net of tax | 115 | 40 | 87 | |||||||||||||||||||||||||||||
Fair value changes ofavailable-for-sale investments held by an associate, net of tax | 22 | 10 | (1 | ) | 7 | |||||||||||||||||||||||||||
(Loss)/profit attributable to: | ||||||||||||||||||||||||||||||||
Equity holders of the Company | (11,836 | ) | 3,192 | 2,698 | ||||||||||||||||||||||||||||
Non-controlling interests | (725 | ) | 288 | 232 | ||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||
Net other comprehensive income to be reclassified to profit or loss in subsequent periods | 160 | 146 | 104 | |||||||||||||||||||||||||||||
|
|
| (12,561 | ) | 3,480 | 2,930 | ||||||||||||||||||||||||||
Other comprehensive income not to be reclassified to profit or loss in subsequent periods | ||||||||||||||||||||||||||||||||
Actuarial gains/(losses) on the post-retirement benefit obligations, net of tax | 37 | 124 | (410 | ) | 196 | |||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||
Net other comprehensive income not to be reclassified to profit or loss in subsequent periods | 124 | (410 | ) | 196 | ||||||||||||||||||||||||||||
(Loss)/earnings per share attributable to the equity holders of the Company | ||||||||||||||||||||||||||||||||
– Basic and diluted (RMB) | 15 | (0.72 | ) | 0.21 | 0.19 | |||||||||||||||||||||||||||
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|
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| |||||||||||||||||||||||||||
Other comprehensive income, net of tax | 284 | (264 | ) | 300 | ||||||||||||||||||||||||||||
|
|
| ||||||||||||||||||||||||||||||
Total comprehensive income for the year | 7,094 | 4,691 | 5,343 | |||||||||||||||||||||||||||||
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| ||||||||||||||||||||||||||||||
CONSOLIDATED STATEMENTSTATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
For the years ended December 31, 2017, 20162020, 2019 and 2015
(Amounts in millions except for per share data)
| 2017 | 2016 | 2015 | ||||||||||||||
| Note | RMB million | RMB million | RMB million | |||||||||||||
Profit attributable to: | ||||||||||||||||
Equity holders of the Company | 6,342 | 4,498 | 4,537 | |||||||||||||
Non-controlling interests | 468 | 457 | 506 | |||||||||||||
|
|
|
|
|
| |||||||||||
Profit for the year | 6,810 | 4,955 | 5,043 | |||||||||||||
|
|
|
|
|
| |||||||||||
Total comprehensive income attributable to: | ||||||||||||||||
Equity holders of the Company | 6,619 | 4,237 | 4,834 | |||||||||||||
Non-controlling interests | 475 | 454 | 509 | |||||||||||||
|
|
|
|
|
| |||||||||||
Total comprehensive income for the year | 7,094 | 4,691 | 5,343 | |||||||||||||
|
|
|
|
|
| |||||||||||
Earnings per share attributable to the equity holders of the Company during the year | ||||||||||||||||
– Basic and diluted (RMB) | 15 | 0.44 | 0.33 | 0.35 | ||||||||||||
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|
|
|
| |||||||||||
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As of December 31, 2017 and 20162018
(Amounts in millions except for per share data)
| December 31 | December 31 | |||||||||||
| 2017 | 2016 | |||||||||||
| Notes | RMB million | RMB million | ||||||||||
Non-current assets | ||||||||||||
Intangible assets | 17 | 11,596 | 11,624 | |||||||||
Property, plant and equipment | 18 | 166,856 | 153,180 | |||||||||
Investment properties | 19 | 302 | 321 | |||||||||
Prepayments for land use right | 20 | 1,717 | 2,064 | |||||||||
Advanced payments on acquisition of aircraft | 21 | 24,752 | 23,357 | |||||||||
Investments in associates | 22 | 1,654 | 1,536 | |||||||||
Investments in joint ventures | 23 | 557 | 524 | |||||||||
Available-for-sale investments | 24 | 800 | 645 | |||||||||
Othernon-current assets | 25 | 2,927 | 2,969 | |||||||||
Deferred tax assets | 38 | 122 | 79 | |||||||||
Derivative financial instruments | 39 | 151 | 137 | |||||||||
|
|
|
| |||||||||
| 211,434 | 196,436 | |||||||||||
|
|
|
| |||||||||
Current assets | ||||||||||||
Flight equipment spare parts | 26 | 2,185 | 2,248 | |||||||||
Trade and notes receivables | 27 | 2,124 | 2,660 | |||||||||
Prepayments and other receivables | 28 | 9,314 | 9,231 | |||||||||
Derivative financial instruments | 39 | — | 11 | |||||||||
Restricted bank deposits and short-term bank deposits | 29 | 51 | 43 | |||||||||
Cash and cash equivalents | 30 | 4,605 | 1,695 | |||||||||
Assets of a disposal group classified as held for sale | 16 | 14 | — | |||||||||
|
|
|
| |||||||||
| 18,293 | 15,888 | |||||||||||
|
|
|
| |||||||||
Current liabilities | ||||||||||||
Sales in advance of carriage | 7,043 | 7,677 | ||||||||||
Trade and bills payables | 31 | 3,184 | 3,376 | |||||||||
Other payables and accruals | 32 | 19,864 | 20,250 | |||||||||
Current portion of obligations under finance leases | 33 | 9,241 | 6,447 | |||||||||
Current portion of borrowings | 34 | 39,090 | 28,842 | |||||||||
Income tax payable | 593 | 304 | ||||||||||
Current portion of provision for return condition checks for aircraft under operating leases | 35 | 981 | 1,175 | |||||||||
Derivative financial instruments | 39 | 324 | 11 | |||||||||
Liabilities directly associated with the assets classified as held for sale | 16 | 8 | — | |||||||||
|
|
|
| |||||||||
| 80,328 | 68,082 | |||||||||||
|
|
|
| |||||||||
Net current liabilities | (62,035 | ) | (52,194 | ) | ||||||||
|
|
|
| |||||||||
Total assets less current liabilities | 149,399 | 144,242 | ||||||||||
|
|
|
| |||||||||
| 2020 | 2019 | 2018 | ||||||||||||||
| Notes | RMB million | RMB million | RMB million | |||||||||||||
Other comprehensive income | ||||||||||||||||
Other comprehensive income that may be reclassified to profit or loss in subsequent periods: | ||||||||||||||||
Cash flow hedges | ||||||||||||||||
Effective portion of changes in fair value of hedging instruments arising during the year | 153 | 40 | 64 | |||||||||||||
Reclassification adjustments for losses/(gains) included in the consolidated statement of profit or loss | 57 | (186 | ) | (7 | ) | |||||||||||
Income tax effect | (52 | ) | 36 | (14 | ) | |||||||||||
|
|
|
|
|
| |||||||||||
| 158 | (110 | ) | 43 | |||||||||||||
|
|
|
|
|
| |||||||||||
Net other comprehensive income that may be reclassified to profit or loss in subsequent periods | 158 | (110 | ) | 43 | ||||||||||||
|
|
|
|
|
| |||||||||||
Other comprehensive income that will not be reclassified to profit or loss in subsequent periods: | ||||||||||||||||
Fair value changes of equity investments designated at fair value through other comprehensive income, net of tax | (209 | ) | 16 | (247 | ) | |||||||||||
Share of other comprehensive income of an associate, net of tax | 20 | 2 | 7 | (24 | ) | |||||||||||
Actuarial (losses)/gains on the post-retirement benefit obligations, net of tax | 38 | (61 | ) | 40 | (115 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Net other comprehensive income that will not be reclassified to profit or loss in subsequent periods | (268 | ) | 63 | (386 | ) | |||||||||||
|
|
|
|
|
| |||||||||||
Other comprehensive income for the year, net of tax | (110 | ) | (47 | ) | (343 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Total comprehensive income for the year | (12,671 | ) | 3,433 | 2,587 | ||||||||||||
|
|
|
|
|
| |||||||||||
Total comprehensive income attributable to: | ||||||||||||||||
Equity holders of the Company | (11,940 | ) | 3,141 | 2,358 | ||||||||||||
Non-controlling interests | (731 | ) | 292 | 229 | ||||||||||||
|
|
|
|
|
| |||||||||||
| (12,671 | ) | 3,433 | 2,587 | |||||||||||||
|
|
|
|
|
| |||||||||||
CONSOLIDATED STATEMENTSTATEMENTS OF FINANCIAL POSITION
As of December 31, 20172020 and 20162019
(Amounts in millions except for per share data)
| Notes | 2020 RMB million | 2019 RMB million | ||||||||||
Non-current assets | ||||||||||||
Property, plant and equipment | 16 | 101,043 | 99,437 | |||||||||
Investment properties | 17 | 166 | 653 | |||||||||
Right-of-use assets | 18 | (a) | 118,210 | 128,704 | ||||||||
Intangible assets | 19 | 11,718 | 11,698 | |||||||||
Advanced payments on acquisition of aircraft | 17,240 | 16,222 | ||||||||||
Investments in associates | 20 | 1,793 | 1,977 | |||||||||
Investments in joint ventures | 21 | 594 | 627 | |||||||||
Equity investments designated at fair value through other comprehensive income | 22 | 995 | 1,274 | |||||||||
Derivative financial instruments | 23 | 37 | 27 | |||||||||
Other non-current assets | 24 | 5,345 | 3,970 | |||||||||
Deferred tax assets | 25 | 5,011 | 853 | |||||||||
|
|
|
| |||||||||
| 262,152 | 265,442 | |||||||||||
|
|
|
| |||||||||
Current assets | ||||||||||||
Flight equipment spare parts | 26 | 2,054 | 2,407 | |||||||||
Trade receivables | 27 | 1,124 | 1,717 | |||||||||
Financial asset at fair value through profit or loss | 28 | 95 | 121 | |||||||||
Prepayments and other receivables | 29 | 11,198 | 14,093 | |||||||||
Derivative financial instruments | 23 | 362 | 43 | |||||||||
Restricted bank deposits | 30 | 12 | 6 | |||||||||
Cash and cash equivalents | 31 | 7,651 | 1,350 | |||||||||
Assets classified as held for sale | 32 | 2 | 6 | |||||||||
|
|
|
| |||||||||
| 22,498 | 19,743 | |||||||||||
|
|
|
| |||||||||
Current liabilities | ||||||||||||
Trade and bills payables | 33 | 3,220 | 3,877 | |||||||||
Contract liabilities | 34 | 3,671 | 10,178 | |||||||||
Other payables and accruals | 35 | 21,619 | 22,602 | |||||||||
Current portion of lease liabilities | 18 | (b) | 14,073 | 15,590 | ||||||||
Current portion of borrowings | 36 | 57,150 | 25,233 | |||||||||
Income tax payable | 48 | 351 | ||||||||||
Current portion of provision for lease return costs for aircraft and engines | 37 | 24 | 519 | |||||||||
Derivative financial instruments | 23 | 3 | 13 | |||||||||
|
|
|
| |||||||||
| 99,808 | 78,363 | |||||||||||
|
|
|
| |||||||||
Net current liabilities | (77,310 | ) | (58,620 | ) | ||||||||
|
|
|
| |||||||||
Total assets less current liabilities | 184,842 | 206,822 | ||||||||||
|
|
|
| |||||||||
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As of December 31, 2020 and 2019
(Amounts in millions except for per share data)
| December 31 | December 31 | |||||||||||||||||||||||
| 2017 | 2016 | |||||||||||||||||||||||
| Notes | RMB million | RMB million | Notes | 2020 RMB million | 2019 RMB million | |||||||||||||||||||
Non-current liabilities | ||||||||||||||||||||||||
Obligations under finance leases | 33 | 57,627 | 54,594 | |||||||||||||||||||||
Lease liabilities | 18 | (b) | 82,178 | 94,685 | ||||||||||||||||||||
Borrowings | 34 | 24,711 | 27,890 | 36 | 30,745 | 26,604 | ||||||||||||||||||
Provision for return condition checks for aircraft under operating leases | 35 | 2,038 | 2,495 | |||||||||||||||||||||
Provision for lease return costs for aircraft and engines | 37 | 6,966 | 6,659 | |||||||||||||||||||||
Contract liabilities | 34 | 1,320 | 1,499 | |||||||||||||||||||||
Derivative financial instruments | 23 | 138 | 10 | |||||||||||||||||||||
Post-retirement benefit obligations | 38 | 2,373 | 2,419 | |||||||||||||||||||||
Other long-term liabilities | 36 | 3,724 | 3,874 | 39 | 1,955 | 2,278 | ||||||||||||||||||
Post-retirement benefit obligations | 37 | 2,502 | 2,890 | |||||||||||||||||||||
Deferred tax liabilities | 38 | 18 | 86 | 25 | 13 | 22 | ||||||||||||||||||
Derivative financial instruments | 39 | 1 | 47 | |||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
| 90,621 | 91,876 | 125,688 | 134,176 | |||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Net assets | 58,778 | 52,366 | 59,154 | 72,646 | ||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Equity | ||||||||||||||||||||||||
Equity attributable to the equity holders of the Company | ||||||||||||||||||||||||
– Share capital | 41 | 14,467 | 14,467 | 40 | 16,379 | 16,379 | ||||||||||||||||||
– Reserves | 42 | 40,893 | 34,983 | 41 | 39,870 | 52,629 | ||||||||||||||||||
|
|
|
| |||||||||||||||||||||
| 55,360 | 49,450 | 56,249 | 69,008 | |||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Non-controlling interests | 3,418 | 2,916 | 2,905 | 3,638 | ||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Total equity | 58,778 | 52,366 | 59,154 | 72,646 | ||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
CONSOLIDATED STATEMENTSTATEMENTS OF CHANGES IN EQUITY
For the years ended December 31, 2017, 20162020, 2019 and 20152018
(Amounts in millions except for per share data)
| Attributable to equity holders of the Company | Attributable to the equity holders of the Company | |||||||||||||||||||||||||||||||||||||||||||||||
| Share | Other | Retained | Non-controlling | Total | Share capital RMB million | Other reserves RMB million | Retained profits RMB million | Total RMB million | Non-controlling interests RMB million | Total equity RMB million | ||||||||||||||||||||||||||||||||||||||
At January 1, 2018 | 14,467 | 26,688 | 14,205 | 55,360 | 3,418 | 58,778 | ||||||||||||||||||||||||||||||||||||||||||
Effect of adoption of IFRS 9 | — | 667 | (22 | ) | 645 | — | 645 | |||||||||||||||||||||||||||||||||||||||||
Effect of adoption of IFRS 15 | — | — | 383 | 383 | 3 | 386 | ||||||||||||||||||||||||||||||||||||||||||
| capital | reserves | profits | Subtotal | interests | equity |
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
At January 1, 2018 | 14,467 | 27,355 | 14,566 | 56,388 | 3,421 | 59,809 | ||||||||||||||||||||||||||||||||||||||||||
| RMB million | RMB million | RMB million | RMB million | RMB million | RMB million |
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Balance at January 1 2015 | 12,674 | 16,485 | 815 | 29,974 | 1,797 | 31,771 | ||||||||||||||||||||||||||||||||||||||||||
Profit for the year | — | — | 4,537 | 4,537 | 506 | 5,043 | — | — | 2,698 | 2,698 | 232 | 2,930 | ||||||||||||||||||||||||||||||||||||
Other comprehensive income | — | 297 | — | 297 | 3 | 300 | — | (340 | ) | — | (340 | ) | (3 | ) | (343 | ) | ||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income for the year | — | 297 | 4,537 | 4,834 | 509 | 5,343 | — | (340 | ) | 2,698 | 2,358 | 229 | 2,587 | |||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Issue of shares | 466 | 2,389 | — | 2,855 | — | 2,855 | ||||||||||||||||||||||||||||||||||||||||||
Acquisition ofnon-controlling interests | — | (252 | ) | — | (252 | ) | 252 | — | ||||||||||||||||||||||||||||||||||||||||
Dividends paid tonon-controlling interests | — | — | — | — | (38 | ) | (38 | ) | ||||||||||||||||||||||||||||||||||||||||
Final 2017 dividend | — | — | (738 | ) | (738 | ) | — | (738 | ) | |||||||||||||||||||||||||||||||||||||||
Dividend paid to non-controlling interests | — | — | — | — | (57 | ) | (57 | ) | ||||||||||||||||||||||||||||||||||||||||
Transfer from retained profits | — | 184 | (184 | ) | — | — | — | — | 30 | (30 | ) | — | — | — | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Balance at December 31 2015 | 13,140 | 19,103 | * | 5,168 | * | 37,411 | 2,520 | 39,931 | ||||||||||||||||||||||||||||||||||||||||
At December 31, 2018 | 14,467 | 27,045 | * | 16,496 | * | 58,008 | 3,593 | 61,601 | ||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
At January 1, 2019 | 14,467 | 27,045 | * | 16,496 | * | 58,008 | 3,593 | 61,601 | ||||||||||||||||||||||||||||||||||||||||
Effect of adoption of IFRS16 | — | — | (1,595 | ) | (1,595 | ) | (163 | ) | (1,758 | ) | ||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
At January 1, 2019 | 14,467 | 27,045 | 14,901 | 56,413 | 3,430 | 59,843 | ||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Profit for the year | — | — | 4,498 | 4,498 | 457 | 4,955 | — | — | 3,192 | 3,192 | 288 | 3,480 | ||||||||||||||||||||||||||||||||||||
Other comprehensive income | — | (261 | ) | — | (261 | ) | (3 | ) | (264 | ) | — | (51 | ) | — | (51 | ) | 4 | (47 | ) | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Total comprehensive income for the year | — | (261 | ) | 4,498 | 4,237 | 454 | 4,691 | — | (51 | ) | 3,192 | 3,141 | 292 | 3,433 | ||||||||||||||||||||||||||||||||||
Issue of shares | 1,327 | 7,213 | — | 8,540 | — | 8,540 | 1,912 | 7,530 | — | 9,442 | — | 9,442 | ||||||||||||||||||||||||||||||||||||
Interim 2016 dividend | — | — | (738 | ) | (738 | ) | — | (738 | ) | |||||||||||||||||||||||||||||||||||||||
Dividends paid tonon-controlling interests | — | — | — | — | (58 | ) | (58 | ) | ||||||||||||||||||||||||||||||||||||||||
Dividend paid to non-controlling interests | — | — | — | — | (84 | ) | (84 | ) | ||||||||||||||||||||||||||||||||||||||||
Transfer from retained profits | — | 144 | (144 | ) | — | — | — | — | 212 | (212 | ) | — | — | — | ||||||||||||||||||||||||||||||||||
Others | — | 11 | 1 | 12 | — | 12 | ||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Balance at December 31 2016 | 14,467 | 26,199 | * | 8,784 | * | 49,450 | 2,916 | 52,366 | ||||||||||||||||||||||||||||||||||||||||
At December 31, 2019 | 16,379 | 34,747 | * | 17,882 | * | 69,008 | 3,638 | 72,646 | ||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Profit for the year | — | — | 6,342 | 6,342 | 468 | 6,810 | ||||||||||||||||||||||||||||||||||||||||||
Loss for the year | — | — | (11,836 | ) | (11,836 | ) | (725 | ) | (12,561 | ) | ||||||||||||||||||||||||||||||||||||||
Other comprehensive income | — | 277 | — | 277 | 7 | 284 | — | (104 | ) | — | (104 | ) | (6 | ) | (110 | ) | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Total comprehensive income for the year | — | 277 | 6,342 | 6,619 | 475 | 7,094 | — | (104 | ) | (11,836 | ) | (11,940 | ) | (731 | ) | (12,671 | ) | |||||||||||||||||||||||||||||||
Final 2016 dividend | — | — | (709 | ) | (709 | ) | — | (709 | ) | |||||||||||||||||||||||||||||||||||||||
Disposal of a subsidiary (note 43) | — | — | — | — | 87 | 87 | ||||||||||||||||||||||||||||||||||||||||||
Dividends paid tonon-controlling interests | — | — | — | — | (60 | ) | (60 | ) | ||||||||||||||||||||||||||||||||||||||||
Transfer from retained profits | — | 212 | (212 | ) | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Final 2019 dividend | — | — | (819 | ) | (819 | ) | — | (819 | ) | |||||||||||||||||||||||||||||||||||||||
Dividend paid to non-controlling interests | — | — | — | — | (2 | ) | (2 | ) | ||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Balance at December 31 2017 | 14,467 | 26,688 | * | 14,205 | * | 55,360 | 3,418 | 58,778 | ||||||||||||||||||||||||||||||||||||||||
At December 31, 2020 | 16,379 | 34,643 | * | 5,227 | * | 56,249 | 2,905 | 59,154 | ||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
| * | As at December 31, 2020, these reserve accounts comprise the consolidated reserves of |
CONSOLIDATED STATEMENTSTATEMENTS OF CASH FLOWS
For the years ended December 31, 2017, 20162020, 2019 and 20152018
(Amounts in millions except for per share data)
| 2017 | 2016 | 2015 | ||||||||||||||||||||||||||||||
| Notes | RMB million | RMB million | RMB million | Note | 2020 RMB million | 2019 RMB million | 2018 RMB million | |||||||||||||||||||||||||
Cash flows from operating activities | ||||||||||||||||||||||||||||||||
Cash generated from operations | 45(a) | 21,108 | 26,154 | 25,535 | 43 | (a) | 1,480 | 30,137 | 24,047 | |||||||||||||||||||||||
Income tax paid | (1,536 | ) | (1,261 | ) | (1,210 | ) | (269 | ) | (1,165 | ) | (1,709 | ) | ||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
Net cash flows from operating activities | 19,572 | 24,893 | 24,325 | 1,211 | 28,972 | 22,338 | ||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
Cash flows from investing activities | ||||||||||||||||||||||||||||||||
Additions to property, plant and equipment | (7,796 | ) | (21,533 | ) | (8,609 | ) | ||||||||||||||||||||||||||
Additions to prepayments for land use right | (8 | ) | (86 | ) | (82 | ) | ||||||||||||||||||||||||||
Additions to intangible assets | 17 | (126 | ) | (232 | ) | (109 | ) | |||||||||||||||||||||||||
Advanced payments on acquisition of aircraft | (16,759 | ) | (16,864 | ) | (24,772 | ) | ||||||||||||||||||||||||||
Advanced from disposal of prepayments for land use right | 269 | — | — | |||||||||||||||||||||||||||||
Proceeds from disposal of assets classified as held for sale | — | 518 | 4,227 | |||||||||||||||||||||||||||||
Proceeds from disposal of available for sale investments | 5 | — | 35 | |||||||||||||||||||||||||||||
Additions to property, plant and equipment and other non-current assets | (7,247 | ) | (7,589 | ) | (26,194 | ) | ||||||||||||||||||||||||||
Investments in joint ventures | — | (110 | ) | (16 | ) | |||||||||||||||||||||||||||
(Net) proceeds from disposal of a subsidiary | — | (90 | ) | (11 | ) | |||||||||||||||||||||||||||
Proceeds from disposal of property, plant and equipment | 1,043 | 690 | 1,294 | 894 | 157 | 5,493 | ||||||||||||||||||||||||||
Proceeds from disposal of prepayments for land use right | 3 | 56 | 47 | |||||||||||||||||||||||||||||
Proceeds from disposal of intangible asets | 1 | — | — | |||||||||||||||||||||||||||||
Decrease/(increase) in restricted and short-term bank deposits | 3 | (1 | ) | 3 | ||||||||||||||||||||||||||||
Increase in shareholding in associates | (64 | ) | — | (413 | ) | |||||||||||||||||||||||||||
Proceeds from disposal of an associate | 12 | 12 | — | |||||||||||||||||||||||||||||
Proceeds from novation of purchase rights | — | 2,366 | 7,483 | |||||||||||||||||||||||||||||
Proceeds from disposal of intangible assets | 5 | 2 | 1 | |||||||||||||||||||||||||||||
Proceeds from disposal of an equity investment | — | 5 | — | |||||||||||||||||||||||||||||
Proceeds from disposal of prepayments for land use rights | — | — | 158 | |||||||||||||||||||||||||||||
Interest received | 111 | 96 | 66 | — | — | 71 | ||||||||||||||||||||||||||
Dividends received | 97 | 164 | 92 | 100 | 241 | 252 | ||||||||||||||||||||||||||
Proceeds from disposal of interest in a subsidiary | 1,897 | — | 49 | |||||||||||||||||||||||||||||
Repayment of loans from an associate | — | — | 372 | |||||||||||||||||||||||||||||
Settlement relating to derivative financial instruments | (28 | ) | 104 | 1 | ||||||||||||||||||||||||||||
Loan to a joint venture | (7 | ) | — | (20 | ) | |||||||||||||||||||||||||||
Proceeds from repayment of loans to a joint venture | — | 15 | 2 | |||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
Net cash flows used in investing activities | (21,312 | ) | (37,180 | ) | (27,800 | ) | (6,283 | ) | (4,899 | ) | (12,780 | ) | ||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
Cash flows from financing activities | ||||||||||||||||||||||||||||||||
Proceeds from issue of shares | — | 8,540 | 2,855 | — | 9,442 | — | ||||||||||||||||||||||||||
Proceeds from draw-down of short-term bank loans | 33,629 | 39,159 | 26,916 | 28,883 | 6,986 | 19,144 | ||||||||||||||||||||||||||
Proceeds from draw-down of long-term bank loans | 10,823 | 300 | 8,000 | |||||||||||||||||||||||||||||
Proceeds from issuance of short-term debentures | 29,000 | 47,500 | 21,500 | 77,200 | 39,000 | 31,000 | ||||||||||||||||||||||||||
Proceeds from issuance of long-term bonds | 2,450 | 12,526 | — | |||||||||||||||||||||||||||||
Proceeds from draw-down of long-term bank loans | — | 7,518 | 11,643 | |||||||||||||||||||||||||||||
Proceeds from issuance of long-term debentures and bonds | 1,998 | 7,755 | 2,938 | |||||||||||||||||||||||||||||
Proceeds from draw-down of other financing activities | 12,320 | 19,027 | 12,929 | — | — | 10,693 | ||||||||||||||||||||||||||
Repayments of short-term debentures | (36,000 | ) | (46,000 | ) | (10,000 | ) | ||||||||||||||||||||||||||
Repayments of short-term bank loans | (18,383 | ) | (36,728 | ) | (34,767 | ) | (9,130 | ) | (12,868 | ) | (36,066 | ) | ||||||||||||||||||||
Repayments of long-term bank loans | (3,246 | ) | (28,803 | ) | (10,540 | ) | (1,948 | ) | (4,033 | ) | (7,592 | ) | ||||||||||||||||||||
Repayments of long-term bonds | — | (5,497 | ) | — | ||||||||||||||||||||||||||||
Principal repayments of finance lease obligations | (10,587 | ) | (8,606 | ) | (6,350 | ) | ||||||||||||||||||||||||||
Repayments of short-term debentures | (69,200 | ) | (35,000 | ) | (26,500 | ) | ||||||||||||||||||||||||||
Repayments of long-term debentures and bonds | (2,453 | ) | (5,567 | ) | — | |||||||||||||||||||||||||||
Repayments of principal of lease liabilities | (18,439 | ) | (23,895 | ) | — | |||||||||||||||||||||||||||
Repayments of principal of finance lease obligations | — | — | (9,629 | ) | ||||||||||||||||||||||||||||
Interest paid | (3,706 | ) | (3,206 | ) | (3,065 | ) | (5,482 | ) | (5,494 | ) | (4,359 | ) | ||||||||||||||||||||
Settlement relating to derivative financial instruments | (4 | ) | 82 | (392 | ) | |||||||||||||||||||||||||||
Dividends paid | (709 | ) | (738 | ) | — | (819 | ) | — | (738 | ) | ||||||||||||||||||||||
Dividends paid tonon-controlling interests of subsidiaries | (60 | ) | (58 | ) | (38 | ) | (3 | ) | (83 | ) | (57 | ) | ||||||||||||||||||||
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Net cash flows from financing activities | 4,708 | 4,634 | 11,083 | |||||||||||||||||||||||||||||
Net cash flows from/(used in) financing activities | 11,426 | (23,375 | ) | (13,558 | ) | |||||||||||||||||||||||||||
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Net increase/(decrease) in cash and cash equivalents | Net increase/(decrease) in cash and cash equivalents |
| 2,968 | (7,653 | ) | 7,608 | 6,354 | 698 | (4,000 | ) | ||||||||||||||||||||||
Cash and cash equivalents at beginning of year | 1,695 | 9,080 | 1,355 | 1,350 | 646 | 4,616 | ||||||||||||||||||||||||||
Effect of foreign exchange rate changes | (47 | ) | 268 | 117 | ||||||||||||||||||||||||||||
Effect of foreign exchange rate changes, net | (53 | ) | 6 | 30 | ||||||||||||||||||||||||||||
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Cash and cash equivalents at December 31 | 30 | 4,616 | 1,695 | 9,080 | 7,651 | 1,350 | 646 | |||||||||||||||||||||||||
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(AmountsPrepared in millions except for per share data)accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
CORPORATE AND GROUP INFORMATION |
China Eastern Airlines Corporation Limited (the “Company”), a joint stock company limited by shares, was established in the People’s Republic of China (the “PRC”) on April 14, April 1995. The address of the Company’s registered office is 66 Airport Street, Pudong International Airport, Shanghai, the PRC. The Company and its subsidiaries (together, the “Group”) are principally engaged in the operation of civil aviation, including the provision of passenger, cargo, mail delivery tour operations and other extended transportation services.
In the opinion of the directors, the holding company and ultimate holding company of the Company is China Eastern Air Holding Company Limited (“CEA Holding”), formerly named as China Eastern Air Holding Company, a state-owned enterprise established in the PRC.
The A shares, H shares and American Depositary Shares are listed on the Shanghai Stock Exchange, The Stock Exchange of Hong Kong Limited and The New York Stock Exchange, respectively.
These financial statements were approved and authorized for issue by the Company’s Board of Directors (the “Board”) on 25 April 2018.28, 2021.
Information about subsidiaries
Particulars of the Company’s principal subsidiaries at the end of the reporting period are as follows:
| Name | Place and date of incorporation/ registration and | Issued ordinary/ registered share | Percentage of equity attributable to the Company | Principal activities | ||||||||||||
| place of business | capital | Direct | Indirect | |||||||||||||
| million | ||||||||||||||||
China Eastern Airlines Jiangsu Co., Ltd. (“CEA Jiangsu”) | PRC/Mainland China 7 April 1993 | RMB | 2,000 | 62.56 | % | — | Provision of airline services | |||||||||
China Eastern Airlines Wuhan Co., Ltd. (“CEA Wuhan”) | PRC/Mainland China 16 August 2002 | RMB | 1,750 | 60 | % | — | Provision of airline services | |||||||||
Shanghai Eastern Flight Training Co., Ltd. (“Shanghai Flight Training”) | PRC/Mainland China 18 December 1995 | RMB | 694 | 100 | % | — | Provision of flight training services | |||||||||
Shanghai Airlines Co., Ltd. (“Shanghai Airlines”) | PRC/Mainland China 16 March 2010 | RMB | 500 | 100 | % | — | Provision of airline services | |||||||||
China Eastern Airlines Technology Co., Ltd. (“Eastern Technology”) | PRC/Mainland China 19 November 2014 | RMB | 4,300 | 100 | % | — | Provision of airline maintenance services | |||||||||
China Eastern Business Jet Co., Ltd. | PRC/Mainland China 27 September 2008 | RMB | 50 | 100 | % | — | Provision of airlines consultation services | |||||||||
China Eastern Airlines Yunnan Co., Ltd. (“CEA Yunnan”) | PRC/Mainland China 2 August 2011 | RMB | 3,662 | 90.36 | % | — | Provision of airline services | |||||||||
Eastern Air Overseas (Hong Kong) Co., Ltd. (“Eastern Air Overseas”) | Hong Kong 10 June 2011 | HKD | 280 | 100 | % | — | Provision of import and export, investment, leasing and consultation services | |||||||||
China United Airlines Co., Ltd. (“China United Airlines”) | PRC/Mainland China 21 September 1984 | RMB | 1,320 | 100 | % | — | Provision of airline services | |||||||||
Eastern Airlines Hotel Co., Ltd. | PRC/Mainland China 18 March 1998 | RMB | 70 | 100 | % | — | Provision of hotel services primarily to crew | |||||||||
Shanghai Airlines Tours International (Group) Co., Ltd. (“Shanghai Airlines Tours”) | PRC/Mainland China 29 August 1992 | RMB | 50 | 100 | % | — | Tour operations, travel and air ticketing agency and transportation | |||||||||
China Eastern Airlines Application Development Center Co., Ltd. (“Application Development Center”) | PRC/Mainland China 21 November 2011 | RMB | 498 | 100 | % | — | Provision of research and development of technology and products in the field of aviation | |||||||||
China Eastern AirlinesE-Commerce Co., Ltd. (“EasternE-Commerce”) | PRC/Mainland China 1 December 2014 | RMB | 50 | 100 | % | — | E-commerce platform and ticket agent | |||||||||
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
| Place and date of incorporation/ registration and | Issued ordinary/ registered share | Percentage of equity attributable to the Company | ||||||||||||
| Name | place of business | capital | Direct | Indirect | Principal activities | |||||||||
| million | ||||||||||||||
China Eastern Airlines Jiangsu Co., Ltd. (“CEA Jiangsu”) | PRC/Mainland China April 7, 1993 | RMB2,000 | 62.56 | % | — | Provision of airline services | ||||||||
China Eastern Airlines Wuhan Co., Ltd. (“CEA Wuhan”) | PRC/Mainland China August 16, 2002 | RMB1,750 | 60 | % | — | Provision of airline services | ||||||||
Shanghai Eastern Flight Training Co., Ltd. (“Shanghai Flight Training”) | PRC/Mainland China December 18, 1995 | RMB694 | 100 | % | — | Provision of flight training services | ||||||||
Shanghai Airlines Co., Ltd. (“Shanghai Airlines”) | PRC/Mainland China March 16, 2010 | RMB500 | 100 | % | — | Provision of airline services | ||||||||
China Eastern Airlines Technology Co., Ltd. (“Eastern Technology”) | PRC/Mainland China November 19, 2014 | RMB4,300 | 100 | % | — | Provision of airline maintenance services | ||||||||
One two three Airlines Co., Ltd. (“OTT Airlines”) (Originally named Eastern Business Airlines Co., Ltd.) | PRC/Mainland China September 27, 2008 | RMB1,500 | 100 | % | — | Provision of business aviation services | ||||||||
China Eastern Airlines Yunnan Co., Ltd. (“CEA Yunnan”) | PRC/Mainland China August 2, 2011 | RMB3,662 | 90.36 | % | — | Provision of airline services | ||||||||
Eastern Air Overseas (Hong Kong) Co., Ltd. (“Eastern Air Overseas”) | Hong Kong June 10, 2011 | HKD280 | 100 | % | — | Provision of import and export, investment, leasing and consultation services | ||||||||
China United Airlines Co., Ltd. (“China United Airlines”) | PRC/Mainland China September 21, 1984 | RMB1,320 | 100 | % | — | Provision of airline services | ||||||||
Eastern Airlines Hotel Co., Ltd. | PRC/Mainland China March 18, 1998 | RMB70 | 100 | % | — | Provision of hotel services primarily to crew | ||||||||
China Eastern Airlines Application Development Center Co., Ltd. (“Application Development Center”) | PRC/Mainland China November 21, 2011 | RMB498 | 100 | % | — | Provision of research and development of technology and products in the field of aviation | ||||||||
China Eastern Airlines E-Commerce Co., Ltd. (“Eastern E-Commerce”) | PRC/Mainland China December 1, 2014 | RMB50 | 100 | % | — | E-commerce platform and ticket agent | ||||||||
Information about subsidiaries (cont’d)
The above table lists the subsidiaries of the Company which, in the opinion of the directors, principally affected the results for the yearyears ended December 31, 2020, 2019 and 2018 or formed a substantial portion of the net assets of the Group. To give details of other subsidiaries would, in the opinion of the directors, result in particulars of excessive length.
All of the subsidiaries of the Company listed above are limited liability companies.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
2.1 | BASIS OF PREPARATION |
These financial statements have been prepared in accordance with all applicable International Financial Reporting Standards (“IFRSs”) issued by the International Accounting Standards Board (“IASB”) and the disclosure requirements of the Hong Kong Companies Ordinance. They have been prepared under the historical cost convention, except for certainavailable-for-saleequity investments designated at fair value through other comprehensive income, financial assets at fair value through profit or loss and derivative financial instruments which have been measured at fair value. Disposal groups held for sale are stated at the lower of their carrying amounts and fair values less costs to sell as further explained in note 3.Note 2.4. These financial statements are presented in Renminbi (“RMB”) and all values are rounded to the nearest million except when otherwise indicated.
Basis of consolidation
The consolidated financial statements include the financial statements of the Company and its subsidiaries.subsidiaries for the years ended December 31, 2020, 2019 and 2018. A subsidiary is an entity (including a structured entity), directly or indirectly, controlled by the Company. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee (i.e., existing rights that give the Group the current ability to direct the relevant activities of the investee).
When the Company has, directly or indirectly, less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:
(a) | the contractual arrangement with the other vote holders of the investee; |
(b) | rights arising from other contractual arrangements; and |
(c) | the Group’s voting rights and potential voting rights. |
The financial statements of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies. The results of subsidiaries are consolidated from the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases.
Profit or loss and each component of other comprehensive income are attributed to the equity holdersowners of the Companyparent of the Group and to thenon-controlling interests, even if this results in thenon-controlling interests having a deficit balance. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.
The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control described above. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
If the Group loses control over a subsidiary, it derecognizes (i) the assets (including goodwill) and liabilities of the subsidiary, (ii) the carrying amount of anynon-controlling interest and (iii) the cumulative translation differences recorded in equity; and recognizes (i) the fair value of the consideration received, (ii) the fair value of any investment retained and (iii) any resulting surplus or deficit in profit or loss. The Group’s share of components previously recognized in other comprehensive income is reclassified to profit or loss or retained profits, as appropriate, on the same basis as would be required if the Group had directly disposed of the related assets or liabilities.
Going concern
As at December 31, 2017,2020, the Group’s current liabilities exceeded its current assets by approximately RMB62.04RMB77.31 billion. In preparing the financial statements, the Board conductshas conducted a detailed review over the Group’s going concern ability based on the current financial situation. The Board has considered the Group’s available sources of funds as follows:
Other available sources of financing from banks and other financial institutions given the Group’s credit history.history; and
The Group’s expected net cash inflows from operating activities in 2021.
The Board considers that the Group will be able to obtain sufficient financing to enable it to operate, as well as to meet its liabilities as and when they become due, and the capital expenditure requirements for the upcoming twelve months. Accordingly, the Board believes that it is appropriate to prepare these financial statements on a going concern basis without including any adjustments that would be required should the Company and the Group fail to continue as a going concern.
2.2 | CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES |
The Group has adopted the Conceptual Framework for Financial Reporting 2018 and the following new and revised IFRSs for the first time for the current year’s financial statements.
Amendments to IFRS 3 | Definition of a Business | |||
Amendments to IFRS 9 IAS 39 and IFRS 7 | Interest Rate Benchmark Reform | |||
Amendment to IFRS 16 | COVID-19-Related Rent Concessions (early adopted) | |||
Amendments to IAS
|
|
The nature and the impact of the amendmentsConceptual Framework for Financial Reporting 2018 and the revised IFRSs are described below:below.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 2.2 | CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES (continued) |
| (a) | Conceptual Framework for Financial Reporting 2018 (the “Conceptual Framework”) sets out a comprehensive set of concepts for financial reporting and standard setting, and provides guidance for preparers of financial statements in developing consistent accounting policies and assistance to |
| (b) | Amendments to |
| (c) | Amendments to IFRS |
| (d) | Amendment to IFRS 16 provides a practical expedient for lessees to elect not to apply lease modification accounting for rent concessions arising as a direct consequence of the COVID-19 pandemic. The practical expedient applies only to rent concessions occurring as a direct consequence of the pandemic and only if (i) the change in lease payments results in revised consideration for the lease that is substantially the same as, or less than, the consideration for the lease immediately preceding the change; (ii) any reduction in lease payments affects only payments originally due on or before June 30, 2021; and (iii) there is no substantive change to other terms and conditions of the lease. The amendment is effective for annual periods beginning on or after June 1, 2020 with earlier application permitted and shall be applied retrospectively. |
During the year ended December 31, 2020, certain monthly lease payments for the leases of the Group’s buildings, aircraft and engines have been reduced or waived by the lessors upon reducing the scale of production as a result of the pandemic and there are no other changes to the terms of the leases. The Group has early adopted the amendment on January 1, 2020 and elected not to apply lease modification accounting for all rent concessions granted by the lessors as a result of the pandemic during the year ended December 31, 2020. Accordingly, a reduction in the lease payments arising from the rent concessions of RMB3 million has been accounted for as a variable lease payment by derecognizing part of the lease liabilities and crediting to profit or loss for the year ended December 31, 2020.
| (e) | Amendments to IAS 1 and IAS 8 provide a new definition of material. The new definition states that information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements. The amendments clarify that materiality will depend on the |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(AmountsPrepared in millions except for per share data)accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
2.3 | ISSUED BUT NOT YET EFFECTIVE INTERNATIONAL FINANCIAL REPORTING STANDARDS |
The Group has not applied the following new and revised IFRSs, that have been issued but are not yet effective, in these financial statements.
| Amendments to IFRS | ||
| Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 | ||
Amendments to IFRS 10 and IAS 28 | Sale or Contribution of Assets between an Investor and its Associateor Joint Venture4 | |
| IFRS 17 | Insurance Contracts3 | |
| Amendments to IFRS 17 | Insurance Contracts3,5 | |
| Amendments to IAS | ||
| Amendments to IAS | ||
| Onerous Contracts—Cost of Fulfilling a Contract2 | ||
| Annual Improvements to IFRS Standards 2018-2020 | Amendments to IFRS 1, IFRS 9, Illustrative Examples accompanying IFRS 16, and IAS | |
| ||
|
| 1 | Effective for annual periods beginning on or after January 1, |
| 2 | Effective for annual periods beginning on or after January 1, |
| 3 | Effective for annual periods beginning on or after January 1, |
| 4 | No mandatory effective date yet determined but available for adoption |
| 5 | As a consequence of the amendments to IFRS 17 issued in June 2020, IFRS 4 was amended to extend the temporary exemption that permits insurers to apply IAS 39 rather than IFRS 9 for annual periods beginning before January 1, 2023 |
Further information about those IFRSs that are expected to be applicable to the Group is as follows:described below:
The IASB issued amendmentsAmendments to IFRS 2 in June 2016 that address three main areas: the effects of vesting conditions on the measurement of3 are intended to replace a cash-settled share-based payment transaction; the classification of a share-based payment transaction with net settlement features for withholding a certain amount in order to meet an employee’s tax obligation associated with the share-based payment; and accounting where a modificationreference to the termsprevious Framework for the Preparation and conditionsPresentation of Financial Statements with a share-based payment transaction changesreference to the Conceptual Framework for Financial Reporting issued in March 2018 without significantly changing its classification from cash-settled to equity-settled.requirements. The amendments clarify that the approach usedalso add to account for vesting conditions when measuring equity-settled share-based payments also applies to cash-settled share-based payments. The amendments introduceIFRS 3 an exception soto its recognition principle for an entity to refer to the Conceptual Framework to determine what constitutes an asset or a liability. The exception specifies that, for liabilities and contingent liabilities that would be within the scope of IAS 37 or IFRIC 21 if they were incurred separately rather than assumed in a share-based payment transaction with net share settlement features for withholding a certain amount in orderbusiness combination, an entity applying IFRS 3 should refer to meetIAS 37 or IFRIC 21 respectively instead of the employee’s tax obligation is classified in its entirety as an equity-settled share-based payment transaction when certain conditions are met.Conceptual Framework. Furthermore, the amendments clarify that ifcontingent assets do not qualify for recognition at the terms and conditions of a cash-settled share-based payment transaction are modified, withacquisition date. The Group expects to adopt the result that it becomes an equity-settled share-based payment transaction,amendments prospectively from January 1, 2022. Since the transactionamendments apply prospectively to business combinations for which the acquisition date is accounted for as an equity-settled transaction fromon or after the date of first application, the modification. On adoption, entities are requiredGroup will not be affected by these amendments on the date of transition.
Amendments to applyIFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 address issues not dealt with in the previous amendments which affect financial reporting when an existing interest rate benchmark is replaced with an alternative RFR. The Phase 2 amendments provide a practical expedient to allow the effective interest rate to be updated without adjusting the carrying amount when accounting for changes in the basis for determining the contractual cash flows of financial assets and liabilities, if the change is a direct consequence of the interest rate benchmark reform and the new basis for determining the contractual cash flows is economically equivalent to the previous basis immediately preceding the change. In addition, the amendments permit changes required by the interest rate benchmark reform to be made to hedge designations and hedge documentation without restating prior periods, but retrospective applicationthe hedging relationship being discontinued. Any gains or losses that could arise on transition are dealt with through the normal requirements of IFRS 9 to measure and recognize hedge ineffectiveness. The amendments also provide a temporary relief to entities from having to meet the separately identifiable requirement when an RFR is permitted if they electdesignated as a risk component. The relief allows an entity, upon designation of the hedge, to adopt for all three amendments and other criteria are met. The Group will adoptassume that the separately identifiable requirement is met, provided the entity reasonably expects the RFR risk component to become separately identifiable within the next 24 months. Furthermore, the amendments from 1 January 2018.require an entity to disclose additional information to enable users of financial statements to understand the effect of interest rate benchmark reform on an entity’s financial instruments and risk management strategy. The amendments are effective for annual periods beginning on or after January 1, 2021 and shall be applied retrospectively, but entities are not expectedrequired to have any significant impact onrestate the Group’s financial statements.comparative information.
In July 2014, the IASB issued the final version of IFRS 9, bringing together all phases of the financial instruments project to replace IAS 39 and all previous versions of IFRS 9. The standard introduces new requirements for classification and measurement, impairment and hedge accounting. The Group will adopt IFRS 9 from 1 January 2018. Thehad certain interest-bearing bank borrowings and lease liabilities denominated in USD, EUR and SGD based on London Interbank Offered Rate (“LIBOR”), Euro Interbank Offered Rate (“EURIBOR”) and Singapore Interbank Offered Rate (“SIBOR”) as at December 31, 2020. If those interest rates of these borrowings and lease liabilities are replaced by RFRs in a future period, the Group will not restate comparative informationapply this practical expedient upon the modification of these borrowings when the “economically equivalent” criterion is met and expects that no significant modification gain or loss will recognize any transition adjustments againstarise as a result of applying the opening balance of equity at 1 January 2018. During 2017, the Group has performed a detailed assessment of the impact of the adoption of IFRS 9. The expected impacts relateamendments to the classification and measurement and the impairment requirements and are summarized as follows: .these changes.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(AmountsPrepared in millions except for per share data)accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 2.3 | ISSUED BUT NOT YET EFFECTIVE INTERNATIONAL FINANCIAL REPORTING STANDARDS |
The Group does not expect that the adoption of IFRS 9 will have a significant impact on the classification and measurement of its financial assets. It expects to continue measuring at fair value all financial assets currently held at fair value. The equity shares innon-listed companies and part of the quoted equity shares currently held asavailable-for-sale with gains and losses recorded in other comprehensive income will, instead, be measured at fair value through profit or loss, which will increase volatility in recorded profit or loss. Other equity interest in a related party currently held asavailable-for-sale will be measured at fair value through other comprehensive income as the investments are intended to be held for the foreseeable.
Loans as well as trade receivables are held to collect contractual cash flows and are expected to give rise to cash flows representing solely payments of principal and interest. The Group analyzed the contractual cash flow characteristics of those instruments and concluded that they meet the criteria for amortized cost measurement under IFRS 9. Therefore, reclassification for these instruments is not required.
IFRS 9 requires an impairment on debt instruments recorded at amortized cost or at fair value through other comprehensive income, lease receivables, loan commitments and financial guarantee contracts that are not accounted for at fair value through profit or loss under IFRS 9, to be recorded based on an expected credit loss model either on a twelve-month basis or a lifetime basis. The Group will apply the simplified approach and record lifetime expected losses that are estimated based on the present values of all cash shortfalls over the remaining life of all of its trade receivables. Furthermore, the Group will apply the general approach and record twelve-month expected credit losses that are estimated based on the possible default events on its other receivables within the next twelve months.
The Group determined that all existing hedge relationships that are currently designated in effective hedging relationships will continue to qualify for hedge accounting under IFRS 9. As IFRS 9 does not change the general principles of how an entity accounts for effective hedges, applying the hedging requirements of IFRS 9 will not have a significant impact on the Group’s financial statements.
Amendments to IFRS 10 and IAS 28 address an inconsistency between the conflict betweenrequirements in IFRS 10 and in IAS 28 in dealing with the losssale or contribution of control of a subsidiary that is sold or contributed toassets between an investor and its associate or joint venture. The amendments clarify that therequire a full recognition of a gain or loss resulting fromwhen the sale or contribution of assets that constitute a business, as defined in IFRS 3, between an investor and its associate or joint venture is recognized in full. Any gain or loss resulting from the sale or contribution ofconstitutes a business. For a transaction involving assets that do not constitute a business, however,a gain or loss resulting from the transaction is recognized in the investor’s profit or loss only to the extent of the unrelated investors’ interestsinvestor’s interest in thethat associate or joint venture. The IASB has deferred theamendments are to be applied prospectively. The previous mandatory effective date of these amendments indefinitely, but an entity that early adoptsto IFRS 10 and IAS 28 was removed by the IASB in December 2015 and a new mandatory effective date will be determined after the completion of a broader review of accounting for associates and joint ventures. However, the amendments must apply them prospectively.are available for adoption now.
Amendments to IAS 1 clarify the requirements for classifying liabilities as current or non-current. The Group will apply these amendments when they become effective.
IFRS 15 was issued in May 2014, and amended in April 2016, and establishesspecify that if an entity’s right to defer settlement of a five-step modelliability is subject to account for revenue arising from contractsthe entity complying with customers. Under IFRS 15, revenue is recognized at an amount that reflectsspecified conditions, the considerationentity has a right to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The new revenue standard will supersede all current revenue recognition requirements under IFRS. Either a full retrospective application or a modified retrospective application is required for annual periods beginning on or after 1 January 2018. The Group will adopt the standard effective January 1, 2018 using the modified retrospective approach. During 2017, the Group has assessed the impactdefer settlement of the adoption of IFRS 15 and is currently in the process of completing the analysis. The expected impacts arising from the adoption of IFRS 15 on the Group are summarized as follows:
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
Prior to the adoption of IFRS 15, the Group uses residual method to allocate a portion of ticket sales to the mileage points issued in connection with the flights and to allocate a portion of sales to the mileage points issued under theco-branded credit card arrangements as deferred revenue, which were valued based on the estimated redemption value. Revenue is recognized when the miles have been redeemed and used or for miles that expire unusedliability at the expirationend of the reporting period if it complies with those conditions at that date. IFRS 15 requires the Group to apply relative stand-alone selling price approach to allocate a portion of sales to the mileage points issued and deferred as frequent flyer programs liabilities. The applicationClassification of a relative selling price approachliability is expectedunaffected by the likelihood that the entity will exercise its right to decrease in the frequent flyer program liabilities.
The Group charges customers to make changes to air tickets. The process of changing the customer’s itinerary generally will be regarded a contract modification under IFRS 15 instead of considered as no additional goods or services transferred to the customer in the existing accounting policy. Under IFRS 15, change fees will be recognized in passenger revenue when transportation is provided, while it is currently recognized in other revenue at the timedefer settlement of the ticket is changed.
Ticket breakage is defined asliability. The amendments also clarify the tickets for which the passenger will not use and will expire unused. Currently, the Group recognizes revenue from the ticket breakage upon expiration of the ticket. Under IFRS 15, the Group is required to estimate the ticketssituations that will expire unused and recognize revenue in proportion to the pattern of rights exercised by customers. Under IFRS 15, the Group will recognize the estimated breakage in proportion to revenue recognized for tickets acquired during the same period usingare considered a portfolio based approach.
IFRS 16 was issued in January 2016 and it replaces IAS 17Leases, IFRIC 4Determining whether an Arrangement contains a Lease,SIC-15Operating Leases-Incentives andSIC-27Evaluating the Substance of Transactions Involving the Legal Formsettlement of a Lease. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a singleon-balance sheet model similar to the accounting for finance leases under IAS 17.liability. The standard includes two recognition exemptions for lessees – leases of‘low-value’ assets and short-term leases. At the commencement date of a lease, a lessee will recognize a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., theright-of-use asset). Lessees will be required to separately recognize the interest expense on the lease liability and the depreciation expense on theright-of-use asset.
Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognize the amount of the remeasurement of the lease liability as an adjustment to theright-of-use asset. Lessor accounting under IFRS 16 is substantially unchanged from the accounting under IAS 17. Lessors will continue to classify all leases using the same classification principle as in IAS 17 and distinguish between two types of leases: operating and finance leases.
IFRS 16 also requires lessees and lessors to make more extensive disclosures than under IAS 17. IFRS 16 isamendments are effective for annual periods beginning on or after January 1, January 2019. Early2023 and shall be applied retrospectively. Earlier application is permitted, but not before an entity applies IFRS 15. A lessee can choose to apply the standard using either a full retrospective or a modified retrospective approach. The standard’s transition provisions permit certain reliefs. The Group expects to adopt IFRS 16 from 1 January 2019. Management is still assessing the impact on the financial performance and position of the Group resulting from the adoption of IFRS 16 for the annual period beginning on 1 January 2019. As disclosed in note 46(b) to the financial statements, at 31 December 2017, the Group had future minimum lease payments undernon-cancellable operating leases in aggregate of approximately RMB20,936 million. Upon adoption of IFRS 16, certain amounts included therein may need to be recognized as newright-of-use assets and lease liabilities. Further analysis, however, will be needed to determine the amount of new rights of use assets and lease liabilities to be recognized, including, but not limited to, any amounts relating to leases oflow-value assets and short term leases, other practical expedients and reliefs chosen, and new leases entered into before the date of adoption.
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
Amendments to IAS 40, issued in December 2016, clarify when an entity should transfer property, including property under construction or development, into or out of investment property. The amendments state that a change in use occurs when the property meets, or ceases to meet, the definition of investment property and there is evidence of the change in use. A mere change in management’s intentions for the use of a property does not provide evidence of a change in use. The amendments should be applied prospectively to the changes in use that occur on or after the beginning of the annual reporting period in which the entity first applies the amendments. An entity should reassess the classification of property held at the date that it first applies the amendments and, if applicable, reclassify property to reflect the conditions that exist at that date. Retrospective application is only permitted if it is possible without the use of hindsight. The Group expects to adopt the amendments prospectively from 1 January 2018.permitted. The amendments are not expected to have any significant impact on the Group’s financial statements.
Amendments to IAS 19, issued16 prohibit an entity from deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced while bringing that asset to the location and condition necessary for it to be capable of operating in February 2018, clarify when a plan amendment, curtailment or settlement occurs for defined benefit plan,the manner intended by management. Instead, an entity recognizes the proceeds from selling any entity must Determine current service cost for the remainder of the period after the plan amendment, curtailment or settlement using the actuarial assumptions used to remeasure the net defined benefit liability (asset) reflecting the benefits offered under the plansuch items, and the plan assets after that event. Determine net interest for the remaindercost of the period after the plan amendment, curtailment or settlement using: (i) the net defined benefit liability (asset) reflecting the benefits offered under the plan and the plan assets after that event; and (ii) the discount rate used to remeasure that net defined benefit liability (asset). The amendments to IAS 19 also clarify that an entity first determines any past service cost, or a gain or loss on settlement, without considering the effect of the asset ceiling. This amount is recognizedthose items, in profit or loss. An entity then determines the effect of the asset ceiling after the plan amendment, curtailment or settlement. Any change in that effect, excluding amounts included in net interest, is recognized in other comprehensive income. The amendments to IAS 19 mustare effective for annual periods beginning on or after January 1, 2022 and shall be applied retrospectively only to plan amendments, curtailments or settlements occurringitems of property, plant and equipment made available for use on or after the beginning of the earliest period presented in the financial statements in which the entity first annual reporting period that begins on or after 1 January 2019. Consequently, entities do not have to revisit plan amendments, curtailments and settlements that occurred in prior periods.applies the amendments. Earlier application is permitted. The amendments are not expected to have any significant impact on the Group’s financial statements.
IFRIC 22 provides guidance on howAmendments to determine the date of the transaction when applying IAS 21 to the situation where an entity receives or pays advance consideration in a foreign currency and recognizes anon-monetary asset or liability. The interpretation clarifies37 clarify that the date of the transaction for the purpose of determiningassessing whether a contract is onerous under IAS 37, the exchange ratecost of fulfilling the contract comprises the costs that relate directly to use on initial recognitionthe contract. Costs that relate directly to a contract include both the incremental costs of fulfilling that contract (e.g., direct labor and materials) and an allocation of other costs that relate directly to fulfilling that contract (e.g., an allocation of the related asset, expensedepreciation charge for an item of property, plant and equipment used in fulfilling the contract as well as contract management and supervision costs). General and administrative costs do not relate directly to a contract and are excluded unless they are explicitly chargeable to the counterparty under the contract. The amendments are effective for annual periods beginning on or income (or part of it) is the date onafter January 1, 2022 and shall be applied to contracts for which an entity initially recognizes thenon-monetary asset (such as a prepayment) ornon-monetary liability (such as deferred income) arising from the payment or receipt of the advance consideration. If there are multiple payments or receipts in advance of recognizing the related item, the entity must determine the transaction date for each payment or receipt of the advance consideration. Entities may apply the interpretation on a full retrospective basis or on a prospective basis, either fromhas not yet fulfilled all its obligations at the beginning of the annual reporting period in which the entityit first applies the interpretation or the beginning of the prior reporting period presented as comparative information in the financial statements of the reporting period in which the entity first applies the interpretation. The Group expects to adopt the interpretation prospectively from 1 January 2018. The amendmentamendments. Earlier application is not expected to have any significant impact on the Group’s financial statements.
IFRIC 23, issued in June 2017, addresses the accounting for income taxes (current and deferred) when tax treatments involve uncertainty that affects the application of IAS 12 (often referred to as “uncertain tax positions”). The interpretation does not apply to taxes or levies outside the scope of IAS 12, nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments. The interpretation specifically addresses (i) whether an entity considers uncertain tax treatments separately; (ii) the assumptions an entity makes about the examination of tax treatments by taxation authorities; (iii) how an entity determines taxable profits or tax losses, tax bases, unused tax losses, unused tax credits and tax rates; and (iv) how an entity considers changes in facts and circumstances. The interpretation is to be applied retrospectively, either fully retrospectively without the use of hindsight or retrospectively with thepermitted. Any cumulative effect of applicationinitially applying the amendments shall be recognized as an adjustment to the opening equity at the date of initial application without restating the restatement of comparative information. The Group expects to adopt the interpretation from 1 January 2019. The amendment isamendments are not expected to have any significant impact on the Group’s financial statements.
NOTES TO THE FINANCIAL STATEMENTSAnnual Improvements to IFRS Standards 2018-2020 sets out amendments to IFRS 1, IFRS 9, Illustrative Examples accompanying IFRS 16, and IAS 41. Details of the amendments that are expected to be applicable to the Group are as follows:
(Amounts
IFRS 9 Financial Instruments: clarifies the fees that an entity includes when assessing whether the terms of a new or modified financial liability are substantially different from the terms of the original financial liability. These fees include only those paid or received between the borrower and the lender, including fees paid or received by either the borrower or lender on the other’s behalf. An entity applies the amendment to financial liabilities that are modified or exchanged on or after the beginning of the annual reporting period in millions exceptwhich the entity first applies the amendment. The amendment is effective for per share data)annual periods beginning on or after January 1, 2022. Earlier application is permitted. The amendment is not expected to have a significant impact on the Group’s financial statements.
IFRS 16 Leases: removes the illustration of payments from the lessor relating to leasehold improvements in Illustrative Example 13 accompanying IFRS 16. This removes potential confusion regarding the treatment of lease incentives when applying IFRS 16.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
The Group initially applied IFRS 16 Leases on January 1, 2019 and elected not to reflect the figures on a retrospective basis in comparative periods. Different accounting policies for each accounting period as a result of the application of new accounting standards are listed by year separately.
Segmental reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker (“CODM”). The CODM, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the office of the General Manager that makes strategic decisions.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 2.4 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
Investments in associates and joint ventures
An associate is an entity in which the Group has a long-term interest of generally not less than 20% of the equity voting rights and over which it is in a position to exercise significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies.
A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.
The Group’s investments in associates and joint ventures are stated in the consolidated statement of financial position at the Group’s share of net assets under the equity method of accounting, less any impairment losses. Adjustments are made to bring into line any dissimilar accounting policies that may exist.
The Group’s share of the post-acquisition results and other comprehensive income of associates and joint ventures is included in the consolidated statement of profit or loss and other comprehensive income. In addition, when there has been a change recognized directly in the equity of the associate or joint venture, the Group recognizes its share of any changes, when applicable, in the consolidated statement of changes in equity. Unrealized gains and losses resulting from transactions between the Group and its associates or joint ventures are eliminated to the extent of the Group’s investments in the associates or joint ventures, except where unrealized losses provide evidence of an impairment of the assetassets transferred. Goodwill arising from the acquisition of associates or joint ventures is included as part of the Group’s investments in associates or joint ventures.
If an investment in an associate becomes an investment in a joint venture or vice versa, the retained interest is not remeasured. Instead, the investment continues to be accounted for under the equity method. In all other cases, upon loss of significant influence over the associate or joint control over the joint venture, the Group measures and recognizes any retained investment at its fair value. Any difference between the carrying amount of the associate or joint venture upon loss of significant influence or joint control and the fair value of the retained investment and proceeds from disposal is recognized in profit or loss.
When an investment in an associate or a joint venture is classified as held for sale, it is accounted for in accordance with IFRS 5Non-current Assets Held for Sale and Discontinued Operations.
Segmental reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker (“CODM”). The CODM, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the office of the General Manager that makes strategic decisions.
Foreign currencies
| (i) | Functional currency |
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The financial statements are presented in “RMB”���RMB”, which is the Company’s functional currency.
| (ii) | Transactions and balances |
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation atyear-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in profit or loss, except when deferred in other comprehensive income as qualifying cash flow hedges or qualifying net investment hedges.
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
Foreign currencies (cont’d)
hedges..
Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in profit or loss within “finance income” or “finance costs”.
Non-monetary itemsRevenue recognition
Revenue from contracts with customers
Revenue from contracts with customers is recognized when control of goods or services is transferred to the customers at an amount that are measuredreflects the consideration to which the Group expects to be entitled in terms of historical costexchange for those goods or services.
When the consideration in a foreign currency are translated usingcontract includes a variable amount, the amount of consideration is estimated to which the Group will be entitled in exchange ratesfor transferring the goods or services to the customer. The variable consideration is estimated at contract inception and constrained until it is highly probable that a significant revenue reversal in the amount of cumulative revenue recognized will not occur when the associated uncertainty with the variable consideration is subsequently resolved.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 2.4 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
Revenue recognition (continued)
When the contract contains a financing component which provides the customer with a significant benefit of financing the transfer of goods or services to the customer for more than one year, revenue is measured at the dates of the initial transactions.Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was measured. The gain or loss arising on translation of anon-monetary item measured at fair value is treated in line with the recognition of the gain or loss on change in fairpresent value of the item (i.e., translation differenceamount receivable, discounted using the discount rate that would be reflected in a separate financing transaction between the Group and the customer at contract inception. When the contract contains a financing component which provides the Group with a significant financial benefit for more than one year, revenue recognized under the contract includes the interest expense accreted on the item whose fair value gaincontract liability under the effective interest method. For a contract where the period between the payment by the customer and the transfer of the promised goods or lossservices is one year or less, the transaction price is not adjusted for the effects of a significant financing component, using the practical expedient in IFRS 15.
| (a) | Passenger, cargo and mail revenues are recognized as traffic revenue when the transportation is provided or when ticket breakage occurs. The value of sold but unused tickets is included in contract liabilities as sales in advance of carriage (“SIAC”). The Group estimates the value of passenger ticket breakage based on historical trends and experience and recognizes revenue at the scheduled flight date. |
| (b) | Revenues from the provision of ground services, tour services, ticket cancellation services and other travel related services are recognized when the services are rendered. |
| (c) | Commission income represents amounts earned from other carriers in respect of sales made by the Group on their behalf, and is recognized upon ticket sales. |
| (d) | The Group operates a frequent flyer program called “Eastern Miles” that issues mileage points to program members based on accumulated mileage. The Group defers a portion of passenger revenue attributable to the mileage points issued based on the relative stand-alone selling price approach and recognizes revenue when the mileage points are redeemed and performance obligations are fulfilled or the mileage points expire unused. The stand-alone selling price of the mileage points was estimated based on the historical prices of equivalent flights and goods provided for mileage points redeemed and was adjusted for mileage points that are not expected to be redeemed (“Breakage”). |
| (e) | Revenue from the sale of goods is recognized at the point in time when control of the asset is transferred to the customer. |
Revenue from other sources
Rental income is recognized on a time proportion basis over the lease terms. Variable lease payments that do not depend on an index or a rate are recognized as income in other comprehensivethe accounting period in which they are incurred.
Other income or profit or loss
Interest income is also recognized in other comprehensive income or profit or loss, respectively).
Revenue recognition and sales in advance of carriage
Revenue compriseson an accrual basis using the fair valueeffective interest method by applying the rate that exactly discounts the estimated future cash receipts over the expected life of the consideration receivedfinancial instrument or receivable fora shorter period, when appropriate, to the provision of services and the sale of goods in the ordinary coursenet carrying amount of the Group’s activities. Revenue is stated net of business taxes or value-added taxes, returns, rebates and discounts and after eliminating sales within the Group.financial asset.
RevenueDividend income is recognized when the shareholders’ right to receive payment has been established, it is probable that the economic benefits associated with the dividend will flow to the Group and when the revenueamount of the dividend can be measured reliably, onreliably.
Contract liabilities
A contract liability is recognized when a payment is received or a payment is due (whichever is earlier) from a customer before the following basis:
Passenger, cargo and mail revenuesGroup transfers the related goods or services. Contract liabilities are recognized as traffic revenuesrevenue when the transportationGroup performs under the contract (i.e., transfers control of the related goods or services are provided. The value of sold but unused tickets is recognized as sales in advance of carriage (“SIAC”).
Revenues from the provision of ground services, tour, travel services and other travel related services are recognized when the services are rendered.
Revenues from the provision of cargo handling services are recognized when the services are rendered.
Commission income represents amounts earned from other carriers in respect of sales made by the Group on their behalf, and is recognized in profit or loss upon ticket sales.
Revenues from other operating businesses, including income derived from the provision of freight forwarding, are recognized when the services are rendered.
The Group operates frequent flyer programs that provide travel awards to program members based on accumulated miles. A portion of passengers revenue attributable to the award of frequent flyer benefits is deferred and recognized when the miles have been redeemed or have expired.
Interest income is recognized on a time-proportion basis using the effective interest rate method.
The amount of revenue is not considered to be reliably measurable until all contingencies relating to the sale have been resolved. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
customer).
Government grants
Grants from the governmentGovernment grants are recognized at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions. When the grant relates to an expense item, it is recognized as income on a systematic basis over the periods that the costs, for which it is intended to compensate are expensed.
Where the grant relates to an asset, the fair value is credited to a deferred income account and is released to profit or loss over the expected useful life of the relevant asset by equal annual instalments.
Maintenance and overhaul costs
In respect of aircraft and engines under operating leases, the Group has obligations to fulfil certain return conditions under the leases. Provision for the estimated cost of these return condition checks is made on a straight-line basis over the term of the leases.
In respect of aircraft and engines owned by the Group or held under finance leases, overhaulOverhaul costs that meet specific recognition criteria are capitalized as a component of property, plant and equipment or right-of-use assets and are depreciated over the appropriate maintenance cycles.
Certain lease arrangements contain provisions for the Group‘s obligations to fulfil certain return conditions at the end of lease term. The Group estimated lease return costs for aircraft and engines and recognized such costs as part of the right-of-use asset and are depreciated over their respective lease term. (applicable from January 1, 2019)
Provision for the estimated lease return costs for aircraft and engines was made on a straight-line basis over the lease term. (applicable before January 1, 2019)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 2.4 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
Maintenance and overhaul costs (continued)
All other repairs and maintenance costs are charged to profit or loss as and when incurred.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, i.e., assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalized as part of the cost of those assets. The capitalization of such borrowing costs ceases when the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs capitalized. All other borrowing costs are expensed in the period in which they are incurred. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.
Income tax
Income tax comprises current and deferred tax. Income tax relating to items recognized outside profit or loss is recognized outside profit or loss, either in other comprehensive income or directly in equity.
Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period, taking into consideration interpretations and practices prevailing in the countries in which the Group operates.
Deferred tax is provided, using the liability method, on all temporary differences at the end of the reporting period between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred tax liabilities are recognized for all taxable temporary differences, except:
when the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
in respect of taxable temporary differences associated with investments in subsidiaries, associates and joint ventures, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred tax assets are recognized for all deductible temporary differences, and the carryforward of unused tax credits and any unused tax losses. Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carryforward of unused tax credits and unused tax losses can be utilized, except:
when the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
Income tax (cont’d)
in respect of deductible temporary differences associated with investments in subsidiaries, associates and joint ventures, deferred tax assets are only recognized to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at the end of each reporting period and are recognized to the extent that it has become probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.
Deferred tax assets and deferred tax liabilities are offset if and only if the Group has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realize the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.
Intangible assets
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 2.4 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
Business combinations and goodwill
Business combinations not under common control are accounted for using the acquisition method. The consideration transferred is measured at the acquisition date fair value which is the sum of the acquisition date fair values of assets transferred by the Group, liabilities assumed by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree that are present ownership interests and entitle their holders to a proportionate share of net assets in the event of liquidation at fair value or at the proportionate share of the acquiree’s identifiable net assets. All other components of non-controlling interests are measured at fair value. Acquisition-related costs are expensed as incurred.
The Group determines that it has acquired a business when the acquired set of activities and assets includes an input and a substantive process that together significantly contribute to the ability to create outputs.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts of the acquiree.
If the business combination is achieved in stages, the previously held equity interest is remeasured at its acquisition date fair value and any resulting gain or loss is recognized in profit or loss.
Any contingent consideration to be transferred by the acquirer is recognized at fair value at the acquisition date. Contingent consideration classified as an asset or liability is measured at fair value with changes in fair value recognized in profit or loss. Contingent consideration that is classified as equity is not remeasured and subsequent settlement is accounted for within equity.
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred, the amount recognized fornon-controlling interests and any fair value of the Group’s previously held equity interests in the acquiree over the identifiable net assets acquired and liabilities assumed. If the sum of this consideration and other items is lower than the fair value of the net assets acquired, the difference is, after reassessment, recognized in profit or loss as a gain on bargain purchase.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. The Group performs its annual impairment test of goodwill as at 31 December.December 31. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units.
Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash-generating units) to which the goodwill relates. Where the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the carrying amount, an impairment loss is recognized. An impairment loss recognized for goodwill is not reversed in a subsequent period.
Where goodwill has been allocated to a cash-generating unit (or group of cash-generating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on the disposal. Goodwill disposed of in these circumstances is measured based on the relative value of the operation disposed of and the portion of the cash-generating unit retained.
Intangible assets (other than goodwill)
Computer software costs
Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortized using the straight-line method over their estimated useful lives of 5 years. Costs associated with developing or maintaining computer software programs are recognized as expenses when incurred.
Others relate to the capitalized costs incurred to acquire the use right of certain flight schedules (i.e. timeslots for flights’ taking off/landing) in Guangzhou Baiyun International Airport Co., Ltd. and Shanghai Pudong International Airport, respectively. These costs are amortized using the straight-line method over their useful lives of 3 years.
Deferred pilot recruitment costs
Deferred pilot recruitment costs represent the costs borne by the Group in connection with securing a certain minimum period of employment of pilots and are amortized on a straight-line basis over the anticipated beneficial period of 5 years, starting from the date the pilot joins the Group.
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
Related parties
A party is considered to be related to the Group if:
| (a) | the party is a person or a close member of that person’s family and that |
| (i) | has control or joint control over the Group; |
| (ii) | has significant influence over the Group; or |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 2.4 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
Related parties (continued)
| (iii) | is a member of the key management personnel of the Group or of a parent of the Group; |
or
| (b) | the party is an entity where any of the following conditions applies: |
| (i) | the entity and the Group are members of the same group; |
| (ii) | one entity is an associate or joint venture of the other entity (or of a parent, subsidiary or fellow subsidiary of the other entity); |
| (iii) | the entity and the Group are joint ventures of the same third party; |
| (iv) | one entity is a joint venture of a third entity and the other entity is an associate of the third entity; |
| (v) | the entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group and the sponsoring employers of the post-employment benefit plan; |
| (vi) | the entity is controlled or jointly controlled by a person identified in (a); |
| (vii) | a person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity); and |
| (viii) | the entity, or any member of a group of which it is a part, provides key management personnel services to the Group or to the parent of the Group. |
Property, plant and equipment
Property, plant and equipment, other than construction in progress, are stated at cost less accumulated depreciation and any impairment losses. When an item of property, plant and equipment is classified as held for sale or when it is part of a disposal group classified as held for sale, it is not depreciated and is accounted for in accordance with IFRS 5, as further explained in the accounting policy for“Non-current assets and disposal groups held for sale”. The cost of an item of property, plant and equipment comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use.
When each major aircraft overhaul is performed, its cost is recognized in the carrying amount of the item of property, plant and equipment and is depreciated over the appropriate maintenance cycles. Components related to airframe overhaul cost, are depreciated on a straight-line basis over 5 to 7.5 years. Components related to engine overhaul costs, are depreciated between each overhaul period using the ratio of actual flying hours and estimated flying hours between overhauls. Upon completion of an overhaul, any remaining carrying amount of the cost of the previous overhaul is derecognized and charged to profit or loss.
Except for components related to overhaul costs, the depreciation method of which has been described in the preceding paragraph, other depreciation of property, plant and equipment is calculated using the straight-line method to write off their costs to their residual values over their estimated useful lives, as follows:
Owned | ||||
Other flight equipment, including rotables | 10 years | |||
Buildings | 8 to | |||
Other property, plant and equipment | 3 to 20 years |
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
Property, plant and equipment (cont’d)
Where parts of an item of property, plant and equipment have different useful lives, the cost of that item is allocated on a reasonable basis among the parts and each part is depreciated separately. Residual values, useful lives and the depreciation method are reviewed, and adjusted if appropriate, at least at each financial year end.
An item of property, plant and equipment including any significant part initially recognized is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on disposal or retirement recognized in the statement of profit or loss in the year the asset is derecognized is the difference between the net sales proceeds and the carrying amount of the relevant asset.
Construction in progress represents a building under construction, which is stated at cost less any impairment losses, and is not depreciated. Cost comprises the direct costs of construction and capitalized borrowing costs on related borrowed funds during the period of construction. Construction in progress is reclassified to the appropriate category of property, plant and equipment when completed and ready for use.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 2.4 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
Investment properties
Investment properties are interests in land and buildings (including the leasehold interest under an operating lease for a property which would otherwise meet the definition of an investment property) held to earn rental income and/or for capital appreciation, rather than for use in the production or supply of goods or services or for administrative purposes; or for sale in the ordinary course of business. Such properties are measured initially at cost, including transaction costs. After initial recognition, the Group chooses the cost model to measure all of its investment properties.
Depreciation is calculated on the straight-line basis to write off the cost to its residual value over its estimated useful life. The estimated useful lives are as follows:
Buildings |
The carrying amounts of investment properties measured using the cost method are reviewed for impairment when events or changes in circumstances indicate that the carrying amounts may not be recoverable.
Any gains or losses on the retirement or disposal of an investment property are recognized in profit or loss in the year of the retirement or disposal.
Impairment ofnon-financial assets(other than goodwill)
Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than inventories, construction contractdeferred tax assets, financial assets, investment properties andnon-current assets/a disposal group classified as held for sale), the asset’s recoverable amount is estimated. An asset’s recoverable amount is the higher of the asset’s or cash-generating unit’s value in use and its fair value less costs of disposal, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is determined for the cash-generating unit to which the asset belongs. The Group’s owned and leased aircraft and engines are included in the airline transportation operations cash-generating unit. Management uses the value in use of the cash-generating unit of airline transportation operations to determine the recoverable amount.
An impairment loss is recognized only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using apre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is charged to profit or loss in the period in which it arises in those expense categories consistent with the function of the impaired asset.
An assessment is made at the end of each reporting period as to whether there is an indication that previously recognized impairment losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognized impairment loss of an asset other than goodwill is reversed only if there has been a change in the estimates used to determine the recoverable amount of that asset, but not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortization) had no impairment loss been recognized for the asset in prior years. A reversal of such an impairment loss is credited to profit or loss in the period in which it arises, unless the asset is carried at a revalued amount, in which case the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
Non-current assets and disposal groups held for sale
Non-current assets and disposal groups are classified as held for sale if their carrying amounts will be recovered principally through a sales transaction rather than through continuing use. For this to be the case, the asset or disposal group must be available for immediate sale in its present condition subject only to terms that are usual and customary for the sale of such assets or disposal groups and its sale must be highly probable. All assets and liabilities of a subsidiary classified as a disposal group are reclassified as held for sale regardless of whether the Group retains anon-controlling interest in its former subsidiary after the sale.
Non-current assets and disposal groups (other than investment properties and financial assets) classified as held for sale are measured at the lower of their carrying amounts and fair values less costs to sell. Property, plant and equipment and intangible assets classified as held for sale are not depreciated or amortized.
Prepayments for land use right
Prepayments for land use right are initially stated at cost and subsequently recognized on the straight-line basis over the agreed terms.
Advanced payments on acquisition of aircraft
Advanced payments on acquisition of aircraft represent payments to aircraft manufacturers to secure deliveries of aircraft in future years, including attributable borrowing costs, and are included innon-current assets. The balance is transferred to property, plant and equipment upon delivery of the aircraft.
Flight equipment spare parts
Flight equipment spare parts are stated at the lower of cost and net realizable value. Cost is determined using the weighted average method. The cost of flight equipment spare parts comprises the purchase price (net of discounts), freight charges, duty and other miscellaneous charges. Net realizable value is the estimated selling price of the flight equipment spare parts in the ordinary course of business, less applicable selling expenses.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 2.4 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
Investments and other financial assets
Initial recognitionand measurement
Financial assets are classified, at initial recognition, as subsequently measured at amortized cost, fair value through other comprehensive income, and fair value through profit or loss.
The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Group’s business model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient of not adjusting the effect of a significant financing component, the Group initially measures a financial asset at its fair value, plus in the case of a financial asset not at fair value through profit or loss, loanstransaction costs. Trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient are measured at the transaction price determined under IFRS 15 in accordance with the policies set out for “Revenue recognition”.
In order for a financial asset to be classified and receivablesmeasured at amortized cost or fair value through other comprehensive income, it needs to give rise to cash flows that are solely payments of principal andavailable-for-sale financial investments, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. When financial interest (“SPPI”) on the principal amount outstanding. Financial assets with cash flows that are recognized initially, theynot SPPI are classified and measured at fair value plus transaction costs that are attributablethrough profit or loss, irrespective of the business model.
The Group’s business model for managing financial assets refers to the acquisition ofhow it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, except inor both. Financial assets classified and measured at amortized cost are held within a business model with the case ofobjective to hold financial assets recordedin order to collect contractual cash flows, while financial assets classified and measured at fair value through other comprehensive income are held within a business model with the objective of both holding to collect contractual cash flows and selling. Financial assets which are not held within the aforementioned business models are classified and measured at fair value through profit or loss.
All regular way purchases and sales of financial assets are recognized on the trade date, that is, the date that the Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace.
SubsequentSubsequent measurement
The subsequent measurement of financial assets depends on their classification as follows:
Financial assets at amortized cost (debt instruments)
Financial assets at amortized cost are subsequently measured using the effective interest method and are subject to impairment. Gains and losses are recognized in the statement of profit or loss when the asset is derecognized, modified or impaired.
Financial assets at fair value through other comprehensive income (debt instruments)
For debt investments at fair value through other comprehensive income, interest income, foreign exchange revaluation and impairment losses or reversals are recognized in the statement of profit or loss and computed in the same manner as for financial assets measured at amortized cost. The remaining fair value changes are recognized in other comprehensive income. Upon derecognition, the cumulative fair value change recognized in other comprehensive income is recycled to the statement of profit or loss.
Financial assets designated at fair value through other comprehensive income (equity investments)
Upon initial recognition, the Group can elect to classify irrevocably its equity investments as equity investments designated at fair value through other comprehensive income when they meet the definition of equity under IAS 32 Financial Instruments: Presentation and are not held for trading. The classification is determined on an instrument-by-instrument basis.
Gains and losses on these financial assets are never recycled to the statement of profit or loss. Dividends are recognized as other income in the statement of profit or loss when the right of payment has been established, it is probable that the economic benefits associated with the dividend will flow to the Group and the amount of the dividend can be measured reliably, except when the Group benefits from such proceeds as a recovery of part of the cost of the financial asset, in which case such gains are recorded in other comprehensive income. Equity investments designated at fair value through other comprehensive income are not subject to impairment assessment.
Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition as at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of sale in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments as defined by IAS 39.
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
Investments and other financial assets (cont’d)
Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with positive net changes in fair value presented as other incomerecognized in the statement of profit or loss.
This category includes derivative instruments and gains and negative net changes inequity investments which the Group had not irrevocably elected to classify at fair value presentedthrough other comprehensive income. Dividends on equity investments classified as finance costs in profit or loss. These net fair value changes do not include any dividends or interest earned on these financial assets which are recognized in accordance with the policies set out for “Revenue recognition and sales in advance of carriage” above.
Financial assets designated upon initial recognition as at fair value through profit or loss are designated atalso recognized as other income in the datestatement of initial recognitionprofit or loss when the right of payment has been established, it is probable that the economic benefits associated with the dividend will flow to the Group and only if the criteriaamount of the dividend can be measured reliably.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in IAS 39 are satisfied.accordance with International Financial Reporting Standards)
DerivativesFor the years ended December 31, 2020, 2019 and 2018
| 2.4 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
Investments and other financial assets (continued)
A derivative embedded in a hybrid contract, with a financial liability or non-financialhost, contracts areis separated from the host and accounted for as a separate derivatives and recorded at fair valuederivative if theirthe economic characteristics and risks are not closely related to thosethe host; a separate instrument with the same terms as the embedded derivative would meet the definition of the host contractsa derivative; and the host contracts arehybrid contract is not held for trading or designated asmeasured at fair value through profit or loss. These embeddedEmbedded derivatives are measured at fair value with changes in fair value recognized in the statement of profit or loss. Reassessment only occurs if there is either a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required or a reclassification of a financial asset out of the fair value through profit or loss category.
Loans and receivables
Loans and receivables arenon-derivativeA derivative embedded within a hybrid contract containing a financial assetsasset host is not accounted for separately. The financial asset host together with fixed or determinable payments that are not quotedthe embedded derivative is required to be classified in an active market. After initial measurement, such assets are subsequently measured at amortized cost using the effective interest rate method less any allowance for impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and includes fees or costs that are an integral part of the effective interest rate. The effective interest rate amortization is included in other operating income and gains in profit or loss. The loss arising from impairment is recognized in profit or loss in finance costs for loans and in impairment charges for receivables.
Available-for-saleits entirety as a financial investments
Available-for-sale financial investments arenon-derivative financial assets in listed and unlisted equity investments and debt securities. Equity investments classified as available for sale are those which are neither classified as held for trading nor designated asasset at fair value through profit or loss. Debt securities in this category are those which are intended to be held for an indefinite period of time and which may be sold in response to needs for liquidity or in response to changes in market conditions.
After initial recognition,available-for-sale financial investments are subsequently measured at fair value, with unrealized gains or losses recognized as other comprehensive income in the other reserves until the investment is derecognized, at which time the cumulative gain or loss is recognized in profit or loss in other operating income, or until the investment is determined to be impaired, when the cumulative gain or loss is reclassified from the other reserves to profit or loss in other gains or losses. Interest and dividends earned whilst holding theavailable-for-sale financial investments are reported as finance income and dividend income, respectively and are recognized in profit or loss as other operating income in accordance with the policies set out for “Revenue recognition and sales in advance of carriage” above.
When the fair value of unlisted equity investments cannot be reliably measured because (a) the variability in the range of reasonable fair value estimates is significant for that investment or (b) the probabilities of the various estimates within the range cannot be reasonably assessed and used in estimating fair value, such investments are stated at cost less any impairment losses.
The Group evaluates whether the ability and intention to sell itsavailable-for-sale financial assets in the near term are still appropriate. When, in rare circumstances, the Group is unable to trade these financial assets due to inactive markets, the Group may elect to reclassify these financial assets if management has the ability and intention to hold the assets for the foreseeable future or until maturity.
For a financial asset reclassified from theavailable-for-sale category, the fair value carrying amount at the date of reclassification becomes its new amortized cost and any previous gain or loss on that asset that has been recognized in equity is amortized to profit or loss over the remaining life of the investment using the effective interest rate. Any difference between the new amortized cost and the maturity amount is also amortized over the remaining life of the asset using the effective interest rate. If the asset is subsequently determined to be impaired, then the amount recorded in equity is reclassified to profit or loss.
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
Derecognition of financial assets
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognized (i.e., removed from the Group’s consolidated statement of financial position) when:
the rights to receive cash flows from the asset have expired; or
the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a “pass-through” arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if, and to what extent, it has retained the risk and rewards of ownership of the asset. When it has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the Group continues to recognize the transferred asset to the extent of the Group’s continuing involvement. In that case, the Group also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.
Impairment of financial assets
The Group assessesrecognizes an allowance for expected credit losses (“ECLs”) for all debt instruments not held at the end of each reporting period whether there is objective evidence that a financial assetfair value through profit or a group of financial assets is impaired. An impairment exists if one or more events that occurred after the initial recognition of the asset have an impactloss. ECLs are based on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that a debtor or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and observable data indicating that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.
Financial assets carried at amortized cost
For financial assets carried at amortized cost, the Group first assesses whether impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment of impairment.
The amount of any impairment loss identified is measured as the difference between the asset’s carrying amount and the present value of estimated futurecontractual cash flows (excluding futuredue in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.
General approach
ECLs are recognized in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that have not yetresult from default events that are possible within the next 12 months (a 12-month ECL). For those credit exposures for which there has been incurred). The present valuea significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the estimated future cash flows is discountedexposure, irrespective of the timing of the default (a lifetime ECL).
At each reporting date, the Group assesses whether the credit risk on a financial instrument has increased significantly since initial recognition. When making the assessment, the Group compares the risk of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial asset’s original effective interest rate (i.e.,instrument as at the effective interest rate computed atdate of initial recognition).recognition and considers reasonable and supportable information that is available without undue cost or effort, including historical and forward-looking information.
The carrying amount ofGroup considers a financial asset in default when contractual payments are past due. However, in certain cases, the Group may also consider a financial asset is reduced through the use of an allowance account and the loss is recognized in profit or loss. Interest income continues to be accrued onin default when internal or external information indicates that the reduced carrying amount usingGroup is unlikely to receive the rate of interest used to discountoutstanding contractual amounts in full before taking into account any credit enhancements held by the future cash flows for the purpose of measuring the impairment loss. Loans and receivables together with any associated allowance areGroup. A financial asset is written off when there is no realistic prospectreasonable expectation of future recoveryrecovering the contractual cash flows.
Debt investments at fair value through other comprehensive income and all collateral has been realized or has been transferred to the Group.
If, in a subsequent period, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. If awrite-off is later recovered, the recovery is creditedfinancial assets at amortized cost are subject to impairment charges in profit or loss.under the general approach and they are classified within the following stages for measurement of ECLs except for trade receivables and contract assets which apply the simplified approach as detailed below.
Stage 1 – | Financial instruments for which credit risk has not increased significantly since initial recognition and for which the loss allowance is measured at an amount equal to 12-month ECLs | |
Stage 2 – | Financial instruments for which credit risk has increased significantly since initial recognition but that are not credit-impaired financial assets and for which the loss allowance is measured at an amount equal to lifetime ECLs | |
Stage 3 – | Financial assets that are credit-impaired at the reporting date (but that are not purchased or originated credit-impaired) and for which the loss allowance is measured at an amount equal to lifetime ECLs | |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(AmountsPrepared in millions except for per share data)accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Impairment of financial assets (cont’d)(continued)
Available-for-sale financial investmentsSimplified approach
Foravailable-for-sale financial investments, trade receivables and contract assets that do not contain a significant financing component or when the Group assessesapplies the practical expedient of not adjusting the effect of a significant financing component, the Group applies the simplified approach in calculating ECLs. Under the simplified approach, the Group does not track changes in credit risk, but instead recognizes a loss allowance based on lifetime ECLs at the end of each reporting period whether theredate. The Group has established a provision matrix that is objective evidence that an investment or a group of investments is impaired.
If anavailable-for-sale asset is impaired, an amount comprisingbased on its historical credit loss experience, adjusted for forward-looking factors specific to the difference between its cost (net of any principal payment and amortization) and its current fair value, less any impairment loss previously recognized in profit or loss, is removed from other comprehensive income and recognized in profit or loss.
In the case of equity investments classified as available for sale, objective evidence would include a significant or prolonged decline in the fair value of an investment below its cost. “Significant” is evaluated against the original cost of the investment and “prolonged” against the period in which the fair value has been below its original cost. Where there is evidence of impairment, the cumulative loss – measured as the difference between the acquisition costdebtors and the current fair value, less any impairment loss on that investment previously recognized in profit or loss – is removed from other comprehensive income and recognized in profit or loss. Impairment losses on equity instruments classified as available for sale are not reversed through profit or loss. Increases in their fair value after impairment are recognized directly in other comprehensive income.
The determination of what is “significant” or “prolonged” requires judgement. In making this judgement, the Group evaluates, among other factors, the duration or extent to which the fair value of an investment is less than its cost.economic environment.
Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.
All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.
The Group’s financial liabilities primarily include trade and other payables, derivative financial instruments, lease liabilities, interest-bearing bank and other borrowings.
Subsequent measurement
The subsequent measurement of financial liabilities depends on their classification as follows:
LoansFinancial liabilities at amortized cost (loans and borrowingsborrowings)
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost, using the effective interest rate method unless the effect of discounting would be immaterial, in which case they are stated at cost. Gains and losses are recognized in the statement of profit or loss when the liabilities are derecognized as well as through the effective interest rate amortization process.
Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortization is included in finance costs in the statement of profit or loss.
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.
Financial liabilities are classified as held for trading if they are acquired for the purpose of repurchasing in the near term. This category includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by IAS 39. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Gains or losses on liabilities held for trading are recognized in profit or loss. The net fair value gain or loss recognized in profit or loss does not include any interest charged on these financial liabilities.
Financial liabilities designated upon initial recognition as at fair value through profit or loss are designated at the date of initial recognition and only if the criteria in IAS 39 are satisfied.
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
Derecognition of financial liabilities
A financial liability is derecognized when the obligation under the liability is discharged or cancelled, or expires.
When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and a recognition of a new liability, and the difference between the respective carrying amounts is recognized in the statement of profit or loss.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial position if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously.
Derivative financial instruments and hedge accounting
Initial recognition and subsequent measurement
The Group uses derivative financial instruments, such as forward currency contracts, interest rate swaps and fuel forward contracts, to hedge its foreign currency risk, interest rate risk and fuel price risk, respectively. Such derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.
The fair value of commodity purchase contracts that meet the definition of a derivative as defined by IFRS 9 is recognized in the statement of profit or loss as cost of sales. Commodity contracts that are entered into and continue to be held for the purpose of the receipt or delivery of a non-financial item in accordance with the Group’s expected purchase, sale or usage requirements are held at cost.
Any gains or losses arising from changes in fair value of derivatives are taken directly to the statement of profit or loss, except for the effective portion of cash flow hedges, which is recognized in other comprehensive income and later reclassified to profit or loss when the hedged item affects profit or loss.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 2.4 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
Derivative financial instruments and hedge accounting (continued)
For the purpose of hedge accounting, hedges are classified as:
fair value hedges when hedging the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment; or
cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction, or a foreign currency risk in an unrecognized firm commitment; or
hedges of a net investment in a foreign operation.
At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting, the risk management objective and its strategy for undertaking the hedge.
The documentation includes identification of the hedging instrument, the hedged item, the nature of the risk being hedged and how the Group will assess whether the hedging relationship meets the hedge effectiveness requirements (including the analysis of sources of hedge ineffectiveness and how the hedge ratio is determined). A hedging relationship qualifies for hedge accounting if it meets all of the following effectiveness requirements:
There is “an economic relationship” between the hedged item and the hedging instrument.
The effect of credit risk does not “dominate the value changes” that result from that economic relationship.
The hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Group actually hedges and the quantity of the hedging instrument that the Group actually uses to hedge that quantity of hedged item.
Hedges which meet all the qualifying criteria for hedge accounting are accounted for as follows:
Cash flow hedges
The effective portion of the gain or loss on the hedging instrument is recognized directly in other comprehensive income in the cash flow hedge reserve, while any ineffective portion is recognized immediately in the statement of profit or loss. The cash flow hedge reserve is adjusted to the lower of the cumulative gain or loss on the hedging instrument and the cumulative change in fair value of the hedged item.
The amounts accumulated in other comprehensive income are accounted for, depending on the nature of the underlying hedged transaction. If the hedged transaction subsequently results in the recognition of a non-financial item, the amount accumulated in equity is removed from the separate component of equity and included in the initial cost or other carrying amount of the hedged asset or liability. This is not a reclassification adjustment and will not be recognized in other comprehensive income for the period. This also applies where the hedged forecast transaction of a non-financial asset or non-financial liability subsequently becomes a firm commitment to which fair value hedge accounting is applied.
For any other cash flow hedges, the amount accumulated in other comprehensive income is reclassified to the statement of profit or loss as a reclassification adjustment in the same period or periods during which the hedged cash flows affect the statement of profit or loss.
If cash flow hedge accounting is discontinued, the amount that has been accumulated in other comprehensive income must remain in accumulated other comprehensive income if the hedged future cash flows are still expected to occur. Otherwise, the amount will be immediately reclassified to the statement of profit or loss as a reclassification adjustment. After the discontinuation, once the hedged cash flow occurs, any amount remaining in accumulated other comprehensive income is accounted for depending on the nature of the underlying transaction as described above.
Fair value hedges
The change in the fair value of a hedging instrument is recognized in the statement of profit or loss as other expenses. The change in the fair value of the hedged item attributable to the risk hedged is recorded as a part of the carrying amount of the hedged item and is also recognized in the statement of profit or loss as other expenses.
For fair value hedges relating to items carried at amortized cost, the adjustment to carrying value is amortized through the statement of profit or loss over the remaining term of the hedge using the effective interest rate method. Effective interest rate amortization may begin as soon as an adjustment exists and shall begin no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged. If the hedged item is derecognized, the unamortized fair value is recognized immediately in the statement of profit or loss.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 2.4 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
Derivative financial instruments and hedge accounting (continued)
When an unrecognized firm commitment is designated as a hedged item, the subsequent cumulative change in the fair value of the firm commitment attributable to the hedged risk is recognized as an asset or liability with a corresponding gain or loss recognized in the statement of profit or loss. The changes in the fair value of the hedging instrument are also recognized in the statement of profit or loss.
Current versus non-current classification
Derivative instruments that are not designated as effective hedging instruments are classified as current or non-current or separated into current and non-current portions based on an assessment of the facts and circumstances (i.e., the underlying contracted cash flows).
Where the Group expects to hold a derivative as an economic hedge (and does not apply hedge accounting) for a period beyond 12 months after the end of the reporting period, the derivative is classified as non-current (or separated into current and non-current portions) consistently with the classification of the underlying item.
Embedded derivatives that are not closely related to the host contract are classified consistently with the cash flows of the host contract.
Derivative instruments that are designated as, and are effective hedging instruments, are classified consistently with the classification of the underlying hedged item. The derivative instruments are separated into current portions and non-current portions only if a reliable allocation can be made.
Cash and cash equivalents
For the purpose of the consolidated statement of cash flows, cash and cash equivalents comprise cash on hand and demand deposits, and short term highly liquid investments that are readily convertible into known amounts of cash, are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired, less bank overdrafts which are repayable on demand and form an integral part of the Group’s cash management.
For the purpose of the consolidated statement of financial position, cash and cash equivalents comprise cash on hand and at banks, including assets similar in nature to cash, which are not restricted as to use.
Provisions
Provisions areA provision is recognized when the Group has a present legalobligation (legal or constructive obligationconstructive) has arisen as a result of a past events;event and it is probable that ana future outflow of resources will be required to settle the obligation;obligation, provided that a reliable estimate can be made of the amount canof the obligation.
When the effect of discounting is material, the amount recognized for a provision is the present value at the end of the reporting period of the future expenditures expected to be reliably estimated.required to settle the obligation. The increase in the discounted present value amount arising from the passage of time is included in finance costs in the statement of profit or loss.
Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognized even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using apre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognized as interest expense.
For the contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it, the present obligation under the contract is recognized and measured as a provision.
Leases (applicable from January 1, 2019)
The Group assesses at contract inception whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
| (i) | As lessee |
The Group applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Group recognizes lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.
(a) Right-of-use assets
Right-of-use assets are recognized at the commencement date of the lease (that is the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and any impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. The cost of a right-of-use asset also includes an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease terms and the estimated useful lives of the assets as follows:
Aircraft and engines under leases | 5 to 20 years | |||
| Buildings | 2 to 10 years | |||
| Prepayments for land use rights | 40 to 50 years | |||
| Others | 2 to 5 years |
If ownership of the leased asset transfers to the Group by the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 2.4 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
Leases (applicable from January 1, 2019) (continued)
(b) Lease liabilities
Lease liabilities are recognized at the commencement date of the lease at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for termination of a lease, if the lease term reflects the Group exercising the option to terminate the lease. The variable lease payments that do not depend on an index or a rate are recognized as an expense in the period in which the event or condition that triggers the payment occurs.
In calculating the present value of lease payments, the Group uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in lease payments (e.g., a change to future lease payments resulting from a change in an index or rate) or a change in assessment of an option to purchase the underlying asset.
(c) Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption to its short-term leases (that is those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the recognition exemption for leases of low-value assets to leases of assets that are considered to be of low value. Lease payments on short-term leases and leases of low-value assets are recognized as an expense on a straight-line basis over the lease term.
| (ii) | As lessor |
When the Group acts as a lessor, it classifies at lease inception (or when there is a lease modification) each of its leases as either an operating lease or a finance lease.
Leases in which the Group does not transfer substantially all the risks and rewards incidental to ownership of an asset are classified as operating leases. When a contract contains lease and non-lease components, the Group allocates the consideration in the contract to each component on a relative stand-alone selling price basis. Rental income is accounted for on a straight-line basis over the lease terms and is included in revenue in the statement of profit or loss due to its operating nature. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income. Contingent rents are recognized as revenue in the period in which they are earned.
Leases that transfer substantially all the risks and rewards incidental to ownership of an underlying asset to the lessee are accounted for as finance leases.
Leases (applicable before January 1, 2019)
| (i) | As lessee |
Finance leases
Leases where the Group has acquired substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalized at the lease’s commencement at the lower of the fair value of the assets and the present value of the minimum lease payments.
Each lease payment is allocated between the liability and finance charges. The corresponding rental obligations, net of finance charges, are included in the current portion of obligationobligations under finance leases and obligations under finance leases, respectively. The interest element of the finance costs is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Leased assets are depreciated using a straight-line basis over their expected useful lives to residual values.
For sale and leaseback transactions resulting in a finance lease, the sales proceeds are recorded asGroup continues to recognize the transferred asset and recognize a borrowing andfinancial liability equal to the relevant assets are continued to be measured at their carry value.transfer proceeds.
Operating leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on a straight-line basis over the period of the lease.
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
Leases (cont’d)
For sale and leaseback transactions resulting in an operating lease, differences between sales proceeds and net book values are recognized immediately in profit or loss, except to the extent that any profit or loss is compensated for by future lease payments at above or below the market value, then the profit or loss is deferred and amortized over the period for which the asset is expected to be used.
| (ii) | As lessor |
Assets leased out under operating leases are included in property, plant and equipment in the statement of financial position. They are depreciated over their expected useful lives on a basis consistent with similar property, plant and equipment. Rental income is recognized on a straight-line basis over the lease term.
Retirement benefits
| (i) | Defined contribution plans |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 2.4 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
Retirement benefits (continued)
The Group participates in schemes regarding pension and medical benefits for employees organized by the municipal governments of the relevant provinces. Contributions to these schemes are expensed as incurred.
The Group also implementedimplements an additional defined contribution pension benefit scheme (annuity) for voluntary eligible employees. Contributions are made based on a percentage of the employees’ total salaries and are charged to profit or loss as incurred.
| (ii) | Defined benefit plan |
The Group provides eligible retirees with certain post-retirement benefits including retirement subsidies, transportation allowance as well as other welfare. The defined post-retirement benefits are unfunded. The cost of providing benefits under the post-retirement benefit plan is determined using the projected unit credit actuarial valuation method.
Remeasurements arising from the post-retirement benefit plan, comprising actuarial gains and losses, the effect of the asset ceiling (excluding net interest) and the return on plan assets (excluding net interest), are recognized immediately in the consolidated statement of financial position with a corresponding debit or credit to equity through other comprehensive income in the period in which they occur. Remeasurements are not reclassified to profit or loss in subsequent periods.
Past service costs are recognized in profit or loss at the earlier of:of :
the date of the plan amendment or curtailment; and
the date that the Group recognizes restruturing-relatedrestructuring-related costs
Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. The Group recognizes the following changes in the net defined benefit obligation under “Wages, salaries and benefits” and “Finance costs” in profit or loss:
service costs comprising current service costs, past-service costs, gains and losses on curtailments andnon-routine settlements
net interest expense
Derivative financial instruments and hedge accounting
Initial recognition and subsequent measurement
The Group uses derivative financial instruments, such as forward currency contracts and interest rate swaps, to hedge its foreign currency risk and interest rate risk, respectively. Such derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
Derivative financial instruments and hedge accounting (cont’d)
Initial recognition and subsequent measurement (cont’d)
Any gains or losses arising from changes in fair value of derivatives are taken directly to profit or loss, except for the effective portion of cash flow hedges, which is recognized in other comprehensive income and later reclassified to profit or loss when the hedged item affects profit or loss.
For the purpose of hedge accounting, hedges are classified as:
At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting, the risk management objective and its strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the Group will assess the hedging instrument’s effectiveness of changes in the hedging instrument’s fair value in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.
Hedges which meet the strict criteria for hedge accounting are accounted for as follows:
Fair value hedges
The change in the fair value of a hedging derivative is recognized in profit or loss. The change in the fair value of the hedged item attributable to the risk hedged is recorded as a part of the carrying amount of the hedged item and is also recognized in profit or loss.
For fair value hedges relating to items carried at amortized cost, the adjustment to carrying value is amortized through profit or loss over the remaining term of the hedge using the effective interest rate method. Effective interest rate amortization may begin as soon as an adjustment exists and shall begin no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged. If the hedged item is derecognized, the unamortized fair value is recognized immediately in profit or loss.
When an unrecognized firm commitment is designated as a hedged item, the subsequent cumulative change in the fair value of the firm commitment attributable to the hedged risk is recognized as an asset or liability with a corresponding gain or loss recognized in profit or loss. The changes in the fair value of the hedging instrument are also recognized in profit or loss.
Cash flow hedges
The effective portion of the gain or loss on the hedging instrument is recognized directly in other comprehensive income in the hedging reserve, while any ineffective portion is recognized immediately in profit or loss.
Amounts recognized in other comprehensive income are transferred to profit or loss when the hedged transaction affects profit or loss, such as when hedged financial income or financial expense is recognized or when a forecast sale occurs. Where the hedged item is the cost of anon-financial asset ornon-financial liability, the amounts recognized in other comprehensive income are transferred to the initial carrying amount of thenon-financial asset ornon-financial liability.
If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover (as part of the hedging strategy), or if its designation as a hedge is revoked, or when the hedge no longer meets the criteria for hedge accounting, the amounts previously recognized in other comprehensive income remain in other comprehensive income until the forecast transaction occurs or the foreign currency firm commitment is met.
NOTES TO THE FINANCIAL STATEMENTS
(Amount in millions except for per share data)
Derivative financial instruments and hedge accounting (cont’d)
Current versusnon-current classification
The full fair value of a hedging derivative is classified as anon-current asset or liability when the remaining maturity of the hedged items is more than 12 months and as a current asset or liability when the remaining maturity of the hedged item is less than 12 months.
Dividend distribution
Dividend distribution to the Company’s shareholders is recognized as a liability in the consolidated financial statements in the period in which the dividends are approved by the Company’s shareholders. Proposed final dividends are disclosed in the notes to the consolidated financial statements.
Fair value measurement
The Group measures its derivative financial instruments and listed equity investments at fair value at the end of each reporting period. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability, or in the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of anon-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
Level 1 | – | based on quoted prices (unadjusted) in active markets for identical assets or liabilities | ||
Level 2 | – | based on valuation techniques for which the lowest level input that is significant to the fair value measurement is observable, either directly or indirectly | ||
Level 3 | – | based on valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable | ||
For assets and liabilities that are recognized in the financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by reassessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
Business combinations
Business combinations are accounted for using the acquisition method. The consideration transferred is measured at the acquisition date fair value which is the sum of the acquisition date fair values of assets transferred by the Group, liabilities assumed by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. For each business combination, the Group elects whether to measure thenon-controlling interests in the acquiree that are present ownership interests and entitle their holders to a proportionate share of net assets in the event of liquidation at fair value or at the proportionate share of the acquiree’s identifiable net assets. All other components ofnon-controlling interests are measured at fair value. Acquisition-related costs are expensed as incurred.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts of the acquiree.
NOTES TO THE FINANCIAL STATEMENTS
(Amount in millions except for per share data)
| 3 | SIGNIFICANT ACCOUNTING |
Business combinations (cont’d)
If the business combination is achieved in stages, the previously held equity interest is remeasured at its acquisition date fair value and any resulting gain or loss is recognized in profit or loss.
Any contingent consideration to be transferred by the acquirer is recognized at fair value at the acquisition date. Contingent consideration classified as an asset or liability is measured at fair value with changes in fair value recognized in profit or loss. Contingent consideration that is classified as equity is not remeasured and subsequent settlement is accounted for within equity.
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred, the amount recognized fornon-controlling interests and any fair value of the Group’s previously held equity interests in the acquiree over the identifiable net assets acquired and liabilities assumed. If the sum of this consideration and other items is lower than the fair value of the net assets acquired, the difference is, after reassessment, recognized in profit or loss as a gain on bargain purchase.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. The Group performs its annual impairment test of goodwill as at 31 December. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units.
Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash-generating units) to which the goodwill relates. Where the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the carrying amount, an impairment loss is recognized. An impairment loss recognized for goodwill is not reversed in a subsequent period.
Where goodwill has been allocated to a cash-generating unit (or group of cash-generating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on the disposal. Goodwill disposed of in these circumstances is measured based on the relative value of the operation disposed of and the portion of the cash-generating unit retained.
Estimates and judgementsjudgments used in preparing the financial statements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 3 | SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES (continued) |
| (a) | Passenger ticket breakage |
The Group recognizes traffic revenues in accordance with the accounting policy stated in note 3Note 2.4 to the consolidated financial statements. Unused tickets arePassenger ticket breakage is recognized in traffic revenues upon legal expiration. Management periodically evaluatesas revenue based on estimates. The Group estimates the balance invalue of passenger ticket breakage, reduces contract liabilities and recognizes revenue at the SIACscheduled flight date using a portfolio based approach. The breakage rate is estimated and records any adjustments, which can be material, inconstrained by reference to the period the evaluation is completed.
These adjustments result from differences between the estimateshistorical trend of certain revenue transactions and the timing of recognizing revenue for any unused air tickets and the related sales price, and are impacted by various factors, including a complex pricing structure and interline agreements throughout the industry, which affect the timing of revenue recognition.passenger ticket breakage.
| (b) | Recognition of contract liabilities for frequent flyer |
The Group operatesPassenger ticket sales earning mileage points under the Company’s frequent flyer programmes thatprogram provide travel awards to programme members based on accumulated miles.customers with mileage points earned and air transportation. A portion of passengers’passenger revenue attributable to the award credits of frequent flyer benefitsmileage points issued is deferred and recognized when the award credits have been redeemed or have expired. The deferment of revenue is calculated based on the relative stand-alone selling price approach. Significant assumptions are used in determining the estimated fair valuesstand-alone selling price of mileage points, including the unredeemed award creditshistorical prices of equivalent flights and expected redemption rate. The fair values of the unredeemed award credits is estimated based on the yearly average flight ticket prices and the expected redemption rategoods provided, which is estimated by reference to the quantitative value a program member receives by redeeming mileage points for flights and goods, and the estimated Breakage. The Breakage is estimated considering historical redemption pattern, current industry and economic trends and other relevant factors. Changes in the significant assumptions could have a significant effect on the balance of redemptions.contract liabilities for frequent flyer program and the results of operations.
| (c) | Provision for lease return costs for aircraft and engines |
Provision for lease return costs for aircraft and engines is recognized as part of the right-of-use assets and are depreciated during the lease term. The estimation of the provision is made taking into account anticipated aircraft and engines’ utilization patterns and the anticipated return costs derived from historical experience of actual return costs incurred. Different judgements or estimates could significantly affect the estimated provision for frequent flyer programmes and the results of operations.
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
Provision for the estimated costs of return condition checks for aircraft and engines under operating leases is made based on the estimated costs for such return condition checks and taking into account anticipated flying hours, flying cycle and time frame between each overhaul. These judgements or estimates are based on historical experience on returning similar airframe models, actual costs incurred and aircraft status. Different judgements or estimates could significantly affect the estimated provision for costs of return condition checks.engines.
| (d) | Retirement benefits |
The Group operates and maintains a defined retirement benefit plan which provides eligible retirees with benefits including retirement subsidies, traveltransportation allowance as well as other welfare. The cost of providing the aforementioned benefits in the defined retirement benefit plan is actuarially determined and recognized over the employee’s service period by utilizing various actuarial assumptions and using the projected unit credit method in accordance with the accounting policy stated in note 3Note 2.4 to the consolidated financial statements. These assumptions include, without limitation, the selection of discount rate and annual rate of increase of per capita benefit payment and etc..payment. The discount rate is based on management’s review of government bonds. The annual rate of increase of benefit payments is based on the general local economic conditions.
Additional information regarding the retirement benefit plan is disclosed in note 37Note 38 to the consolidated financial statements.
| (e) | Deferred income tax |
In assessingDeferred tax assets are recognized for unused tax losses and deductible temporary difference to the extent that it is probable that taxable profit will be available against which the losses and deductible temporary difference can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that need tocan be recognized, in accordance withbased upon the accounting policy stated in note 3 to the financial statements, the Group considerslikely timing and level of future taxable income and ongoing prudent and feasibleprofits together with future tax planning strategies. In the event that the Group’s estimates of projected future taxable income and benefits from available tax strategies are changed, or changes in current tax regulations are enacted that would impact the timing or extent of the Group’s ability to utilize the tax benefits of deductible tax losses carried forward in the future, adjustments to the recorded amount of net deferred tax assets and taxation expense would be made.
| (f) | Provision for flight equipment spare parts |
Provision for flight equipment spare parts is made based on the difference between the carrying amount and the net
realizable value. The net realizable value is estimated based on current market condition, historical experience and the Company’s future operation plan for the aircraft and related spare parts. The net realizable value may be adjusted significantly due to the change of market condition and the future plan for the aircraft and related spare parts.
| (g) |
Depreciation of components related to airframe and engine overhaul costs is based on the Group’s historical experience with similar airframe and engine models and taking into account anticipated overhaul costs, timeframe between each overhaul, ratio of actual flying hours and estimated flying hours between overhauls. Different judgements or estimates could significantly affect the estimated depreciation charge and the results of operations.
Except for components related to engine overhaul costs, other 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 useful lives are based on the Group’s historical experience with similar assets and taking into account anticipated technological changes. The Group reviews the estimated useful lives of assets regularly in order to determine the amount of depreciation expense to be recorded during any reporting period. The depreciation expense for future periods is adjusted if there are significant changes from previous estimates.
| Estimated impairment of |
The Group tests whether property, plant and equipment, right-of-use assets, intangible assets (other than goodwill), advanced payments on acquisition of aircraft and intangibleother non-current assets have been impaired in accordance with the accounting policy stated in note 3Note 2.4 to the consolidated financial statements. The recoverable amount of the cash-generating unit has been determined based on the higher of its value in use and its fair value less cost to sell andvalue-in-use calculations.Value-in-use calculations usecosts of disposal. The cash flow projections used to determine the value in use of a cash-generating unit, including the airline transportation operations cash-generating unit, is based on financial budgets approved by management and certain keysignificant assumptions, such as passenger-kilometers yield level, load factor, aircraft utilizationrevenue growth rates and the discount rate and discount rates.applied to the projected cash flows. These assumptions may be affected by unexpected changes in future market or economic conditions.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(AmountsPrepared in millions except for per share data)accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES |
Impairment of goodwill |
The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the recoverable amount which is the higher of its value in use and its fair value less costs of disposal. The Group uses the value in use of the cash-generating unit to which the goodwill is allocated. Estimatingallocated to determine the recoverable amount. The cash flow projections used to determine the value in use requires the Group to make an estimate of the expected future cash flows from thea cash-generating unit, including the airline transportation operations cash-generating unit, is based on significant assumptions, such as revenue growth rate, terminal growth rate and also to choose a suitablethe discount rate in orderapplied to calculate the present value of thoseprojected cash flows.
The Group is principally engaged These assumptions may be affected by unexpected changes in the operation of civil aviation, including the provision of passenger, cargo, mail delivery, tour operations and other extended transportation services.
| 2017 | 2016 | 2015 | ||||||||||
| RMB million | RMB million | RMB million | ||||||||||
Traffic revenues | 95,187 | 89,554 | 85,076 | |||||||||
- Passenger | 91,564 | 83,577 | 78,585 | |||||||||
- Cargo and mail | 3,623 | 5,977 | 6,491 | |||||||||
Tour operations income | 2,322 | 3,113 | 3,491 | |||||||||
Ground service income | 1,323 | 2,850 | 2,546 | |||||||||
Cargo handling and processing income | 69 | 794 | 750 | |||||||||
Commission income | 112 | 92 | 78 | |||||||||
Others | 3,462 | 2,501 | 2,028 | |||||||||
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| 102,475 | 98,904 | 93,969 | ||||||||||
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| 2017 | 2016 | 2015 | ||||||||||
| RMB million | RMB million | RMB million | ||||||||||
Subsidy income (note (a)) | 4,941 | 4,531 | 4,131 | |||||||||
Gain on disposal of property, plant and equipment | 69 | 158 | 399 | |||||||||
Gain on disposal of prepayments for land use right | 5 | 3 | 1 | |||||||||
Gain on disposal ofavailable-for-sale investments | 4 | 95 | 33 | |||||||||
Dividend income fromavailable-for-sale investments | 33 | 28 | 13 | |||||||||
Gain on disposal of an associate | 12 | 12 | — | |||||||||
Compensation from ticket sales agents | 271 | 228 | 248 | |||||||||
Gain on disposal of a subsidiary (note 43) | 1,754 | — | 41 | |||||||||
Others (note (b)) | 392 | 414 | 403 | |||||||||
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| 7,481 | 5,469 | 5,269 | ||||||||||
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Notes:future market or economic conditions.
Fair value of |
There are no unfulfilled conditionsThe unlisted equity investments have been valued based on a market-based valuation technique as detailed in Note 47 to the consolidated financial statements. The valuation requires the Group to determine the comparable companies (peers) and other contingencies related to subsidies that were recognizedselect the price multiple. In addition, the Group makes estimates about the discount for illiquidity and size differences. The Group classifies the years ended 31 December 2017, 2016 and 2015.fair value hierarchy of these investments as Level 3.
Leases – Estimating the |
NOTES TO THE FINANCIAL STATEMENTS
(AmountsThe Group cannot readily determine the interest rate implicit in millions excepta lease, and therefore, it uses an incremental borrowing rate (“IBR”) to measure lease liabilities. The IBR is the rate of interest that the Group would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The IBR therefore reflects what the Group “would have to pay”, which requires estimation when no observable rates are available (such as for per share data)
OPERATING SEGMENT INFORMATION |
| (a) | CODM, office of the General Manager, reviews the Group’s internal reporting in order to assess performance and allocate resources. |
The Group has one reportable operating segment, reported as “airline transportation operations”, which comprises the provision of passenger, cargo, mail delivery and ground service and cargo handling services.service.
Other services including primarily tour operations, air catering and other miscellaneous services are not included within the airline transportation operations segment, as their internal reports are separately provided to the CODM. The results of these operations are included in the “other segments” column.
Inter-segment transactions are entered into under normal commercial terms and conditions that would be available to unrelated third parties.
In accordance with IFRS 8, segment disclosure has been presented in a manner that is consistent with the information used by the Group’s CODM. The Group’s CODM monitors the results, assets and liabilities attributable to each reportable segment based on financial results prepared under the PRC Accounting Standards for Business Enterprises (the “PRC Accounting Standards”), which differ from IFRSs in certain aspects. The amount of each material reconciling itemsitem from the Group’s reportable segment revenuerevenues and (loss)/profit or loss,before income tax, arising from different accounting policies areis set out in note 7(c)Note 4(c) below.
The segment results for the year ended December 31, 20172020 were as follows:
| Airline | ||||||||||||||||||||
| transportation | Other | |||||||||||||||||||
| operations | segments | Eliminations | Unallocated* | Total | ||||||||||||||||
| RMB million | RMB million | RMB million | RMB million | RMB million | ||||||||||||||||
Reportable segment revenue from external customers | 97,698 | 4,023 | — | — | 101,721 | |||||||||||||||
Inter-segment sales | — | 1,018 | (1,018 | ) | — | — | ||||||||||||||
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Reportable segment revenue | 97,698 | 5,041 | (1,018 | ) | — | 101,721 | ||||||||||||||
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Reportable segment profit before income tax | 6,517 | 363 | — | 1,740 | 8,620 | |||||||||||||||
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Other segment information | ||||||||||||||||||||
Depreciation and amortization | 13,769 | 190 | — | — | 13,959 | |||||||||||||||
Impairment charges (note 10) | 489 | 2 | — | — | 491 | |||||||||||||||
Interest income | 2,309 | (96 | ) | (101 | ) | — | 2112 | |||||||||||||
Interest expenses | 3,080 | 205 | (101 | ) | — | 3,184 | ||||||||||||||
Capital expenditure | 32,149 | 657 | — | — | 32,806 | |||||||||||||||
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The segment results for the year ended December 31, 2016 were as follows:
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| Airline | ||||||||||||||||||||
| transportation | Other | |||||||||||||||||||
| operations | segments | Eliminations | Unallocated* | Total | ||||||||||||||||
| RMB million | RMB million | RMB million | RMB million | RMB million | ||||||||||||||||
Reportable segment revenue from external customers | 94,338 | 4,222 | — | — | 98,560 | |||||||||||||||
Inter-segment sales | — | 782 | (782 | ) | — | — | ||||||||||||||
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Reportable segment revenue | 94,338 | 5,004 | (782 | ) | — | 98,560 | ||||||||||||||
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Reportable segment profit before income tax | 5,788 | 397 | — | 322 | 6,507 | |||||||||||||||
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| |||||||||||
Other segment information | ||||||||||||||||||||
Depreciation and amortization | 12,378 | 160 | — | — | 12,538 | |||||||||||||||
Impairment charges (note 10) | 22 | 7 | — | — | 29 | |||||||||||||||
Interest income | 100 | 100 | (104 | ) | — | 96 | ||||||||||||||
Interest expenses | 2,553 | 280 | (104 | ) | — | 2,729 | ||||||||||||||
Capital expenditure* | 34,631 | 776 | — | — | 35,407 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
| Airline transportation operations RMB million | Other segments RMB million | Eliminations RMB million | Unallocated* RMB million | Total RMB million | ||||||||||||||||
Segment revenue | ||||||||||||||||||||
Reportable segment revenue from external customers | 58,337 | 302 | — | — | 58,639 | |||||||||||||||
Intersegment sales | — | 1,499 | (1,499 | ) | — | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Reportable segment revenue | 58,337 | 1,801 | (1,499 | ) | — | 58,639 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Reportable segment (loss)/profit before income tax | (17,062 | ) | 684 | — | (103 | ) | (16,481 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(AmountsPrepared in millions except for per share data)accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
OPERATING SEGMENT INFORMATION |
| (a) | CODM, office of the General Manager, reviews the Group’s internal reporting in order to assess performance and allocate resources. |
Airline transportation operations RMB million | Other segments | Eliminations RMB million | Unallocated* RMB million | Total RMB million | ||||||||||||||||
Other segment information | ||||||||||||||||||||
Depreciation and amortization | 21,965 | 283 | — | — | 22,248 | |||||||||||||||
Impairment charges/impairment losses on financial assets, net** | 215 | 1 | — | — | 216 | |||||||||||||||
Interest income | 178 | 1 | (13 | ) | — | 166 | ||||||||||||||
Interest expense | 5,212 | 15 | (13 | ) | — | 5,214 | ||||||||||||||
Capital expenditure | 17,778 | 639 | — | — | 18,417 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
The segment results for the year ended December 31, 20152019 were as follows:
| Airline | ||||||||||||||||||||
| transportation | Other | |||||||||||||||||||
| operations | segments | Eliminations | Unallocated* | Total | ||||||||||||||||
| RMB million | RMB million | RMB million | RMB million | RMB million | ||||||||||||||||
Reportable segment revenue from external customers | 89,013 | 4,831 | — | — | 93,844 | |||||||||||||||
Inter-segment sales | 555 | 468 | (1,023 | ) | — | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Reportable segment revenue | 89,568 | 5,299 | (1,023 | ) | — | 93,844 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Reportable segment profit before income tax | 5,327 | 238 | — | 106 | 5,671 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Other segment information | ||||||||||||||||||||
Depreciation and amortization | 10,727 | 128 | — | — | 10,855 | |||||||||||||||
Impairment charges (note 10) | 93 | 1 | — | 134 | 228 | |||||||||||||||
Interest income | 69 | 13 | (16 | ) | — | 66 | ||||||||||||||
Finance expenses | 1,935 | 270 | (16 | ) | — | 2,189 | ||||||||||||||
Capital expenditure | 37,706 | 591 | — | — | 38,297 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
The segment assets and liabilities as at December 31, 2017 and December 31, 2016 were as follows:
|
| |||||||||||||||||||
| Airline | ||||||||||||||||||||
| transportation | Other | |||||||||||||||||||
| operations | segments | Eliminations | Unallocated* | Total | ||||||||||||||||
| RMB million | RMB million | RMB million | RMB million | RMB million | ||||||||||||||||
At December 31, 2017 | ||||||||||||||||||||
Reportable segment assets | 216,591 | 13,376 | (5,514 | ) | 3,011 | 227,464 | ||||||||||||||
Reportable segment liabilities | 165,148 | 11,301 | (5,514 | ) | 11 | 170,946 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
At December 31, 2016 | ||||||||||||||||||||
Reportable segment assets | 205,024 | 11,218 | (8,896 | ) | 2,705 | 210,051 | ||||||||||||||
Reportable segment liabilities | 159,437 | 9,373 | (8,896 | ) | 41 | 159,955 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Airline RMB million | Other RMB million | Eliminations RMB million | Unallocated* RMB million | Total RMB million | ||||||||||||||||
Segment revenue | ||||||||||||||||||||
Reportable segment revenue from external customers | 119,240 | 1,620 | — | — | 120,860 | |||||||||||||||
Intersegment sales | — | 2,052 | (2,052 | ) | — | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Reportable segment revenue | 119,240 | 3,672 | (2,052 | ) | — | 120,860 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Reportable segment profit before income tax | 2,745 | 1,164 | — | 393 | 4,302 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Other segment information | ||||||||||||||||||||
Depreciation and amortization | 21,816 | 261 | — | — | 22,077 | |||||||||||||||
Impairment charges/impairment losses on financial assets, net** | 20 | — | — | — | 20 | |||||||||||||||
Interest income | 108 | 1 | (13 | ) | — | 96 | ||||||||||||||
Interest expense | 5,152 | 30 | (13 | ) | — | 5,169 | ||||||||||||||
Capital expenditure | 42,853 | 303 | — | — | 43,156 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
The segment assets and liabilities as at December 31, 2020 and December 31, 2019 were as follows:
Airline RMB million | Other RMB million | Eliminations RMB million | Unallocated* RMB million | Total RMB million | ||||||||||||||||
At December 31, 2020 | ||||||||||||||||||||
Reportable segment assets | 275,028 | 5,510 | (1,736 | ) | 3,606 | 282,408 | ||||||||||||||
Reportable segment liabilities | 224,862 | 2,228 | (1,736 | ) | 142 | 225,496 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
At December 31, 2019 | ||||||||||||||||||||
Reportable segment assets | 274,578 | 6,225 | (1,943 | ) | 4,076 | 282,936 | ||||||||||||||
Reportable segment liabilities | 211,035 | 3,146 | (1,943 | ) | 301 | 212,539 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
| * | Unallocated assets primarily represent investments in associates and joint ventures, derivative financial instruments, equity investments designated at fair value through other comprehensive income and |
| ** | It included impairment loss on property, plant and equipment of RMB31 million (Note 16). |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 4 | OPERATING SEGMENT INFORMATION (continued) |
| (b) | The Group’s business operates in three main geographical areas, even though they are managed on a worldwide basis. |
The Group’s revenues by geographical area are analysed based on the following criteria:
| 1) | Traffic revenue from services within |
| 2) | Revenue from ticket handling services, ground services |
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
| 2020 | 2019 | 2018 | ||||||||||
| RMB million | RMB million | RMB million | ||||||||||
Domestic (the PRC, excluding Hong Kong, Macau and Taiwan) | 45,479 | 80,058 | 76,517 | |||||||||
International | 12,759 | 37,082 | 34,744 | |||||||||
Regional (Hong Kong, Macau and Taiwan) | 489 | 3,846 | 4,017 | |||||||||
|
|
|
|
|
| |||||||
| 58,727 | 120,986 | 115,278 | ||||||||||
|
|
|
|
|
| |||||||
The major revenue-earning assets of the Group are its aircraft, all of which are registered in the PRC. Since the Group’s aircraft are deployed flexibly across its route network, there is no suitable basis of allocating such assets and the related liabilities by geographic area and hence segment non-current assets and capital expenditure by geographic area are not presented. Except the aircraft, most non-current assets (except financial instruments) are registered and located in the PRC. |
| 2017 | 2016 | 2015 | ||||||||||
| RMB million | RMB million | RMB million | ||||||||||
Domestic (the PRC, excluding Hong Kong, | ||||||||||||
Macau and Taiwan) | 67,923 | 63,730 | 61,222 | |||||||||
Regional (Hong Kong, Macau and Taiwan) | 3,624 | 3,516 | 3,569 | |||||||||
International | 30,928 | 31,658 | 29,178 | |||||||||
|
|
|
|
|
| |||||||
Total | 102,475 | 98,904 | 93,969 | |||||||||
|
|
|
|
|
| |||||||
The major revenue-earning assets of the Group are its aircraft, all of which are registered in the PRC. Since the Group’s aircraft are deployed flexibly across its route network, there is no suitable basis of allocating such assets and the related liabilities by geographic area and hence segmentnon-current assets and capital expenditure by geographic area are not presented. Except the aircraft, mostnon-current assets (except financial instruments) are registered and located in the PRC.
| (c) | Reconciliation of reportable segment |
| 2017 | 2016 | 2015 | 2020 | 2019 | 2018 | |||||||||||||||||||||||||
| Note | RMB million | RMB million | RMB million | Note | RMB million | RMB million | RMB million | |||||||||||||||||||||||
Revenue | ||||||||||||||||||||||||||||||
Reportable segment revenue | 101,721 | 98,560 | 93,844 | 58,639 | 120,860 | 114,930 | ||||||||||||||||||||||||
- Reclassification of expired sales in advance of carriage | (i) | 754 | 344 | 125 | ||||||||||||||||||||||||||
- Reclassification of taxes relating to the expired tickets | (i) | 88 | 126 | 348 | ||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
Consolidated revenue | 102,475 | 98,904 | 93,969 | 58,727 | 120,986 | 115,278 | ||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
| 2017 | 2016 | 2015 | 2020 | 2019 | 2018 | |||||||||||||||||||||||||
| Note | RMB million | RMB million | RMB million | Note | RMB million | RMB million | RMB million | |||||||||||||||||||||||
Profit before income tax | ||||||||||||||||||||||||||||||
Reportable segment profit before income tax | 8,620 | 6,507 | 5,671 | |||||||||||||||||||||||||||
(Loss)/profit before income tax | ||||||||||||||||||||||||||||||
Reportable segment (loss)/profit | (16,481 | ) | 4,302 | 3,867 | ||||||||||||||||||||||||||
- Differences in depreciation charges for aircraft and engines due to different depreciation lives | (ii) | (10 | ) | (10 | ) | (4 | ) | (ii) | (7 | ) | (3 | ) | (11 | ) | ||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
Consolidated profit before income tax | 8,610 | 6,497 | 5,667 | |||||||||||||||||||||||||||
Consolidated (loss)/profit before income tax | (16,488 | ) | 4,299 | 3,856 | ||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
| 2020 | 2019 | |||||||||||||||||||||||||||||
| Notes | RMB million | RMB million | ||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||
Reportable segment assets | 282,408 | 282,936 | ||||||||||||||||||||||||||||
- Differences in depreciation charges for aircraft and engines due to different depreciation lives | (ii) | — | 7 | |||||||||||||||||||||||||||
- Difference in intangible asset arising from the acquisition of Shanghai Airlines | (iii) | 2,242 | 2,242 | |||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||
Consolidated assets | 284,650 | 285,185 | ||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||
| 2017 | 2016 | |||||||||||
| Notes | RMB million | RMB million | ||||||||||
Assets | ||||||||||||
Reportable segment assets | 227,464 | 210,051 | ||||||||||
- Differences in depreciation charges for aircraft and engines due to different depreciation lives | (ii) | 21 | 31 | |||||||||
- Difference in intangible asset arising from the acquisition of Shanghai Airlines | (iii) | 2,242 | 2,242 | |||||||||
|
|
|
| |||||||||
Consolidated assets | 229,727 | 212,324 | ||||||||||
|
|
|
| |||||||||
| 2017 | 2016 | |||||||||||
| RMB million | RMB million | |||||||||||
Liabilities | ||||||||||||
Reportable segment liabilities | 170,946 | 159,955 | ||||||||||
- Others | 3 | 3 | ||||||||||
|
|
|
| |||||||||
Consolidated liabilities | 170,949 | 159,958 | ||||||||||
|
|
|
| |||||||||
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(AmountsPrepared in millions except for per share data)accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
OPERATING SEGMENT INFORMATION |
| (c) | Reconciliation of reportable segment revenues, (loss)/profit and assets to the consolidated figures as reported in the consolidated financial statements (continued): |
Notes:
| (i) | The difference represents the different classification of |
| (ii) | The difference is attributable to the differences in the useful lives and residual values of aircraft and engines adopted for depreciation purposes in prior years under the PRC Accounting Standards and IFRSs. Despite the depreciation policies of these assets which have been unified under IFRSs and the PRC Accounting Standards in recent years, the changes were applied prospectively as changes in accounting estimates which result in the differences in the carrying amounts and related depreciation charges under IFRSs and the PRC Accounting Standards. |
| (iii) | The difference represents the different measurement of the fair value of acquisition cost of the shares from Shanghai Airlines between the PRC Accounting standards and IFRSs, which results in the different measurement of goodwill. |
REVENUE |
An analysis of revenue is as follows:
| 2020 | 2019 | 2018 | ||||||||||
| RMB million | RMB million | RMB million | ||||||||||
Revenue from contracts with customers | 58,470 | 120,796 | 115,210 | |||||||||
Revenue from other sources | ||||||||||||
Rental income | 257 | 190 | 68 | |||||||||
|
|
|
|
|
| |||||||
| 58,727 | 120,986 | 115,278 | ||||||||||
|
|
|
|
|
| |||||||
Revenue from contracts with customers
| (i) | Disaggregated revenue information |
For the year ended December 31, 2020
| Airline | ||||||||||||
| transportation | Other | |||||||||||
| Segments | operations | operations | Total | |||||||||
| RMB million | RMB million | RMB million | ||||||||||
Types of goods or services | ||||||||||||
Traffic revenues | ||||||||||||
- Passenger | 49,215 | — | 49,215 | |||||||||
- Cargo and mail | 4,895 | — | 4,895 | |||||||||
Tour operations income | — | 14 | 14 | |||||||||
Ground service income | 818 | — | 818 | |||||||||
Commission income | 2,206 | — | 2,206 | |||||||||
Others | 1,034 | 288 | 1,322 | |||||||||
|
|
|
|
|
| |||||||
Total revenue from contracts with customers | 58,168 | 302 | 58,470 | |||||||||
|
|
|
|
|
| |||||||
Geographical markets | ||||||||||||
Domestic (the PRC, excluding Hong Kong, Macau and Taiwan) | 44,920 | 302 | 45,222 | |||||||||
International | 12,759 | — | 12,759 | |||||||||
Regional (Hong Kong, Macau and Taiwan) | 489 | — | 489 | |||||||||
|
|
|
|
|
| |||||||
Total revenue from contracts with customers | 58,168 | 302 | 58,470 | |||||||||
|
|
|
|
|
| |||||||
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 5 | REVENUE (continued) |
| 2017 | 2016 | 2015 | ||||||||||
| RMB million | RMB million | RMB million | ||||||||||
Interest rate swap contracts (note 39(a)) | — | 2 | 6 | |||||||||
Forward foreign exchange contracts (note 39(b)) | (311 | ) | — | — | ||||||||
|
|
|
|
|
| |||||||
| (311 | ) | 2 | 6 | |||||||||
|
|
|
|
|
| |||||||
Revenue from contracts with customers (continued)
Disaggregated revenue information (continued) |
| 2017 | 2016 | 2015 | ||||||||||
| RMB million | RMB million | RMB million | ||||||||||
Wages, salaries, bonus and allowances | 16,474 | 14,370 | 12,917 | |||||||||
Employee welfare and benefits | 133 | 235 | 436 | |||||||||
Pension (note 37(a)) | 1,987 | 1,769 | 1,479 | |||||||||
Medical insurance (note (a)) | 663 | 606 | 563 | |||||||||
Staff housing fund (note (b)) | 886 | 868 | 817 | |||||||||
Staff housing allowances (note (c)) | 150 | 236 | 247 | |||||||||
Early retirement benefits (note (d)) | 27 | 61 | — | |||||||||
|
|
|
|
|
| |||||||
| 20,320 | 18,145 | 16,459 | ||||||||||
|
|
|
|
|
| |||||||
For the year ended December 31, 2019
| Airline | ||||||||||||
| transportation | Other | |||||||||||
| Segments | operations | operations | Total | |||||||||
| RMB million | RMB million | RMB million | ||||||||||
Types of goods or services | ||||||||||||
Traffic revenues | ||||||||||||
- Passenger | 110,416 | — | 110,416 | |||||||||
- Cargo and mail | 3,826 | — | 3,826 | |||||||||
Tour operations income | — | 878 | 878 | |||||||||
Ground service income | 1,180 | — | 1,180 | |||||||||
Commission income | 2,485 | — | 2,485 | |||||||||
Others | 1,269 | 742 | 2,011 | |||||||||
|
|
|
|
|
| |||||||
Total revenue from contracts with customers | 119,176 | 1,620 | 120,796 | |||||||||
|
|
|
|
|
| |||||||
Geographical markets | ||||||||||||
Domestic (the PRC, excluding Hong Kong, Macau and Taiwan) | 78,248 | 1,620 | 79,868 | |||||||||
International | 37,082 | — | 37,082 | |||||||||
Regional (Hong Kong, Macau and Taiwan) | 3,846 | — | 3,846 | |||||||||
|
|
|
|
|
| |||||||
Total revenue from contracts with customers | 119,176 | 1,620 | 120,796 | |||||||||
|
|
|
|
|
| |||||||
Set out below is the reconciliation of the revenue from contracts with customers to the amounts disclosed in the segment information:
For the year ended December 31, 2020
| Segments | Airline RMB million | Other RMB million | Total RMB million | |||||||||
Revenue from contracts with customers | ||||||||||||
External customers | 58,168 | 302 | 58,470 | |||||||||
Intersegment sales | — | 1,499 | 1,499 | |||||||||
|
|
|
|
|
| |||||||
Intersegment adjustment and eliminations | — | (1,499 | ) | (1,499 | ) | |||||||
|
|
|
|
|
| |||||||
Total revenue from contracts with customers | 58,168 | 302 | 58,470 | |||||||||
|
|
|
|
|
| |||||||
For the year ended December 31, 2019
| Segments | Airline RMB million | Other RMB million | Total RMB million | |||||||||
Revenue from contracts with customers | ||||||||||||
External customers | 119,176 | 1,620 | 120,796 | |||||||||
Intersegment sales | — | 2,052 | 2,052 | |||||||||
|
|
|
|
|
| |||||||
Intersegment adjustment and eliminations | — | (2,052 | ) | (2,052 | ) | |||||||
|
|
|
|
|
| |||||||
Total revenue from contracts with customers | 119,176 | 1,620 | 120,796 | |||||||||
|
|
|
|
|
| |||||||
The following table shows the amount of revenue recognized in the current reporting period that was included in the contract liabilities at the beginning of the reporting period:
2020 RMB million | 2019 RMB million | |||||||
Revenue recognized that was included in contract liabilities at the beginning of the year: | ||||||||
Passenger transportation services | 6,699 | 7,216 | ||||||
|
|
|
| |||||
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 5 | REVENUE (continued) |
Revenue from contracts with customers (continued)
| (i) | Disaggregated revenue information (continued) |
As at December 31, 2020, the contract liabilities for frequent flyer program amounted to RMB1,781 million. The table below presents the activity of the contract liabilities for frequent flyer program.
2020 RMB million | 2019 RMB million | |||||||
At January 1 | 2,245 | 2,286 | ||||||
Deferred during the year | 843 | 1,613 | ||||||
Recognized as revenue during the year | (1,122 | ) | (1,654 | ) | ||||
|
|
|
| |||||
At December 31 | 1,966 | 2,245 | ||||||
Less: the related pending output value added tax therein | 185 | 188 | ||||||
|
|
|
| |||||
| 1,781 | 2,057 | |||||||
|
|
|
| |||||
| (ii) | Performance obligations |
Information about the Group’s performance obligations is summarized below:
Passenger transportation services
The performance obligation is satisfied upon transportation service provided. Payment in advance is required and reflected in sales in advance of carriage or frequent flyer program, both of which are included in contract liabilities.
Cargo and mail transportation services
The performance obligation is satisfied as services are rendered and payment is generally due within 30 days after the end of each month.
Tour services
The performance obligation is satisfied as services are rendered and payment in advance is generally required.
Ground services
The performance obligation is satisfied as services are rendered and payment is generally due within 45 days from the date of billing.
Ticket cancellation and commission services
The performance obligation is satisfied as the process of ticket cancellation or sales is completed and consideration normally has been received before the services are rendered.
| 6 | OTHER OPERATING INCOME AND GAINS |
2020 RMB million | 2019 RMB million | 2018 RMB million | ||||||||||
Co-operation routes income (note (a)) | 3,650 | 5,436 | 4,536 | |||||||||
Routes subsidy income (note (b)) | 372 | 353 | 441 | |||||||||
Other subsidy income (note (c)) | 1,326 | 535 | 453 | |||||||||
Gain on disposal of items of property, plant and equipment | 55 | 40 | 290 | |||||||||
Gain on disposal of prepayments for land use rights | — | — | 210 | |||||||||
Gain on disposal of an associate | — | — | 5 | |||||||||
Dividend income from a financial asset at fair value through profit or loss | 6 | 3 | 6 | |||||||||
Dividend income from equity investments designated at fair value through other comprehensive income | 12 | 19 | 23 | |||||||||
Compensation from ticket sales agents | 53 | 331 | 348 | |||||||||
Gain on disposal of a subsidiary | — | 64 | — | |||||||||
Others | 224 | 421 | 280 | |||||||||
|
|
|
|
| �� | |||||||
| 5,698 | 7,202 | 6,592 | ||||||||||
|
|
|
|
|
| |||||||
Notes:
| (a) | Co-operation routes income represents subsidies granted by various local authorities and other parties, with which the Group developed certain routes to support the development of local economy. The amounts granted are calculated based on the agreements entered into by all parties. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 6 | OTHER OPERATING INCOME AND GAINS (continued) |
Notes: (continued)
| (b) | Routes subsidy income represents subsidies granted by various authorities to support certain international and domestic routes operated by the Group . |
| (c) | Other subsidy income represents subsidies granted by various local authorities based on certain amounts of tax paid and other government grants. |
| (d) | There are no unfulfilled conditions or other contingencies related to subsidies that were recognized for the years ended December 31, 2020, 2019 and 2018. |
| 7 | OPERATING PROFIT |
Operating profit is stated after charging/(crediting) the following items:
| 2020 RMB million | 2019 RMB million | 2018 RMB million | ||||||||||
Amortization of intangible assets (Note 19) | 239 | 143 | 160 | |||||||||
Depreciation of property, plant and equipment (Note 16) | ||||||||||||
– owned | 9,067 | 9,078 | 7,926 | |||||||||
– leased (finance leases) | — | — | 6,690 | |||||||||
Depreciation of right-of-use assets (Note 18(a)) (2018: amortization of prepayments for land use rights) | 12,367 | 12,298 | 43 | |||||||||
Depreciation of investment properties (Note 17) | 12 | 25 | 26 | |||||||||
Amortization of long-term deferred assets included in other non-current assets | 570 | 536 | 468 | |||||||||
Impairment charge on property, plant and equipment (Note 9) | 31 | 4 | — | |||||||||
Write-down of flight equipment spare parts to net realizable value (Note 9) | 153 | — | — | |||||||||
Consumption of flight equipment spare parts | 1,135 | 1,013 | 1,088 | |||||||||
Auditors’ remuneration | 17 | 18 | 17 | |||||||||
Foreign exchange differences, net (Note 11 and 12) | (2,494 | ) | 990 | 2,040 | ||||||||
|
|
|
|
|
| |||||||
| 8 | WAGES, SALARIES AND BENEFITS |
| 2020 RMB million | 2019 RMB million | 2018 RMB million | ||||||||||
Wages, salaries, bonuses and allowances | 16,412 | 19,385 | 17,865 | |||||||||
Employee welfare and benefits | 128 | 143 | 170 | |||||||||
Pension (Note 38(a)) | 2,149 | 2,571 | 2,306 | |||||||||
Medical insurance (note (a)) | 725 | 789 | 706 | |||||||||
Staff housing fund (note (b)) | 1,195 | 1,056 | 948 | |||||||||
Staff housing allowances (note (c)) | 214 | 186 | 109 | |||||||||
Early retirement benefits (note (d)) | 4 | 22 | 30 | |||||||||
|
|
|
|
|
| |||||||
| 20,827 | 24,152 | 22,134 | ||||||||||
|
|
|
|
|
| |||||||
Notes:
| (a) | Medical insurance |
Majority of the Group’s PRC employees participate in the medical insurance schemes organized by municipal governments.
| (b) | Staff housing fund |
In accordance with the relevant PRC housing regulations, the Group is required to contribute to the state-sponsored housing fund for its employees. At the same time, the employees are required to contribute an amount equal to the Group’s contribution. The employees are entitled to claim the entire sum of the fund contributed under certain specified withdrawal circumstances. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits.
| (c) | Staff housing allowances |
The Group also provides staff housing allowances in cash to eligible employees. The total entitlement of an eligible employee is principally vestedprovided over a period of 20 years. Upon an eligible employee’s resignation or retirement, his or her entitlement would cease and any unpaid entitlement related to past service up to the date of resignation or retirement would be paid.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(AmountsPrepared in millions except for per share data)accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
WAGES, SALARIES AND BENEFITS |
| Notes: | (continued) |
| (d) | Early retirement benefits |
The Group implements an early retirement scheme which allows eligible employees to early retire on a voluntary basis. The Group undertakes the obligations to pay the early retirement employees’ basic salaries and certain welfare in the future on a monthly basis according to the early retirement scheme, together with social insurance and housing fund pursuant to the regulation of the local government. The benefits of the early retirement scheme are calculated based on factors including the remaining number of years of service from the date of early retirement to the normal retirement date and the benefits the early retirement employees enjoyed. The present value of the future cash flows expected to be required to settle the obligations is recognized as a provision in “other long-term liabilities”.
| (e) | Directors’ and |
Directors’ and executive’s remuneration for the year, disclosed pursuant to the Listing Rules, section 383(1)(a), (b), (c) and (f) of the Hong Kong Companies Ordinance and Part 2 of the Companies (Disclosure of Information about Benefits of Directors) Regulation, together with the remuneration of supervisors, is as follows:
2017
| 2020 RMB’000 | 2019 RMB’000 | 2018 RMB’000 | ||||||||||
Fees | 460 | 805 | 800 | |||||||||
|
|
|
|
|
| |||||||
Other emoluments: | ||||||||||||
Salaries, allowances and benefits in kind | 2,906 | 665 | 1,464 | |||||||||
Performance related bonuses* | — | — | — | |||||||||
Pension scheme contributions | 61 | 21 | 41 | |||||||||
|
|
|
|
|
| |||||||
| 3,427 | 1,491 | 2,305 | ||||||||||
|
|
|
|
|
| |||||||
| * | No executive directors of the Company are entitled to bonus payments which are determined as a percentage of the profit after tax of the Group. |
2020
| Salaries and | ||||||||||||
| allowances | Bonus | Total | ||||||||||
| RMB’000 | RMB’000 | RMB’000 | ||||||||||
Executive Directors | ||||||||||||
Liu Shaoyong* | — | — | — | |||||||||
Ma Xulun* | — | — | — | |||||||||
Xu Zhao* | — | — | — | |||||||||
Gu Jiadan* | — | — | — | |||||||||
Li Yangmin* | — | — | — | |||||||||
Tang Bing* | — | — | — | |||||||||
Tian Liuwen* | — | — | — | |||||||||
Independentnon-executive Directors | ||||||||||||
Li Ruoshan | 200 | — | 200 | |||||||||
Shao Ruiqing | 200 | — | 200 | |||||||||
Ma Weihua | 200 | — | 200 | |||||||||
Cai Hongping | 200 | — | 200 | |||||||||
Supervisors | ||||||||||||
Xi Sheng* | — | — | — | |||||||||
Feng Jinxiong | 584 | — | 584 | |||||||||
Ba Shengji* | — | — | — | |||||||||
Hu Jidong | 1,549 | — | 1,549 | |||||||||
Jia Shaojun* | — | — | — | |||||||||
|
|
|
|
|
| |||||||
Total | 2,933 | — | 2,933 | |||||||||
|
|
|
|
|
| |||||||
| Fees RMB’000 | Salaries, allowances and benefits in kind RMB’000 | Performance related bonuses RMB’000 | Pension scheme contributions RMB’000 | Total RMB’000 | ||||||||||||||||
Executive Directors | ||||||||||||||||||||
Liu Shaoyong* | — | — | — | — | — | |||||||||||||||
Wang Junjin*** | — | — | — | — | — | |||||||||||||||
Li Yangmin* | — | — | — | — | — | |||||||||||||||
Tang Bing* | — | — | — | — | — | |||||||||||||||
Yuan Jun*&*** | — | — | — | — | — | |||||||||||||||
Jiang Jiang***** | — | 2,325 | — | 36 | 2,361 | |||||||||||||||
Independent non-executive Directors | ||||||||||||||||||||
Lin Wanli*** | — | — | — | — | — | |||||||||||||||
Shao Ruiqing | 200 | — | — | — | 200 | |||||||||||||||
Cai Hongping | 200 | — | — | — | 200 | |||||||||||||||
Dong Xuebo | 60 | — | — | — | 60 | |||||||||||||||
Supervisors | ||||||||||||||||||||
Xi Sheng* | — | — | — | — | — | |||||||||||||||
Gao Feng*** | — | 536 | — | 23 | 559 | |||||||||||||||
Zhou Huaxin***** | — | 45 | — | 2 | 47 | |||||||||||||||
Fang Zhaoya* | — | — | — | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | 460 | 2,906 | — | 61 | 3,427 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
2016
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 8 | ||||||||||||
| ||||||||||||
| ||||||||||||
| ||||||||||||
| ||||||||||||
| ||||||||||||
| ||||||||||||
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
| WAGES, SALARIES AND BENEFITS |
| Notes: | (continued) |
| (e) | Directors’ and |
| Salaries and | ||||||||||||
| allowances | Bonus | Total | ||||||||||
| RMB’000 | RMB’000 | RMB’000 | ||||||||||
Tang Bing* | — | — | — | |||||||||
Tian Liuwen* | — | — | — | |||||||||
Independentnon-executive Directors | ||||||||||||
Li Ruoshan | 160 | — | 160 | |||||||||
Ji Weidong*** | — | — | — | |||||||||
Shao Ruiqing | 160 | — | 160 | |||||||||
Ma Weihua | 160 | — | 160 | |||||||||
Cai Hongping** | 100 | — | 100 | |||||||||
Supervisors | ||||||||||||
Yu Faming*&**** | — | — | — | |||||||||
Xi Sheng* | — | — | — | |||||||||
Xu Haihua***** | 288 | — | 288 | |||||||||
Feng Jinxiong | 535 | — | 535 | |||||||||
Ba Shengji* | — | — | — | |||||||||
Hu Jidong** | 426 | — | 426 | |||||||||
Jia Shaojun*&** | — | — | — | |||||||||
|
|
|
|
|
| |||||||
Total | 1,829 | — | 1,829 | |||||||||
|
|
|
|
|
| |||||||
20152019
| Salaries and | ||||||||||||
| allowances | Bonus | Total | ||||||||||
| RMB’000 | RMB’000 | RMB’000 | ||||||||||
Executive Directors | ||||||||||||
Liu Shaoyong* | — | — | — | |||||||||
Ma Xulun | 401 | — | 401 | |||||||||
Xu Zhao* | — | — | — | |||||||||
Gu Jiadan* | — | — | — | |||||||||
Li Yangmin | 365 | — | 365 | |||||||||
Tang Bing | 358 | — | 358 | |||||||||
Tian Liuwen****** | 419 | — | 419 | |||||||||
Independentnon-executive Directors | ||||||||||||
Liu Keya******* | 72 | — | 72 | |||||||||
Ji Weidong*** | — | — | — | |||||||||
Shao Ruiqing****** | 60 | — | 60 | |||||||||
Li Ruoshan | 120 | — | 120 | |||||||||
Ma Weihua | 120 | — | 120 | |||||||||
Supervisors | ||||||||||||
Yu Faming* | — | — | — | |||||||||
Xi Sheng* | — | — | — | |||||||||
Xu Haihua****** | 298 | — | 298 | |||||||||
Feng Jinxiong | 610 | — | 610 | |||||||||
Ba Shengji* | — | — | — | |||||||||
|
|
|
|
|
| |||||||
Total | 2,823 | — | 2,823 | |||||||||
|
|
|
|
|
| |||||||
| Fees RMB’000 | Salaries, allowances and benefits in kind RMB’000 | Performance related bonuses RMB’000 | Pension scheme contributions RMB’000 | Total RMB’000 | ||||||||||||||||
Executive Directors | ||||||||||||||||||||
Liu Shaoyong* | — | — | — | — | — | |||||||||||||||
Ma Xulun*&**** | — | — | — | — | — | |||||||||||||||
Wang Junjin** | — | — | — | — | — | |||||||||||||||
Li Yangmin*&** | — | — | — | — | — | |||||||||||||||
Tang Bing*&** | — | — | — | — | — | |||||||||||||||
Yuan Jun* | — | — | — | — | — | |||||||||||||||
Independent non-executive Directors | ||||||||||||||||||||
Lin Wanli | — | — | — | — | — | |||||||||||||||
Li Ruoshan*** | 200 | — | — | — | 200 | |||||||||||||||
Ma Weihua*** | 200 | — | — | — | 200 | |||||||||||||||
Shao Ruiqing | 200 | — | — | — | 200 | |||||||||||||||
Cai Hongping | 200 | — | — | — | 200 | |||||||||||||||
Dong Xuebo** | 5 | — | — | — | 5 | |||||||||||||||
Supervisors | ||||||||||||||||||||
Xi Sheng* | — | — | — | — | — | |||||||||||||||
Gao Feng | — | 665 | — | 21 | 686 | |||||||||||||||
Li Jinde*&*** | — | — | — | — | — | |||||||||||||||
Fang Zhaoya*&** | — | — | — | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | 805 | 665 | — | 21 | 1,491 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
2018
| Fees RMB’000 | Salaries, allowances and benefits in kind RMB’000 | Performance related bonuses RMB’000 | Pension scheme contributions RMB’000 | Total RMB’000 | ||||||||||||||||
Executive Directors | ||||||||||||||||||||
Liu Shaoyong* | — | — | — | — | — | |||||||||||||||
Ma Xulun*&**** | — | — | — | — | — | |||||||||||||||
Xu Zhao*&*** | — | — | — | — | — | |||||||||||||||
Gu Jiadan*&*** | — | — | — | — | — | |||||||||||||||
Li Yangmin*&*** | — | — | — | — | — | |||||||||||||||
Tang Bing*&*** | — | — | — | — | — | |||||||||||||||
Tian Liuwen*&*** | — | — | — | — | — | |||||||||||||||
Yuan Jun** | — | 867 | — | 14 | 881 | |||||||||||||||
Independent non-executive Directors | ||||||||||||||||||||
Lin Wanli** | — | — | — | — | — | |||||||||||||||
Li Ruoshan | 200 | — | — | — | 200 | |||||||||||||||
Ma Weihua | 200 | — | — | — | 200 | |||||||||||||||
Shao Ruiqing | 200 | — | — | — | 200 | |||||||||||||||
Cai Hongping | 200 | — | — | — | 200 | |||||||||||||||
Supervisors | ||||||||||||||||||||
Xi Sheng* | — | — | — | — | — | |||||||||||||||
Gao Feng** | — | 251 | — | 19 | 270 | |||||||||||||||
Li Jinde*&** | — | — | — | — | — | |||||||||||||||
Ba Shengji*&*** | — | — | — | — | — | |||||||||||||||
Hu Jidong*&*** | — | — | — | — | — | |||||||||||||||
Feng Jinxiong****** | — | 346 | — | 8 | 354 | |||||||||||||||
Jia Shaojun*&*** | — | — | — | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | 800 | 1,464 | — | 41 | 2,305 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(AmountsPrepared in millions except for per share data)accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
WAGES, SALARIES AND BENEFITS |
| Notes: | (continued) |
| (e) | Directors’ and |
| * | These directors and supervisors of the Company received emoluments from CEA Holding, the parent company, part of which were in respect of their services to the Company and its subsidiaries. No apportionment has been made as it is impracticable to apportion |
| ** | These directors and supervisors of the Company were newly appointed or elected during the |
| *** |
These directors and supervisors of the Company |
| **** | Mr. Ma Xulun resigned on February 1, 2019. |
| ***** | Mr. Jiang Jiang was newly appointed as Employee Representative Director on December 28, 2020 and Mr. Zhou Huaxin was newly appointed as Supervisor on December 10, 2020. Their salaries, allowances and benefits in kind were listed as being Managers. |
| ****** | Mr. Feng Jinxiong passed away due to illness during the year ended December 31, |
During the years ended December 31, 2017, 20162020, 2019 and 2015,2018, no directors and supervisors waived their emoluments.
| (f) | Five highest paid individuals |
NoneOne of the Company’s directors and supervisors was among the five highest paid individuals in the Group for the year ended December 31, 2017 (2016 and 2015:2020 (2019: Nil). The emoluments payable to the five highest paid individuals were as follows:
| 2017 | 2016 | 2015 | ||||||||||
| RMB million | RMB million | RMB million | ||||||||||
Wages, salaries, bonus and allowances | 8,702 | 9,319 | 8,104 | |||||||||
|
|
|
|
|
| |||||||
| 2020 RMB’000 | 2019 RMB’000 | |||||||
Wages, salaries and allowances | 10,495 | 11,413 | ||||||
Performance related bonuses* | — | — | ||||||
Pension scheme contributions | 172 | 185 | ||||||
|
|
|
| |||||
| 10,667 | 11,598 | |||||||
|
|
|
| |||||
| * | None of the above highest paid individuals are entitled to bonus payments which are determined as a percentage of the profit after tax of the Group. |
The number of five highest paid individuals whose emoluments fell within the following bands is as follows:
| Number of individuals | Number of individuals | |||||||||||||||||||
| 2017 | 2016 | 2015 | 2020 | 2019 | ||||||||||||||||
HK$1,500,001 to HK$2,000,000 | — | — | 5 | |||||||||||||||||
HK$2,000,001 to HK$2,500,000 | 5 | 5 | — | 2 | 2 | |||||||||||||||
HK$2,500,001 to HK$3,000,000 | 3 | 2 | ||||||||||||||||||
HK$3,000,001 to HK$3,500,000 | — | 1 | ||||||||||||||||||
|
|
|
|
| ||||||||||||||||
| 5 | 5 | 5 | ||||||||||||||||||
|
|
| ||||||||||||||||||
During the year ended December 31, 2017,2020, no emoluments were paid by the Group to the directors, supervisors and the five highest paid individuals as an inducement to join or upon joining the Group, or as a compensation for loss of office (2016(2019: Nil).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2015: Nil).2018
| 9 | IMPAIRMENT CHARGES |
| 2020 RMB million | 2019 RMB million | 2018 RMB million | ||||||||||
Impairment charge on property, plant and equipment (Note 16) | 31 | 4 | 15 | |||||||||
Write-down of flight equipment spare parts to net realizable value (Note 26) | 153 | — | 301 | |||||||||
Impairment charge on assets classified as held for sale | — | — | 2 | |||||||||
|
|
|
|
|
| |||||||
| 184 | 4 | 318 | ||||||||||
|
|
|
|
|
| |||||||
| 10 | IMPAIRMENT |
| 2017 | 2016 | 2015 | ||||||||||
| RMB million | RMB million | RMB million | ||||||||||
Write-down of flight equipment spare parts to net realisable value (note 26) | 112 | 10 | 88 | |||||||||
Impairment charge on property, plant and equipment (note 18) | 379 | 29 | 48 | |||||||||
Impairment charge on assets of a disposal group classified as held for sale (note 16) | 3 | — | 33 | |||||||||
Impairment charge onavailable-for-sale investments | — | — | 100 | |||||||||
Accrual/(reversal) of impairment charge on trade receivables (note 27) | (3 | ) | (1 | ) | 12 | |||||||
Reversal of impairment charge on other receivables | — | (9 | ) | (53 | ) | |||||||
|
|
|
|
|
| |||||||
| 491 | 29 | 228 | ||||||||||
|
|
|
|
|
| |||||||
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
| 2020 RMB million | 2019 RMB million | 2018 RMB million | ||||||||||
Impairment losses on trade receivable, net (Note 27) | 15 | (6 | ) | (21 | ) | |||||||
Impairment losses on other receivables (Note 29) | 17 | 22 | 48 | |||||||||
|
|
|
|
|
| |||||||
| 32 | 16 | 27 | ||||||||||
|
|
|
|
|
| |||||||
| 11 | FINANCE INCOME |
Operating profit is stated after charging the following items:
| 2017 | 2016 | 2015 | ||||||||||
| RMB million | RMB million | RMB million | ||||||||||
Amortization of intangible assets (note 17) | 142 | 129 | 85 | |||||||||
Depreciation of property, plant and equipment (note 18) | ||||||||||||
– owned | 7,065 | 6,388 | 5,350 | |||||||||
– leased (finance leases) | 6,302 | 5,563 | 4,972 | |||||||||
Depreciation of investment properties (note 19) | 12 | 11 | 4 | |||||||||
Amortization of long-term deferred assets included in othernon-current assets | 402 | 394 | 388 | |||||||||
Amortization of prepayments for land use right | 45 | 63 | 60 | |||||||||
Consumption of flight equipment spare parts | 1,131 | 1,198 | 974 | |||||||||
Auditors’ remuneration | 19 | 18 | 17 | |||||||||
Subsidy income (note 6) | (4,941 | ) | (4,531 | ) | (4,131 | ) | ||||||
Gain on disposal of a subsidiary (note 6) | (1,754 | ) | — | (41 | ) | |||||||
|
|
|
|
|
| |||||||
| 2020 RMB million | 2019 RMB million | 2018 RMB million | ||||||||||
Interest income | 166 | 96 | 110 | |||||||||
Foreign exchange gains, net (Note 12(b)) | 2,494 | — | — | |||||||||
|
|
|
|
|
| |||||||
| 2,660 | 96 | 110 | ||||||||||
|
|
|
|
|
| |||||||
| 12 | FINANCE |
| 2017 | 2016 | 2015 | ||||||||||
| RMB million | RMB million | RMB million | ||||||||||
Interest income | 111 | 96 | 66 | |||||||||
Foreign exchange difference, net (note 13(b)) | 2,001 | — | — | |||||||||
|
|
|
|
|
| |||||||
| 2,112 | 96 | 66 | ||||||||||
|
|
|
|
|
| |||||||
| 2017 | 2016 | 2015 | ||||||||||
| RMB million | RMB million | RMB million | ||||||||||
Interest on bank borrowings | 1,590 | 1,529 | 1,613 | |||||||||
Interest relating to obligations under finance leases | 1,845 | 1,349 | 867 | |||||||||
Interest relating to post-retirement benefit obligations (note37) | 98 | 88 | 114 | |||||||||
Interest on bonds and debentures | 381 | 359 | 483 | |||||||||
Interest relating to interest rate swap contracts (note 39(a)) | 63 | 122 | 128 | |||||||||
Less: amount capitalized into advanced payments on acquisition of aircraft (note (a)) (note21) | (793 | ) | (749 | ) | (1,014 | ) | ||||||
amounts capitalized into construction in progress (note (a)) | — | — | (2 | ) | ||||||||
|
|
|
|
|
| |||||||
| 3,184 | 2,698 | 2,189 | ||||||||||
Foreign exchange difference, net (note (b)) | — | 3,574 | 4,987 | |||||||||
|
|
|
|
|
| |||||||
| 3,184 | 6,272 | 7,176 | ||||||||||
|
|
|
|
|
| |||||||
| 2020 RMB million | 2019 RMB million | 2018 RMB million | ||||||||||
Interest on bank borrowings | 1,112 | 1,149 | 1,569 | |||||||||
Interest relating to lease liabilities (Note 18(c)) | 3,655 | 3,894 | — | |||||||||
Interest relating to obligations under finance leases | — | — | 2,440 | |||||||||
Interest relating to post-retirement benefit obligations | 85 | 92 | 106 | |||||||||
Interest relating to provision for lease return costs for aircraft and engines | 283 | 270 | — | |||||||||
Interest on bonds and debentures | 632 | 520 | 468 | |||||||||
Interest relating to interest rate swap contracts | 4 | (68 | ) | (6 | ) | |||||||
Less: amounts capitalized into advanced payments on acquisition of aircraft (note (a)) | (558 | ) | (687 | ) | (850 | ) | ||||||
|
|
|
|
|
| |||||||
| 5,213 | 5,170 | 3,727 | ||||||||||
Foreign exchange losses, net (note (b)) | — | 990 | 2,040 | |||||||||
|
|
|
|
|
| |||||||
| 5,213 | 6,160 | 5,767 | ||||||||||
|
|
|
|
|
| |||||||
Notes:
| (a) | The weighted average interest rate used for interest capitalization was |
| (b) | The exchange |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(AmountsPrepared in millions except for per share dataaccordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
13 | INCOME TAX |
Income tax (credited)/charged to profit or loss was as follows:
| 2017 | 2016 | 2015 | ||||||||||
| RMB million | RMB million | RMB million | ||||||||||
Income tax | 1,962 | 1,396 | 737 | |||||||||
Deferred taxation (note 38) | (162 | ) | 146 | (113 | ) | |||||||
|
|
|
|
|
| |||||||
| 1,800 | 1,542 | 624 | ||||||||||
|
|
|
|
|
| |||||||
| 2020 RMB million | 2019 RMB million | 2018 RMB million | ||||||||||
Current |
| 222 |
|
| 942 |
|
| 1,220 |
| |||
Deferred |
| (4,149 | ) |
| (123 | ) |
| (294 | ) | |||
|
|
|
|
|
| |||||||
| (3,927 | ) |
| 819 |
|
| 926 |
| ||||
|
|
|
|
|
| |||||||
Pursuant to the “Notice on the continuation of the Ministry of Finance, the State Administration of Taxation and the General Administration of Customs on Issues Concerning RelevantIncome Tax Policies for Enhancing the Implementation of Western Region Development Strategy” (Cai Shui [2011] No.58)Strategy.” (Ministry of Finance Announcement [2020] No.23), and other series of tax regulations, enterprises located in the western regions and engaged in the industrial activities as listed in the “Catalogue of Encouraged Industries in Western Regions”, will be entitled to a reduced corporate income tax rate of 15% from 20112021 to 20202030 upon approval from the tax authorities. CEA Yunnan, a subsidiary of the Company, obtained approval from the tax authorities and has been entitled to a reduced corporate income tax rate of 15% from January 1, January 2011. The Company’s Sichuan branch, Gansu branch and Xibei branch also obtained approvals from the respective tax authorities and are entitled to a reduced corporate income tax rate of 15%. The subsidiaries incorporated in Hong Kong are subject to Hong Kong profits tax rate of 16.5% (2016:16.5%, 2015:(2019: 16.5%). Eastern E-Commerce, a subsidiary of the Company, qualified for High and New Technology Enterprise (HNTE) status with HNTE certificate No.GR201831003647 issued by the relative authorities, has been entitled to a reduced corporate income tax rate of 15% from January 1, 2018 as approved by the tax authorities.
The Company and its subsidiaries, except for CEA Yunnan, Eastern E-Commerce,Sichuan branch, Gansu branch, and Xibei branch and those incorporated in Hong Kong, are generally subject to the PRC standard corporate income tax rate of 25% (2016: 25%, 2015:(2019: 25%).
A reconciliation of the tax expense applicable to (loss)/profit before tax at the statutory ratesrate for the countriescountry in which the Company and the majority of its subsidiaries are domiciled to the tax expense at the effective tax rates, arerate is as follows:
| 2017 | 2016 | 2015 | 2020 RMB million | 2019 RMB million | 2018 RMB million | |||||||||||||||||||
(Loss)/profit before income tax | (16,488 | ) | 4,299 | 3,856 | ||||||||||||||||||||
| RMB million | RMB million | RMB million |
|
|
| |||||||||||||||||||
Profit before income tax | 8,610 | 6,497 | 5,667 | |||||||||||||||||||||
|
|
| ||||||||||||||||||||||
Tax calculated at the tax rate of 25% (2016: 25%, 2015: 25%) | 2,152 | 1,624 | 1,417 | |||||||||||||||||||||
Tax calculated at the tax rate of 25% (2019: 25%, 2018:25%) | (4,122 | ) | 1,075 | 964 | ||||||||||||||||||||
Lower tax rates enacted by local authority | (87 | ) | (102 | ) | (156 | ) | 56 | (139 | ) | (93 | ) | |||||||||||||
Share of results of associates and joint ventures | (63 | ) | (37 | ) | (38 | ) | 24 | (71 | ) | (51 | ) | |||||||||||||
Income not subject to tax | (13 | ) | (10 | ) | — | (12 | ) | (36 | ) | (9 | ) | |||||||||||||
Expenses not deductible for tax | 38 | 117 | 104 | 169 | 128 | 88 | ||||||||||||||||||
Utilization of previously unrecognized tax losses | (253 | ) | (51 | ) | (1 | ) | (16 | ) | (11 | ) | (60 | ) | ||||||||||||
Unrecognized tax losses for the year | 48 | 13 | 20 | 21 | 17 | 28 | ||||||||||||||||||
Utilization of deductible temporary differences | (13 | ) | (10 | ) | (686 | ) | ||||||||||||||||||
Utilization of previously unrecognized deductible temporary differences | (10 | ) | (8 | ) | (1 | ) | ||||||||||||||||||
Unrecognized deductible temporary differences | 2 | 6 | (36 | ) | 3 | 3 | 23 | |||||||||||||||||
Research and development costs’ super deduction | (11 | ) | (8 | ) | — | |||||||||||||||||||
Adjustments in respect of current tax of previous periods | (4 | ) | (34 | ) | 61 | |||||||||||||||||||
Additional deduction of research and development costs | (31 | ) | (27 | ) | (24 | ) | ||||||||||||||||||
Income tax deduction of purchase of special equipment for production safety | (5 | ) | (78 | ) | — | |||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Tax charge | 1,800 | 1,542 | 624 | |||||||||||||||||||||
Tax (credit)/charge | (3,927 | ) | 819 | 926 | ||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Effective tax rate | 20.91 | % | 23.73 | % | 11.01 | % | 23.82 | % | 19.05 | % | 24.01 | % | ||||||||||||
|
|
|
|
|
| |||||||||||||||||||
The Group operates international flights to overseas destinations. There was no material overseas taxation for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, as there are avoidance of double tax treaties between the PRC and the corresponding jurisdictions (including Hong Kong) relating to the aviation business.
| 14 | DIVIDENDS |
| 2020 | 2019 | 2018 | ||||||||||
| RMB million | RMB million | RMB million | ||||||||||
Proposed final – Nil (2019: 0.050, 2018: Nil) per ordinary share | — | 819 | — | |||||||||
|
|
|
|
|
| |||||||
On March 30, 2021, the Group has no profit distribution plan to propose cash dividend for 2020 (2019: RMB0.050 per share before tax).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(AmountsPrepared in millions except for per share data)accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
15 | LOSS/EARNINGS PER SHARE |
The calculation of basic loss per share for the year ended December 31, 2020 was based on the loss attributable to equity holders of the Company of RMB11,836 million and the weighted average number of shares of 16,379,509,203 in issue during the year.
The calculation of basic earnings per share for the year ended December 31, 2019 was based on the profit attributable to equity holders of the Company of RMB6,342RMB3,192 million (2016: RMB4,498and the weighted average number of shares of 15,104,893,522 in issue during the year.
The calculation of basic earnings per share for the year ended December 31, 2018 was based on the profit attributable to equity holders of the Company of RMB2,698 million 2015: RMB4,537 million) and the weighted average number of shares of 14,467,585,682 (2016: 13,811,136,000, 2015: 12,818,509,000) in issue during the year ended December 31, 2017. year.
The Company had no potentially dilutive options or other financial instruments relating to the ordinary shares in issue during the years ended December 31, 2017, 20162020, 2019 and 2015.2018.
| 16 | PROPERTY, PLANT AND |
On 27 April 2017,
| Aircraft, | Buildings | Other property, plant | ||||||||||||||||||
| engines and flight equipment | Construction in progress | Total | ||||||||||||||||||
| RMB million | RMB million | RMB million | RMB million | RMB million | ||||||||||||||||
December 31, 2020 | ||||||||||||||||||||
At January 1, 2020 | ||||||||||||||||||||
Cost | 133,845 | 14,153 | 10,217 | 3,857 | 162,072 | |||||||||||||||
Accumulated depreciation and impairment | (54,366 | ) | (2,499 | ) | (5,770 | ) | — | (62,635 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net carrying amount | 79,479 | 11,654 | 4,447 | 3,857 | 99,437 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
At January 1, 2020, net of accumulated depreciation and impairment | 79,479 | 11,654 | 4,447 | 3,857 | 99,437 | |||||||||||||||
Additions | 3,517 | 69 | 528 | 1,055 | 5,169 | |||||||||||||||
Disposals | (781 | ) | (22 | ) | (102 | ) | (425 | ) | (1,330 | ) | ||||||||||
Transfer from construction in progress | — | 1,102 | 21 | (1,123 | ) | — | ||||||||||||||
Transfer from advanced payments on acquisition of aircraft | 53 | — | — | — | 53 | |||||||||||||||
Transfer from investment properties (Note 17) | — | 425 | — | — | 425 | |||||||||||||||
Transfer from right-of-use assets (Note 18(a)) | 6,402 | — | — | — | 6,402 | |||||||||||||||
Transfer to investment properties (Note 17) | — | (13 | ) | — | — | (13 | ) | |||||||||||||
Transfer to other non-current assets | — | — | — | (2 | ) | (2 | ) | |||||||||||||
Depreciation provided during the year | (7,680 | ) | (501 | ) | (886 | ) | — | (9,067 | ) | |||||||||||
Impairment (note) | (31 | ) | — | — | — | (31 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
At December 31, 2020, net of accumulated depreciation and impairment | 80,959 | 12,714 | 4,008 | 3,362 | 101,043 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
At December 31, 2020: | ||||||||||||||||||||
Cost | 144,827 | 15,816 | 10,337 | 3,362 | 174,342 | |||||||||||||||
Accumulated depreciation and impairment | (63,868 | ) | (3,102 | ) | (6,329 | ) | — | (73,299 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net carrying amount | 80,959 | 12,714 | 4,008 | 3,362 | 101,043 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Note: During the year ended December 31, 2020, the Group made an impairment provision of RMB31 million for certain retired engines, the recoverable amount is determined based on the estimated market prices.
As at December 31, 2020, the ownership certificates of buildings with a net carrying amount of RMB8,453 million (2019: RMB9,206 million) have not been obtained. The directors of the Company are of the opinion that the Group legally owns and has the rights to use the aforesaid buildings, and that there is no material adverse impact on the overall financial position of the Group.
The Group’s parcels of land in Mainland China where the buildings are situated are held under medium-term leases.
The following table indicates the cost and net carrying amount of the Group’s Board of Directors came to a resolution to sellaircraft pledged as collateral under certain borrowing arrangements (Note 36):
| 2020 | 2019 | |||||||||||||||
| Cost | Net carrying amount | Cost | Net carrying amount | |||||||||||||
| RMB million | RMB million | RMB million | RMB million | |||||||||||||
Aircraft | ||||||||||||||||
- pledged as collateral | 26,149 | 17,515 | 10,819 | 7,243 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the equity interests of Shanghai Airlines Hotel Investment Management Co., Ltd. (“Shanghai Airlines Hotel”), a wholly owned subsidiary. On 29years ended December 2017, the Group entered into a share transfer agreement with China Eastern Airlines Development Co., Ltd., a wholly owned subsidiary of CEA Holding, to transfer its 100% equity interests in Shanghai Airlines Hotel for a cash consideration of RMB7,100. The transfer is expected to be completed within a year from the reporting date. At 31, December 2017, Shanghai Airlines Hotel was classified as a disposal group held for sale. The major classes of assets2020, 2019 and liabilities (after eliminating of inter-company payable of RMB6 million) of Shanghai Airlines Hotel classified as held for sale as at 31 December 2017 are as follows:2018
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| 16 | PROPERTY, PLANT AND EQUIPMENT (continued) | |||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| Aircraft, | Buildings | Other property, plant | ||||||||||||||||||
| engines and flight equipment | Construction in progress | Total | ||||||||||||||||||
| RMB million | RMB million | RMB million | RMB million | RMB million | ||||||||||||||||
December 31, 2019 | ||||||||||||||||||||
At January 1, 2019 | ||||||||||||||||||||
Cost | 111,968 | 10,689 | 9,462 | 4,419 | 136,538 | |||||||||||||||
Accumulated depreciation and impairment | (43,403 | ) | (2,159 | ) | (5,288 | ) | — | (50,850 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net carrying amount | 68,565 | 8,530 | 4,174 | 4,419 | 85,688 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
At January 1, 2019 net of accumulated depreciation and impairment | 68,565 | 8,530 | 4,174 | 4,419 | 85,688 | |||||||||||||||
Additions | 4,137 | (41 | ) | 716 | 3,242 | 8,054 | ||||||||||||||
Disposals | (10 | ) | (40 | ) | (41 | ) | — | (91 | ) | |||||||||||
Transfer from construction in progress | — | 3,523 | 214 | (3,737 | ) | — | ||||||||||||||
Transfer from advanced payments on acquisition of aircraft | 335 | — | — | — | 335 | |||||||||||||||
Transfer from investment properties (Note 17) | — | 76 | — | — | 76 | |||||||||||||||
Transfer from right-of-use assets (Note 18(a)) | 14,264 | — | — | — | 14,264 | |||||||||||||||
Transfer to investment properties (Note 17) | — | (23 | ) | — | — | (23 | ) | |||||||||||||
Transfer from/(to) other non-current assets | — | — | 309 | (67 | ) | 242 | ||||||||||||||
Disposal of a subsidiary | — | (8 | ) | (18 | ) | — | (26 | ) | ||||||||||||
Depreciation provided during the year | (7,812 | ) | (363 | ) | (903 | ) | — | (9,078 | ) | |||||||||||
Impairment | — | — | (4 | ) | — | (4 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
At December 31, 2019, net of accumulated depreciation and impairment | 79,479 | 11,654 | 4,447 | 3,857 | 99,437 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
At December 31, 2019: | ||||||||||||||||||||
Cost | 133,845 | 14,153 | 10,217 | 3,857 | 162,072 | |||||||||||||||
Accumulated depreciation and impairment | (54,366 | ) | (2,499 | ) | (5,770 | ) | — | (62,635 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net carrying amount | 79,479 | 11,654 | 4,447 | 3,857 | 99,437 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
| 17 | INVESTMENT PROPERTIES |
| Goodwill | Computer | Others | ||||||||||||||
| (note(a)) | software | (note(b)) | Total | |||||||||||||
| RMB million | RMB million | RMB million | RMB million | |||||||||||||
31 December 2017 | ||||||||||||||||
Cost at 1 January 2017, net of accumulated amortization | 11,270 | 288 | 66 | �� | 11,624 | |||||||||||
Additions | — | 126 | — | 126 | ||||||||||||
Transfer from construction in process | — | 3 | — | 3 | ||||||||||||
Amortization provided during the year | — | (109 | ) | (33 | ) | (142 | ) | |||||||||
Disposal of a subsidiary (note 43) | — | (14 | ) | — | (14 | ) | ||||||||||
Disposals | — | (1 | ) | — | (1 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
At 31 December 2017 | 11,270 | 293 | 33 | 11,596 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
| 2020 | 2019 | |||||||
| RMB million | RMB million | |||||||
Cost | ||||||||
At January 1 | 883 | 940 | ||||||
Transfer from property, plant and equipment (Note 16) | 25 | 35 | ||||||
Transfer from right-of-use assets (Note 18(a)) | 11 | 13 | ||||||
Transfer to property, plant and equipment (Note 16) | (565 | ) | (101 | ) | ||||
Transfer to right-of-use assets (Note 18(a)) | (91 | ) | (4 | ) | ||||
|
|
|
| |||||
At December 31 | 263 | 883 | ||||||
|
|
|
| |||||
Accumulated depreciation | ||||||||
At January 1 | 230 | 216 | ||||||
Transfer from property, plant and equipment (Note 16) | 12 | 12 | ||||||
Transfer from right-of-use assets (Note 18(a)) | 3 | 3 | ||||||
Transfer to property, plant and equipment (Note 16) | (140 | ) | (25 | ) | ||||
Transfer to right-of-use assets (Note 18(a)) | (20 | ) | (1 | ) | ||||
Charge for the year (Note 7) | 12 | 25 | ||||||
|
|
|
| |||||
At December 31 | 97 | 230 | ||||||
|
|
|
| |||||
Net book amount | ||||||||
At December 31 | 166 | 653 | ||||||
|
|
|
| |||||
As at December 31, 2020, the fair value of the investment properties was approximately RMB445 million (2019: RMB1,125 million) according to a valuation performed by an independent professionally qualified valuer.
The investment properties are leased to third parties and related parties under operating leases. Rental income totaling RMB139 million (2019: RMB100 million, 2018: RMB 63 million) was received by the Group during the year in respect of the leases.
As at December 31, 2020, the Group had no pledged investment properties (2019: Nil).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(AmountsPrepared in millions except for per share data)accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 17 | INVESTMENT PROPERTIES (continued) |
| Goodwill | Computer | Others | ||||||||||||||
| (note(a)) | software | (note(b)) | Total | |||||||||||||
| RMB million | RMB million | RMB million | RMB million | |||||||||||||
At 31 December 2017: | ||||||||||||||||
Cost | 11,270 | 904 | 98 | 12,272 | ||||||||||||
Accumulated amortization | — | (611 | ) | (65 | ) | (676 | ) | |||||||||
Net carrying amount | 11,270 | 293 | 33 | 11,596 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
31 December 2016 | ||||||||||||||||
Cost at 1 January 2016, net of accumulated amortization | 11,270 | 252 | — | 11,522 | ||||||||||||
Additions | — | 124 | 98 | 222 | ||||||||||||
Transfer from construction in process | — | 9 | — | 9 | ||||||||||||
Amortization provided during the year | — | (97 | ) | (32 | ) | (129 | ) | |||||||||
Disposals | — | — | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
At 31 December 2016 | 11,270 | 288 | 66 | 11,624 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
At 31 December 2016: | ||||||||||||||||
Cost | 11,270 | 812 | 98 | 12,180 | ||||||||||||
Accumulated amortization | — | (524 | ) | (32 | ) | (556 | ) | |||||||||
Net carrying amount | 11,270 | 288 | 66 | 11,624 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Notes:Fair value hierarchy
The following table illustrates the fair value measurement hierarchy of the Group’s investment properties:
| Buildings | Fair value measurement using | |||||||||||||||
Quoted prices in active markets (Level 1) | Significant observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Total | |||||||||||||
| RMB million | RMB million | RMB million | RMB million | |||||||||||||
Not measured at fair value but fair value is disclosed: | ||||||||||||||||
As at December 31, 2020 | — | 119 | 326 | 445 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
As at December 31, 2019 | — | 144 | 981 | 1,125 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
During the year, there were no transfers of fair value measurements between Level 1 and Level 2 and no transfers into or out of Level 3 (2019: Nil).
The fair values of the buildings with comparable market prices have been estimated using significant observable inputs and calculated by adjusted market prices considering the condition and location of the buildings.
The fair values of the buildings without comparable market prices have been estimated by a discounted cash flow valuation model using significant unobservable inputs such as the estimated rental value, rent growth, long term vacancy rate and discount rate.
| 18 | LEASES |
The Group as a lessee
The Group has lease contracts for various items of aircraft, engines, buildings and others used in its operations. Lump sum payments were made upfront to acquire the leased land from the owners with lease periods of 40 to 50 years, and no ongoing payments will be made under the terms of these land leases. As at December 31, 2020, the Group had 440 aircraft (2019: 462 aircraft) under leases, which generally have lease terms between 5 and 20 years. Leases of engines generally have lease terms between 5 and 20 years, while buildings generally have lease terms between 2 and 10 years. Others, including motor vehicles, generally have lease term between 2 to 5 years. The Group also has lease contracts for buildings and equipment with lease terms of 12 months or less or is individually of low value. Generally, the Group is restricted from assigning and subleasing the leased assets outside the Group.
| (a) | Right-of-use assets |
The carrying amounts of the Group’s right-of-use assets and the movements during the year are as follows:
Aircraft, and engines | Prepayments for land use rights RMB million | Buildings RMB million | Others RMB million | Total RMB million | ||||||||||||||||
At January 1, 2019, net of accumulated depreciation | 126,417 | 1,387 | 496 | 12 | 128,312 | |||||||||||||||
Additions | 26,315 | 1 | 622 | 73 | 27,011 | |||||||||||||||
Transfer from investment properties (Note 17) | — | 3 | — | — | 3 | |||||||||||||||
Transfer to property, plant and equipment (Note 16) | (14,264 | ) | — | — | — | (14,264 | ) | |||||||||||||
Transfer to investment properties (Note 17) | — | (10 | ) | — | — | (10 | ) | |||||||||||||
Disposal of a subsidiary | — | — | (10 | ) | — | (10 | ) | |||||||||||||
Disposals | (40 | ) | — | — | — | (40 | ) | |||||||||||||
Depreciation provided during the year | (11,964 | ) | (38 | ) | (284 | ) | (12 | ) | (12,298 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
At December 31, 2019 and January 1, 2020, net of accumulated depreciation | 126,464 | 1,343 | 824 | 73 | 128,704 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Additions | 7,109 | — | 1,145 | 135 | 8,389 | |||||||||||||||
Transfer from investment properties (Note 17) | — | 71 | — | — | 71 | |||||||||||||||
Transfer to property, plant and equipment (Note 16) | (6,402 | ) | — | — | — | (6,402 | ) | |||||||||||||
Transfer to investment properties (Note 17) | — | (8 | ) | — | — | (8 | ) | |||||||||||||
Disposals | (171 | ) | — | (6 | ) | — | (177 | ) | ||||||||||||
Depreciation provided during the year | (11,322 | ) | (38 | ) | (948 | ) | (59 | ) | (12,367 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
At December 31, 2020 | 115,678 | 1,368 | 1,015 | 149 | 118,210 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 18 | LEASES (continued) |
The Group as a lessee (continued)
| (b) | Lease liabilities |
The carrying amount of lease liabilities and the movements during the year are as follows:
| 2020 RMB million | 2019 RMB million | |||||||
Carrying amount at January 1 | 110,275 | 109,306 | ||||||
New leases | 7,191 | 24,023 | ||||||
Effect of foreign exchange | (2,768 | ) | 851 | |||||
COVID-19-related rent concessions from lessors | (3 | ) | — | |||||
Disposal of a subsidiary | — | (10 | ) | |||||
Accretion of interest recognized during the year | 3,655 | 3,894 | ||||||
Payments | (22,099 | ) | (27,789 | ) | ||||
|
|
|
| |||||
Carrying amount at December 31 | 96,251 | 110,275 | ||||||
|
|
|
| |||||
Analyzed into: | ||||||||
Current portion | 14,073 | 15,590 | ||||||
Non-current portion | 82,178 | 94,685 | ||||||
|
|
|
| |||||
The maturity analysis of lease liabilities is disclosed in Note 48 to the consolidated financial statements.
| (c) | The amounts recognized in profit or loss in relation to leases are as follows: |
| 2020 RMB million | 2019 RMB million | |||||||
Interest on lease liabilities | 3,655 | 3,894 | ||||||
Depreciation charge of right-of-use assets | 12,367 | 12,298 | ||||||
COVID-19-related rent concessions from lessors | (3 | ) | — | |||||
Low value and short-term lease rental | 358 | 631 | ||||||
|
|
|
| |||||
Total amount recognized in profit or loss | 16,377 | 16,823 | ||||||
|
|
|
| |||||
| (d) | The Group has no significant lease contracts that include extension and termination options or contain variable payments. |
| (e) | The total cash outflow for leases and future cash outflows relating to leases that have not yet commenced are disclosed in Notes 43(d) and 44, respectively, to the consolidated financial statements. |
The Group as a lessor
The Group leases its investment properties (Note 17) consisting of around 33 properties in the PRC under operating lease arrangements, with leases negotiated for terms ranging from one to fourteen years. The terms of the leases generally require the tenants to pay security deposits and provide for periodic rent adjustments according to the then prevailing market conditions. Rental income recognized by the Group during the year was RMB257 million (2019: RMB190 million), details of which are included in Note 5 to the consolidated financial statements.
At December 31, 2020, the undiscounted lease payments receivable by the Group in future periods under non-cancellable operating leases with its tenants are as follows:
| 2020 RMB million | 2019 RMB million | |||||||
Within one year | 150 | 165 | ||||||
After one year but within two years | 141 | 149 | ||||||
After two years but within three years | 135 | 144 | ||||||
After three years but within four years | 134 | 139 | ||||||
After four years but within five years | 114 | 138 | ||||||
After five years | 197 | 221 | ||||||
|
|
|
| |||||
| 871 | 956 | |||||||
|
|
|
| |||||
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 19 | INTANGIBLE ASSETS |
| Goodwill (note (a)) | Others | Total | ||||||||||
| RMB million | RMB million | RMB million | ||||||||||
December 31, 2020 | ||||||||||||
Cost at January 1, 2020, net of accumulated amortization | 11,270 | 428 | 11,698 | |||||||||
Additions | — | 263 | 263 | |||||||||
Transfer from construction in process | — | 1 | 1 | |||||||||
Disposals | — | (5 | ) | (5 | ) | |||||||
Amortization provided during the year | — | (239 | ) | (239 | ) | |||||||
|
|
|
|
|
| |||||||
At December 31, 2020 | 11,270 | 448 | 11,718 | |||||||||
|
|
|
|
|
| |||||||
At December 31, 2020: | ||||||||||||
Cost | 11,270 | 1,462 | 12,732 | |||||||||
Accumulated amortization | — | (1,014 | ) | (1,014 | ) | |||||||
|
|
|
|
|
| |||||||
Net carrying amount | 11,270 | 448 | 11,718 | |||||||||
|
|
|
|
|
| |||||||
| Goodwill (note (a)) | Others | Total | ||||||||||
| RMB million | RMB million | RMB million | ||||||||||
December 31, 2019 | ||||||||||||
Cost at January 1, 2019, net of accumulated amortization | 11,270 | 339 | 11,609 | |||||||||
Additions | — | 199 | 199 | |||||||||
Transfer from construction in process | — | 36 | 36 | |||||||||
Disposals | — | (3 | ) | (3 | ) | |||||||
Amortization provided during the year | — | (143 | ) | (143 | ) | |||||||
|
|
|
|
|
| |||||||
At December 31, 2019 | 11,270 | 428 | 11,698 | |||||||||
|
|
|
|
|
| |||||||
At December 31, 2019: | ||||||||||||
Cost | 11,270 | 1,301 | 12,571 | |||||||||
Accumulated amortization | — | (873 | ) | (873 | ) | |||||||
|
|
|
|
|
| |||||||
Net carrying amount | 11,270 | 428 | 11,698 | |||||||||
|
|
|
|
|
| |||||||
Note:
| (a) | The balance represents goodwill arising from the acquisition of Shanghai Airlines. The value of the |
The recoverable amount of the CGU has been determined based on avalue-in-use calculation using cash flow projections based on a financial budget approved by senior management.management covering a five-year period. The discount rate after tax applied to the post-taxcash flow projections is 11% (2016: 11%9.5% (2019: 9.5%). The growth rate used to extrapolate the cash flows of the above cash-generating unit beyond the five-year period is 3% (2016: 3%2.60% (2019: 3.00%), which does not exceed the long-term average growth rate for the business in which the CGU operates. No impairment for the goodwill was required based on thevalue-in-use calculation as at the reporting date.
| Aircraft, engines and | ||||||||||||||||||||||||
| flight equipment | Other | |||||||||||||||||||||||
| Held under | property, plant | Construction | ||||||||||||||||||||||
| Owned | finance leases | Buildings | and equipment | in progress | Total | |||||||||||||||||||
| RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | |||||||||||||||||||
31 December 2017 | ||||||||||||||||||||||||
At 31 December 2016 and at 1 January 2017: | ||||||||||||||||||||||||
Cost | 99,653 | 97,064 | 8,324 | 8,201 | 2,398 | 215,640 | ||||||||||||||||||
Accumulated depreciation and impairment | (34,914 | ) | (19,890 | ) | (2,450 | ) | (5,206 | ) | — | (62,460 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net carrying amount | 64,739 | 77,174 | 5,874 | 2,995 | 2,398 | 153,180 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
At 1 January 2017, net of accumulated depreciation and impairment | 64,739 | 77,174 | 5,874 | 2,995 | 2,398 | 153,180 | ||||||||||||||||||
Additions | 3,659 | 8,277 | 276 | 808 | 2,688 | 15,708 | ||||||||||||||||||
Disposals | (656 | ) | (264 | ) | (1 | ) | (103 | ) | — | (1,024 | ) | |||||||||||||
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(AmountsPrepared in millions except for per share data)accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| Aircraft, engines and | ||||||||||||||||||||||||
| flight equipment | Other | |||||||||||||||||||||||
| Held under | property, plant | Construction | ||||||||||||||||||||||
| Owned | finance leases | Buildings | and equipment | in progress | Total | |||||||||||||||||||
| RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | |||||||||||||||||||
Transfer from construction in progress | — | — | 1,019 | 18 | (1,037 | ) | — | |||||||||||||||||
Transfer from advanced payments on acquisition of aircraft (note 21) | 1,701 | 13,378 | — | — | — | 15,079 | ||||||||||||||||||
Transfer from investment properties (note 19) | — | — | 9 | — | — | 9 | ||||||||||||||||||
Transfer to investment properties (note 19) | — | — | (2 | ) | — | — | (2 | ) | ||||||||||||||||
Assets included in held for sale | — | — | — | (2 | ) | — | (2 | ) | ||||||||||||||||
Transfer to othernon-current assets | — | — | — | — | (327 | ) | (327 | ) | ||||||||||||||||
Depreciation provided during the year | (6,154 | ) | (6,302 | ) | (298 | ) | (613 | ) | — | (13,367 | ) | |||||||||||||
Disposal of a subsidiary (note 43) | (199 | ) | (1,220 | ) | (375 | ) | (208 | ) | (17 | ) | (2,019 | ) | ||||||||||||
Impairment | (379 | ) | — | — | — | — | (379 | ) | ||||||||||||||||
Transfers | 6,283 | (6,283 | ) | (24 | ) | 24 | — | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
At 31 December 2017, net of accumulated depreciation and impairment | 68,994 | 84,760 | 6,478 | 2,919 | 3,705 | 166,856 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
At 31 December 2017: | ||||||||||||||||||||||||
Cost | 111,297 | 105,801 | 8,809 | 7,934 | 3,705 | 237,546 | ||||||||||||||||||
Accumulated depreciation and impairment | (42,303 | ) | (21,041 | ) | (2,331 | ) | (5,015 | ) | — | (70,690 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net carrying amount | 68,994 | 84,760 | 6,478 | 2,919 | 3,705 | 166,856 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
During the year, the Group recognised an impairment loss of approximately RMB379 million relating to aircraft, engines and flight equipment (2016: RMB29 million, 2015: RMB48 million). The recoverable amounts of these impaired aircraft, engines and flight equipment are determined at the higher of their fair value less costs to sell and value in use.
As at 31 December 2017, certain aircraft and buildings owned by the Group with an aggregate net carrying amount of approximately RMB11,207 million (2016: approximately RMB17,559 million) were pledged as collateral under certain borrowing arrangements (note 34).
As at 31 December 2017, the ownership certificates of buildings with a net carrying amount of RMB1,397 million (31 December 2016: RMB1,455 million) have not been obtained. The directors of the Company are of the opinion that the Group legally owns and has the rights to use the aforesaid buildings, and that there is no material adverse impact on the overall financial position of the Group.
| Aircraft, engines and | ||||||||||||||||||||||||
| flight equipment | Other | |||||||||||||||||||||||
| Owned | Held under | property, plant | Construction | |||||||||||||||||||||
| finance leases | Buildings | and equipment | in progress | Total | ||||||||||||||||||||
| RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | |||||||||||||||||||
31 December 2016 | ||||||||||||||||||||||||
At 31 December 2015 and at 1 January 2016: | ||||||||||||||||||||||||
Cost | 80,402 | 89,146 | 7,993 | 7,486 | 1,771 | 186,798 | ||||||||||||||||||
Accumulated depreciation and impairment | (28,557 | ) | (18,029 | ) | (2,266 | ) | (4,704 | ) | — | (53,556 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net carrying amount | 51,845 | 71,117 | 5,727 | 2,782 | 1,771 | 133,242 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
At 1 January 2016, net of accumulated depreciation and impairment | 51,845 | 71,117 | 5,727 | 2,782 | 1,771 | 133,242 | ||||||||||||||||||
Additions | 9,411 | 4,485 | 5 | 651 | 1,477 | 16,029 | ||||||||||||||||||
Disposals | (324 | ) | (58 | ) | (21 | ) | (212 | ) | — | (615 | ) | |||||||||||||
Transfer from construction in progress | — | — | 474 | 328 | (802 | ) | — | |||||||||||||||||
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
| Aircraft, engines and | ||||||||||||||||||||||||
| flight equipment | Other | |||||||||||||||||||||||
| Owned | Held under | property, plant | Construction | |||||||||||||||||||||
| finance leases | Buildings | and equipment | in progress | Total | ||||||||||||||||||||
| RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | |||||||||||||||||||
Transfer from advanced payments on acquisition of aircraft (note 21) | 12,236 | 4,354 | — | — | — | 16,590 | ||||||||||||||||||
Transfer to investment properties (note 19) | — | — | (38 | ) | — | — | (38 | ) | ||||||||||||||||
Transfer to othernon-current assets | — | — | — | — | (48 | ) | (48 | ) | ||||||||||||||||
Depreciation provided during the year | (5,561 | ) | (5,563 | ) | (273 | ) | (554 | ) | — | (11,951 | ) | |||||||||||||
Impairment | (29 | ) | — | — | — | — | (29 | ) | ||||||||||||||||
Transfers | (2,839 | ) | 2,839 | — | — | — | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
At 31 December 2016, net of accumulated depreciation and impairment | 64,739 | 77,174 | 5,874 | 2,995 | 2,398 | 153,180 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
At 31 December 2016: | ||||||||||||||||||||||||
Cost | 99,653 | 97,064 | 8,324 | 8,201 | 2,398 | 215,640 | ||||||||||||||||||
Accumulated depreciation and impairment | (34,914 | ) | (19,890 | ) | (2,450 | ) | (5,206 | ) | — | (62,460 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net carrying amount | 64,739 | 77,174 | 5,874 | 2,995 | 2,398 | 153,180 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
| 2017 | 2016 | |||||||
| RMB million | RMB million | |||||||
Cost | ||||||||
At 1 January | 402 | 344 | ||||||
Transfer from property, plant and equipment (note 18) | 4 | 58 | ||||||
Transfer to property, plant and equipment (note 18) | (14 | ) | — | |||||
|
|
|
| |||||
At 31 December | 392 | 402 | ||||||
|
|
|
| |||||
Accumulated depreciation | ||||||||
At 1 January | 81 | 50 | ||||||
Transfer from property, plant and equipment (note 18) | 2 | 20 | ||||||
Transfer to property, plant and equipment (note 18) | (5 | ) | — | |||||
Charge for the year (note 11) | 12 | 11 | ||||||
|
|
|
| |||||
At 31 December | 90 | 81 | ||||||
|
|
|
| |||||
Net book amount | ||||||||
At 31 December | 302 | 321 | ||||||
|
|
|
| |||||
As at 31 December 2017, the fair value of the investment properties was approximately RMB628 million (2016: RMB604 million) according to a valuation performed by an independent professionally qualified valuer.
The investment properties are leased to third parties and related parties under operating leases. Rental income totalling RMB39 million (2016: RMB37 million, 2015: RMB30 million) was received by the Group during the year in respect of the leases.
As at 31 December 2017, the carrying amount of the investment properties for which the ownership certificates of buildings have not been obtained was RMB112 million (2016: RMB119 million). The directors of the Company are of the opinion that the Group legally owns and has the rights to use the aforesaid investment properties, and that there is no material adverse impact on the overall financial position of the Group.
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
Fair value hierarchy
The following table illustrates the fair value measurement hierarchy of the Group’s investment properties:
| Buildings | Fair value measurement using | |||||||||||||||
| Quoted prices | Significant | Significant | ||||||||||||||
| in active | observable | unobservable | ||||||||||||||
| markets | inputs | inputs | ||||||||||||||
| (Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
| RMB million | RMB million | RMB million | RMB million | |||||||||||||
Not measured at fair value but fair value is disclosed: | ||||||||||||||||
As at 31 December 2017 | — | 198 | 430 | 628 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
As at 31 December 2016 | — | 183 | 421 | 604 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
During the year, there were no transfers of fair value measurements between Level 1 and Level 2 and no transfers into or out of Level 3 (2016: Nil).
The fair values of the buildings with comparable market price have been estimated using significant observable inputs and calculated by adjusted market price considering the condition and location of the buildings.
The fair values of the buildings without comparable market price have been estimated by a discounted cash flow valuation model using significant unobservable inputs such as estimated rental value, rent growth, long term vacancy rate and discounted rate.
| 20 | INVESTMENTS IN ASSOCIATES |
| 2017 | 2016 | |||||||
| RMB million | RMB million | |||||||
Carrying amount at 1 January | 2,064 | 2,094 | ||||||
Recognized during the year | (347 | ) | (30 | ) | ||||
|
|
|
| |||||
Carrying amount at 31 December | 1,717 | 2,064 | ||||||
|
|
|
| |||||
Prepayments for land use right represent unamortized prepayments for land use rights.
| 2017 | 2016 | |||||||
| RMB million | RMB million | |||||||
At 1 January | 23,357 | 21,207 | ||||||
Additions | 15,681 | 17,991 | ||||||
Interest capitalized (note 13) | 793 | 749 | ||||||
Transfer to property, plant and equipment (note 18) | (15,079 | ) | (16,590 | ) | ||||
|
|
|
| |||||
At 31 December | 24,752 | 23,357 | ||||||
|
|
|
| |||||
| 2017 | 2016 | |||||||
| RMB million | RMB million | |||||||
Unlisted investments, cost | 1,116 | 1,069 | ||||||
Share of net assets | 538 | 467 | ||||||
|
|
|
| |||||
| 1,654 | 1,536 | |||||||
|
|
|
| |||||
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
| 2020 | 2019 | |||||||
| RMB million | RMB million | |||||||
Share of net assets | 1,793 | 1,977 | ||||||
|
|
|
| |||||
The movements in investments in associates were as follows:
| 2017 | 2016 | |||||||
| RMB million | RMB million | |||||||
At 1 January | 1,536 | 1,543 | ||||||
Additions | 47 | — | ||||||
Share of results of associates | 202 | 148 | ||||||
Share of revaluation onavailable-for-sale investments held by an associate | 10 | (1 | ) | |||||
Dividend received during the year | (141 | ) | (154 | ) | ||||
|
|
|
| |||||
At 31 December | 1,654 | 1,536 | ||||||
|
|
|
| |||||
| 2020 | 2019 | |||||||
| RMB million | RMB million | |||||||
At January 1 | 1,977 | 1,696 | ||||||
Additions | — | 95 | ||||||
Share of results of associates | (82 | ) | 265 | |||||
Share of revaluation on equity investments designated at fair value through other comprehensive income held by an associate | 2 | 7 | ||||||
Share of other equity changes of an associate | — | 8 | ||||||
Dividend declared during the year | (104 | ) | (85 | ) | ||||
Disposal of a subsidiary | — | (9 | ) | |||||
|
|
|
| |||||
At December 31 | 1,793 | 1,977 | ||||||
|
|
|
| |||||
Particulars of the principal associates, which are limited liability companies, are as follows:
Company name | Place of establishment and | Registered capital | Attributable equity interest | Principal activities | Place of establishment and operation and date of establishment | Registered capital | Attributable equity interest | Principal activities | ||||||||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||
| Million | Million | Million | Million | |||||||||||||||||||||||||||||
Eastern Air Group Finance Co., Ltd. (“Eastern Air Finance Company”) | PRC/Mainland China 6 December 1995 | RMB | 2,000 | RMB | 2,000 | 25 | % | 25 | % | Provision of financial services to group companies of CEA Holding | PRC/Mainland China December 6, 1995 | RMB2,000 | RMB2,000 | 25% | 25% | Provision of financial services to group companies of CEA Holding | ||||||||||||||||
China Eastern Air Catering Investment Co., Ltd. | PRC/Mainland China 17 November 2003 | RMB | 350 | RMB | 350 | 45 | % | 45 | % | Provision of air catering services | PRC/Mainland China November 17, 2003 | RMB350 | RMB350 | 45% | 45% | Provision of air catering services | ||||||||||||||||
Shanghai Pratt & Whitney Aircraft Engine Maintenance Co., Ltd. (“Shanghai P&W”) (note) | PRC/Mainland China 28 March 2008 | USD | 40 | USD | 40 | 51 | % | 51 | % | Provision of aircraft, engine and other related components maintenance services | PRC/Mainland China March 28, 2008 | USD40 | USD40 | 51% | 51% | Provision of aircraft, engine and other related component maintenance services | ||||||||||||||||
New Shanghai International Tower Co., Ltd. | PRC/Mainland China 17 November 1992 | RMB | 167 | RMB | 167 | 20 | % | 20 | % | Property development provision and management services | PRC/Mainland China November 17, 1992 | RMB167 | RMB167 | 20% | 20% | Property development provision and management services | ||||||||||||||||
Eastern Aviation Import & Export Co., Ltd. (“Eastern Import & Export”) | PRC/Mainland China 9 June 1993 | RMB | 80 | RMB | 80 | 45 | % | 45 | % | Provision of aviation equipment and spare parts purchase | ||||||||||||||||||||||
Eastern Aviation | PRC/Mainland | RMB80 | RMB80 | 45% | 45% | Provision of aviation | ||||||||||||||||||||||||||
Import & Export Co., Ltd. (“Eastern Import & Export”) | China June 9, 1993 | equipment and purchase of spare parts | ||||||||||||||||||||||||||||||
Eastern Aviation Advertising Service Co., Ltd. (“Eastern Advertising”) | PRC/Mainland China 4 March 1986 | RMB | 200 | RMB | 200 | 45 | % | 45 | % | Provision of aviation advertising agency services | PRC/Mainland China March 4, 1986 | RMB200 | RMB200 | 45% | 45% | Provision of aviation advertising agency services | ||||||||||||||||
Shanghai Collins Aviation Maintenance Service Co., Ltd. (“Collins Aviation”) | PRC/Mainland China 27 September 2002 | USD | 7 | USD | 7 | 35 | % | 35 | % | Provision of airline electronic product maintenance services | PRC/Mainland China September 27, 2002 | USD7 | USD7 | 35% | 35% | Provision of airline electronic product maintenance services | ||||||||||||||||
Shanghai Airlines Tours International (Group) Co., Ltd. (“Shanghai Airlines Tours”) | PRC/Mainland China August 29, 1992 | RMB143 | RMB143 | 35% | 35% | Tour operations, travel and air ticketing agency and transportation | ||||||||||||||||||||||||||
Note:
In 2008, the Company entered into an agreement with United Technologies International Corporation (“Technologies International”) to establish Shanghai P&W, in which the Company holds a 51% interest. According to the shareholder’s agreement, Technologies International has the power to govern the financial and operating policies and in this respect the Company accounts for Shanghai P&W as an associate.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(AmountsPrepared in millions except for per share data)accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
INVESTMENTS IN ASSOCIATES |
The following table illustrates the aggregate financial information of the Group’s associates that were not individually material:
| 2017 | 2016 | 2020 | 2019 | |||||||||||||
| RMB million | RMB million | RMB million | RMB million | |||||||||||||
Share of the associates’ profit for the year | 202 | 148 | ||||||||||||||
Share of the associates’ (loss)/profit for the year | (82 | ) | 265 | |||||||||||||
Share of the associates’ other comprehensive income | 10 | (1 | ) | 2 | 7 | |||||||||||
|
| |||||||||||||||
Share of the associates’ total comprehensive income | 212 | 147 | (80 | ) | 272 | |||||||||||
Aggregate carrying amount of the Group’s interests in the associates | 1,654 | 1,536 | 1,793 | 1,977 | ||||||||||||
|
| |||||||||||||||
INVESTMENTS IN JOINT VENTURES |
| 2017 | 2016 | |||||||
| RMB million | RMB million | |||||||
Unlisted investments, cost | 369 | 352 | ||||||
Share of net assets | 188 | 172 | ||||||
|
|
|
| |||||
| 557 | 524 | |||||||
|
|
|
| |||||
| 2020 | 2019 | |||||||
| RMB million | RMB million | |||||||
Share of net assets | 594 | 627 | ||||||
|
|
|
| |||||
The movements in investments in joint ventures were as follows:
| 2017 | 2016 | |||||||
| RMB million | RMB million | |||||||
At 1 January | 524 | 518 | ||||||
Additions | 17 | — | ||||||
Share of results | 49 | 39 | ||||||
Dividend received during the year | (33 | ) | (33 | ) | ||||
|
|
|
| |||||
At 31 December | 557 | 524 | ||||||
|
|
|
| |||||
| 2020 | 2019 | |||||||
| RMB million | RMB million | |||||||
At January 1 | 627 | 577 | ||||||
Additions | — | 102 | ||||||
Share of results | (13 | ) | 17 | |||||
Dividend declared during the year | (20 | ) | (69 | ) | ||||
|
|
|
| |||||
At December 31 | 594 | 627 | ||||||
|
|
|
| |||||
Particulars of the principal joint ventures, which are limited liability companies, are as follows:
Company name | Place of establishment and | Paid-up capital | Attributable equity interest | Principal activities | ||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||||||
| Million | Million | |||||||||||||||||||
Shanghai Technologies Aerospace Co., Ltd. (“Technologies Aerospace”) (note) | PRC/Mainland China 28 September 2004 | USD | 73 | USD | 73 | 51 | % | 51 | % | Provision of repair and maintenance services | ||||||||||
Shanghai Eastern Union Aviation Wheels & Brakes Maintenance Services Overhaul Engineering Co., Ltd. (“Wheels & Brakes”) | PRC/Mainland China 28 December 1995 | USD | 2 | USD | 2 | 40 | % | 40 | % | Provision of spare parts repair and maintenance services | ||||||||||
Eastern China Kaiya System Integration Co., Ltd. (“China Kaiya”) | PRC/Mainland China 21 May 1999 | RMB | 10 | RMB | 10 | 41 | % | 41 | % | Provision of computer systems development and maintenance services | ||||||||||
CAE Melbourne Flight Training Pty Ltd. (“CAE Melbourne”) | Australia 9 March 2007 | AUD | 11 | AUD | 11 | 50 | % | 50 | % | Provision of flight training services | ||||||||||
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
Company name | Place of establishment and | Paid-up capital | Attributable equity interest | Principal activities | Place of establishment and operation and date of establishment | Registered capital | Attributable equity interest | Principal activities | ||||||||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||
| Million | Million | Million | Million | |||||||||||||||||||||||||||||
Shanghai Technologies Aerospace Co., Ltd. (“Technologies Aerospace”) (note) | PRC/Mainland China September 28, 2004 | USD73 | USD73 | 51% | 51% | Provision of repair and maintenance services | ||||||||||||||||||||||||||
Shanghai Eastern Union Aviation Wheels & Brakes Maintenance Services Overhaul Engineering Co., Ltd. (“Wheels & Brakes”) | PRC/Mainland China December 28, 1995 | USD2 | USD2 | 40% | 40% | Provision of spare parts repair and maintenance services | ||||||||||||||||||||||||||
Eastern China Kaiya System Integration Co., Ltd. (“China Kaiya”) | PRC/Mainland China May 21, 1999 | RMB10 | RMB10 | 41% | 41% | Provision of computer system development and maintenance services | ||||||||||||||||||||||||||
CAE Melbourne Flight Training Pty Ltd. (“CAE Melbourne”) | Australia March 9, 2007 | AUD11 | AUD11 | 50% | 50% | Provision of flight training services | ||||||||||||||||||||||||||
Shanghai Hute Aviation Technology Co., Ltd. (“Shanghai Hute”) | PRC/Mainland China 9 April 2003 | RMB | 30 | RMB | 30 | 50 | % | 50 | % | Provision of equipment maintenance services | PRC/Mainland China April 9, 2003 | RMB30 | RMB30 | 50% | 50% | Provision of equipment maintenance services | ||||||||||||||||
Xi’an CEA SAFRAN Landing Systems Services Co., Ltd. (“XIESA”) | PRC/Mainland China 12 July 2017 | USD | 40 | — | 50 | % | — | Provision of aircraft, engine and other related components maintenance services | PRC/Mainland China July 12, 2017 | USD40 | USD40 | 50% | 50% | Provision of aircraft, engine and other related component maintenance services | ||||||||||||||||||
Note:
Under a joint venture agreement with a joint venture partner of Technologies Aerospace dated March 10, March 2003, both partiesthe Group and the joint venture partner have agreed to share the control over the economic activities of Technologies Aerospace with the joint venture partner.Aerospace. Any strategic financial and operating decisions relating to the activities of Technologies Aerospace require the unanimous consent of the Company and the joint venture partner.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 21 | INVESTMENTS IN JOINT VENTURES (continued) |
The following table illustrates the aggregate financial information of the Group’s joint ventures that were not individually material:
| 2017 | 2016 | |||||||
| RMB million | RMB million | |||||||
Share of the joint ventures’ profit for the year | 49 | 39 | ||||||
Share of the joint ventures’ total comprehensive income | 49 | 39 | ||||||
Aggregate carrying amount of the Group’s interests in the joint ventures | 557 | 524 | ||||||
|
|
|
| |||||
| 2020 | 2019 | |||||||
| RMB million | RMB million | |||||||
Share of the joint ventures’ (loss)/profit and total comprehensive income for the year | (13 | ) | 17 | |||||
|
|
|
| |||||
Aggregate carrying amount of the Group’s interests in the joint ventures | 594 | 627 | ||||||
|
|
|
| |||||
| 22 | EQUITY INVESTMENTS DESIGNATED AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME |
| 2020 | 2019 | |||||||
| RMB million | RMB million | |||||||
Listed equity investment, at fair value | ||||||||
TravelSky Technology Limited | 457 | 496 | ||||||
|
|
|
| |||||
| 457 | 496 | |||||||
|
|
|
| |||||
Unlisted equity investments, at fair value | ||||||||
Sichuan Airlines Corporation Limited | 194 | 336 | ||||||
Aviation Data Communication Corporation Limited | 182 | 244 | ||||||
Others | 162 | 198 | ||||||
|
|
|
| |||||
| 538 | 778 | |||||||
|
|
|
| |||||
| 995 | 1,274 | |||||||
|
|
|
| |||||
The above equity investments were irrevocably designated at fair value through other comprehensive income as the Group considers these investments to be strategic in nature.
During the year ended December 31, 2020, the Group received dividends in the amounts of RMB8 million and RMB4 million from TravelSky Technology Limited and other non-listed equity investments designated at fair value through other comprehensive income, respectively.
| 23 | DERIVATIVE FINANCIAL INSTRUMENTS |
| Assets | Liabilities | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| RMB million | RMB million | RMB million | RMB million | |||||||||||||
Fuel forward contracts | 399 | — | 1 | — | ||||||||||||
Interest rate swaps | — | 27 | 140 | 10 | ||||||||||||
Forward foreign currency contracts | — | 43 | — | 13 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 399 | 70 | 141 | 23 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Less: current portion | ||||||||||||||||
– Fuel forward contracts | 362 | — | 1 | — | ||||||||||||
– Interest rate swaps | — | — | 2 | — | ||||||||||||
– Forward foreign currency contracts | — | 43 | — | 13 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Current portion | 362 | 43 | 3 | 13 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Non-current portion | 37 | 27 | 138 | 10 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 23 | DERIVATIVE FINANCIAL INSTRUMENTS (continued) |
Cash flow hedge –Fuel price risk
The Group entered into fuel forward contracts to mitigate its jet fuel price risk. The fuel forward contracts had been designated as cash flow hedge of the Group’s highly probable forecast fuel purchase transactions. As at December 31, 2020, the notional principal of the outstanding fuel forward contracts amounted to USD252 million (December 31, 2019: Nil). These contracts would expire between 2021 and 2022.
Cash flow hedge – Interest rate risk
The Group entered into interest rate swap contracts to mitigate its interest rate risk. The interest rate swap contracts had been designated as cash flow hedge against the variability in market interest rates of lease liabilities. As at December 31, 2020, the notional principal of the outstanding interest rate swap contracts amounted to USD690 million (December 31, 2019: USD888 million). These contracts would expire between 2021 and 2025.
Cash flow hedge – Foreign currency risk
The Group entered into forward foreign currency contracts to mitigate its forward currency risk. The forward foreign currency contracts had been designated as cash flow hedge against forecasted capital expenditures and highly probable forecast fuel purchase transactions in USD. As at December 31, 2020, there were no forward foreign currency contracts.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 24 | OTHER |
| 2017 | 2016 | |||||||
| RMB million | RMB million | |||||||
Listed equity investments, at fair value | 693 | 538 | ||||||
Unlisted equity investments, at cost | 107 | 107 | ||||||
|
|
|
| |||||
| 800 | 645 | |||||||
|
|
|
| |||||
| 2020 | 2019 | |||||||
| RMB million | RMB million | |||||||
Deposits relating to aircraft held under leases | 143 | 156 | ||||||
Deferred pilot recruitment costs | 2,100 | 1,873 | ||||||
Rebate receivables on aircraft acquisitions | 1,264 | 42 | ||||||
Prepayment for acquisition of property, plant and equipment | 1,055 | 1,095 | ||||||
Others | 783 | 804 | ||||||
|
|
|
| |||||
| 5,345 | 3,970 | |||||||
|
|
|
| |||||
During
| 25 | DEFERRED TAXATION |
Deferred tax assets and liabilities are offset when there is a legally enforceable right of offsetting and when the year,deferred income taxes relate to the gross gain in respect of the Group’savailable-for-sale investments recognized in other comprehensive income amounted to RMB156 million (2016: RMB100 million).
same authority. The above investments consist of investments in equity securities which were designated asavailable-for-sale investments and have no fixed maturity dates or coupon rates.
As at 31 December 2017, certain unlisted equity investments were stated at cost less impairment because the range of reasonable fair value estimates is so significant that the directorsfollowing amounts, determined after appropriate offsetting, are of the opinion that their fair value cannot be measured reliably. The Group does not intend to dispose of themshown in the near future.consolidated statement of financial position:
| 2020 | 2019 | |||||||
| RMB million | RMB million | |||||||
Deferred tax assets | 5,011 | 853 | ||||||
Deferred tax liabilities | (13 | ) | (22 | ) | ||||
|
|
|
| |||||
Net deferred tax assets | 4,998 | 831 | ||||||
|
|
|
| |||||
Movements in the net deferred tax assets were as follows:
| 2020 | 2019 | |||||||
| RMB million | RMB million | |||||||
At January 1 | 831 | 677 | ||||||
Credited to profit or loss (Note 13) | 4,149 | 123 | ||||||
Charged to other comprehensive income | 18 | 31 | ||||||
|
|
|
| |||||
At December 31 | 4,998 | 831 | ||||||
|
|
|
| |||||
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(AmountsPrepared in millions except for per share data)accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 25 | DEFERRED TAXATION (continued) |
| 2017 | 2016 | |||||||
| RMB million | RMB million | |||||||
Deposits relating to aircraft held under operating leases | 217 | 285 | ||||||
Deferred pilot recruitment costs | 1,288 | 1,182 | ||||||
Rebate receivables on aircraft acquisitions | 65 | 83 | ||||||
Rental prepayment | — | 426 | ||||||
Prepayment for acquisition of property, plant and equipment | 681 | 299 | ||||||
Other long term assets | 676 | 694 | ||||||
|
|
|
| |||||
| 2,927 | 2,969 | |||||||
|
|
|
| |||||
The deferred tax assets and liabilities (prior to the offsetting of balances within the same tax jurisdiction) were made up of the taxation effects of the following:
| 2020 | 2019 | |||||||
| RMB million | RMB million | |||||||
Deferred tax assets: | ||||||||
Provision for lease return costs for aircraft and engines | 1,109 | 1,075 | ||||||
Lease liabilities/Right-of-use assets | 94 | — | ||||||
Impairment provision for flight equipment spare parts | 61 | 53 | ||||||
Impairment provision for receivables | 80 | 76 | ||||||
Impairment provision for property, plant and equipment | 115 | 101 | ||||||
Derivative financial instruments | 36 | 6 | ||||||
Financial asset at fair value through profit or loss | 7 | — | ||||||
Other payables and accruals | 70 | 71 | ||||||
Government grants related to assets | 29 | 35 | ||||||
Loss available for offsetting against future taxable profits | 3,699 | 66 | ||||||
Safety equipment tax credit | 10 | — | ||||||
Aged payables | 1 | 1 | ||||||
|
|
|
| |||||
| 5,311 | 1,484 | |||||||
|
|
|
| |||||
Deferred tax liabilities: | ||||||||
Lease liabilities/Right-of-use assets | — | (352 | ) | |||||
Equity investments designated at fair value through other comprehensive income | (213 | ) | (283 | ) | ||||
Derivative financial instruments | (100 | ) | (18 | ) | ||||
|
|
|
| |||||
| (313 | ) | (653 | ) | |||||
|
|
|
| |||||
| 4,998 | 831 | |||||||
|
|
|
| |||||
Movements in the net deferred tax assets/(liabilities) of the Group for the year were as follows:
| At January 1, 2020 RMB million | (Charged)/ credited to profit or loss RMB million | (Charged)/ credited to other comprehensive income RMB million | At December 31, 2020 RMB million | |||||||||||||
For the year ended December 31, 2020 | ||||||||||||||||
Provision for lease return costs for aircraft and engines | 1,075 | 34 | — | 1,109 | ||||||||||||
Lease liabilities/Right-of-use assets | — | 94 | — | 94 | ||||||||||||
Impairment provision for flight equipment spare parts | 53 | 8 | — | 61 | ||||||||||||
Impairment provision for receivables | 76 | 4 | — | 80 | ||||||||||||
Impairment provision for property, plant and equipment | 101 | 14 | — | 115 | ||||||||||||
Derivative financial instruments | 6 | — | 30 | 36 | ||||||||||||
Financial asset at fair value through profit or loss | — | 7 | — | 7 | ||||||||||||
Other payables and accruals | 71 | (1 | ) | — | 70 | |||||||||||
Government grants related to assets | 35 | (6 | ) | — | 29 | |||||||||||
Loss available for offsetting against future taxable profits | 66 | 3,633 | — | 3,699 | ||||||||||||
Safety equipment tax credit | — | 10 | — | 10 | ||||||||||||
Aged payables | 1 | — | — | 1 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
| 1,484 | 3,797 | 30 | 5,311 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
Lease liabilities/Right-of-use assets | (352 | ) | 352 | — | — | |||||||||||
Equity investments designated at fair value through other comprehensive income | (283 | ) | — | 70 | (213 | ) | ||||||||||
Derivative financial instruments | (18 | ) | — | (82 | ) | (100 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
| (653 | ) | 352 | (12 | ) | (313 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Net deferred tax assets | 831 | 4,149 | 18 | 4,998 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 25 | DEFERRED TAXATION (continued) |
Movements in the net deferred tax assets/(liabilities) of the Group for the year were as follows: (continued)
| At January 1, 2019 RMB million | (Charged)/ credited to profit or loss RMB million | (Charged)/ credited to other comprehensive income RMB million | At December 31, 2019 RMB million | |||||||||||||
For the year ended December 31, 2019 | ||||||||||||||||
Provision for lease return costs for aircraft and engines | 882 | 193 | — | 1,075 | ||||||||||||
Impairment provision for flight equipment spare parts | 126 | (73 | ) | — | 53 | |||||||||||
Impairment provision for receivables | 75 | 1 | — | 76 | ||||||||||||
Impairment provision for property, plant and equipment | 103 | (2 | ) | — | 101 | |||||||||||
Derivative financial instruments | 7 | — | (1 | ) | 6 | |||||||||||
Financial asset at fair value through profit or loss | 6 | (6 | ) | — | — | |||||||||||
Other payables and accruals | 89 | (18 | ) | — | 71 | |||||||||||
Government grants related to assets | 42 | (7 | ) | — | 35 | |||||||||||
Deferred gains in sale and leaseback transactions | 6 | (6 | ) | — | — | |||||||||||
Loss available for offsetting against future taxable profits | — | 66 | — | 66 | ||||||||||||
Aged payables | 2 | (1 | ) | — | 1 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
| 1,338 | 147 | (1 | ) | 1,484 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Lease liabilities/Right-of-use assets | (328 | ) | (24 | ) | — | (352 | ) | |||||||||
Equity investments designated at fair value through other comprehensive income | (278 | ) | — | (5 | ) | (283 | ) | |||||||||
Derivative financial instruments | (55 | ) | — | 37 | (18 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
| (661 | ) | (24 | ) | 32 | (653 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Net deferred tax assets | 677 | 123 | 31 | 831 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
The temporary differences associated with investments in subsidiaries, branches and associates and interests in joint arrangements, for which deferred tax has not been recognized in the periods presented, totaled RMB7,087 million (2019: RMB12,558 million).
As at the reporting date, the Group had the following balances in respect of which deferred tax assets have not been recognized:
| 2020 | 2019 | |||||||||||||||
| Deferred taxation RMB million | Temporary differences RMB million | Deferred taxation RMB million | Temporary differences RMB million | |||||||||||||
Tax losses carried forward | 34 | 135 | 54 | 217 | ||||||||||||
Other deductible temporary differences | 8 | 35 | 7 | 30 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total unrecognized deferred tax assets | 42 | 170 | 61 | 247 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
In accordance with the PRC tax law, tax losses can be carried forward for a period of five to eight years to offset against future taxable income. The Group’s tax losses carried forward will expire between 2021 and 2028.
As at December 31, 2020, management carried out an assessment to determine whether future taxable profits will be available to utilize the tax losses and deductible temporary differences. The Group has recognized deferred tax assets of RMB3,699 million (2019: RMB66 million) for tax losses of RMB15,175 million (2019: RMB296 million) and RMB1,612 million (2019: RMB1,418 million) for deductible temporary differences. As there are still uncertainties around the Group’s future operating results, such as future fuel prices and market competition, management assessed that for certain subsidiaries there are significant uncertainties that future taxable profits will be available and the deferred tax assets arising from aforementioned tax losses and deductible temporary differences were not recognized.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 26 | FLIGHT EQUIPMENT SPARE PARTS |
| 2017 | 2016 | 2020 | 2019 | |||||||||||||
| RMB million | RMB million | RMB million | RMB million | |||||||||||||
Flight equipment spare parts | 2,716 | 2,713 | 2,299 | 2,732 | ||||||||||||
Less: provision for spare parts | (531 | ) | (465 | ) | (245 | ) | (325 | ) | ||||||||
|
|
|
| |||||||||||||
| 2,185 | 2,248 | 2,054 | 2,407 | |||||||||||||
|
|
|
| |||||||||||||
Movements in the Group’s provision for impairment of flight equipment spare parts were as follows:
| 2017 | 2016 | |||||||
| RMB million | RMB million | |||||||
At 1 January | 465 | 541 | ||||||
Accrual (note 10) | 112 | 10 | ||||||
Amount written off in relation to disposal of spare parts | (1 | ) | (86 | ) | ||||
Disposal of a subsidiary | (45 | ) | — | |||||
|
|
|
| |||||
At 31 December | 531 | 465 | ||||||
|
|
|
| |||||
| 2020 | 2019 | |||||||
| RMB million | RMB million | |||||||
At January 1 | 325 | 828 | ||||||
Accrual (Note 9) | 153 | — | ||||||
Amount written off in relation to disposal of spare parts | (233 | ) | (503 | ) | ||||
|
|
|
| |||||
At December 31 | 245 | 325 | ||||||
|
|
|
| |||||
| 27 | TRADE |
The credit terms given to trade customers are determined on an individual basis.
| 2017 | 2016 | |||||||
| RMB million | RMB million | |||||||
Trade receivables | 2,124 | 2,630 | ||||||
Notes receivable | — | 30 | ||||||
|
|
|
| |||||
At 31 December | 2,124 | 2,660 | ||||||
|
|
|
| |||||
| 2020 | 2019 | |||||||
| RMB million | RMB million | |||||||
Trade receivables | 1,210 | 1,793 | ||||||
Less: impairment | (86 | ) | (76 | ) | ||||
|
|
|
| |||||
| 1,124 | 1,717 | |||||||
|
|
|
| |||||
An ageing analysis of the trade and notes receivables as at the end of the reporting period, based on the invoice/billing date wasand net of loss allowance, is as follows:
| 2017 | 2016 | 2020 | 2019 | |||||||||||||
| RMB million | RMB million | RMB million | RMB million | |||||||||||||
Within 90 days | 1,912 | 2,324 | 1,054 | 1,615 | ||||||||||||
91 to 180 days | 38 | 167 | 46 | 33 | ||||||||||||
181 to 365 days | 100 | 102 | 8 | 39 | ||||||||||||
Over 365 days | 162 | 182 | 16 | 30 | ||||||||||||
|
|
|
| |||||||||||||
| 2,212 | 2,775 | 1,124 | 1,717 | |||||||||||||
Provision for impairment of trade receivables | (88 | ) | (115 | ) | ||||||||||||
|
|
|
| |||||||||||||
| 2,124 | 2,660 | |||||||||||||||
|
| |||||||||||||||
Balances with related parties included in trade receivables are summarized in Note 45(c)(i).
The movements in the loss allowance for impairment of trade receivables are as follows:
| 2020 | 2019 | |||||||
| RMB million | RMB million | |||||||
At January 1 | 76 | 93 | ||||||
Impairment losses, net (Note 10) | 15 | (6 | ) | |||||
Amount written off as uncollectible | (5 | ) | (4 | ) | ||||
Disposal of a subsidiary | — | (7 | ) | |||||
|
|
|
| |||||
At December 31 | 86 | 76 | ||||||
|
|
|
| |||||
An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses. The provision rates are based on days past due for groupings of various customer segments with similar loss patterns. The calculation reflects the probability-weighted outcome, the time value of money and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(AmountsPrepared in millions except for per share data)accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 27 | TRADE |
Set out below is the information about the credit risk exposure on the Group’s trade receivables using a provision matrix:
As at December 31, 2020
| Past due | ||||||||||||||||||||
| Less than | 90 to 365 | Over | ||||||||||||||||||
| Current | 90 days | days | 365 days | Total | ||||||||||||||||
Expected credit loss rate (%) | 0.85 | 4.79 | 6.87 | 76.93 | 7.08 | |||||||||||||||
Gross carrying amount (RMB million) | 1,063 | 42 | 9 | 96 | 1,210 | |||||||||||||||
Expected credit losses (RMB million) | 9 | 1 | 1 | 75 | 86 | |||||||||||||||
As at December 31, 2019 | ||||||||||||||||||||
| Past due | ||||||||||||||||||||
| Less than | 90 to 365 | Over | ||||||||||||||||||
| Current | 90 days | days | 365 days | Total | ||||||||||||||||
Expected credit loss rate (%) | 0.12 | 2.94 | 2.50 | 70.59 | 4.24 | |||||||||||||||
Gross carrying amount (RMB million) | 1,617 | 34 | 40 | 102 | 1,793 | |||||||||||||||
Expected credit losses (RMB million) | 2 | 1 | 1 | 72 | 76 | |||||||||||||||
Trade and notes receivables that were neither overduepast due nor impaired relate to a large number of independent sales agents for whom there was no recent history of default.
As at 31 December 2017, trade and notes receivables of RMB131 million (2016: RMB267 million) were past due but not impaired relate to a number of independent customers that have a good track record with the Group. Based on past experience, the directors of the Company are of the opinion that no provision for impairment is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered fully recoverable. The ageing analysis of these trade and notes receivables was as follows:
| 2017 | 2016 | |||||||
| RMB million | RMB million | |||||||
Past due: | ||||||||
Within 90 days | 38 | 167 | ||||||
91 to 180 days | 93 | 30 | ||||||
181 to 365 days | — | 70 | ||||||
|
|
|
| |||||
| 131 | 267 | |||||||
|
|
|
| |||||
Movements in the Group’s provision for impairment of trade and notes receivables were as follows:
| 2017 | 2016 | |||||||
| RMB million | RMB million | |||||||
At 1 January | 115 | 216 | ||||||
Impairment losses recognized (note 10) | 6 | 8 | ||||||
Amount written off during the year as uncollectible | (13 | ) | (100 | ) | ||||
Impairment losses reversed (note 10) | (9 | ) | (9 | ) | ||||
Disposal of subsidiary | (5 | ) | — | |||||
Provision included in held for sale | (6 | ) | — | |||||
|
|
|
| |||||
At 31 December | 88 | 115 | ||||||
|
|
|
| |||||
Included in the above provision for impairment of trade receivables is a provision for individually impaired trade receivables of RMB46 million (2016: RMB66 million) with a carrying amount before provision of RMB46 million (2016: RMB66 million).
The remaining provision of RMB42 million relate to impaired trade receivables with a carrying amount before provision of RMB123 million as at 31 December 2017 which customers that were in financial difficulties or were in default in interest and/or principal payments and only a portion of the receivables is expected to be recovered.
The net impacts of recognition and reversal of provisions for impaired receivables have been included in “Impairment charges”losses on financial assets, net” in profit or loss (note(Note 10). Amounts charged to the allowance account are generally written off when there is no expectation of recovering.
| 28 | FINANCIAL ASSET AT FAIR VALUE THROUGH PROFIT OR LOSS |
| 2017 | 2016 | |||||||
| RMB million | RMB million | |||||||
Value added tax recoverable | 3,662 | 1,746 | ||||||
Value added tax refundable | 1,387 | 615 | ||||||
Subsidy receivable | 1,450 | 762 | ||||||
Prepaid corporate income tax | 139 | 283 | ||||||
Advance to suppliers | 218 | 2,327 | ||||||
Prepaid aircraft operating lease rentals | 319 | 382 | ||||||
Dividend receivable | 183 | — | ||||||
Rebate receivables on aircraft acquisitions | 944 | 1,489 | ||||||
Rental deposits | 200 | 233 | ||||||
| 2020 | 2019 | |||||||
| RMB million | RMB million | |||||||
Listed equity investment, at fair value: | ||||||||
Shanghai Pudong Development Bank Co., Ltd. | 95 | 121 | ||||||
|
|
|
| |||||
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions exceptThe above equity investment was classified as a financial asset at fair value through profit or loss as it was held for per share data)trading.
| 2017 | 2016 | |||||||
| RMB million | RMB million | |||||||
Amounts due from related parties (note 47(c)(i)) | 569 | 616 | ||||||
Deposits relating to aircraft held under operating leases | 76 | 140 | ||||||
Others | 365 | 838 | ||||||
|
|
|
| |||||
| 9,512 | 9,431 | |||||||
Provision for impairment of other receivables | (198 | ) | (200 | ) | ||||
|
|
|
| |||||
| 9,314 | 9,231 | |||||||
|
|
|
| |||||
| 29 | PREPAYMENTS AND |
| 2017 | 2016 | |||||||
| RMB million | RMB million | |||||||
Bank deposits with original maturity over a year | — | 3 | ||||||
Restricted bank deposits | 51 | 40 | ||||||
|
|
|
| |||||
| 51 | 43 | |||||||
|
|
|
| |||||
| 2020 | 2019 | |||||||
| RMB million | RMB million | |||||||
Value added tax recoverable | 7,997 | 6,991 | ||||||
Value added tax refundable | 174 | 800 | ||||||
Subsidy receivable | 1,421 | 2,072 | ||||||
Prepaid corporate income tax | 347 | 608 | ||||||
Advance to suppliers | 121 | 129 | ||||||
Refundable advanced payment on acquisition of aircraft | — | 538 | ||||||
Rebate receivables on aircraft acquisitions | 90 | 1,582 | ||||||
Amounts due from related parties (Note 45(c)(i)) | 769 | 776 | ||||||
Deposits relating to aircraft held under leases | 7 | 29 | ||||||
Other deposits | 161 | 168 | ||||||
Others | 380 | 663 | ||||||
|
|
|
| |||||
| 11,467 | 14,356 | |||||||
Provision for impairment of other receivables | (269 | ) | (263 | ) | ||||
|
|
|
| |||||
| 11,198 | 14,093 | |||||||
|
|
|
| |||||
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 29 | PREPAYMENTS AND OTHER RECEIVABLES (continued) |
Set out below are the movements of loss allowances measured at 12-month and lifetime expected credit losses for the financial assets included in other receivables.
| 12-month ECLs | Lifetime ECLs | |||||||||||||||||||
| Stage 1 | Stage 2 | Stage 2 | Stage 3 | Total | ||||||||||||||||
| (Individually) | (Collectively) | |||||||||||||||||||
As at January 1, 2020 | 33 | — | 108 | 122 | 263 | |||||||||||||||
Transferred - to stage 2 | (2 | ) | — | 2 | — | — | ||||||||||||||
Accrual | 5 | — | 12 | — | 17 | |||||||||||||||
Write-off | — | — | — | (11 | ) | (11 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
As at December 31, 2020 | 36 | — | 122 | 111 | 269 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
| 12-month ECLs | Lifetime ECLs | |||||||||||||||||||
| Stage 1 | Stage 2 | Stage 2 | Stage 3 | Total | ||||||||||||||||
| (Individually) | (Collectively) | |||||||||||||||||||
As at January 1, 2019 | 16 | — | 108 | 122 | 246 | |||||||||||||||
Transferred - to stage 2 | (1 | ) | — | 1 | — | — | ||||||||||||||
Accrual | 18 | — | 4 | — | 22 | |||||||||||||||
Disposal of a subsidiary | — | — | (5 | ) | — | (5 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
As at December 31, 2019 | 33 | — | 108 | 122 | 263 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
| 30 | RESTRICTED BANK DEPOSITS |
| 2020 | 2019 | |||||||
| RMB million | RMB million | |||||||
Restricted bank deposits | 12 | 6 | ||||||
|
|
|
| |||||
| 31 | CASH AND CASH EQUIVALENTS |
| 2017 | 2016 | 2020 | 2019 | |||||||||||||
| RMB million | RMB million | RMB million | RMB million | |||||||||||||
Cash | 2 | 3 | — | 1 | ||||||||||||
Bank balances | 4,603 | 1,692 | 7,651 | 1,349 | ||||||||||||
|
|
|
| |||||||||||||
| 4,605 | 1,695 | 7,651 | 1,350 | |||||||||||||
|
|
|
| |||||||||||||
At the end of the reporting period, the cash and bank balances of the Group denominated in RMB amounted to RMB3,239RMB6,658 million (2016: RMB814(2019: RMB547 million). The RMB is not freely convertible into other currencies, however,currencies. However, under Mainland China’s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, the Group is permitted to exchange RMB for other currencies through banks authorized to conduct foreign exchange business.
Cash at banks earns interest at floating rates based on daily bank deposit rates. The bank balances are deposited with creditworthy banks and financial institutions with no recent history of default.
ASSETS CLASSIFIED AS HELD FOR SALE |
The Group entered into agreements with China Aviation Supplies Co., Ltd. to dispose of certain flight equipment. The flight equipment with an aggregate carrying amount of RMB2 million (2019: RMB6 million) was recognized as assets classified as held for sale by the Group as at December 31, 2020, which are stated at the lower of their carrying amounts and their fair value less cost to sell.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 33 | TRADE AND BILLS PAYABLES |
An agedageing analysis of the trade and bills payables as at the end of the reporting period was as follows:
| 2017 | 2016 | 2020 | 2019 | |||||||||||||
| RMB million | RMB million | RMB million | RMB million | |||||||||||||
Within 90 days | 2,791 | 2,994 | 2,868 | 3,622 | ||||||||||||
91 to 180 days | 59 | 57 | 35 | 52 | ||||||||||||
181 to 365 days | 161 | 83 | 109 | 94 | ||||||||||||
1 to 2 years | 71 | 77 | 111 | 40 | ||||||||||||
Over 2 years | 102 | 165 | 97 | 69 | ||||||||||||
|
|
|
| |||||||||||||
| 3,184 | 3,376 | 3,220 | 3,877 | |||||||||||||
|
|
|
| |||||||||||||
As at 31 December 2017,Balances with related parties included in trade and bills payable balances included amounts due to related parties of RMB241 million (2016: RMB232 million) (note 47(c)payables are summarized in Note 45(c)(ii)).
As at December 31, December 2017,2020, bills payable amounted to RMB1,173 million (2016: 1,120 million).
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
| 2017 | 2016 | |||||||
| RMB million | RMB million | |||||||
Salaries, wages and benefits | 2,711 | 3,662 | ||||||
Take-off and landing charges | 2,707 | 2,323 | ||||||
Fuel cost | 1,369 | 1,774 | ||||||
Expenses related to aircraft overhaul conducted | 1,760 | 1,253 | ||||||
Advance from customers | 1,342 | 966 | ||||||
Duties and levies payable | 1,483 | 1,507 | ||||||
Other accrued operating expenses | 1,848 | 1,561 | ||||||
Deposits received from ticket sales agents | 549 | 764 | ||||||
Current portion of other long-term liabilities (note 36) | 1,038 | 635 | ||||||
Staff housing allowance | 323 | 363 | ||||||
Amounts due to related parties (note 47(c)(ii)) | 2,111 | 2,534 | ||||||
Current portion of post-retirement benefit obligations (note 37(b)) | 168 | 173 | ||||||
Others | 2,455 | 2,735 | ||||||
|
|
|
| |||||
| 19,864 | 20,250 | |||||||
|
|
|
| |||||
As at 31 December 2017,of the Group had 235 aircraft (2016: 226 aircraft) under finance leases. Under the terms of the leases, the Group has the optionaccounted to purchase, at or near the end of the lease terms, certain aircraft at either fair market value or a percentage of the respective lessors’ defined cost of the aircraft. The obligations under finance leases are principally denominated in US dollars.
The future minimum lease payments (including interest), and the present values of the minimum lease payments under finance leases were as follows:
| Present values | Present values | |||||||||||||||
| Minimum lease | of minimum | Minimum lease | of minimum | |||||||||||||
| payments | lease payments | payments | lease payments | |||||||||||||
| 2017 | 2017 | 2016 | 2016 | |||||||||||||
| RMB million | RMB million | RMB million | RMB million | |||||||||||||
Within one year | 11,651 | 8,123 | ||||||||||||||
In the second year | 10,408 | 7,526 | ||||||||||||||
In the third to fifth years, inclusive | 27,895 | 21,905 | ||||||||||||||
After the fifth year | 30,196 | 33,277 | ||||||||||||||
|
|
|
| |||||||||||||
Total | 80,105 | 66,868 | 70,831 | 61,041 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Less: amounts repayable within one year | (11,651 | ) | (9,241 | ) | (8,123 | ) | (6,447 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Long-term portion | 68,454 | 57,627 | 62,708 | 54,594 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
| 34 | CONTRACT LIABILITIES |
| 2017 | 2016 | |||||||
| RMB million | RMB million | |||||||
Non-current | ||||||||
Long-term bank borrowings | ||||||||
– secured (note (a)) | 4,816 | 7,169 | ||||||
– unsecured | 108 | 3,435 | ||||||
Guaranteed bonds (note (b)) | 10,956 | 8,476 | ||||||
Unsecured bonds (note (b)) | 8,831 | 8,810 | ||||||
|
|
|
| |||||
| 24,711 | 27,890 | |||||||
|
|
|
| |||||
Current | ||||||||
Current portion of long-term bank borrowings | ||||||||
– secured (note (a)) | 1,028 | 1,724 | ||||||
– unsecured | 3,103 | 135 | ||||||
Short-term bank borrowings | ||||||||
– unsecured | 24,959 | 9,983 | ||||||
Short-term debentures (note (c)) | 10,000 | 17,000 | ||||||
|
|
|
| |||||
| 39,090 | 28,842 | |||||||
|
|
|
| |||||
Total borrowings | 63,801 | 56,732 | ||||||
|
|
|
| |||||
The borrowings are repayable as follows: | ||||||||
Within one year | 39,090 | 28,842 | ||||||
In the second year | 6,527 | 4,833 | ||||||
In the third to fifth years, inclusive | 8,797 | 13,281 | ||||||
After the fifth year | 9,387 | 9,776 | ||||||
|
|
|
| |||||
Total borrowings | 63,801 | 56,732 | ||||||
|
|
|
| |||||
| 2020 | 2019 | |||||||
| RMB million | RMB million | |||||||
Sales in advance of carriage | 2,155 | 8,754 | ||||||
Frequent flyer program (Note 5) | 1,781 | 2,057 | ||||||
Advances from customers | 1,055 | 866 | ||||||
|
|
|
| |||||
| 4,991 | 11,677 | |||||||
|
|
|
| |||||
Current portion | 3,671 | 10,178 | ||||||
Non-current portion | 1,320 | 1,499 | ||||||
|
|
|
| |||||
| 35 | OTHER PAYABLES AND ACCRUALS |
| 2020 | 2019 | |||||||
| RMB million | RMB million | |||||||
Salaries, wages and benefits | 3,806 | 2,794 | ||||||
Take-off and landing charges | 2,330 | 3,052 | ||||||
Fuel cost | 451 | 1,109 | ||||||
Expenses related to aircraft overhaul conducted | 2,853 | 1,810 | ||||||
Duties and levies payable | 1,353 | 1,983 | ||||||
Food and beverages | 125 | 253 | ||||||
Payments on system services | 1,643 | 879 | ||||||
Lease rentals of property, plant and equipment | 484 | 515 | ||||||
Other accrued operating expenses | 567 | 991 | ||||||
Payable for purchase of property, plant and equipment | 2,310 | 3,454 | ||||||
Interest payable | 1,161 | 1,249 | ||||||
Pending output value added tax | 250 | 412 | ||||||
Deposits received from ticket sales agents | 420 | 507 | ||||||
Other deposits | 529 | 588 | ||||||
Current portion of other long-term liabilities (Note 39) | 235 | 294 | ||||||
Staff housing allowance | 196 | 224 | ||||||
Amounts due to related parties (Note 45(c)(ii)) | 398 | 383 | ||||||
Current portion of post-retirement benefit obligations (Note 38(b)) | 165 | 165 | ||||||
Others | 2,343 | 1,940 | ||||||
|
|
|
| |||||
| 21,619 | 22,602 | |||||||
|
|
|
| |||||
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 36 | BORROWINGS |
| 2020 | 2019 | |||||||
| RMB million | RMB million | |||||||
Non-current | ||||||||
Long-term bank borrowings | ||||||||
– secured (note (a)) | 8,638 | 2,995 | ||||||
– unsecured | 4,526 | 828 | ||||||
Guaranteed bonds (note (b)) | 9,585 | 12,784 | ||||||
Unsecured bonds (note (b)) | 7,996 | 9,997 | ||||||
|
|
|
| |||||
| 30,745 | 26,604 | |||||||
|
|
|
| |||||
Current | ||||||||
Current portion of long-term bank borrowings | ||||||||
– secured (note (a)) | 1,498 | 939 | ||||||
– unsecured | 28 | 1,009 | ||||||
Current portion of guaranteed bonds (note (b)) | 3,158 | 2,585 | ||||||
Current portion of unsecured bonds (note (b)) | 4,000 | — | ||||||
Short-term bank borrowings | ||||||||
– unsecured | 21,966 | 2,200 | ||||||
Short-term debentures (note (c)) | 26,500 | 18,500 | ||||||
|
|
|
| |||||
| 57,150 | 25,233 | |||||||
|
|
|
| |||||
| 87,895 | 51,837 | |||||||
|
|
|
| |||||
The borrowings are repayable as follows:
| 2020 | 2019 | |||||||
| RMB million | RMB million | |||||||
Within one year | 57,149 | 25,233 | ||||||
In the second year | 5,936 | 8,104 | ||||||
In the third to fifth years, inclusive | 17,680 | 14,821 | ||||||
After the fifth year | 7,130 | 3,679 | ||||||
|
|
|
| |||||
| 87,895 | 51,837 | |||||||
|
|
|
| |||||
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 36 | BORROWINGS (continued) |
Notes:
| (a) | As at December 31, |
| (b) | Detailed borrowings from banks are listed below: |
| Issue date | Principal | Notes | Interest rate | |||||||||||
Ten-year guaranteed bonds | 2013/03/18 | RMB4.8 billion | (i | ) | 5.05 | % | ||||||||
Five-year medium-term bonds | 2016/07/13 | RMB4 billion | (ii | ) | 3.39 | % | ||||||||
Ten-year corporate bonds | 2016/10/24 | RMB1.5 billion | (iii | ) | 3.03 | % | ||||||||
Ten-year corporate bonds | 2016/10/24 | RMB1.5 billion | (iii | ) | 3.30 | % | ||||||||
Three-year credit enhanced bonds | 2018/03/16 | JPY10 billion | (iv | ) | 0.33 | % | ||||||||
Three-year credit enhanced bonds | 2018/03/16 | JPY20 billion | (v | ) | 0.64 | % | ||||||||
Three-year credit enhanced bonds | 2018/03/16 | JPY20 billion | (vi | ) | 0.64 | % | ||||||||
Three-year medium-term bonds | 2019/03/05 | RMB3 billion | (vii | ) | 3.70 | % | ||||||||
Five-year corporate bonds | 2019/08/19 | RMB3 billion | (viii | ) | 3.60 | % | ||||||||
Three-year corporate bonds | 2019/12/06 | KRW300 billion | (ix | ) | 2.40 | % | ||||||||
Three-year corporate bonds | 2020/04/24 | RMB2 billion | (x | ) | 2.39 | % | ||||||||
(i) On March 18, 2013, the Company issuedten-year guaranteed bonds with a principal amount of RMB4.8 billion, at an issue price equal to the face value of the bonds. The bonds bear interest at the rate of 5.05% per annum, which are payable annually. The principal of the bonds will mature and be repayable on 18 March 2023. CEA Holding has unconditionally and irrevocably guaranteed the due payment and performance of the above bonds (note 47(d)).
On 15 June 2016, the Company issued three-year medium-term bonds with a principal amount of RMB3 billion at an issue price equal to the face value of the bonds. The bonds bear interest at the rate of 3.15%5.05% per annum, which areis payable annually. The principal of the bonds will mature and become repayable on 15 June 2019.March 18, 2023. CEA Holding has unconditionally and irrevocably guaranteed the due payment and performance of the above bonds (Note 45(d)).
(ii) On 14 July 13, 2016, the Company issued five-year medium-term bonds with a principal amount of RMB4 billion, at an issue price equal to the face value of the bonds. The bonds bear interest at the rate of 3.39% per annum, which areis payable annually. The principal of the bonds will mature and become repayable on July 14, July 2021.
(iii) On 20 JulyOctober 24, 2016, the Company issued three-year medium-term bonds with a principal amount of RMB1.5 billion, at an issue price equal to the face value of the bonds. The bonds bear interest at the rate of 3.00% per annum, which are payable annually. The principal of the bonds will mature and become repayable on 20 July 2019.
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
On 28 September 2016, the Company issued three-year guaranteed notes with a principal amount of KRW120 billion, at an issue price equal to the face value of the bonds. The bonds bear interest at the rate of 2.05% per annum, which are payable semi-annually. The principal of the bonds will mature and become repayable on 28 September 2019. Korean Development Bank has unconditionally and irrevocably guaranteed the due payment and performance of the above bonds.
On 28 September 2016, the Company issued three-year notes with a principal amount of KRW55 billion, at an issue price equal to the face value of the bonds. The bonds bear interest at the rate of 2.85% per annum, which are payable semi-annually. The principal of the bonds will mature and become repayable on 28 September 2019.
On 24 October 2016, the Company issuedten-year corporate bonds with a total principal amount of RMB3 billion, of which bonds of RMB1.5 billion bear interest at the rate of 3.03% per annum and the remaining bonds of RMB1.5 billion bear interest at the rate of 3.30% per annum. The bonds areinterest is payable annually. The principal of the bonds will mature and become repayable on October 24, October 2026. CEA Holding has unconditionally and irrevocably guaranteed the due payment and performance of the above bonds (note 47(d)(Note 45(d)).
(iv) On March 16, November 2017, Eastern Air Overseas2018, the Company issued three-year corporatecredit enhanced bonds with a total principal amount of SGD 500 million,JPY10 billion, The bonds bear interest at the rate of 0.33% per annum, which is payable semi-annually. The principal of the bonds will mature and become repayable on March 16, 2021. Sumitomo Mitsui Banking Corporation (Hong Kong) has unconditionally and irrevocably guaranteed the due payment and performance of the above bonds.
(v) On March 16, 2018, the Company issued three-year credit enhanced bonds with a total principal amount of JPY20 billion, The bonds bear interest at the rate of 0.64% per annum, which is payable semi-annually. The principal of the bonds will mature and become repayable on March 16, 2021. The bonds are secured by a standby letter of credit issued by Bank of China Limited acting through its Tokyo Branch.
(vi) On March 16, 2018, the Company issued three-year credit enhanced bonds with a total principal amount of JPY20 billion. The bonds bear interest at the rate of 0.64% per annum, which is payable semi-annually. The principal of the bonds will mature and become repayable on March 16, 2021. The bonds are secured by a standby letter of credit issued by Industrial and Commercial Bank of China Limited acting through its Shanghai Municipal Branch.
(vii) On March 5, 2019, the Company issued three-year medium-term bonds with a principal amount of RMB3 billion, at an issue price equal to the face value of the bonds. The bonds bear interest at the rate of 2.80%3.70% per annum. The bonds areannum, which is payable semi-annually.annually. The principal of the bonds will mature and become repayable on 16 November 2020.March 7, 2022.
(viii) On August 19, 2019, the Company issued five-year corporate bonds with a total principal amount of RMB3 billion. The bonds bear interest at the rate of 3.60% per annum, which is payable annually. The principal of the bonds will mature and become repayable on August 20, 2024.
(ix) On December 6, 2019, Eastern Air Overseas issued three-year corporate bonds with a principal amount of KRW300 billion, at an issue price equal to the face value of the bonds. The bonds bear interest at the rate of 2.40% per annum, which is payable annually. The principal of the bonds will mature and become repayable on December 6, 2022. The Company has unconditionally and irrevocably guaranteed the due payment and performance of the above bonds.
(x) On April 24, 2020, the Company issued three-year corporate bonds (note 47(d)).with a total principal amount of RMB2 billion. The bonds bear interest at the rate of 2.39% per annum, which is payable annually. The principal of the bonds will mature and become repayable on April 28, 2023.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 36 | BORROWINGS (continued) |
| (c) | Detailed short-term debentures |
On 22 August 2017, the Company issued short-term debentures with a principal of RMB3 billion and maturity of 150 days. The debentures bear interest at the rate of 4.25% per annum.
On 12 September 2017, the Company issued short-term
| Issue date | Maturity date | Principal | Interest rate | |||||||||||||
2020 22nd Short-term debentures
| 2020/06/04 | 2021/03/01 | RMB2 billion | 1.45 | % | |||||||||||
2020 25th Short-term debentures | 2020/07/15 | 2021/01/11 | RMB3 billion | 1.60 | % | |||||||||||
2020 26th Short-term debentures | 2020/07/20 | 2021/01/15 | RMB3 billion | 1.65 | % | |||||||||||
2020 27th Short-term debentures | 2020/08/04 | 2021/01/29 | RMB3 billion | 1.60 | % | |||||||||||
2020 28th Short-term debentures | 2020/08/10 | 2021/02/05 | RMB2.5 billion | 1.70 | % | |||||||||||
2020 30th Short-term debentures | 2020/10/27 | 2021/01/26 | RMB3 billion | 1.98 | % | |||||||||||
2020 31st Short-term debentures | 2020/10/28 | 2021/01/27 | RMB3 billion | 2.00 | % | |||||||||||
2020 32nd Short-term debentures | 2020/11/18 | 2021/01/19 | RMB5 billion | 1.80 | % | |||||||||||
2020 33rd Short-term debentures | 2020/12/01 | 2021/06/01 | RMB2 billion | 2.40 | % | |||||||||||
The terms of the long-term borrowings and bonds were summarized as follows:
| Interest rate and final maturities | 2017 | 2016 | ||||||||
| RMB million | RMB million | |||||||||
Long-term bank borrowings | ||||||||||
RMB denominated | interest rates ranging from3.10% to 3.48% with final maturities through 2021 (2016: 3.40% to 4.41%) | 3,028 | 3,278 | |||||||
USD denominated | interest rates ranging from6-month libor +0.55% to6-month libor +2.85% with final maturities through 2025 (2016:6-month libor +0.75% to6-month libor +3.75%) | 2,003 | 4,970 | |||||||
EUR denominated | interest rates at 3 months Euribor+0.5% with final maturities through 2026 (2016: 3 months Euribor+0.5%) | 4,024 | 4,215 | |||||||
|
|
|
| |||||||
Guaranteed bonds | ||||||||||
RMB denominated | interest rates ranging from 3.03% to 5.05% with final maturities through 2026 (2016: 3.03% to 5.05%) | 7,794 | 7,792 | |||||||
SGD denominated | interest rates at 2.80% with final maturities through 2020 | 2,435 | — | |||||||
KRW denominated | interest rate at 2.05% with final maturities through 2019 (2016: 2.05%) | 727 | 684 | |||||||
|
|
|
| |||||||
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
| Interest rate and final maturities | 2017 | 2016 | Interest rate and final maturities | 2020 | 2019 | |||||||||||||||
| RMB million | RMB million | RMB million | RMB million | |||||||||||||||||
Long-term bank borrowings | Long-term bank borrowings | |||||||||||||||||||
RMB denominated | Interest rates ranging from 2.40% to 4.21% with final maturities through 2045 (2019: 2.65% to 3.92%) | 11,651 | 1,828 | |||||||||||||||||
USD denominated | Interest rates ranging from 6-month LIBOR +0.70% to 6-month LIBOR +0.85% with final maturities through 2022 (2019: 6-month LIBOR +0.70% to 6-month LIBOR +1.65%) | 375 | 870 | |||||||||||||||||
EUR denominated | Interest rates at 3-month EURIBOR +0.5% with final maturities through 2026 (2019: 3 months EURIBOR +0.5%) | 2,664 | 3,073 | |||||||||||||||||
|
| |||||||||||||||||||
Guaranteed bonds | ||||||||||||||||||||
RMB denominated | Interest rates ranging from 3.03% to 5.05% with final maturities through 2026 (2019: 3.03% to 5.05%) | 7,798 | 7,796 | |||||||||||||||||
SGD denominated | Interest rate at 2.80% with final maturities through 2020 | — | 2,585 | |||||||||||||||||
JPY denominated | Interest rates ranging from 0.33% to 0.64% with final maturities through 2021 (2019: 0.33% to 0.64%) | 3,158 | 3,197 | |||||||||||||||||
KRW denominated | Interest rate at 2.40% with final maturities through 2022 (2019: 2.40%) | 1,787 | 1,791 | |||||||||||||||||
|
| |||||||||||||||||||
Unsecured bonds | ||||||||||||||||||||
RMB denominated | interest rates ranging from 3.00% to 3.39% with final maturities through 2021 (2016: from 3.00% to 3.39%) | 8,500 | 8,500 | Interest rates ranging from 2.39% to 3.70% with final maturities through 2024 (2019: from 3.39% to 3.70%) | 11,996 | 9,997 | ||||||||||||||
KRW denominated | interest rate at 2.85% with final maturities through 2019 (2016: 2.85%) | 331 | 310 | |||||||||||||||||
|
|
|
| |||||||||||||||||
Total long-term borrowings and bonds | 28,842 | 29,749 | ||||||||||||||||||
|
| 39,429 | 31,137 | |||||||||||||||||
|
| |||||||||||||||||||
Short-term borrowings of the Group are repayable within one year. As at December 31, December 2017,2020, the interest rates relating to such borrowings ranged from 0.70%were 1.21% to 4.35% per annum (2016: 1.49% to 4.35%3.30% (2019: 3.30% per annum).
PROVISION FOR LEASE RETURN |
| 2017 | 2016 | |||||||
| RMB million | RMB million | |||||||
At 1 January | 3,670 | 3,503 | ||||||
Accrual | 1,214 | 1,010 | ||||||
Utilization | (1,865 | ) | (843 | ) | ||||
|
|
|
| |||||
At 31 December | 3,019 | 3,670 | ||||||
Less: current portion | (981 | ) | (1,175 | ) | ||||
|
|
|
| |||||
Long-term portion | 2,038 | 2,495 | ||||||
|
|
|
| |||||
In respectDetails of provision for lease return costs for aircraft and engines under operating leases,are as follows:
| 2020 | 2019 | |||||||
| RMB million | RMB million | |||||||
At January 1 | 7,178 | 6,560 | ||||||
Accrual | 283 | 702 | ||||||
Utilization | (471 | ) | (84 | ) | ||||
|
|
|
| |||||
At December 31 | 6,990 | 7,178 | ||||||
Less: current portion | (24 | ) | (519 | ) | ||||
|
|
|
| |||||
Non-current portion | 6,966 | 6,659 | ||||||
|
|
|
| |||||
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the Group has obligations to fulfil certain return conditions under the leases. The balance as atyears ended December 31, December 20172020, 2019 and 2016 represented the provision for the estimated cost of these return condition checks which is made on a straight-line basis over the term of the leases.2018
| 2017 | 2016 | |||||||
| RMB million | RMB million | |||||||
Fair value of unredeemed points awarded under the Group’s frequent flyer programmes | 2,030 | 1,750 | ||||||
Long-term duties and levies payable relating to finance leases | 1,411 | 1,608 | ||||||
Other long-term payables | 1,321 | 1,151 | ||||||
|
|
|
| |||||
| 4,762 | 4,509 | |||||||
Less: current portion included in other payables and accruals (note 32) | (1,038 | ) | (635 | ) | ||||
|
|
|
| |||||
Long-term portion | 3,724 | 3,874 | ||||||
|
|
|
| |||||
| POST-RETIREMENT BENEFIT OBLIGATIONS |
| (a) | Pension—defined contribution |
The group companies participate in defined contribution retirement schemes organized by municipal governments of various provinces in which the group companies operate. Substantially all of the Group’s PRC employees are eligible to participate in these defined contribution retirement schemes. Therefore, the employees are entitled to a monthly pension based on certain formulas. The relevant government agencies are responsible for the pension liability to these retired employees. In addition, the group companies have implemented an additional defined contribution retirement pension scheme for eligible employees since 2014.
NOTES TO THE FINANCIAL STATEMENTSAs at December 31, 2020 and 2019, the Group cannot use forfeited contributions to reduce its contributions to the pension schemes.
(Amounts in millions except for per share data)
| (b) | Post-retirement benefits |
In addition to the above schemes, the Group provides eligible retirees with other post-retirement benefits, including retirement subsidies, transportation allowance as well as other welfare. The expected cost of providing these post-retirement benefits is actuarially determined and recognized by using the projected unit credit method, which involves a number of assumptions and estimates, including inflation rate, discount rate and etc.
The plan is exposed to interest rate risk and the risk of changes in the life expectancy for pensioners.
The most recent actuarial valuation of the post-retirement benefit obligations was carried out at December 31, December 20172020 with assistance from a third party consultant using the projected unit credit actuarial valuation method.
The post-retirement benefit obligations recognized in the consolidated statement of financial position are as follows:
| 2017 | 2016 | 2020 | 2019 | |||||||||||||
| RMB million | RMB million | RMB million | RMB million | |||||||||||||
Post-retirement benefit obligations | 2,670 | 3,063 | 2,538 | 2,584 | ||||||||||||
Less: current portion | (168 | ) | (173 | ) | (165 | ) | (165 | ) | ||||||||
|
|
|
| |||||||||||||
Long-term portion | 2,502 | 2,890 | ||||||||||||||
Non-current portion | 2,373 | 2,419 | ||||||||||||||
|
|
|
| |||||||||||||
The principal actuarial assumptions utilized as at the end of the reporting period are as follows:
| 2017 | 2016 | 2020 | 2019 | |||||||||||||
Discount rates for post-retirement benefits | 4.10 | % | 3.50 | % | 3.40% | 3.40% | ||||||||||
Mortality rate | China Insurance | China Insurance | | China Insurance Life Mortality |
| | China Insurance Life Mortality |
| ||||||||
| Life Mortality | Life Mortality | | Table (2010-2013). CL5 for Male and CL6 for Female | | | Table (2010-2013). CL5 for Male and CL6 for Female | | |||||||||
| Table (2010-2013). CL5 for | Table (2010-2013). CL5 for | |||||||||||||||
| Male and CL6 for Female | Male and CL6 for Female | |||||||||||||||
Annual increase rate of post-retirement medical expenses | 6.50 | % | 6.50 | % | 6.50% | 6.50% | ||||||||||
Inflation rate of pension benefits | 2.50 | % | 2.50 | % | 2.50% | 2.50% | ||||||||||
A quantitative sensitivity analysis for significant assumptions at the end of the reporting period is shown below:
| Increase/ (decrease) in | Increase/ (decrease) in | Increase in rate % | Increase/ (decrease) in post-retirement benefit obligations RMB million | Decrease in rate % | Increase/ (decrease) in post-retirement benefit obligations RMB million | |||||||||||||||||||||||||||
| post-retirement | post-retirement | |||||||||||||||||||||||||||||||
| Increase | benefit | Decrease | benefit | |||||||||||||||||||||||||||||
| in rate | obligations | in rate | obligations | |||||||||||||||||||||||||||||
| % | RMB million | % | RMB million | |||||||||||||||||||||||||||||
2017 | ||||||||||||||||||||||||||||||||
2020 | ||||||||||||||||||||||||||||||||
Discount rate for post-retirement benefits | 0.25 | (73 | ) | 0.25 | 77 | 0.25 | (78 | ) | 0.25 | 81 | ||||||||||||||||||||||
Annual increase rate of pension benefits | 1.00 | 283 | 1.00 | (240 | ) | 1.00 | 244 | 1.00 | (208 | ) | ||||||||||||||||||||||
Annual increase rate of medical expenses | 1.00 | 40 | 1.00 | (33 | ) | 1.00 | 43 | 1.00 | (36 | ) | ||||||||||||||||||||||
2016 | ||||||||||||||||||||||||||||||||
2019 | ||||||||||||||||||||||||||||||||
Discount rate for post-retirement benefits | 0.25 | (95 | ) | 0.25 | 100 | 0.25 | (74 | ) | 0.25 | 77 | ||||||||||||||||||||||
Annual increase rate of pension benefits | 1.00 | 325 | 1.00 | (275 | ) | 1.00 | 260 | 1.00 | (222 | ) | ||||||||||||||||||||||
Annual increase rate of medical expenses | 1.00 | 46 | 1.00 | (38 | ) | 1.00 | 36 | 1.00 | (30 | ) | ||||||||||||||||||||||
The sensitivity analyses above have been determined based on a method that extrapolates the impact on net post-retirement benefit obligations as a result of reasonable changes in key assumptions occurring at the end of the reporting period.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(AmountsPrepared in millions except for per share data)accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
POST-RETIREMENT BENEFIT OBLIGATIONS |
| (b) | Post-retirement benefits (continued) |
Expected contributions to be made in the future years out of the post-retirement benefit obligations were as follows:
| 2017 | 2016 | 2020 | 2019 | |||||||||||||
| RMB million | RMB million | RMB million | RMB million | |||||||||||||
Within the next 12 months | 168 | 173 | 165 | 165 | ||||||||||||
Between 2 and 5 years | 679 | 706 | 660 | 661 | ||||||||||||
Between 5 and 10 years | 851 | 894 | ||||||||||||||
Between 6 and 10 years | 805 | 809 | ||||||||||||||
Over 10 years | 3,049 | 3,342 | 2,449 | 2,534 | ||||||||||||
|
|
|
| |||||||||||||
Total expected payments | 4,747 | 5,115 | 4,079 | 4,169 | ||||||||||||
|
|
|
| |||||||||||||
The average duration of the post-retirement benefit obligations at the end of 20172020 was 13 years (2016:(2019: 13 years and a half)years).
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
The movements in the post-retirement benefit obligations were as follows:
2020
| 2017 | ||||||||||||||||||||||||||||||||||||||||||||
| Pension cost charged to profit or loss | Remeasurement (gains)/losses in other comprehensive income | |||||||||||||||||||||||||||||||||||||||||||
| 1 January 2017 RMB million | Service cost RMB million | Net interest RMB million | Sub-total included in profit or loss RMB million | Actuarial changes arising from changes in financial assumptions RMB million | Actuarial changes arising from changes in demographic assumptions RMB million | Experience adjustments RMB million | Sub-total included in other comprehensive | Benefit settled RMB million | Transferred out due to disposal of a subsidiary RMB million | 31 December 2017 RMB million | ||||||||||||||||||||||||||||||||||
Defined benefit obligations/ benefit liability | 3,063 | — | 98 | 98 | (220 | ) | — | 96 | (124 | ) | (200 | ) | (167 | ) | 2,670 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
| 2016 | ||||||||||||||||||||||||||||||||||||||||
| Pension cost charged to profit or loss | Remeasurement (gains)/losses in other comprehensive income | |||||||||||||||||||||||||||||||||||||||
| 1 January 2016 RMB million | Service cost RMB million | Net interest RMB million | Sub-total included in profit or loss RMB million | Actuarial changes arising from changes in financial assumptions RMB million | Actuarial changes arising from changes in demographic assumptions RMB million | Experience adjustments RMB million | Sub-total included in other comprehensive income | Benefit settled RMB million | 31 December 2016 RMB million | |||||||||||||||||||||||||||||||
Defined benefit obligations/ benefit liability | 2,750 | — | 88 | 88 | (80 | ) | 373 | 117 | 410 | (185 | ) | 3,063 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
| Pension cost charged to profit or loss | Remeasurement losses in other comprehensive income | |||||||||||||||||||||||||||||||||||||||
| January 1 2020 RMB million | Service cost RMB million | Net interest | Sub-total profit or loss | Actuarial changes arising from changes in financial assumptions RMB million | Actuarial changes arising from changes in demographic assumptions RMB million | Experience adjustments RMB million | Sub-total included comprehensive | Benefit settled RMB million | December 31 2020 RMB million | |||||||||||||||||||||||||||||||
Defined benefit obligations/ benefit liability | 2,584 | — | 85 | 85 | — | — | 61 | 61 | (192 | ) | 2,538 | |||||||||||||||||||||||||||||
|
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|
|
| |||||||||||||||||||||
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(AmountsPrepared in millions except for per share data)accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 38 |
Deferred tax assets and liabilities are offset when there is a legally enforceable right of offsetting and when the deferred income taxes relate to the same authority. The following amounts, determined after appropriate offsetting, are shown in the consolidated statement of financial position:
POST-RETIREMENT BENEFIT OBLIGATIONS (continued)
| 2017 | 2016 | |||||||
| RMB million | RMB million | |||||||
Deferred tax assets | 122 | 79 | ||||||
Deferred tax liabilities | (18 | ) | (86 | ) | ||||
|
|
|
| |||||
Net deferred tax assets/(liabilities) | 104 | (7 | ) | |||||
|
|
|
| |||||
Movements in the net deferred tax assets/(liabilities) were as follows:
| 2017 | 2016 | |||||||
| RMB million | RMB million | |||||||
At 1 January | (7 | ) | 235 | |||||
Credited/(charged) to profit or loss (note 14) | 162 | (146 | ) | |||||
Charged to other comprehensive income | (51 | ) | (96 | ) | ||||
|
|
|
| |||||
At 31 December | 104 | (7 | ) | |||||
|
|
|
| |||||
The deferred tax assets and liabilities (prior to the offsetting of balances within the same tax jurisdiction) were made up of the taxation effects of the following:
| 2017 | 2016 | |||||||
| RMB million | RMB million | |||||||
Deferred tax assets: | ||||||||
Impairment provision for obsolete flight equipment spare parts | 51 | 22 | ||||||
Impairment provision for receivables | 64 | 70 | ||||||
Impairment provision for property, plant and equipment | 104 | 11 | ||||||
Derivative financial instruments | 82 | 15 | ||||||
Impairment provision foravailable-for-sale investments | 25 | 25 | ||||||
Other payables and accruals | 29 | 88 | ||||||
Aged payables | 5 | 7 | ||||||
|
|
|
| |||||
| 360 | 238 | |||||||
|
|
|
| |||||
Deferred tax liabilities: | ||||||||
Depreciation and amortization | (56 | ) | (85 | ) | ||||
Available-for-sale investments | (162 | ) | (123 | ) | ||||
Derivative financial instruments | (38 | ) | (37 | ) | ||||
|
|
|
| |||||
| (256 | ) | (245 | ) | |||||
|
|
|
| |||||
| 104 | (7 | ) | ||||||
|
|
|
| |||||
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
Movements in the net deferred tax assets/(liabilities) of the Group for the year were as follows:
| (Charged)/ | ||||||||||||||||
| At the | (Charged)/ | credited to other | At the | |||||||||||||
| beginning of | credited to | comprehensive | end of | |||||||||||||
| the year | profit or loss | income | the year | |||||||||||||
| RMB million | RMB million | RMB million | RMB million | |||||||||||||
For the year ended 31 December 2017 | ||||||||||||||||
Impairment provision for flight equipment spare parts | 22 | 29 | — | 51 | ||||||||||||
Impairment provision for receivables | 70 | (6 | ) | — | 64 | |||||||||||
Impairment provision for property, plant and equipment | 11 | 93 | — | 104 | ||||||||||||
Derivative financial instruments | 15 | 78 | (11 | ) | 82 | |||||||||||
Impairment provision foravailable-for-sale investments | 25 | — | — | 25 | ||||||||||||
Other payables and accruals | 88 | (59 | ) | — | 29 | |||||||||||
Aged payables | 7 | (2 | ) | — | 5 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
| 238 | 133 | (11 | ) | 360 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Depreciation and amortization | (85 | ) | 29 | — | (56 | ) | ||||||||||
Available-for-sale investments | (123 | ) | — | (39 | ) | (162 | ) | |||||||||
Derivative financial instruments | (37 | ) | — | (1 | ) | (38 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
| (245 | ) | 29 | (40 | ) | (256 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Net deferred tax assets/(liabilities) | (7 | ) | 162 | (51 | ) | 104 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
| (Charged)/ | ||||||||||||||||
| At the | (Charged)/ | credited to other | At the | |||||||||||||
| beginning of | credited to | comprehensive | end of | |||||||||||||
| the year | profit or loss | income | the year | |||||||||||||
| RMB million | RMB million | RMB million | RMB million | |||||||||||||
For the year ended 31 December 2016 | ||||||||||||||||
Impairment provision for flight equipment spare parts | 43 | (21 | ) | — | 22 | |||||||||||
Impairment provision for receivables | 80 | (10 | ) | — | 70 | |||||||||||
Impairment provision for property, plant and equipment | 26 | (15 | ) | — | 11 | |||||||||||
Derivative financial instruments | 25 | — | (10 | ) | 15 | |||||||||||
Impairment provision foravailable-for-sale investments | 25 | — | — | 25 | ||||||||||||
Other payables and accruals | 89 | (1 | ) | — | 88 | |||||||||||
Tax losses | 133 | (133 | ) | — | — | |||||||||||
Aged payables | — | 7 | — | 7 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
| 421 | (173 | ) | (10 | ) | 238 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Depreciation and amortization | (136 | ) | 51 | — | (85 | ) | ||||||||||
Available-for-sale investments | (39 | ) | (24 | ) | (60 | ) | (123 | ) | ||||||||
Derivative financial instruments | (11 | ) | — | (26 | ) | (37 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
| (186 | ) | 27 | (86 | ) | (245 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Net deferred tax assets/(liabilities) | 235 | (146 | ) | (96 | ) | (7 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
As at the reporting date, the Group had the following balances in respect of which deferred tax assets have not been recognized:
| 2017 | 2016 | |||||||||||||||
| Deferred | Temporary | Deferred | Temporary | |||||||||||||
| taxation | differences | taxation | differences | |||||||||||||
| RMB million | RMB million | RMB million | RMB million | |||||||||||||
Tax losses carried forward | 42 | 167 | 409 | 1,637 | ||||||||||||
Other deductible temporary differences | 6 | 27 | 32 | 128 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total unrecognized deferred tax assets | 48 | 194 | 441 | 1,765 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
In accordance with the PRC tax law, tax losses can be carried forward, for a period of five years, to offset against future taxable income. The Group’s tax losses carried forward will expire between 2018 and 2022.
As at 31 December 2017, management carried out an assessment to determine whether future taxable profits will be available to utilize the tax losses and deductible temporary differences. As there are still uncertainties around the Group’s future operating results, such as future fuel prices and market competition, management assessed that for certain subsidiaries there are significant uncertainties that future taxable profits will be available and the deferred tax assets arising from aforementioned tax losses and deductible temporary differences were not recognized.
| Assets | Liabilities | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| RMB million | RMB million | RMB million | RMB million | |||||||||||||
At 31 December | ||||||||||||||||
Interest rate swaps (note (a)) | 151 | 137 | 14 | 47 | ||||||||||||
Forward foreign exchange contracts (note (b)) | — | 11 | 311 | 11 | ||||||||||||
Total | 151 | 148 | 325 | 58 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Less: current portion | ||||||||||||||||
– Forward foreign exchange contracts | — | (11 | ) | (324 | ) | (11 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Non-current portion | 151 | 137 | 1 | 47 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Notes:
The Group uses interest rate swaps to reduce the risk of changes in market interest rates (note 40). The interest rate swaps entered into by the Group for swapping floating interest rates, usually referenced to LIBOR, into fixed rates are accounted for as cash flow hedges. As at 31 December 2017, the notional amount of the outstanding interest rate swap agreements was approximately USD1,420 million (2016: USD1,636 million). These agreements will expire between 2018 and 2025.
Realized and unrealized gains and losses arising from the valuation of these interest rate swaps have been dealt with in the consolidated statement of profit or loss and other comprehensive income as follows:
| 2017 | 2016 | 2015 | ||||||||||
| RMB million | RMB million | RMB million | ||||||||||
Realized losses (recorded in finance costs) | (63 | ) | (122 | ) | (134 | ) | ||||||
Unrealized mark to market gains | ||||||||||||
– cash flow hedges (recognized in other comprehensive income) | 47 | 166 | 2 | |||||||||
– fair value hedges (recognized in (loss)/gain on fair value changes of derivative financial instruments) | — | 2 | 6 | |||||||||
|
|
|
|
|
| |||||||
| (16 | ) | 46 | (126 | ) | ||||||||
|
|
|
|
|
| |||||||
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
| (b) | Post-retirement benefits (continued) |
The Group uses foreign exchange forward contracts
2019
| Pension cost charged to profit or loss | Remeasurement (gains)/losses in other comprehensive income | |||||||||||||||||||||||||||||||||||||||
| January 1, 2019 RMB million | Service cost RMB million | Net interest | Sub-total included in profit or loss RMB million | Actuarial changes arising from changes in financial assumptions RMB million | Actuarial changes arising from changes in demographic assumptions RMB million | Experience adjustments RMB million | Sub-total included comprehensive | Benefit settled RMB million | December 31, 2019 RMB million | |||||||||||||||||||||||||||||||
Defined benefit obligations/ benefit liability | 2,712 | — | 92 | 92 | 30 | — | (70 | ) | (40 | ) | (180 | ) | 2,584 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 39 | OTHER LONG-TERM LIABILITIES |
| 2020 | 2019 | |||||||
| RMB million | RMB million | |||||||
Long-term duties and levies payable relating to finance leases | 1,159 | 1,487 | ||||||
Deferred gains relating to government grants | 121 | 152 | ||||||
Provision for early retirement benefit obligations and other benefit obligations | 251 | 295 | ||||||
Other long-term payables | 659 | 638 | ||||||
|
|
|
| |||||
| 2,190 | 2,572 | |||||||
Less: current portion included in other payables and accruals (Note 35) | (235 | ) | (294 | ) | ||||
|
|
|
| |||||
Non-current portion | 1,955 | 2,278 | ||||||
|
|
|
| |||||
| 40 | SHARE CAPITAL |
| 2020 | 2019 | |||||||
| RMB million | RMB million | |||||||
Registered, issued and fully paid of RMB1.00 each | ||||||||
A shares listed on the Shanghai Stock Exchange (“A Shares”) | 11,202 | 11,202 | ||||||
- Tradable shares with trading moratorium | 1,394 | 1,394 | ||||||
- Tradable shares without trading moratorium | 9,808 | 9,808 | ||||||
H shares listed on the Stock Exchange of Hong Kong Limited (“H Shares”) | 5,177 | 5,177 | ||||||
- Tradable shares with trading moratorium | 518 | 518 | ||||||
- Tradable shares without trading moratorium | 4,659 | 4,659 | ||||||
|
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| |||||
| 16,379 | 16,379 | |||||||
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| |||||
Pursuant to reducearticles 50 and 51 of the riskCompany’s articles of changesassociation, both the listed A shares and listed H shares are registered ordinary shares and carry equal rights.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in currency exchange ratesaccordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 41 | RESERVES |
| Share premium | Capital reserve (note (a)) | Hedging reserve | Statutory reserve (note (b)) | Other reserves | Retained profits | Total | ||||||||||||||||||||||
| RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | ||||||||||||||||||||||
At January 1, 2019 | 29,540 | (778 | ) | 134 | 570 | (2,421 | ) | 14,901 | 41,946 | |||||||||||||||||||
Unrealized gains on cash flow hedges | — | — | (110 | ) | — | — | — | (110 | ) | |||||||||||||||||||
Fair value movements in equity investments designated at fair value through other comprehensive income | — | — | — | — | 13 | — | 13 | |||||||||||||||||||||
Fair value changes of equity investments designated at fair value through other comprehensive income held by an associate | — | — | — | — | 7 | — | 7 | |||||||||||||||||||||
Actuarial gains on post-retirement benefit obligations | — | — | — | — | 39 | — | 39 | |||||||||||||||||||||
Transfer from retained profits | — | — | — | 212 | — | (212 | ) | — | ||||||||||||||||||||
Profit for the year | — | — | — | — | — | 3,192 | 3,192 | |||||||||||||||||||||
Issue of shares | 7,530 | — | — | — | — | — | 7,530 | |||||||||||||||||||||
Others | — | 11 | — | — | — | 1 | 12 | |||||||||||||||||||||
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| |||||||||||||||
At December 31, 2019 | 37,070 | (767 | ) | 24 | 782 | (2,362 | ) | 17,882 | 52,629 | |||||||||||||||||||
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At January 1, 2020 | 37,070 | (767 | ) | 24 | 782 | (2,362 | ) | 17,882 | 52,629 | |||||||||||||||||||
Unrealized gains on cash flow hedges | — | — | 158 | — | — | — | 158 | |||||||||||||||||||||
Fair value movements in equity investments designated at fair value through other comprehensive income | — | — | — | — | (203 | ) | — | (203 | ) | |||||||||||||||||||
Fair value changes of equity investments designated at fair value through other comprehensive income held by an associate | — | — | — | — | 2 | — | 2 | |||||||||||||||||||||
Actuarial gains on post-retirement benefit obligations | — | — | — | �� | — | (61 | ) | — | (61 | ) | ||||||||||||||||||
Loss for the year | — | — | — | — | — | (11,836 | ) | (11,836 | ) | |||||||||||||||||||
Final 2019 dividend | — | — | — | — | — | (819 | ) | (819 | ) | |||||||||||||||||||
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At December 31, 2020 | 37,070 | (767 | ) | 182 | 782 | (2,624 | ) | 5,227 | 39,870 | |||||||||||||||||||
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Notes:
| (a) | Capital reserve |
Capital reserve mainly represents the difference between the fair value of the net assets injected and the nominal amount of the Company’s share capital issued in respect of ticket sales and expenses denominatedthe Group restructuring carried out in foreign currencies (note 3). The Group’s foreign exchange forward contractsJune 1996 for selling RMB and purchasing USD at fixed exchange rates are accounted for as fair value hedges. As at 31 December 2017, the notional amountpurpose of the outstanding currency forward contracts was approximately USD829 million (2016: USD440 million), which will expire in 2018.Company’s listing.
Realized and unrealized gains and losses arising from the valuation of these contracts have been dealt with in the consolidated statement of profit or loss and other comprehensive income as follows:
| 2017 | 2016 | 2015 | ||||||||||
| RMB million | RMB million | RMB million | ||||||||||
Realized (losses)/gains (recorded in finance costs) | (177 | ) | 5 | 15 | ||||||||
Unrealized mark to market losses | ||||||||||||
– cash flow hedges (recognized in other comprehensive income) | — | (16 | ) | (11 | ) | |||||||
– fair value hedges (recognized in (loss)/gain on fair value changes of derivative financial instruments) | (311 | ) | — | — | ||||||||
|
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| |||||||
| (488 | ) | (11 | ) | 4 | ||||||||
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| |||||||
| (b) | Statutory reserve |
The Group uses cross currency swapAccording to reduce the risk of changes in currency exchange rates and market interest rates. The cross currency swap entered into byPRC Company Law, the Group for swapping US dollars floating interest rates (LIBOR) into Euro floating interest rates (EURIBOR),Company is accounted for asrequired to transfer a cash flow hedge. As at 31 December 2017, there were no outstanding cross currency swap (2016:nil).
Realized and unrealized gain and loss arising from the valuationportion of the contract has been dealtprofits to the statutory reserve. The transfer to this reserve must be made before distribution of dividends to shareholders and when there are retained profits at the end of the financial year.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with inInternational Financial Reporting Standards)
For the consolidated statement of profit or lossyears ended December 31, 2020, 2019 and other comprehensive income as follows:2018
| 2017 | 2016 | 2015 | ||||||||||
| RMB million | RMB million | RMB million | ||||||||||
Realized gains (recorded in finance costs) | — | 5 | — | |||||||||
Unrealized mark to market (losses)/gains | ||||||||||||
– cash flow hedge (recognized in other comprehensive income) | — | (7 | ) | 7 | ||||||||
|
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| |||||||
| — | (2 | ) | 7 | |||||||||
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| |||||||
PARTLY-OWNED SUBSIDIARIES WITH MATERIAL NON-CONTROLLING INTERESTS |
Details of the Group’s subsidiaries that have material non-controlling interests are set out below:
| 2020 | 2019 | |||||||
Percentage of equity interest held by non-controlling interests: | ||||||||
CEA Jiangsu | 37.44 | % | 37.44 | % | ||||
CEA Yunnan | 9.64 | % | 9.64 | % | ||||
CEA Wuhan | 40.00 | % | 40.00 | % | ||||
|
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|
| |||||
| 2020 RMB million | 2019 RMB million | |||||||
(Loss)/profit for the year allocated to non-controlling interests: | ||||||||
CEA Jiangsu | (435 | ) | 115 | |||||
CEA Yunnan | (73 | ) | 50 | |||||
CEA Wuhan | (207 | ) | 128 | |||||
|
|
|
| |||||
Dividends paid to non-controlling interests of CEA Jiangsu | — | 37 | ||||||
Dividends paid to non-controlling interests of CEA Wuhan | — | 45 | ||||||
|
|
|
| |||||
Accumulated balances of non-controlling interests at the reporting date: | ||||||||
CEA Jiangsu | 1,010 | 1,445 | ||||||
CEA Yunnan | 631 | 704 | ||||||
CEA Wuhan | 1,299 | 1,511 | ||||||
|
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|
| |||||
The following tables illustrate the summarized financial information of the above subsidiaries. The amounts disclosed are before any inter-company eliminations:
| CEA Jiangsu RMB million | CEA Yunnan RMB million | CEA Wuhan RMB million | ||||||||||
2020 | ||||||||||||
Revenue | 4,550 | 6,048 | 1,650 | |||||||||
Total expenses | (5,713 | ) | (6,809 | ) | (2,167 | ) | ||||||
Loss for the year | (1,163 | ) | (761 | ) | (517 | ) | ||||||
Total comprehensive income for the year | (1,164 | ) | (761 | ) | (532 | ) | ||||||
|
|
|
|
|
| |||||||
Current assets | 477 | 290 | 97 | |||||||||
Non-current assets | 12,724 | 17,999 | 7,590 | |||||||||
Current liabilities | (4,109 | ) | (5,219 | ) | (1,998 | ) | ||||||
Non-current liabilities | (6,395 | ) | (6,528 | ) | (2,441 | ) | ||||||
|
|
|
|
|
| |||||||
Net cash flows from operating activities | 1,833 | 3,232 | 642 | |||||||||
Net cash flows used in investing activities | (331 | ) | (534 | ) | (99 | ) | ||||||
Net cash flows used in financing activities | (1,556 | ) | (2,698 | ) | (543 | ) | ||||||
Effect of foreign exchange rate changes, net | — | — | — | |||||||||
|
|
|
|
|
| |||||||
Net decrease in cash and cash equivalents | (55 | ) | — | — | ||||||||
|
|
|
|
|
| |||||||
| CEA Jiangsu RMB million | CEA Yunnan RMB million | CEA Wuhan RMB million | ||||||||||
2019 | ||||||||||||
Revenue | 9,774 | 11,634 | 4,743 | |||||||||
Total expenses | 9,466 | 11,110 | 4,424 | |||||||||
Profit for the year | 308 | 524 | 319 | |||||||||
Total comprehensive income for the year | 309 | 524 | 328 | |||||||||
|
|
|
|
|
| |||||||
Current assets | 1,116 | 575 | 369 | |||||||||
Non-current assets | 12,620 | 19,210 | 7,917 | |||||||||
Current liabilities | (2,486 | ) | (3,623 | ) | (1,611 | ) | ||||||
Non-current liabilities | (7,390 | ) | (8,859 | ) | (2,897 | ) | ||||||
|
|
|
|
|
| |||||||
Net cash flows from operating activities | 1,930 | 2,457 | 885 | |||||||||
Net cash flows used in investing activities | (16 | ) | (425 | ) | (222 | ) | ||||||
Net cash flows used in financing activities | (1,874 | ) | (2,031 | ) | (666 | ) | ||||||
Effect of foreign exchange rate changes, net | — | — | — | |||||||||
|
|
|
|
|
| |||||||
Net increase/(decrease) in cash and cash equivalents | 40 | 1 | (3 | ) | ||||||||
|
|
|
|
|
| |||||||
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 43 | NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS |
| (a) | Cash generated from operations |
| Derivatives | ||||||||||||||||
| Loans and | used for | Available | ||||||||||||||
| receivables | hedging | for sale | Total | |||||||||||||
| RMB million | RMB million | RMB million | RMB million | |||||||||||||
2017 | ||||||||||||||||
Financial assets | ||||||||||||||||
Available-for-sale investments | — | — | 800 | 800 | ||||||||||||
Derivative financial instruments | — | 151 | — | 151 | ||||||||||||
Trade and notes receivables | 2,124 | — | — | 2,124 | ||||||||||||
Prepayments and other receivables | 3,913 | — | — | 3,913 | ||||||||||||
Restricted bank deposits and short-term bank deposits | 51 | — | — | 51 | ||||||||||||
| 2020 RMB million | 2019 RMB million | 2018 RMB million | ||||||||||
(Loss)/profit before income tax | (16,488 | ) | 4,299 | 3,856 | ||||||||
Adjustments for: | ||||||||||||
Depreciation of property, plant and equipment | 9,067 | 9,078 | 14,616 | |||||||||
Depreciation of right-of-use assets | 12,367 | 12,298 | — | |||||||||
Depreciation of investment properties | 12 | 25 | 26 | |||||||||
Amortization of intangible assets | 239 | 143 | 160 | |||||||||
Amortization of lease prepayments | — | — | 43 | |||||||||
Amortization of other non-current assets | 570 | 536 | 468 | |||||||||
Gain on disposal of property, plant and equipment | (17 | ) | (22 | ) | (267 | ) | ||||||
Gain on disposal of prepayments for land use rights | — | — | (210 | ) | ||||||||
Gain on disposal of an investment in a subsidiary | — | (64 | ) | — | ||||||||
Gain on disposal of an investment in an associate | — | — | (5 | ) | ||||||||
Dividend income from equity investments at fair value through other comprehensive income | (12 | ) | (19 | ) | (23 | ) | ||||||
Dividend income from a financial asset at fair value through profit or loss | (6 | ) | (3 | ) | (6 | ) | ||||||
Share of results of associates | 82 | (265 | ) | (170 | ) | |||||||
Share of results of joint ventures | 13 | (17 | ) | (34 | ) | |||||||
Net foreign exchange (gains)/loss | (2,746 | ) | 890 | 1,983 | ||||||||
Fair value losses/(gains), net: | ||||||||||||
Financial asset at fair value through profit or loss | 26 | (25 | ) | 27 | ||||||||
(Gain)/loss on fair value changes of derivative financial instruments | — | — | (311 | ) | ||||||||
COVID-19-related rent concessions from lessors | (3 | ) | — | — | ||||||||
Impairment charges | 184 | 4 | 318 | |||||||||
Impairment losses on financial assets, net | 32 | 16 | 27 | |||||||||
Interest income | — | — | (110 | ) | ||||||||
Interest expense | 5,214 | 5,169 | 3,727 | |||||||||
|
|
|
|
|
| |||||||
Operating profit before working capital changes | 8,534 | 32,043 | 24,115 | |||||||||
|
|
|
|
|
| |||||||
Changes in working capital | ||||||||||||
Flight equipment spare parts | 200 | (457 | ) | (66 | ) | |||||||
Trade and notes receivables | 593 | (275 | ) | 708 | ||||||||
Prepayments and other receivables | 2,893 | (2,336 | ) | (2,056 | ) | |||||||
Contract liabilities | (6,686 | ) | 1,281 | 1,051 | ||||||||
Restricted bank deposits and short-term bank deposits | (6 | ) | 9 | 35 | ||||||||
Trade and bills payables | (657 | ) | (163 | ) | 856 | |||||||
Other payables and accruals | (983 | ) | 1,459 | 36 | ||||||||
Staff housing allowances | — | — | (36 | ) | ||||||||
Other long-term liabilities | (2,174 | ) | (1,916 | ) | (525 | ) | ||||||
Post-retirement benefit obligations | (46 | ) | (125 | ) | 42 | |||||||
Provision for lease return costs for aircraft and engines | (188 | ) | 617 | (113 | ) | |||||||
|
|
|
|
|
| |||||||
Cash generated from operations | 1,480 | 30,137 | 24,047 | |||||||||
|
|
|
|
|
| |||||||
| (b) | Major non-cash transactions |
| 2020 RMB million | 2019 RMB million | 2018 RMB million | ||||||||||
Additions to right-of-use assets and lease liabilities | 7,191 | 24,434 | — | |||||||||
Finance lease obligations incurred for acquisition of aircraft | — | — | 7,945 | |||||||||
|
|
|
|
|
| |||||||
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(AmountsPrepared in millions except for per share data)accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS (continued) |
| (c) | Changes in liabilities arising from financing activities |
| Bank and other loans RMB million | Obligations RMB million | |||||||
At January 1, 2018 | 63,801 | 66,868 | ||||||
Changes from financing cash flows | (9,076 | ) | (9,629 | ) | ||||
Foreign exchange movement | 401 | 1,419 | ||||||
New finance leases | — | 18,769 | ||||||
|
|
|
| |||||
At December 31, 2018 | 55,126 | 77,427 | ||||||
|
|
|
| |||||
Effect of adoption of IFRS 16 | — | 31,879 | ||||||
At January 1, 2019 | 55,126 | 109,306 | ||||||
Changes from financing cash flows | (3,427 | ) | (23,895 | ) | ||||
Foreign exchange movement | 138 | 851 | ||||||
Disposal of a subsidiary | — | (10 | ) | |||||
New leases | — | 24,023 | ||||||
|
|
|
| |||||
At December 31, 2019 | 51,837 | 110,275 | ||||||
|
|
|
| |||||
At January 1, 2020 | 51,837 | 110,275 | ||||||
Changes from financing cash flows | 36,173 | (18,444 | ) | |||||
COVID-19-related rent concessions from lessors | — | (3 | ) | |||||
Foreign exchange movement | (115 | ) | (2,768 | ) | ||||
New leases | — | 7,191 | ||||||
|
|
|
| |||||
At December 31, 2020 | 87,895 | 96,251 | ||||||
|
|
|
| |||||
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 43 | NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS (continued) |
| (d) | Total cash outflow for leases |
The total cash outflow for leases included in the statement of cash flows is as follows:
| 2020 | 2019 | |||||||
| RMB million | RMB million | |||||||
Within operating activities | (358 | ) | (631 | ) | ||||
Within investing activities | (1,183 | ) | (1,449 | ) | ||||
Within financing activities | (22,099 | ) | (27,789 | ) | ||||
|
|
|
| |||||
| 44 | COMMITMENTS |
| (a) | The Group had the following capital commitments at the end of the reporting period: |
| Derivatives | ||||||||||||||||
| Loans and | used for | Available | ||||||||||||||
| receivables | hedging | for sale | Total | |||||||||||||
| RMB million | RMB million | RMB million | RMB million | |||||||||||||
Cash and cash equivalents | 4,605 | — | — | 4,605 | ||||||||||||
Othernon-current assets | 293 | — | — | 293 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 10,986 | 151 | 800 | 11,937 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
| 2020 | 2019 | |||||||
| RMB million | RMB million | |||||||
Contracted for: | ||||||||
– Aircraft, engines and flight equipment (note) | 37,277 | 47,822 | ||||||
– Other property, plant and equipment | 3,646 | 4,917 | ||||||
– Investments | 1,335 | 860 | ||||||
|
|
|
| |||||
| 42,258 | 53,599 | |||||||
|
|
|
| |||||
| Derivatives | ||||||||||||
| used for | Loans and | |||||||||||
| hedging | borrowings | Total | ||||||||||
| RMB million | RMB million | RMB million | ||||||||||
2017 | ||||||||||||
Financial liabilities | ||||||||||||
Borrowings | — | 63,801 | 63,801 | |||||||||
Obligations under finance leases | — | 66,868 | 66,868 | |||||||||
Derivative financial instruments | 325 | — | 325 | |||||||||
Trade and bills payables | — | 3,184 | 3,184 | |||||||||
Other payables and accruals | — | 12,964 | 12,964 | |||||||||
|
|
|
|
|
| |||||||
Total | 325 | 146,817 | 147,142 | |||||||||
|
|
|
|
|
| |||||||
| Derivatives | ||||||||||||||||
| Loans and | used for | Available | ||||||||||||||
| receivables | hedging | for sale | Total | |||||||||||||
| RMB million | RMB million | RMB million | RMB million | |||||||||||||
2016 | ||||||||||||||||
Financial assets | ||||||||||||||||
Available-for-sale investments | — | — | 645 | 645 | ||||||||||||
Derivative financial instruments | — | 148 | — | 148 | ||||||||||||
Trade and notes receivables | 2,660 | — | — | 2,660 | ||||||||||||
Prepayments and other receivables | 2,937 | — | — | 2,937 | ||||||||||||
Restricted bank deposits and short-term bank deposits | 43 | ��� | — | 43 | ||||||||||||
Cash and cash equivalents | 1,695 | — | — | 1,695 | ||||||||||||
Othernon-current assets | 285 | — | — | 285 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 7,620 | 148 | 645 | 8,413 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
| Derivatives | ||||||||||||
| used for | Loans and | |||||||||||
| hedging | borrowings | Total | ||||||||||
| RMB million | RMB million | RMB million | ||||||||||
2016 | ||||||||||||
Financial liabilities | ||||||||||||
Borrowings | — | 56,732 | 56,732 | |||||||||
Obligations under finance leases | — | 61,041 | 61,041 | |||||||||
Derivative financial instruments | 58 | — | 58 | |||||||||
Trade and bills payables | — | 3,376 | 3,376 | |||||||||
Other payables and accruals | — | 12,942 | 12,942 | |||||||||
|
|
|
|
|
| |||||||
Total | 58 | 134,091 | 134,149 | |||||||||
|
|
|
|
|
| |||||||
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
Contracted expenditures for the above aircraft, engines and flight equipment, including deposits prior to delivery, subject to future inflation increase built into the contracts, were expected to be paid as follows: |
| 2020 | 2019 | |||||||
| RMB million | RMB million | |||||||
Within one year | 13,542 | 18,388 | ||||||
In the second year | 13,692 | 12,442 | ||||||
In the third year | 7,109 | 11,956 | ||||||
In the fourth year | 2,934 | 3,892 | ||||||
Over four years | — | 1,144 | ||||||
|
|
|
| |||||
| 37,277 | 47,822 | |||||||
|
|
|
| |||||
The above capital commitments represent the future outflows of cash or other resources.
| (ii) | On March 11, 2019, the Civil Aviation Administration of China ordered all domestic airlines to ground all 737MAX-8 aircraft. The Group has 46 737MAX-8 aircraft on order as at December 31, 2020 and has not taken delivery of any 737MAX-8 aircraft since the grounding. Due to uncertainty surrounding the timing of delivery of certain aircraft, the amounts in the above table represent the Group’s best estimate, including with respect to the delivery of Boeing 737MAX-8 aircraft. However, the actual delivery schedule may differ from the table above. |
| (b) | The Group has various lease contracts that have not yet commenced as at December 31, 2020. The future lease payments for these non-cancellable lease contracts are RMB62 million (2019: RMB62 million) due within one year, and RMB123 million (2019: RMB16 million) due in the second to fifth years. |
| (c) | As at December 31, 2020, lease commitments for short-term leases amounted to RMB130 million (2019: RMB83 million). |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 45 | RELATED PARTY TRANSACTIONS |
The Group is controlled by CEA Holding, which directly owns 30.97% of the Company’s shares as at December 31, 2020 (December 31, 2019: 30.97%). In addition, through CES Global Holdings (Hong Kong) Limited and CES Finance Holding Co., Limited, two wholly-owned subsidiaries of CEA Holding, CEA Holding indirectly owns additional shares of the Company of approximately 16.03% and 2.79% respectively as at December 31, 2020 (December 31, 2019:16.03% and 2.79%).
The Company is a state-owned enterprise established in the PRC and is controlled by the PRC government, which also owns a significant portion of the productive assets in the PRC. In accordance with IAS 24 “Related Party Disclosures”, government-related entities and their subsidiaries, directly or indirectly controlled, jointly controlled or significantly influenced by the PRC government are defined as related parties of the Group. On that basis, related parties include CEA Holding and its subsidiaries (other than the Group), other government-related entities and their subsidiaries (“Other State-owned Enterprises”), other entities and corporations over which the Company is able to control or exercise significant influence and key management personnel of the Company as well as their close family members.
For the purpose of the related party transaction disclosures, the directors of the Company believe that meaningful information in respect of related party transactions has been adequately disclosed.
| (a) | Nature of related parties that do not control or controlled by the Group: |
| Name of related party | Relationship with the Group | |
Eastern Air Group Finance Co., Ltd. (“Eastern Air Finance Company”) | Associate of the Company | |
Eastern Aviation Import & Export Co., Ltd. and its subsidiaries (“Eastern Import & Export”) | Associate of the Company | |
Shanghai Pratt & Whitney Aircraft Engine Maintenance Co., Ltd. (“Shanghai P&W”) | Associate of the Company | |
China Eastern Airlines Media Co., Ltd. and its subsidiaries (“Eastern Advertising”) | Associate of the Company | |
Shanghai Collins Aviation Maintenance Service Co., Ltd. (“Collins Aviation”) | Associate of the Company | |
Shanghai Airlines Tours International (Group) Co., Ltd. and its subsidiaries (“Shanghai Airlines Tours”) | Associate of the Company | |
Beijing Xinghang Aviation Property Co., Ltd. (“Beijing Aviation Property”) | Associate of the Company | |
China Eastern Air Catering Investment Co., Ltd. and its subsidiaries (“Eastern Air Catering”) | Associate of the Company | |
CAE Melbourne Flight Training Pty Limited (“CAE Melbourne”) | Joint venture of the Company | |
Shanghai Eastern Union Aviation Wheels & Brakes Maintenance | ||
Services Overhaul Engineering Co., Ltd. (“Wheels & Brakes”) | Joint venture of the Company | |
Shanghai Technologies Aerospace Co., Ltd. (“Technologies Aerospace”) | Joint venture of the Company | |
Eastern China Kaiya System Integration Co., Ltd. (“China Kaiya”) | Joint venture of the Company | |
Shanghai Hute Aviation Technology Co., Ltd. (“Shanghai Hute”) | Joint venture of the Company | |
Xi An Cea Safran Landing Systems Services Co., Ltd. (“XIESA”) | Joint venture of the Company | |
CEA Development Co., Ltd. and its subsidiaries (“CEA Development”) | Controlled by the same parent company | |
Eastern Airline Logistics Co., Ltd. and its subsidiaries (“Eastern Logistics”) | Controlled by the same parent company | |
Shanghai Eastern Airlines Investment Co., Ltd. and its subsidiaries (“Eastern Investment”) | Controlled by the same parent company | |
CES International Financial | Controlled by the same parent company | |
TravelSky Technology Limited (“TravelSky”) | A director and vice president of the Company is a director of TravelSky | |
China Aviation Supplies Holding Company and its subsidiaries (“CASC”) | A director and vice president of the Company is a director of CASC | |
Air France-KLM Group (“AFK”) | A director and vice president of the Company is a director of AFK | |
Juneyao Airlines Co., Ltd. and its subsidiaries (“Juneyao Air”) | A director and vice president of the Company is a director of Juneyao Air |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 45 | RELATED PARTY TRANSACTIONS (continued) |
| (b) | Related party transactions |
| Pricing policy | ||||||||||||||||
| and decision | 2020 | 2019 | 2018 | |||||||||||||
| Nature of transaction | Related party | process | RMB million | RMB million | RMB million | |||||||||||
Purchase of goods and services | ||||||||||||||||
Payments on food and beverages* | Eastern Air Catering | (i) | 812 | 1,471 | 1,317 | |||||||||||
CEA Development | (i) | — | — | 78 | ||||||||||||
Eastern Import & Export | (i) | 50 | 56 | 60 | ||||||||||||
Handling charges for purchase of aircraft, flight equipment, flight equipment spare parts, other property, plant and flight equipment and repairs for aircraft and engines* | Eastern Import & Export | (i) | 132 | 142 | 165 | |||||||||||
Repairs and maintenance expense for aircraft and engines | Shanghai P&W | (i) | 1,180 | 1,762 | 2,394 | |||||||||||
Technologies Aerospace | (i) | 184 | 221 | 344 | ||||||||||||
Wheels & Brakes | (i) | 45 | 144 | 129 | ||||||||||||
Shanghai Hute | (i) | 116 | 88 | 74 | ||||||||||||
XIESA | (i) | 67 | 2 | — | ||||||||||||
Payments on cabin cleaning services | Eastern Advertising | (i) | 9 | 22 | 20 | |||||||||||
Advertising expense* | Eastern Advertising | (i) | 26 | 29 | 19 | |||||||||||
Payments on system services | China Kaiya | (i) | 18 | 16 | 21 | |||||||||||
Equipment maintenance fee* | Collins Aviation | (i) | 33 | 45 | 60 | |||||||||||
CEA Development | (i) | 81 | 98 | 71 | ||||||||||||
Automobile maintenance service, aircraft maintenance, providing transportation automobile and other products* | CEA Development | (i) | 4 | 13 | 13 | |||||||||||
Property management and green maintenance expenses* | CEA Development | (i) | 195 | 205 | 102 | |||||||||||
Payments on hotel accommodation service* | CEA Development | (i) | 122 | 134 | 127 | |||||||||||
Shanghai Airlines Tours | (i) | 10 | 23 | — | ||||||||||||
Payments on construction and and management agent* | Eastern Investment | (i) | 13 | 14 | 18 | |||||||||||
Payments on logistics services | Eastern Import & Export | (i) | — | 49 | 142 | |||||||||||
Eastern Logistics | (i) | 115 | 53 | — | ||||||||||||
Civil aviation information network services** | TravelSky | (i) | 552 | 753 | 646 | |||||||||||
Flight equipment spare parts maintenance** | CASC | (i) | 107 | 143 | 189 | |||||||||||
Flight training fee | CAE Melbourne | (i) | 41 | 70 | 75 | |||||||||||
Payments on aviation transportation cooperation and support services** | AFK | (i) | 221 | 537 | 425 | |||||||||||
Payments on aviation transportation cooperation services | Juneyao Air | (i) | 2 | 2 | — | |||||||||||
Flight equipment spare parts maintenance and support services | AFK | (i) | 10 | 19 | 2 | |||||||||||
Bellyhold space management * | Eastern Logistics | (i) | — | — | 32 | |||||||||||
Bellyhold space operation cost* | Eastern Logistics | (i) | — | 310 | 246 | |||||||||||
Transfer of pilots | Eastern Logistics | (i) | — | 11 | 24 | |||||||||||
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 45 | RELATED PARTY TRANSACTIONS (continued) |
| (b) | Related party transactions (continued) |
| Pricing policy | ||||||||||||||||
| and decision | 2020 | 2019 | 2018 | |||||||||||||
| Nature of transaction | Related party | process | RMB million | RMB million | RMB million | |||||||||||
Purchase of goods and services (continued) | ||||||||||||||||
Cargo terminal business support services* | Eastern Logistics | (i) | 286 | 481 | 348 | |||||||||||
Bellyhold container management | Eastern Logistics | (i) | 13 | 13 | 11 | |||||||||||
Provision of services | ||||||||||||||||
Contractual revenue from bellyhold space* (note) | Eastern Logistics | (i) | — | 3,826 | 2,795 | |||||||||||
Exclusive operation transportation in relation to the passenger aircraft cargo business*(note) | Eastern Logistics | (i) | 4,895 | — | — | |||||||||||
Freight logistics support services* | Eastern Logistics | (i) | 185 | 135 | 126 | |||||||||||
Software system and support services | Eastern Logistics | (i) | 5 | 4 | 42 | |||||||||||
Transfer of freight depots and equipment | Eastern Logistics | (i) | — | — | 28 | |||||||||||
Media royalty fee | Eastern Advertising | (i) | 14 | 15 | 14 | |||||||||||
Aviation transportation cooperation and support services** | AFK | (i) | 105 | 593 | 728 | |||||||||||
Aviation transportation cooperation services | Juneyao Air | (i) | 14 | 11 | — | |||||||||||
Transfer of pilots | Juneyao Air | (i) | 22 | — | — | |||||||||||
Flight equipment spare parts maintenance and support services | Juneyao Air | (i) | 35 | 41 | — | |||||||||||
Lease payments | ||||||||||||||||
Lease payments for land and buildings* | CEA Holding | (ii) | 36 | 40 | 33 | |||||||||||
| Eastern Investment | (ii) | 98 | 83 | — | ||||||||||||
(2018: Land and buildings rental) | ||||||||||||||||
Settlements of lease liabilities on aircraft and engines | CES Lease Company | (ii) | 6,667 | 5,779 | 3,984 | |||||||||||
(2018: Payments on operating leases and financial leases) | ||||||||||||||||
Lease payments for special vehicle and equipment* | CEA Development | (ii) | 37 | 21 | — | |||||||||||
Rental income | ||||||||||||||||
Rental income for land and buildings under short-term leases* | Eastern Air Catering | (ii) | 15 | — | — | |||||||||||
Interest expense | ||||||||||||||||
Interest expense on loans | CEA Holding | (iii) | 32 | 27 | 13 | |||||||||||
| Eastern Air Finance Company | (iii) | 5 | 5 | — | ||||||||||||
Interest income | ||||||||||||||||
Interest income on loans | CAE Melbourne | (iii) | 1 | — | — | |||||||||||
Interest income on deposits | Eastern Air Finance Company | (iii) | 24 | 15 | 26 | |||||||||||
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 45 | RELATED PARTY TRANSACTIONS (continued) |
| (b) | Related party transactions (continued) |
Note:
To address the business competition between the passenger aircraft cargo business of the Company and the all-cargo aircraft business of China Cargo Airlines Co., Limited (“China Cargo Airlines”), a subsidiary of Eastern Logistics, the Company gave China Cargo Airlines a long term contractual operation to operate and manage the passenger aircraft bellyhold space cargo business with independence and autonomy from April 2018. Against the backdrop of COVID-19’s immense impact on the aviation industry, in order to further clarify the passenger aircraft cargo business’s related business scope and pricing methods under unconventional circumstances such as “passenger-to-cargo conversion”, and taking into account certain limitations of adopting an evaluation-based pricing mechanism in the original passenger aircraft bellyhold space contractual operation transactions, the Company and China Cargo Airlines have negotiated and agreed to adjust and optimize the passenger aircraft cargo business’s scope, pricing methods and settlement methods without altering, amongst others, the business entities, rights and obligations, and business procedures of both parties, and adjust the original passenger aircraft bellyhold space contractual operation proposal to an exclusive operation proposal for passenger aircraft cargo business, pursuant to which China Cargo Airlines will have exclusive operation to independently operate and manage the Group’s passenger aircraft cargo business. The exclusive operation agreement was entered into by both parties on September 29, 2020 which was deemed to have become effective on January 1, 2020.
| (i) | The Group’s pricing policies on goods and services purchased from and provided to related parties are mutually agreed between contract parties. |
| (ii) | The Group’s pricing policies on related party lease payments are mutually agreed between contract parties. |
| (iii) | The Group’s pricing policies on related party interest rates are mutually agreed based on benchmark interest rates. |
| * | These related party transactions also constitute connected transactions or continuing connected transactions as defined in Chapter 14A of the Rules Governing the Listing of Securities on the Stock Exchange (the “Listing Rules”). |
| ** | These related party transactions constitute continuing connected transactions pursuant to the Rules Governing the Listing of Stocks on the Shanghai Stock Exchange. |
During the years ended December 31, 2020 and 2019, the Group’s significant transactions with entities that are controlled, jointly controlled or significantly influenced by the PRC government mainly include most of its bank deposits/borrowings and the corresponding interest income/expense and part of sales and purchases of goods and services. The price and other terms of such transactions are set out in the agreements governing these transactions or as mutually agreed.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 45 | RELATED PARTY TRANSACTIONS (continued) |
| (c) | Balances with related parties |
| (i) | Amounts due from related parties |
| 2020 | 2019 | |||||||
| RMB million | RMB million | |||||||
Trade receivables | ||||||||
Eastern Logistics | 630 | 295 | ||||||
CASC | — | 23 | ||||||
Juneyao Air | 8 | 10 | ||||||
Eastern Air Catering | — | 1 | ||||||
Others | 4 | 5 | ||||||
|
|
|
| |||||
| 642 | 334 | |||||||
|
|
|
| |||||
| 2020 | 2019 | |||||||
| RMB million | RMB million | |||||||
Prepayments and other receivables | ||||||||
Eastern Import & Export | 158 | 272 | ||||||
Technologies Aerospace | 6 | 7 | ||||||
Eastern Air Catering | 36 | 6 | ||||||
Eastern Advertising | 1 | 28 | ||||||
CEA Development | 11 | 7 | ||||||
CEA Holding | 228 | — | ||||||
CASC | 13 | 13 | ||||||
TravelSky | 49 | 7 | ||||||
Juneyao Air | 4 | 10 | ||||||
Eastern Air Finance Company | 240 | 405 | ||||||
Others | 22 | 21 | ||||||
|
|
|
| |||||
| 768 | 776 | |||||||
|
|
|
| |||||
All the amounts due from related parties are trade in nature, interest-free and payable within normal credit terms.
| (ii) | Amounts due to related parties |
| 2020 | 2019 | |||||||
| RMB million | RMB million | |||||||
Trade and bills payables | ||||||||
Eastern Import & Export | 363 | 421 | ||||||
Eastern Air Catering | 266 | 390 | ||||||
Technologies Aerospace | 95 | 104 | ||||||
CEA Development | 96 | 76 | ||||||
Shanghai P&W | 213 | 465 | ||||||
Collins Aviation | 9 | 7 | ||||||
CEA Holding | 28 | 18 | ||||||
CASC | 27 | 17 | ||||||
Shanghai Hute | 32 | 13 | ||||||
TravelSky | 7 | 22 | ||||||
Wheels & Brakes | 14 | 17 | ||||||
Shanghai Airlines Tours | 1 | 3 | ||||||
Eastern Investment | 74 | — | ||||||
XIESA | 32 | — | ||||||
Beijing Aviation Property | — | 101 | ||||||
Others | 13 | 7 | ||||||
|
|
|
| |||||
| 1,270 | 1,661 | |||||||
|
|
|
| |||||
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 45 | RELATED PARTY TRANSACTIONS (continued) |
| (c) | Balances with related parties (continued) |
| (ii) | Amounts due to related parties (continued) |
| 2020 | 2019 | |||||||
| RMB million | RMB million | |||||||
Other payables and accruals | ||||||||
Eastern Import & Export | 37 | 5 | ||||||
Eastern Air Catering | 2 | 2 | ||||||
CEA Holding | 99 | 111 | ||||||
CEA Development | 1 | 1 | ||||||
Eastern Investment | 61 | 86 | ||||||
CES Lease Company | 189 | 166 | ||||||
CASC | 2 | 2 | ||||||
XIESA | — | 2 | ||||||
Others | 7 | 8 | ||||||
|
|
|
| |||||
| 398 | 383 | |||||||
|
|
|
| |||||
| 2020 | 2019 | |||||||
| RMB million | RMB million | |||||||
Lease liabilities | ||||||||
CES Lease Company | 42,168 | 42,848 | ||||||
|
|
|
| |||||
Except for the amounts due to CES Lease Company, which are related to the aircraft under leases, all other amounts due to related parties are interest-free and payable within normal credit terms given by trade creditors.
| (iii) | Short-term deposits, loan and borrowings with related parties |
| Average interest rate | ||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| RMB million | RMB million | |||||||||||||||
Short-term deposits (included in cash and cash equivalents) | ||||||||||||||||
Eastern Air Finance Company | 0.35 | % | 0.35 | % | 5,474 | 1,122 | ||||||||||
Short-term borrowings (included in borrowings) | ||||||||||||||||
Eastern Air Finance Company | 2.80 | % | — | 4,000 | — | |||||||||||
Long-term borrowings (included in borrowings) | ||||||||||||||||
CEA Holding | 3.86 | % | 3.86 | % | 828 | 828 | ||||||||||
Loan to a joint venture | ||||||||||||||||
CAE Melbourne | 3.74 | % | 3.74 | % | 11 | 15 | ||||||||||
| (d) | Guarantees by the holding company |
As at December 31, 2020, bonds of the Group guaranteed by CEA Holding amounted to RMB7.8 billion (2019: RMB7.8 billion).
| (e) | Key management compensation |
The compensation paid or payable to key management for employee services mainly comprising salaries and other short-term employee benefits was analyzed as follows:
| 2020 | 2019 | 2018 | ||||||||||
| RMB million | RMB million | RMB million | ||||||||||
Directors and supervisors | 4 | 1 | 2 | |||||||||
Senior management | 1 | 8 | 8 | |||||||||
|
|
|
|
|
| |||||||
| 5 | 9 | 10 | ||||||||||
|
|
|
|
|
| |||||||
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 46 | FINANCIAL INSTRUMENTS BY CATEGORY |
The carrying amounts of each of the categories of financial instruments as at the end of the reporting period are as follows:
| Financial assets at fair value through profit or loss | Financial assets at fair value through other comprehensive income | Financial assets at amortized cost | Derivatives designated as hedging instruments | Total | ||||||||||||||||
| 2020 | RMB million | RMB million | RMB million | RMB million | RMB million | |||||||||||||||
Financial assets | ||||||||||||||||||||
Equity investments designated at fair value through other comprehensive income | — | 995 | — | — | 995 | |||||||||||||||
Derivative financial instruments | — | — | — | 399 | 399 | |||||||||||||||
Financial assets included in other non-current assets | — | — | 150 | — | 150 | |||||||||||||||
Trade receivables | — | — | 1,124 | — | 1,124 | |||||||||||||||
Financial asset at fair value through profit or loss | 95 | — | — | — | 95 | |||||||||||||||
Financial assets included in prepayments and other receivables | — | — | 2,452 | — | 2,452 | |||||||||||||||
Restricted bank deposits | — | — | 12 | — | 12 | |||||||||||||||
Cash and cash equivalents | — | — | 7,651 | — | 7,651 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
| 95 | 995 | 11,389 | 399 | 12,878 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
| Financial liabilities at amortized cost | Derivatives designated as hedging instruments | Total | ||||||||||
| RMB million | RMB million | RMB million | ||||||||||
Financial liabilities | ||||||||||||
Trade and bills payables | 3,220 | — | 3,220 | |||||||||
Financial liabilities included in other payables and accruals | 15,790 | — | 15,790 | |||||||||
Lease liabilities | 96,251 | — | 96,251 | |||||||||
Borrowings | 87,895 | — | 87,895 | |||||||||
Derivative financial instruments | — | 141 | 141 | |||||||||
|
|
|
|
|
| |||||||
| 203,156 | 141 | 203,297 | ||||||||||
|
|
|
|
|
| |||||||
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 46 | FINANCIAL INSTRUMENTS BY CATEGORY (continued) |
The carrying amounts of each of the categories of financial instruments as at the end of the reporting period are as follows: (continued)
| Financial assets at fair value through profit or loss | Financial assets at fair value through other comprehensive income | Financial assets at amortized cost | Derivatives designated as hedging instruments | Total | ||||||||||||||||
| 2019 | RMB million | RMB million | RMB million | RMB million | RMB million | |||||||||||||||
Financial assets | ||||||||||||||||||||
Equity investments designated at fair value through other comprehensive income | — | 1,274 | — | — | 1,274 | |||||||||||||||
Derivative financial instruments | — | — | — | 70 | 70 | |||||||||||||||
Financial assets included in other non-current assets | — | — | 180 | — | 180 | |||||||||||||||
Trade receivables | — | — | 1,717 | — | 1,717 | |||||||||||||||
Financial asset at fair value through profit or loss | 121 | — | — | — | 121 | |||||||||||||||
Financial assets included in prepayments and other receivables | — | — | 3,906 | — | 3,906 | |||||||||||||||
Restricted bank deposits and short-term bank deposits | — | — | 6 | — | 6 | |||||||||||||||
Cash and cash equivalents | — | — | 1,350 | — | 1,350 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
| 121 | 1,274 | 7,159 | 70 | 8,624 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
| Financial liabilities at amortized cost | Derivatives designated as hedging instruments | Total | ||||||||||
| RMB million | RMB million | RMB million | ||||||||||
Financial liabilities | ||||||||||||
Trade and bills payables | 3,877 | — | 3,877 | |||||||||
Financial liabilities included in other payables and accruals | 16,934 | — | 16,934 | |||||||||
Lease liabilities | 110,275 | — | 110,275 | |||||||||
Borrowings | 51,837 | — | 51,837 | |||||||||
Derivative financial instruments | — | 23 | 23 | |||||||||
|
|
|
|
|
| |||||||
| 182,923 | 23 | 182,946 | ||||||||||
|
|
|
|
|
| |||||||
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 47 | FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS |
The carrying amounts and fair values of the Group’s financial instruments, other than those with carrying amounts that reasonably approximate to fair values, were as follows:
| December 31, 2020 | December 31, 2019 | |||||||||||||||
| Carrying amounts | Fair values | Carrying amounts | Fair values | |||||||||||||
| RMB million | RMB million | RMB million | RMB million | |||||||||||||
Financial assets | ||||||||||||||||
Equity investments designated at fair value through other comprehensive income | 995 | 995 | 1,274 | 1,274 | ||||||||||||
Financial asset at fair value through profit or loss | 95 | 95 | 121 | 121 | ||||||||||||
Derivative financial assets | 399 | 399 | 70 | 70 | ||||||||||||
Deposits relating to aircraft held under leases included in other non-current assets | 143 | 142 | 156 | 148 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 1,632 | 1,631 | 1,621 | 1,613 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Financial liabilities | ||||||||||||||||
Derivative financial liabilities | 141 | 141 | 23 | 23 | ||||||||||||
Long-term borrowings | 30,745 | 32,355 | 26,604 | 23,754 | ||||||||||||
Lease liabilities | 82,178 | 82,653 | 94,685 | 89,491 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 113,064 | 115,149 | 121,312 | 113,268 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
The Group has assessed that the fair values of cash and cash equivalents, restricted bank deposits, trade receivables, trade and bills payables, financial assets included in prepayments and other receivables, financial liabilities included in other payables and accruals, short-term bank borrowings and short-term debentures approximate to their carrying amounts largely due to the short-term maturities of these instruments.
The fair values of the deposits relating to aircraft held under leases included in other non-current assets, long-term borrowings and lease liabilities have been measured using significant observable inputs and calculated by discounting the expected future cash flows using rates currently available for instruments with similar terms, credit risk and remaining maturities.
The Group enters into derivative financial instruments, including forward currency contracts, fuel forward contracts and interest rate swaps with various counterparties, principally financial institutions with high credit ratings.
Derivative financial instruments are measured using valuation techniques similar to forward pricing and swap models, using present value calculations. The models incorporate various market observable inputs including the foreign exchange spot, forward rates, interest rate curves and fuel forward price. The carrying amounts of forward currency contracts, fuel forward contracts and interest rate swaps are the same as their fair values.
As at December 31, 2020, the marked to market value of the derivative asset position is net of a credit valuation adjustment attributable to derivative counterparty default risk. The changes in counterparty credit risk had no material effect on the hedge effectiveness assessment for derivatives designated in hedge relationship and other financial instruments recognized at fair value.
The fair values of listed equity investments are based on quoted market prices. The fair values of unlisted equity investments designated at fair value through other comprehensive income have been estimated using a market-based valuation technique based on assumptions that are not supported by observable market prices or rates. The valuation requires the directors to determine comparable public companies (peers) based on industry, size, leverage and strategy, and to calculate an appropriate price multiple, such as enterprise value to earnings before interest, taxes, depreciation and amortization (“EV/EBITDA”) multiple and price to earnings (“P/E”) multiple, for each comparable company identified. The multiple is calculated by dividing the enterprise value of the comparable company by an earnings measure. The trading multiple is then discounted for considerations such as illiquidity and size differences between the comparable companies based on company-specific facts and circumstances. The discounted multiple is applied to the corresponding earnings measure of the unlisted equity investments to measure the fair value. The directors believe that the estimated fair values resulting from the valuation technique, which are recorded in the consolidated statement of financial position, and the related changes in fair values, which are recorded in other comprehensive income, are reasonable, and that they were the most appropriate values at the end of the reporting period.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 47 | FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS (continued) |
Set out below is a summary of the significant unobservable input to the valuation of financial instruments together with a quantitative sensitivity analysis as at December 31, 2020 and 2019:
Valuation technique | Significant unobservable input | Range | Sensitivity of fair value to the input | |||||
Unlisted equity investments | Valuation multiples | Discount for lack of marketability | 2020: 20% to 35% (2019: 20% to 35%) | 1% (2019: 1%) increase/decrease in multiple would result in increase/ decrease in fair value by RMB5 million (2019: RMB11 million) |
The discount for lack of marketability represents the amounts of premiums and discounts determined by the Group that market participants would take into account when pricing the investments.
Fair value hierarchy
The following tables illustrate the fair value measurement hierarchy of the Group’s financial instruments:
Assets and liabilities measured at fair value:
| As at December 31, 2020 | ||||||||||||||||
| Fair value measurement using | ||||||||||||||||
| Quoted prices in active markets (Level 1) RMB million | Significant observable inputs (Level 2) RMB million | Significant unobservable inputs (Level 3) RMB million | Total RMB million | |||||||||||||
Assets | ||||||||||||||||
Equity investments designated at fair value through other comprehensive income | 457 | — | 538 | 995 | ||||||||||||
Derivative financial assets | ||||||||||||||||
- Forward fuel contracts | — | 399 | — | 399 | ||||||||||||
Financial asset at fair value through profit or loss | 95 | — | — | 95 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 552 | 399 | 538 | 1,489 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Liabilities | ||||||||||||||||
Derivative financial liabilities | ||||||||||||||||
- Interest rate swaps | — | 140 | — | 140 | ||||||||||||
- Forward fuel contracts | — | 1 | — | 1 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | — | 141 | — | 141 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 47 | FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS (continued) |
Fair value hierarchy (continued)
Assets and liabilities measured at fair value: (continued)
As at December 31, 2019
| Fair value measurement using | ||||||||||||||||
| Quoted prices in active markets (Level 1) | Significant observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Total | |||||||||||||
| RMB million | RMB million | RMB million | RMB million | |||||||||||||
Assets | ||||||||||||||||
Equity investments designated at fair value through other comprehensive income | 496 | — | 778 | 1,274 | ||||||||||||
Derivative financial assets | ||||||||||||||||
- Interest rate swaps | — | 27 | — | 27 | ||||||||||||
- Forward foreign currency contracts | — | 43 | — | 43 | ||||||||||||
Financial asset at fair value through profit or loss | 121 | — | — | 121 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 617 | 70 | 778 | 1,465 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Liabilities | ||||||||||||||||
Derivative financial liabilities | ||||||||||||||||
- Interest rate swaps | — | 10 | — | 10 | ||||||||||||
- Forward foreign currency contracts | — | 13 | — | 13 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | — | 23 | — | 23 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
During the year, there were no transfers of fair value measurements between Level 1 and Level 2 and no transfers into or out of Level 3 for both financial assets and financial liabilities (2019: Nil).
Assets and liabilities for which fair values are disclosed:
As at December 31, 2020
| Fair value measurement using | ||||||||||||||||
| Quoted prices in active markets (Level 1) | Significant observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Total | |||||||||||||
| RMB million | RMB million | RMB million | RMB million | |||||||||||||
Assets | ||||||||||||||||
Deposits relating to aircraft held under leases included in other non-current assets | — | 142 | — | 142 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
| — | 142 | — | 142 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
Liabilities | ||||||||||||||||
Long-term borrowings | 4,936 | 27,419 | — | 32,355 | ||||||||||||
Lease liabilities | — | 82,653 | — | 82,653 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
| 4,936 | 110,072 | — | 115,008 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 47 | FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS (continued) |
Fair value hierarchy (continued)
Assets and liabilities for which fair values are disclosed:(continued)
As at December 31, 2019
| Fair value measurement using | ||||||||||||||||
| Quoted prices in active markets (Level 1) | Significant observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Total | |||||||||||||
| RMB million | RMB million | RMB million | RMB million | |||||||||||||
Assets | ||||||||||||||||
Deposits relating to aircraft held under leases included in other non-current assets | — | 148 | — | 148 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
| — | 148 | — | 148 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
Liabilities | ||||||||||||||||
Long-term borrowings | 2,897 | 20,857 | — | 23,754 | ||||||||||||
Lease liabilities | — | 89,491 | — | 89,491 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
| 2,897 | 110,348 | — | 113,245 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
| 48 | FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES |
The Group’s activities expose it to a variety of financial risks: market risk (including foreign currency risk, fair value interest rate risk, cash flow interest ratefuel price risk and fuelequity price risk), credit risk and liquidity risk. The Group’s overall risk management programmeprogram focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance. The Group uses derivative financial instruments to manage risk exposures whenever management considers necessary.
Risk management is carried out by a central treasury department (the “Group Treasury”) under policies approved by the Board. The Group Treasury identifies, evaluates and hedges financial risks in close cooperation with the Group’s operating units. The overall risk management strategies, as well as written policies covering specific areas such as foreign currency risk, interest rate risk, credit risk, use of derivative financial instruments andnon-derivative financial instruments, were approved by the Board.
Foreign currency risk
The Group operates its business in many countries and territories. The Group generates its revenue in different currencies, and the amount of its foreign currency liabilities at the end of the period areis much higher than that of its foreign currency assets. The Group’s major liability itemitems (mainly resulting from purchases of aircraft) isare mainly priced and settled in foreign currencies, primarily USD. The Group is exposed to currency risks from fluctuations in various foreign currency exchange rates against RMB.
The RMB is not freely convertible into other currencies, however, under Mainland China’s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, the Group is permitted to exchange RMB for other currencies through banks authorized to conduct foreign exchange business.
In addition, fluctuations in foreign currency exchange rates will affect the Group’s future costs for purchases of aircraft, flight equipment and aviation fuel, andtake-off and landing charges in foreign airports.
The Group entered into certain foreign exchange forward contracts to manage part of these foreign
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 48 | FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) |
Foreign currency risks. As at 31 December 2017, the foreign exchange forward contracts at notional value were RMB5,415 million. Details of foreign currency forward contracts are disclosed in note 39(b) to the financial statements.risk (continued)
The following tables detail the Group’s exposure to major currency risk at the reporting dates:date:
| 2017 | ||||||||||||||||
| USD | EUR | SGD | KRW | |||||||||||||
| RMB million | RMB million | RMB million | RMB million | |||||||||||||
Trade receivables | 31 | 3 | 16 | 16 | ||||||||||||
Cash and cash equivalents | 961 | 74 | 28 | — | ||||||||||||
Other receivables | 1,065 | — | 1 | 131 | ||||||||||||
Othernon-current assets | 206 | — | — | — | ||||||||||||
Trade and other payables | (111 | ) | — | (6 | ) | — | ||||||||||
Obligations under finance leases | (29,254 | ) | — | (627 | ) | — | ||||||||||
Borrowings | (7,555 | ) | (4,921 | ) | (2,435 | ) | (1,058 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
| 2016 | ||||||||||||||||
| USD | EUR | JPY | KRW | |||||||||||||
| RMB million | RMB million | RMB million | RMB million | |||||||||||||
Trade receivables | 79 | 99 | 2 | 27 | ||||||||||||
Cash and cash equivalents | 702 | 39 | 15 | — | ||||||||||||
Other receivables | 1,636 | — | 8 | 125 | ||||||||||||
Othernon-current assets | 267 | — | — | — | ||||||||||||
Trade and other payables | (123 | ) | — | (2 | ) | (1 | ) | |||||||||
Obligations under finance leases | (44,913 | ) | — | (326 | ) | — | ||||||||||
Borrowings | (7,953 | ) | (4,215 | ) | — | (1,008 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
| 2020 | ||||||||||||||||
| USD | EUR | SGD | JPY | |||||||||||||
| RMB million | RMB million | RMB million | RMB million | |||||||||||||
Trade receivables | 10 | 2 | — | 2 | ||||||||||||
Cash and cash equivalents | 968 | 4 | 3 | 3 | ||||||||||||
Other receivables | 115 | 3 | 1 | 12 | ||||||||||||
Other non-current assets | 150 | — | — | — | ||||||||||||
Trade and other payables | (108 | ) | (1 | ) | — | — | ||||||||||
Lease liabilities | (36,267 | ) | (8 | ) | (85 | ) | (142 | ) | ||||||||
Borrowings | (375 | ) | (2,664 | ) | (2,466 | ) | (3,162 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Foreign currency risk (cont’d)
| 2019 | ||||||||||||||||
| USD | EUR | SGD | JPY | |||||||||||||
| RMB million | RMB million | RMB million | RMB million | |||||||||||||
Trade receivables | 28 | 47 | 5 | 59 | ||||||||||||
Cash and cash equivalents | 635 | 63 | 5 | 10 | ||||||||||||
Other receivables | 2,065 | 3 | 1 | 13 | ||||||||||||
Other non-current assets | 180 | — | — | — | ||||||||||||
Trade and other payables | (105 | ) | (3 | ) | — | (6 | ) | |||||||||
Lease liabilities | (45,674 | ) | — | (397 | ) | (183 | ) | |||||||||
Borrowings | (870 | ) | (3,073 | ) | (2,587 | ) | (3,205 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
The following tables indicate the approximate change in the Group’s consolidated statement of profit or loss and other comprehensive income in response to a 1% appreciation or depreciation of the RMB against the following major currencies at the reporting dates:date:
| 2017 | 2016 | |||||||||||||||||||||||||||||||
| Effect on other | Effect on other | |||||||||||||||||||||||||||||||
| Effect on | comprehensive | Effect on | comprehensive | 2020 | 2019 | |||||||||||||||||||||||||||
| profit or loss | income | profit or loss | income | Effect on profit or loss | Effect on other comprehensive income | Effect on profit or loss | Effect on other comprehensive income | |||||||||||||||||||||||||
| RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | |||||||||||||||||||||||||
If RMB (weakens)/strengthens against USD | (260)/260 | 41/(41 | ) | (377)/377 | 23/(23 | ) | (266)/266 | — | (328)/328 | 41/(41) | ||||||||||||||||||||||
If RMB (weakens)/strengthens against JPY | (25)/25 | — | (25)/25 | — | ||||||||||||||||||||||||||||
If RMB (weakens)/strengthens against EUR | (36)/36 | — | (31)/31 | — | (20)/20 | — | (22)/22 | — | ||||||||||||||||||||||||
If RMB (weakens)/strengthens against JPY | (1)/1 | — | (2)/2 | — | ||||||||||||||||||||||||||||
If RMB (weakens)/strengthens against KRW | (7)/7 | — | (6)/6 | — | ||||||||||||||||||||||||||||
If RMB (weakens)/strengthens against SGD | (19)/19 | — | (22)/22 | — | ||||||||||||||||||||||||||||
Interest rate risk
The Group’s interest rate risk primarily arises from borrowings and obligations under finance leases.lease liabilities. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings and finance leases issued at fixed rates expose the Group to fair value interest rate risk. The Group determines the proportion of borrowings and finance leases issued at variable rates and fixed rates based on the market environment.
The Group’s finance department has been monitoring the level of interest rates. The increase in the interest rates will increase the interest costs of borrowings and finance leases issued at variable rates, which will further impact the performance of the Group. To hedge against the variability in the cash flows arising from a change in market interest rates, the Group has entered into certain interest rate swaps to swap variable rates into fixed rates. The interest rates and terms of repayment of borrowings made to the Group and interest rate swaps are disclosed in notes 34Notes 36 and 39(a)23 to the consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 48 | FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) |
Interest rate risk (continued)
The following tables detail the interest rate profiles of the Group’s interest-bearing financial instruments at the reporting dates:date:
| 2017 | 2016 | |||||||
| RMB million | RMB million | |||||||
Floating rate instruments | ||||||||
Cash and cash equivalents | 4,605 | 1,695 | ||||||
Restricted bank deposits and short-term bank deposits | 51 | 43 | ||||||
Borrowings | (13,272 | ) | (15,419 | ) | ||||
Obligations under finance leases | (66,868 | ) | (61,041 | ) | ||||
Interest rate swap at notional amount | 9,280 | 11,352 | ||||||
|
|
|
| |||||
| 2017 | 2016 | |||||||
| RMB million | RMB million | |||||||
Fixed rate instruments | ||||||||
Borrowings | (50,529 | ) | (41,313 | ) | ||||
|
|
|
| |||||
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
| 2020 | 2019 | |||||||
| RMB million | RMB million | |||||||
Floating rate instruments | ||||||||
Cash and cash equivalents | 7,651 | 1,350 | ||||||
Restricted bank deposits | 12 | 6 | ||||||
Borrowings | (13,328 | ) | (3,943 | ) | ||||
Lease liabilities | (44,541 | ) | (49,851 | ) | ||||
Interest rate swaps at notional amount | 4,504 | 6,194 | ||||||
|
|
|
| |||||
Interest rate risk (cont’d)
| 2020 | 2019 | |||||||
| RMB million | RMB million | |||||||
Fixed rate instruments | ||||||||
Borrowings | (74,567 | ) | (47,929 | ) | ||||
Lease liabilities | (51,710 | ) | (60,424 | ) | ||||
|
|
|
| |||||
The following table indicates the approximate change in the Group’s profit or loss and other comprehensive income, taking the interest rate swap into consideration, if interest rate had been 25 basis points higher with all other variables held constant:
| 2017 | 2016 | |||||||||||||||
| Effect on other | Effect on other | |||||||||||||||
| Effect on | comprehensive | Effect on | comprehensive | |||||||||||||
| profit or loss | income | profit or loss | income | |||||||||||||
| RMB million | RMB million | RMB million | RMB million | |||||||||||||
Floating rate instruments | (142 | ) | 17 | (140 | ) | 21 | ||||||||||
| 2020 | 2019 | |||||||||||||||
| Effect on profit or loss | Effect on other comprehensive income | Effect on profit or loss | Effect on other comprehensive income | |||||||||||||
| RMB million | RMB million | RMB million | RMB million | |||||||||||||
Floating rate instruments | (94 | ) | 8 | (98 | ) | 12 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Fuel price risk
The Group’s results of operations may be significantly affected by fluctuations inJet fuel prices which is a major expense component for the Group. Aircraft fuel accounted for approximately 25% of the Group’s operating expenses (2016: 21%).
As at 31 December 2017,and the Group had no open crude oil option contracts.
Group’s results are significantly affected by the volatility in the price of jet fuel. For the year ended December 31, December 2017,2020, if fuel price had been 5% higher/lowerlower/higher with all other variables held constant, the Group’s fuel cost would have been RMB1,257RMB692 million higher/lower (2016: RMB981million higher/lower)lower/higher (2019: RMB1,710 million lower/higher).
The Group’s policy is to reduce fuel price risk by hedging a percentage of its expected fuel consumption. Fuel forward contracts are used to achieve the Group’s desired hedging position. An increase of 5 percent in the jet fuel price at the reporting date would have resulted in a change in other comprehensive income by the amounts shown below. It represents the change in fair value of fuel forward contracts at the reporting date. The analysis assumes that all other variables remain constant.
| 2020 | 2019 | |||||||
| Effect on other comprehensive income | Effect on other comprehensive income | |||||||
| RMB million | RMB million | |||||||
Fuel forward contracts | 62 | — | ||||||
|
|
|
| |||||
Credit risk
The Group’s credit risk is primarily attributable to cash and cash equivalents, deposits and derivative financial instruments with banks and financial institutions, as well as credit exposures to sales agents.
A significant portion of the Group’s air tickets is sold by sales agents participating in the Billing and Settlements Plan (“BSP”), a clearing system between airlines and sales agents organized by the International Air Transportation Association. The balance due from BSP agents amounted to approximately RMB717RMB165 million as at December 31, December 2017 (2016:2020 (2019: approximately RMB922RMB835 million). The credit risk exposure to BSP agents and the remaining trade and notes receivables are maintained by the Group on anon-going basis and the allowance for impairment of doubtful debts is within management’s expectations.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 48 | FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) |
Credit risk (continued)
The Group’s cash management policy is to deposit cash and cash equivalents mainly in state-owned banks and other reputable banks and financefinancial institutions. The Group also deposits cash and cash equivalents in an associate financial institution owned by its holding company (note 47(c)(Note 45(c)(iii)). Management does not expect any loss to arise fromnon-performance by these banks and the financial institution.
Transactions in relation to derivative financial instruments are only carried out with reputable banks and financial institutions. The Group has policies that limit the amount of credit exposure to any bank and financial institution. Management does not expect any losses fromnon-performance by these banks and financial institutions.
Maximum exposure and year-end staging
The tables below show the credit quality and the maximum exposure to credit risk based on the Group’s credit policy, which is mainly based on past due information unless other information is available without undue cost or effort, and year-end staging classification as at December 31.
The amounts presented are gross carrying amounts for financial assets and the exposure to credit risk.
At December 31, 2020
| 12-month ECLs | Lifetime ECLs | |||||||||||||||||||
| Stage 1 | Stage 2 | Stage 3 | Simplified approach | Total | ||||||||||||||||
| RMB million | RMB million | RMB million | RMB million | RMB million | ||||||||||||||||
Trade receivable* | — | — | 47 | 1,077 | 1,124 | |||||||||||||||
Financial assets included in prepayments and other receivables | 2,067 | 274 | 111 | — | 2,452 | |||||||||||||||
Restricted bank deposits | 12 | — | — | — | 12 | |||||||||||||||
Cash and cash equivalents | 7,651 | — | — | — | 7,651 | |||||||||||||||
At December 31, 2019
| 12-month ECLs | Lifetime ECLs | |||||||||||||||||||
| Stage 1 | Stage 2 | Stage 3 | Simplified approach | Total | ||||||||||||||||
| RMB million | RMB million | RMB million | RMB million | RMB million | ||||||||||||||||
Trade receivable* | — | — | 185 | 1,532 | 1,717 | |||||||||||||||
Financial assets included in prepayments and other receivables | 3,349 | 435 | 122 | — | 3,906 | |||||||||||||||
Restricted bank deposits | 6 | — | — | — | 6 | |||||||||||||||
Cash and cash equivalents | 1,350 | — | — | — | 1,350 | |||||||||||||||
| * | For trade receivables to which the Group applies the simplified approach for impairment, information based on the provision matrix is disclosed in notes 27 to the financial statements, respectively. |
| ** | The credit quality of the financial assets included in prepayments and other receivables is considered to be “normal” when they are not past due and there is no information indicating that the financial assets had a significant increase in credit risk since initial recognition. Otherwise, the credit quality of the financial assets is considered to be “doubtful”. |
Further quantitative data in respect of the Group’s exposure to credit risk arising from trade receivables are disclosed in note 27 to the financial statements.
Since the Group trades only with recognized and creditworthy third parties, there is no requirement for collateral. Concentrations of credit risk are managed by customer/counterparty, by geographical region and by industry sector. There are no significant concentrations of credit risk within the Group as the customer bases of the Group’s trade receivables are widely dispersed in different sectors and industries.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(AmountsPrepared in millions except for per share data)accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
FINANCIAL |
POLICIES (continued)
Liquidity risk
The Group’s primary cash requirements have beenare forday-to-day operations, additions of and upgrades to aircraft, engines and flight equipment and repayments of related borrowings. The Group finances its working capital requirements through a combination of funds generated from operations and borrowings including bank loans, debentures and bonds (both short-term and long-term). The Group generally finances the acquisition of aircraft through long-term finance leases or bank loans.
The table below analyses the Group’s financial liabilities that will be settled into relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.
| Less than | Over | Less than | ||||||||||||||||||||||||||||||||||||||
| 1 year | 1 and 2 years | 2 and 5 years | 5 years | Total | 1 year | 1 to 2 years | 2 to 5 years | Over 5 years | Total | |||||||||||||||||||||||||||||||
| RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | |||||||||||||||||||||||||||||||
At 31 December 2017 | ||||||||||||||||||||||||||||||||||||||||
At December 31, 2020 | ||||||||||||||||||||||||||||||||||||||||
Borrowings | 41,060 | 7,325 | 10,161 | 10,014 | 68,560 | 58,989 | 6,946 | 19,126 | 7,779 | 92,840 | ||||||||||||||||||||||||||||||
Derivative financial instruments | 324 | — | 1 | — | 325 | 3 | 7 | 132 | — | 142 | ||||||||||||||||||||||||||||||
Obligations under finance leases | 11,651 | 10,408 | 27,895 | 30,196 | 80,150 | |||||||||||||||||||||||||||||||||||
Lease liabilities | 17,443 | 16,009 | 40,241 | 37,319 | 111,012 | |||||||||||||||||||||||||||||||||||
Trade, bills and other payables | 16,148 | — | — | — | 16,148 | 19,010 | — | — | — | 19,010 | ||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Total | 69,183 | 17,733 | 38,057 | 40,210 | 165,183 | |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
| 95,445 | 22,962 | 59,499 | 45,098 | 223,004 | ||||||||||||||||||||||||||||||||||||
| Less than | Over |
|
|
|
|
| ||||||||||||||||||||||||||||||||||
| 1 year | 1 and 2 years | 2 and 5 years | 5 years | Total | ||||||||||||||||||||||||||||||||||||
| RMB million | RMB million | RMB million | RMB million | RMB million | ||||||||||||||||||||||||||||||||||||
At 31 December 2016 | ||||||||||||||||||||||||||||||||||||||||
Borrowings | 30,262 | 5,670 | 14,961 | 10,813 | 61,706 | |||||||||||||||||||||||||||||||||||
Derivative financial instruments | 11 | 33 | 8 | 6 | 58 | |||||||||||||||||||||||||||||||||||
Obligations under finance leases | 8,123 | 7,526 | 21,905 | 33,277 | 70,831 | |||||||||||||||||||||||||||||||||||
Trade, bills and other payables | 16,318 | — | — | — | 16,318 | |||||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Total | 54,714 | 13,229 | 36,874 | 44,096 | 148,913 | |||||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
| Less than | ||||||||||||||||||||
| 1 year | 1 to 2 years | 2 to 5 years | Over 5 years | Total | ||||||||||||||||
| RMB million | RMB million | RMB million | RMB million | RMB million | ||||||||||||||||
At December 31, 2019 | ||||||||||||||||||||
Borrowings | 26,422 | 8,796 | 15,882 | 3,872 | 54,972 | |||||||||||||||
Derivative financial instruments | 14 | — | 8 | 2 | 24 | |||||||||||||||
Lease liabilities | 19,870 | 15,276 | 39,935 | 45,129 | 120,210 | |||||||||||||||
Trade, bills and other payables | 20,811 | — | — | — | 20,811 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
| 67,117 | 24,072 | 55,825 | 49,003 | 196,017 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Equity price risk
The Group is exposed to equity price risk arising from individual equity investments included in financial asset at fair value through profit or loss (Note 28) and equity investments designated at fair value through other comprehensive income (Note 22) as at December 31, 2020. The Group’s listed investments are listed on the Hong Kong and Shanghai stock exchanges and are valued at quoted market prices at the end of the reporting period.
The market equity indices for the following stock exchanges, at the close of business of the nearest trading day in the year to the end of the reporting period, and their respective highest and lowest points during the year were as follows:
| December 31, 2020 | High/Low 2020 | December 31, 2019 | High/Low 2019 | |||||||||||||
Hong Kong – Hang Seng Index | 27,231 | 29,056/21,696 | 28,190 | 30,157/25,064 | ||||||||||||
Shanghai – A Share Index | 3,640 | 3,640/2,788 | 3,196 | 3,426/2,580 | ||||||||||||
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
For the years ended December 31, 2020, 2019 and 2018
| 48 | FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) |
Equity price risk (continued)
The following table demonstrates the sensitivity to every 10% change in the fair values of the equity investments, with all other variables held constant, based on their carrying amounts at the end of the reporting period. For the purpose of this analysis, for the equity investments at fair value through other comprehensive income, the impact is deemed to be on the fair value reserve as at December 31, 2020.
| Carrying amount of equity investment | Increase/(decrease) in profit or loss | Increase/(decrease) in comprehensive income | ||||||||||
| RMB million | RMB million | RMB million | ||||||||||
2020 | ||||||||||||
Investments listed in: | ||||||||||||
Hong Kong – Equity investment designated at fair value through other comprehensive income | 457 | — | 34/ | (34) | ||||||||
Shanghai – Financial asset at fair value through profit or loss | 95 | 7/ | (7) | — | ||||||||
Unlisted investments at fair value: | ||||||||||||
– Equity investment designated at fair value through other comprehensive income | 538 | — | 40/ | (40) | ||||||||
2019 | ||||||||||||
Investments listed in: | ||||||||||||
Hong Kong – Equity investment designated at fair value through other comprehensive income | 496 | — | 37/ | (37) | ||||||||
Shanghai – Financial asset at fair value through profit or loss | 121 | 9/ | (9) | — | ||||||||
Unlisted investments at fair value: | ||||||||||||
– Equity investment designated at fair value through other comprehensive income | 778 | — | 58/ | (58) | ||||||||
Capital management
The primary objectives of the Group’s capital management are to safeguard the Group’s ability to continue as a going concern and to maintain healthy capital ratios in order to support its business and maximize shareholders’ value.
The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. The Group is not subject to any externally imposed capital requirements. No changes were made in the objectives, policies or processes for managing capital during the years ended December 31, 2020 and December 2017 and 31, December 2016.
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
2019.
The Group monitors capital on the basis of the debt ratio, which is calculated as total liabilities divided by total assets. The debt ratios as at 31 December 2017 and 2016the end of the reporting periods were as follows:
| 2017 | 2016 | |||||||
| RMB million | RMB million | |||||||
Total liabilities | 170,949 | 159,958 | ||||||
Total assets | 229,727 | 212,324 | ||||||
Debt ratio | 0.74 | 0.75 | ||||||
Total liabilities Total assets Debt ratio Financial instruments not measured at fair value December 31, December31, 2020 2019 RMB million RMB million 225,496 212,539 284,650 285,185 79 % 75 %
The carrying amounts and fair values of the Group’s financial instruments, other than those with carrying amounts that reasonably approximate to fair values, were as follows:
| 2017 | 2016 | |||||||||||||||
| Carrying | Carrying | |||||||||||||||
| amounts | Fair values | amounts | Fair values | |||||||||||||
| RMB million | RMB million | RMB million | RMB million | |||||||||||||
Financial assets | ||||||||||||||||
Deposits relating to aircraft held under operating leases included in othernon-current assets | 217 | 193 | 285 | 258 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Financial liabilities | ||||||||||||||||
Long-term borrowings | 24,711 | 23,812 | 27,890 | 28,075 | ||||||||||||
Obligations under finance leases | 57,627 | 57,352 | 54,594 | 50,408 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 82,338 | 81,164 | 82,484 | 78,483 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Management has assessed that the fair values of cash and cash equivalents, restricted bank deposits and short-term bank deposits, trade and notes receivables, trade and bills payables, financial assets included in prepayments and other receivables, financial liabilities included in other payables and accruals, short-term bank borrowings and short-term guaranteed bonds approximate to their carrying amounts largely due to the short term maturities of these instruments.
The fair values of the deposits relating to aircraft held under operating leases included in othernon-current assets, long-term borrowings and obligations under finance leases have been measured using significant observable inputs and calculated by discounting the expected future cash flows using rates currently available for instruments with similar terms, credit risk and remaining maturities.
Financial instruments measured at fair value
The Group enters into derivative financial instruments, including forward currency contracts and interest rate swaps with various counterparties, principally financial institutions with high credit ratings.
Derivative financial instruments are measured using valuation techniques similar to forward pricing and swap models, using present value calculations. The models incorporate various market observable inputs including the foreign exchange spot and forward rates and interest rate curves. As at 31 December 2017, the marked to market value of the derivative asset position is net of a credit valuation adjustment attributable to derivative counterparty default risk. The changes in counterparty credit risk had no material effect on the hedge effectiveness assessment for derivatives designated in hedge relationship and other financial instruments recognized at fair value.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(AmountsPrepared in millions except for per share data)
Fair value hierarchy
The following tables illustrate the fair value measurement hierarchy of the Group’s financial instruments:
Assets and liabilities measured at fair value:
| As at 31 December 2017 | ||||||||||||||||
| Fair value measurement using | ||||||||||||||||
| Quoted prices in active markets (Level 1) RMB million | Significant observable inputs (Level 2) RMB million | Significant unobservable inputs (Level 3) RMB million | Total RMB million | |||||||||||||
Assets | ||||||||||||||||
Derivative financial instruments | ||||||||||||||||
-Interest rate swaps (note 39(a)) | — | 151 | — | 151 | ||||||||||||
Available-for-sale financial Assets (note 24) | 693 | — | — | 693 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 693 | 151 | — | 844 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Liabilities | ||||||||||||||||
Derivative financial instruments | ||||||||||||||||
-Forward foreign exchange contracts (note 39(b)) | — | 311 | — | 311 | ||||||||||||
-Interest rate swaps (note 39(a)) | — | 14 | — | 14 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | — | 325 | — | 325 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
| As at 31 December 2016 | ||||||||||||||||
| Fair value measurement using | ||||||||||||||||
| Quoted prices in active markets (Level 1) | Significant observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Total | |||||||||||||
| RMB million | RMB million | RMB million | RMB million | |||||||||||||
Assets | ||||||||||||||||
Derivative financial instruments | ||||||||||||||||
-Forward foreign exchange contracts (note 39(b)) | — | 11 | — | 11 | ||||||||||||
-Interest rate swaps (note 39(a)) | — | 137 | — | 137 | ||||||||||||
Available-for-sale financial Assets (note 24) | 538 | — | — | 538 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 538 | 148 | — | 686 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Liabilities | ||||||||||||||||
Derivative financial instruments | ||||||||||||||||
-Forward foreign exchange contracts (note 39(b)) | — | 11 | — | 11 | ||||||||||||
-Interest rate swaps (note 39(a)) | — | 47 | — | 47 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | — | 58 | — | 58 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
The fair value of financial instruments traded in active markets was based on quoted market prices at the reporting dates.Available-for-sale investments are listed A share and listed H share stock investments.
The fair values of derivative financial instruments are determined by using valuation techniques. These valuation techniques use applicable models and maximize the use of observable market data where it is available and also use quoted market prices or dealer quotes for reference.
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
Fair value hierarchy (cont’d)
Assets and liabilities for which fair values are disclosed:
| As at 31 December 2017 | ||||||||||||||||
| Fair value measurement using | ||||||||||||||||
| Quoted prices in active markets (Level 1) | Significant inputs (Level 2) | Significant (Level 3) | Total | |||||||||||||
| RMB million | RMB million | RMB million | RMB million | |||||||||||||
Assets | ||||||||||||||||
Deposits relating to aircraft held under operating leases included in other long-term assets | — | 193 | — | 193 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Liabilities | ||||||||||||||||
Long-term borrowings | 2,678 | 21,134 | — | 23,812 | ||||||||||||
Obligations under finance leases | — | 57,352 | — | 57,352 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 2,678 | 78,486 | — | 81,164 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
| As at 31 December 2016 | ||||||||||||||||
| Fair value measurement using | ||||||||||||||||
| Quoted prices in active markets (Level 1) | Significant observable inputs (Level 2) | Significant (Level 3) | Total | |||||||||||||
| RMB million | RMB million | RMB million | RMB million | |||||||||||||
Assets | ||||||||||||||||
Deposits relating to aircraft held under operating leases included in other long-term assets | — | 258 | — | 258 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Liabilities | ||||||||||||||||
Long-term borrowings | — | 28,075 | — | 28,075 | ||||||||||||
Obligations under finance leases | — | 50,408 | — | 50,408 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | — | 78,483 | — | 78,483 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
| 2017 | 2016 | |||||||||
| RMB million | RMB million | |||||||||
Registered, issued and fully paid of RMB1.00 each | ||||||||||
A shares listed on The Shanghai Stock Exchange (“A Shares”) | ||||||||||
| - | Tradable shares held by Shanghai Licheng Information | |||||||||
| - | Technology Consulting Co., Ltd. with trading moratorium | — | 466 | |||||||
| - | Tradable shares held by China National Aviation Fuel | |||||||||
| - | Holding Company with trading moratorium | — | 466 | |||||||
| - | Tradable shares held by China COSCO Shipping | |||||||||
| - | Corporation Limited with trading moratorium | — | 233 | |||||||
| - | Tradable shares held by Caitong Fund Management | |||||||||
| - | Co., Ltd. with trading moratorium | — | 162 | |||||||
| - | Tradable shares without trading moratorium | 9,808 | 8,481 | |||||||
|
|
|
| |||||||
H shares listed on The Stock Exchange of Hong Kong Limited (“H Shares”) | 4,659 | 4,659 | ||||||||
|
|
|
| |||||||
| - | 14,467 | 14,467 | ||||||||
|
|
|
| |||||||
Pursuant to articles 49 and 50 of the Company’s articles of association, both the listed A shares and listed H shares are registered ordinary shares and carry equal rights.
A summary of movements in the Company’s share capital is as follows:
| ||||
| ||||
| ||||
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
| Share premium | Capital reserve (note (a)) | Hedging reserve | Statutory reserve (note (b)) | Other reserves | Retained profits | Total | ||||||||||||||||||||||
| RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | ||||||||||||||||||||||
At 1 January 2016 | 22,327 | (778 | ) | (51 | ) | 184 | (2,579 | ) | 5,168 | 24,271 | ||||||||||||||||||
Unrealized gains on cash flow hedges (note 39) | — | — | 107 | — | — | — | 107 | |||||||||||||||||||||
Fair value movements inavailable-for-sale investments | — | — | — | — | 36 | — | 36 | |||||||||||||||||||||
Fair value changes ofavailable-for-sale investments held by an associate | — | — | — | — | (1 | ) | — | (1 | ) | |||||||||||||||||||
Actuarial gains on post-retirement benefit obligations | — | — | — | — | (403 | ) | — | (403 | ) | |||||||||||||||||||
Transfer from retained profits | — | — | — | 144 | — | (144 | ) | — | ||||||||||||||||||||
Issue of shares | 7,213 | — | — | — | — | — | 7,213 | |||||||||||||||||||||
Profit for the year | — | — | — | — | — | 4,498 | 4,498 | |||||||||||||||||||||
Interim 2016 dividend (note 48) | — | — | — | — | — | (738 | ) | (738 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
At 31 December 2016 | 29,540 | (778 | ) | 56 | 328 | (2,947 | ) | 8,784 | 34,983 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
At 1 January 2017 | 29,540 | (778 | ) | 56 | 328 | (2,947 | ) | 8,784 | 34,983 | |||||||||||||||||||
Unrealized gains on cash flow hedges (note 39) | — | — | 35 | — | — | — | 35 | |||||||||||||||||||||
Fair value movements inavailable-for-sale investments | — | — | — | — | 110 | — | 110 | |||||||||||||||||||||
Fair value changes ofavailable-for-sale investments held by an associate | — | — | — | — | 10 | — | 10 | |||||||||||||||||||||
Actuarial gains on post-retirement benefit obligations | — | — | — | — | 122 | — | 122 | |||||||||||||||||||||
Transfer from retained profits | — | — | — | 212 | — | (212 | ) | — | ||||||||||||||||||||
Issue of shares | — | — | — | — | — | — | — | |||||||||||||||||||||
Profit for the year | — | — | — | — | — | 6,342 | 6,342 | |||||||||||||||||||||
Final 2016 dividend | — | — | — | — | — | (709 | ) | (709 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
At 31 December 2017 | 29,540 | (778 | ) | 91 | 540 | (2,705 | ) | 14,205 | 40,893 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Notes:
Capital reserve represents the difference between the fair value of the net assets injected and the nominal amount of the Company’s share capital issued in respect of a group restructuring carried out in June 1996 for the purpose of the Company’s listing.
According to the PRC Company Law, the Company is required to transfer a portion of the profits to the statutory reserve. The transfer to this reserve must be made before distribution of dividends to shareholders and when there are retained profits at the end of the financial year.
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
On 29 November 2016, the Company entered into Share Purchase Agreement with Eastern Airlines Industry Investment Company Limited, a wholly-owned subsidiary of CEA Holding, to transfer 100% equity interest in Eastern Logistics, a wholly-owned subsidiary of the Company (“the Transfer”). At of 8 February 2017, the Transfer has been completed.
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
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| ||||
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| ||||
| ||||
| ||||
| ||||
| ||||
An analysis of the net inflow of cash and cash equivalents in respect of the disposal of a subsidiary is as follows:
| ||||
| ||||
| ||||
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
Details of the Group’s subsidiaries that have materialnon-controlling interests are set out below:
| 2017 | 2016 | |||||||
Percentage of equity interest held bynon-controlling interests: | ||||||||
CEA Jiangsu | 37.44 | % | 37.44 | % | ||||
CEA Yunnan | 9.64 | % | 9.64 | % | ||||
CEA Wuhan | 40.00 | % | 40.00 | % | ||||
China Cargo | — | 17.00 | % | |||||
|
|
|
| |||||
| 2017 | 2016 | |||||||
| RMB million | RMB million | |||||||
Profit for the year allocated tonon-controlling interests: | ||||||||
CEA Jiangsu | 216 | 191 | ||||||
CEA Yunnan | 67 | 75 | ||||||
CEA Wuhan | 178 | 173 | ||||||
China Cargo | 3 | 29 | ||||||
|
|
|
| |||||
Dividends paid tonon-controlling interests of CEA Jiangsu | 37 | 56 | ||||||
Dividends paid tonon-controlling interests of CEA Wuhan | 22 | — | ||||||
|
|
|
| |||||
Accumulated balances ofnon-controlling interests at the reporting dates: | ||||||||
CEA Jiangsu | 1,416 | 1,236 | ||||||
CEA Yunnan | 641 | 574 | ||||||
CEA Wuhan | 1,393 | 1,249 | ||||||
China Cargo | — | (105 | ) | |||||
|
|
|
| |||||
The following tables illustrate the summarized financial information of the above subsidiaries. The amounts disclosed are before any inter-company eliminations:
| CEA Jiangsu | CEA Yunnan | CEA Wuhan | China Cargo | |||||||||||||
| RMB million | RMB million | RMB million | RMB million | |||||||||||||
2017 | ||||||||||||||||
Revenue | 8,257 | 8,939 | 4,289 | 507 | ||||||||||||
Total expenses | 7,680 | 8,244 | 3,843 | 462 | ||||||||||||
Profit for the year | 577 | 695 | 446 | 45 | ||||||||||||
Total comprehensive income for the year | 580 | 695 | 461 | 45 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Current assets | 1,124 | 1,230 | 79 | — | ||||||||||||
Non-current assets | 9,313 | 16,171 | 7,047 | — | ||||||||||||
Current liabilities | 2,260 | 4,471 | 1,576 | — | ||||||||||||
Non-current liabilities | 4,395 | 6,282 | 2,067 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net cash flows from operating activities | 1,491 | 1,230 | 846 | — | ||||||||||||
Net cash flows used in investing activities | (588 | ) | (274 | ) | (156 | ) | — | |||||||||
Net cash flows used in financing activities | (894 | ) | (948 | ) | (682 | ) | — | |||||||||
Effect of foreign exchange rate changes, net | — | — | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net increase in cash and cash equivalents | 9 | 8 | 8 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
| CEA Jiangsu | CEA Yunnan | CEA Wuhan | China Cargo | |||||||||||||
| RMB million | RMB million | RMB million | RMB million | |||||||||||||
2016 | ||||||||||||||||
Revenue | 7,298 | 9,054 | 3,706 | 3,770 | ||||||||||||
Total expenses | 6,787 | 8,280 | 3,273 | 3,598 | ||||||||||||
Profit for the year | 511 | 774 | 433 | 172 | ||||||||||||
Total comprehensive income for the year | 503 | 774 | 438 | 157 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Current assets | 1,260 | 990 | 79 | 1,595 | ||||||||||||
Non-current assets | 8,163 | 16,153 | 6,108 | 1,525 | ||||||||||||
Current liabilities | 1,971 | 3,056 | 1,216 | 2,834 | ||||||||||||
Non-current liabilities | 4,149 | 8,134 | 1,849 | 889 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net cash flows from/( used in ) operating activities | 1,937 | 3,178 | (196 | ) | 279 | |||||||||||
Net cash flows (used in)/from investing activities | (675 | ) | (1,098 | ) | 428 | 11 | ||||||||||
Net cash flows used in financing activities | (1,301 | ) | (2,096 | ) | (241 | ) | (11 | ) | ||||||||
Effect of foreign exchange rate changes, net | — | — | — | (1 | ) | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Net (decrease)/increase in cash and cash equivalents | (39 | ) | (16 | ) | (9 | ) | 278 | |||||||||
|
|
|
|
|
|
|
| |||||||||
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
| 2017 | 2016 | 2015 | ||||||||||
| RMB million | RMB million | RMB million | ||||||||||
Profit before income tax | 8,610 | 6,497 | 5,667 | |||||||||
Adjustments for: | ||||||||||||
Depreciation of property, plant and equipment and amortization of othernon-current assets | 13,769 | 12,345 | 10,710 | |||||||||
Amortization of intangible assets | 143 | 129 | 85 | |||||||||
Depreciation of investment properties | 12 | 11 | 4 | |||||||||
Amortization of prepayments for land use right | 45 | 63 | 60 | |||||||||
Gains on disposal of property, plant and equipment | (13 | ) | (74 | ) | (377 | ) | ||||||
Gain on disposal of prepayments for land use right | (5 | ) | (3 | ) | (1 | ) | ||||||
Gain on disposal of investment in a subsidiary | (1,754 | ) | — | (41 | ) | |||||||
Gain on disposal of investment in an associate | (12 | ) | (12 | ) | — | |||||||
Gain on disposal ofavailable-for-sale investments | (4 | ) | (95 | ) | (33 | ) | ||||||
Dividend income fromavailable-for-sale investments | (33 | ) | (28 | ) | (13 | ) | ||||||
Share of results of associates | (202 | ) | (148 | ) | (126 | ) | ||||||
Share of results of joint ventures | (49 | ) | (39 | ) | (26 | ) | ||||||
Net foreign exchange losses | (2,378 | ) | 3,246 | 5,480 | ||||||||
Gain on fair value changes of derivative financial instruments | 311 | (2 | ) | (6 | ) | |||||||
Impairment charges | 491 | 29 | 228 | |||||||||
Interest income | (111 | ) | (96 | ) | (66 | ) | ||||||
Interest expense | 3,184 | 2,641 | 2,075 | |||||||||
|
|
|
|
|
| |||||||
Operating profit before working capital changes | 22,004 | 24,464 | 23,620 | |||||||||
|
|
|
|
|
| |||||||
Changes in working capital | ||||||||||||
Flight equipment spare parts | (109 | ) | (202 | ) | 117 | |||||||
Trade and notes receivables | (500 | ) | 208 | 985 | ||||||||
Prepayments and other receivables | (753 | ) | (839 | ) | (2,011 | ) | ||||||
Restricted bank deposits and short-term bank deposits | (8 | ) | (8 | ) | — | |||||||
Sales in advance of carriage | (569 | ) | 1,836 | 777 | ||||||||
Trade and bills payables | 1,725 | (336 | ) | 1,629 | ||||||||
Other payables and accruals | 340 | 1,424 | (234 | ) | ||||||||
Staff housing allowances | 62 | (57 | ) | 105 | ||||||||
Other long-term liabilities | (728 | ) | (883 | ) | 1,164 | |||||||
Post-retirement benefit obligations | (217 | ) | 321 | (282 | ) | |||||||
Provision for return condition checks for aircraft under operating leases | (139 | ) | 167 | (381 | ) | |||||||
Operating lease deposits | — | 59 | 46 | |||||||||
|
|
|
|
|
| |||||||
Cash generated from operations | 21,108 | 26,154 | 25,535 | |||||||||
|
|
|
|
|
| |||||||
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
| 2017 | 2016 | 2015 | ||||||||||
| RMB million | RMB million | RMB million | ||||||||||
Finance lease obligations incurred for acquisition of aircraft | 6,865 | 8,838 | 21,887 | |||||||||
|
|
|
|
|
| |||||||
| Bank and other loans | Obligations under finance leases | |||||||
| RMB million | RMB million | |||||||
At 1 January 2017 | 56,732 | 61,041 | ||||||
Changes from financing cash flow | 7,450 | (10,587 | ) | |||||
Reclassified as part of the disposal group | (262 | ) | (409 | ) | ||||
Foreign exchange movement | (119 | ) | (2,362 | ) | ||||
New finance leases | — | 19,185 | ||||||
|
|
|
| |||||
At 31 December 2017 | 63,801 | 66,868 | ||||||
|
|
|
| |||||
The Group had the following capital commitments:
| 2017 | 2016 | |||||||
| RMB million | RMB million | |||||||
Contracted for: | ||||||||
– Aircraft, engines and flight equipment (note) | 87,030 | 123,019 | ||||||
– Other property, plant and equipment | 7,572 | 9,550 | ||||||
– Investments | 208 | 140 | ||||||
|
|
|
| |||||
| 94,810 | 132,709 | |||||||
|
|
|
| |||||
Note:
Contracted expenditures for the above aircraft, engines and flight equipment, including deposits prior to delivery, subject to future inflation increase built into the contracts, were expected to be paid as follows:
| 2017 | 2016 | |||||||
| RMB million | RMB million | |||||||
Within one year | 28,322 | 28,384 | ||||||
In the second year | 27,516 | 32,306 | ||||||
In the third year | 19,273 | 28,983 | ||||||
In the fourth year | 7,829 | 18,334 | ||||||
Over four years | 4,090 | 15,012 | ||||||
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| 87,030 | 123,019 | |||||||
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The above capital commitments represent the future outflow of cash or other resources.
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
As at the reporting date, the Group had commitments to pay future minimum lease rentals under operating leases as follows:
| 2017 | 2016 | |||||||
| RMB million | RMB million | |||||||
Aircraft, engines and flight equipment | ||||||||
Within one year | 3,048 | 3,814 | ||||||
In the second year | 2,559 | 3,124 | ||||||
In the third to fifth years, inclusive | 7,112 | 7,616 | ||||||
After the fifth year | 7,528 | 7,605 | ||||||
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| 20,247 | 22,159 | |||||||
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Land and buildings | ||||||||
Within one year | 332 | 362 | ||||||
In the second year | 164 | 225 | ||||||
In the third to fifth years, inclusive | 156 | 411 | ||||||
After the fifth year | 37 | 732 | ||||||
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| 689 | 1,730 | |||||||
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| 20,936 | 23,889 | |||||||
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The Group is controlled by CEA Holding, which directly owns 35.06% of the Company’s shares as at 31 December 2017 (2016: 35.06%). In addition, through CES Global Holdings (Hong Kong) Limited and CES Finance Holding Co., Ltd., two wholly-owned subsidiaries of CEA Holding, CEA Holding indirectly owns additional shares of the Company of approximately 18.15% and 3.16% respectively as at 31 December 2017 (2016: 18.15% and 3.16% ).
The Company is a state-owned enterprise established in the PRC and is controlled by the PRC government, which also owns a significant portion of the productive assets in the PRC. In accordance with IAS 24 “Related Party Disclosures”, government-related entities and their subsidiaries, directly or indirectly controlled, jointly controlled or significantly influenced by the PRC government are defined as related parties of the Group. On that basis, related parties include CEA Holding and its subsidiaries (other than the Group), other government-related entities and their subsidiaries (“Other State-owned Enterprises”), other entities and corporations over which the Company is able to control or exercise significant influence and key management personnel of the Company as well as their close family members.International Financial Reporting Standards)
For the purpose of the related party transaction disclosures, the directors of the Company believe that meaningful information in respect of related party transactions has been adequately disclosed.
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
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Note:
Eastern Logistics has become a related party of the Group as it was acquired by Eastern Airlines Industry Investment at of 8 February 2017 and ceased to be a subsidiary of the Company.
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
| Income or receipts/ | ||||||||||||||||||
| (expense or payments) | ||||||||||||||||||
| Pricing policy | 2017 | 2016 | ||||||||||||||||
| Nature of transaction decision | Related party | and process | RMB million | RMB million | ||||||||||||||
Interest income on deposits | Eastern Air Finance Company | (iv) | 29 | 23 | ||||||||||||||
Interest expense on loans | Eastern Air Finance Company | (iv) | (2 | ) | (10 | ) | ||||||||||||
| CEA Holding | (iv) | (1 | ) | (1 | ) | |||||||||||||
Handling charges for purchase of aircraft, flight, equipment, flight equipment spare parts, other property, plant and flight equipment and repairs for aircraft and engines* | Eastern Import & Export | (ii) | (145 | ) | (105 | ) | ||||||||||||
Repairs and maintenance expense for aircraft and engines | Wheels & Brakes | (ii) | (152 | ) | (176 | ) | ||||||||||||
| Technologies Aerospace | (ii) | (276 | ) | (252 | ) | |||||||||||||
| Shanghai P&W | (ii) | (2,538 | ) | (2,049 | ) | |||||||||||||
| Shanghai Hute | (ii) | (60 | ) | (84 | ) | |||||||||||||
Supply of cabin cleaning services | Eastern Advertising | (ii) | (22 | ) | (21 | ) | ||||||||||||
Advertising expense* | Eastern Advertising | (ii) | (23 | ) | (36 | ) | ||||||||||||
Media royalty fee | Eastern Advertising | (iii) | 15 | 17 | ||||||||||||||
Supply of logistics services | Eastern Import & Export | (ii) | (87 | ) | (72 | ) | ||||||||||||
Supply of system services | China Kaiya | (ii) | (44 | ) | (79 | ) | ||||||||||||
Supply of food and beverages* | Eastern Air Catering | (i) | (1,254 | ) | (1,054 | ) | ||||||||||||
| CEA Development | (i) | (72 | ) | (51 | ) | |||||||||||||
| Eastern Import & Export | (i) | (58 | ) | (50 | ) | |||||||||||||
Cargo handling income | Eastern Import & Export | (iii) | — | 15 | ||||||||||||||
Automobile maintenance service, aircraft maintenance, providing transportation automobile and other products* | CEA Development | (ii) | (68 | ) | (86 | ) | ||||||||||||
Equipment maintenance fee | Collins Aviation | (ii) | (62 | ) | (30 | ) | ||||||||||||
| CEA Development | (ii) | (53 | ) | (11 | ) | |||||||||||||
Property management and green maintenance expenses* | CEA Development | (ii) | (75 | ) | (59 | ) | ||||||||||||
Supply of hotel accommodation service | CEA Development | (ii) | (104 | ) | (91 | ) | ||||||||||||
Land and building rental* | CEA Holding | (ii) | (54 | ) | (54 | ) | ||||||||||||
Cargo terminal business support services* | Eastern Logistics | (ii)&(vi) | (281 | ) | — | |||||||||||||
Bellyhold space management* | Eastern Logistics | (ii)&(vi) | (117 | ) | — | |||||||||||||
Transfer of the pilots | Eastern Logistics | (ii)&(vi) | (7 | ) | — | |||||||||||||
Freight logistics support services* | Eastern Logistics | (ii)&(vi) | 100 | — | ||||||||||||||
Bellyhold container management | Eastern Logistics | (ii)&(vi) | (9 | ) | — | |||||||||||||
Payments on finance leases* | CES Lease Company | (ii) | (1,997 | ) | (2,721 | ) | ||||||||||||
Payments on operating leases* | CES Lease Company | (ii) | (25 | ) | — | |||||||||||||
Disposal of a subsidiary | Eastern Airlines Industry Investment | (v) | 1,754 | — | ||||||||||||||
Civil aviation information network services** | TravelSky | (ii) | (551 | ) | (590 | ) | ||||||||||||
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
| Income or receipts/ | ||||||||||||||||||
| (expense or payments) | ||||||||||||||||||
| Pricing policy | 2017 | 2016 | ||||||||||||||||
| Nature of transaction decision | Related party | and process | RMB million | RMB million | ||||||||||||||
Flight training fee | CAE Melbourne | (ii) | (138 | ) | (68 | ) | ||||||||||||
Flight equipment spare parts maintenance** | CASC | (ii) | (98 | ) | — | |||||||||||||
Payments on aviation transportation cooperation and support services** | AFK | (ii) | (399 | ) | — | |||||||||||||
Aviation transportation cooperation and support services** | AFK | (ii) | 622 | — | ||||||||||||||
During the years ended December 31, 20172020, 2019 and 2016, the Group’s significant transactions with entities that are controlled, jointly controlled or significantly influenced by the PRC government mainly include most of its bank deposits/borrowings and the corresponding interest income/expense and part of sales and purchases of goods and services. The price and other terms of such transactions are set out in the agreements governing these transactions or as mutually agreed.
| 2017 | 2016 | |||||||
| RMB million | RMB million | |||||||
Trade receivables | ||||||||
Eastern Logistics | 194 | — | ||||||
Eastern Air Catering | 1 | — | ||||||
|
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| |||||
| 195 | — | |||||||
|
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| 2017 | 2016 | |||||||
| RMB million | RMB million | |||||||
Prepayments and other receivables | ||||||||
Eastern Import & Export | 379 | 536 | ||||||
Technologies Aerospace | 10 | 16 | ||||||
Eastern Air Catering | 135 | 57 | ||||||
Eastern Advertising | 29 | — | ||||||
CEA development | 2 | 2 | ||||||
CEA Holding | 9 | — | ||||||
TravelSky | 5 | — | ||||||
Others | — | 5 | ||||||
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| |||||
| 569 | 616 | |||||||
|
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All the amounts due from related parties are trade in nature, interest-free and payable within normal credit terms.
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
| 2017 | 2016 | |||||||
| RMB million | RMB million | |||||||
Trade and bills payables | ||||||||
Eastern Import & Export | 51 | 85 | ||||||
Eastern Air Catering | 31 | 37 | ||||||
Technologies Aerospace | 105 | 45 | ||||||
CEA development | 25 | 19 | ||||||
Collins Aviation | 1 | 2 | ||||||
CEA Holding | 4 | 3 | ||||||
CASC | 9 | 18 | ||||||
Shanghai Hute | 14 | 19 | ||||||
Others | 1 | 4 | ||||||
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| 241 | 232 | |||||||
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Other payables and accruals | ||||||||
Eastern Import & Export | 2 | 240 | ||||||
Shanghai P&W | 578 | 324 | ||||||
Eastern Air Catering | 10 | 166 | ||||||
CEA Holding | 302 | 303 | ||||||
Shanghai Hute | 11 | 20 | ||||||
Technologies Aerospace | 1 | 29 | ||||||
Wheels & Brakes | 16 | 26 | ||||||
CEA Development | 50 | 72 | ||||||
TravelSky | 551 | 963 | ||||||
Eastern Advertising | 2 | 18 | ||||||
CAE Melbourne | 316 | 368 | ||||||
Eastern Investment | 269 | — | ||||||
Others | 3 | 5 | ||||||
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| 2,111 | 2,534 | |||||||
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| 2017 | 2016 | |||||||
| RMB million | RMB million | |||||||
Obligations under finance leases | ||||||||
CES Lease Company | 11,934 | 5,521 | ||||||
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Except for the amounts due to CES Lease Company, which are related to the aircraft under finance leases, all other amounts due to related parties are interest-free and payable within normal credit terms given by trade creditors.
| Average interest rate | ||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| RMB million | RMB million | |||||||||||||||
Short-term deposits (included in cash and cash equivalents) | ||||||||||||||||
Eastern Air Finance Company | 0.35 | % | 0.35 | % | 4,053 | 1,296 | ||||||||||
Long-term borrowings (included in borrowings) | ||||||||||||||||
CEA Holding | 3.48 | % | 3.48 | % | 28 | 28 | ||||||||||
NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions except for per share data)
As at December 31, 2017, bonds of the Group guaranteed by CEA Holding amounted to RMB7.8 billion (2016: RMB7.8 billion) (note 34(b)).
The compensation paid or payable to key management for employee services mainly comprising of salaries and other short-term employee benefits was analyzed as follows:
| 2017 | 2016 | |||||||
| RMB million | RMB million | |||||||
Directors and supervisors | 3 | 2 | ||||||
Senior management | 6 | 4 | ||||||
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| 9 | 6 | |||||||
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| 2017 | 2016 | 2015 | ||||||||||
| RMB million | RMB million | RMB million | ||||||||||
Interim –Nil (2016: RMB5.1 cents) per ordinary share | — | 738 | — | |||||||||
Proposed final –RMB5.1 cents (2016: RMB4.9 cents) per ordinary share | 740 | 709 | — | |||||||||
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| 740 | 1,447 | — | ||||||||||
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The proposed final dividend for the year is subject to the approval of the Company’s shareholders at the forthcoming annual general meeting.2018
| 49 | EVENTS AFTER THE REPORTING PERIOD |
On 29 March 2018, the Board considered and approved the 2017 annual profit distribution proposal. It was recommended by the Board that the 2017 annual distribution be approximately RMB740.3 million in cash. Based on the total share capital of 14,467,585,682 shares of the Company, the cash distribution per share would be RMB0.051 (before tax) in cash which will be distributed to holders of A shares of the Company in RMB and to holders of H shares of the Company in HKD.
On 2 February 2018, the application for the listing of bonds denominated in Japanese Yen of the Company was approved by Tokyo Stock Exchange. On 19 March 2018,12, 2021, the Company issued threetwo series of JPY-denominated credit enhancedcorporate bonds with a total principal of JPY50.0RMB9 billion and maturities through 2021.on the Shanghai Stock Exchange. The first series of JPY-denominated credit enhancedcorporate bonds with a total principal amount of RMB3 billion bears interest at the rate of 0.33%3.95% per annum and the other twoprincipal of the bonds will mature and become repayable on March 12, 2031. Another series bearof corporate bonds with a total principal amount of RMB6 billion bears interest at the rate of 0.64%3.68% per annum.annum and the principal of the bonds will mature and become repayable on March 12, 2027.
On March 29, 2021, the Group’s extraordinary general meeting approved the Proposal for the Non-public Issuance of A shares by China Eastern Airlines Corporation Limited, pursuant to which the Company will issue 2,494,930,875 A Shares to CEA Holding. It is expected that the proceeds to be raised will be not more than RMB10,828 million.
F-86F-88